They have all been productive. public act 182 requires the city to hold two revenue estimating conferences annually, one in February and another in September, to set the city's official economic and revenue forecasts. The principals of the conference must be the chief financial officer of the city of Detroit. That being Mr. Rising, the State Treasurer's designee that being Mr. buses and a third person affiliated with a public entity with experience in economic forecasting and revenue projection, that being me, the revenue estimates approved today will set the revenues for the city's forthcoming fiscal year 2024 budget and the fiscal year 2020 for the fiscal year 2027 Four year financial plan. Before we proceed, we must elect a new conference chair for 2023. Pa 182 requires the conference chair to rotate among the principals each year. Is there a motion to elect a new conference chair,
like make a motion to elect
I second that motion? All in favor say aye? Aye. Aye No, that's all it was funny. All opposed say nay. After unanimous vote, I'd like him to introduce the conferences new Chair, Mr. Eric bosses. At this time, I would like to turn things over to him and pass the gavel
all up to you now. Alright. So first we'll proceed
to old business which is approval of the draft minutes from the September 2022. Revenue Estimating Conference. Is there a motion to approve the minutes from the previous conference?
Motion made? Second. All those in favor? Aye. Aye. Any opposed?
Okay. The Hearing none their meeting minutes from the September 22 revenue estimating conference are hereby approved. We will now move into the economic presentation portion of the conference and we will turn to the state of the economy. We will first hear from Dr. Gabe Ehrlich, director of the research seminar in quantitative economics at the University of Michigan to present the Detroit economic forecast. So I will turn it over to Gabe.
Thanks very much, Eric. Can you hear him at the moment?
Just you can't hear me Eric.
I know that I still can't hear you. Gabe Can you hear us? Yes. Okay. sort that out.
Please tell me if I should try again.
Blonde
is the base
Can you try that again? Game Yeah. Can you hear me now Eric?
Ready to get engaged?
Yep. Can you hear me now? We can. Thanks. Oh, awesome. Great. And do you see my slides? Yes, we do. Oh, fantastic. Okay, thanks so much. Sorry for the delay there but no yeah. Thank thanks. This is great. Well, thanks for inviting me to be here today. I don't know if it's great for you that you have to listen to an economist talk now. So sorry, sorry about that. But it's always an honor to to work with the city as it prepares for its revenue estimating conference. And for those of you who might be watching who don't know me, my name is Gabe Ehrlich and I directs the University of Michigan's research seminar in quantitative economics or RFQ II. And I just wanted to start by saying that this forecast is part of the city of Detroit University Economic Analysis analysis Partnership, which is a joint effort between the city of Detroit staff, the University of Michigan, Michigan State University and Wayne State University. And what I wanted to do is start today by showing you a little bit of data on the current state of the US economy. My group is forecasting a mild national recession to begin later this year, and I just wanted to give you a little bit of context on why that is, and I also just want to start by saying that although our base case is that there will be a mild recession, it's definitely not a certainty. There's a lot of uncertainty about what the economic outlook holds over the next couple of years. And so what I wanted to do is start off by showing you a graph of inflation, because high inflation is ultimately the reason so many people including ourselves, expect a recession. And you know, the basic logic is that to slow down inflation, the Federal Reserve has been increasing interest rates, and that's going to slow the economy down along with inflation. This chart shows 12 month inflation rates for the all items Consumer Price Index in yellow, and the core CPI in blue, which subtracts food and energy prices because those are very volatile. As of December 12 month headline or all items CPI inflation came in at six and a half percent year over year, December to December and the core inflation came in at 5.7%. And you can see those were declines since last summer. So, you know, the most recent releases qualify as good news in that sense, but obviously, inflation is still well above what anybody would like to see very much including the Federal Reserve. You know, something to point out is that it had seemed like inflation was slowing down more sharply than this graph would suggest, in the monthly numbers just on a month to month basis. But on Friday, this past Friday, the Bureau of Labor Statistics released revised seasonal factors for the CPI that make the recent slowdown seem less pronounced. And of course it also remains possible that inflation could pick back up going forward. So it's definitely too early and you know, the Fed is at pains to tell people it's too early for them to declare victory on inflation and we agree with that. But we are starting to see some signs of relief. Even though mortgage rates have come down a little bit in the very recent data, they're still about twice as high as the 3% level we were seeing in 2021. And that's basically put the housing market in a coma and that's a big part of of our expectation for a mild recession. Also, this graph is showing you a couple of different metrics that you can you know, see the slowdown in the housing market on the first in the blue line here is the National Association of Homebuilders housing market index. And you can see it's back down to levels that we last saw about 10 years ago, coming out of the great recession period. So certainly the home builders are less optimistic than they had been. And then the yellow line shows you mortgage activity, specifically the Mortgage Bankers Association, up purchase applications index, and that's really scraping along your levels that are close to low points over the last 25 years. So you know, we are already seeing a pretty sharp slowdown in the housing market. And that's part of why we do expect a slowdown in economic growth this year. Here, you know, on a more forward looking basis, I'm showing you the spread between 10 year and two year treasury bond yields and this spread has moved decidedly negative since last summer. So you can see it's really fallen off very much in the recent data and just, you know, the reason that we're showing you this slide is that in the past, a negative spread has been highly predictive of a recession starting in the next year or two. So over the next 12 to 24 months, and in fact, this is probably the most famous of all recession signals are predictors of and of course, this time could be different. You know, anytime we talk about recessions, we're really only talking about a handful or a couple of handfuls of data points. And that's the case here. And an optimistic interpretation of this graph is that the markets are expecting the Fed to start cutting short term interest rates. In the near future as inflation cools off. That could happen it absolutely could happen. But in general, forecasters who claim this time is different end up regretting it, right and so just looking at the Treasury bond yield spread, that you know, that certainly is a historical or traditional recession indicator that we're keeping an eye on. But a theme that that, you know, I'm going to reiterate in my remarks, and I'll start with right now is that we expect the Detroit economy to avoid the worst of of a national recession if we do have one. And one big reason why is the backlog of demand in the auto industry and this chart shows you domestic light vehicle assembly. The first thing to point out, and just to say, you know, the monthly data is in the yellow line, and then you know, to smooth things out some in the blue line. I've got the three month moving average, but they're showing you the same thing. And the first thing to point out is that we've seen substantial progress in recovering from the microchip shortage over the past two years in terms of production volumes, you can see they have certainly risen. But the first thing to point out is we're not back to the pre COVID production level yet. We are still below and there are still lingering supply chain shortages in the auto industry that are holding back production, but um you know, both chips and and other issues are certainly not as bad as they were. But we're not completely out of the woods yet. But then the other thing to point out is, you know, we certainly haven't come close to making up the backlog or the shortfall in production over the past two years, right. We're so we're recovering back towards pre COVID levels of production, but we're certainly not close to backfilling the gap. And with that in mind, we expect labor demand in the auto industry to hold up decently even if the national economy does enter a recession because there is a big backlog of vehicle demand and you know if you've been shopping for a vehicle recently, I'm sure you know that. So that's kind of the national context that we see right now. And with that, I'd like to move now to how the trace economy is doing in the most recent data. The yellow line in this graph shows employment at jobs located inside the City of Detroit's boundaries. Whether the person who works at that job lives inside or outside of the city, and we call that measure payroll employment. And then the blue line shows employment of Detroit residents, whether they work inside or outside the city boundaries, and we call that resident employment and so you know, they're they're two distinct concepts and in principle, you know, they don't need to track each other. Exactly, because, you know, it depends on commuting patterns. Are people going outside the city for jobs are people from outside the city commuting in for jobs, but in practice, you can see that they do tend to move together over time. You know, not one for one but but in broad terms. The data for payroll employment here in the yellow line, currently extends through June of 2022. When we produced this forecast, we only had data through March of 2022, though just as a caution, payroll employment in Detroit fell by nearly 50,000 jobs at the start of the pandemic that was over a fifth of the total. By June of 2022. It had recovered just over 90% of the jobs that it lost at the start of the pandemic. Detroit resident employment here in the blue line extends all the way through December of last year. So through December 2022. You know, something to point out is that resident employment in Detroit did behave a little bit puzzlingly. Last year, it actually fell by about 800 jobs from the end so from December of 2021 through December of 2022. That being said, As of December, Detroit residents had also recovered about 90% of their initial pandemic job losses. And just something I do want to point out is that the national and state data also shows a weaker trend in what we would call household employment, which corresponds to the resident employment on this graph, then in the payroll employment data. So this isn't just a story about Detroit. This is you know, a broader I don't want to go so far as to call it a mystery, but it's a head scratcher in the data a little bit. So with that, we'll move to unemployment and this graph shows you the unemployment rate in the city of Detroit. And, you know, it really did make headlines recently, because there were big declines in the late part of last year. The Bureau of Labor Statistics doesn't publish a seasonally adjusted version of Detroit's unemployment rate, like it does for the state of Michigan. And therefore, in the blue line on this graph, we've produced our own seasonally adjusted version of Detroit's unemployment rate, along with the Nazism only adjusted version that the Bureau of Labor Statistics published in the yellow line and you can see that the yellow line kind of oscillates around the blue line. That's the seasonal pattern. Unfortunately, Detroit's unemployment rate isn't quite as low when you seasonally adjusted as it is in the nazionale adjusted data. And you can you know, if you squint here, at the edge of the graph, you can, you know, kind of see that, but still, you know, the big picture takeaway is, is that it's very low from a historical perspective, right. So even though the blue line is a little bit above the yellow line, you can see the blue line is still very low relative to Detroit's history.
