The State of Redwood City, California

Transcription

1 The State of Redwood City, California Indicators and Revenue Forecasts by Marin Economic Consulting March 24, 2017 Exploring the economics, demographics, and well-being of Redwood City and its residents through indicators.

2 Acknowledgements This report was produced by Marin Economic Consulting for the City of Redwood City, California. The authors would like to than Derek Rampone for his assistance in providing historical revenue data for property taxes, sales taxes, and transient occupancy taxes. Report Authors: Jon Haveman, Ph.D. Marin Economic Consulting 11 Rafael Dr. San Rafael, CA Robert Eyler, Ph.D. Economic Forensics & Analytics P.O. Box Petaluma, CA ii

3 Executive Summary Assessing the City with Indicators About this Report This report provides background or summary information of Redwood City (the City) in the form of indicators and provides a forecast of some key revenue sources for the City. These revenue sources are employment, property taxes, sales taxes, and transient occupancy taxes. Indicators are measures of various aspects of a regional economy. They help to provide an indication of the quality of life in a region and progress toward improving conditions in the local economy. Using this Report Indicators are measures of various aspects of a regional economy. They help to provide an indication of the quality of life in a region and progress toward improving conditions in the local economy. This report focuses on indicators for changing demographics, incomes, housing markets, commute patterns, and employment in Redwood City. These indicators are compared to San Mateo County (the County) as a whole, the Bay Area, California, and the United Sates. The picture painted by these indicators is of a very prosperous city in a very prosperous county. It is on the whole slightly younger than the County, slightly better educated, and with higher incomes. Employment is of a very high quality for residents in Redwood City and commutes are relatively short. The same can not be said of those commuting into the City. Their commutes are long and getting longer. Forecasts are included for employment, property taxes, sales taxes, and transient occupancy taxes. The forecasts indicate continued strong growth regionally with no sign of a recession. They also indicate a solid housing market with continued price appreciation through Figure 1: Golden Gate Bridge: Gateway to San Francisco Bay 1

4 Contents Executive Summary 1 Assessing the City with Indicators Key Observations 3 Demographics 4 A Snapshot of Redwood City Current Population Population Growth Income and Earnings 9 Per Capita Personal Income Growth Earnings Poverty and Inequality Housing 15 Housing Costs Permits Housing Picture Commute Patterns 20 Mode of Transportation Commute Times Employment Report 23 Redwood City Forecast and Model Considerations 24 General Issues Sales Tax Revenue Property Tax Revenue Transient Occupancy Tax (TOT) Employment Forecast Summary

5 Key Observations Housing Market: The Redwood City housing market is very tight. Home prices are high by regional standards, but have been falling in recent months. Population: Redwood City has been growing faster (12% since 2010) than the County (7%) or Bay Area (7%). a Income: Among California s largest cities, Redwood City has the 9 th highest per capita personal income ($51,865). Nationwide, it s rank is 23 rd. Earnings: Median earnings are also high in Redwood City ($55,657), but there are large gaps between the earnings of men and women within educational categories (up to 50% differences). Poverty: Despite high per capita incomes, poverty rates, both overall (9.8%) and among children (13.2%) are high in comparison to the County and the Bay Area. Age: The median age in Redwood City is just 37, as opposed to 40 for the County as a whole and 38 for the Bay Area. Counter to national trends, the median age has declined from 42 in Education: Redwood City has both a high proportion of highly educated individuals (with an advanced degree) and relatively uneducated individuals (those w/o a high school diploma). Race: With a relatively large hispanic population, the racial composition of Redwood City is closer to that of California as a whole than it is to the composition of San Mateo County or the Bay Area. a The Bay Area includes the nine counties that touch the San Francisco Bay: Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, Sonoma, and Solano counties. 3

