call this meeting to order on this September 11 at 1:13pm This meeting is called to order pursuant to the revenue estimating conference provisions in the home rule city Act, as amended by public act 182 of 2014. I'm Eric bosses. I serve as the chief economist and Director of the Office of revenue and tax analysis within the Michigan Department of Treasury. I serve on this panel as the representative of the state treasurer. At this time, I'll ask the other principals to introduce themselves starting with Mr. Rising
Thank you, Jay rising I'm the CFO for the city of Detroit.
George Fulton. I'm a research professor emeritus at the University of Michigan and Director Emeritus of the research seminar in quantitative economics, or Rs. kewley in its economics department. I'm also the one remaining charter member of the principles. This is my 18th meeting since its inception. Thank you, George.
Good afternoon, everybody. I'm Ervin Corley Jr. Go by Earth and I'm the Executive Policy Manager for the constant legislative policy division.
Good afternoon. I'm Laura Goodspeed, the Auditor General for the city of Detroit Office of the Auditor General.
Right. Thank you for everybody who's joining us today, including members of the public and members of council. We thank you for attending this meeting. 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. Principals of the conference must be the CFO for the city of Detroit, the state treasurer or designee and a third person affiliated with a public entity with experience and economic forecasting. And revenue projections which is Dr. Fulton. So the revenue estimates approved today we'll set the revenues the city uses to begin developing the FY 25 budget and the four year financial plan which will range out to fiscal year 2028. Before we start this year's conference in new business, first we must take care of old business which is the approval of the draft minutes from the February 2023 Rest revenue estimating conference. Is there a motion to approve the minutes from the previous conference? I move
Second. Second?
All those in favor say aye. Aye. Aye. Opposed? Hearing none. The minutes from the February 2023 revenue estimating conference are hereby approved. First we'll start with the state of the US and national us and state economy. And we're pleased to have Gabrielle Ehrlich, director of the research seminar in quantitative economics. The University of Michigan who will present Detroit to local economic forecast. Thank you. Thanks
Oh, here we go.
So he told me just press the button is going to be easy. Okay, well, thanks very much for inviting me to join you today. I'm very happy to present our summer forecast for the Detroit economy. And I just wanted to note as always, that this forecast is produced as part of the city of Detroit University Economic Analysis Partnership, which includes of course, the city of Detroit. Along with the University of Michigan, Michigan State University and Wayne State University. I wanted to start by giving you a quick update on where the US economy stands right now. Of the labor market has remained resilient in the face of high inflation and rising interest rates. The US economy has added an average of about 236,000 jobs per month so far in 2023, which is slower than the 2022 average of 399,000. But faster than the average rate of about 163,000 job additions per month in 2019. And nationally we now have about 2.7% more jobs than we did just before the pandemic. The news is not as good on inflation, but it is improving. This chart shows 12 month inflation rates for the all items Consumer Price Index and yellow and core CPI which attracts food and energy prices in blue all items. Inflation came in at 3.3%. In July, about core inflation came in at 4.7%. And you can see, you know, a lot of progress obviously on the headline CPI on decent progress although not as much on core CPI. The housing market is also holding up better than you might have expected and then many economists expected given the sharp increase in mortgage rates. You can see the National Association of Homebuilders housing market index, and the blue line on this chart has rebounded partially from its bottom at the end of last year and that's good news because construction is typically one of the industries that turns down in a recession. Mortgage purchase applications shown in the yellow line on this chart are still really taking it on the chin though, and that's bad news for Detroit's economy. I'm given the importance of the mortgage industry to our local economy. Domestic light vehicle assemblies have picked up noticeably recently in the second quarter, they averaged about 11 million, which was actually higher than the 2019 average. So that has been encouraging to see. And so with that context, I'll turn to how Detroit's economy is doing in the recent data and I realized I'm supposed to be asking Erica to advance the slides. My apologies Thank you. We've received some updated numbers since we put our forecasts together. So, um, you know, some of these numbers will be a little bit different than what's in our report, you know, online and in drafts that we've shared with the city as their forecasts was developed. But the basic context is not going to change and Eric I will go ahead to the next slide now. I'm sorry about that. The yellow line in this graph shows employment at jobs located inside Detroit's boundaries, whether the person working at the job lives inside or outside the city, and we call that measure Detroit payroll employment. So again, that's the yellow line. The blue line shows unemployment of Detroit residents, whether their jobs are located inside or outside the city boundaries. I mean, we call that Detroit residents employment. The data for payroll employment extends through December of 2022 As of right now, but when we produced the forecast, we only had that up through September. payroll employment in Detroit fell by about 50,000 jobs at the start of the pandemic, which was over a fifth of the total by May of 2022, and it recovered about 45,000 of those jobs are about 90% of the initial losses. And you may be able to see I say, you can see if you squint at toward the end of the graph, you can see the payroll employment in Detroit actually ticks down a little bit in the second half of last year, finishing just under 230,000 jobs in December. The data for resident employment currently extends through July of 2023. So it's more timely data. And resident unemployment in Detroit basically treaded water from late 2021 to early 2023. But then at the end of the graph, you can see that it's picked up very nicely since February of this year. And in fact, as of July, I was really pleased to see this when I was updating the numbers in preparation for this conference. A seasonally adjusted employment of Detroit residents has now made a complete recovery from the pandemic if you measure from February of 2020. And that's fantastic to see. So next slide, please. This graph shows you the unemployment rate in the city of Detroit and obviously it made a lot of headlines this spring when the unemployment rate fell to 4.2% which was the lowest rate on on record going back to 1990. It has ticked back up. You know I don't think people were shocked to see it ticking back up to 8.3% as of July or 7.3% when we seasonally adjusted the data ourselves. So the Bureau of Labor Statistics doesn't publish on the seasonally adjusted data, but when we seasonally adjusted, we get a rate of 7.3%. And I just want to point out even though you know the unemployment rate has ticked back up from those extremely low levels that we saw in April, the seasonally adjusted average employment rate unemployment rate here in Detroit has been 6.7% this year, which is you know, very encouraging to see. So next slide please. I mentioned a couple of slides ago, but as of right now, we only have data on payroll employment in the city through the end of 2022. And obviously it's August of 2023. Now, so we'd love to have a more up to date estimate. And so as part of this partnership with the city, what we've done is to build a so called nowcasting model of Detroit's job count between when the currently published data ends and today, and it's a statistical model that uses more timely data from other sources to estimate Detroit's quick job count are now casted just the Detroit payroll job count has picked up by about 3500 jobs in the first half of this year, which would be great to see if the data does in fact come in that way. So next slide, please. With that, I'll turn to our forecasts of the Detroit economy. And one more slide please. This slide shows your forecast for payroll in residence and resident employment in Detroit. We're forecasting that payroll employment in the city will nudge up above the pre pandemic level actually in this current quarter and continue growing from there. So in the third quarter of 2023. We're forecasting nearly 5000 job gains this year, about 4300 next year and then nearly 3020 25 And then growth slows down to about 1500 job gains per year from 2026 to 2028. Resident employment growth runs a little bit faster than payroll growth this year, with about 6000 more residents being employed in 2023. Then in 2022. Resident employment then runs a little bit slower than payroll employment in future years with about 3900 job games next year or employment games next year. And 30 320 25 And then it runs roughly in line with payroll employment in the back part of the forecast. Um, so you can see we're forecasting continued growth from here and that's really the most important takeaway. Next slide, please. But here we split each of Detroit's industries into three groups, and the graph displays our forecast for each year's total employment level, with levels indexed to 100 in the first quarter of 2020. Detroit's blue collar industries which are in the blue line here are already well above their pre pandemic job count. There was a dip due to a relocation of where jobs were counted. At the start of 2022. But we do expect that dip to be reversed on going forward. And we're expecting to treat blue collar industries to keep growing but at a slower pace than in the recent history from here. They get to about 8000 jobs above their pre pandemic employment level by the end of our forecast and I do want to point out because of the timing of the forecast cycle that we do with the city. We base these forecasts on our May us and Michigan Economic outlooks, and we did not build a strike about by the UAW against the Detroit three automakers into those forecasts. So this forecast does not include a strike. Just just as as you know, a caution. And obviously a strike could move these numbers around in the short term. Our assessment is that a strike along the lines of what we saw in 2019, which was a strike of about six weeks, 40 days. Against a single one of the Detroit three automakers wouldn't fundamentally alter the trajectory of the state or local economies, although we would certainly feel the disruption in the short run. Okay, so with that, noted, what I'd like to do now is move to the yellow line, which are what we call the higher education service industries and those are basically what you might think of as traditional white collar jobs. And you can see the recovery in these industries has lagged in part due to rising interest rates, which have been a headwind for Detroit's mortgage finance industry. The staying power of remote work is also an obstacle to recovery for these industries. We're projecting Detroit's white collar industries to make basically a full recovery from the pandemic by the end of our forecast. And so, so finally, moving to the green line shows our forecast for Detroit's lower education service industries, which are service industries that don't require a college degree or more education. Typically, Detroit's lower educational attainment service industries were hit the hardest at the start of the pandemic, but they've experienced a rapid recovery. And we estimate that they've actually made a full recovery from the pandemic in the first half of this year. As I mentioned, we don't have the hard data as of right now, but our estimate is that they have now recovered to where they were before the pandemic. growth continues from here and the lower educational attainment service industries and our forecasts about 4200 jobs higher than their pre pandemic employment level. So next slide, please.