Detroit's seasonally adjusted unemployment rate was about 7.8% in December, down from an average of about 10.4% in the first half of 2022, and below the 2019 average unemployment rate of 8.6%. But as we saw on the previous slide, the traits falling unemployment rate this year, it hasn't come up primarily from more residents finding work. Instead, it's come from residents leaving the labor force, right and so there really is a little bit of a puzzle going on in the data. I do want to emphasize that overall, Detroit's falling unemployment rate has been positive news, but I did just want to provide that additional context around it because the story is nuanced. I mentioned a couple of slides ago that as of right now, we have data on payroll employment in Detroit through June of 2022. And obviously, that was a while ago at this point. And as part of our partnership with the city, we built a statistical model of Detroit's job count between when the currently published data ends and the current date, and it uses more timely and recent data from other sources to estimate Detroit's job count. And in the economic literature, it's called a nowcasting model. If, if you've heard of that. Our nowcasts suggests that to treat payroll job count was roughly flat over the second half of last year. You can see that here in the dashed line. I do I do want to point out that we didn't have as much data when we put our forecasts together as we do now. So we're, we were a little bit more optimistic about job growth in the second half of last year than these numbers show. But this is kind of our, you know, best statistical guess of where Detroit's payroll employment is right now. So again, that there will be jobs located inside the city boundaries. I'm holding roughly flat over over the second half of last year. And so with that, I'll turn to our forecast of the Detroit economy. This slide shows your forecast for payroll employment in Detroit relative to Michigan overall, and we estimate the payroll employment in Detroit remained about 1.7% below the pre pandemic job count in the third quarter of 2022. We're forecasting that payroll employment in the city will make a full recovery from the pandemic recession by the middle of next year, despite the mild national recession that we're forecasting in the second half of this year. We projected Detroit to enjoy continued growth at a moderate pace in the years following the full recovery from the pandemic. And again, you know, I've already said some of this, but just to reiterate, the key reasons are that we expect pent up demand in the auto industry to support manufacturing. Going further than that, there. There are also ongoing and planned projects in the non residential construction sector that should help support construction employment, despite that slowdown in the housing market that I already showed you. And so with that in mind, we're projecting job growth in the city to moderate from 3.9% in 2021 and 3.6%, last year in 2022, to about 1% this year, and it then picks up just a little bit from 2024 to 2027 averaging about 1.1% per year. By 2027. Detroit's payroll job count will stand 7400 jobs higher than in 2019, and almost 34,000 jobs higher than in 2011. In our forecast. Here we split each of Detroit's industries into three groups, and the graph displays our forecast for each group's total employment level. With values indexed to 100 in the first quarter of 2020. So just before the pandemic, we estimate that Detroit's traditional blue collar industries exceeded their pre pandemic job count by about 6000 jobs by the third quarter of 2022, which was almost 14%. So you know, Detroit's blue collar industries that includes manufacturing and manufacturing, it includes construction, you know, basically jobs where you make things that you could like drop on your foot, right, that those industries are fully recovered and more from the pandemic at this point. We do think that most of the hiring activity the new hiring activity associated with with some of the major projects around the city has probably concluded by this point. So you know, there have been major projects that has driven up this job count, we think that most of that is behind us now. Not that those jobs are going away necessarily, but that there won't be as much net new hiring associated with those projects, as there has been in the recent past. So we don't expect job growth in the blue collar industries to keep going at the recent pace going forward. But you can see we do expect a bit more growth ahead, and we expect the Detroit's blue collar industries job count will exceed the pre pandemic level by about 8000 jobs at the end of 2027. We call what we excuse me, what we've called Detroit's higher education services industries are basically what you might think of as traditional white collar jobs. And those are in the yellow line here. And there's a little bit of a funny pattern and in these jobs, they lost about 3000 jobs, these industries at the start of 2021. And a big part of that was a decline of 4000 jobs in management of companies and enterprises. And you know, we have done research on this and those losses were made were related to remote work during the pandemic, and about half of them were reallocated back into the city of Detroit at the end of 2021. And we expect another 1000s jobs in those industries to be reallocated back beginning this year. But that's, that's why, you know, you don't see as much recovery in these industries as we might have hoped. I do want to say that even with that reallocation and that, you know, kind of funny pattern in the data. We believe that Detroit's white collar industries are facing, you know, a pretty tough road ahead. And there are a couple of reasons for that. One big reason is the sharp rise in interest rates, right. I already talked about the rise in mortgage rates, and that's causing a slowdown in the local mortgage industry. And of course, you know, that's been in the headlines. We've already started seeing job losses in the local mortgage industry. And then another reason that you know, we expect a relatively moderate recovery in higher education services is the staying power of remote work. You know, we know that this is a problem facing city centers and downtown's throughout the country that you know, with the rise of remote work, some people who would have commuted to downtown to do their jobs, you can now do it from home from the suburbs or, you know, really from almost anywhere at this point. We expect the higher education services industries to lose jobs early this year before returning to growth later in 2023 and what you can see is that white collar employment in Detroit gets close to its pre pandemic level by the end of our forecast, but it doesn't quite make a full recovery. Detroit's lower education attainment services industries are here in the green line and these are service industries that typically don't require a bachelor's degree or more education. And they were hit the hardest at the start of the pandemic. And you can see that here they you know, they lost more than a third of their jobs at the start of the pandemic. But they've also actually experienced a very vigorous recovery. And actually by early last year, they had basically pulled even with the higher education services industries, in terms of recovering from the pandemic. And we estimate that the recovery and lower educational attainment Services Employment slowed during 2022 but as you can see, we do expect it to keep moving at a solid pace going forward. And so these industries and our forecast, about 3100 jobs are 5.6% higher than their pre pandemic employment level. So that's our forecast for employment. And what I'd like to do now is talk about wages and incomes in the city. This slide shows average annual wage and salary rates earned by workers at establishments in Detroit and the yellow line here at the top and then statewide, you know, across Michigan in the blue line, and then for Detroit residents in the green line. And you might remember that we didn't show this green line in our most recent report, the cause of pandemic disruptions to the American Community Survey. We now have data for 2021. So we're able to show this line again, but But that's why you see this dashed portion here, we don't have data for 2020 because of the pandemic. So the first thing to point out is that there was a kind of an up and down pattern in wages at Detroit's establishments in 2020 and 2021. And that was basically about lower rates, jobs being lost disproportionately during the pandemic, and then coming back quickly during 2021. And what you can see is we expect a smoother growth path going forward. We estimate that wage growth at Detroit establishments resumed in 2022. It rebounded to about 3.2% But unfortunately, that was well behind inflation. We expect wage growth in the city to pick up to about 4.3% this year. Which would be roughly even with inflation, and then we expect wage gains in the city to outpace inflation by just a bit from 2024 to 2027. By 2027, the average annual wage of workers at Detroit establishments will reach $90,700 per year or about 32% higher than the 2019 level before the pandemic. And that's about 20% higher than the statewide average we're forecasting for 2027
average annual wages earned by employee to Detroit residents grew by accumulative 47% from 2014 to 2021, from about $26,600 to nearly $39,200. And that was substantially faster than the wage growth for jobs located in the city, which came to about 25% In that time, so that was something that you know, we were very pleased to see and encouraged to see in the most recent data. Going forward, we predict wage growth of Detroit residents basically to keep pace with wages at jobs located in the city over our forecast period. So that our average resident wages climbed to about $47,500 by 2027. This slide shows average wage and non wage income per household in the city of Detroit, according to the American Community Survey, and again, you see the dashed lines here for 2020 because we didn't get data for that year. wage income per capita for Detroit residents grew by about 1% from 2019 to 2021. So you know, it didn't do a lot. Even though employment has not recovered, resident employment hasn't recovered completely from the pandemic. Non wage income grew by about 12% And I do want to point out that an important limitation of the income data that we get from the American Community Survey is that the questionnaire tells respondents not to include lump sum payments, and that means that according to our reading, these values should not include the economic stimulus checks clearly, you know, different people will have read the questionnaire different ways, but but, you know, our reading of the survey questionnaire is that people should not have included those those checks. So, you know, we think that by and large, this data does not include the stimulus payments. We estimate that wage income per capita grew by about 10.8%. So you can see a pretty sharp increase here in 2022, as wage rates and employment both rose sharply. But we estimate that non wage income actually dropped by about 6% With the end of some of the other federal stimulus programs that were included in this data. Going forward, we expect wage income growth of between four to five and a half percent per year from 2024 to 2027. And a little bit slower non wage income growth of about two and a half to 3% per year. But what that means is that non wage income is shrinking. As a share of Detroit residents total incomes, right wage income is growing as a part of the of the total non wage income actually shrinks from over 31% As of 2019 to about 28 and a half percent and 2027 in our