five year forecast - vbgov.com

Five-Year Forecast

Greg Grootendorst, Chief Economist, Hampton Roads Planning District Commission

Farrell Hanzaker, Chief Financial Officer, Virginia Beach Schools

David Bradley, Director of Budget and Management Services

Hampton RoadsEconomic Briefing

Presented to the Virginia Beach City Council

Greg GrootendorstChief Economist, HRPDCNovember 20, 2018

U.S. Gross Domestic Product

Source: Bureau of Economic Analysis and HRPDC

14,000

14,500

15,000

15,500

16,000

16,500

17,000

17,500

18,000

18,500

19,000

Bill

ion

s o

f D

olla

rs (

20

09

)Prerecession High:

$15.8 Trillion

Current Value: $18.7 Trillion

Recession Low:$15.1 Trillion

GDP is up 23.8 % from the recession low

U.S. Non-Farm Civilian Employment

Source: Bureau of Labor Statistics and HRPDC

115,000

120,000

125,000

130,000

135,000

140,000

145,000

150,000

155,000

Tho

usa

nd

s o

f Em

plo

yee

sPrerecession High:

138,432,000Current Value:

149,750,000

Recession Low:129,733,000

Payroll employment has grown steadily at an annualized rate of 1.7 % since the recession low.

U.S. Unemployment Rate


0%

2%

4%

6%

8%

10%

12%

Un

em

plo

yme

nt

Rat

e

Prerecession Low:4.4%

Current Value: 3.7%

Recession High:10.0%

The unemployment rate has been reduced by over half sincethe height of the recession and is now well below re-recession levels.

S&P 500 Stock Market Index

Source: Yahoo Finance and HRPDC

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Ind

ex V

alu

e

Prerecession High:1,549.4

Current Value:2,722.2

Recession Low:735.1

The S&P stock market index is 270% from the pre-recession low, and up 76% from the pre-recession high

Employment Decline and Recovery


-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%P

erc

en

t Jo

b L

oss

Re

lati

ve t

o P

eak

Months Since Peak Employment

U.S. Virginia Hampton Roads

Source: Bureau of Economic Analysis, and HRPDC

$50

$55

$60

$65

$70

$75

$80

$85

$90B

illio

ns

of

20

09

Do

llars

Non-ZeroAxis

$83.6B $81.8B

-2.1%

Hampton Roads Gross Product


Annualized Growth in Gross Product(Inflation-Adjusted)

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

An

nu

aliz

ed

Ch

ange

in G

ross

Pro

du

ct(2

01

4 -

20

17

)

Metropolitan Areas with Population between 1 and 4 Million

Hampton Roads: 0.8%

700

710

720

730

740

750

760

770

780

790

800

Seas

on

ally

Ad

just

ed

Pay

rolls

, Th

ou

san

ds

781,600Jul, 2007

733,800Feb, 2010

785,400Sep, 2018

Nonfarm Civilian Employment (Jobs) in Hampton Roads


Hampton Roads Employment ChangeAugust ‘08 – August ‘18


Local GovernmentConstructionInformation

Wholesale TradeReal Estate & Leasing

ManufacturingRetail Trade

Administrative & SupportState Government

Finance & InsuranceTransportation & Utilities

Education ServicesManagement

Other ServicesLeisure & HospitalityScientific & TechnicalFederal Government

Healthcare & Social

Change inEmployment

Hampton Roads Employment ChangeAugust ‘17 – August ‘18


Healthcare & SocialLocal GovernmentEducation Services

Real Estate & LeasingFederal Government

InformationFinance & Insurance

Wholesale TradeState Government

ConstructionOther Services

Transportation & UtilitiesRetail Trade

ManagementLeisure & Hospitality

Administrative & SupportManufacturing

Scientific & Technical

Change inEmployment

Unemployment RatesSeasonally Adjusted


0%

2%

4%

6%

8%

10%

12%

Un

em

plo

yme

nt

Rat

e U.S. Hampton Roads Virginia


Relative Per Capita Income

75%

80%

85%

90%

95%

100%

105%

110%

Rat

io o

f H

amp

ton

Ro

ads

PC

I to

U.S

. & V

irgi

nia

Share of US PCI Share of Virginia PCI

105% 96%92%

Source: U.S. Census Bureau and HRPDC

Median Family Incomes

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

Inco

me

in 2

01

7 D

olla

rs Hampton Roads U.S.