This slide shows average annual wage and salary rates earned by workers at establishments in Detroit in the yellow line statewide in the blue line. And then for Detroit residents in the green line and due to the pandemic. We don't show data for Detroit residents in 2020. And other than mentioning that and that's why we have the dashes there in that line. I've decided that enough time has passed that I can skip going through the wiggles around the pandemic period. In my remarks about this now. We're forecasting pretty steady wage growth during during our forecast period, about 3.8% per year for Detroit payroll employment, and 3.3% per year for Detroit resident employment by 2028. The average annual wage of workers at Detroit establishments will reach nearly $95,000 per year, or 38% higher than the 2019 level. And Michigan's average wage rate will increase about the same amount in that time. You know one thing I always want to point out I tried to point out because I think it's underappreciated is that average annual wages earned by the employee to Detroit residents who by accumulative 47% from 2014 to 2021, from a from about $26,600 to a bit over $39,000. And that growth was substantially faster than the growth of the average wage rate for jobs located in the city, which came to a cumulative 25%. Over that same period. We predicted wage growth of Detroit residents to keep pace with roughly keeping pace with jobs located in the city over the forecast period and resident wages climbed. To just over $50,000 by 2028. Next slide please. The yellow line on this slide shows total Detroit income per capita. And the blue line adjusts for inflation to express the yellow line in terms of 20 $21. And again, we don't show that the 2020 data because of the pandemic disrupted the data collection of Detroit residents nominal so not inflation adjusted household income per capita stood about 4.4% higher in 2021 than in 2019. But inflation adjusted, it was about a percent lower than in 2019. We estimate that nominal income per capita grew by 7.1% from 2021 to 2022. But rapid inflation meant that in real terms income per capita actually continued to decline last year by another 1% We're forecasting that nominal income per capita will increase by almost 7% in 2023. When moderating inflation, you know this year means that growth will finally translate into real income per capita gains of about 1%. And then we projected that nominal income per capita will grow at an average annual rate of about 4% between 2024 and 2028. Because we projected inflation to pull off quite a bit, real income per capita will grow by an average of 1.3% per year in that time. So without adjusting for inflation, Detroit residents total nominal income per capita grows by about 45% from 2019 to 2020. But we are expecting the price level to rise by about, you know 36 or 37% in that time, and therefore Detroit residents total income per capita grows by about 6%, cumulatively from 2019 to 2028 in our forecast. Next slide, please. This slide shows our forecast for local inflation as measured by the Detroit CPI. On an annual basis we projected to treat inflation to fall from 8.2% last year to about 5.8% this year. Before coming in just above 3% in 2020 for local inflation then averages about 2.4% per year from 2025 through 2028. For comparison, local inflation averaged 1.2% per year from 2014 to 2020. So we are projecting local inflation to run substantially ahead of the pre pandemic trend even after the current spike subsides. And next slide please. This slide shows our forecast for the annual unemployment rates in Detroit and Michigan. And we now estimate the Detroit unemployment rate averaged about 8% in 2022, which was below the pre pandemic level. And with the declines we saw earlier this year, we're projecting Detroit's unemployment rate to average about six and a half percent this year. It then climbs up to an average of about 7% Next year, which is about where it stands right now in the seasonally adjusted data. Detroit unemployment rate then starts falling again, are moving forward to about six and a half percent and 2025 all the way down to 5.8%. In 2027 and 2028. We're projecting Michigan's unemployment rate to average about 3.8% In those years, so the gap between the state and city unemployment rates is significantly smaller over our forecast than in the years prior to the pandemic. And hopefully you can see that in the chart. And I think, you know, obviously, I'm throwing out a lot of numbers. But I think really, you know, one of the big takeaways from our presentation and you know from this slide in particular, is that we expect a tight labor market to persist for the foreseeable future, both in Michigan and in Detroit, uh, notwithstanding the potential impacts of a strike this fall, which as I said, so long as it doesn't go on too long or, you know, isn't, you know, a lot substantially more intense than what we saw in 2019. We don't expect to alter the fundamental trajectory in the long run for the local economy. So next slide, please. That wraps up our forecast. But what I wanted to do is show you something new this summer, which is an analysis of how to trace labor market performs in terms of producing opportunities for its residents to earn a living wage, and I do just want to want to point out, you know, we I've obviously got colleagues here from the city and former colleagues here from from the city. And I wanted to say that, you know, this analysis really is a collaborative effort that and the, you know, the idea to do this analysis really came from our partners in the city and from feedback we got from stakeholders around the city, you know, as part of this project. So next slide, please. Our goals and conducting this analysis, were to identify how many working Detroiters are earning a living wage to compare the share of workers earning a living wage in Detroit to the shares in other large Midwestern cities, and to identify factors that help to explain the variation in workers earning a living wage between Detroit and its pure cities. We use a slight adaptation of the living wage calculator compiled by Dr. Amy glass Meyer at MIT in this analysis and basically the MIT living wage calculator creates a basic needs budget based on local market prices for different essential spending categories. And that basic needs budget varies based on the number of adults in the household, the number of working adults and the number of children in the household. And just to give you a rough sense of the dollar amount that we're talking about the living wage threshold for the Detroit area in 2021, was a little over $34,000 for a single adult with no children and almost $67,000 for a two adult, one child household with one working adult. And the other thing I just want want to point out before I go further with this analysis is just to be clear, leave regard this as a first step in studying this topic, and we're really excited to do more work on this topic in the years ahead. So certainly not the last word, but hopefully a first step. Um, so yes, next slide. Thank you, Erica. Um, this this slide is perfect. We calculated that only 36% of all primary workers in Detroit currently earn a living wage. And that share was lower than in Detroit's pure cities, which are, which are on the other slide here. I'm in Milwaukee and Cleveland. The Living Wage shares were 45% and 48%, respectively, and that's higher than in Detroit, although it's still less than half of all primary earners. Even in Minneapolis, which has the highest living wage share of all of the cities be considered a less than two thirds of primary earners make a living wage. One thing you can see on the table is that full time workers are more likely to earn a living wage than workers overall but still only about a half of Detroit's full time workers earn a living wage in our estimates. Next slide, please. So to study what factors drive the gap between Detroit and its pure cities in terms of the share of workers earning a living wage, we used what's called a Kitagawa a walk on blinder or tob decomposition, which is a widely used methodology in labor economics and other social sciences. And basically what this approach does is to decompose observed differences between groups into a part that's explained by a set of explanatory variables and then an unexplained portion. So just to give you you know, kind of an idea of what this method does, the gap between the shares of workers earning a living wage in Chicago and Detroit is about 24 percentage points. And at the same time in Chicago, 53% of primary earners have a bachelor's degree or higher education Well, in Detroit, only about 24% of primary earners do and the K OB approach is a way to estimate how much this difference in educational attainment drives differences in the shares of workers earning a living wage. And we provide substantially more technical details in our report online. If you Google RFQ li we should be the first link that comes up and the report is right there on our website. Um, so can we go to the next slide, please?
Thanks, Erica. Okay, so we actually accounted for four different factors, in this case, EOB decomposition, and they were educational attainment occupational composition industry composition and hours worked. The left column in the table shows you the shares of workers are going to living wage in each city, which is the same information. I showed you a couple of slides back. And again, you know, the way to read this table, as I mentioned previously, is that there's a 24 percentage point gap between the shares of workers earning a living wage in Chicago and in Detroit, right, the difference between 60% and 36%. And then in the next column over we estimate that educational differences between Chicago and Detroit can explain about 53% or just over half of that gap. In terms of living wage shares, or about 12 percentage points. And then the bottom row of the table shows averages across cities, in terms of the shares that can be explained by the different factors that we considered. And we estimate the differences in educational attainment can account for about a third of the average gap between the share of Detroit workers who earn our living wage and the shares in Detroit's appear cities, an occupational differences can explain about 30% of the gap on average of all differences in industry mix don't appear to explain any of the difference and then finally, differences in hours worked explained about 16% or about a seven of that average gap between Detroit and his pure cities. And then finally, the column all the way on the right of the slide shows that when you put all of these factors together, you can explain a little over 40% Or for two fifths of the gap between Detroit and pure cities in terms of workers earning a living wage, and it might seem counterintuitive that the combined share is so much lower than the sum of the shares explained by the individual factors. But the reason is that the factors we consider are very correlated with each other. So the predicted the predictive ability of each individual factor overlaps with that of the other factors. So just to sum up, although much of the living wage gap between Detroit and is pure cities is explained by these characteristics, most of the gap is left unexplained. And as I mentioned, we consider this analysis a first step in investigating these trends in living wage metrics and differences between cities and we do hope to build on this research and future partnership with the city and our university partners. So next slide, please. I think that yep, that's the end of my presentation. Thanks again for inviting me to present today and I'd be pleased to answer any questions if there's time. Thank you.