forecast. The yellow line on this slide shows total Detroit income per capita. So it's the sum just going back to the previous slide. It's the sum of these two lines is the yellow line on this new chart. The blue line, adjust the yellow line for inflation to express everything in terms of 20 $21 So sticking with the yellow line, so without adjusting for inflation, to treat residents, nominal household income per capita was about 4.4% higher as of 2021. Then in 2019, but inflation adjusted it was actually about a percent lower so you can see you know, the yellow line rose and this time the blue line declined a little bit. We estimate that high inflation in 2022 transformed nominal income growth of about 5% to a real income decline of about 3%. The good news is that we expect real incomes to start growing again this year as inflation slows down. We project a real income per capita growth of 1.7% among Detroit residents this year, and then about an average of 1.4 1.4% per year through 2027. After that, I'm still because we're starting out from a level below where we were in 2019. We're projecting Detroit residents purchasing power to get only about 4% higher in 2027 than it was before the pandemic so you can see this blue line is growing. We do get above where we were in the before the pandemic but not a lot more. It's like I said it's only about 4% And I do want to point out that the slow inflation adjusted income growth, we're forecasting, it's a statewide pattern. It's not specific to the city of Detroit. And so I do keep mentioning inflation and now the time has come to show it in a slide for our forecast. And this slide shows you Detroit CPI inflation on a calendar year average basis. Local inflation came in at about 4.4% and 2021. And then it rose to about 8.2% in 2022. The good news is we are seeing inflation start to slow down as I showed you at the beginning of the presentation at the national level and we expect a calendar year inflation to average about four and a half percent this year, before slowing to an average rate of about two and a half percent per year from 2024 to 2027. And you know, I just want to say this isn't you know, just wishful or optimistic thinking or you know, just trusting the Fed so to speak, we're already seeing inflation slowing down quite a bit in the recent data. And some of the leading indicators that we're watching suggested that slowdown should continue. This will be my final graph of the day and it shows our forecast of the annual unemployment rates here in Detroit and in Michigan. We estimate the Detroit unemployment rate averaged about 9% in 2022, which was close to the pre pandemic level. We projected to kick back up to an average of about 8% this year, and then climb actually to 9% in 2024. In the wake of the national recession that we're forecasting for late this year, early next year. Detroit unemployment rate then falls all the way down to 7% by 2027. And the gap between the city and state unemployment rates narrows from seven and a half percentage points in 2021 to three and a half percentage points by 2027. So that's the end of my presentation. Thanks again for inviting me to participate today and I'd be delighted to answer any questions if there's time. Work. I'm happy just to conclude. Thank
you. Any questions from the principal's
I have a few questions and comments if that's that's good. Just start I just want to say I continue to be very impressed with the efforts that went into your forecast detail with all its difficulties.
You can hear me gave yes I do. Yes. Thanks, George.
I know particularly your current venture into the area of nowcasting using more up to date exhilarate information to attempt to get a better fix on the current and near term outlook for the economy. This seems promising to me and it's supported supported by your initial now now cast evaluation which is in your report, and hopefully a more extended track record will confirm this. So on that note, I asked you what occurrences using the Nowcast methodology could potentially give you the largest misleading information.
Oh, wow. Okay, well that's a that's a great question George's it's a tricky question. You know, something we can do, and something we did do in our report, but you know, I cut for this this afternoon, just in the interest of time, is we can decompose the changes in the Nowcast into the various components so we can track you know, what parts of the news really drive its behavior. And so, you know, one thing to say is that the Nowcast really slowed down as we went through the second half of last year, largely because of the household employment data. So that blue line, you know, just to come back I don't want to give anybody whiplash but you know, this as I mentioned, the the kind of relatively sluggish growth of household employment data wasn't just a Detroit phenomenon. You know, we saw that more broadly. And those numbers kind of kept disappointing the nowcasting model so to speak, you know, what it kind of has a built in expectation for all of these things, you know, based on the model dynamics, the numbers kept coming in a little low, and so the Nowcast kept falling. And so just to come, you know, show you what the Nowcast is now, you can see it's basically flat for 2020. The second half of 2022. You know, the question, I guess is, well, you know, could we be misled by this model, and I think the answer is, you know, unquestionably Yes. You know, because, at the end of the day, you know, we're using historical relationships among these variables. We don't have a super long time series in this data. And, you know, it's it's very impressive. It's very cool what the literature has done and what we can do now, you know, we're obviously building on the work of several others, but when we implemented this model, it's, you know, it's really cool. It's interesting, but it also might give us you know, a little bit more of a sense of precision than we truly should have, you know, if I were to include error bars on this, you know, chart they will be pretty wide. So, I think that, you know, that's just something to keep in mind. And then the other thing to keep in mind is, George these models have an essentially linear structure. So they assume that, you know, as you add up the different data series and their contributions to the Nowcast, that's linear you know, as we saw in something like the COVID 19 pandemic, you know, the economy doesn't always have a linear structure. So, you know, in, you know, really extreme times, I would expect some of the assumptions underlying the model to start breaking down.
Well, it strikes me too. There's a lot of learning by doing especially in that decomposition you talked about, so you might determine over time that there are better forecasting measures than others also. Also the timing, it's some could be better, longer term and some could be better shorter. term. But anyway, I just wanted to say it's kind of at least exciting to me to see something they don't realize I don't think all the people here realize that really moving the Detroit forecast into some of the cutting edge methodology and and so I commend you on that extra on the forecast itself, as you've mentioned, the elephant in the room issue, of course, is the concern over a pin up and dandy, pending recession. On the horizons the easy question is what odds Do you gave your us forecast of a mild recession? And the harder question is, what are the odds that Detroit avoids the corresponding downturn?
You know, that's a great question. You know, it's something we talked about a lot in the group. You know, those of you who know that group know that that's not just me, you know, there's a team that puts together these forecasts and you know, we've discussed it I'm I tend to be on the on the slightly more optimistic side of the team. You know, others on the team, tend to think that a US recession is more likely. I would put, you know, as a team consensus just about two thirds odds that that we'll have a recession, you know, late this year or early next year. I personally would, you know, go a little bit under that. I might, you know, put the audit just about 5050. Myself, but something I do try to point out when I write about this when I talk about this, I encourage people not to pay too much attention to whether we get unofficial recession, because that is a subjective judgment. You know, there's a committee as Georgia's, you know, obviously, it's, you know, it's not there's not a hard and fast numerical rule for whether the economy enters a recession. There's a committee that makes a judgment it's, I like to tell people it's like the college football playoff. You know, they look at a lot of numbers, but at the end of the day, you know, there's a committee that makes a decision and a determination on these things. And so I you know, I encourage people not to focus too much on Will we have an official recession, but what I think that kind of everybody on our team thinks is that we will have slower growth, you know, a growth slowdown whether or not it officially, is declared a recession. I think it's a tougher question. But I do think, you know, obviously, the historical pattern is that when the national economy catches a cold, the Detroit economy gets the flu or pneumonia. And I do think that we should be more fortunate this time through, you know, whether Detroit avoids a downturn, per se, again, I think, you know, it's important not to focus too much on, you know, the exact definition of a recession or you know, how we would classify that, but I do think that Detroit should have a better time. If we do have a national slowdown and the national recession, Detroit should have a better time, this time through then in some past cycles. Not that we want to see a recession. I don't want to test that theory. But, you know, I do think that the backlog of vehicle demand really should support employment and, you know, labor demand in the city. And as you know, there are still a lot of projects that are, you know, ongoing and announced that the city has to look forward to.
Yeah, for what it's worth, I also fall on with you on a little more optimistic side of the outlook. On the other hand, I picked the Eagles in the game last night. Just a couple of other quick things, please. The decline in Detroit unemployment rate during 2022, as you mentioned, comes from a decline in the labor force. And in your report, you speculate that at least in part, this is due to due to discouraged workers exiting the workforce. And I just like to point out that at least in my view, that implies that job training is a good policy strategy. Because I think you're right, and I think that's, I think that's that's where we should be heading and I think the city agrees with me on that. One. My last thing Gabe is the UAW and the auto companies are negotiating a new contract in 2023, where large wage increases are a distinct possibility, which might have spillover effects in other parts of the economy, local economy, it has in the past, could this imply a stronger wage profile than in your projections post? 2023.
It could, you know, we do obviously, try to build in, you know, our best guess of what the auto contracts will look like. You know, we do try to be a little bit conservative in these projections. But yeah, I think the answer is absolutely in shorts. Just something else I should have mentioned when I was talking about the forecast is we did not build in a strike. So our forecasts does not envision a prolonged work stoppage as part of those negotiations, but obviously that that would be a big risk. To the forecast also.
Yeah, that that should definitely be on at least the risk list. Thanks again, good, thorough and well done.
