volume was really low, though you heard me testing, test 123,
I can hear Paul.
No, I mean, I'm all the way up. No, it's all the way up. I'm just, if I'm on it like this, you can hear, is she here? Does she hear me?
I can hear Paul. Can hear you. I You, but we still can't hear you. Can't hear the public. Yes, 123321, I can hear her. Yes, I can.
She has to allow you in. So something Janice has to
do, but we can't hear back and hear her.
This. This on your side, I can hear Stephanie, yeah, it's in the room. Stephanie, here, okay, so they can hear like other zoom attendees can hear, but we can't hear In the room, okay? And except for the columns,
yeah. Yeah,
test one, test 123321, I can hear her, but we can't, we can't hear it. We can't hear it in the room. That's, that's, I think, to be the issue, yeah. So everybody can hear everybody. It's just when the call is calling. So we might not sure. Okay, um, Sherry said, sorry. Lori said that if they want to get started by this happening at the end, yeah, she can go ahead and work on that while, while they're meeting.
Third, 3000 Detroiters.
Yeah, Laura said she can work on it.
My name is Jay rising. I'm the CFO for City of Detroit and serving again, this time as the recording in progress, estimate conference for the city of Detroit, call this order, and I would first introduce to my right, Tanya Stoudemire, who is the interim budget director and also the chief deputy CFO for the city. Ask each one of the panelists to introduce themselves.
My name is George Fulton. I'm a research professor emeritus at the University of Michigan and Director Emeritus of the research seminar in quantitative economics, or our sqe in the Department of Economics, and this is my 10th year as principal. I'm Eric buss. I serve as the chief economist at the Michigan Department of Treasury, and I am representing the state treasurer as her designee to this committee.
Good afternoon. I'm Laura Goodspeed, the Auditor General, from the Office of the Auditor General.
Good afternoon. I'm Ervin. I'll go ahead. Irv Corley junior, I am the executive Policy Manager of the legislative policy division of city council.
Thank you. Thank you all for members of the public who may be viewing this on on the internet. I'll just say right now we are having trouble with the ability to call them, but we're working on that. So by time public comment comes, we hope to have that rectified. The all the public members could speak who are not who are not present, if they wish to speak, will come again. If I can ask Gabe Ehrlich to introduce himself also, great. Thanks.
Jay. Gabe Ehrlich, I'm the director of the research seminar in quantitative economics for the economic forecasting group at the University of Michigan
and the budget office team. Yep.
Good afternoon. My name is Ashira Hainsworth. I am the manager for revenue and economic analysis.
Good afternoon. I'm Erica Mooney, economist for the revenue forecasting and economic analysis team in the budget Department.
Thank you all. In preface of the presentation, I'll just note that the Home Rule city act for the state of Michigan requires us to hold two revenue estimating conferences each year, one in September, one in April. These serve for the purpose of making an estimation of our current year revenues as well as our succeeding year, four year financial plan revenues. This conference is is primarily for to to look at our current fiscal year and and our next fiscal years to start preparation for our budget process, which will come next spring. They will set the revenues for the city's forthcoming 26 fiscal year and a four year plan that includes that year the before I proceed with presentations, I'd like to take a old business, which is the approval of the draft minutes from the prior meeting. Is there a motion to approve the minutes from the prior conference?
Motion made Second Second.
All those in favor. Aye, opposed. Thank you. The minutes are approved. Now we'll turn to the state of the economy. I'll ask Gabriel Ehrlich, who's the director of research seminar and quantitative economics at University of Michigan, to present Detroit's economic forecast. I
Jay, fantastic. Thanks again, Jay, just to confirm, do you see my slides and you hear me? Fantastic. Well, thank you so much for inviting me to join you today. It's always an honor to be included in this event. It's no very important input into public policy. And you know, I'm pleased that my group can be a participant to contribute. So I'm excited to share our outlook for Detroit's economy through 2029 with you. And what I'll do is I'll start, as I usually do, by describing how the city's economy is doing in the most recent data. And just in case there are folks at the meeting today who haven't seen me present before, I always like to start off with just the definitions on this slide, because there are two different ways to measure employment in Detroit. The yellow line in this graph shows employment at jobs located inside the City of Detroit's boundaries, whether the person who works at that job lives inside the city or commutes into the city from outside. And we call that measure payroll employment. And one other thing to point out is it does not include self employment. The blue line shows employment of Detroit residents, whether their jobs are located inside or outside of the city boundaries. And this measure does include self employment, and we call this Detroit resident employment. The data for payroll employment, again in the yellow line extends currently through December of 2023 on this graph, I do want to point out when we produced the forecast, because of timing, we did not have data for the fourth quarter of 2023 so we had data on through September when we produced the numbers. But obviously this slide shows the latest data. Payroll employment in Detroit had climbed up to within about 1300 jobs of its pre pandemic level, which we measure from February of 2020, on this graph in July of 2023, so by about the middle of last year, Detroit was within about 1300 jobs of its pre pandemic job count. But then the city actually lost jobs over the second half of last year, consistent with the statewide trend. I just want to point that out. And one thing I want to point out, I don't know how well you can see my mousing on the screen. But hopefully you can see towards the end of the yellow line on the graph, that's November of 2023 and you can see the spillover effects of the UAW strike in the auto industry. There in the dip, that temporary dip in the yellow line. And then you can see our rebound, a partial rebound, in December of 2023, payroll employment in Detroit fell by about 7700 total jobs from July to November. About 3200 of those job losses were in November alone. Unfortunately, Detroit recovered about 5000 jobs in December, which is where the current data ends. The data for resident employment in the blue line extends through July of 2024, so it's, you know, a much more up to date data series, although at the time that we produced the report, we only had it on this data through April resident employment recovered to its February 2020 level in the city of Detroit last April, and it actually rose a bit further through the back half of The year, although you can see a smaller dip in November associated with the UAW strike. So so I'm not sure how clearly it comes through, but you can see a dip associated with the strike, not as big as for the payroll employment. Unfortunately, we have seen a decline in Resident employment of about 4000 since the start of the year. Most of those employment losses occurred in May and June, but we did see some stabilization in July, because the payroll employment data lags substantially. My group also produces what we call a now cast of payroll employment. So just to come back up, hopefully you can see, um, let's see if I'm I think right now the slides are covered. Oh, yep, perfect. Thank you. Um, just to come back, you can see, obviously, the blue line extends further than the yellow line, which, which lags substantially. And so what we do is we use a statistical model called a now cast um, to try to fill in that missing data, so to speak, and give the best statistical estimate that we can of where Detroit's payroll job count stands now through the second quarter of 2024 so this graph is on a quarterly basis, and hopefully you can see that we were forecasting a rebound in job growth in the city through the first half of this year, in payroll job growth partly that's you know, we know that There was a substantial recovery in December. So I'm actually more optimistic than this Nowcast. This Nowcast is a purely statistical procedure. There's no human judgment. It can't read the news, right? It just looks at the numbers as they come in, and it says, statistically based on timelier data sources, what would we estimate Detroit's payroll job count was in the first half of 2024 and it was forecasting a recovery of about 500 jobs in the first quarter and another 1500 in the second quarter. Again, as as a person, a human being who can read the news, who does you know, have context for what was happening in the economy? I'm actually more optimistic than this now cast so so you know one reason is related to the strike last fall that we know there was a very strong recovery from the strike in the monthly data, which on this Nowcast does not see the underlying path of monthly payroll employment data because it is historically pretty noisy. Okay, so with that, you know, I'm going to show you a forecast. It's consistent with the judgment I just gave you, that in fact, we should be doing even better than this statistical Nowcast suggests. I just wanted to make that note. And you know, I did. I wanted to emphasize that optimistic note because, you know, the news on this graph is a little bit, you know, more eyebrow raising. It shows you the unemployment rate in the city of Detroit. And you know, those of you who follow the City economy, which I know, you know, many of the people here do, hopefully many of the people online do. May recall that the city's reported unemployment rate fell to its lowest record on Level, Level on record. Excuse me, last April, it was initially reported at 4.2% on a not seasonally adjusted basis. That number has since been revised to 5.1% or about 5.9% when we seasonally adjust to these numbers ourselves. And we said at the time, you know, the unemployment rate in the city does jump around from month to month. You know, the underlying trend is probably higher than that 4.2% that was being reported. And that did turn out to be accurate. Detroit's unemployment rate finished last year around 8% okay, so you know, more consistent with what we would have said, you know, was approximately the trend this year, Detroit's unemployment rate has risen noticeably. In July, the NOx seasonally adjusted unemployment rate came in actually at 13.8%