Thank you, Gabe. And thanks for the really interesting analysis at the end and that was really insightful. I hope you can make some more progress and identifying what those drivers are. Open it up for questions, George.
Yes. Thank you. Great. To start. I continue to be very impressed with all the efforts that went into your forecast detail with all its difficulties. So thank you. So I might have mentioned before I recently read a book that claims to show a correlation between the events of Motown sports and the city's shifting fortunes. This year I'll be focusing on the success of the Detroit Lions and the fortunes of the city's economy. So far, so good. Now, turning back to your more reliable work on the local economic forecast. I'd like to solicit your brief thoughts on each of three potential hits to the economy. First, and I guess the the obvious one, is the high likelihood of a strike by the UAW. What is your horse stance on the likelihood of a more severe impact?
So, you know, as I mentioned, thank you, George. As I mentioned, we did not build a strike in to our to our baseline analysis, you know, Georgia, very well familiar with the difficulties of doing, you know, local area economic projections. And so I you know, I just want to sit you know, say, you know, please accept, you know, these thoughts, with with, you know, the understanding that they come with a very wide band of uncertainty around them. The first thing to say is obviously, it most observes, feel that the odds of a strike are have been rising this summer as as negotiations have fallen on. You know, and so now seems like the strike is certainly more likely than not. So with that in mind, you know, it's, it's certainly something we're watching and, you know, from our perspective, the impacts on the Detroit economy would really depend on the details. Of the scenario and I, you know, I'm happy to talk more, but I do think, you know, certainly relative to what we had built into this forecast, which didn't really include a strike. You know, that the odds of a striker are obviously higher today.
Yeah. Okay. But you do have some concern that that it could be a bigger Oh, deal.
Yeah. You know, I do and, you know, I think, as I said, you know, from our perspective, it certainly does seem like a strike is more likely than not at this point. You know, we took a very back of the envelope approach to to doing our best to estimate what the impacts on the Detroit economy might be for a six week strike. And you know, it depends on the on the exact scenario, you know, looking at a single automaker, striking for about six weeks, which would be along the lines of what we saw, you know, in 2019. Our estimate is that if the Lantis were to strike, you know, there are about 10,000 UAW workers from from our estimate in Detroit as the Lantis. And we would expect a six week strike to lead to about 19,000 job losses in the city when you account for spill overs. at Ford, you know that there are not really UAW workers in large scale working in the city, but there are quite a few in in Wayne County. And so because of spillovers and economic linkages, we'd expect about 7000 total job losses in Detroit from a six week strike. And, you know, in at GM, other about 1000 UAW workers from our estimate and factory zero I'm in Detroit Hamtramck but you know only about 2400. UAW workers are hourly workers in Wayne County at GM, so we'd expect the economic impacts of a strike at GM targeting GM to be smaller. We estimate a little under 4000 total job losses in the city from a six week strike. But you know, George, to your point, we do expect the effects of a strike to grow over time. So we would expect the spillovers to start out fairly modest and then to grow as a strike persistent and so a lot really does depend on the details.
Yeah, well, thank you. I know that's not an easy question. I've been in this business too. And there are so many dimensions to it. And until you can narrow down the dimensions it's really hard to peg but it's certainly something we have to consider on the horizon. The second one I wanted to ask you about of the three are the odds for you will give to a forthcoming national recession in the next six to eight months.
Thanks for you know, looking late last year, our base case was for a national recession sometime this year or early next year. That's no longer our base case. You know, and I'm sure you'll recall, there were headlines like in Bloomberg said, you know, economists are forecasting a 100% chance of a recession. I think that that headline was really, you know, not descriptive of the reality. You know, what we had been saying was, we do see, you know, a recession, very mild recession as our base case and I always took pains to say you know, we do expect the economy to slow down whether it's an official recession or not, I think, you know, we shouldn't focus too much on the binary. You know, the economic news is held up better than we were expecting than many economists were expecting over the course of the year and this summer, so a national recession is no longer our base case scenario, it remains a risk. But what we do expect is a period of below trend economic growth next year. So I think, again, you know, I have tried to, to kind of emphasize, you know, an official recession is a determination made by a committee of academics. You know, so So not to focus too much on that exact declaration. But just to say we do still expect the economy to slow down and grow a little bit below trend next year. But a recession an official recession is not our base case.
For what it's worth, I I agree with the scenario you just described, and then the third, do you see an upcoming shutdown the federal government, and how much of a concern do you have about that? Yeah,
you know, obviously, again, you know, it related as it's similar to the UAW strike, the odds have been rising. Um, it is a concern. We have a you know, I think it's a very real possibility. It's, you know, a live possibility. I think that, you know, the, kind of in the direct impact, hopefully should be mild. You know, it's, it's an obstacle it's, you know, it's an obstacle for the economy to overcome. But in terms of having, you know, fundamentally altering the trajectory of the economy, I, you know, it's a tail risk. And in that sense, I don't think that it should fundamentally alter the economic trajectory over the next year. If you know, things play out, you know, as they have in the past. So
well, actually, I also agree with with with that comment, and I just want to add that on your ongoing research on the share of the city's residents earning a living wage. I agree with Eric, I think it's very interesting, and it should be relevant to local policy makers. So thank you again, gave a thorough and well done.
You have any questions?
Thank you, Gabe. I found it really interesting talking about this kind of economic trifecta that George was was pausing to think about the other terms of my question, it really is on the auto side. It seems to me that a strike has some temporary effects which can be reversed depending on the settlement. But have you thought about or can you speculate on longer term effects on the on the industry itself, whether the growth rate of the industry may suffer?
Thanks, Jay. And that's something I should have mentioned, you know, so we've focused, you know, on the short run impacts of a strike. And I think, you know, the long run impacts are a lot more nebulous and harder to pin down, but obviously, you know, what, what concerns me or at least something that we're thinking about as well does it affects the calculus of where new investments go, you know, I think if we had a relatively you know, mild strike if it was resolved fairly quickly, without you know, too, too. Much on acrimony. I think that that's, you know, something we've seen in the past, you know, that the industry, you know, could work through, but what I worry about is, if we, you know, have an especially acrimonious or intense or drawn out strike, does it affect the long term trajectory of the here in Michigan and Southeast Michigan, because obviously, we know that, you know, automakers have options of where they locate new investments. And so you do wonder, well, you know, does it doesn't enter into that calculation. You know, that strike experienced the odds of a strike on when they're making those decisions in the long run.
Thanks. Thinking George asked you most of the hard questions. I'll ask you one more follow up on the numbers you cited on the UAW strikes. So just the assumptions Right. Like go into that are important. Does that include strike pay, or what are you assuming on that and, you know,
can you get we've assumed strike pay of $500 per week, okay,
so that does include, okay, okay. Thank you. All right. Any other questions? Otherwise, we'll move to the next item. The next item on the agenda. Historically, each cup principals provided remarks. I've provided an update historically from the state's revenue estimating conference. So I'll start with that. Our last state revenue conference was in May. So it seems like a lot of things have changed from May until now, but we forecasted a slowing economy at the state level in that most recent forecast. There are three principal groups that come together for the state's revenue forecast, the Treasury Department, as well as the House and Senate fiscal agencies. And the outlook was very similar to game highlighted that most economists thought we were heading for a slowdown in potentially recession. Two of the three groups Ford natural recession. Treasury was one of those and the third, forecasted just a slowing economic growth over the forecast horizon. So I think the odds of a recession have continued to improve or at least looks more likely that we may prolong or avoid one of those since May, but our outlook for specifically state sales tax and withholding is directly relevant to the city's economic and revenue Outlook. So for sales tax, which is closely tied to constitutional revenue sharing, we forecasted really flat growth over the next couple of years growth of just over half a percent in the first year and again under 1% and fiscal 24, which will impact the revenue sharing numbers that you see in terms of withholding income tax revenue that we expect at the state level we forecast withholding to be about 3% at a baseline level, that's omitting some of the tax changes that we did at the state level. You know, related to retirement taxation and income tax cut. So overall, a very an economic outlook that's very much in line with the one that that gave just summarized for you. With that, I'll turn it over. Dr. Fulton, do you have any
thoughts on the economy?
Okay, with that, we'll turn it over to Steve Watson's, the city's budget director and Erica Barker, and economists with the Office of Budget to present the city's proposed revenue estimates. These estimates were prepared by the Office of Budget in consultation with the offices of the treasurer assessor and departmental financial services as well as the city council's legislative policy division and the auditor general's office. Take it away, Steve.
Thank you, Eric. Go ahead. Erica. I guess a
couple of slides in.