Thanks for having done. Questions, Jay.
Let me just start by saying that this is my fifth time sitting on this panel for the city as a pandemic wanes. I don't find it any easier. Which is surprising to me that this gets more complicated and difficult to
change. Sorry, I'm having trouble hearing you. I'm sorry.
Is that better?
Yes, it is. Thank you. Sorry.
I was just saying I find that the dynamic waiting doesn't make forecasts any easier. And one of the things I noticed is that and my question really relates to the fact that is, is that what are some of the economic factors which is like the meal per capita income data that you showed, which shows a fairly nominal increase on 90, the unemployment rate? Really going down very much. Makes you kind of wonder what does a mild recession look like? What would if, if the city would experience that what would be the consequence?
Thanks. Sure. And I'm sorry, I was having a little bit of trouble, but I you know, it's an important question, I think. So, you know, one one thing you you mentioned is, you know, it hasn't gotten a lot easier. We do hope it's gonna get a little you know, we're hoping we're gonna get to a little bit calmer economy and also that we will have, you know, that the data will be more reliable, because obviously, part of the story is that even even though you know, as the pandemic has faded, you know, the data obviously, is, is trailing. And so, you know, we were missing some of the data for a while, so I'm hoping that as we you know, the data is more regularly available that that helps us all as we do this. But you know, your question, Jay was, well, what would a mild recession look like? And I just want to point out, you know, we have employment in the city, continuing to rise over the forecast period. And I think, you know, at the end of the day, in a recession if the recession really, you know, were noticeable here. We would expect employment counts to fall. And so, you know, obviously you can see we forecast a slowdown here in 2023. But we're don't project a job decline and I think that's, that's really why I say we expected to try to miss, you know, the worst of the recession.
Questions? Thanks, Gabe. Thanks, very informative, as always, thank you.
Before we turn it over to the city, I did want to provide a brief update from the most recent state revenue conference. So we had our state revenue conference in January. That was the basis for the governor's budget that was introduced last week. So this is the conference where the nonpartisan house fiscal agency Senate fiscal agency and the Treasury Department present their economic and revenue forecasts. All three of the agencies were forecasting a mild recession similar to what Gabe described although slightly different in magnitude, so I think the Senate was a little more pessimistic, and had more of a pronounced recession. Whereas the administration and the house were a little bit more on the optimistic side. I think the big unknown when we look to the next two or three years is what that will do to revenue collections, especially in a period of high inflation. You know, oftentimes in economic statistics, we adjust those for inflation, but the tax dollars that the state and the city receive are not inflation adjusted. So it's a big question on what impact that will have in terms of key inputs to the Detroit forecast. Our outlook for sales tax at the state level, was still positive even with that forecasted recession. So we are expecting year over year increases of just under 1%. So pretty small increases and that'll flow through to the constitutional revenue sharing that the city receives. We on the withholding side, which is a big factor for the city income tax. At the state level, we're forecasting growth of about three, two or 3%. Just over three in the next year and just under three in the year following that. So so pretty similar outlook to what Gabe describes with a little more detail about what we're expecting on the revenue side.
And the other comments on the account economic outlook before we turn it over to Steve. Okay,
so next up we have Steve Watson, the city's budget director, joined joining Steve will be Evan Cunningham, the management managing economist for the office of the budget and Erica Barker economist for the office of budgets, and they'll be presenting the city's proposed revenue estimates. The estimates were prepared by the Office of Budget in consultation with the offices of treasury assessor and departmental financial services as well as the city council's legislative policy division and the auditor general's office.
Thank you.
So today we're proposing recurring general fund revenue estimates that are $39 million, or 3%. Higher than our last conference in September for both the current and next fiscal year. The increase is driven by higher income and utility tax collections observed both last year and in the current year. To date. Looking ahead, income taxes continue to lead the charge in line with the economic drivers we've been discussing here today. However, there remain real revenue risks including economic uncertainty ahead you heard a little bit about in the discussion preceding this one, the future of remote work in the city of Detroit and the jobs here and the involve in the evolving state of gaming activity for Detroit's casinos. Conversely, there's upside potential from the many development projects that are underway or forthcoming here in the city, as well as the job training programs underway as well. And we were pleased to see additional revenue sharing and the Governor's proposed budget last week and look forward to future legislative action on it. And with that, I'm going to turn it over to both Evan and Erica to present the revenue estimates in greater detail.
Excellent, thank you and good afternoon, everyone.
So to begin, I did want to give a quick overview here in terms of, again, the statute that establishes the bi annual revenue estimating conferences, where the February conference builds on and revises the forecasts made in September. Again, the revenue estimates must be approved by the voting principals who were introduced earlier. And this particular forecast to include estimates for the current fiscal year which is fiscal year 23. And the next four years, which include fiscal years 24 through fiscal years 27. The revenues approved here today will be used for the fiscal year 24 budget and also for setting the four year financial plan for fiscal years 24 through 27. So this is a comparison to our forecasts presented during the September 2022 revenue conference. So generally you can see an upward revision for all fiscal years included, which are about a three to three to three and a half percent upward revision from September. Now a lot of this is driven due to a higher tax base and we were estimating during September, not only with income taxes also as property tax as well. In addition to that, from what we've seen in year to date collections with utility users tax that also warranted a upward revision and also a revised growth path which also drives on the positive variance from our September forecast.
Now, this just shows the revenue
composition that we'll be looking at today, with the main focus being on the general fund, because as you see the general fund is about 54% of all revenues that come into the city. The total revenue is 2.3 billion with again, a lot of that being driven through our major tax collections along alongside water and sewage, major street funds, and also other non general funds, which do include grant funds. So you'll see for again, the majority portion being that general funds piece this just shows the growth path that we have through fiscal year 27. You'll notice that in fiscal years 21 through 22, a lot of that growth was recovery from COVID impacts. As we move through the forecast, particularly in fiscal year 23 and onward you'll notice that we do resume a more stable growth path as those impacts began to wane and some of the larger and new sources of revenue like internet gaming began to stabilize. The first I wanted to start with income taxes as this is driven by the wage and employment forecast on the Dr. Ehrlich presented earlier with the Detroit economic forecast. So as I mentioned in fiscal year 22, we did have a higher tax base and was projected at the September 2022 revenue conference partially from higher individual taxes collected and then also lower revenues, excuse me lower refunds that were paid. So year to date collections also show that corporate collections are stable, while partnership collections are less than what we saw in fiscal years 22 So there was a downward revision to partnership collections, which is one of the reasons why you'll see that blue section for corporate and partnerships relatively flat through fiscal years 22 and 23. While it does resume a normal growth pattern from fiscal years 24 and onward along with fiscal year 22 actuals we did revisit our estimates for remote work, where our remote work estimates were revised slightly downward due to what we experienced in fiscal year 22. Specifically, we did revise in fiscal year 23 remote work, or at least an increase in refund students for remote work to be about 18% of non resident withholding, which is that red dashed section and it does decrease in fiscal year 24 To a long term growth, while long term assumption of 16% of non resident withholding, and again, that goes through fiscal year 27 and grows in tandem with our withholding assumptions. Now, I do want to take a break here and give our conference principals a chance to ask any questions and also to provide any comments on our income taxes.
Questions, George?
I'd like to just go back to for a minute to the comparison to the September 2020 to four conference forecast and I just want to make two quick observations. First on a percentage basis, the forecast for each major revenue category in September, compared with the current thinking amounts to relatively small errors which is commendable, with errors consistently on the conservative side. The one exception is a larger percentage error for utility users track tax which we can get into later. Second, J reminded me of this last September, I forecast with a high degree of certainty that today would turn out to be the worst weather day of the year, as it was last year at this time. And now I concede that I was wrong. There's always a first time in terms of the municipal tax
I think the
I'm fine with it. I think it's it's it's conservative, fairly conservative. Particularly with what withholding I look at the withholding at the state level. Also, with the percent projected short term wage growth in the city, which I myself I think is going to be higher than the projection, the upcoming UAW wage negotiations. Later this year. And I think we're going to see some fairly good increases there, and my own into my own intuition. And I do recognize that a moderating influences the income tax refunds associated with non resident remote work, much of which has become entrenched since the advent of the pandemic. But I continue to struggle with this one. With the remote work. I think the pattern for the new normal has yet to be established, and we have to continue to monitor this. That's all I
have on that one.