Annualized Real Defense Outlays(U.S. Quarterly Data, Seasonally Adjusted)

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000B

illio

ns

of

Re

al D

olla

rs (

20

17

$'s

)

Korean

War on Terror80's Cold

WarBuildup

VietnamWar


Military Personnel in HR and the U.S.

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

U.S. M

ilitary Pe

rson

ne

lH

amp

ton

Ro

ads

Mili

tary

Pe

rso

nn

el

Hampton Roads U.S.

Source: USAspending.gov and HRPDC

Defense Contracts in Hampton Roads(Inflation-Adjusted)

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

Mill

ion

s o

f 2

01

6 D

olla

rs(5

-Ye

ar M

ovi

ng

Ave

rage

)

Fiscal Year

Source: Port of Virginia and HRPDC

General Cargo in Hampton Roads

0

5

10

15

20

25

Mill

ion

s o

f Sh

ort

To

ns

Exports Imports

Containers:

Ships:

Share:

Source: Virginia Tourism Corporation and HRPDC

Tourism Expenditures in HR(Inflation-Adjusted)

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

Bill

ion

s o

f 2

01

7 D

olla

rs13.2%

Hotel Revenue:

Down 2.9%in 10 Years

Employment:Up 6.6%

in 10 years

Hampton Roads Retail Sales

Source: Virginia Department of Taxation and HRPDC

$1.2

$1.4

$1.6

$1.8

$2.0

$2.2B

illio

ns

of

Do

llars

of

Sale

s (S

eas

on

ally

Ad

just

ed

)

-12.7%

+11.8%

+28.0%

Annualized growth rate of 1.2% since 2006

Inflation adjusted annualized growth rate of -1.1% since 2006

Home Price Indexes

Source: Fair Housing Finance Agency and HRPDC

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

Year

-ove

r-Ye

ar G

row

th in

HP

I Hampton Roads

Virginia

U.S.

Source: National Association of Homebuilders and HRPDC

NAHB/Wells Fargo Hampton RoadsHousing Opportunity Index

0

10

20

30

40

50

60

70

80

90

100

Ho

usi

ng

Op

po

rtu

nit

y In

dex

(% o

f H

om

es

Sold

Aff

ord

able

to

a M

ed

ian

In

com

e F

amily

)

Hampton Roads Population

Source: Weldon Cooper Center for Public Service and HRPDC

1960 -- 927,854

2017 -- 1,729,326

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

Po

pu

lati

on

1.8% 0.9% 0.5%0.6%0.8%

1.8%

1.8%

Hampton Roads Population Histogram


1.8% 0.9% 0.5%0.6%0.8%

1.8%

1.8%

100,000 50,000 0 50,000 100,000

Under 5 years

5 to 9 years

10 to 14 years

15 to 19 years

20 to 24 years

25 to 29 years

30 to 34 years

35 to 39 years

40 to 44 years

45 to 49 years

50 to 54 years

55 to 59 years

60 to 64 years

65 to 69 years

70 to 74 years

75 to 79 years

80 to 84 years

85 years and over

Population

Ag

e C

ate

go

ries

Females

Males

(Greatest)

Silent

Boomers

Gen X

Millen

Next..

Graduation Rates

Source: Virginia Department of Education and HRPDC

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

08

*

20

09

*

20

10

*

20

11

*

20

12

*

20

13

*

20

14

*

20

15

*

20

16

*

20

17

*

20

18

*

4 Y

ear

Gra

du

atio

n R

ate

Hampton Roads

Virginia Graduation Rate

Virginia Graduation Rate- Cohort

* Dates are Graduation Rates Calculated Using the Cohort Method

Per Pupil School Spending(Inflation-Adjusted)