6 Demographics A Snapshot of Redwood City Table 1. DEMOGRAPHIC SUMMARY Statistic POPULATION Population Estimate 85, ,013.0 Veterans 2, ,342.0 Foreign born persons (%, 5yr) Population age , ,355.0 AGE AND SEX Persons under 5 years (%) Persons under 18 years (%) Persons 65 years and over (%) Female persons (%) INCOME AND POVERTY Median household income 97, ,468.0 Per capita income in past 12 months 51, ,846.0 Persons in poverty (%) Children age less than 18 in poverty (No.) 2, ,952.0 Children age less than 18 in poverty (%) RACE AND ETHNICITY White alone (%) African American alone (%, 5yr) American Indian or Alaska Native alone (%, 5yr) Asian alone (%) Native Hawaiian and Other Pacific Islander alone (%, 5yr) Two or More Races (%, 5yr) Hispanic or Latino (%) Whtie alone, not Hispanic or Latino (%) HOUSING Housing units 32, ,156.0 Owner-occupied housing units (%) Median value of owner-occupied housing units 1,053, ,000.0 Median selected monthly owner costs-with a mortgage 3, ,193.0 Median selected monthly owner costs-without a mortgage Median gross rent 1, ,303.0 FAMILIES AND LIVING ARRANGEMENTS Households 31, ,963.0 Persons per household Living in same house 1 year ago, % of persons age EDUCATION High school graduate or higher, % of persons age Bachelor s degree or higher, % of persons age HEALTH With a disability, under age 65 years 3, ,756.0 Persons without health insurance, under age 65 years (%) LABOR FORCE In civilian labor force, persons age 16+ (%) In civilian labor force, women age 16+ (%) Employed, persons age 16+ (%) Self employed (%) TRANSPORTATION Mean travel time to work (minutes), workers age Using public transportation (%) 8.8 Drive alone in private vehicle (%) 75.9 Source: American Community Survey, Summary Files Note: Data are from the 1-year files unless indicated by the notation 5yr. 4

7 Current Population In 2016, the population of Redwood City as reported by the California Department of Finance was 85,992. According to the American Community Survey, the population was evenly split between men and women. The age distribution across the sexes differs slightly (see Figure). At the top, the well established fact that women tend to live longer than men is borne out. The most common age for men is between 35 and 39, while it is lower, 30 to 34, for women. There must have been something funny in the water over the last 5 years as there appear to be more boys under the age of 5 than there are girls, significantly more. Relative to San Mateo County overall, there appears to be a slight concentration among younger folks in the City than is apparent in the County overall. The median age in Redwood City is 37, while it is 40 in the County as a whole. Figure 2: Redwood City and San Mateo County Populations by Age Overall, the racial composition of the population of Redwood City differs significantly from that of the County as a whole. White nonhispanic and hispanic populations are more heavily concentrated in Redwood City than in the County, while there is a significantly smaller proportion of asian nonhispanic individuals, 14.7% in the City relative to 26.0% in the County overall. The racial composition of Redwood City has changed over the last decade. Relative to 2006, the proportion of Asian nonhispanic residents has doubled from 7.2% to 14.7%. The white nonhispanic population declined by a little over 3 percentage points and the hispanic population declined by just under 5 percentage points. Figure 3: Redwood City and San Mateo County Populations by Race/Ethnicity 5

8 Relative to the state as a whole, Redwood City has a very highly educated labor force. The proportion of workers with at least a bachelor s degree is significantly higher than in the state as a whole. At the same time, it is comparable to the County and Bay Area in terms of overall levels of education. Located as it is in the heart of Silicon Valley, this is hardly surprising. Paradoxically, it also has a higher incidence of individuals with less than a high school diploma, about 16% of the population over age 25, whereas the same figure for the County is 12% and for the Bay Area as a whole, it is 13%. Statewide, between 17 and 18% of the same population has not attained a high school diploma. Figure 4: Redwood City and San Mateo County Populations by Educational Attainment Figure 5: Bay Area and California Populations by Educational Attainment 6

9 Population Growth Redwood City has been growing more quickly than has the rest of the County or California. Between and 2016, the population of Redwood City grew by 11.9%, compared with just 6.6% for the county overall. ing already grown by 6.6%, that suggest growth of roughly 22% between 2016 and 2060, with the almost all of that growth occurring by It is hard to project growth for Redwood City based on the County as a whole, but barring a significant tightening of the housing market in the City, growth in excess of 25-30% is not out of the question. The California Department of Finance has forecast that the population of San Mateo County will increase by 30% relative to its 2010 level. Hav- Figure 6: Population Growth Figure 7: Population Growth Forecasts of growth by age and race/ethnicity do suggest changes in the demographics of the County and possibly the City. By 2060, the population will be significantly older, with a much higher proportion of individuals aged 65 or older. The County will also continue the trend of declining share of white nonhispanics in the population. Both the share of hispanics and those identifying as some other race (including asians) will continue to grow into the future. Figure 8: San Mateo County Population Forecasts by Age and Race 7