Okay. Just a comment from me. I think, you know, I certainly applaud the city's work to try to estimate what that remote work loss will be. As George said, you know, as we approach the new normal, this is going to be something that we'll continue to be talking about and struggling to quantify. But I think the city's done a lot of work in trying to research that and put together a very reasonable estimate on both that factor, but then also on income tax in general. So I think overall, the the numbers are fairly conservative and, but reasonable and like George I, I hope there's some upside risks on the income tax numbers. But the history has been that the city has put together a pretty good revenue estimate, specifically with income tax. So
are there any more questions? Or comments before we move to the next section? Hearing none,
so the next major revenue is state revenue sharing which contains two portions, the constitutional revenue portion, which is driven primarily by state sales tax collections, and that's our share of it and the statutory revenue sharing which is set by the state budget. So to start out, you'll notice that the moving piece here is the constitutional revenue sharing part as we did set the growth pattern in line with the state's consensus revenue estimating conference. This past January. So within fiscal year 22, the base did increase here again, as sales tax collections were higher than expected. So that did again boost this particular forecast above where we were in September. And in fiscal year 24. Now we do expect some transition from those taxable goods that would show in sales tax collections to non taxable services. Now, while their transition has been slow, we do still expect for it to occur, which is one of the reasons why you'll see the growth being relatively flat for that blue section from fiscal years 23 to 24. So in previous iterations, again, based off of the state's revenue estimating conference, we were expecting to see a negative or shrinkage there for constitutional but now, just based off of prior trends, and what we've seen that growth is expected to be a little more flat from fiscal year 25 to 27. That's where again, we resumed kind of a normal growth trend here in terms of sales tax collections, as some of the elevated demand does taper off. And we reached that balance in terms of our consumer expenditures towards those non taxable services, as well as non taxable goods. The statutory revenue state revenue sharing portion does remain flat, simply because again, that is set by the state budget and we do not implement any changes here until the state budget is finalized. So with that, are there any questions or comments from the principals on the state revenue sharing estimates?
Sure, just just a comment. I think the practice for the city has been to wait until statutory revenue sharing changes are are adopted. Like Evan mentioned the governor's budget yesterday. Or last week, proposed a 10% increase in baseline funding for statutory as well as a 7% increase specifically earmarked for public safety. So hopefully when we have this conference next, those numbers will be a little bit higher on the constitutional side. come directly from the consensus process and the output of that so hoping that those are on the conservative side and that we meet those state revenue estimates.
Yeah, I obviously this is Eric's bag. I I agree with him. These are quite conservative, considering the budget announcements from the state. I understand why you proceeded the way you did. And I guess in a sense, if we're right, it gives does give the city budget some padding to cover for some unforeseen shortfalls in other items.
Is the governor proposing a permanent?
Not all the 17% will be ongoing. I believe it's 5% 5% ongoing from the base adjustment and then I believe it's 5% from the public safety as well. Would be ongoing. So 10% Overall 10% ongoing 7%
One time question. Any other
Oh, any other questions or comments before we move on? Here none.
So at this point, I will pass it over onto our economist, Erica Barker, to discuss our wage and tech systems.
Thanks, Evan.
Good afternoon, everyone. Um, so since our last revenue conference, we have continued to analyze the trends of each gaming and sports betting categories retail, and internet. Based on our analysis, we've implemented a substitution effect into our forecasts in order to more accurately reflect the patterns we've observed. Improving our forecasts included accounting for lower than expected retail activity, year to date through November and higher than expected internet activity. Sports betting has followed a similar pattern to gaming in the sense that retail sports betting remains below expectations and internet sports betting is exceeding expectations. The substitution effect was implemented on both sports betting and gaming. Of course, the different tax rates mean that most revenue is still coming from retail gaming. This is one area that will definitely continue to track the activity to better our forecast and will report any changes in expectations in our next conference. Fiscal Year 2023. Our current fiscal year is the first year with this change. And then the normal 1% growth rate is expected for the following for fiscal year as shown on the slide I will pause here for any questions.
GEORGE Oh,
yeah, they gave you the easy one, didn't they? Ah, I just shared with you. Soon the report that the internet will continue to capture business from the retail establishments as shifting sources of gaming continue. We're clearly in the evolving stages of the next model for gaming. So the wagering process is set on into a new and dynamic territory. And of course, this really deserves continuous monitoring. My current impression I I'm fine with the estimates Mike, my impression is they're they're a little on the conservative side.
Eric Yeah,
I think the estimates mirror pretty similarly what we're viewing at the state level, this is something that started during the pandemic. So we're not sure what this looks like in normal terms yet, so. I'm not sure if I think the risks are weighted on one side or the other. There's just a lot of unknowns. There's a very difficult difficult tax to forecast.
Side note that in 23, versus forecasting a 10% pickup of internet well 5%.
putting forward
again, forecasts another
pickup in internet,
Internet gaming but no decrease. So there seems to be a just grievous nature of feeling like your net keeps to pick up with the stabilizing on site which I don't think it's going to come as well I think given it may continue to pick up I go
that's a weakness. I want
for your period HSC SD.
Thank you. Excellent.
Moving on to property taxes. So the main change here from September to February is overall a higher tax base and we were projecting in September simply because after the December board review, there weren't as many adjustments, downward adjustments to taxable values as we were expecting. So there was a slight pick up there in terms of upward revision. So as a reminder, the growth paths for property taxes is driven by inflation expectations simply because inflation operates as a cap on the value of taxable value for any given year. So in line with Dr. Ehrlich's presentation earlier, we do expect inflation to slow and 2024 which then slows the expected rate of growth, but then fiscal year is 25 and forward with that are there any questions on property taxes, in terms of the growth pattern or any concerns with forecast? Yeah,
I don't really I believe, I've often believed this is the trickiest major revenue item to forecast although so many of them are tricky now. There's just so many moving parts currently that I find it difficult, actually to get my arms around. But I agree that the thing we have to watch is is is the inflation rates. And I looked at inflation rates from different organizations and they move around quite a bit. And so I think I think that will be an issue moving forward. With this. But I'm fine with this now. Think the estimates of reasonable comments from excellent
and we will move on to utility user tax which again will be discussed by our economists Erica Barker.
Thanks. So our last estimates in September included a temporary increase in energy prices. That has those prices have remained elevated and so that change has been implemented into this forecast. Thus a higher growth rate between fiscal year 2022 and 2023 can be observed and it is to account for higher than predicted year to date actuals through November. A big reason for this is that there is higher global demand for US liquid natural gas, which is driving prices up. And this is also one that we will continue to monitor including the demand of us liquid natural gas and natural gas price predictions in the coming months for any changes and of course will report any changes in expectations in our next conference. Are there any questions that I can answer about utility users tax?
They just keep giving you the easiest ones. Energy price inflation maybe the trickiest part of this category to forecast. I'm not telling you anything new I guess. I spent a career trying to forecast this variable among many others and I found it even in normal times to be very, very difficult. And it appears now that it's I think, as you mentioned that it's increasingly influenced by structural and geo political factors. And also actually stronger energy price inflation eventually can cut a couple of different ways. So I admire your efforts on this. I'd like to mention also the utility users tax is another revenue source for new construction is not yet accounted for in this forecast, and and could eventually enhance the outcomes here.
That's all I have.
Thank you don't want that
we'll talk about our recurrent other revenues, which largely encompass our smaller departmental revenues.
So in the aggregate,
these revenues have generally stabilized since COVID and their COVID impacts and from what we've seen year to date, and our current expectations, we do think that they will return to their historical growth trends overall. We're gonna in the aggregate, we do expect these revenues to grow anywhere between three quarters of a percent to 1% from fiscal year 23 through fiscal year 27. With that, are there any comments or questions from the conference principals on other revenues?
I'll just note that I think this is the one area of the conference that continues to improve and you know, I know when when I started this, I'm not sure how many years ago now, there was a lot of unknown in these categories. And I think you have done a great job of just continuing to bring more granularity to this and identifying what those other revenues are and how best to forecast
them.
I'll ask a typical I'll ask one typical question because I don't know a lot about all the details here. Is it fair to say that the risks in this category are more to the upside?
I would say that they're definitely more so to the upside but really closer to neutral here, as we've noticed that again, revenues have generally stabilized in there. While there are some areas where we could see upside such as you know, any additional initiatives done by departments in order to bring in more revenue or just to tighten up revenue collection. Though those do show us potential upside, revisions and future forecasts, so yeah, so why they while risks are tilted to the upside for this particular revenue, isn't there aren't a lot of downside risks. here yet, we do feel that you know, the estimates themselves are conservative and there is room there for upward revision based off of this what we've heard from the departments themselves along with working with our federal budget analysts. Thank you.
Moving on, for non general fund revenues. So just shows the components here which are outside of our general funds, and I will say that it is a similar story here, as these revenues also have begun to stabilize, you know, after those impacts from COVID, we see that stabilization through fiscal year 23 into fiscal year 24. Where, again, we do see these revenues resuming their historical growth patterns. Were through from fiscal year 23 through fiscal year 27. In the aggregate, we see non general fund revenues growing by on average 1.5%. So with that, are there any questions or comments about non general fund revenues?
No, no, no.