Thank you again for the opportunity to present the proposed revenue estimates for the conference here today. And the slide that we have in front of you right now is showing the proposed revenue estimates all the green and orange bars on the right compared to the gray bars. On the left, which is the estimates from our last conference in February of 2023. As you can see, the revenue estimates are significantly higher at the conference today compared to the last conference roughly about 30 to $31 million higher in fiscal year 2020 for the current year that ends June 30 of 24. And what you can see from this graph is that the biggest driving force across all the years is that we observed a higher base in the preliminary fiscal year 23 actual revenue, and that was led primarily by our income tax, and in particular corporate income tax revenue, which was about $20 million higher than what we had originally expected. And you can see, the higher revenues continue through the base across the years. The growth, which we'll go into a little bit more detail on each of the major revenues is in line with the economic forecast that Dave just walked through, including the slower growth in the near term and steady growth in the years ahead. And one big takeaway from the update this year, as you'll remember from past conferences that the last few years were significantly dictated by the pandemic and the revenue losses the city experienced in those years and then subsequent to that the very robust recovery the city saw so we saw revenues grow in very large percentages over the last couple of years as the revenues rebounded beyond the pandemic and have now surpassed pre pandemic levels. And then what you're seeing in the Outlook here is sort of a return to normal revenues are growing at a steady rate. Nothing extraordinary, but, but we, owing to the growth in employment wages, we're forecasting as well as some of the trends we've recently observed in the other major revenue categories. Next slide. I'm gonna hand it off to Erica to begin our discussion with revenues in a little more detail.
We'd like some screen share.
Thanks, Steve
So here we have our fiscal year 2025 revenue summary for all of the funds so on the previous slide, we showed just the general fund information which makes up just over half of the city's revenue portfolio. Whereas this chart shows all of the city's funds, the largest of which are the general fund and the water and sewerage fund the other restricted category is a combination of enterprise and grant funds. And this will be monitored as we go forward in the budget process for fiscal year 2025. Next slide. So this slide shows our general fund recurring revenue for the revenue conference we normally focus on the general fund. We also focused on recurring revenue because any non recurring activity we just can't count on to be observed again, therefore it is left out of the forecast so if we have any non recurring revenue, it's included as a note on the bottom of the slides. As an operating standard overall, we consider only developments and events that have happened before our forecast editing stage so any new occurrences influential to Detroit are not considered in these numbers. The general fund as you can see here includes the major revenues and other revenues. The five major revenues are income tax, property tax, state revenue sharing, wagering tax and utility users tax. So on this chart you can see fiscal year 20 and 21. Show the general fund revenues during the pandemic and then 2022 to 2023. Showing some generous recovery and then we're expecting a 2% growth going forward. Overall, in the general fund for recurring revenues.
Already income tax, so income tax is our largest major revenue and made up just over a third of the general revenue in fiscal year 2023. The recurring revenue shown here is made up of withholding and individual returns, corporate and partnership returns and collections from tax compliance for fiscal year 2023. actual revenue received came in about 5% higher than predicted back in February. And like Steve said earlier, most of this increase was observed in withholding and corporate payments. steady economic growth in employment and wages as shown previously in the RSP presentation has a foreign power forecast will grow over the forecasted years. So we forecast fiscal years 24 through 20. And a growth rate of about 3% is projected for each year, primarily from the withholding and individual income streams.
So a comment there or question. So we've said he's seen really large growth in that corporate partnership, revenue category in the preliminary actual for fiscal 23. Can you talk a little bit about that or what you might think is driving that and then how you're approaching that forecast for the rest of the out years?
And thank you for that question. It's something that really stuck out to us as well. You know, if you go back a number of years, the corporate and partnership income tax revenue hovered generally around the high 20 million below $30 million range, as you can see towards the left side of the graph, during the pandemic period. And really, you know, we've seen a pretty large amount of growth back to back years now fiscal year 22 growing to nearly 50 million in fiscal year 23, preliminary actual almost 70 million. We want to dig a little bit deeper into what might be driving that in partnership with the state who administers our income tax. But what we are pushing the forecast, though, was to not assume we continue to get that large of a base jump every single year. Instead, the forecast just assumes returns to a steady 2% growth rate. But it does assume that that higher base does continue. And as we'll get to a little bit later, there's certainly some risk to the forecast from that. Should that not continue into the future.
Thanks, and that's certainly at the state level. It's by far the hardest text to forecast and yes, I don't pretend to have any secret methods that you can utilize there, but it's it's certainly something to monitor closely.
Or to. Yeah, I just like to go back a minute on the slide for the forecast record of now versus February, and just, I guess, make an obvious point. But I'm my comments are heading somewhere eventually. The actual the, the February compared with the current preliminary actuals for total major taxes for fiscal 23 amounted to a miss of 2.9% on the conservative side, and that's due in large part I guess, to lower than realize, estimate on income tax receipts and the wagering and net property taxes were also estimated on the conservative side. And the only exception to the conservative estimates is an over estimate on the net utility users tax. And of course, that's the smallest of the user of the major taxes. But one that's difficult to forecast. And I will follow up on those observations later. But obviously, the one we're the one we're on now on the income tax. It's older than it's been the forecast and it's been traditionally particularly with withholding subdivision. And I just want to point out two things that could actually help that. One is in the out years, and one is the magnitude of the wage increases one by the UAW, we've been focusing on the short term hit. But of course there's potential for larger wage increases in the out years, and another one that I've been pondering is the possibility of reduction in non resident remote work with a greater push now to return to city facilities. I just wanted to point out those possibilities. That's
sort of makeover you. Thanks.
No, thank you for those comments and with respect to the non resident remote work well now shown on the slide for the benefit of folks attending and doing from home. That forecast assumes the non resident remote work loss, I mean, something that was kind of newly grown during the pandemic due to folks working from home and nowadays and hybrid work models. The forecast assumes that the world we're in now largely continues as is and so to Dr. Bolton's point, should that change to the better for folks returning to offices in the future? That would be a potential upside to the forecast. Turning to state revenue sharing, so as Eric mentioned earlier, the constitutional portion of revenue sharing the blue bars grows by relatively slow rate over the forecast period. This is the portion that is Detroit's pro rata share based on population of the constitutionally dedicated sales taxes for local governments. The green bars a much larger portion is the statutory revenue sharing or the amount that gets set during the budget process every year at the state level. In recent years, we've seen very large increases in revenue sharing compared to the years past, in the most recent budget, a 5% ongoing increase in a 2% one time increase. And so owing to the last few years of significant increases in revenue sharing through the state budget process, we've made a change to our forecasts compared to years past. We used to just hold statutory revenue sharing flat in the out years assuming no increase until the state budget process plays out. For this forecast, we're assuming a 2% annual growth rate in the statutory revenue sharing, again based on a middle ground between the recent observed experience the last few years versus years ago when it was largely held flat. And with that, I mean, if there's any questions or comments, happy to take them.
Yeah, just just a comment. I think the approach previously has always been to assume that you know the we don't know what the legislature will do at the state level and how they will fund this. I think that's certainly a very cautious approach to assume 0% growth and, you know, as historical trend has proved, maybe it's a bit too cautious. So I think the assumption that, you know, we should have some growth there is justified and, and very reasonable. You know, the percentage assumed is probably, you know, much harder to nail down I think 2% Seems reasonable with recent history, and the history that we expect at the state level with a very balanced budget right now and limited budget pressures. It certainly seems like that's a assumption that still leaves some upside risks. But as you know, the economy continues to change. That's something the city will have to monitor. Certainly, as you know, now, a decision to not fund revenue sharing would have, you know, downstream impacts to the the assumed budget plan that's adopted in these conferences. So
yeah, I think this is just another example of a less conservative estimate than past forecasting history. And I guess my observation is different words the same as Eric's it gives the city budget less padding to cover for any unforeseen shortfalls among other items. That's all
Yep. Continuing to wagering tax, Erica will speak to that one.
So wagering tax revenue is generated from the four different tax rates that are charged to the casinos located in Detroit. These four different rates are based on the four types of games we have retail and internet and then we have gaming and sports betting for each of those categories. Some recent trends are that Internet gaming activity has continued to beat expectations while retail numbers have been coming in a little bit under expectations. Even though Internet gaming has grown so quickly, the city receives a higher rate for any retail activity. So that means that most of the wagering tax revenue is still coming from the retail category, which as you can see on this chart here. The most updated forecast we show here includes the updated totals for the fiscal year that just ended fiscal year 2023 which represents the most accurate picture we've had so far of the gaming trends, so this will definitely be an interesting one to keep monitoring. Our forecast is based on the same 1% growth rate as back in February. Just now it's applied to the most updated fiscal year 2023 totals. If there any questions on wagering tax, I'd be happy to answer them.
Just an observation, I think this is very much in line with what the state forecasts for our portion of these taxes. Again, there's a lot of uncertainty as to how the next couple of years will play out and especially for the city. You know, our state forecast for the Internet gaming portion includes all of the providers whereas you're more dependent on market share of the existing three Detroit casinos. And what they do online so far, they've been very, almost dominant in the market, in the online space in the cities definitely benefited from that. And so that's something that will have to be monitored as market share will end changes there will continue to drive this but so far, it's been a great source of revenue for the city. Absolutely.