10 In San Mateo County, births and to a lesser extent net immigration have contributed positively to population growth between 2015 and That marks the first year in the post-recession period that net migration has not contributed in a positive way to population growth. At the same time that domestic migration was on net increasing the County s population, international inflows started to increase as well, having fallen significantly during the recession. Figure 9: San Mateo County: Decomposition of Figure 10: San Mateo County: Population Population Changes Change - Primary Components Figure 11: San Mateo County: Natural Population Growth 8 Figure 12: San Mateo County: Migration

11 Per Capita Income Growth Income and Earnings Definition: Per capita income is the average income per person in Redwood City. Personal income is the income received by, or on behalf of, all persons from all sources: from participation as laborers in production, from owning a home or unincorporated business, from the ownership of financial assets, and from government and business in the form of transfer receipts. Noncash government benefits are not included. Why is it important? Income is the income that is available to persons for consumption expenditures, taxes, interest payments, transfer payments to governments and the rest of the world, or for saving. As such, it is an important indicator of economic well-being in a community. How are we doing? In 2015, per capital personal income in Redwood City was $51,865. At that time, there were only 10 cities in California that had higher per capita personal income. Not surprisingly, six of those 10 cities are located in Silicon Valley or the Bay Area more broadly. Palo Alto, just to the south of Redwood City had the highest recorded per capita income in 2015 at just under $82 thousand. Figure 13: Redwood City Real Per Capita Income Ranking In 2015, the residents of Redwood City experienced an enormous increase in per capita income. Per capita income is total income in the City divided by the total population. The Census Bureau reports that the population increased from 2014 to 2015 at about the same rate that it had been for the last several years, or even a bit faster, but aggregate income increased enormously. Between 2014 and 2015, aggregate income in the City increased from $3.5 billion to $4.4 billion, or by about 25%. The source of this increase is unknown and its veracity will only be known when the 2016 data are released in September, Income growth in Redwood City has historically outpaced the broader Bay Area region, Califor- 9

12 nia, and the U.S. as a whole. Over the last 10 years, incomes in the City have grown at a rate of 3%, more than four times faster than in the Bay Area as a whole, 0.7%. Over the last 5 years, the rate of growth in the region has increased relative to the City, though both are growing faster than the 10-year average, 4.0% and 2.6%, respectively. Figure 14: Redwood City Per Capita Income Growth The level of per capita income in Redwood City is higher than in all but two counties, Marin County ($65.7 thousand) and San Francisco County ($57.9 thousand). Nationwide, Redwood City ranks 23rd in per capita among more than 579 cities for which data are available. Figure 15: Comparison with Bay Area Counties and All Cities Nationwide,

13 Earnings Earnings reflect the income derived from working at a job, as opposed to income, which includes monies derived from a broader set of sources. In 2015, median earnings for all workers 16 years and over living in Redwood City was $55,657. This is a significant increase over $47,382 in 2014 and helps to explain the dramatic increase in income discussed above. Median earnings in Redwood City are considerably higher than in the County as a whole, the Bay Area, California, and nationwide, with significantly larger gains since 2007, just before the Great Recession. The median figure masks stark differences in earnings across different levels of educational attainment and gender. The figure below provides an indication of how earnings changes with education and between men and women. Table 2. Earnings Geography % Change Redwood City 42,082 55, San Mateo County 44,137 50, Bay Area 42,329 46, California 33,727 35, United States 31,661 35, Source: U.S. Census Bureau, 1-year American Community Summary Files. In Redwood City, the upper left hand chart, men with a graduate or professional degree make nearly 5x more than those without a high school diploma. For women, the same figure is just under 4x more. Between men and women, the difference ranges from women making slightly more among those with some college or an associate s degree ($42 thousand for women and $41 thousand for men), so a very significant difference among those with graduate or professional degrees. At this highest category of education, men make approximately 50% more than do women. This difference is especially pronounced in Redwood City, but is still significant in the County, region, and state. 11

