CITY OF DETROIT Revenue Estimating Conference Topic ... 2020 Detroit REC...4. Presentation of Detroit Economic Forecast • Gabriel M. Ehrlich, PhD, Director, RSQE, Department of Economics,

CITY OF DETROITRevenue Estimating Conference

September 10, 20201:00 PM

Broadcast from Remote Location in Accordance with State Executive Order 2020-154

Topic Participant(s)

1. Introductions

• David P. Massaron, Chief Financial Officer, City of Detroit

• Eric Bussis, Chief Economist, Director, Office of Revenue and Tax Analysis, Michigan Department of Treasury

• George A. Fulton, PhD, Director Emeritus, Research Professor Emeritus, Research Seminar in Quantitative Economics (RSQE), Department of Economics, University of Michigan

2. Opening Remarks • Eric Bussis (Conference Chair)

3. Old Business• Approval of Proposed Minutes for the February 2020

Revenue Estimating Conference

4. Presentation of Detroit Economic Forecast• Gabriel M. Ehrlich, PhD, Director, RSQE, Department

of Economics, University of Michigan

5. Context for the Economic and Revenue Forecasts and Remarks

• David P. Massaron• Eric Bussis• George A. Fulton, PhD

6. Presentation of Proposed Revenue Estimates

• Tanya Stoudemire, Deputy CFO/Budget Director, City of Detroit

o Major Revenueso Departmental and Other Revenueso Other City Funds

7. Remarks• Irvin Corley, Jr., Executive Policy Manager, Legislative

Policy Division, Detroit City Council• Mark Lockridge, Auditor General, City of Detroit

8. Public Comment

9. Vote • September 2020 Economic and Revenue Forecasts

10. Closing

1

CITY OF DETROIT Revenue Estimating Conference

Wednesday, February 19, 2020 at 2:00 p.m.

Coleman A. Young Municipal Center

Erma L. Henderson Auditorium 2 Woodward Avenue, 13th Floor

Detroit, MI 48226

PROPOSED MINUTES

Call to Order Mr. Fulton called the meeting to order. Roll Call / Introductions Conference Principals Present

• David P. Massaron, Chief Financial Officer, City of Detroit • Eric Bussis, Chief Economist and Director, Office of Revenue and Tax Analysis, Michigan

Department of Treasury • George Fulton, PhD, Director Emeritus, Research Professor Emeritus, Research Seminar

in Quantitative Economics (RSQE), Department of Economics, University of Michigan Others Present

• Tanya Stoudemire, J.D., Deputy CFO/Budget Director, City of Detroit • Irvin Corley, Jr., Legislative Policy Division, Detroit City Council • Mark Lockridge, Auditor General, City of Detroit

Opening Remarks Mr. Fulton stated that Public Act 182 (PA 182) requires the City to hold two revenue estimating conferences annually (one in February and another in September) to set the City’s official economic and revenue forecasts. The principals of the conference must be the Chief Financial Officer for the City of Detroit (David P. Massaron); the State Treasurer or his or her designee (Eric Bussis); and a third person affiliated with a public entity with experience in economic forecasting and revenue projection (George Fulton).

2

He noted the revenue estimates approved today will set the revenues for the City’s FY 2021 budget and FY 2021–2024 Four Year-Financial Plan. Election of a New Chair Mr. Fulton stated that under PA 182, the Conference must elect a new chair for a one-year term. Motion to elect Eric Bussis as the new chair of the Revenue Estimating Conference. Motion moved and supported. The Conference approved Mr. Bussis as the new chair. Mr. Bussis took over as chair. Old Business Approval of Proposed Minutes from the September 2019 Revenue Estimating Conference Motion made to approve the proposed minutes of the September 2019 Revenue Estimating Conference as presented. Motion moved and supported, the Conference approved the minutes of the September 2019 Revenue Estimating Conference as presented. Presentations

1. Gabriel Ehrlich, Director of the Research Seminar in Quantitative Economics, University of Michigan, presented Detroit’s first local economic forecast

2. Mr. Massaron, Mr. Bussis, and Mr. Fulton provided an overview of the local, state, and national context for the economic and revenue forecast.