Yeah, my my comments are much the same. Same. We're obviously in the evolving stages of diversifying gaming revenue. And I believe that conceito contract expires in mid October. You can correct me if I'm wrong on that. So the wagering process is really settling into a new and dynamic territory. And I agree with Eric that deserves continued monitoring. As usual, the current forecast uses a 1% growth trend. And I actually think there's a possibility of some upside to that prediction. Thank you.
Okay, moving on to our property taxes for the general fund. So the city levies 19.952 mils on ad valorem property, real property in the city as well as personal property in this graph also includes special act property tax revenues, such as neighborhood enterprise zones and the like. As you can see, across the forecast, we're forecasting steady growth in property taxes, which have actually started to grow in more robust fashion in recent years compared to immediately after the city's bankruptcy where they were relatively flat. The main drivers for the forecast here are the inflation rate. So as folks may be aware, under Proposal A of the state constitution, the taxable value of an individual property owners property is its growth rate is capped at the US CPI or 5%, whichever is lower. In fiscal year 24, which is reflective of the tax bills that just went out this past summer. The growth rate was 5%. So it hit that ceiling because the inflation rate was actually a bit higher. And in the future years, we use a forecast of CPI from the survey of Professional Forecasters. It's 4.7% for next year and then settles into the mid 2% range thereafter. You know, very in keeping with the forecasts, we just saw earlier from game, and to be clear the inflation rate for each fiscal year is from the year prior to it. So there's a little bit of a lag there in terms of when it hits the revenues. In addition to the inflation rate, the actual observed growth in recent years is driven not just by that inflation rate, but also uncapping a property so when a property owner sells the property, it pops up to the underlying assessed value. And before then it resumes being capped and so there's always upside in the forecast from that as well as additions to the tax base. As you can see the lion's share of revenue the green bars comes from taxes collected while current so by February 28 of every fiscal year. The blue box is delinquent revenues that are collected by Wayne County on the city's behalf and returned to the city over the delinquent tax collection cycle. Again, as we're seeing here, we're showing steady growth in the out years counting on just the inflation rates. So there is some potential upside should there be additional growth in property values as well as property changing hands from from sales. We try to be very forecasts are very conservative with this forecast assuming only inflation, just given some of the inherent volatility in the real estate market and being challenging to pay how much property may change hands and which types of properties may change hands in any given year. With that we'll happy to take any questions or comments from the principals.
Oh, George, just I keep I say that I believe this to be the trickiest major revenue items a forecast but I think I probably said that about every category right now. But I think this one is it because there's just so many moving parts currently, that I find it difficult to get my arms around it, but I'm okay with the current forecast subject to future reassessment. As these moving parts become clearer
I only ask Steve with the proper tax forecast is based on current law right.
Yes, thank you for raising that issue to us. Yes, this is based on current law and so for clarity makes does not include nor make any assumptions about a future land value tax should it be authorized and implemented by the city?
If there's no further comments, we'll move on to the utility users tax.
So utility users tax which we like to abbreviate to just UUT is a 5% tax based on household energy consumption. During to inform our forecast we look at household trends, temperature abnormalities and monthly actual revenue received for fiscal year 2023 came in overall a little bit lower than expected back in February due to lower than anticipated utility gas prices. Back in February. We expected utility gas to remain at about the same levels but it has come down about 15% Since January 2023 and come down about 20% over the year ended in July 2023. So we have taken that into account and we assume the normal growth rate that we did back in February based on those new updated fiscal year 2023 actuals. If there are any questions from the principals on ut I'd be happy to answer yeah
it's it's my usual it's this is this is a hard one to predict too. Because I think for a few reasons. Underlying energy price inflation is is is very difficult to predict on I think Gable support that. And also of course predicting the weather which is an important factor is difficult. But with that observation, I'm good with the current forecast. I just want to mention also, this is another tax revenue source where new construction has not yet accounted for in his forecast and that could enhance the outcomes and that's all I have on this one.
And moving on to our other revenues category, as Erica mentioned earlier, the lion's share of our general fund revenues come from those five major tax revenues. But there's about around $200 million worth of additional general fund revenue that's generated by our city departments and a variety of other miscellaneous sources, which we've summarized in this graph. And so as you can see, toward the left, there was a significant death in this category during the pandemic and as we've been recovering, and we've returned to a historical level of around $200 million and they minus 2% growth rate for most sources into the future. And you can see what this larger comprises are things like the municipal service fees from the casinos. So in addition to the wagering taxes that Erica walked us through the casinos pay 1.25% fee on adjusted gross receipts as the municipal service fee and you can see in the dark blue, that one is the very largest individual one and it grows in line with the wagering tax forecast. The other categories include things like parking fees and fines, court fees and fines, emergency medical services, fees for from ambulances, as well as various licenses permit inspection fees. And so a couple things of note on this one we've seen a significant amount of growth in EMS fees. The purple bar historically been in the mid teens of millions of dollars and thanks to some process improvements at the fire department and bringing on a new billing vendor. We've seen a substantial amount of growth there now preliminary actual 23 topping $20 million for the first time that I'm certainly aware of. On going the other way though, the court fees and fines have had some slippage in recent years. You can see around $15 million in earlier years now slipping to around 1011 $12 million. It appears that it might be just a function of various policy changes affecting court fees and fines collections some increases in delinquencies and the like. And so we've reduced the forecast to this lower base level assuming it will continue for the immediate future parking fees and finds as another positive story though, so it took a bit of a hit during the pandemic because you could guess less traffic downtown. Fewer folks coming downtown and parking. There was a period during the pandemic where we weren't enforcing parking. Things are back to the status quo in terms of the operation and had been for some while and I'm pleased to see that in as a fiscal year 23 preliminary actual we're back up to the fiscal 20 level, pretty close to a pre pandemic level of activity and we're assuming that will continue into the future now that things have largely normalized the rest of the items again, are various other fees, fines, miscellaneous tax items, and the like that we assume will continue to grow at about a 2% level. They've all been pretty consistent in recent years. And with that, happy to take any questions or hear any comments from the principals on this category.
For me any just the recurring
Um, well, I have. I have a traditional question that I asked Steve I'll ask them twice this conference but they would not be the same if I didn't ask you this. And I'd be surprised you didn't anticipate this question. Is it fair to say the risks in this category are more to the upside or the downside.
So I'd say with this category, you know the risks are pretty balanced. I'm not really expecting a substantial upside or downside as we've seen even in recent years. To the extent any of the items slipped below forecast, they tend to be offset by those that exceed them. Again, for instance, we could expect maybe we could expect to see upside of MSPs as they continue to improve their billing process. Certainly, as we noted earlier on the casino, the Mr. services from the casino to the extent there's upside in wagering tax there would be upside there as well. But on the other hand, you know things like the parking revenues in the court fees and fines. You know, there's been a bit of volatility there in recent years, and while we expect them to hold to their current levels and trends, there's always the possibility that things could go a little bit differently on either item but overall not expecting a major disruption to the good or to the bad hovering around this $200 million level. Thank you.
And so as part of the revenue conference, we also include the non general fund sources, which as Eric mentioned earlier, are primarily enterprise and special revenue funds. And so what we mean by that are funds within the city's budget that have a dedicated revenue stream that can only be used for those particular purposes. So while the General Fund has a great deal of flexibility on the kind of city services and priorities that can be used with that funding source through the budget process, these funds are more of a closed loop where for example, water and sewer fees can only be spent on water and sewer service from DWSD. Similarly, solid waste fees go towards solid waste collection and disposal and the like. For these items, we're assuming primarily just a steady growth rate ranging from one to 2%. Walking through the major categories we've listed here, again, water and sewer is by far the largest in this again reflects the water and sewer fees that property owners throughout the city pay. The orange bar represents various grants and other restricted funding sources. Among the larger ones are the city's Community Development Block Grant allocation at over $30 million as well as various other grant sources. We're assuming current trends continue there as well and no major shifts at the state and federal level in terms of these grant categories. The purple bar major street, so this represents the city's share of gas and weight taxes and other revenues that come from the Michigan Transportation fund. This supports road improvements and road maintenance activities throughout the city. You can see a slight bump up and 24 from some one time activity that we had in our budget for that and then it drops back down to a steady state of about $107 million and growing. Again, we're not assuming any major increases through the state budget process for this category, nor any major disruptions in gas and weight tax activity affecting the city. The blue bars are our transportation fund this includes for DDOT both their share of capital grants as well as operating resources from fairs and state and local bus operating assistance. It does not include the general fund contribution to data just because that's not a revenue source. It's just an interfund transfer that is set during the budget process. The red bars is our debt service millage. So the city levies a debt knowledge to pay back unlimited tax General Obligation debt service every year. As folks may recall in the current year fiscal year 24, which was tax year 23. The debt notes was reduced from nine mils to eight mils. And we presume and we forecast that it may continue to be reduced in future years. As you can see the red bars decline over time. And that's not because we think there's a decline in property values for the debt nodes but instead that there's a scheduled decrease in debt service for which the debt millage is levied. So, all else equal, the amount of revenue will have to come down in line with the debt service requirement as the years ahead play out assuming no additional debt is issued. The solid waste management that's very top one the gray bar. Again, we're assuming very modest growth here 52 million this year growing $54,000,000.20 fiscal year 28. In this case, it's largely funded from the $240 Solid Waste fee on resident on primarily residential property. And this does not assume any significant growth in the customer base beyond a roughly 1% growth rate each year. Every year looking back it's hovered around the you know, around the 50 to $52 million mark. And so this one, you know, growth in the future would be contingent on growth in the customer base. And with that, happy to take any questions the principal's may have on the non general fund
revenues. Just a question on the grants and all other statics I'm assuming that excludes federal grants like our PA.