So here, we just wanted to take a little time to talk about our budget reserve. Oh,
I'm sorry. Was there a Commodore? We're all set? Okay. Excellent. So just wanted to take a little time to, again discuss the budget reserves were within the fiscal year 23 adopted budget was authorized another 30 point 7 million to the rainy day fund to where we have a total of 138 million in the rainy day fund, which is about 12% of projected expenditures for the fiscal year. So again, we are mandated to maintain about 5%. So again, we do have a healthy budget reserve, as again, we you know, face those economic headwinds that were discussed within Dr. Luke's presentation, and also those that were considered within the revenue forecast. Elesa would like to expand on some of those risks. Some, Mr. Watson alluded to earlier in regards to casino growth, and also
its overall
impacts from monetary policy lasting longer than expected, again, which overall has the effect of damping demands being that being the primary driver for recession expectations. higher inflation last and longer than anticipated also remains a risk to the forecast. The economic activity used to drive the forecast a new component here in terms of elevated natural gas demands driving those higher utility uses tax collections, there is always risk that natural gas demand may lower does causing natural gas prices to lower bringing those revenues a little further down than expected. So there are still mild recession risks that have been built into the forecast. As always, if there is slower employment or wage growth and that was included in those forecasts used to drive revenue expectations, it does remain a significant risk. In terms of potential upside, we do not count development until we do see it in our forecast base. So a lot of development do remain potential upside for our forecast, workforce development and labor force participation gains that have not shown yet in the data. Although they're very strong efforts to build upon those labor force gains, so remains on upward, upward potential upward revisions to the forecast, along with again, as it was alluded to by Mr. bus's ditional state revenue sharing that we would see as part of the state's budget process and has not been counted in the forecast and does remain potential upside once the budget is finalized. higher taxable property values that were just recently set through the assessor's office for tax year 2023 has not been built into the forecast. Simply because we do have a habit of filling those in after the first march border review. So that does remain an area of potential upside for the forecast
itself. So with that
as a final slide in the presentation, and I do want to pass it back to the conference principals for any additional questions and comments about the forecast along with any ongoing remarks.
Thank you don't have any remarks.
I have a few overarching comments quick ones. First, and this region is particularly important to keep an eye on the prospects for the auto industry and its suppliers, especially in a contract year and in a period of significant transformation for the sector. Second, it's my summary view that there is an upside risk overall to the revenue forecast that is leans to the conservative side. Third, I remain impressed by the continuing advances in the process that enhance the finance the forecast product, and I commend the city staff for that and last, there's a lot of uncertainty currently. Even in interpreting the data. We do read the need to remain vigilant as to this ever changing landscape. Part of that vigilance will be reflected in the 18th Detroit revenue estimating conference next September. And I look forward to that. And I go on the record as predicting good weather for that conference.
Okay.
So we'll start now with comments from Renee short, we're glad to have you with us filling in for herb. So I'll turn it over to you or any comments.
Thank you. Good afternoon. I'm very nice short from the City Council legislative policy division. And on behalf of Irv Coralie and Mr. Whitaker and the city council legislative policy division, we would like to thank the Office of Budget, especially the economic and forecasting group, for their hard work and putting together a sophisticated analysis of the city's revenues. We want to thank them for their responses to our many questions raised by us and the Office of the Auditor General regarding the revenue analysis. We also would like to thank members of OCF Oh, the ag and LPD fiscal staff who participated in this process. We and LPD are generally in agreement with the revenue estimates established by the Office of Chief Financial Officer for the current fiscal year 23 and four the forecasts fiscal years 2020 24 through 2027. With the closing of the books for fiscal year 22, the city has experienced eight years of balanced budgets and general fund surpluses since the exiting bankruptcy and 2014 we see the positive results of development activity that began prior to when during the pandemic and our recurring revenues. Regarding income tax revenue. We are encouraged by the positive growth rates forecasted for 24 to 27 adorable the forecasted growth rates are not as robust as the previous fiscal year. It continues an upward trend for income tax revenues based on jobs being created by ongoing developments. However, we continue to express some reservations and certain components of our income tax revenue forecast. That is non resident remote work refunds and the Michigan tax compliance program. As more organization finalize their return to work plans and develop plans to shift office space from Commercial to Residential, we wonder if remote work refunds will reduce to the levels anticipated in this forecast. Again, we would like to see more data to feel more comfortable that this reduction and refunds were were real will occur during the forecast period. Regard with regards to the tax compliance program. We again would like to see more data from the state on the aging of the city's delinquent income tax accounts and its availability for elections. Revenues from Internet gaming and sports betting continues to boost the city's wagering tax revenues. The picture has become clearer that there is a substitution of traditional on site gaming for internet and sports betting. We will continue to monitor wagering revenues to see if traditional and site gaming will return to pre pandemic levels. And although it is encouraging to see that the wagering tax revenue for online gaming and sports betting appeared more solid in this forecast, we would like to see a longer period of data to see if there is a further dilution and on site gaming and if internet and sports betting have reached a plateau, or can we anticipate additional growth from this source, offsetting any additional decline in traditional gaming revenues? Last DDOT revenues continue to slow Excuse me. DDOT revenues continue to show weakness from farebox collections, putting upward pressure on the general fund for additional support. We will continue to monitor this activity. Of course if this body approves the revenue estimates for fiscal year 24th through 27th. It will be used by the mayor to develop the proposed four year financial plan that will be presented to city council on March 3. Lastly, we in LPD appreciate the Detroit economic outlook for 20 to 27 report put out by the University Economic Analysis partnership.
Thank you. Thanks for now.
Next we'll turn it over to Auditor General Mark Lockridge.
Thank you very much. By the time we get to this point, things have been pretty hammered out. But I would like to say that I had been a part of the revenue consensus process this is Inception after bankruptcy and as has been mentioned, you know, the process has gotten a lot better. I would like to say that we're probably in pretty good hands as long as this process is as transparent as it is. And we have the entities involved as in looking at these numbers. I would like to thank particularly Mr. Edmund Cunningham today because I think he was answering our questions even this morning. I think he was sending us emails but also save Watson and budget. Certainly Renee, Herb and their team and my team, which rotates every couple of years. So our process is we do not we take off our otter hats and we dive into this as an independent, objective look at this and so we don't have the same we don't follow this as the analysts do and the forecasters but the information is very telling for us it's a lot better the only thing that we would like as it is to is probably to maybe meet more possibly have some of the other directors involved as they were in the past or maybe the agency CFOs where we ask questions, but but we also agree with all of the major revenues and other revenues and all the estimates that were performed, that we are in general agreement also that the estimates are reasonable. They're reasonably supported. Again, it isn't estimating process. So you know, we're you know, we're not perfect, we'll know. But, you know, with all of the brilliant minds taking a look at it, and I think we pretty comfortable. I'd like to acknowledge my team, Lucy Zang, who was the lead on this. Joe Colborne, who looked at other revenues and utility users tax I think she still has questions. By the way we do meet in in May, even though it's not the legal meet, but we do follow this one more time. And and we have our input up until that point. Also one of my auditors was saying, worked on property tax and wagering tax for the last two years and when so we have a two year rotation. The mica Fuqua worked on income tax and state revenue sharing so they get to do this for a couple of years and then in September, we will have another team that will join. I'd like to also say that that this will be my last revenue estimating conference as auditor general, as my tenure will end shortly. But I I feel privileged and I'm honored to have been a part of the process. i i It's been, it's been great. Dr. faltan buses. Dr. Ehrlich J rising, appreciate all the input and I haven't said that. I think we're in good hands right now.
Appreciate. Thank you.
Well, could I just say something and I have been I have been on this process since the beginning to and I've always really valued your insights and support for the process. So I just want to thank you very much for all that you've done. And we've come a long way since then, haven't we?
Yeah, thank you, Mr. Lockridge, and it's been a pleasure serving with you on this and I to echo George's sentiments. It's, it's great to have your perspective and your team looking at this and asking questions. It really brings a nice new independent set of eyes to the projections so we really appreciate your your service and your team's involvement.
So next, we will move to public comments.
I know we've got a hybrid setup so we will have the ability for people online to make comments. So Stever Evan, are you running the online portion? Otherwise we can start in person if anybody so for those of you online if you would like to to make comments. We're asking you to limit your comments to two minutes, no more than two minutes. So you can raise your hand I believe in the the online portion and we will then promote you I see a hand already in the audience. So we've got a couple so either one wants to go first. Yeah, you can come up to the microphone here so that people online can hear you and
we have a OFFICIAL TIMEKEEPER Steve very Hi.
Janice is going to pull it up. Okay. And if someone would, but
I have a question because then the young man Mark Lockridge, do you say that you're going to be retiring from this. I apologize. Um, hi. Yes. I had a question for Mark Lockridge. Um, I just heard you say that you're going to be it's going to be probably your last. I'm hearing so I want to know do you have somebody that's going to be coming up behind you, um, so that this fiscal forecast won't get interrupted?
Thanks for the question. Yes. The city council will appoint a new Auditor General. Probably Probably very soon. I'm not exactly sure when they'll do it. But there won't be an interruption in our office and Auditor General participating in this process. And again, it's very important that we do so. Yes, it will. I mean, there'll be continuity. For sure. So
are you working with that person? Or are you going to be working with that person? So they can?
I hope so. Okay, thank you.
Thank you. Oh, yes. Just to
just to mention that the auditor general's point me does it tenure appointment. So I was appointed in 2013. And in February, so my my 10 years is coming to an end. Thank you.
