Revenue and Expenditure Forecast with Demographic and Economic Analyses
Prepared for:
City of Cincinnati EXECUTIVE SUMMARY
Every two years, the City of Cincinnati updates its budget and revenue forecasts. Since 2006, the Economics Center has been contracted by the City to provide third-party analysis and assist decision-makers with the critical data essential for its financial planning.
The Economics Center Research & Consulting Division uses traditional data sources and advanced statistical techniques to forecast tax revenue. We also provide a geographic profile of the labor market, which the City needs because of the large proportion of revenue that is derived from payroll tax. This profile enables the distribution of jobs between the core business districts and the exurbs to be better understood. Finally, a national forecast of prices is used to provide an inflation outlook that City officials can use to project anticipated expenses for the next six years. Final reports are presented to the Budget Committee of City Council in June, and typically reinforced through various media outlets.
In 2012, an additional component to be analyzed was the anticipated casino tax revenue. Due to the evolving landscape of gambling regulations in Ohio and the range of betting estimates, these projections were thoroughly discussed and evaluated.
Revenues
- Forecasts for major General Fund revenues sources indicate varying growth
rates. - Income taxes, which have accounted for 90 percent of the City’s revenue
growth over the past four years, are expected to increase in future years at an
average annual rate of 4.7 percent. Slower growth rates in 2007 and 2008
reflect the current economic slowdown. - The City’s property tax revenues are expected to grow irregularly. Significant
increases are likely every third year, following countywide reappraisals,
unless the millage rate is lowered. - Local government fund revenues passed down from the state are expected to
remain flat for 2008 and 2009, and then grow as the economy improves. The
forecast for the estate tax is slightly stronger, with modest increases in the
short term and greater growth in later years, although this revenue category is
subject to a higher degree of volatility and uncertainty.
Cost Escalators
- Local inflation, measured as an increase in the Consumer Price Index (CPI)
will be 3.52 percent during 2008 and 2.46 percent in 2009. Local inflation is
expected to be, on average, a fraction higher than the nation’s inflation
between 2008 and 2014. - Local inflation for all items except the medical component of the CPI will be
3.30 percent during 2008 and 2.31 percent in 2009. Health insurance costs
are expected to rise by 9 percent a year in 2008 and 2009. - Motor fuel costs will rise 24 percent this year. Gas and electric costs are
expected to increase by almost 5 percent in 2008 (primarily due to natural gas
price increases) and thereafter by 3 percent. - These price increases will force increases in City expenditures, which
increased by 16 percent from 2003 to 2008. While changes in expenditure
categories varied, this rate of growth is in line with overall inflation: the CPI for
the Cincinnati metro area increased by 14.2 percent from the second half of
2002 to the second half of 2007.
Economic Trends
- Following GDP growth of 1.5 percent in 2008 and 2.2 percent in 2009, future
economic expansion will be characterized by an average annual GDP growth
rate of 2.9 percent in 2010 through 2014. Personal income is expected to
grow slightly faster. The current low interest rates are expected to increase
slowly in 2009 and 2010. - The unemployment rate for the City of Cincinnati is expected to increase to
levels between 6.5 and 7.0 percent during 2008 and 2009, once again
widening the gap between the City and other areas. - While employment has declined in both the City of Cincinnati and the rest of
Hamilton County during the current decade, the rate of decline has been
greater outside the City. The City’s payroll employment appears to be
stabilizing, and it is expected to grow modestly during the forecast period as
redevelopment takes place throughout the City. - Strong wage growth in Cincinnati businesses has raised the City’s average
wage to more than 10 percent above that of the rest of the County. The
addition of high wage jobs in the City has contributed to income tax revenue
increases. - Downtown and Uptown are the City’s major employment centers. Together,
they accounted for half of all jobs in the City in 2007. The City continues to
experience a shift away from its historical manufacturing base: one of the top
industries in terms of the number of jobs added between 2005 and 2007 is
Professional, Scientific, and Technical Services, while a number of
manufacturing industries were among those with the largest employment
losses in the two-year period.
Demographic Trends
- The population of Cincinnati, currently at 330,346 has been relatively stable in
the current decade but will decline slowly through the year 2014. Both
Hamilton County and the City of Cincinnati are projected to lose population in
the 0 to 14 year age group through 2014, while experiencing a slight increase
in the population 65 and older. - Cincinnati housing is dominated by renter-occupied housing, continuing a
trend of many decades.Cincinnati median home values remain consistently lower than values in the
County and Metro Area. While slight increases are projected between 2008
and 2014, all three areas are expected to experience a substantial slow down
in the rate of increase.
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