3. Ms. Stoudemire presented the City’s proposed February 2020 revenue estimates. 4. The Conference principals made additional comments, and Ms. Stoudemire responded

to their questions on the revenue forecast. Steven Watson (Deputy Budget Director, Office of Budget, City of Detroit), and Evan Cunningham (Economist, Office of Budget, City of Detroit) responded to additional questions and comments.

5. Mr. Corley and Mr. Lockridge provided additional remarks. Public Comment None Approval of the City’s February 2020 Economic and Revenue Forecast Motion made to approve the City’s economic and revenue forecast for February 2020, as presented. Motion moved and supported. The Conference unanimously approved the City’s economic and revenue forecast for February 2020.

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Adjournment Mr. Bussis stated the forecast will be distributed to the Mayor, City Council, and the Financial Review Commission. He also stated the forecast report will be published on the City’s website after the City incorporates any additional information from today’s Conference. There being no further business, the meeting was adjourned.

City of Detroit-University Economic Analysis PartnershipDetroit Consensus Revenue Estimating Conference, Sept. 10, 2020

RSQE: September 2020

New data source: Detroit-specific establishment job counts and wages

• Produced by the Michigan Bureau of Labor Market Information and Strategic Initiatives

• Comparable to the Quarterly Census of Employment and Wages (QCEW) statistics published by the Bureau of Labor Statistics (BLS)

American Community Survey (ACS): annual survey conducted by the Census Bureau, ~1% of U.S. population, available at city level

Provides “household” job counts for Detroit residents, not jobs located in the city

Local Area Unemployment Statistics (LAUS): monthly statistics published by the BLS

About the Data


Annual and Quarterly forecast of Detroit economy, 2019–2024

• Still have incomplete data for 2019

Forecasting model follows jobs by major industry both on a payroll basis and a household basis

• Wage bill and average wage by major industry is only available on a payroll basis

Due to data lags, we will not have data on COVID-19’s impact on payroll jobs until early 2021

About the Forecast


The Economic Outlook for Detroit

Number of New Confirmed Cases of COVID-19 in the City of Detroit


Monthly Employment Count, City of Detroit, 2010–2020


Monthly Unemployment Count,City of Detroit, 2010–2020


Quarterly Average Payroll Employment,City of Detroit and Michigan, 2007–2024


Annual Wage and Salary Income per Worker,City of Detroit and Michigan, 2007–2024


Annual Wage and Salary Income per Worker by Industry Groupings,City of Detroit, 2007–2024


Annual Income Growth,City of Detroit and Michigan, 2011–2024


Detroit Annual Wage and Non-Wage Income Growth, 2011–2024


Annual Unemployment Rates,City of Detroit and Michigan, 2010–2024


COVID-19 pandemic will reduce payroll jobs by approximately 11 percent in 2020

• Detroit’s overall payroll jobs count recovers to 2019q4 level by 2022q3

• Household employment follows a similar path

Detroit’s unemployment rate jumps from 8.8 percent in 2019 to 23.8 percent in 2020

• Declines to 11.8 percent by 2024

Expanded unemployment insurance and other stimulus protects overall incomes in 2020

Summary of the Forecast


OCFO – Office of BudgetSeptember 2020 Revenue Estimating Conference

Revenue Estimating ConferenceSeptember 10, 2020

Office of the Chief Financial OfficerOffice of Budget


Overview● Michigan PA 279 of 1909, Section 117.4t(1)(d), as amended by PA 182 of 2014, states the City of Detroit

shall hold independent biannual revenue estimating conferences (in September and February) that

establish the official economic forecast and forecast of anticipated City revenues.

● Revenue estimates must be approved by the voting principals:

• David P. Massaron: Chief Financial Officer, City of Detroit

• Eric Bussis: Chief Economist and Director, Office of Revenue and Tax Analysis, Michigan

Department of Treasury

• George Fulton, PhD: Director Emeritus, Research Professor Emeritus, Research Seminar In

Quantitative Economics (RSQE), Department of Economics, University of Michigan

● The estimates include the current fiscal year (FY 2021) and the next four years (FY 2022–FY 2025).

● They set the revenues the City uses to begin developing the FY 2022 budget and FY 2022–FY 2025

Four Year-Financial Plan.