well, when me seasonally adjust that number we estimated at 11.9% so just shy of 12% and you'll sometimes hear me say when I talk about the unemployment rate that it can go up for good reasons and bad reasons. It's not always bad news when the unemployment rate goes up, and the reason is that the unemployment rate can go up when more people enter the labor force. It's not always associated with a fall in employment. So I always try to draw that distinction. I do want to acknowledge that for most of this year, the rising unemployment rate in Detroit has reflected falling resident unemployment so in that sense, you know, it's been a little bit concerning to see that. But I do want to point out, you know, you can see right at the end of the graph, a jump in the unemployment rate in July that reflected a rising labor force, not falling resident employment. You know, which I showed you in the first slide that we saw resident employment stabilizing in the most recent data. So the story is complicated, you know, it's nuanced here. But more to the point, you know, as I was just saying, when Detroit's unemployment rate was being reported as 4.2% I said, Listen, this is probably, you know, part of this good news is statistical noise. It's probably going to come back up. I want to tell you now, you know, the current unemployment rate, now that it's pretty high, I also consider this to be largely a statistical, you know, noise in the data. I would expect Detroit's unemployment rate to fall in the months ahead. And I hope I have credibility on this, because I'm telling you the same thing. Now that I was telling you when the numbers were, you know, incredibly good. I was saying, Okay, let's, you know, take up, take a pause. Now when the numbers, you know, might cause you to raise your eyebrow a little bit, I'm telling you, you know, these numbers do jump around from month to month. You know, don't, don't take any one month's number as as, you know, a cause to hit the panic button. Okay, so with that, I'm going to turn to our forecast for the Detroit economy. I do want to tell you, you know, this forecast, we produce these numbers in June. We share them with the city. The city uses them as an input into its revenue estimates. So that's why the timing works the way it does. I would say the economic news, you know, since since June, has been more negative than we had anticipated. Again, nobody's hitting the panic button. I don't want to alarm anyone, but if I were producing this forecast today, I would probably be a little bit less upbeat or optimistic than we were in June. But qualitatively, I expect the same story to persist. Okay, so this slide shows you our forecast for payroll and resident employment in Detroit. When we produced this forecast, we didn't have the payroll employment data for the fourth quarter, and we had judged that the UAW strike on last year had largely spared the city and in terms of payroll jobs directly. But even so, we had projected that payroll job growth would decline from the pace of nearly 4% per year in 2021 and 2022 to just point 7% last year. So, you know, we did expect payroll employment growth in the city to slow down substantially. You know, with the updated data and some revisions that we received, we now estimate that payroll employment in the city increased about point 2% last year, so it has slowed down, but it is still growing, or it was still growing last year. In the data, we're forecasting growth of about 1.2% this year, picking up to 1.6% next year, as interest rates fall. That should help the city economy in our estimation, and then payroll job growth slows down in 2026 to about 1% and then about point five to point 6% per year from 2027 through 2029 as the city, you know, really approaches a full employment, you might say, or close to its natural rate of employment growth. So, you know, kind of slowing down as we get to what you might think of as steady state growth in the back half of our forecast we're projecting the number of jobs at Detroit establishments to finish our forecast period about 4.7% higher than before the pandemic a resident employment growth is in the blue line, and it runs just a little bit behind payroll employment growth over the next few years, growing about 1% per year from 2024 through 2026 and then slowing to about the point five to point 6% range from 2027 to 2029 in line with payroll employment. And one reason we expect resident employment growth to run just a little bit slower than payroll growth in the near term is it's actually further along in its recovery, right? So judging from you know, where we were before the pandemic, actually, resident employment growth is ahead. That's part of the reason that we expect. That we expected to take a little bit of a breeder relative to payroll employment growth in the forecast, but in our forecast, resident employment is projected to surpass its pre pandemic level by 6.2% by the end of 2029 and I do want to just step back, because I mentioned something about full employment. That's a term that economists use. It's not meant to say that everybody who wants a job has a job, or that that's the maximum amount of employment we can reach. It's really meant to indicate a neutral point in the business cycle. So I just wanted to know that's a technical term that economists use sometimes, and it can be interpreted the wrong way. So I'm certainly not saying that means everybody you know has the job that they want, or everybody who wants a job has a job. We do expect employment to keep our way throughout the forecast. Okay, so here we've split each of Detroit's industries into three groups, you know, just to show you the industry composition of job growth for payroll jobs in the city of Detroit. And we have indexed each of these lines to have a value of 100 in the first quarter of 2020, so just before the pandemic, I'll start with the blue collar industries, which are in the blue line. We estimate that Detroit's blue collar industries job count exceeded its pre pandemic level by about 5900 jobs in the third, sorry, the fourth quarter of 2023 which would have been about 13.3% above the pre pandemic level, again, that was based on our estimate that, you know, the UAW strike largely spared the city's payroll job count. But in the revised data, we still estimate that at about 4800 jobs, or 11% higher than before the pandemic. And you can see we're projecting a job growth to continue throughout the forecast. You know, at a moderate pace for the blue collar industries, employment in construction accounts for roughly half of all of the blue collar job gains that we're forecasting. You know, large non residential projects such as the Henry Ford Hospital expansion help support construction activity amid high interest rates. If you've heard me present before, you know, I've kind of made this exact same point before, because people will ask, well, how can construction How can construction keep growing when mortgage rates are this high? Doesn't that have to hurt home building? Yes, but you know, when all you have to do is open the newspaper you read about projects happening in the city. You know, these big non residential projects are a big part of what's supporting employment in construction in the city. We expect that the blue collar industries will return to job growth in 2024 ending our forecast on 7400 jobs, or about 16.6% higher than the pre pandemic level. Um, what we call the higher education services industries are in the yellow line. These are service industries that typically require a bachelor's degree or more education. Um, and so, you know, these are industries you might typically think of as, like typical white collar jobs, so to speak, despite employment remaining below the pre pandemic level. So hopefully you can see in the yellow line we're still not back to where we were before the pandemic. In Detroit, many of Detroit's higher education service industries have held up better than this graph really suggests, and the reason is financial activities. We estimate that the financial activities sector lost about 2800 jobs last year, but the remaining higher education service industries gained 1700 jobs, right? And just the story there with financial activities is high interest rates, right? You know, if you've checked out a mortgage recently, you know, mortgage rates are very high. That hurts employment and financial services sector in Detroit and, you know, and elsewhere in the country. And so that's a big part of the slow recovery here in these industries. We're forecasting higher education services industries to have, you know, a moderate recovery, but, you know, to gain jobs over the forecast period. That being said, we're forecasting them to remain about 1.6% below their pre pandemic employment level by the end of 2029 they are weighed down by a slow recovery in financial services employment, which remains about 10% below its pre pandemic level even at the end of our forecast period. And then one other factor to point out is that the persistence of remote work also restrains the recovery of higher education services employment in the city. And then finally, Detroit's what we call lower educational attainment. Service industries are in the green line, and these are service industries that typically don't require a bachelor's degree. And you know, these industries suffered the worst at the start of the pandemic. There again, you can see, hopefully in the green line, they Detroit lost more than a third of its jobs at the beginning of the pandemic. But in fact, we've already made a full recovery in these industries from from the pandemic, actually, by the middle of 2022 so we saw a pretty vigorous recovery in these industries, you know, that was very fast growth, obviously, you know, coming out of a deep hole. And we do expect growth to slow down, just, you know, naturally, given that we're already above where we were before the pandemic, our forecast calls for annual growth in these industries to moderate from 3.6% last year to an average of about 1% per year, from 2024 through 2029 and so by the end of 20 we expect employment and lower education services industries in Detroit to exceed the pre pandemic level by about 5900 jobs, or 10.7% This slide shows our forecast for average wages, and we show you a few different ways of measuring wages. First, we forecast average wages for jobs. For jobs located in the city, so for payroll employment in the city in the yellow line. So that's the yellow line at the top of this graph.
