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Five Year Forecast FY 2014 THROUGH FY 2018
Five Year Forecast FY 2014 THROUGH FY 2018
Purpose TO FORECAST THE OUTCOMES OF EXISTING LAWS, POLICIES, GUIDANCE,
AND TRENDS
TO EXPLORE WHAT THOSE OUTCOMES WILL LIKELY MEAN TO CITY/SCHOOL FINANCES
TO PROVIDE INFORMATION TO THE CITY COUNCIL AND SCHOOL BOARD TO GUIDE POLICY DECISIONS
2
Economy
3
Risks in the Next Five Years • Fiscal Cliff
– Federal Deficit – Sequestration – Tax Hikes
• States ability to support transportation and education funding requirements
• European Debt Crisis – Global Economy & Banking
4
Real Gross Domestic Product
5
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
Year-Quarter Source: US Bureau of Economic Analysis
Consumer Confidence
6
136.2
144.7
61.4
105.7
85.2
111.9
25.3
90
50
0
20
40
60
80
100
120
140
160
Jul-
99O
ct-9
9Ja
n-00
Apr
-00
Jul-
00O
ct-0
0Ja
n-01
Apr
-01
Jul-
01O
ct-0
1Ja
n-02
Apr
-02
Jul-
02O
ct-0
2Ja
n-03
Apr
-03
Jul-
03O
ct-0
3Ja
n-04
Apr
-04
Jul-
04O
ct-0
4Ja
n-05
Apr
-05
Jul-
05O
ct-0
5Ja
n-06
Apr
-06
Jul-
06O
ct-0
6Ja
n-07
Apr
-07
Jul-
07O
ct-0
7Ja
n-08
Apr
-08
Jul-
08O
ct-0
8Ja
n-09
Apr
-09
Jul-
09O
ct-0
9Ja
n-10
Apr
-10
Jul-
10O
ct-1
0Ja
n-11
Apr
-11
Jul-
11O
ct-1
1Ja
n-12
Apr
-12
Jul-
12O
ct-1
2
> 90 indicates stable economy < 50 indicates contracting economy
Source: The Conference Board
Consumer Price Index
7
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
All Items Core CPI
Projected
Source: Bureau of Economic Analysis and the Congressional Budget Office Note: Core inflation does not include energy or food
Comparison of Unemployment
8
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Calendar Year
Virginia Beach Virginia Beach Metropolitan Statistical Area Virginia United States
Source: US Bureau of Labor Statistics and the Congressional Budget Office
Labor Force in the Military
9
5.0% 5.9%
2.8%
11.0%
2.7% 2.9% 4.1% 4.4%
0.0%
4.0%
8.0%
12.0%
Source: US Census Bureau, American Community Survey
Median Household Income
10
$58,545 $61,333 $61,462
$65,776 $59,298
$64,212 $64,614
$0
$20,000
$40,000
$60,000
$80,000
2005 2006 2007 2008 2009 2010 2011Calendar Year
United States State of Virginia Virginia Beach - MSA Virginia Beach
Source: US Census Bureau, American Community Survey
Residential Building Permits
11
0
500
1,000
1,500
2,000
2,500
3,000
Perm
its
Issu
ed
Calendar Year
Through September
Source: Virginia Beach Planning Department
Revenues
12
Conditions for Next Five Years Favorable • Consumer confidence
• State budget ended with a surplus last two years
• Housing market trends
• Tourism continues to strengthen
• Local employment is improving
• Economy-based local taxes are improving
• Dedicated Real Estate taxes for education and road construction
Unfavorable • Defense spending
• Federal cuts to social programs
• Potential for Federal tax increases
• Potential for relocation of Naval units/ships
• Continued reduction in State support to education and localities
13
Change in Assessed Values
14
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Fiscal Year Source: Real Estate Assessor’s Office
Estimated Months of Supply of Short Sales & REOs Existing Homes Based on Average Sales in the Last 12 Months in Hampton Roads: 2007-2012*
15
0
10
20
30
40
50
60
70
2007 2008 2009 2010 2011 2012
Months of Supply-Short Sales
Months of Supply-REOs
Source: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information deemed reliable but not guaranteed. *Data are through September 2012
Average Price of Existing Short Sale, REOs, and Non-Distressed Residential Homes Sold
Hampton Roads: 2006-2012*
16
Source: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information Deemed Reliable But not Guaranteed. REOs represent Bank Owned Homes. * Information provided here is for YTD September 2012.