Source: Virginia Department of Education, Bureau of Economic Analysis and HRPDC

Forecast

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

17

Do

llars

Pe

r P

up

il Hampton Roads Virginia

Education


Hampton Roads U.S. Average

Highschool Equivalence 91.5% 88.0%

College Attainment 32.1% 32.0%

Graduate or Professional Degree 12.3% 12.3%

Government Finances

Source: Auditor of Public Accounts and HRPDC

0%20%40%60%80%

100%120%140%160%

Quality of Life in Hampton Roads

Source: Auditor of Public Accounts and HRPDC

Violent Crime

Poverty Rate

Ozone Levels

Hampton Roads vs. United States

86%

87%

89%

% Who Worked Outside County of Residence

1 39

% of People Who Have a Bachelor's Degree

1 39

Median Age 1 39

Gini Coefficient (Measure of Income Equality) 1 39

% of Population that Moved in the Past Year

1 39

Per Capita Income 1 39

% of Labor Force in the Armed Forces

1 39

Highest Value Lowest Value

8.3 %

45.9%

18.3%

$32,493

.45

36.1

32.1%

3

1

22

4

32

27

35

HR Rank in the Comparable Metro Areas

2017 American Community Survey Data for Hampton Roads

Virginia Beach Population Histogram

30,000 20,000 10,000 0 10,000 20,000 30,000

Under 5 years 5 to 9 years

10 to 14 years 15 to 19 years 20 to 24 years 25 to 29 years 30 to 34 years 35 to 39 years 40 to 44 years 45 to 49 years 50 to 54 years 55 to 59 years 60 to 64 years 65 to 69 years 70 to 74 years 75 to 79 years 80 to 84 years

85 years and over

FemaleMale


Virginia Beach Population Growth

Source: Weldon Cooper Center and HRPDC

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

19

60

19

62

19

64

19

66

19

68

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

85,218

453,628

Population Growth Rates

Source: Weldon Cooper Center, U.S. Census Bureau, and HRPDC

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

5-Y

ear

An

nu

aliz

ed

Gro

wth

Rat

e

Hampton Roads

Virginia

United States

Virginia Beach

Industry Employment in VB


0 5000 10000 15000 20000 25000 30000

Agriculture, Forestry & FishingTransportation & Warehousing

Management of CompaniesInformation

Wholesale TradeReal Estate & Rental & Leasing

Arts, Entertainment & RecManufacturingOther Services

Public AdministrationFinance and Insurance

ConstructionAdministrative & Support

Professional, Scientific & TechEducational Services

Health Care & Social Ast.Retail Trade

Accommodation and FoodUndisclosed

10 – Year Change in VB Employment


-40% -20% 0% 20% 40% 60% 80%

Wholesale Trade

Construction

Real Estate & Rental & Leasing

Information

Administrative & Support

Transportation & Warehousing

Retail Trade

Manufacturing

Finance and Insurance

Educational Services

Other Services

Management of Companies

Professional, Scientific & Tech

Public Administration

Arts, Entertainment & Rec

Accommodation and Food

Health Care & Social Ast.

Agriculture, Forestry & Fishing

How Does Virginia Beach Compare?

Unemployment

Rate

Not in Labor

Force

10 - Year

Employment

Growth

10 - Year

Population

Growth

Median

Household

Income

Owner-Occupied

Housing Rate

Average Family

SizeMedian Age

Virginia Beach 2.8% 30.1% 2.7% 5.6% 72,586$ 65% 3.10 36.2

Hampton Roads 3.2% 32.9% 0.6% 5.8% 60,059$ 61% 3.14 35.6

Virginia 3.0% 33.8% 4.8% 9.0% 66,149$ 66% 3.17 37.8

United States 3.7% 36.5% 6.3% 8.1% 55,322$ 64% 3.24 37.7

U.S. Civilian Employment

0

20

40

60

80

100

120

140

160

Mill

ion

s o

f Jo

bs

Recessions

9 Years 10 Years 9.5 Years

Source: National Bureau of Economic Research, Bureau of Labor Statistics and HRPDC

Forecast of U.S. Gross Domestic Product

Source: Blue Chip Economic Indicators and HRPDC

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

An

nu

aliz

ed P

erc

en

t C

han

geConsensus Forecast

Federal Budget Deficits

Source: Congressional Budget Office and HRPDC

-$1,800

-$1,600

-$1,400

-$1,200

-$1,000

-$800

-$600

-$400

-$200

$0

$200

$400B

illio

ns

of

Infl

atio

n-A

dju

sted

Do

llars

(2

01

2)

On-Budget Deficit

Total Deficit

Forecast

Sources: HRPDC, HRTPO, and the U.S. Census Bureau

Schools’

Operating Budget

VBCPS’ Key Budget Assumptions

Other Revenue Sources

Anticipate reducing the reliance on reversion funding by $1 million each year of the forecast period

Local, State and Federal Revenue

This forecast reflects increases in revenue at the state and local levels and continues to reverse the impact of significant cuts VBCPS has sustained since 2008