14 Figure 16: Earnings by Educational Attainment and Sex 12

15 Poverty and Inequality Definition: The local poverty rate provides an indication of the well-being of those at the bottom of the income distribution. The federal poverty rate measures the proportion of households in the region that are classified as living in poverty. Measures of the income distribution provide further evidence on disparities in income in the region. Why is it important? It is important to track measures of poverty and inequality to assess the extent of income disparities in the region, with an eye toward understanding how well the local economy is performing for all of its citizens. How are we doing? In 2015, the Federal Poverty Rate for Redwood City was 9.8%. This is slightly higher than for San Mateo County as a whole (8.5%), but compares favorably to the Bay Area as a whole (10.8%), California as a whole (15.3%) or the nation (14.7%). The low rate of poverty in Redwood City and the Bay Area as a whole is somewhat deceptive. A major shortcoming of the Federal Poverty Rate is that it does not take into consideration differences in the cost of living or in the share of housing in the household budget across regions. Given that Redwood City has a relatively high cost of living and of housing in particular, it is likely that the City s poverty rate is significantly higher than indicated by the Federal Poverty Rate. Indeed, for the year 2011, the Public Policy Institute of California and Stanford attempted to adjust the San Mateo County poverty rate for these factors. What it found was that in 2011, rather than 6.7% as indicated by the FPR, it was actually in excess of 18%. This suggests that poverty rates in Redwood City are likely significantly higher than 9.8%. With regard to child poverty, Redwood City has been experiencing an increase while the state and nation have been experiencing decreases. Measured child poverty in Redwood City, at 13.2%, is significantly higher than is overall poverty. This is very commonly the case. Figure 17: Poverty in Redwood City Income inequality in Redwood City is low relative to the state and San Mateo County, but is approximately the same as in the United States as a whole. For much of the last 25 years, inequality nationwide has been on the rise. This is especially true of the Bay Area, and has been true for Redwood City and San Mateo County for at least the last decade. 13

16 Figure 18: Inequality in Redwood City The top quintile, the 20% of richest households, and top 5% of households in Redwood City have a very high share of total county incomes, but about the same share as nationwide. More than 20% of all income goes to the top 5% of households. The top 20% of households get more than 50% of all income. At the same time, the bottom 20% of households, the poorest households, receive less than 5%. This share is lower than for any of the other geographies displayed in the figure below. Figure 19: Income Shares in Redwood City 14

17 Housing Housing Costs Definition: Housing costs in Redwood City are measured as the median home price and the median rental price. The median value is the amount in the middle. Fifty percent of units are above the median and 50 percent are below. measurement of the cost of living in a specific community. How are we doing? In the latest data, the median home price in Redwood City was over $1 million and the median rental rate was just under $4 thousand. These data indicate that Redwood City is one of the most expensive places in the Bay Area, California, and indeed the nation in which to seek shelter. Why is it important? Housing is one of three fundamental necessities, along with food and clothing. A measure of the cost of housing is an integral part of the Housing Costs in Redwood City Figure 20: Median Home Prices Figure 21: Median Rental Prices Home prices in Redwood City are high by regional standards. For much of the last 20 years, they were comparable to prices in San Mateo County and San Francisco. Over the course of the last several years, however, home price appreciation has accelerated in Redwood City relative to those geographies, the Bay Area (represented by the San Francisco MSA), California and the nation. At the same time, apartment rents are lower and have been changing in line with the County and the city of San Francisco. It is important to note that although no expert would declare an end to the housing crisis in Silicon Valley or the Bay Area, both home prices and rental rates have been declining for much of the last year. This comes at the same time that the broader Silicon Valley economy has cooled just a bit. Employment growth has been a strong contributor to home price increases. As employment growth slows, it stands to reason that increases in home prices and rents will also slow. 15