Year
Non-Distressed
Sales Short Sales REO Sales
Short Sale price as a Percent of
Price of Non-
Distressed Sales
REO Price as a
Percent of Price of
Non-Distressed
Sales
2006 $250,254 $241,666 $120,817 96.6 48.3 2007 $261,723 $237,897 $163,421 90.9 62.4 2008 $255,852 $239,110 $184,462 93.5 72.1 2009 $243,902 $239,913 $164,229 98.4 67.3 2010 $251,572 $231,211 $151,612 91.9 60.3 2011 $236,358 $212,967 $135,304 90.1 57.3 2012* $238,886 $188,852 $135,693 79.1 56.8
Real Estate Revenue
17
$380.0
$400.0
$420.0
$440.0
$460.0
$480.0
$500.0
$520.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Mil
lion
s
Fiscal Year
Real Estate - General Fund Delinquencies & InterestTIF's & SSD's Public Service
Source: Department of Management Services and the City Real Estate Assessor’s Office
Personal Property Revenue
18
$0.0
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
$160.0
$180.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Mil
lion
s
Delinquent and Interest on Delinquent PP/Other Machinery & Tools
Business Equipment Public Service Personal Property
Personal Property Vehicles Personal Property Paid By the Commonwealth
Source: Commissioner of the Revenue and Department of Management Services
General Sales
19
$0.0
$20.0
$40.0
$60.0
$80.0
$100.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Mil
lion
s
Fiscal Year Source: Department of Management Services
Beginning in September 2013, Amazon has agreed to collect state sales tax on
its Virginia customers.
Utility Taxes
20
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Mil
lion
s
Fiscal Year Source: Department of Management Services and the Virginia Department of Taxation
Business License (BPOL)
21
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Mil
lion
s
Fiscal Year Source: Department of Management Services
Cable Franchise Revenue
22
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Mil
lion
s
Fiscal Year Source: Department of Management Services
Automobile License Revenue
23
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Mill
ions
Fiscal Year Source: Department of Management Services
Cigarette Tax Revenue
24
$0.0
$3.0
$6.0
$9.0
$12.0
$15.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Mill
ions
Fiscal Year Source: Department of Management Services
Amusement Tax Revenue
25
$0.0
$2.0
$4.0
$6.0
$8.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Mill
ions
Fiscal Year Source: Department of Management Services
Hotel Tax Revenue
26
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Mill
ions
Fiscal Year Source: Department of Management Services
Restaurant Tax Revenue
27
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
$80.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Mill
ions
Fiscal Year Source: Department of Management Services
Use of Fund Balance
28
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Mill
ions
Fiscal Year City Schools
Source: Department of Management Services
Summary of Revenues • Real Estate assessments are projected to fall in
the early years of the forecast, but growth in all other tax revenues basically make up the lost real estate tax revenue.
• As the economy strengthens so shall our revenues.
• How the Federal Budget resolves itself is our biggest threat.
29
Budget Drivers
30
VRS Reforms • Mandated Shift of 1% to employees beginning
in FY 2013 and for the next four years – offset with mandated 1% pay raise.
• Unfunded Liability for Teachers pension is estimated at over $800 million and for city employees at over $600 million. – General Assembly has been artificially lowering the
VRS rate for teachers to aid their budget. – VRS Board actuarially sets rate for city employees. – Beginning with the FY 2013 CAFR the City must
show these unfunded liabilities on our balance sheet.
31
Federal Health Care Reform • Beginning in January 2014 we must:
– Cover part-time employees working 30 or more hours per week (the forecast assumes this will add 91 employees to health care coverage).