Revenue Highlights

2019-20 2020-21 2021-222022-

232023-

24

State Shared Sales Tax +2.5% +2.75% +2.75% +3.0% +3.0%

Other State Revenue +2.5% +2.75% +2.75% +3.0% +3.0%

Local Revenue (RSF)* +1.06% +2.24% +2.27% +2.25% +2.25%

Federal Revenue - - - - -

Non-Personnel Expenses

All non-personnel budget line items impacted by inflation are expected to increase by approximately 2.5% each year of

the forecast period

Capital outlay expenditures are expected to increase by approximately $450,000 to purchase five additional

replacement school buses each year from FY 2019-20 to FY 2022-23

Expenditure Highlights

Personnel Services and Fringe Benefits

Salary increase of 3.0% for FY 2019-20 and 2.0% for each of the forecast years from FY 2020-23 to FY 2023-24

Health insurance rates are projected to rise by 3% each year from FY 2019-20 to FY 2023-24

Funding to continue the expansion of full-day kindergarten will be allocated each forecast year from FY 2020-21 to FY 2022-23

Programmatic Priorities - expansion of existing programs or adding new programs (e.g. expansion of

preschool and full-day kindergarten)

Technology - replace broken and aging whiteboards with standalone interactive displays

Employee Compensation - competitive pay increases, primarily associated with increasing allowances for

advanced degrees, reclassifying teacher assistants and moving selected positions to the Teacher Pay

Scale

Employee Benefits - rising costs associated with health care

State and Federal Mandates - new financial transparency provision in the Every Student Succeeds Act of

2015 (ESSA)

The following list highlights examples of factors that place considerable pressure on the School

Operating budget.

Lagging State Funding - state budget allocates nine percent less on K-12 instruction than it

did in 2005

School Safety – need resources targeted to help fund VBCPS’ security enhancements and

address recommendations from the Blue Ribbon Panel on School Safety and Security

Structurally Flawed Operating budget strategy - FY 2018/19 marks the ninth consecutive

year VBCPS is relying on one-time reversion funds for ongoing expenses ($6.8 million)

Enrollment and demographics - slow decline in student enrollment projected to continue

Projected Deficits

Utilizing the revenue and

expenditure assumptions

from the previous slide,

VBCPS is projecting the

following deficits over the

forecast period.

-

( 9,817,279 )( 10,217,160 )

( 10,563,310 )

( 9,913,185 )

( 7,039,690 )

-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

740,000,000

760,000,000

780,000,000

800,000,000

820,000,000

840,000,000

860,000,000

880,000,000

900,000,000

920,000,000

940,000,000

FY 2018-19Adopted

FY 2019-20Forecast

FY 2020-21Forecast

FY 2021-22Forecast

FY 2022-23Forecast

FY 2023-24Forecast

Revenue Expenditures Baseline Deficit

49

VBCPS’ Forecasted Revenue

VBCPS’ Forecasted Expenditures

FY 2018-19

Adopted

FY 2019-20

Forecast

FY 2020-21

Forecast

FY 2021-22

Forecast

FY 2022-23

Forecast

FY 2023-24

Forecast

Revenue Sharing Formula 442,120,415 446,791,534 456,785,596 467,174,673 477,671,905 488,438,456

Schools Use of Sandbridge TIF 409,000 409,000 - - - -

From the Use of Money and Property 477,000 477,000 477,000 477,000 477,000 477,000

Charges for Services 2,816,638 2,816,638 2,816,638 2,816,638 2,816,638 2,816,638

Miscellaneous Revenue 224,703 224,703 224,703 224,703 224,703 224,703

State Shared Sales Tax 75,344,490 77,228,102 79,351,875 81,534,052 83,980,073 86,499,475

Other State Revenue 272,725,078 286,276,659 294,149,267 302,238,372 311,305,523 320,644,689

Federal Revenue 12,200,000 12,200,000 12,200,000 12,200,000 12,200,000 12,200,000

School Reversion/Fund Balance 6,800,000 5,800,000 4,800,000 3,800,000 2,800,000 1,800,000

813,117,324 832,223,636 850,805,079 870,465,438 891,475,842 913,100,961

FY 2018-19

Adopted

FY 2019-20

Forecast

FY 2020-21

Forecast

FY 2021-22

Forecast

FY 2022-23

Forecast

FY 2023-24

Forecast

Personnel Services 471,393,129 485,534,923 496,850,242 508,391,868 520,164,328 530,567,614

Fringe Benefits

FICA 35,882,382 37,143,422 38,009,044 38,891,978 39,792,571 40,588,422

VRS 71,058,250 76,131,876 77,906,118 79,715,845 81,561,767 83,193,002

Health Insurance 60,655,983 62,475,662 64,349,932 66,280,430 68,268,843 70,316,909