So thank you for that question. Yes, so these forecasted amounts exclude ARPA or American or American rescue plan act. funds. The city received its funding of course, in prior years and while it continues to spend the funding this forecast for grants is specifically anticipated future grant awards, as opposed to just the inflows or recognition of federal grant revenue is purely for budgeting purposes. Forecast anticipated grant awards that would be coming in the future.
It's from us.
And so we also like to highlight as we wrap up the presentation the city's budget reserve or rainy day fund. In recent years, the city through the city budgeting process has increased this substantially. Going back to fiscal year 18. Before the pandemic it had it was at $62 million, which was a little bit above the 5% minimum requirement from state law that we're required to maintain. And then since then, the city has steadily put increasing amounts in almost every year, up to $77 million the year after $107 million in fiscal year 20 Right before the pandemic during the pandemic this proved very important because the budget initially counted on drawing down $50 million from the rainy day fund as our revenue estimates had assumed the worst. Fortunately, you know due to federal relief, improving revenues and lower spending, the city did not need to draw down the rainy day fund at all during the pandemic period. And then instead in fiscal year 22. Increase it to 138. And in this most recent budget cycle that wrapped up this past spring, the City Council approved an increase $250 million for the rainy day fund which is where it currently stands. Which is about 11% of the city budget.
And one of the reasons we like to talk about the Rainy Day Fund is of course there are risks to the forecast, which we discuss as we wrap up the presentation. Every revenue conference. There are both as we've already discussed a little bit today, there are both downside and upside risks. So to the downside risks being lower revenues than forecasted would be as we noted earlier, if the recent observed activity around corporate income tax, as well as compliance and refund offset sources for income tax, don't continue into the future. In both cases, we don't assume large amounts of growth in those categories. But we do assume the current base continues. And there's always risk that that there could be a significant change in trend there. As also noted, overall gaming activity and the recently observed retail versus Internet gaming substitution effects while unbalanced, there's definitely some upside potential here as well, particularly Internet gaming. As we've seen in recent years, the on site activity has been slipping. And so whether or not we've reached the sort of new steady state for these revenue sources, or there'll be continued substitution will be important to watch. As noted earlier, our state revenue sharing forecast assumes that there'll be a 2% increase via the state budget every year. And as noted, there's a risk that that won't happen. You know, from year to year, we've seen a lot of different outcomes both to the good and to the bad. And so there's certainly some risk that that 2% assumption may not play out in the years ahead. As also noted, there could be a different outcome on the economic forecast whether there's a even slower growth or even a contraction in the months ahead around monetary policy. Tightening again, that risk seems to have lessened substantially since the last conference but certainly still exists. And then as discussed earlier as well. employment effects from a potential work stoppage in the automotive sector, automotive sector as the UAW negotiations continue, and as noted how it will affect the city's revenues is really going to be a function of how many of the companies are affected and how long it lasts. So certainly, you know, we'll know more in the in the weeks ahead and and know what kind of effect it will have on the city's revenue in terms of risks to the upside so areas where we could have higher revenues and forecast and, as always, as new residential, commercial and industrial development occurs in the city or is planned and proposed that would be potential upside to the forecast. Our current revenues just are tied to the current base that we currently have. And as large scale expansions continued to happen in the city, we can see gains there. Similarly in workforce development and labor force participation, you know, the city has made a concerted effort to promote workforce training programs here in the city and to ensure that Detroiters get the first crack at good paying jobs as they're developed here in the city. So to the extent there are employment trends favorable to the economic forecasts, there could be some upside there as well. On Property taxes, as we discussed, we're assuming just the inflation rate for growth in the out years and to the extent there's positive variances from properties on capping and additions to the tax base. That would add to our revenues as well. Are as we continue to improve and enhance our income tax audit and enforcement activities in partnership with the state of Michigan, there could be some upside there as well. And then lastly, the state shared excise tax on adult use marijuana, not a large amount, but we haven't historically included this in the forecast as this would be a new revenue stream. The city has not has yet to receive any in prior years because it was only until recently that we had licensed retail marijuana businesses here in the city. The city's current ordinance authorizes up to 100 retail licenses, which is the basis for the state share tax. Right now, there's currently 36 licensed and as I understand it, the measurement date for this state share tax is September 30 of every year, and so we would expect to see the city receive distribution this spring from the state in this area. But a rough estimate, which we'll refine for the February conference would be currently around one to $2 million. Certainly as licensing expands that could expand the amount of revenue here and certainly as this market continues to evolve, both in terms of the size of the market and how the prices move in the future will dictate how this revenue item continues into the future for the city. But this will be the first fiscal year that we could expect to see some. And with that, again, happy to take any questions or hear any additional feedback from the conference principals.
This time we'll open it up to additional questions and comments about the proposed revenue estimates presented here today. As the chair I'll call myself first and lead us off. So first of all, thank you Steve and Erica and the rest of the team know this involves a lot of work and your hard work and efforts are certainly recognized and appreciated. This process continues to improve. And really thank you for all the work that you've put into this as George has mentioned, you know, forecasts about the future are inherently difficult in their numbers here presented have certainly some upside and downside risk. Just a couple of observations. You know, historically this conference and the revenue estimates provided by the city have been certainly on the cautious side and probably almost extremely cautious and that was kind of the stated objective and goal. I think the estimates we're seeing here have a couple bigger changes or that would make it slightly less cautious but I think overall the revenue estimates are still very reasonable and probably still a bit on the cautious side overall but I did want to note you know the the change in revenue sharing assumption is certainly a big one as you talk about long term, what the revenue will be and certainly 0% hasn't been least in recent history, how the state has approached that. But that's something we'll have to continue to monitor withholding. The forecast is a bit more a bit more optimistic, but certainly in line with what we're forecasting at the state level and I think given some of the long term UAW and development projects in the city, that forecasts still has some upside risks there. Well, the another category that will want to watch carefully is the corporate income tax in partnership. Hope that that continues in the new basis. 60 million, but that's corporate profits are certainly volatile and are the first thing to go in an economic downturn. So overall, though, I think we're still probably on the bid on the reverse side, although probably not quite as extreme conservative as we had had in the past or extreme caution. I think the reserves and the things that the city has in place, position at well, to do this.
Or Jay goes first,
I will drain the axon. Thank you. Thank you, Steve and Erica, I this is a job that I've just done every month throughout the year for us as you know, it's not something we can do at the last moment. In fact, it can't do revenue estimating is a continual effort to prove this prove or disprove the maximum that past results are not predictive of future or future returns. Because we look at the past results. We factor in the economic forecasts and tried to disprove whether or not revenues will continue with as they have in the past. We've been we've been it's been commented by both panel as well as many people on the outside that we've been overly cautious in the past. Overly and I'm looking at this forecast. What I see in it is a little more latitude to on the short term to kind of see the upside and then realizing that fears are now we're not really sure what the forecast is we tend to go back to the conservative side and had the growth rates slow down a little bit. It might be hard to figure out three or four years from now what's going to happen and I think the factors of that. Is that the city has become more and more reliant as it's grown significantly on the income tax because our budget is becoming more and more reliant on something which is very labor dependent wage dependent. And we have more volatility because of that. So we tend to I think want to not bet too much on the on the the income tax. But we know it's a main driver given the softness we're seeing in the wagering tax utility users tax, and you know, I've been around long enough to see that the first place the state goes when there's any type of downtime is the revenue sharing encounter. And so we always want to be cautious of that. I also noted that we, we have with the state's great assistance been very successful. It has been very successful for us, and receiving one income tax revenues on tax complaints, financial affairs, getting back on the rolls, and we started to roll that more and more into our base. And that's a that's something we need. And we are on the heart about about just all paths and we'll never have you seen it again, versus how much can be rolled in the base and so we we don't want to rely too much upon that which is term revenue for if it doesn't go into the base. And finally I commented that it's hard to assess new growth in income tax in corporate the data is not real transparent. Part of that is because we don't see the data on a month to month basis as if we had caught it herself. So we're have some limitations on our ability project. And that factor kind of lends itself to more being more conservative also. Both because of the way the data is held as well as the taxes we're seeing go up corporate for example, and and returns harder and harder to protect whether this is related to a one time event or whether it's related to remote work coming back where the holding dollars are coming from remote workers or remote workers. So we do our best with this and I think we been pretty good because I think anyone forecasts revenue for a living kind of realize there's not long term job security and being wrong on the inside. That Thank
you. Yeah, hey, yes. Well put Yeah, one one more.