18 Permits Definition: This indicator provides evidence on the number of residential buildings that are permitted for construction each year. Permit data for Redwood City are compared with those for San Mateo County as a whole and broader regions. The statistic provided scales the number of permits by population. This is done to facilitate comparisons across regions. Why is it important? Building permits are the best indicator available of new units coming on the market. In order for a region s population to grow and flourish, new residential properties must be added to the existing stock. Building, both in the City and in the County more generally is an indication of the extent to which new residences are affecting prices through increased supply. How are we doing? It has been approximately 10 years since the bursting of the housing bubble. In that time, San Mateo County has permitted new housing units at a rate faster than the rest of the Bay Area. Since 2005, permitting in Redwood City has exceeded that of the other geographies. Permitting in all geographies has increased throughout the recovery. During the recovery, over the last 5 years, San Mateo County has outpaced the Bay Area and California significantly, while growth in Redwood City has been much slower. Over the course of the last year of data (between 2014 and 2015), permits in the City have grown faster than any of the other geographies, while permitting has fallen in the County and in the Bay Area as a whole. For most of the last 10 years, new units relative to the overall population have been lower in San Mateo County than in the Bay Area or California more broadly, while they have been higher in the City. It is also the case that over those same 10 years the rate of new building permitting has increased in the City. Recent trends in permitting suggest that new units coming on line may help to alleviate the pressures for prices to increase, but not dramatically so. Figure 22: Residential Building Permits in Redwood City and Broader Geographies: Units 16

19 Housing Picture In areas where the rate of population growth exceeds the rate of housing growth, this is likely to reflect a tightening housing market. A tightening housing market will also likely be reflected in lower vacancy rates and higher occupancy rates. It may also be reflected in higher numbers of people per household. Over the last 5 years, Redwood City has experienced a significant tightening of its housing market relative to the County as a whole. This is primarily evident in the vacancy rate in the two regions. In Redwood City, the vacancy rate declined from 4.1% to 2.6%, or by 37.2 percent. In the County as a whole, the vacancy rate actually increased by 12.3%. Population in Redwood City grew by nearly 12%, but by just 6.6% countywide. The number of occupied units in Redwood City increased faster than did the total number of homes, while it grew slower in San Mateo County. All of these trends indicate a significant tightening of the housing market in Redwood City relative to the County as a whole. Table 3. Housing Market Indicators for Redwood City % Change from Indicator Total Population 85, , Total # of Homes 30, , # Occupied Units 29, , Persons per Household Vacancy Rate (%) Source: CA DOF; Calculations by Marin Economic Consulting Table 4. Housing Market Indicators for San Mateo County % Change from Indicator Total Population 766, , Total # of Homes 276, , # Occupied Units 260, , Persons per Household Vacancy Rate (%) Source: CA DOF; Calculations by Marin Economic Consulting Housing units did increase faster in Redwood City than in the County or state, but the number of persons per household grew in lockstep with the same number for the County as a whole. Both of which grew faster than in the state. Whether this increase is the result of more singles living together or more generations of families living together, it is a reasonably clear indicator of scarce housing and high housing costs. 17

20 Figure 23: Housing Growth Figure 24: Persons per Household Figure 25: Vacancy Rates Figure 26: Occupancy Rates 18

21 Trends in the Growth of Housing by Housing Type Figure 27: Single Detached Homes Figure 28: Single Attached Homes Figure 29: Housing in Buildings with Two to Four Figure 30: Housing in Buildings with Five or More Units Units 19

22 Commute Patterns During the recovery from the Great Recession, the period from 2010 to today, the Bay Area economy, and Silicon Valley in particular, has been growing at a pace roughly double that of the state as a whole and triple that of the nation. This growth has precipitated a tight hous- ing market and has also brought about some significant changes in commute patterns. Recent years have seen significant changes in both the mode of transportation and commute times. Mode of Transportation Redwood City s employed residents have a growing penchant for driving alone by car. Their inclination to carpool had been growing in the years following the Great Recession, but seems to be waning. Public transportation use is grow- ing and the evidence also suggests that the proportion of workers working from home might well be on the rise. These are all trends that are consistent with data for the Bay Area, California and the United States. Figure 31: Percent of Workers Commuting Figure 32: Percent of Workers Commuting by Car Alone by Carpool Figure 33: Percent of Workers using Public Figure 34: Percent of Workers Who Work Transportation From Home 20

