navigating the economy: short and long term considerations for local government november 18, 2009...
TRANSCRIPT
Navigating the Economy: Short and Long Term
Considerations for Local Government
November 18, 2009
CGFOA Annual Conference
PREVIOUS RESEARCH IDENTIFIED UNDERLYING STRUCTURAL DYNAMICS
Municipal Finance in Colorado
• Sales tax dependent
• Sales tax sensitive to• Structural changes to the demographics in the
state
• Structural changes in the economy
• Perfect Storm?
Colorado is a Baby Boomer State
• In 2000 • Colorado 4th lowest in US for population over 65 • Colorado 6th highest in US in percentage of “Baby
Boomers”• 45% of Colorado’s workforce is a “Baby Boomer”
(Census 2000)
• The “Law” of 1 for 2• In 2015, every15 minutes the natural increase
(births – deaths) in Colorado will be 1 and the number of people turning 65 will be 2 (State Demographer’s Office)
Implications of Being a Baby Boomer State
• Baby Boomers born 1946 – 1964
• In 2010, first Boomers will reach 65
• Between 2000 and 2020 • Colorado’s population 55 – 64 will grow at 5.9% per year
• US population 55 – 64 will grow 3.9% per year
• Total population in Colorado will grow 1.7% per year
• State 55-64ers will more than double; 342,000 to 745,000
• By 2030, • Colorado’s population 65+ will be 3x that in 2000
• Growing from 400,000 to 1.2 million
Colorado Population by Age: 1970
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85Age
Nu
mb
er o
f P
erso
ns
2,210,000
Source: State Demographer’s Office
Colorado Population by Age: 1980
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85Age
Nu
mb
er o
f P
erso
ns
2,890,000
Source: State Demographer’s Office
Colorado Population by Age: 1990
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85Age
Nu
mb
er o
f P
erso
ns
3,294,000
Source: State Demographer’s Office
Colorado Population by Age: 2000
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85Age
Nu
mb
er o
f P
erso
ns
4,340,000
Source: State Demographer’s Office
Colorado Population by Age: 2010
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85Age
Nu
mb
er o
f P
erso
ns
5,217,600
Source: State Demographer’s Office
Colorado Population by Age: 2020
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85Age
Nu
mb
er
of
Pe
rso
ns
6,275,500
Source: State Demographer’s Office
Colorado Population by Age: 2030
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
110,000
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85Age
Nu
mb
er
of
Pe
rso
ns
7,339,300
Source: State Demographer’s Office
Demographics and Their Impact on Funding Government
• Aging of the Baby Boomers affects• Age of head of householder
• Household size
• Number of workers per household
• Each of these demographics affects taxable spending
• Income demographic may offset age
Why Does Aging Population Matter?
Sales Tax Revenue Profile by Age, 2003 National Data with Boulder Sales Tax Rate Applied
Source: US Bureau of Labor Statistics
$-$50.00
$100.00$150.00$200.00
$250.00$300.00
Under 25Yrs
25-34 Yrs 35-44 Yrs 45-54 Yrs 55-64 Yrs 65-74 Yrs 75 andOlder
Sal
es T
ax R
even
ue/H
H
Why Does Income Matter?
Sales Tax Profile by Income Demographic: 2003 National Data with Boulder Sales Tax Rate Applied
Source: US Bureau of Labor Statistics
$-
$100.00
$200.00
$300.00
$400.00
$500.00
Low
est
20%
Sec
ond
20% Third
20%
Four
th20
%
Hig
hest
20%
Sal
es T
ax R
even
ues/
HH
Boulder Trend: Age of Householder
Allocation by Age 2005 - 2030
0%
20%
40%
60%
80%
100%
2005 2010 2015 2020 2025 2030
% o
f HH
s
Householder under 25 years Householder 25 to 44 years
Householder 45 to 64 years Householder 65 years and over
The Impact of Age
Sales Tax Revenue per Household Indexed to 2005
93.00%
94.00%
95.00%96.00%
97.00%
98.00%
99.00%100.00%
101.00%
2005 2010 2015 2020 2025 2030
2005
= 1
00
Sales tax revenue indexed to 2005
Countering the Claim that Baby Boomers are Different
• Will still likely retire on fixed income• Level may be higher
• Adequately saved for retirement?
• Living longer
Boulder Trend: Income
Allocation by Income 2005 - 2030 (in $2000)
0%
20%
40%
60%
80%
100%
2005 2010 2015 2020 2025 2030
% o
f H
Hs
0 - $30,000 $30,000 - $50,000 $50,000 - $75,000
$75,000 - $100,000 $100,000 - $150,000 Over $150,000
The Impact of Income: Higher Income HHs Spend More Absolutely…
Sales Tax Revenue per Household Indexed to 2005
94.00%96.00%98.00%
100.00%102.00%104.00%106.00%108.00%110.00%112.00%
2005 2010 2015 2020 2025 2030
2005
= 1
00
Sales tax revenue indexed to 2005
…Yet Not as a Percent of Income
Taxable Expenditures as % of Income
0%
20%
40%
60%
80%
100%
120%
$0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000
Implications in Boulder
80
100
120
140
160
180
200
220
2005 2010 2015 2020 2025 2030
20
05
=1
00
GF w rate ch
GF w/o rate ch
sl govt sp
FAST FORWARD ONE YEAR
THE RECESSION HAS NOT CHANGED THE UNDERLYING DYNAMICS…
Coloradans are Still Aging
And Older Households Still Projected to Spend Less
Baby Boomers Less Likely to be Different
• Recession impacts• Loss of retirement assets
• Tighter credit
• Less home equity• Almost 50% of all households projected to be
underwater by 2011
Key Economic Trends
• Inflation rates across sectors of the economy are not constant
• Projected rate on taxable base fails to keep pace with rate on key gov’t expenditures
• Retail sales tax as major revenue source will fund proportionally less of the base budget
• Purchases in US migrating from goods to services
Inflation Dynamics Still Unfavorable to Local Government
Consumer Behavior Remains Unfavorable to Sales Tax
The Shift to Services is Projected to Exacerbate
…BUT RECESSION HAS LIKELY EXACERBATED UNDERLYING DYNAMICS
What Will a Consumer “Lite” Recovery Look Like?
Relative to Past, Trend Forecasts Not Promising
Consumption Realignment
HOW ARE COLORADO’S MUNICIPALITIES RESPONDING?
An Economic Crisis is a Terrible Thing to Waste
Effective Responses: The National ResearchInstead of… Consider…
Reacting to the short term Taking the long term view
Making across the board or arbitrary cuts Making strategic cuts that preserve core mission and/or cutting underperforming programs
Making decisions at the top of organizations Including the creative energy of all staff as well as the community in managing the problem
Expecting to finance government in the historical way
Exploring innovative manners for financing government.
Managing the expenditure side only Managing the revenue side equally, to the extent possible
Operating with the same business model Using hard times to pursue organizational change or shed outdated business practices
How are Colorado’s Local Governments Responding?
Principle Colorado Municipal Initiative
Engage both employees and citizens in identifying the core mission of the organization and structure future budgets around that core mission
Boulder and Durango’s extensive outreach to citizens and employees
Explore and implement innovate manners of funding public services
Aurora’s proposal for a GID for the library system
Explore and implement alternative, more efficient means of service delivery
Regional delivery of services in the San Luis Valley
In Summary
• Recession can’t be ignored
• Underlying dynamics remain
• Consensus for “New Normal”
• Necessity begets innovation
• Innovative responses taking place across the state