Just one comment on there. Oh, of course. All right. Of course. No, I think no. I just wanted to add one thing I missed early on. On the corporate income tax. Certainly it's not just the city that's struggling with that at the state level. We're struggling with that as well. So pre pandemic we collected about 1.2 to 1.3 billion in corporate income tax. The last two fiscal years we've been over 2 billion. So we've seen growth, you know, even in excess of what the city has. And you know, even with all the return data that we can look through, you know, it's really hard to tell what what of that continues. So and we have seen it continue at the state level for two years. So I think it's certainly a reasonable assumption, but as you mentioned, it's missing that that direction is not great for job security. So we've we've been cautious at the state level with that and hoping that it continues at that level in both the city and the state. Sorry. George.
No, no, that's fine. I'd like to follow up on my colleagues comments and make a few overarching comments on a theme of our forecast evaluation. At issue is the trade off between the approach established at the first and the succeeding revenue estimating conferences are very conservative revenue estimates so as to minimize the risk of budget shortfalls. And I was part of that original discussion versus seeking a better balance of not leaving too much revenue on the table. And without pushing risk too hard. an unassigned fund balance or surplus has been realized every year since this conference was initiated, with the surplus ranging from $71 million in the first year to $230 million in fiscal year 2022 amounting to an average of $143 million over the nine year period. We're now considering a more aggressive revenue projection. At the same time we are facing some short term headwinds, in particular appending UAW work stoppage and an outlook for a slowing national economy. Having said that, I am persuaded that the more balanced aggressive approach has merit for this round, while acknowledging the greater risk of that strategy, which warrants close monitoring of the process as we move forward. Finally, I'm remain impressed by the continuing advances in the process that enhance the forecast product. And I commend city staff for that, particularly as a forecast team is significantly short handed. At this time, maybe I can apply for a job. Thank you.
Thank you, George. Next, recognize Mr. Coralie for
thanks so much out Eric. Again, I'm calling from Policy Division city council and I want to thank the Office of Budget for their hard work in putting together the city revenue estimates. I also want to thank them for responding to questions raised by us and let's say the policy division and the Office of the Auditor General regarding the revenue estimates. Just want to digress a minute and then see Mr. Cunningham in the audience is great to see you and you did a great job in training. Eric, so appreciate you for that. I also want to thank the members of the Office of the Chief Financial Officer, or the general and my fiscal staff and the LPD will participate in price. We and LPD are generally in agreement with the rest of them is established by the old CFO for current fiscal year 2024 And the forecasts fiscal year 2025 to 2028. Based on the September 2023. revenue estimates, current fiscal year 2024 total general fund revenue could end up being about $56 million higher than what was budgeted as was indicated earlier about 30 million of that is we currently have and that's because of higher projected income tax, state revenue sharing property tax revenue and other general fund revenue which is offset by lower wage and tax it actually uses tax revenue collections. The city possibly receiving $56 million more in the current fiscal year 2024 will provide a needed cushion to address any unforeseen escalating expenditures and or provide more funding for city services regarding the income tax revenue, we are encouraged by the growth rates forecasted for fiscal 2025 through fiscal 2028. Although forecasts for economic growth are not as robust as previous fiscal years, the growth rates can chip tribute to the upward trend of the city's income tax revenue based on modest employment, growth and jobs creation and law infill inflation estimates ongoing development projects continue to provide a positive outlook for the city's income tax revenue, the largest revenue source for the city's general fund. There is that we will continue to monitor or our the liquid income tax collections and remote work refunds. nobody appreciates the Detroit economic outlook for 2022 through 2028 that was issued by University Economic Analysis partnership. One area of particular interest raised by the partnership was the choice low living wages as we discussed earlier, as compared to other city, Midwestern cities and so we look forward to further research of the partnership on that issue. We also hope that there will not be a common labor strike as a partnership assumes, although that their revenues from Internet gaming and sports betting continue to boost the city's Wayne tax revenue. Additional retail gaming has not reached them at levels and has dissipated to do sell during the forecast period. So it is more apparent that there is a substitution in effect between retail and online gaming activity. Observations of wager tax revenue from online gaming and sports betting has solidified and we now are monitoring to see if wage and tax has reached a plateau. Meanwhile, although it's not really largely discussed in this conference, we noticed that deep that revenues continue to be a concern, adding additional pressure to the general fund. Lastly, although not included in this forecast, the highly anticipated land value property tax reform that I'm sure everyone has heard about is underway. With proposed state legislation and process this reform activity will be thoroughly discussed of the current and upcoming fiscal year. And I just want to end with this. I have a burning question for George. This is not related to the conference. So this is a little liberty for the moment. So Mr. Fulton, what is your prediction on the European football team? Which I am just highly interested because my my oldest daughter went to yoga and
I said traditional question so I am prepared for it. Thank you 15 And all unless Unless the Court unless the quarterback has a prolonged injury, in which case all bets are off.
Thank you very much. Next we'll turn it over to our new Auditor General was Lord Goodspeed. So welcome to the conference. Thanks for joining us.
Thank you. And good afternoon to the members of the honorable Detroit City Council, Mayor Mike Duggan, and the revenue estimating conference principals and all other attendees in person and who might be with us virtually. First, I do want to thank the administration and the Office of Budget for continuing to include the Office of the Auditor General as a value add partner in the revenue estimating and budgeting process. I can say from my own experience, the forecasting and the budding process has come a long way. When I started with the city of Detroit back in 2008. We were producing a budget estimate analyze the budget after it was produced before revenues were estimated. And at that time, our process was convoluted. We would base expenditures, we would sit down our expenditures and then try to figure out how much how are we going to get revenues to cover it. So we certainly have come as a city of great deal in a long way. And I applaud the budget department. I see Mr. Cunningham is in the office in the auditorium and we all miss your last but again, thanks to the budget department for continuing to include us. Second I want to give this recognition to the members of our revenue estimating team. They are in the audience led by Vivian slaughter, the lead manager, Alicia Jordan, Marlena Lipscomb and Joe Silva. They met with the budget department and LPD to provide their own independent assessment on the reasonableness of forecasts that estimates for the city revenues. No we don't do a deeper dive as our fiscal analyst LPD but they do provide a sense of their own analysis and bring that to the table. Overall, we agree and we feel the budget Department estimates are reasonable with the following two exceptions in major revenues won the state revenue sharing. We do understand that revenues from the marijuana tax act in which Detroit qualifies for was not included in the September estimate, and we look forward to those estimates going forward. And Steve Mr. Watson talked about that in the potential upticks for estimates going forward. Regarding utility users tax, we also believe that the 1% growth rate estimate for fiscal years 24 And through 20 fiscal years 28 may be too conservative, given the following trends and factors. The budget of 50 fiscal year 23 year estimate is a 6% growth over fiscal year 2022. We note the kicking of DTE energy's new two part pricing mechanism known as the time of use rates. This includes increased summary electricity rates, and that was effective as of June 1 through the end of September, making it more expensive to use electricity during the late afternoon and early evening hours. The other part to that was customers are charged higher prices for energy they use during peak hours. And we all know the effects of climate change, hotter summers and probably colder winters. Which increases the need for electricity. We requested details of how the 1% growth rate was calculated. And going forward. We hope that the budget department will be able to provide their support for continuing to use the more conservative approach in their estimate. Now we recognize that these potential additional revenues do not impact the overall reasonableness of the September estimates and again, especially in light of the risks that has been brought to bear in this conference. In closing I do want to speak briefly about the American rescue plan act state and local fiscal recovery funds are commonly referred to as opera or SL fr F. And these are the funds that the city has received. We all are aware that Detroit has received about 827 million directly from the federal government. And the rules require that the app of funds be obligated and spent in accordance with the rules require that the ACO funds be obligated by December 31 2024 and split by December 26 December 31 2026. According to the information posted on the city's Arper website as of September 4, the city has programmed 814 million of those dollars, which means that about 98% of the funds have been allocated initiatives that have project plans and budgets. Identify city stakeholders and clear outputs and outcomes. However, we've only obligated 50% of those funds, about 412 million. This is through a combination of City Council approved contracts, sub recipient agreement and funds budgeted for personnel. And then we've only spent 136 million. That means that only 16% of the funds have been actually paid out to vendors or sub recipients or have been used to pay for personnel costs or grants issued. It should be noted that the city also received an additional $75 million in ARPA funding from the state of Michigan, Michigan, bringing our total award to over 961 million close to a billion dollars. These additional funds have yet to be incorporated in the overall recording that's displayed on the city's website. Now we understand the opera funds are not revenues in the typical sense and they are accounted for in the special fund and they as Mr. Watson admits and have not been included the revenue estimating process. However, we believe that going forward, there should be much more discussions and more transparency from the administration on their plan for ensuring that not $1 of the ARPA money is returned to the federal government. It would be beneficial in our opinion, for us to know the strategic plans to obligate all monies by December 2024. Particularly if there are plans to shift funding to the revenue replacement allowable use category. According to the rules governing Arper funds, spending funds in the revenue replacement category allows a local government the most flexibility in using those funds. It allows a local government to undertake a wide array of potential expenditures that can actually free up general fund revenues that would have otherwise been used to pay for certain salaries. Services and capital improvement projects. In other words, shifting money to that revenue replacement category could provide relief to the to the general fund in both the short term and in the near future. In closing, we recognize that the budget department and all of us again last the key asset when Mr. Cunningham left the city. We look forward to continuing this process for the February Estimating Conference and hope that the budget department will be able to provide the forecast data on a little more timely basis. To allow us to do a more deeper dive and to analyze all of the information provided. Thank you. Thank you,
thank you for all the comments. So at this time, we'll open it up for public comments. So for those wishing to make public comments, either in person or online, we asked to keep your comments to no more than two minutes. So I believe some of it will put a timer upon someone.