And then we show you average wage and salary income earned by Detroit residents employed to Detroit residents in the green line. So that's on the line at the bottom of the graph. And then, just for reference, we show you the statewide average for payroll employment in the blue line. This graph has not changed a lot since our last forecast. So I was going to go through it, you know, relatively quickly, from 2024 to 2029 for forecasting inflation adjusted wages. So you know, these graph, these lines are all going up on this graph. Partly that's just keeping up with inflation. So I'm going to give you inflation adjusted numbers here. We're forecasting inflation adjusted wages to grow by an average of 1% per year at Detroit, Detroit establishments, so in the yellow line, by about point 6% per year in Michigan. So in the blue line, and by about 1.4% per year for Detroit residents. So we do expect wage and salary income to grow more quickly for Detroit residents than for jobs located in the city. That's an important point of context. Cumulatively, when we compare 2029 to 2019 so the end of our forecast to the year before the pandemic, and we adjust for inflation, we're projecting real wage gains over that decade of about 3.8% for jobs located in the city, so in the yellow line, and 4.7% across the state of Michigan, and 6.3% for city residents. So the most growth and purchasing power for city residents on this graph. Okay, this slide shows you our forecast for household income in Detroit per capita. So per person income essentially, in the yellow line, I'm showing you the numbers not adjusted for inflation, and then in the blue line, I'm adjusting for inflation the Detroit CPI. To put these numbers in terms of 20, $21 we're estimating, we estimate that nominal income per capita in Detroit grew by about $2,200 last year, um, or 10.6% um. And even though um, pretty, pretty fast inflation did consume a lot of that growth um, even in real terms. So even after adjusting for inflation, we estimate that income per capita grew by a pretty solid 4.9% that's a pretty, you know, pretty solid number um. We are forecasting that growth will moderate in 2024 a nominal income per capita increases by 4.6% so not adjusting for inflation. Well, real growth registers 1.8% we're projecting, you know, looking looking further ahead, we're projecting that growth will moderate, I'm sorry, that nominal household income per capita will grow at an average annual rate of a 4.4% from 2025 through 2029 and growth of real income per capita, again, adjusting for inflation, nudges up to an average of about 1.9% per year over that period. So by the end of our forecast in 2029 we're forecasting that annual wage income per capita in Detroit will stand at $21,800 in non wage income per capita will stand at about $7,600 taking the total to about $29,400 per person. Our forecast implies that Detroit residents, total income per capita, not adjusting for inflation, will grow by about 48% or over nine. $9,500 from 2019, to 2029, of course, prices will also be rising in that period. They've already risen. So when we adjust for inflation, that number comes to 6.1% real growth in purchasing power in that time. And this slide that you know, talking about purchasing power leads me, you know, I have to show you local inflation. It's obviously the, you know, a sore point lately, um, our forecast for local inflation is based on our May 2024, economic outlook. Um, and we only had Detroit CPI data available actually through February, and unfortunately, the inflation data has generally run hotter than we had expected since then. Um, local all items, inflation peaked at 8.9% so nearly 9% year over year in the second quarter of 2022 but it decelerated to 3.1% by the first quarter of this year. So you know, I keep telling you, well, inflation's been coming in higher than we expected. We were forecasting the slowdown. We have seen a slowdown. I just, I want to be clear about that. Inflation has slowed down a lot, not quite as much as we had forecast and had hoped. Core inflation has been taking a little bit longer to normalize. It peaked almost a year later than all items inflation. And just just to clarify, core inflation strips out volatile food and energy prices, it's been shown to be a better predictor of the underlying trend in inflation than the all items measure. And as I said, local core inflation peaked later than all items inflation in Detroit, reaching 7.8% in the second quarter of last year, before decelerating to 3.7% in the first quarter of this year. We did expect a re acceleration in local inflation to around the 5% range in the second quarter of this year, and then some deceleration again in the second half of the year. So our forecast calls for local inflation to come in around the 2.7 to 2.8% mark this year and then slow down to the mid 2% range by the back half of our forecast period. Based on the data that has come out since we produced our current forecast, we now expect local inflation to run in the high 3% range this year, so about a percent faster than we had projected, but that longer run trend towards slower inflation hasn't changed. And this slide shows you our forecast for the annual unemployment rate in Detroit in the yellow line, and just for a reference or comparison, the unemployment rate in Michigan in the blue line. And you can see that we're forecasting the unemployment rate this year to average just under 8% or 7.8% to be precise, before declining to about 7% by 2029 6.9% again, just to be precise. And I just want to reemphasize the point that I made before when I was showing you the latest monthly data, which is that local area economic statistics are noisy even in the best of times, and honestly, they've been even noisier since the pandemic. So as I mentioned, I wouldn't attach too much significance to any one month's number. You know, I do think that the trend for Detroit's unemployment rate is probably somewhere, you know, around that 8% range, maybe just a bit higher with the latest numbers. You know, I would update my my prior sum, but I do expect it to fall back down, and then I do expect it to continue to decline in the years ahead, you know, again, hopefully reaching that, that level of, you know, just under 7% by 2029 Okay, so with that, I wanted to switch gears just a little bit and show you some analysis related to the distribution of prosperity in Detroit. And, you know, this is a topic of conversation on, you know, at the revenue estimating conference, sometimes I do want to acknowledge that the underlying analysis that made this work possible was was supported by the Southeast Michigan Council of Governments. And we have a report on our website for the entire south for the entire Southeast Michigan region, and we've expanded on that analysis here with additional results specifically for the city of Detroit. And so in our study, what we did is we classified all US households into four income groups based on their income, household size and local cost of living. So across the United States, even though here I'm going to show you results for the city of Detroit. And so we broke households into four groups that we call lower income, lower middle income, upper middle income and higher income. And what you can do, what you can see, is the distribution of Detroit residents into these four household groups in 2018 so before the pandemic, and then in 2022 which is the most recent data we have after the pandemic in Detroit. Just to give you some context, a three person household was considered lower income if its income in 2022 was below about $55,300 lower middle income, if its income was from $55,300 um up to $82,950 upper middle income, if it's income, what um, went from there to $165,900 and then a higher income with an income above that $165,900 so I, you know, I just want to point out, when we talk about higher income households, we do mean, You know, a pretty affluent group of households, it's okay, but so by this metric, about 62% 62.1 you can see in the pie chart. Hopefully, I'm not sure if this is showing up, but right here, 62.1% of Detroit's population lived in lower income households. In 2022 16.9% lived in Lower, lower middle income households, about that same number or fraction lived in upper middle income households, and about 4.2% lived in higher income households. And just for comparison, nationally, just over half of the population lived in households we classify as upper middle or higher income households, which is how we chose those thresholds. So more than two times the share of Detroit's population. Again, that 62.1% lived in lower income households in 2022 than the share nationwide, which was 30.4% so I want to be upfront. These are sobering results when you think about the distribution of prosperity in Detroit. But I do want to acknowledge, and I think it's important to recognize progress when we see it. And Detroit did see progress from 2018 to 2022 in 2018 63% of Detroit's population lived in lower income households. And obviously that fell, you know, not, not a ton, but it did fall from 2018 to 2022 and I want to also point out, which you can't see on this slide, that Detroit saw larger improvements in the income distribution of children aged 17 or younger, from 2018, to 2022, the shares of children living in higher, upper middle and lower middle income households all increased, while the share living in lower income households declined. And the gains for children in Detroit were more pronounced than the gains for children nationally.
Obviously, you know, I'm not trying to, you know, look at the numbers with, you know, rosy glasses or anything like that. You know, I'm trying to give you a full picture of the distribution of prosperity in Detroit, and the situation for children in Detroit remains difficult. In 2022 four out of every five children in Detroit lived in lower income households that year, which was a little bit more than twice the national share. But we did see progress from 2018 to 2022 we also examined the household income distributions in Detroit by racial and ethnic groups, and so the three groups that we felt like we had enough people in the sample to study and to give reliable results were Hispanic residents, non Hispanic black residents and non Hispanic white residents. And the distribution of economic prosperity was noticeably less favorable for Detroit's Hispanic and non Hispanic black residents than for its non Hispanic white residents, Hispanic and non Hispanic black Detroiters were more likely to reside in lower income households, and they were substantially less likely to reside in higher income households compared to Detroit's non Hispanic white residents. Roughly two thirds of Detroit's Hispanic and non Hispanic black residents live in lower income households. Well slightly less than half of Detroit's non Hispanic, white households or residents do so, okay, and then this is my final graph for today. On this slide, we show the distribution of household income by educational attainment groups for Detroit residents aged 25 and older, again, for the year 2022 and I just want to point out we choose, you know, the group 25 years and older, because most people have finished their formal education. By age 25 Overall, about 18.6% of Detroit residents age 25 years and older have a master's degree or more formal education, about 32.4% so about a third have some college education or an associate's degree, and about 49% have a high school degree or less formal education. And you know, I know I make this point repeatedly, so I appreciate you letting me make it one more time. Detroit's more educated residents tends to live in more affluent households. Only 15.1% of Detroit residents with no college education lived in upper middle or higher income households in 2022 and that number was about a quarter for residents with some college or an associate's degree. In contrast, more than half of Detroit residents with a bachelor's degree or more formal education lived in upper middle or higher income households. And then you can see on the graph that the opposite pattern held on the lower end of the income distribution, but you know, residents with less formal education were more likely to live in lower income households. One point that you can't see on this slide, but that the city asks us about, and that we looked into, is that these patterns also hold within racial and ethnic groups in the city of Detroit. So that's to say that, you know, more educated Hispanic Detroiters tends to live in more affluent households relative to Hispanic Detroiters overall. More educated non Hispanic white residents tends to live in more affluent households relative to non Hispanic. White residents overall, and more educated non Hispanic black residents tends to live in more affluent households relative to non Hispanic. Black Detroiters overall. And you know, I the reason that I keep making this point is that I, you know, it remains true. It remains important. Higher educational attainment does continue to be a key pathway to economic prosperity with a clear positive relationship between education and household incomes. So that's the end of my presentation. I wanted to say thanks again for inviting me to participate today, and I'll be happy to answer your questions at the end if there's time. Thank you.