2


$1,076.9$938.9 $931.2

$98.0

$82.0 $86.3

$1,174.9

$1,020.9 $1,017.5

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

Feb 2020 April 2020 Sept 2020

FY 2020 General Fund / GF-Impact Revenues($ in millions)

General Fund GF-Impact Funds

Changes Since February 2020 Estimates

$1,084.8$906.7 $840.7

$98.9

$82.9$86.9

$1,183.7

$989.6 $927.6

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

Feb 2020 April 2020 Sept 2020

FY 2021 General Fund / GF-Impact Revenues($ in millions)

General Fund GF-Impact Funds

($194.1) ($256.1)Shortfall

3

($154.0) ($157.4)

Note: GF-Impact Funds includes funds that may require additional General Fund contributions to offset revenue shortfalls (Construction Code, Transportation, and Airport Funds).

Shortfall


Changes Since February 2020 Estimates● In April 2020, the Office of Budget projected revenue shortfalls of $154M in FY2020 and $194M in

FY2021 due to the Coronavirus Disease 2019 (COVID-19) pandemic

● The Mayor presented his recommended changes to maintain a balanced budget in April 2020

● The City Council approved the FY 2021 Budget with those changes on May 5, 2020 and approved the

changes to the FY 2020 Budget on June 30, 2020

● We now project FY 2020 ended with an additional $3.4M (0.3%) revenue loss vs. April 2020, which was

offset by additional underspending

● We now project FY 2021 will have an additional $62M (6.3%) revenue loss vs. April 2020, driven by:

○ Additional gaming losses from casinos reopening later and more gradually

○ Additional income tax refunds from nonresidents working remotely longer

○ Both of these impacts peak in FY 2021 with smaller ongoing impacts in future years

4


FY 2021 Revenue Summary, All Funds

5

$840.7 , 44%

$624.8 , 33%

$63.2 , 3%

$100.2 , 5%

$67.7 , 4%$198.9 , 11%

FY 2021 September 2020 Estimates(in millions)

General FundDWSDTransportationMajor StreetDebt ServiceOther Non-General Fund

Total: $1.9 billion


Revenue Summary, General Fund

6

Proj. Actual Adopted

FY20 FY21 FY21 Change FY22 Change FY23 Change FY24 Change FY25 Change Major Taxes

Income Tax 283.1$ 239.4$ 227.4$ -19.7% 319.7$ 40.6% 337.8$ 5.7% 355.7$ 5.3% 366.4$ 3.0%Recurring 286.6 239.4 227.4 -20.7% 319.7 40.6% 337.8 5.7% 355.7 5.3% 366.4 3.0%Non-recurring (3.5) - - -100.0% - - - -

State Revenue Sharing 181.7 190.5 201.4 10.8% 201.3 0.0% 202.5 0.6% 203.6 0.5% 204.8 0.6%

Wagering Tax 132.3 135.3 86.6 -34.5% 182.9 111.2% 186.7 2.1% 188.6 1.0% 190.5 1.0%

Property Tax 120.2 111.9 116.3 -3.2% 118.6 2.0% 117.4 -1.0% 117.8 0.3% 119.6 1.5%

Utility Users Tax 26.4 28.5 28.3 7.2% 28.5 0.7% 28.7 0.7% 28.9 0.7% 29.1 0.7%

Subtotal, Major Taxes 743.7$ 705.6$ 660.0$ -11.3% 851.0$ 28.9% 873.1$ 2.6% 894.6$ 2.5% 910.4$ 1.8%

Major Taxes (Recurring Only) 747.2$ 705.6$ 660.0$ -11.7% 851.0$ 28.9% 873.1$ 2.6% 894.6$ 2.5% 910.4$ 1.8%

Other Revenues 187.5$ 201.1$ 180.7$ -3.6% 193.7$ 7.2% 197.5$ 2.0% 198.6$ 0.6% 199.7$ 0.6%

Recurring 171.9 201.1 180.7 5.1% 193.7 7.2% 197.5 2.0% 198.6 0.6% 199.7 0.6%

Non-recurring 15.6 - - -100.0% - - - -

Grand Total, General Fund 931.2$ 906.7$ 840.7$ -9.7% 1,044.7$ 24.3% 1,070.6$ 2.5% 1,093.2$ 2.1% 1,110.1$ 1.5%

