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Revenue and Expenditure Forecast with Demographic and Economic Analyses

Submitted by pitzerjr on Mon, 08/23/2010 - 9:07am
Prepared for: 
City of Cincinnati

Revenues

  • Forecasts for major General Fund revenues sources indicate varying growth rates and have been influenced considerably by the recession.
  • 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 1.5 percent between 2010 and 2016. Significant declines in 2009 and 2010 reflect the economic recession.
  • In recent years, the City’s property tax revenues have remained flat as a matter of City Council policy.
  • Local government fund revenues passed down from the state are expected to remain flat for 2010, and then grow irregularly through 2016. The forecast for the estate tax is slightly stronger with modest increases overall in the short term and slower 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 1.79 percent during 2010 and 1.62 percent in 2011. Local inflation is expected to be, on average, a fraction lower than the nation’s inflation between 2010 and 2016.
    Local inflation for all items except the medical component of the CPI will be 1.69 percent during 2010 and 1.52 percent in 2011. Health insurance costs are expected to rise by 6 to 7 percent a year in 2010 and 2011.
  • Motor fuel costs will rise 21 percent this year. Gas and electric costs are expected to increase by about 0.9 percent in 2010, about 3 percent in 2011 and then experience little to no growth after 2012.
  • These price increases will force increases in City expenditures, which increased by 9.4 percent from 2005 to 2010, including a 2.7 percent decline in between 2008 and 2009. 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 about 13.7 percent between 2004 and 2009.

    • Economic Trends

  • Following real GDP decline of 2.5 percent in 2009 and growth of 2.5 percent in 2010, future economic expansion will be characterized by an average annual GDP growth rate of 3.1 percent in 2012 through 2016. Personal income is expected to grow slightly faster. The current low interest rates are expected
    to remain stable in 2010. The Fed Funds Rate is expected to increase more strongly through 2016. The 10-year Treasury Bill rate is expected to remain between 4 and 5.5 percent through 2016.
  • The unemployment rate for the City of Cincinnati is expected to increase to levels between 14 and 15 percent during 2010 and 2011, once again widening the gap between the City and other areas. While declines in unemployment are projected beginning in 2011, the City is not expected to reach pre-recession levels in the near future.
  • Payroll employment has declined in both the City of Cincinnati and the rest of Hamilton County during the current decade and the rates of decline have been similar, about one percent. The City’s payroll employment has declined significantly due to the recession, and is not expected to recover to 2008 levels until 2016, similarly for Hamilton County.

    • Employment Trends

  • Strong wage growth in Cincinnati businesses has raised the City’s average wage to about 9 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 2009.
  • 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 2007 and 2009 is Banks, Savings and Credit Institutions while a number of manufacturing industries were among those with the largest employment losses in the two-year period.