Thank you, Gabe. At this point, we'll go to the panelists to raise any questions they may have for the presentation, and Mr. Busses, we'll start with
you. Thanks, Gabe. I thought the information at the end of the presentation was really informative. Just a question, technically on the classifications, are those the same from 18 or 22 or are those adjusted for inflation across the years? Yes, that word, yeah. Thanks, Eric. Essentially, they adjust with the income distribution. So the the middle to the two middle income groups are essentially two thirds to two times the the median adjusted income. So we adjust for household size, and we just for local cost of living, and then we basically define that that middle income group, which is those two categories, as two thirds of the median income to two times. And then the split between those two middle groups is the media. And so, you know, as incomes grow, the standard required to be in the middle class. But, you know, goes on, okay?
Thank you. Yes, I have a few questions. Dave, you mentioned that if you were generating the forecast today, you'd be a little I think the word emphasis is little more pessimistic in the short term than what you presented. Does that increase the prospects of a forthcoming recession? Does it increase the odds at all? Yeah,
thank you, George, yes, I do want to be upfront with you. You know, in our estimation, the odds of a recession have gone up since we produced this forecast. It remains, not our base case. So our, you know, our baseline case is for growth to slow down, but GDP growth, you know, GDP to keep growing real, GDP and employment nationally, you know. And one point I want to make is, you know, those of you who have seen us present, you know, in the past, you know, definitely, before the pandemic, might have heard us say, you know, we think that the distribution of risks is skewed to the downside. My sense is that it's still skewed somewhat to the downside. But, but one thing that's different now than say, you know, five years ago, or especially, you know, 10 years ago, is that interest rates are no longer stuck at zero. And so, you know, the Federal Reserve is looking at the same data we are. And obviously there, you know, for those of you who follow the numbers, there was a little bit of a panic, you know, late this summer, when we got a slow jobs report, you know, a relatively weak jobs report. You know, the overwhelming expectation is that the Federal Reserve is going to pivot to cutting interest rates at its upcoming meeting. And so we do expect that the Fed can offset, you know, we do see some signs that the economy is slowing down. We expect, you know, the Fed to declare victory on inflation and to pivot to cutting interest rates to preserve the labor market, and that should help Detroit's industries. You know, industries. You know, Detroit does have some pretty big interest rate sensitive industries, auto industry, the mortgage industry, etc.
That actually leads into one of my other questions, which one thing that struck me is how sensitive the employment growth in Detroit was to the interest rate levels, especially in financial services, and what pattern of interest rate reductions do you see going forward? Yep, George, I'm
just going to give you the numbers from our most recent forecast, which is, you know, slightly more recent than when we produced this forecast. The general concours haven't changed. You know, we expected a pivot to rate cuts. We expect it to be a little faster. Now, at this point, we expect a cut at every meeting remaining of the Federal Open Market Committee this year, and actually through May of next year, and then the pace of rate cuts decreases. But you know, I do want to emphasize, we think that the pace of rate cuts is going to be data dependent. It's going to depend both on the progress on inflation and on what's happening in the labor market.
Okay, thank you. I have just one last question. One of the most vulnerable parts of parts of forecast accuracy is, of course, the policy assumptions that go into the internal workings of the model. And we this is particularly so when we have a federal election year which shot such diverse policy approaches among the parties. How are you approaching this? Yeah,
you know, I've got an easy out here, and I feel bad. You know, it's it sounds like I might be cheating. I'm not. This is truly what I believe. You know, we think that the most likely outcome of the elections in November is to have divided government at the federal level. And so with that in mind, we don't see a lot of action either way in terms of policy. Frankly, I expect the deficit to remain pretty high. We expect still pretty steady growth of defense spending with slower growth of other parts of spending. So, you know, I think, I don't want to say fiscal policies on autopilot. I'm sure there's going to be, you know, a lot of drama, lots of newspaper headlines, but at the end of the day, you know, we do think divided government is the most likely outcome of the election, and that's going to constrain, you know, how much truly can happen. Okay, well, thank
you. Just, I just want to say that I continue to be very impressed with the efforts that went into your forecast detail, with all the difficulties that I well aware of. So thank you very much.
Thanks, George
Jay
Thank you. George Gabe, I appreciate the last after presentation. Every every time with this, it's really, I think it's important for us to focus on the big driver of economic prosperity of the city is educational attainment. And I like the fact that you have you continue to remind us that I would like to make sure I'm interpreting correctly what how I see your your forecast on unemployment rates. It seems to me that that this is a and correct me, if I'm wrong of this is this a unemployment rate reduction or slowing reduction caused by a reduction of the labor force and a stable employment setting so that so that unemployment kind of comes down because there's fewer people in the labor force in the future. No
Thanks, Jay, no, you know. And just to come back to this, but you know, resident employment. So the blue line is what goes into the unemployment rate calculation. It's the blue you know, the blue line is employment, and then you have unemployed residents. And so employed and unemployed residents together make up the labor force. And you can see that residents employment in our forecast continues to grow, and that's what's driving the, you know, the moderate reductions in the unemployment rate,
okay? And that, and that's is matching the labor force being fairly stable then, and so that's causing the unemployment rate to come down. Speaking
off the top of my head, I believe the labor force is growing, yeah, exactly, but not faster than
I understand. Thank you very much.
And I got a thumbs up from Jacob, which means I my my recollection was correct.
So we'll now turn to discussion of their the city's revenue forecasts, presented by Tanya staudermeyer, again, who's the chief deputy CFO and an interim budget director, Shira Hainsworth and City's manager of revenue forecasting and economic analysis. And Erica moody, The Economist for the city. They team to prepare these revenue estimates and in consultation with the Office of Treasury, Department of Financial Services, as well as City Council's legislative policy division, the auditor general's office.
Thank you, Mr. Rising, as indicated earlier, public act 182 requires the city to hold two independent revenue estimating conferences in September and February. The revenue estimates must be approved by consensus among the three voting conference principles. The estimates include the current fiscal year and the next four fiscal years, and these numbers will set the city's budget and the four year financial plan. I will now turn it over to Ms Hainsworth to start the presentation of the proposed revenue estimates.
Good afternoon. Shira Hainsworth, so this slide compares our general fund recurring revenue forecast to the estimates we had in February. So compared to our February forecast, we are projecting just under 9 million more in recurring revenue for fiscal year 2024 and 43 point 5 million more in non recurring revenue for fiscal year 2024 we are now forecasting 52 million more recurring revenue for fiscal year 2025 than was estimated in February. That's mostly due to improved outlook for income tax, wagering tax and property tax revenues that boost, in base of course, creates a reactive boost. So you're going to see that based on that boost, you're going to see that growth continue throughout the years. For our upcoming budget year, we are forecasting $2.79 billion in the budget general fund revenues are making up 60% of the forecasted fiscal year 2026 revenues, water and sewage and other restricted funding make up another 20% each, almost splitting that remaining 40% between those two. This is a slight shift from which you would have seen in last conference in February. So there was general fund dollars making up 55% of the revenue summary, we contribute that shift to an adjustment in DWSD revenues based on the past few years revenue performance, along with major revenues, continue to perform at a pretty steady, strong rate. Here, our current forecast shows recurring revenue increasing by about 120 $5 million over the course of four years, by fiscal year 2029, so at the start of the right half of this slide, you'll see our current fiscal year, recurring general fund is forecast at $1.382 billion We're expecting recurring general fund revenue to reach $1.508 billion by fiscal year 2029, comparing where revenues were four years ago, we would say at this point we're pretty clear from the 2020 pandemic. It's in our rear view mirror. We're operating at a more stable state for revenues at this point, if there are no questions from principals, we'll dig a bit deeper into recurring revenue, starting with the five major revenue sources.
All right,
so this is recurring income tax. This is our biggest, major revenue source. So income tax is maintaining a reasonable growth rate. Our projected annual our projected actual for fiscal year 2024 is 427 million. We're estimating 444 million in recurring revenues for the current fiscal year 2025, and throughout the forecast is growing at an average rate of 3.3% annually, the growth rate in Resident wages and employment that Dr Ehrlich discussed earlier has been materializing and are withholding an individual tax revenues that we've seen and will persist. We'll see it kind of working alongside what the economic outlook is. So in forecast years, we have kept corporate and partnership revenues constant due to its variability and growth. In the past, however, due to increased efforts that the state has made to collect on delinquent income taxes, we have factored in a decrease of tax compliance to match the following base for delinquency that we expect. And I'll pause for questions before we go on to state revenue sharing.