General Fund, Recurring Only 919.1$ 906.7$ 840.7$ -8.5% 1,044.7$ 24.3% 1,070.6$ 2.5% 1,093.2$ 2.1% 1,110.1$ 1.5%

General Fund Revenue Estimates - Summary, FY 2021 - FY 2025$ in millions

September 2020 Estimates and Year-Over-Year Change


$747.2 $660.0

$851.0 $873.1 $894.6 $910.4

$171.9 $180.7

$193.7 $197.5 $198.6 $199.7

$919.1 $840.7 $1,044.7 $1,070.6 $1,093.2 $1,110.1

$-

$200.0

$400.0

$600.0

$800.0

$1,000.0

$1,200.0

FY20Proj. Actual

FY21Est

FY22Est

FY23Est

FY24Est

FY25Est

Recurring General Fund Revenue: FY 2020 - FY 2025(in millions)

GF - Departmental/Other

GF - Major Revenue

(8.5%)

General Fund Revenues

Approx. 80%

Comes from the

5 Major Revenues

7

24.3% 2.5% 2.1% 1.5%


$329.1 $286.6 $227.4

$319.7 $337.8 $355.7 $366.4

$202.6 $181.7

$201.4

$201.3 $202.5 $203.6 $204.8

$183.8

$132.3 $86.6

$182.9 $186.7 $188.6 $190.5

$119.5

$120.2

$116.3

$118.6 $117.4 $117.8 $119.6 $28.4

$26.4

$28.3

$28.5 $28.7 $28.9 $29.1

$863.4 $747.2 $660.0 $851.0 $873.1 $894.6 $910.4

$-

$200.0

$400.0

$600.0

$800.0

$1,000.0

FY19Actual

FY20Proj. Actual

FY21Est

FY22Est

FY23Est

FY24Est

FY25Est

Recurring Major Tax Revenue History and Projection: FY 2019 - FY 2025(in millions)

Utility Users Tax

Property Tax

Wagering Tax

State Revenue Sharing

Municipal Income Tax

2.6% 2.5% 1.8%

Major Revenues

8

(13.5%) (11.7%) 28.9%


Income Tax

9

$284.3 $260.6 $206.3

$298.0 $316.1 $334.0 $344.7

$40.1

$23.0

$20.1

$21.7 $21.7

$21.7 $21.7 $4.7

$3.0

$1.0

$329.1 $286.6 $227.4 $319.7 $337.8 $355.7 $366.4

$-

$100.0

$200.0

$300.0

$400.0

FY19Actual

FY20Proj. Actual

FY21Est

FY22Est

FY23Est

FY24Est

FY25 Est

Recurring Municipal Income Tax(in millions)

Assessments

Corporate /PartnershipsIndividual

40.6% 5.7% 5.3% 3.0%(20.7%)(12.9%)

FY19 Actual excludes $23m one-time corporate collections, $2m one-time partnership collections, and $6.9m prior-year adjustments.


Income Tax HighlightsTax Structure

● 2.4% Resident individuals working in and outside the city (excludes unemployment compensation)

● 1.2% Nonresident individuals working in the city (excludes remote work outside the city)

● 2.0% Corporations and Partnerships

Forecast Assumptions

● Driven by movements in employment and wages forecasted by the Summer 2020 Detroit Economic

Outlook prepared by the University Economic Analysis Partnership.

● Additional remote work refund liability assumed to peak in FY 2021 and continue at 10% of nonresident

withholding from FY 2022 and onward

● Expected decrease in corporate tax collections in FY 2020, no growth expectations in the out years.

● Does not include potential upside from new development projects.

● Does not include potential upside from improved compliance efforts.

10


State Revenue Sharing

11

$141.0 $120.2

$144.3 $144.3 $144.3 $144.3 $144.3

$61.6

$61.5

$57.1 $57.0 $58.2 $59.3 $60.5

$202.6 $181.7 $201.4 $201.3 $202.5 $203.6 $204.8

$-

$50

$100

$150

$200

$250

FY19Actual

FY20Proj. Actual

FY21Est

FY22Est

FY23Est

FY24Est

FY25Est

State Revenue Sharing(in millions)

Constitutional

Statutory

0.0% 0.6% 0.5% 0.6%(10.3%) 10.8%


State Revenue Sharing HighlightsTax Structure

● Constitutional share (30%): State sales tax collections (15% of 4% portion)

● Statutory share (70%): Set annually via State budget.


