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Home My WebLink About2010-01-26; City Council; 20109; Presentation of Local Economic UpdateCITY OF CARLSBAD - AGENDA BILL 12 20,109AB# MTG. DEPT. FIN 1/26/10 PRESENTATION OF LOCAL ECONOMIC UPDATE DEPT. HEAD CITY ATTY. CITY MGR. RECOMMENDED ACTION: Accept presentation from Marney Cox, Chief Economist, SANDAG and City of Carlsbad Finance Department representatives regarding an update of the local economy and the impact on the City of Carlsbad's revenues. ITEM EXPLANATION: The United States is experiencing an economic slowdown especially with respect to the housing and financial markets. It is important for the City of Carlsbad to be aware of the economic slowdown and the potential impacts on the City of Carlsbad's finances. The City of Carlsbad has invited Marney Cox, Chief Economist from SANDAG to present his perspective on the national and local economies. In addition, Finance Department representatives will present the impact of the economy on the City of Carlsbad's finances. This presentation will help provide an overview of the state and local economies with specific information regarding the City of Carlsbad's economy as well as the impact of the slowing economy on Carlsbad and its neighboring cities. This information will help the City be aware and proactive as we move through this economic uncertainty. FISCAL IMPACT: None. ENVIRONMENTAL IMPACT: The proposed presentation does not constitute a "project" within the meaning of the California Environmental Quality Act and, therefore, do not require environmental review. EXHIBITS: None. DEPARTMENT CONTACT: Lisa Irvine 760-602-2430 lisa.irvine@carlsbadca.gov FOR CITY CLERKS USE ONLY. COUNCIL ACTION:APPROVED DENIED CONTINUED WITHDRAWN AMENDED D D D D D CONTINUED TO DATE SPECIFIC D CONTINUED TO DATE UNKNOWN D RETURNED TO STAFF D OTHER -SEE MINUTES D Council received tbe presentation. 2010 Economic Outlook Emerging Trends Marney Cox Chief Economist, SANDAG January 26, 2010 US Great Recession-Emerging Trends “Structural Changes Will Dominate Federal Stimulus Programs” Recovery-L, V, U, W….Slow Jobs –Weak (aka) Jobless Recovery Inflation –Underutilized Capacity vs Quantitative Easing Deficits/ Debt –Stretching beyond the horizon at all three levels of government Structural Shifts –More Savings/ Depleted Wealth/ Less Consumption Regulations –Less “creative destruction” The Effects Feeling Squeezed? US W&S Employment Declining Y-O-Y Change by Month 1939-2009 US Jobs-How Bad is it? (Index M-O-M Change from start of recession) US Unemployment Rate Rising (Monthly rate, Seasonally Adjusted) US Plenty of Unused Capacity Percent Production Capacity Utilized by Month 1972-2009 US Production Capacity-How Bad is it? (Index M-O-M Change from start of recession) US-Real Retail Sales Down & Flat (Monthly, M$, 1992-2009) US Retail Sales-How Bad is it? (Index M-O-M Change from start of recession) US Decline in Real GDP (Y-O-Y Change, Billions 2005$) US GDP-How Bad is it? (Index Q-O-Q Change from start of recession) The Response Are We in Good Hands? US Federal Public Debt Has Nearly Quadrupled Y-O-Y Change by Month, M$, 1966-2009 US Federal Funds Rate Reduced to “0 -.25” US Money Supply Increased YOY Change by Month, $B, 1959-2009 US Borrowing from Federal Reserve (Change Y-O-Y in monthly borrowings, B$) US Excess Banking Reserves (Change Y-O-Y, B$) The Recovery What Comes Next? Are Past Recoveries a Good Guide? Why Slow Job Growth? Did Federal Stimulus Expenditures Generate Earnings? Employment Multiplier is zero Job created is offset by a job lost. Government spending moves jobs & resources away from private to public Employment Multiplier is one Each dollar spent adds one dollar to GDP. Government spends on idle resources. Employment Multiplier exceeds one Earnings from newly employed resources create jobs for other idle resources. US $787 Billion Stimulus Package Targeted Stimulus (multiplier > 1)$62B -Tax incentives for homes and cars -Education layoff prevention Discretionary Spending (multiplier << 1) $428B -Jobless benefits -Health care for needy -Medicaid costs -Job training -Affordable housing programs Tax Incentives & Breaks (multiplier = 0) $279B -Renewable energy -Home energy efficiency -Faster depreciation for capital investments -Tax credits for workers Right Sizing Businesses Unintended Consequences Losers Creative Destruction Favors Small Businesses Winners Too Big To Fail Favors Big Businesses US Banks Are Not Lending (Y-O-Y Percent Change) SD Less Venture Capital Funds Less Fuel for High Tech Jobs, M$ per Year $0 $500 $1,000 $1,500 $2,000 $2,500 92 94 96 98 '00 '02 '04 '06 '08 10 3Q09 US Household Credit Debt Outstanding (Billions $) US Savings Rate Rising (Monthly, SAAR) SD Housing-Reverse Wealth Effect “Great Consumer Contraction”, M$ per year -$2,500 -$2,000 -$1,500 -$1,000 -$500 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 2000 2002 2004 2006 2008 SD Outlook-Decline in Taxable Retail Sales Y-O-Y Percent Change, Fiscal