I think we, if you would, present the whole forecast, and we'll come back for questions. Good
afternoon, everyone. My name is Eric Mooney, economist for the revenue forecasting and economic analysis team within the budget department, and I'm going to talk about state revenue sharing. So on this slide, we show the forecast for recurring state revenue sharing. This is money the city receives from the state and consists of two parts, constitutional, shown in blue and then statutory, shown in green. The Constitutional portion is based on the state sales tax, and Detroit's share is 6.4% of that amount based on population fiscal year 24 and expected fiscal year 25 state sales tax came in slightly lower than forecasted back in February, so we see a lower expectation for fiscal year 25 constitutional revenue than the fiscal year 24 projected, actual state sales tax is projected to grow at 1.3% in the forecast and constitutional revenue is projected to grow around 1.4% annually between fiscal years 25 and 29 the statutory portion, or cvtrs, is based on a percent of the previous year's statutory receipts. And that portion of revenue received is projected to finish at 161 point 9 million for fiscal year 24 and will grow by about 2% each year in the forecasts
we'll do questions on that yet,
moving on to wagering tax. So this slide shows the wagering tax forecast with retail or in person activity in green, and internet or online activity in blue, and this is revenue that comes from the seven tax rates applied to the three casinos in the city. I want to start by reviewing the jump between fiscal year 24 and 25 before I get into the forecast, the fiscal year 24 projected actual retail revenue in green is lower than in fiscal year 23 because of the strike in October, November of last year, when most of the casinos were closed. I know or most parts were closed. I know we talked about this back in February, but again, wanted to mention again that strike affected table games, which make up about a quarter of casino retail gaming activity overall. Slot machines were open as well as retail sports betting kiosks. So if you went to the casinos, you you could still walk in and participate in those activities, but betting did see lower activity in those months. All right, moving on to the forecast. So since February, we have revised our forecast up slightly for both retail and internet activity. Internet gaming continues to grow, and there has been a steep incline in activity recently at one casino in particular, but we are seeing the growth plateau now. So the increases in the forecast are still quite moderate, about one to 2% each year, and I'm definitely looking forward to seeing September's numbers to see if last night's lions game can give us a little boost, but we'll see. Alrighty.
All right, moving on to recurring property tax, so due to the increase in taxable values we've seen this past year, we do see a boost in our property tax base by about ten million from fiscal year 24 going into fiscal year 2025 that puts our estimate at 164 million in recurring property tax for fiscal year 2026 throughout the forecast, we have not considered property tax on capping we generally do not which occurs when property changes ownership. So we have set the base to a 2.6% growth rate. That growth rate is primarily informed by past growth that we've seen for property tax categories in recent years. This year, the Hedley rollback was triggered so that prevents a municipality from exceeding its maximum authorized millage. As a result, the millage rate decreased from 19.952 Mills is tax year 2023, rate to 19.812 Mills is tax year 2024, rate. Our forecast assumes a tax collection of 85% does also consider any hope exemptions and any changes in TIF capture.
All right, moving on to utility users tax, or UUT, as I'll abbreviate it to UUT, is the 5% tax levied on consumption of electricity, gas, steam and telephone services. And the estimated revenue shown in the graph are net of a $12.5 million dispersed annually to the public lighting authority, or PLA this revenue observed a decrease between fiscal year 23 and 24 due to lower demand from the moderate temperatures that we saw in fiscal year 24 so we may see a bump in 25 from the recent heat waves and different weather that we've been having local CPI for utility gas also started to lower in the second half of fiscal year 23 and has plateaued so far, or plateaued in fiscal year 24 and hasn't changed in the most recent months. But that's another indicator that we look at to help us inform this revenue forecast. There's definitely upside potential for this revenue if the rest of the this, if this winter turns out to be colder than expected, or if those prices that I was just talking about start to climb again, with all of these factors considered, the forecasted revenue grows by about 1.3% annually through fiscal year 2029
here we have the non major recurring revenues. The highlights from these revenues are called out in the legend and are represented at the top of the bars here. So starting at the light blue, we continue to receive contributions to the pension fund as part of the grand bargaining agreement resulting from the bankruptcy. So that's what you see there. Moving up from there, casino municipal fees are continuing to come in strong. This is the 1.25% fee that casinos pay on adjusted growth receipts. It grows in line with wagering tax forecasts. So as Mrs. Mooney would have mentioned, there's a boost in Internet gaming performance for casinos, and that impacts revenues for this fiscal year, which is contributing to the bump that you'll see in municipal service fees. Emergency Medical Services are seeing some steady growth in the out years. The same goes for parking, license permits and inspections, court fees and fines, all growing at about a 2% growth rate on average at the very top state share marijuana tax. We don't expect the city will reach a ceiling of 100 retail licenses for another couple of years, so until fiscal year 2027 state distribution. So at that point we expect to reach a more steady state with revenues. So that's why for fiscal year 2026 is projected at $5.2 million for this source. I like to remind everyone that our share of this revenue source does not only depend on the number of licenses that the city holds, but also proportional to the number of licenses that are active statewide, and is a share of the total tax amount that is collected from retail marijuana sales in the state. For the all other category at the bottom, we feel confident about a 1% annual growth rate throughout the forecast. Examples of categories that are captured here are the community development block grants, interagency Billings and any earnings that the city makes on its investments in all that gives us an estimate of $217 million In non major recurring revenues for fiscal year 2026
Um All right, the next group of revenues that we like to talk about are enterprise and special revenue funds. So this slide shows the recurring revenues under that category, the majority of which is under water and sewerage and grant revenue that the city receives from different sources. A number of funding sources for these funds and revenue sources are formula driven, are based on formula driven variables like population. So we did see a slight decrease overall from fiscal years 23 to 24 the slide also shows major street fund revenues, transportation, debt service and solid waste management revenues and overall total revenue for these funds is is expected to grow between one and 2% each year from fiscal year 25 to 29
so by state law, the city is required to keep a 5% rainy day fund. That minimum amount required is represented here in the yellow dotted line. As you can see, we have met the minimum reserve amount for quite some time, and have, of course, even grown it over the years, maintaining $150 million balance right now, we did not decide to contribute further to the rainy day fund in the most recent fiscal year because we felt secure about its funding level. But of course, we'll continue to assess to determine if further contribution is necessary in the next budget cycle.
All right, so there are a number of risks to consider here with our forecast. So for instance, Internet gaming growth is still fairly recent, so we're not sure to what extent it will sustain so want to continue to look at that definitely. Though the risks are small, it is possible that employment growth does not meet expectations, or that the state legislature may see some changes in priorities that result in less share of State Revenue. Finally, the city plans to wind down ARPA funded programming in 2025 so this will impact contract workers who've been hired across the city to support these efforts, while we expect that the majority of those employed will be retained. In some cases, it may lead to a temporary dip in employment and thus income tax. As far as the upside, there is potential for ongoing development to possibly impact property and income tax. There's also potential for resident wages to grow at a faster rate than is currently expected. There are two bills that are being considered in the state legislature that could lead to additional funds from the state to the city for public safety. So that's what HB 4605, and HB 4606, are additionally as property is sold and renovated, those improvements in property values will result in higher property taxable values, and thus property tax revenue for the city. Lastly, we have adjusted our expectations for utility tax down considerably based on last year's revenues. However, it's still possible that, you know, as Mrs. Mooney noted, that weather conditions could result in higher than expected tax revenue in the future, of course, well, what's not listed here, but what we all know there is some uncertainty about federal policy changes at this point, so that can have major impact on either the downside or upside of our Forecast, depending on the executive branch's priorities. And that concludes our forecast. We'll take any questions.
Thank you very much. We'll start with Mr. Busses.
Thank you, first off, thanks for the work a process that provides a lot of value to the city and appreciate the work that the group provides on this couple observations and then question so just to clarify the recurring state revenue Sharing shown on Slide seven that doesn't include the public safety distribution that's been appropriated but not enacted in policy bills that
right? That's correct. Okay,
so I think at the at the state level, just for awareness, there have been a number of pretty large revenue sharing changes at the state level, there was the traditional increase for city villages and township revenue sharing. The formulas were changed, and we're still working through at the state level, what that'll mean for the city, there's been a significant additional investment, there a $75 million additional appropriation to that fund or to those purposes. So I think at this point, the trajectory here looks reasonable, but we'll have to continue to monitor through the fall, as we know what those distributions look like. I think the question on the risk related to wagering tax an observation that there's a really big increase between 24 and 25 and Erica. I think you mentioned the increased share in revenue from some of the online gaming. So just looking forward, is it correct that the assumption is that that increase stays in place and does what's the assumption about growth? Looking forward? Can you talk about that a little bit?