Hello, my name is Evan and I want to thank you all for putting this together. And I think everybody's grateful for your expertise. So my understanding somebody's uh, income projections and tax revenue projections are captured by bondholders. So I was wondering, do these projections account for the percentage of these payoffs that will be given to bondholders when we're getting these total percentages? And how would that affect these revenues that are projected if some of that is going to the bondholders and also have one more question in the you have them presentation earlier? He mentioned that the average Detroit worker is projected to make around 90,000 in 2027, the average resident is projected to make about half of that 47,000 I'm sure a lot of that has to do with qualifications, but I was wondering if the chief financial officer and LPD could speak to some of the budget priorities designed to reduce this gap. And I know job training just came up with that as well. Thank you.
Alright, do you want to start with the first question on bond? Sure,
and thank you for that question. One just point of clarification for how payments to bondholders work in the budget. So the revenues that are that were presented here today represent the the total revenues we would collect for the city's general fund as well as non general fund sources. When the city makes payments to bondholders, we have an expense in the budget for debt service. So when the mayor presents his budget on March 3, you'll see a whole section of the budget for debt service. So revenues come in support city services, but then a portion of it goes towards paying down bonded debt.
Next question, Gabe if you want to comment on the distinction between
sure you know, just just to note there's obviously you know, a major gap between the average, you know, wage and salary income earned by Detroit residents and, you know, average wages and salaries of, you know, people who work in the city of Detroit and you know, there's definitely overlap between those groups of people. You know, one thing to point out is that the average salary earned by workers in the city of Detroit will be pulled up by some very high paying jobs in corporate headquarters and professional athletics. So you know, a part of it is the industry mix. But, you know, I think to the point that George made and the question are made, a part of it is about, you know, expanding opportunity and access, you know, for all Detroiters and you know, obviously, that's outside of my my own personal role. But, you know, we were encouraged to see the increase in average wage and salary income among Detroit residents and and obviously, we would love to see you know, that number outpace our projections and and you know, rise even more than then be forecast so.
But, the other thing I'd point out that the slides you saw, expanding industries, and the especially the blue collar jobs and expanding, those are directly related to I think a lot of efforts to date tenure track.
Jobs, which are blue collar jobs in the city. That blue collar jobs is the fastest growing sector in city. Those jobs and the highest growing salaries in cities. Those are the things which are jobs are being negotiated with actual actually those plants, that Detroit residents and that's causing that wage gap break. But that's the things that I think we're trying to do as a city to kind of bridge that gap. Because, you know, those are the things we could do as a city to try to do that. On top of the job training.
is I think the average prices are the gap by like, trending up residents and providing opportunities. I
see any online, I don't see any hand. So I believe we
have two folks for public comment online. I think we're going to start with Ms. Ruth Johnson. So she can be promoted to speak. Should be next.
Okay, thanks. Welcome, Ruth.
Good afternoon, Ruth Johnson from Community Development advocates. of Detroit. Thank you for this opportunity. I didn't hear about budget surpluses or unspent ARPA dollars and whether that affects revenue or will be rolled over. Secondly, I'm wondering if you are familiar with the stout report on the estimated economic impact on eviction and right to counsel from November 2022 That looks at the costs and benefits monitoring them monetary. Third, I would like better information or a better understanding I should say about the decline in the Detroit labor market. And employment and unemployment data that was shared because it does sound like it'd be helpful to have an analysis by type of job. I did see about educational attainment but also by household income, and because I think that's going to be very important. And as well as history as in any historical data to support that job training, or Workforce Development has impacted Detroit, household income wages, and therefore tax revenue. I would also suggest if you could reintroduce everybody, by name, title, agency organization, whether you're on Zoom or in person and wait for us because I can't tell with this little picture on my Zoom screen, who's who and what's what you look good. I'm just saying you look good, but I can't tell who's who. And it also be helpful if you you know, especially if you're you're coming back and just say your name again. Lastly, I did find Gabriel Ehrlich slides on the website, but I did not see the office of the budget slides nor your report. So when is that going to be available? Where will I find it? And how can people unlike me, who does this as a full time job? How can they find it on the city website? Thank you so very
much. He was Johnson.
Steve, you want to take a stab at a few of those as far as like so I guess I'll start on Eric buses. I apologize that the the for those of you online, the principles are all to my left here. So if we speak again, we'll introduce ourselves but Steve, as far as documentation online. Yes,
thank you. So the slides for today's meeting are now on the website. I believe both is part of the meeting notice as well as on the Office of Budget website. Detroit mi.gov/budget. There's a button for revenue estimating conference where in addition to today's materials, and the forthcoming full report, you can see prior conference reports and results as well.
Yeah, and then the I thought you raised a number of good points on the job. Training and maybe that's something we can task again for next conference to to look into a bit more so any other comments, Jay?
Okay. Yeah.
Alright, hi, and also to reintroduce myself I'm Evan Cunningham. The managing economist within the Office of Budget at the city, and also wanted to add a little more context to some of the economic data that you were referring to that was part of Dr. Ehrlich's presentation, along with the data that we use as part of our revenue forecasts and, you know, some of the concepts out there and that doesn't. So again, a lot of the data we received from the Bureau of Labor Statistics that cover Detroiters, particularly on local area unemployment statistics, along with the American Community Survey, which does give us rich data around household income, individual income and really just the experience of Detroiters as shown by Dr. Ehrlich now in terms of some of that data that's missing is one really large piece that I would also like to have which is occupation categorization. So while the Bureau of Labor Statistics do offer some data around occupation statistics, the tough thing with that is it's not specific to the city of Detroit. More so it looks at the Detroit metro area, which does include Oakland County, Macomb County, just other regions that may not have the same economic profile or experience as the city of Detroit. So in terms of disaggregating, that data that's still more so work in progress and it does have its own quirks that are different from what we use for revenue forecasting, but that definitely is one item that we try to get a little bit better at as we look to understand how people work currently in the city of Detroit and also have some color to how we could shrink that gap. As Mr. Ryzen alluded to earlier. So I just wanted to add that color to help answer part of your question.
Thanks, Evan. We have any any other participants online? Comments, see?
Yes, we do have some more and again to for the record. My name is Steve Watson. I'm the city's deputy CFO and budget director. So next up we have Mr. Chase Cantrell.
Good afternoon everyone
and thank you for a very thoughtful and insightful presentation. I just have one, one question or line of questioning regarding development activity. So it seems that on the other recurring revenue slide we have projections for licenses, permits and inspections so we we have a sense year over year, you know, in terms of development activity, the kinds of permits that are being pulled in inspections that are happening for the city. So I guess I'm curious what what elements of development activity is not being represented in the numbers and if we know the kinds of permits that are being pulled and probably the percentage of developments that actually get completed from permits that are pooled why we can't have a deeper forecast for development. Thank you.
Thank you for that and I'm happy to answer so while we do have revenue data around those license permits and inspections again those do look at individual licenses. Now, while it is a nice leading indicator for you know, if their revenue drops and and may be related to decreasing development activity, it is more so a leading indicator to understand how large development is Is it increasing or is it decreasing? Now in terms of the pieces left out of the numbers, that's specifically the economic impact that comes from those developments. So that will be increased employment increase wages, people moving from the city into the city for talking about residential developments. Those are some of the gray areas that exist within developments that we typically do not count until they actually show in the tax base. So a lot of times when we do have a higher tax base from one forecast to another part of that may be due to increased developments, although it is you know, one factor that you know, is difficult to disaggregate since there are no real direct observations of you know, saying this project is responsible for X amount of tax dollars outside of just general estimates that may be presented before a development is done. Another difficult piece with that is timing of those economic impacts, which is another reason why we tend to leave them out of the forecast, since there are high levels of uncertainty more so that we saw before the pandemic as you may have seen building material prices increase, which then may have caused project delays. You know, that would cause instability and additional variance in the forecast as those timings do change. So we found it more conservative and more accurate and also does, you know, give us a little bit of space for any potential negative variants to leave those developments out until we see. So of course, we do work with partners in the city to gather whatever data we have particularly around those large projects to see how we can best represent them to make sure that you know, they are at least being considered in the forecast, say past projects like Hudson sight and the Gordie Howe bridge that were in versions of their choice economic forecasts, but again, that still remains a work in progress in terms of how best to incorporate not only the economic forecast, but also our revenue forecast to make sure that we don't overshoot or over
promise. Thank you. That was great.
And we have a few more public commenters online and it looks like three more next up is Ramsey's Dukes
Can you guys hear me?
Yes we can.
Hi, how are you guys doing? My name is Ramsey Stokes. I am the Senior Advisor for councilmember Callaway and I just have a couple questions. How much is the state's annual revenue share with the city of Detroit? I know in conversations that we had with the Michigan Municipal League, I believe the number was that over the past 10 years or so. About a billion dollars have been left out of the revenue share going directly to Detroit. So it'd be good to know what the exact number is and whether or not that percentage in that revenue share is static, or does it change per annum My other question is, what other forms of revenue are we exploring? Because it seems like we put a lot of onus on on the health and the success of one the auto industry and now the gambling online gaming industry. And we know that that is relatively volatile if there's a another significant event that happened like COVID right and have you guys placed that risk into your your forecast. I'm not sure if you guys mentioned that earlier, but that's all the questions that I have. Thank you.