23 Commute Times Commute times for Redwood City s employed individuals are increasing. The percent of the population with a one-way commute in excess of 30 minutes has reached its highest level since data were made available in Some 40% of workers have commutes in excess of 30 minutes. It may well have been higher during the dot.com era, but data for that time period is not readily available. The proportion of workers with 90 minute commutes is very low by regional standards. Although it is increasing, it is increasing at a much slower pace than in the Bay Area as a whole and remains less than one-third of the employed population that it is for the Bay Area (1.3% vs 4.1%). Figure 35: Percent of Employed Population Figure 36: Percent of Employed Population With Commutes of More than 30 Minutes With Commutes of More than 90 Minutes The picture is different for those commuting into Redwood City to work. Commutes of both 30+ minutes and 90+ minutes have been increasing for these workers. Percentages were on a par with the Bay Area as a whole in The proportion with 30+ minute commutes was nearly 49% in Redwood City and just over 49% for the Bay Area. The proportion of workers with commutes in excess of 90 minutes was over 5% in both regions and appears poised to continue increasing. Figure 37: Percent of Local Employees With Figure 38: Percent of Local Employees With Commutes of More than 30 Minutes Commutes of More than 90 Minutes 21

24 With regard to those with commutes of 90 minutes or longer, MegaCommuters, Redwood City ranks among the worst geographies for its incoming workers. Out of 129 cities for which data are available for 2015, Redwood City ranks 113 th. Many nearby cities are close in the rankings: San Jose (103), Santa Clara (111), Palo Alto (119), and nearby Mountain View is last (129). The rapidly increasing commute times for those working in the City and region are clearly a result of the tight housing market. As housing becomes more expensive, more and more workers move to the surrounding counties to live, but they can not take their jobs with them. Figure 39: Rank: Share of MegaCommuters Across Similar Geographies 22

25 Employment Report Definition: Each month, California s Employment Development Division (EDD) publishes an update on employment in California and in MSAs and counties all across the state. The report focuses primarily on non-farm employment, providing estimates of changes in employment by industry as well as unemployment in each region. Why is it important? Employment growth is a fundamental indicator of the health of an economy. How are we doing? Since 2010, the employment in Redwood City has been growing at about the same rate as San Mateo County as a whole, but slightly faster in The nation has been growing at 2% per year, the state at 3% per year, and the Bay Area at over 4% per year. Redwood City has been growing at approximately 2.5% per year, faster than most parts of the Bay Area and state. In recent months, employment growth in the Bay Area has been slowing and has fallen to a 3% per year pace. The same is true of employment growth in Redwood City. According to the EDD, the City has lost between jobs over the course of the last two months. Employment is still higher, year over year, but there is a definite softening occurring. Unemployment, though it ticked up by 0.1% in December, 2016, is at a very low level. At 2.7%, the Redwood City economy is clearly at full employment. It is unlikely that the unemployment rate will continue to decline. Table 5. Summary for December, 2016 Change From: Current Last 2 Months Last Category Value Month Ago Year Employment 48, Labor Force 49, Number Unemployed 1, Unemployment Rate Source: EDD, Marin Economic Consulting Figure 40: Historical Employment and Unemployment in Redwood City Figure 41: Redwood City s Relative Employment Growth 23

26 Redwood City Forecast and Model Considerations This report provides Redwood City with a forecast for the following variables that affect their budget and decision making: 1. Sales Tax Revenues 2. Property Tax Revenues 3. Transient Occupancy Tax Revenue 4. Employment In the sections below, each of these variables is discussed, as well as how the forecast in this report was constructed for each variable. General Issues Forecasts for local areas (cities and counties) depend greatly on the forecast for the state and national economies. Most of the communities in California depend greatly on policy made at the federal or state level that affect employment, income and interest rates. The progression of California s economy and employment opportunities further shape local forecasts as context. Businesses and leisure visitors come to California first, and then to a local area like Redwood City, affecting transient occupancy taxes (TOT). Tax laws changing are a good example of how a state decision in California affects residential and business choice to locate in the state, affecting residential and commercial property values and taxable sales. Business and worker retention may also be affected by state-level policies that affect local area employment. The state-level forecasts from the California Department of Finance helps shape the general context. In December 2016, as one year earlier, the Federal Reserve increased interest rates used by banks to lend to each other to 0.5 percent from 0.25 percent. The Federal Reserve chairperson, Janet Yellen, stated publicly that as many as three more interest rate increases are coming in Equity markets have rallied in 2016 after a flat 2015; on January 25, 2017, the Dow Jones Industrial Average broke 20,000. This rally likely reflects predicted reductions in recent regulation for both health care and financial markets. If inflation and interest rates rise more quickly than currently forecasted, growth forecasts are likely to be revised downward, including Redwood City s economic future. Housing market demand is also a function of interest rates and confidence in the overall economy. Three major changes to the national and state economies started or moved toward a start in The first began in April 2016, where the California legislature agreed that a minimum wage law needed to be established statewide. Senate Bill 3 s legislation went into effect on January 1, California new minimum wage of $10.50 began wage ascension more quickly than before to help low-income workers, and reduce the detrimental effects of a rising cost of living on lower-income workers. How employers react remains to be seen. The second and third changes began on November 7 as election results. Proposition 64 passed in California, allowing cannabis to be grown, distributed and sold legally for recreational purposes throughout our state starting on January 1, Proposition 64 has many social and economic implications and uncertainties, from shifts in public safety demands, demand for warehousing 24