– Pick up employees who do not currently have health insurance (the forecast assumes 50% of the roughly 2500 opt-outs will choose city health insurance rather than an exchange).
– Pay reinsurance fees estimated at $60 per member (estimated to add nearly $2 million to the plan costs).
• Intended to bring down health care costs and cover more people.
32
SPSA Tipping Fee • As a part of the City’s agreement with SPSA we
have had a reimbursement for a capped tipping fee, the value of which has been roughly $10 million annually.
• Beginning in FY 2015, this cap is eliminated resulting in a loss of revenue to Solid Waste of $10 million.
• In FY 2018 SPSA as we know it will cease to exist.
33
Pay Increases • The mandated VRS 1% pay raise and its offset
of 1% shift to employees of retirement costs is included in the forecast.
• The forecast does not include any pay increases, beyond the mandated VRS pay increase for the next five years.
• The last pay increase for City employees was 2.5% in FY 2012 and for School employees it was 2.0% in FY 2013 (School employees received a ½% pay raise in FY 2012 as well). – Prior to these the last increase was in FY 2009.
34
Pay-go Funding to the CIP • Substantially diverted to the Operating Budget
during the recession.
• The current CIP shows what maybe proving to be too aggressive a schedule to bring it back given the slow economic recovery.
• City Council dedication of 2 cents of real estate tax rate to shore up funding for road construction which had lost funding due to State budget reductions.
35
School Forecast
36
School Revenues – Local Contribution
37
$394.3 $379.4 $365.8 $354.1
$387.4 $374.5 $376.7 $380.1 $385.0 $391.3
$0.0
$100.0
$200.0
$300.0
$400.0
$500.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Mill
ions
Fiscal Year Source: Department of Management Services
City Council provided one-time funding of $9.2 million from the
general fund balance.
School Revenues – State Share Sales Tax
38
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
$80.0
$90.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Mil
lion
s
Fiscal Year Source: Virginia Beach City Public Schools
School Revenues – State Aid and Federal
39
$0.0
$50.0
$100.0
$150.0
$200.0
$250.0
$300.0
$350.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Mil
lion
s
Fiscal Year State Federal
Source: Virginia Beach City Public Schools
School Expenditures – Assumptions
FY 2013-14
FY 2014-15
FY 2015-16
FY 2016-17
FY 2017-18
VRS Mandated Pay Increase 1.0% 1.0% 1.0% 1.0% 0.0%
Other Pay Increase 0.0% 0.0% 0.0% 0.0% 0.0% Mandated VRS Rate Change -1.0% -1.0% -1.0% -1.0% 0.0%
Other VRS Rate Change 0.0% 0.0% 0.0% 0.0% 0.0% Health Insurance 9.07% 16.91% 11.85% 8.11% 8.64% Increase in Risk Management 10.0% 7.0% 5.0% 3.0% 2.0%
Inflation 2.04% 1.27% 1.28% 1.46% 1.05% Increase in Utility Costs 2.1% 2.1% 2.0% 2.0% 2.0% Increase in Fuel Costs 7.0% 3.0% 2.0% 0.0% 0.0% Change in Staff (Change in FTE’s) -16.99 -2.08 -22.05 -8.56 +5.76
40
School Expenditures – Salaries
41
$0.0
$100.0
$200.0
$300.0
$400.0
$500.0
$600.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Mil
lion
s
Fiscal Year Source: Virginia Beach City Public Schools
School Forecast
42
$700.0
$750.0
$800.0
$850.0
$900.0
$950.0
$1,000.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Mil
lion
s
Fiscal Year Expenditures Revenue
Source: Virginia Beach City Public Schools
FY 2014 -$23.38
FY 2015 -$35.55
FY 2016 -$46.46
FY 2017 -$45.61
FY 2016 -$50.64
City Forecast
43
City Revenue – Fees and Other Local Revenue
44
$0.0
$50.0
$100.0
$150.0
$200.0
$250.0
$300.0
$350.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Mil
lion
s
Fiscal Year Non-Revenue Receipts Fines and ForfeituresMiscellaneous Revenue Charges for ServicesRevenue From the Use of Money & Property Permits, Privilege Fees, and Licenses