Yeah. Thank you. So the growth is between for Internet gaming is between one and 2% annually for the adjusted gross receipts that the revenue is based on, and then from there, we'll receive different types of tax revenue, and so the revenue target supplement will also kick in for one of the casinos, and that revenue is shown in the blue bar for fiscal year 25 as well. So that also contributes to the jump in revenue. There.
Sorry, two more questions, property tax. You talked about the Headly rollback, but we're still seeing pretty big increases there. Is that mainly due to the growth in the taxable value cap or increased development? Are we seeing that the increased revenues coming from residential, commercial, industrial? Any insight there?
Yes, you're right. So it's coming from that taxable value definitely increasing from year to year.
Our last technical question, can you talk a little bit about on slide 11, the increase in the all other there in 25 insight into some of the increases, and whether not those are recurring or ongoing, sorry, recurring or not recurring.
And yeah. So those increases are recurring, based off of recurring changes. Definitely, a lot of the revenue sources in that category are based off of some type of formula, because they typically come from some type of federal grant. So that's a lot of what we're seeing in that variability over the years and that all other category.
Yeah, thank you for that additional clarification. Listen my question, yes, I have, I guess, a brief comment on on on each of these, I'd like to first go back to a forecast record. What I did is I went back to September of 2023 so 12 months ago, and looked at recurring general fund revenue for fiscal 2024 and at that time, it called for a growth rate of 2.3% and that's compared with the current sink thinking today, obviously with much more information now, growth of 2.9% in this category, so 2.9 versus the 2.3 initially forecast. So in my view that considering the category, that amounts to a respectable 12 month forecast error, and it's on the preferred conservative site. So I just wanted to say that in terms of municipal income tax, there's, there's a fair there's a fair increase for fiscal 2025, you, you, you have made an adjustment to do that, and I just wanted to say that I am okay with that. I'm familiar with what's what was done, and I'm okay with that. And I also note that the four year growth from fiscal 25 to fiscal 28 for recurring income tax is actually slightly lower than what was presented last February. I guess my I just one question here, and that is, what's your remote work assumption?
No,
yeah, you. So the question was, what's the remote work assumption in general? Yes.
In general, what's your remote work assumption? Yes. So
what we look at, we start by looking at total income tax refunds received, and then going back to the years before the pandemic, and then we calculate how much withholding has changed. And then we say, okay, if the pandemic had not happened and we had not seen this big jump in remote work eligibility, what would the quote, unquote regular, you know recurring refunds had been and then we take the difference between what that projection is and the actual refunds received by the city, and we contribute that portion to remote work.
Okay, you don't have a particular number, though. Okay, state revenue sharing. So the outlook here for this category slightly more optimistic than the numbers we approved in last February's conference, but at least in my view, I still think they remain firmly on the conservative side. I think Eric might agree with with his cautious and so as always, if the numbers are okay with Eric, they're okay with me on this category, on wagering taxes, I think we really still remain in the evolving stages of the diversifying gaming revenue, and so I know that you're doing more work on that. And I think given the current dynamics in this territory, I support teams continuing to engage in a more detailed analysis of this category. And as with the team, I also looking at your risks. I also do see some legitimate downside risk in the Internet gaming growth trends on the current property taxes. First, I think it's helpful to have updated assessment values. Do you? Would you like to say anything about the paybacks to Wayne County and where, where the city stands on that? I think that's an important category.
Yes, thank you. And you're referring to the Supreme Court decision that any auction proceeds could be paid back and that it would be retroactive, so at this point, we don't have information to tell us a clear path forward. We're definitely going to continue to stay close to Wayne County to figure out how that progress and what that amount may look like.
Okay, well, I'm I'm okay with this current forecast, subject, of course, to a future evaluation. There's just so many moving parts in this one, it's hard to get your arms around it on the utility, users, tax, fortunately, from a forecasting point of view, this tax is the smallest category of the major general fund revenue sources. And I say fortunately because it's difficult to forecast, particularly anticipating the weather and projecting underlying energy price inflation, which has been increasingly influenced by structural and geopolitical factors. My understanding is that the rate increases are not included in the forecast. Is that correct? Okay, on the other hand, the man must be fairly inelastic. I would, I would think on that. And also new construction, much of the new construction is not included, okay, so obviously that could enhance the outcomes here. Having said all of that, I'm good with the current forecast. I guess I don't have much to anything to say on the other side, the departmental and other GF revenues. Is it fair to say the category is more on the upside? There you have a view on that?
Yes, I would say that definitely those the forecast the revenues definitely file more so on upside.
Okay, and on the last one, the non general fund revenues, I have no comments the set asides. I'm been on this committee a long time. This is one of the really pleasing developments for me since the first year I was on, which was the beginning, because these prior conservative forecasts have really given me some reduced concern over unanticipated negative outcomes just because of the build up in the rainy day fund. And I believe where we had, at one point, a long term target of 15% and we're approaching that neighborhood now, so I'm I'm very pleased about that. And finally, on the risks and opportunities, of course, the things that need to be added are the possibility of a recession and the impact differences in policy mix depending on the outcome of the November election, like I mentioned before, and that's all I have. A few general comments at the end, Jay, but that's all I have now.
Thank you. If I could just make a couple comments, maybe in response to some of your questions too, George, I had a conversation with the assessor today trying to understand the same question you're asking related to delinquencies and the fact of the retro effect of the Supreme Court decision. And the current thinking is that it's well, while retroactive, it's all dependent upon both how many people come back seeking refunds, also it's dependent upon, really what was the sales price of the at the foreclosure, because the refundable obligation really comes to extent. Wayne County collected more than the vet sale within the taxes owed on the property, and there were two options every year. One option was really open ended with which allows people to bid whatever, what amount of the taxes they want, that could produce some liability. But in the years in question, coming back to the you know, oh, seven, I think, or so, there was a history of sales which were fairly depressed. In fact, there's a history of sales that had to go to a second auction, at which time the prices dropped to a minimum, bit of five $500 to extent, there's more of those properties went to $500 we see there's like lessors lessons, the overall chargeback risk for us and that. So that's given me some comfort with that. That number, the other thing I'd like to point out is that we're being a little bit conservative on the other revenues for investment earnings for two reasons, both we see likelihood of investment rates declining, as well as the fact that we've had the corpus of ARPA funds, which will start dwindling at a much faster speed, and ARPA interest investment earnings go to the general fund. As we see those dwindle and being and being spent, paid up, paid out, we'll see less, less of a corpus to invest. And we see so I thought that was good. Need be a little bit conservative. On the other hand, the more aggressive or more upside we have had took for 24 and we think we continue 25 in casinos. And I'd ask Erica to talk a little bit about why this Internet gaming forecast is so it's so, so big. Could you discuss a little bit of the history of why 2024 Internet gaming is a little excessive what we thought it was six months ago. I Yeah,
definitely. So the question was to discuss the history of the internet gaming activity. So two of the three casinos have held pretty steady growth rates of about one to 2% annually. And then there's one casino in particular that has grown about 50 to 70% year over year. And that's actual, you know, historical adjusted gross receipt activity that we have seen that's not projected by us. And back in February, we had started to see that trend, but we were not relying on that trend to continue. And then so since February, we've seen that continue to spike. And two of the casinos, Internet gaming, are right around the same level right now. And so that's based on actual activity that we have seen. So we're and again, we're not forecasting the Internet gaming revenue to you know, continue to increase 50% year over year. No, we're not doing that, but it is a modest about one to 2% based on activity that we have seen coming reported by the Michigan gaming control board.
I took that to mean that that we've seen one of the one of the casinos have a dramatic increase in US gaming. The other one has, it hasn't really been cannibalization, because the third still maintains a lower level. There's some upside there, if Internet gaming continues to grow without cannibalizing bricks and mortars or other internet platforms, we could see a little upside, but we been conservative on the third and but we've kept the the one that's grown, the growth rate constant, but higher at the higher level than seeing proportion of revenues. And that's produced, I believe, also Erica, some additional state reimbursement, also based upon a trigger they couldn't pull that. Yeah,
yeah. So question about the revenue target supplement, so there is an additional 1% that the city receives on adjusted gross receipts if a casino hits 400 million in adjusted gross receipts in a calendar year. And so the payment that we would receive in fiscal year 25 would line up with that so that this one casino in particular would cross that threshold, and then they would owe that additional 1% on any activity for the full calendar year.
Thank you. With that, I would like to turn it to the Auditor General and the and Mr. Corley to any questions you may have, go ahead.
Good afternoon again. Laura Goodspeed, auditor general, you mentioned in the forecast risk the ARPA activity slowing down, and if I recall correctly, this is the first time the impact of ARPA funds either up or down has been mentioned. Can you explain that a little bit more why that is a risk, forecast risk.