Life Insurance 5,820,627 6,360,507 6,508,738 6,659,933 6,814,153 6,950,436

All Other Fringe Benefits 3,299,581 3,299,581 3,299,581 3,299,581 3,299,581 3,299,581

Contractual Services 50,138,408 51,391,868 52,676,665 53,993,582 55,343,421 56,727,007

Other Charges 54,852,900 56,224,223 57,629,828 59,070,574 60,547,338 62,061,022

Capital Outlay 5,402,082 5,852,082 6,302,082 6,752,082 7,202,082 6,085,421

Land, Structures and Improvement 222,577 222,577 222,577 222,577 222,577 222,577

PAYGO 500,000

Debt Service 41,951,320 45,356,997 45,153,910 45,569,058 45,921,986 47,807,686

Transfers to Other Funds

Athletics Fund 4,524,774 4,524,774 4,524,774 4,524,774 4,524,774 4,524,774

Categorical Grants Fund 3,612,280 3,612,280 3,612,280 3,612,280 3,612,280 3,612,280

Green Run Collegiate Fund 3,803,031 3,910,143 3,976,468 4,044,186 4,113,327 4,183,920

813,117,324 842,040,915 861,022,239 881,028,748 901,389,027 920,140,651

General Fund

Revenues

Real Estate

$577

$300

$350

$400

$450

$500

$550

$600

$650

$700

FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 FY 21 FY 22 FY 23 FY 24

Mill

ion

s

Budget Actual Projection

Personal Property

$174

$100

$110

$120

$130

$140

$150

$160

$170

$180

$190

$200


Mill

ion

s


Consumer Driven Revenues

$74

$57

$50

$9

$-

$10

$20

$30

$40

$50

$60

$70

$80


Mill

ion

s


General Sales

BPOL

Restaurant

Hotel

Telecommunications

$22

$10

$15

$20

$25

$30

$35


Mill

ion

s


State Revenue

$111

$40

$50

$60

$70

$80

$90

$100

$110

$120

$130

$140


Mill

ion

s


Federal

$23

$10

$12

$14

$16

$18

$20

$22

$24

$26

$28

$30


Mill

ion

s


3% salary increase in FY 20; 2% for following years

2.5% inflation each year

1% rate increase in VRS every 2 years beginning in FY 21

3% annual increase in healthcare costs

City CIP and Operating Budget commitments

Debt based on current debt schedules and projected

issuances

Budgeting for Attrition

Virginia Beach has historically budgeted for full salaries and used savings from attrition (fund balance) in following years of the CIP

In FY 19:

$2.3 million in attrition savings to offset the elimination of cigarette and automobile license tax

$3 million in attrition savings for horizontal and vertical compression

Key issues to consider:

Impact on future CIP

Flexibility during economic downturn

Safeguard AAA bond rating

General Fund Expenses and Revenue

Five Year Forecast

$17.4M $19.2M $28.5M

$1.274

$1.152

$9.2M

$1.306

$1.10

$1.13

$1.16

$1.19

$1.22

$1.25

$1.28

$1.31

$1.34

FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024

Bill

ion

s

Revenues Expenditures

$32.3M

Median Household Income

$72,586

$61,399

$45,000

$50,000

$55,000

$60,000

$65,000

$70,000

$75,000

$80,000

$85,000

$90,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Median Household Income Adjusted to 2007 Dollars

Operating Budget Adjusted for Inflation

$1,915

$1,611 $1,628 $1,623

$1,300

$1,400

$1,500

$1,600

$1,700

$1,800

$1,900

$2,000

$2,100

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Mill

ion

s

Fiscal Year

Budget Inflation Adjusted (Constant Dollars)

City Operating Budget vs Median Household Income

16.80%

18.10%

-5%

0%

5%

10%

15%

20%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Operating Budget Growth Median Household Income Growth

Relative Measures of Tax Burden

Relative Measures of Tax Burden

Locality Per Capita Expenditures as a % of Per Capita Income

Virginia Beach 6.32%

Chesapeake 7.21%

Hampton 9.36%

Newport News 9.39%

Norfolk 8.84%

Portsmouth 9.44%

Suffolk 7.39%

Future Recession?

Regional economy improving but still lagging behind other MSAs

Budget process will address deficits

Future decisions

Decision on compensation increases

Budgeting for attrition

Possible recession on the horizon?

Enterprise Fund discussion forthcoming (March)

Questions?

five year forecast - vbgov.com

Documents