Yep. So it looks like if anyone in the public would like to make public comments, hands raised. We'll start with in person public comment and then move to those who have joined us virtually and have their hand and if you are with us virtually, please raise your hand and we'll make sure to call on you for public comment.
I'd like to share these three reports with auditor general Goodspeed with Professor Fulton and Eric boasts please. City officials note have this data already. This is about tax captures. So you're surprised Mr. Corley, aren't you? I noticed in the process that there was no the population data discussed nor retiree costs discussed in our forecasting. I'm concerned that one of these factors the depopulation rate is being affected by the reduction in vital services in our neighborhoods. I'm a lifelong resident of the city of Detroit for 75 years, and I've watched it decline and I'm specifically focusing on library and school losses. And I know the school losses over the years if caused added to the depopulation migration. This has been aggravated by the aggressive escalation. of tax captures which have quadrupled in the last four years. Little of what virtually none of which has been reported publicly. The city is now taking 19% of the library's revenues. It's got a very modest budget, but the city promises reimbursement of project funds but fails to reimburse. The city council allocates funds the executive branch refuses to implement there's direct harm happening to our library system. We need a budget projection that protects our public assets. The last nine years on that data I showed you showed $442 million was tax captured without any report to the taxpayers of the general public. They also took out of that 148 million from our Detroit Public School District including the debt payments 42 million from our city debt payment millage. This is for the schools this impairs their ability. Frankly, it does more than impair it prevents them from being able to buy bonds because the bond market says the city's tax captures are such that they cannot repay and they will not sell bonds to the district and therefore our buildings are that need upgrades and rebuilds are in serious neglect. This is also a negative factor for our enrollment and thus our population retention. Those programs could create skilled trades, skilled trades jobs or city residents for years. It has a positive impact if they want to create jobs, not for ILL itches and the Ross's and 10s. I mean, we got people with 10s of billions of dollars of resources we're giving this money to and we're not giving it to our schools and libraries. We need a new model of economic development that does not impair library schools, special needs children Port and City debt payments and school debt payments. I think some of you have the ability and willingness to help and I hope you will. Thank you very much.
Thanks for your comments.
Any questions? No, he won't have any questions. I know.
Thanks for your comments. We have anybody else in person otherwise we can move online. I see the monitoring online.
Thank you Mr. Chair. first online participant is a community development advocates of Detroit should be able to I think unmute and
speak Hi,
can you hear me? Hello, can you hear me? Hello,
I can see it coming in on the closed captioning
i Can you hear me now?
Hold on one moment we're getting the audio setup. Okay, we won't start the clock until we can hear you thank you
and Janice once do it's ready. We might need you to kind of test speaking so that Miss Johnson doesn't need to be the test.
He is unmuted.
yourself.
Yeah. Yeah.
Hello, this is Rick Johnson Can you hear me hello
so we're going to try promoting the public commenters attending virtually in the zoom and then that should allow audio to work
this is Ruth Johnson. Let me know when you can hear me.
Okay, and you are promoted. They can't hear you in the room. I can hear you miss Butler. Yes. I can
Miss Butler is there anything I need to do on my end?
No, they are still working with the technical equipment.
We can hear you both.
I don't know if you can hear us. We
can hear you now.
I think we're like we're good.
Apologies for the delay. Miss Johnson. Miss Butler is going to start the timer and whenever you're ready, we're waiting to hear
yours. I'm sorry. I'm still trying to be clarified. Can you hear me right now?
Yes. Oh, okay. Great.
Whenever you find a timer to be set, okay. Could you go back I guess I need like a 123 go I don't know what.
Okay, I'll give you a 123123
Please speak you can go. Thank you. Ruth Johnson from Community Development advocates of Detroit. Thank you for this opportunity to make comment. My first is just understanding better historically what has been the percentage or average amount of property taxes collected as a part of the general fund? And I'm including industrial, commercial and residential. I would like a breakdown for all three. Secondly, in terms of the likelihood of disasters and estimated money that the city will either need to spend or lose as a result. Unfortunately, as we look around the world, even in this country, we know disasters are becoming more frequent. I'm also interested in the cost the rising cost of rental housing and how that was if it was dealt with and how I looked on the website did not see the this revenue report or slides and I would be interested in knowing when they'll be posted and how others in the community would know that they are available when they're available. I share concerns about ARPA surpluses and many other things raised by the principals and the presenters. But getting to the principals and presenters, I say this again, I really appreciate if you can slowly say your names your titles spell your names, because I did get Mr. Gaelic or miss Erica's names and titles and I don't know who Cunningham is, but I don't think it's the Cunningham that I know and who worked with on DDOT issues. I would also ask if you would explain what your plans are to deal with changes between now and February such as the adoption by the legislature of the land value tax with the thinking that it may be on the ballot as early as February. I'm also looking at any other predicted forecasted changes in our tax revenue. Our expenditures, and I thank you for your time.
Thank you for those comments. I'll turn it over to Jay or Steve, if you want to jump on any of those questions and others a bunch there. Sure.
Thank you, Eric. So thank you, Miss Johnson for your comments. I certainly will take some of that feedback back with us for future conferences, particularly respect to the property tax breakdown, and that's really important as well. In terms of the materials, they are posted on the city's website, need to to help the public find them. If you go to our Office of Budget website, it's Detroit mi.gov/budget. And the materials are posted under the button that says revenue estimating conference reports and then under September revenue conference, as a as a takeaway for the Next Conference. I'll make sure we announced that at the start of the meeting as well.
I guess it would add at 1245. I checked and it was not posted.
Understood we'll make sure it's posted a little bit earlier.
Thanks for those comments. Miss Johnson. We have anybody else online Steve
Bell. I'm serious about this. I really want to know who's talking Could you give us names? spellings. Titles
Yeah, we'll just have to promote him. Up to be able to speak.
30
unmute.
Yep, let's see him promoted member Benson whenever you're ready
he's not unmuting I have asked him to unmute.
Okay, we can move on to the other public commenter and circle back. Do you want to promote instead, Joyce Jennings and so Miss Jennings, whenever you're ready, go ahead and unmute and provide
your comments. Thank you.
Good afternoon. Are you able to hear me? Yes, yep. I would like to thank everyone who presented on today and the audience who participated in response to the presentation that was given. I looked at the statistics for the earnings of Detroit residents in comparison to other major cities. And I also looked at the statistics discs that were shared in reference to degree earners that are represented in those statistics in your data collection. Are you looking at data from students who graduated from Detroit schools and have gone on to colleges and completed their degrees, but they have not returned to Detroit, either due to the environmental hazards that exist in the city of Detroit and our historical, historical environmental problems that exist or may have left the city because of the rainwater drainage fees that are being assessed? Which is not a normal fee that is charged to homeowners in other cities throughout the United States, or maybe even the over assessment of property taxes, that degree earners who own homes may have realized and when you are a person who has accomplished degree completion has worked professionally, and you look at some of the irresponsibility that has occurred with people who are serving in leadership when it comes to budgeting and the way our tax dollars are spent. Have you taken that into consideration as to why people with degrees may be leaving the city of Detroit?
Thank you for those comments. Gabe if you have any other follow up information for her on the research shirked?
Thank you for those comments. And Thanks, Eric. Nope, our data only looks at current Detroit residents or residents as of 2021. It's from the American Community Survey. So we have not considered people who formerly resided in Detroit and don't any longer.
Thanks, good. If anybody else you
and some member Benson, you're still promoted. If you'd like to speak, go ahead and unmute. And we'll get started. We'll give it a few seconds here and otherwise we'll just end public comment. It might be just that he's walked away or otherwise maybe having technical difficulties.
So hearing none, we'll go ahead and proceed with the rest of the meeting at the direction of the Chair.
All right. Thanks, Steve. And thanks for the public comment. I do appreciate the attendance and comments from the public and members of the council. There's no other discussion or comment the chair will now entertain a motion to adopt by consensus the city's official economic and revenue forecasts. We have a motion.
Second, Second.
All those in favor say aye. Aye. Aye. Aye. Opposed nay? Hearing none, the official September 2023 economic and revenue forecast is hereby approved. The forecast will be finalized and additional information from today's conference will be put on the city's website. It will then be distributed to the mayor city council and Financial Review Commission as well as the budget website for the city. With that thank you for your attendance. And your participation. This meeting is adjourned.