Yeah, it's just one of those things that we absolutely have to call out, knowing that there's been this influx of millions of dollars into the economy, knowing that that not existing any longer after we shut down programming, that that's going to have some type of impact on the local economy.
Just again, what particular major revenue are you expecting it to have an impact? And again, this is the first time that I believe the Department has opted to talk about our performance. I've mentioned it at every revenue consensus, and so it's just interesting that it's now a downside risk, as opposed to any upside advantages from the almost a billion dollars of our funds that have come into the city.
Yes, of course. So we do call it out as being a possible impact to income taxes. So in the past, it would have not necessarily been a ARPA call out in particular, but based off of activity that was happening locally that could have also included ARPA would have been considered as part of our risk. We just know that, you know, taking this amount of money out of the economy could obviously have some impact, and want to make sure that we're calling it out. Thank you.
Mr. Rising, I'd like to make a comment as it relates to that as well. So I think also what we're anticipating is that as we spend down the ARPA dollars, at some point, we're going to have some recurring expenses as related to those erpa projects. So I think a lot of that was taken into account as well. When we think about the downside risk, there might be a need to spend additional general fund dollars on recurring ARPA projects. For instance, if we're building new recreation centers, there's going to be a need to have additional staff. So those are the kind of costs that could cause a downside risk in terms of our general fund.
One more thing, it's a good question. So upper money was generally spent as support dollars, training dollars, infusions to skills in the labor force that would hopefully get upside. As you noted, a good portion of the dollars also have gone to affordable housing. Which to continue the affordable housing development that we'd like to see is going to have to need a alternative source of capital other than ARPA, so there are possibly almost a dozen projects which were which are supported by gap financing, which included ARPA dollars, of which general fund can't do. But we'll have to see some some replacement funding for that gap funding, or we have to, or we have to take the benefit of lower interest rates, which also help the get reduced again financing so that, I think that's the type of risk we're kind of talking about. You know, there's certain things we've invested ARPA dollars in to improve housing in the city, and we'll have to find a replacement source or take advantage of lower interest rates to do that. I
Corley,
thank you again. I'll Irv Corley from the state policy division, so I just want to start out with a little levity. Um, Dr Fullerton, last year, I asked you, how would the U of M football team do, and you for dated 16 and no, and they did. I just want to say this year I am not going to ask you what your petition is, but we're going to move on.
I need, I need a little more data before I well.
I want to thank the Office of Budget, especially the revenue and economic analysis group, for their hard work and putting together the city revenue estimates. I also want to thank them for responding to questions raised by us in the legislative policy division, LPD and the Office of the Auditor General regarding the revenue estimates. I also want to thank members of the ocfo, the ag and my fiscal staff and LPD who participated in this process. We in LPD are generally in agreement with the revenue estimates established by the Office of Budget for the current fiscal year 2025 and for the forecast fiscal years 2026 through 2029 regarding the current fiscal year, 2025 based on the september 2024 revenue estimates, fiscal 2025 total general fund revenue could end up being about $65 million higher than what was reflected in the fiscal 2025 Doctor budget due to higher projected income tax, state revenue sharing, casino wagering tax, property tax and other general fund revenue collections offset by lower utility uses, tax revenue collections the city, possibly receiving $75 million more in the current fiscal year, will provide a needed cushion to address any unforeseen escalating expenditures, and they'll provide more funding for city services and this potential fiscal 2025 general fund revenue surplus could grow higher based on the numbers in the February 2025 revenue estimates regarding the forecast period, we share in the economic community's general opinion of slower growth forecasted for the state and national economy, and we agreed with a similar outlook for the city revenues growth for the forecast period the Federal Reserve is encouraged with the direction of inflation and the relaxing of labor market pressures, leading to A consensus of analysts expectations of a 2.25% up to a point five 0% Fed funds rate cut in the near future. However, national political uncertainty continue, global unrest and guarded consumer sentiment softens growth expectations and contributes to ongoing risk in the forecast locally, as we heard earlier, our University Economic Partnership forecast lower inflation contributing to faster real wage growth in Detroit residents jobs and Detroit payroll jobs rising. Detroit unemployment rate in 2024 is not a negative, as one can look at it, but reflects an increase in the Detroit's labor force. Detroit's unemployment rate is forecasted to decline in the forecast period. With this potential positive momentum, Detroit still faces significant challenges in the distribution of economic prosperity across racial and ethnic groups in Detroit, and the number of lower income households in Detroit continues to be a concern, as reported by the University Economic Partnership. In other words, there's still much work to be done. Income tax revenue growth has been consistent since the 2020 21 pandemic closures, and we anticipate moderate growth to continue in the forecast period, but past volatility and corporate income taxes, while not reflected in this forecast, remains an area of interest to us, as well as remote work activity and delinquent income tax collections, And then that gaming and sports betting continues to lift the city's wagering tax revenue, albeit at a slower pace in the out years of this forecast, the American gaming Association Aga, reported in 2023 that Michigan led the nation in online gaming wagering about 1.9 billion on poker, blackjack and other online casino games in 2023 the AGA also reported in 2023 that Michigan had the fourth largest decrease in Traditional casino gross gaming revenue, with a negative 2.7% decline. Consequently, Detroit's traditional retail gaming continues to lag behind pre pandemic levels during this forecast period. The data mentioned previously continues to confirm a substitution effect between internet sports betting and retail game labor disruption, or the strikes, casino strikes in 2023 at a minimal impact on overall wage and revenue stemming from lower retail gaming revenues that was offset by continual growth in Internet gaming. Fortunately, property tax revenues have risen significantly in Detroit. Property tax revenue is expected to grow by 7% in fiscal 2024 and by 8% in fiscal 2025 then taper off to a conservative 2% growth in the out years. However, starting in fiscal 2025 property tax revenue reduces by an estimated 1.2 million because of the city was required to roll back as general Avenue taxes per Headly that was discussed earlier. In addition, rising delinquent property taxes is an area requiring additional monitoring. On a related note, the land value property tax proposal is currently on hold, and say legislature and was not considered in this forecast, we would like to give a cautionary note. General Fund surplus pluses are shrinking. The general fund surplus was 20, $30 million for fiscal 2022 I did 46 million. For fiscal 2023 and projected to go down to about 90 million or 2024 In addition, as alluded to earlier, robust interest earnings will significantly disappear in a couple of years as American rescue plan Act dollars are spent, coupled with the city's large pension payment, although mitigated by the retiree Protection Fund, were further push strain on the city's general fund. In conclusion, we are encouraged by the city's steady growth in revenue, or be it modest on average. However, challenges continue, and we must be vigilant in increasing revenues and holding expenditures to our budget expectations. Lastly, the resiliency of Detroit gives us confidence that we will continue to build upon our recent progress. Thank you very much.
Thank you for that excellent summary of our fiscal condition with that, please.