Thank you, Evan, you want to take the revenue sharing? Sure.
So in terms of the state revenue sharing piece, now while there may be other revenue share through different methods outside of the general fund, I'd say the main piece that we focus on against a constitutional and statutory piece, which again, just kind of referencing the slides is around the order of about $220 million. Now, while there may be other programs, and other ways that we would see state support or state funding, a lot of that is not necessarily forecast through this process, or you know would be included in that larger overall total that was presented earlier. So I wouldn't be able to speak to, you know, the full total in terms of all state programs and other things that might be part of that state revenue sharing piece. I could say that at least the vast majority of it would come through that state revenue sharing portion that was shared earlier in the presentation. Now in terms of additional risks that will come from those new revenue sources like internet gaming. So again, we do try and build that in as much as we can by sticking more so with what we've seen historically. And as you saw during the last slide, we do try to acknowledge where there are areas of risk that could implicitly impact those revenues. Again, Consumer Expenditure being one in terms of how people decide whether or not to spend money on Internet gaming, and that is related to economic conditions and inflation, which was mentioned as a primary risk to our forecast. So while we do try and consider we do build it as best as we can, but it again, it is a forecast and to estimate where there may be some unforeseen influences. So in terms of exploring other revenue sources, I may pass it off to Steve who might be able to answer it a little bit better. But again, we try not to, you know, jump ahead of the gun here in terms of, you know, building anything prospective into the forecast. Thanks,
Ed. And just one kind of additional remark says alluded to whether it be you know, the kind of old state revenue sharing formula that's gone through a lot of changes and subsequent state budgets over the past, you know, 15 years or more. Really, what it boils down to is the city's revenue structure is very heavily controlled by the overall state neural structure for municipal finance that comes from state law in the state constitution. So unfortunately, there isn't very much flexibility for us to quickly and easily change our mix of revenue sources. However, we certainly continue to explore those opportunities. And work in partnership with the state and with the state where we can to further diversify the city's revenue streams.
We have
one final two more public commenters.
Next is Theo pride.
Hello, may I be hurt? Yep, we hear you. Thank you.
Thank you for the presentation. I feel pride Detroit people's platform. I just had a really quick question around tax incentives, particularly tax capture and how that shows up in the revenue estimates, looking at property tax, in particular, does that take into account revenues that are captured and reimbursed to developers? Or is that another mechanism outside of what the what the folks are looking at also, too, I've attended a couple of these these conferences, and I think you guys do an excellent job. What I would like to see in the future, though, is because the city of Detroit relies so heavily on tax incentivize development, more so than other cities and cities that are like Detroit and in terms of being comparable, in terms of population and the economy and so forth, that perhaps some type of study could be done on the efficacy of such a approach to economic development and also to perhaps risk and rewards, you know, how much does the city forego and revenue potential revenue because of tax incentivize development and so forth. So thank you. Thank you for the presentation, and I yield my time.
Thank you. Definitely
want to just talk about the first question there on how the property tax presented, presented here would
happy to answer so the property tax forecast shown, particularly current year property taxes, does have that tax capture removed. So when you're looking at that property tax growth, that is net of any revenues that would be captured? Now to the forecast, we also have that growing at the same rates as we do commercial real property and industrial real property, still, again, subject to that inflation rate cap that I referred to during the presentation. So but of course, you know, that can change depending on you know, some of the same factors. Around property value changes. So we do acknowledge that, you know, it can be captured there. We do stay conservative by not, you know, you know, forecasting any large commercial gains from developments, which could potentially be offset by a tax increment capture. So, yes, we do build that into our forecasts, we do consider it and what was presented here today was net of that tax capture. Thanks, Evan.
And our last public commenter online is Brian White.
Right Good. Good afternoon. Everyone. Thank you for your wonderful presentations. As always, a couple of questions. I wanted to follow up on one of Ruth Johnson's questions. I'm not sure I heard the answer. But I'm wondering what role if any, does ARPA funding and those subsequent expenditures play in the forecasting of a recession or recession or pulling back of the economy, either nationally, and or in Detroit? Secondly, I like to ask a question asked every year you know, I understand the thought process and the practice of being conservative. During these times. But again, this year, I think we have an estimated $231 million surplus in the city of Detroit. And what that effectively does to council in the city in my estimation is it doesn't allow us to be as effective as possible in delivering needed services to residents. Because when we get that number, we're towards the end of the fiscal year, and we have little time to be nimble and make changes that the folks in the communities want to see. So I'm just wondering is it again every year asked? Is there an acceptable level of surplus or you know, conservatism when it involves the forecast and that you guys are comfortable with? And then lastly, I just wanted to know how does Detroit's job numbers and projections of in terms of payroll employment compared to other major cities, and our comeback as it relates to other major cities?
Steve, you want to take the first one on arpa?
Thank you for for those comments. So specifically with respect to the ARPA funds, as I'm sure many are aware that the city is currently deploying those funds for a number of programs to aid Detroiters in recovering from the effects of the pandemic. Among many other things. It includes various workforce development programs that were alluded to here today, such as jumpstart, which I know is gotten a lot more attention over the last couple of weeks. So we're hopeful that those investments will certainly succeed and help boost city revenues. As we noted earlier, that kind of upside isn't in the forecast sitting here today. But obviously, we hope to see it in the years ahead. As Mr. Cunningham mentioned, sometimes it's usually just a question of exact timing of when those kinds of gains may occur separately with respect to
the extra width. The other question was
Oh, thank you. Um, yeah, so in terms of the surplus, yes. Thank you for reminding me. So we had a proximately 20 or $30 million surplus ending fiscal year 22. That was that size of one is unprecedented and was relatively unique. It was really from a combination of factors. That original budget year was struck in the middle of the peak of the pandemic, where there was a lot of uncertainty about where income taxes were going to trend when the casinos would fully reopen. Internet gaming had just launched. And so there was, you know, certainly a lot of downside risks when those estimates were struck. And so to be conservative, you know, we plan for the worst and luckily, had a positive outcome. Another component of it is an expenditure surplus. To that was somewhere between 30 and $40 million of that surplus. And so while we don't expect anything near like that level to recur in the future, through budgeted conservatively we, you know, what we attempt to do is mitigate any major risks that the city would run a budget shortfall and so while we look to keep those surpluses minimal and have minimal forecast errors with the revenues, it is partly an outgrowth of the process but certainly I would not expect one of that magnitude to reoccur.
And I would like to add to that, and also answered the last part of your question. So yes, when looking at fiscal year 22, there are two big pieces that I think would have driven that in terms of forecast error. One was Internet gaming. Fiscal Year 22 was one of the years that you know, Internet gaming would have just came online and we were trying to be conservative in terms of what we could expect in terms of revenue and how quickly it will take off. So that has definitely well surpassed expectations from the time that we began forecasting that revenue, which was honestly, again, as Mr. Watson referred to at a time before that revenue even started coming in. So that's where we again didn't want to forecast something larger than that could possibly happen. And it has really beat out expectations. The other part was refunds. So while we did understand that remote work was really a new item when we're on which we didn't have a lot of data, and, you know, was trying to estimate how large the liability or refund activity could be based off of what we knew around. They'll be able to work remotely, you know, what their patterns would be, and also their potential wage that could be fully withheld since at that time, majority of people that were working remotely weren't coming into the office at all. So more. So those were pleasant surprises in terms of those impacts not being as large as we thought they would be. But more so it was because there just wasn't a lot of data to work with to build out a proper trend. So now we are in a place to where we have observations to be more accurate, so we wouldn't see that size of a surplus again, as Mr. Watson was referring to. And then lastly, the piece about payroll employment data being in line with other major cities. So again, Dr. Ehrlich may also have a view on this since he does work with the data himself with the Detroit forecast, but generally from what we've seen in terms of comparable cities, so you know, excluding you know, the New York and California is in the Sunbelt, that may have a lot of in migration, which will create a completely different trend. You know, generally speaking, we are in line with other larger cities, will Midwestern cities, I should say so again, in terms of that industry mix and employment mix it it may be a little different, but I would say the growth rates aren't wildly different as compared to say other regions. Which would have other influences impacting that growth.
All right. Any other comments or? All right, well, hearing none, is there any further discussion or comments from the principal's
Hearing none the chair will now entertain a motion to adopt the consensus or adopt by consensus, the city's official economic and revenue
forecast. Motion made there a second all those in favor, aye. Aye. Opposed nay? Hearing none.
Therefore, the economic and revenue forecast is hereby adopted. This will be the official forecast for the February 2023. Conference. The forecast report will be finalized and with additional information from today's conference. It will then be distributed to the mayor, the council and the Financial Review Commission as well as being published on the city's website.