Years -15% -10% -5% 0% 5% 10% 15% 90 91 92 93 94 95 96 97 98 99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 10 The Job Ahead Turn our Shopping Malls Into Factories 2010 Outlook Key Areas “Structural Changes Will Dominate Federal Stimulus Programs” Negative Growth Behind Us 2% not 7% Recovery U Rate Remains High Consumers Repair Balance Sheets Wealth Effect Declines Persist Steepening Yield Curve More Deficits: Stimulus II, Health Care, War on Terror Weak Dollar Wild Cards-Housing, Autos, Business Investment 2010 Economic Outlook Emerging Trends Marney Cox Chief Economist, SANDAG January 26, 2010 11 City of Carlsbad Economic Overview and Financial Status January 2010 22 State of California Budget Impact and Financial Forecast (Lisa Irvine) General Fund Mid-Year Results FY 2009-10 (Kevin Branca) A G E N D A 33 State of California Budget Impacts 44 California’s Economy Governor’s Proposed Budget closes projected $20 billion deficit using cuts, Federal support and other one-time fixes Structural budget issues have not been addressed FY 2009-10 budget shortfall is estimated to be $6.6 billion. Next Steps Continue to analyze State legislation for City impacts Monitor the activities of League of California Cities to further protect local revenue sources 5 66 Local Economic Indicators Carlsbad Market Area Foreclosures 2007-Current -Auctioned 0 100 200 300 400 500 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Carlsbad Oceanside Vista San Marcos Encinitas 7 •Carlsbad –164 •Oceanside –380 •Vista –213 •San Marcos –222 •Encinitas -72 Unemployment Rate December 2009 National 10.0% California 12.4% San Diego County 10.7% Carlsbad (Nov. 2009)6.9% 8 Carlsbad Vacancy Rates Fourth Quarter 2009 San Diego Carlsbad Commercial 19.2%28.0% Industrial 10.8%15.1% Retail 6.4%6.6% 9 10 Carlsbad/SD County Housing Median SF Home Price in SD County for December 2009 was $340,000 ** ($574,000 in May 2006). Median SF Home Price for homes in Carlsbad between December 2008 -2009 Zip Code 2008 2009 Change 92008 $524,850 $533,250 +1.6% 92009 $627,400 $600,000 -4.4% 92010 $349,900 $384,500 +9.9% 92011 $705,000 $575,500 -18.4% ** Majority of sales involved properties foreclosed in past 12 months 1111 Mid-Year Results Fiscal Year 2009-10 12 Source: Fiscal Year 2009-10 Revised Revenue Estimates 12 Four Largest Revenue Sources 81% of General Fund Property taxes (45%) Sales taxes (21%) Transient occupancy taxes (11%) Franchise taxes (4%) 13 Property Taxes Property taxes are down $659,000 or 3% for the first half of the year County Assessor’s Office has reported that Carlsbad assessed values have decreased by 1% from the prior fiscal year Major factors in the decrease from prior fiscal year: Current taxes (down $152,000) Aircraft taxes (down $134,000) Delinquent taxes (down $197,000) Supplemental taxes (down $122,000) Unitary taxes (down $54,000) Property Tax Revenues 14(in millions) 1515 Sales Taxes YTD Revenues -$8.7 Million (down 15%) Estimated FY 2009-10 Revenues -$9.3 Million (down 6%) Sales Tax Revenues 16(in millions) Down 21% from the peak in FY 2007-08 1717 Transient Occupancy Taxes TOT figures for the year reflect an 18% decrease Reduction in TOT at the two largest hotels amounted to $837,000 (58%) Beach Terrace Hotel was closed down for several months for renovations Average occupancy for most recent twelve months –56% Average occupancy for the same time period last year –61% Transient Occupancy Tax Revenues 18(in millions) Down 19% from the peak in FY 2007-08 1919 Development-Related Revenues Includes: Building permits Planning fees Building plan check fees Engineering plan check fees 2020 Development-Related Revenues (in millions) 2121 Other Revenue Factors Annual SDG&E franchise revenue projected to be $500,000 lower than last fiscal year Drop in the yield on the Treasurer’s portfolio affecting interest income for the year One-time revenue from the sale of two parcels of land in the General Fund 2222 Total General Fund Revenues (in millions) 10 Year Financial Forecast 23 Ten Year Forecast Assumptions No Change in Timing of New Facilities Infrastructure Replacement transfer remains at 6.5% of GF revenues No salary increases until FY 2013 Retirement Rates increase in FY 2013 to reflect loss in CalPERS investments Annual Health Care Growth is 10% Saved $1.26 million in FY 2010 24 Scenario 1 –Most Likely General Fund revenue high in FY 2007 achieved again in FY 2014 Revenues are impacted by recession and slow recovery No position growth until FY 2013 25 Scenario 2 –Longer Recovery Economic recovery is one year longer General Fund revenue high in FY 2007 achieved again in FY 2015 Revenues are impacted by recession and slow recovery (more than Most Likely) No position growth until FY 2014 26 27 Ten Year Financial Forecast General Fund ($6) ($4) ($2) $0 $2 $4 $6 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018Millions $Fiscal Year MOST LIKELY LONGER RECOVERY 2828 2929 City of Carlsbad Economic Overview and Financial Status January 2010