● No changes assumed for annual State statutory share.

● FY 2021 constitutional share declines assuming 2020 Census population decreases vs. 2010 Census.

● Forecast is based on State’s August 2020 Consensus Revenue Estimating Conference

● Does not include 2.5% statutory share increase in the Governor’s proposed FY 2021 budget from

February (pre-COVID).

12


Wagering Tax

13

$183.8 $132.3 $86.6 $182.9 $186.7 $188.6 $190.5

$-

$50.0

$100.0

$150.0

$200.0

$250.0

FY19Actual

FY20Proj. Actual

FY21Est

FY22Est

FY23Est

FY24Est

FY25Est

Wagering Tax(in millions)

112.2% 2.1% 1.0% 1.0%(28.0%) (34.5%)


Wagering Tax HighlightsTax Structure

● Tax on adjusted growth receipts applied to the three casinos operating in Detroit.

● 11.9% tax rate (10.9% State law, 1% per casinos development agreements).

● Supplemental 1% tax if a casino’s gross receipts exceed $400 million.

● Municipal service fee 1.25% of gross receipts or $4 million, whichever is greater (included separately in

“Other Revenues”)


● FY21 and FY22 assumes reduced collections due to August 5, 2020 reopening and gradual phase-in to

full capacity.

● Ranges from 20% of normal revenue at reopening to 95% by FY22.

● 1% annual growth rate from FY 2023 – FY 2025.

● Does not include potential upside from internet gaming and sports betting pending implementation.

14


Property Tax

15

$82.9 $85.8 $89.4 $88.4 $88.5 $89.7 $91.5

$34.1 $31.5 $24.1 $27.4 $26.0 $25.1 $25.1

$2.5 $2.9 $2.8 $2.8 $2.9 $3.0 $3.0

$119.5 $120.2 $116.3 $118.6 $117.4 $117.8 $119.6

$-

$50.0

$100.0

$150.0

FY19Actual

FY20Proj. Actual

FY21Est

FY22Est

FY23Est

FY24Est

FY25Est

Property Tax(in millions)

Special Acts

Delinquent Collections

Current Year Collections

0.3% 1.5%0.6% (3.2%) 2.0% (1.0%)


Property Tax HighlightsTax Structure

● Ad valorem taxes on real and personal property at 19.952 mills

● Comprised of current year and prior-year delinquent taxes less tax increment capture distributions.


● Taxable value growth is based on tax year 2020 values, U.S. CPI inflation (Proposal A tax limitation),

and industrial personal property phase-out per State law.

● FY 2020 collection rate (84%) is held constant throughout the forecast.

● Forecast does not include additions to the tax base or uncapping of taxable value.

● Delinquent tax revenue comes from Wayne County Delinquent Tax Revolving Fund and monthly

payment plans, less exclusions and chargebacks

16


Utility Users Tax

17

$28.4 $26.4 $28.3 $28.5 $28.7 $28.9 $29.1

$-

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0

FY19Actual

FY20Proj. Actual

FY21Est

FY22Est

FY23Est

FY24Est

FY25Est

Utility Users Tax(in millions)

General Fund Share

0.7% 0.7% 0.7% 0.7%7.2%(7.0%)


Utility Users Tax HighlightsTax Structure

● 5% tax on consumption of electricity, gas, steam, and telephone services.


● Revenue in FY 2021 is expected to shrink due to lower natural gas and electricity consumption and

lower energy prices.

● Growth rate in FY 2022 – FY 2025 held constant at 0.5% household growth rate to mitigate impact of

future volatility.