I just have a few. I'll take half a minute to make a few overarching comments on the session today. First, I think in this region, it's particularly important to keep an eye on the prospects for the transforming auto industry and its suppliers. There's a lot going on there right now. Second, it's my summary view that there is an upside risk overall on the revenue forecast. That is, it leans to the conservative side. Third, I remain impressed by the continuing advances in the process that enhance the forecast product, and I commend city staff for that. And last, there's a lot of uncertainty currently, even as we've seen in interpreting the data, we do need to remain vigilant to this ever changing landscape. Thank you. Anything
I do, and just for the benefit of the public and all others, I just want to speak briefly about the Office of the Auditor General's involvement in the city's budgeting process and to our participation in the Revenue Estimating conferences in 2008 when I started my career with the Office of the Auditor General, auditors were responsible for analyzing the mayor's proposed budget only after it was presented to city council. Immediately after the budget was presented, we would literally be sequestered in our offices until we performed our own detailed analysis and produce what we call the big budget book for City Council's review. We were tasked with performing an independent and objective review on the mayor's proposed revenues and expenditures projections, yes, all at the same time, and concluding on whether the proposed revenues and expenditures were reasonable or not, we often reported that the revenues were highly or moderately optimistic based on our methodologies of creating our own independent forecasts, having been involved As an auditor in the old process, and fast forwarding through the city's bankruptcy and through the oversight of an emergency manager to the current estimating process, I can truly say that we have evolved. Ms Vivian slaughter, the auditor manager and our revenue consistence team leader reminded me that we've gone from pointing out flaws in the budget to city council to creating our own estimates, to working through a consensus process with the Office of Budget and the legislative policy division, to now being able to just perform a review of the forecast and projections as presented by the Office of Budget. The information we received from the Office of Budget is consistently expanded to include more economic and statistically relevant data as they obtain more detailed data they included in the estimates, and it's provided to us through their underlying supporting schedules. We, along with LPD, have the opportunity to ask questions to ensure that these estimates are reasonable and that the assumptions used by the budget department are sound and consistent with the economy and all available information. Ms slaughter commented that they have also learned to anticipate our questions and tend to answer them before we can ask. We appreciate the office of budget's attentiveness to OA G's presence. We appreciate them for taking us seriously, even though the Office of the Auditor General is no longer legally required to be a participant in these revenue estimating conferences as it relates to property taxes, I just want to point out we want to acknowledge the many programs that the administration has put into effect to help Detroit delinquencies and possible foreclosures by paying their property taxes, staying in their homes with the play plan ahead, tax saving account and pay as you stay programs This along with all the expanded activities of the hope homeowners property exemption, aka hope outreach, and the Detroit Tax Relief Fund, expanded activities, we hope will help stabilize the city's property tax revenues. Finally, we look forward to the results of the study on the ratio studies on the assessed values. But last, as I have spoken at the past revenue estimating conferences, again, I would like to speak briefly about the ARPA dollars, the American rescue plan act, state and local fiscal recovery funds, commonly referred to as opera. Let us recall that in June 2021 the city of Detroit appropriated the $827 million that it received directly from the federal government. The rules require that ARPA funds be obligated by December 31 2024 and spent by December 31 2026 according to the information posted on the city's Opera web page, as of September 2, 2024 The city has programmed $819 million which means that 99% of the funds have been allocated to initiatives that have project plans and budgets, identified city stakeholders and clear outputs and outcomes. The city has obligated 90% of the funds, or 748 million through a combination of council approved contracts, sub recipient agreements, and funds budgeted for personnel, but the city has only spent 375 million of those dollars. Again, this speaks to the continued slow spend rate, as only 45% of the funds have been actually paid out to vendors and or sub recipients, or have been used to pay for personnel costs or grants. Issued note that the city also received an additional 75 million in ARPA funding from the state of Michigan, bringing our total award to almost $1,000,000,000.09 160 1 million. We've asked that the additional funds be incorporated in the overall opera dashboard reporting, and I'm hopeful that the Office of Grants Management will include those additional funds so we have a full picture of our opera dollars in spending. According to the administration strategic plan, the plan was to obligate all those opera funds by July 2024 and not wait for the December 31 deadline. There still is approximately $80 million left to obligate over the next three months. Our office understands that the opera funds are not revenues, and so that's why I was a little surprised to see that for the first time, the impact of our dollars was mentioned at this revenue revenue estimating conference. However, we believe in, according to the rules governing opera funds, there's a wide array of still potential expenditures that can be charged to opera projects and create one time, non recurring revenues to the general fund, for example, certain salaries or personnel costs, services and even some capital improvement projects such as ours could be charged to offer, again, freeing up some of those general fund revenues and providing reimbursement to the general fund. For the sake of transparency, I feel now it's utmost important that we understand and include any of these dollar amounts with these potential non recurring revenues in our fiscal year, 25 estimates and fiscal year 26 and forward projections again, especially that it was introduced today as a potential downside risk to our budget, where the upside risk in closing, based on our review and analysis of information received, researched and gathered, we the Office of the Auditor General, feel that the revenue estimates and forecasts presented by the Office of budget for fiscal years 2026 through 2029 are reasonable. I want to thank the dedicated members of OAG revenue estimating team led by auditor manager Vivian slaughter and our auditors, Alicia Jordan and Marlena Lipscomb for their work and due diligence and turning around our analysis within such a short time frame. More importantly, I want to thank the team and the legislative policy division, and most important, the Office of the budget revenue estimating team, for their continuing efforts to provide provide city council, the mayor and the members of the Financial Review Committee, with reasonable revenue estimates and projections. We look forward to continuing our partnership and work together and robust discussions at the upcoming revenue, February revenue estimating conference. Thank you. Thank you.
Any other comments before we vote on the approval of the forecast, we always give the opportunity for the public who are attending to make any comments, I'd ask that the comments be restricted to two minutes and address the topic before us. I would say that to people on the phone, we apologize. We have no communication system set up. You have questions or comments we would appreciate, greatly appreciate if you would put them in the chat, and we can try to address them here. If we can't address them here, we would get back to you. Let me start with what we can do, and ask anyone in the audience who would like to make a comment To do So.
But I
thank You, Mr. Mon anyone would like to respond? Okay, yeah.
Excuse me. This is Gabe Ehrlich from the University of Michigan, just in response to the question on what the income ranges were for the four household categories in Detroit in 2022 a three person household, would be considered a lower income household if its income was below $55,301 up to 55,301 and then from there, the lower middle income group would be from that number to $82,951 82,009 51 and Then the upper middle income group would be from there to 165,903 and then the higher income group would be above, above that number.
Thank you. Miss Brown. Oh, Miss Brown, if I could answer your other question about whether or not the tax increment revenues are included, they've been excluded from the revenue the city would receive. This is, they're excluded from any revenue that we are forecasting. This is, this is your question about whether or not tax increment revenues are included or excluded from our numbers are presenting, they're excluded. Any other member of the audience like to make a comment? Do we have any questions or comments in the chat? I
I would know that.
Does anyone know whether we have any questions or comments in the chat?
Hello. This is Ruth Johnson, can you hear me
read it? We had one question, I think for Gabe, that's okay. Distribution of household income, how does it compare to federal poverty level?
I don't recall the exact federal poverty numbers off the top of my head, Jacob, do you? I've got a colleague here, Jacob Burton. I'm putting him on the spot and asking him, not sure if he remembers either, but I'll speak, you know, at a high level about my recollection is, which is that the the the threshold between what we call a lower income household and a lower middle income household is is above the federal poverty level. So I it's not a, you know, I would not encourage people, or I wouldn't think about the people in these lower income households as living in poverty. But it's more that if you're above that threshold, we would consider you to be part of the middle part of the middle class. So I think, you know, there's a distinction there that's important. And I'm sorry I don't have the exact number for the poverty level, but just one other point to make is we adjust household incomes for cost of living locally and household size. So that's going to, you know, the the poverty threshold, and our threshold for being in the different income groups will depend on the number of residents in the household and where they live in the country. Thank you.
There was another question, does major revenue estimates, are they adjusted for inflation? We do not do any inflation adjustments on the major revenue estimates? I
think this one might be for you. Gabe, again, when we talk about noise in economics or in data, like in economic data or statistics, what can you you say more about that? What does it mean the concept in general?
Yeah, yeah. Thank you. You know, I think the first thing I always like to start out by saying is, you know, we, our statistical system in the United States is a national treasure. You know, the statistical agencies do incredible work, informing us about the economy, informing us about, you know, the circumstances facing households in this country that being said. You know, as you get to smaller geographical units, just to necessarily, you know, there's only so many people who are in a given sample. You know, those sample sizes get smaller as you get to finer geographies, so that when you get to the local economic level, you can be working with limited samples. And that means that there's going to be measurement error. You know, the sample that you that you end up selecting might not be representative of the whole city, for instance. And then the other thing to say is just month to month. You know, things can jump around based on what that sample is, based on if, depending on the statistic, if there are statistical adjustments being applied. And you know, one more thing to say is that response rates to economic surveys have been falling since the pandemic, and so that you know, for any amount of budget that a statistical agency has to try to contact people and ask them questions, when you know, as the response rate declines, you end up getting fewer responses. And so because of that, we do think that there is what we call noise in the high frequency economic data, especially as we look at a local economy such as Detroit. And so all we mean is that, you know, for any given reading or official statistic, you know, there's some, there's some, you know, band of possible, quote, unquote, true values around that. And that's what we mean when we talk about noise. Great. Thank
you very much. I know that there are a few more in the chat, but if the person asking the questions could just provide a little bit more context, that would be great, and then we can get back to you at a later date. There are
other questions and comments in the chats. I saw Ruth Johnson's asking if we could be heard. Did her question get addressed?
Those are both of her questions. Both are questions. Okay, thank you. Hello.
This is Ruth Johnson, may I be heard more on the
general side, like, what
the climate change? Yep. So we can read off those additional comments, just for context. So there is a comment suggesting a written report, a spin down for ARPA as well as post ARPA impacts. There was a question about the recent Michigan support Supreme Court ruling and sick leave. And there was also a question asking about climate change IRA and Bil
but we'll take each one of those questions and provide a response directly to the individuals that okay with that. I'll bring the public comment to close and ask for approval of the forecast motion.
Motion made,
second, second, all those in favor, aye. Aye, aye, without approval of the official september 2024 economic forecast and revenue forecast is approved. The forecast will be finalized with any additional information for today's conference, be distributed to the mayor, city council, the Financial Review Commission of the state of Michigan will also be published on the city's website, but that the meeting is adherent. Good afternoon,