Source: Department of Management Services
City Revenue – State and Federal
45
$0.0
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Mil
lion
s
Fiscal Year State Revenue Federal Revenue
Source: Department of Management Services
City Expenditure – Assumption
FY 2013-14
FY 2014-15
FY 2015-16
FY 2016-17
FY 2017-18
VRS Mandated Pay Increase 1.0% 1.0% 1.0% 1.0% 0.0%
Other Pay Increase 0.0% 0.0% 0.0% 0.0% 0.0% Mandated VRS Rate Change -1.0% -1.0% -1.0% -1.0% 0.0%
Other VRS Rate Change 0.0% 2.0% 0.0% 2.0% 0.0% Health Insurance (Percentage Change) 5.2% 15.3% 12.4% 8.7% 10.1%
Inflation 2.0% 2.0% 2.0% 2.0% 2.0% Pay-As-You-Go (Percentage Change) 45.0% 0.0% 15.0% -3.0% 0.0%
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City Forecast
47
$700.0
$750.0
$800.0
$850.0
$900.0
$950.0
$1,000.0
$1,050.0
$1,100.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Mil
lion
s
Fiscal Year Expenditures Revenues
Source: Department of Management Services
FY 14 -$22.65
FY 15 -$42.14
FY 16 -$51.36
FY 17 -$55.20
FY 18 -$56.79
Conclusions
48
Key Issues • Near Term
– Losses in real estate revenues are nearly made up by increases in other economy driven revenues.
– Impact of rising health care and VRS rates. – Impact of potentially no pay raises. – Continued struggle with housing values. – Continued reliance on fund balance to maintain services. – Slow growth of economy.
• Long Term – Federal Budget, deficit reduction and tax policies. – Right sizing of the Navy in terms of number of ships and
the size of the ships. – The need for the State to partner with localities for
transportation and education. 49
Sensitivity Analysis - Testing the Assumptions
• The Big Drivers of the Forecast: – Health Care Costs – No Pay Increase – Sequestration & the Fiscal Cliff – Use of Fund Balance
• What would changing the assumptions staff
made mean on the forecast?
50
1. I feel it is more realistic that federal and state revenues will decline.
2. I feel that there will be little impact on these revenues.
3. Due to the nature of programs potentially affected, I feel sequestration will be less of an impact and these revenues may increase. 51
State & Federal revenues are held flat due to uncertainty over sequestration. Do you feel that it is more realistic to show revenue growth or loss in FY 2014?
Question 1
Health Care costs, short of redesigning the plans are beyond our control, but we could ask employees to assume more of the costs by lowering the employer contribution.
1. Employees as direct beneficiaries of the plan should assume a greater percentage of the costs.
2. As employers we should assume a greater percentage of the costs.
3. Would only consider redesigning the coverage offered.
52
Question 2
• I disagree with the assumption, we can’t go 5 years with no pay increase other than the VRS mandated increase.
53
The forecast assumes no pay increase for the City and School employees other than the 1% VRS mandated increase.
Question 3:
1. Agree
2. Reduce use by another 50% each year.
3. Disagree with using fund balance in the budget.
54
The forecast shows a use of fund balance, but lowers the use as the economy improves. Do you agree with that strategy or would you prefer a different strategy?
Question 4
Key Issues • Near term
– Losses in real estate revenues are nearly made up by increases in other economy driven revenues.
– Impact of rising health care and VRS rates. – Impact of potentially no pay raises. – Continued decline of real estate tax assessment. – Continued reliance on fund balance to maintain services. – Slow growth of economy.
• Long term – Federal Budget, deficit reduction and tax policies. – Right sizing of the Navy in terms of number of ships and
the size of the ships. – The need for the State to partner with localities for
transportation and education.
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