18


Departmental & Other Revenues

19

$109.7 $118.8 $122.5 $123.5 $124.5

$23.4 $23.0 $22.5 $21.9 $21.3 $15.6 $20.6 $20.6 $20.6 $20.6 $11.4 $12.4 $12.5 $12.6 $12.7 $20.6 $18.9 $19.4 $20.0 $20.6

$180.7 $193.7 $197.5 $198.6 $199.7

$-

$50.0

$100.0

$150.0

$200.0

$250.0

FY21 Est

FY22Est

FY23Est

FY24Est

FY25Est

Recurring Departmental/Other General Fund Revenues(in millions)

Other (Below $10m)

Licenses, Permits and InspectionChargesFines, Forfeits and Penalties

Other Taxes, Assessments, andInterestSales & Charges for Services

7.2% 2.0% 0.6% 0.6%


Departmental & Other Revenue HighlightsSignificant Departmental Revenues

● License, Permits and Inspection Charges: BSEED (Business Licenses), Public Works (Street Use

Permits and Construction Inspection Charges), Fire Department (Safety Inspection Charges)

● Fines, Forfeits and Penalties: Parking fines and 36th District Court

● Sales & Charges for Services: Fire (EMS Service Fee), Parking fees, Health (Inspection Charges), BSEED

and Administrative Hearing (Blight Tickets), Court fees, casino municipal service fees


● Sales & Charges for Services: Reduced Parking fee activity and casino municipal service fees

● Fines, Forfeits and Penalties: Reduced Parking fine revenues due to assumed reduction in overall

parking activity

● Other: Reduced earnings on investments

20


$624.8 $637.3 $650.0 $663.0 $676.3

$153.2 $158.2 $161.8 $165.5 $169.0 $63.2 $73.7 $74.1 $74.5 $75.0 $100.2 $104.7 $105.4 $105.6 $105.8 $45.7

$47.4 $47.7 $47.9 $48.2 $67.7 $52.8 $49.0 $45.5 $42.4 $1,054.8 $1,074.1 $1,088.0 $1,102.0 $1,116.7

$-

$200.0

$400.0

$600.0

$800.0

$1,000.0

$1,200.0

FY21Est

FY22Est

FY23Est

FY24Est

FY25Est

Non-General Fund Revenue Estimates: FY 2021 - FY 2025(in millions)

Debt Service

Solid Waste Management

Major Street

Transportation

Other Non-General Funds

DWSD

Non-General Fund Revenues

21

* Transportation amount does not include the General Fund’s contribution since it is a budget transfer rather than a revenue.


Non-General Fund Revenues HighlightsNon-General Fund Categories

● Debt Service: Ad valorem taxes on real and personal property at 9 mills dedicated for debt service

● Solid Waste Management: Garbage collection fees charged to property owners

● Major Street: City’s share of State gas and weight taxes for roads

● Transportation: DDOT bus fares, State transit funding, and grants

● Other Non-General Funds: Construction Code fees, Library property tax, and other restricted revenue

● DWSD: Water and sewer fees charged to property owners

Major Forecast Assumptions

● Solid Waste Management: Revised downward due to updated customer count and elimination of

monthly payment plans (PAYS plan forgives delinquent solid waste fees moving forward)

● Major Street: Reduced forecast based on projected State fuel tax losses

● Transportation: FY21 assumes DDOT fares remain suspended through December 2020

22


Budget Reserve (Rainy Day Fund)● State law requires the City of Detroit to maintain

a General Fund reserve of no less than 5% of the

projected expenditures for the fiscal year.

● The FY 2020 Adopted Budget provided for an

ending reserve balance of $107.3M, or nearly 10%

of projected expenditures.

● The FY 2021 Adopted Budget assumes the City

will draw down only $50M to help address

COVID-19 revenue shortfalls, keeping the

balance above 5%.

23

$62.3

$107.3

$57.3

$-

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

FY19 FY20 FY21

Budget Reservein millions

Minimum Reserve Requirement


Risks & Potential UpsideRisks

● Second wave of COVID-19 and another round of mandatory closures

● Extended and more severe COVID-19 economic recession

● Federal and state budget pressures

● Worse than expected remote work refund liability and casino capacity limitations

● Permanent reductions in economic activity due to capacity limits and behavior changes (e.g., office work,

restaurants, hotels, entertainment)

● Negative COVID impact on commercial property values and collection rates

Potential Upside

● Additional federal fiscal relief and economic stimulus

● New and ongoing development projects throughout the city

● Expiring tax abatements and taxable values uncapping from property sales

● Internet gaming and sports betting implementation

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Documents

CITY OF DETROIT Revenue Estimating Conference Topic ... 2020 Detroit REC...4. Presentation of Detroit Economic Forecast • Gabriel M. Ehrlich, PhD, Director, RSQE, Department of Economics,