27 and office space, agricultural land use, and retail demand shifting toward the cannabis supply chain. The election of Donald Trump as president may affect local labor-force availability, port activity, and perhaps current health-care systems and the number of residents that have private or public insurance. The extent to which the new presidency affects the Redwood City economy in 2017 and beyond is discussed when relevant throughout the 2016 Index report; one major concern volatility in equity markets and interest rates, which act as context for personal income growth for county residents. Most of the variables to be forecasted follow a cycle, or move up and down over time based on economic cycles, basically supply and demand. That cyclic movement is also incorporated into the forecasts, as it is dictated by the state and national economic cycles, but perhaps also by global events. The forecast horizon is 2016 to 2021, because some variables that determine the forecast are not completely known yet for 2016, specifically employment. For the tax revenue forecasts, these are for Fiscal Years to Sales Tax Revenue Forecasting sales tax revenues depends on movements in two basic data points: taxable sales and the local tax rate. The local tax rate depends on state-level policies primarily, but also on local tax initiatives. There is currently a maximum of ten (10) percent in California on sales tax. As of January 1, 2017, the sales tax rate for Redwood City is 8.75 percent, where the County of San Mateo is also 8.75 percent, where South San Francisco and the city of San Mateo are 9.0 percent. We assume that sales tax rates remain the same over the forecast horizon (2017 to 2021). Regardless of any changes, the 8.75 percent rate incorporates the current setting. Taxable sales forecasts combine elements of three variables: (1) Population growth (which drives taxable sales demand); (2) Retail/Taxable sales as a proportion of consumer expenditures (a reflection of how much is spent on taxable items per person); (3) Personal income per person (a reflection of how much there is to spend); and (4) the percentage of retail sales that are taxable. Index = 100 in Figure 42: Underlying Forecast Values Year: Forecast Window to 2021 Personal Income in San Mateo County - Actual Personal Income in San Mateo County - Forecast Redwood City Taxable Sales - Actual Redwood City Taxable Sales - Forecast Millions of Dollars Figure 43: Sales Taxes in Redwood City Year: Forecast Window to Redwood City Sales Taxes - Actual Redwood City Sales Taxes - Forecast 28.9 After examining the available data, the California Department of Finance forecast for California personal income growth was used as the basis for Redwood City s sales tax forecast. The movement 25

28 Table 6. Sales Tax Forecast (Dollars) Forecast Sales Taxes 23,513,420 24,328,570 25,390,794 26,518,054 27,681,040 28,895,030 Source: City of Redwood City, California Board of Equalization, and CA Department of Finance of personal income in San Mateo County from 2002 to 2015 follows the movement of personal income in California very closely, and based on the state economy acting as context for all counties in California, we use that forecast to shape taxable sales. Notice in the figure that taxable sales, indexed to 2015 values, were above personal income during the last decade, and below since the recent recession (visible in the drop-off in the figure). The percentage change in taxable sales is likely to follow personal income (the income where taxable consumption expenditures originate) and the forecast above shows this movement. Property Tax Revenue Forecasting property taxes is a combination of residential and commercial real estate assessed values. The property tax, based on local tax initiatives and Proposition 13 allowances, is then assessed. We use 1.0 percent as the base tax rate for Redwood City. Special assessments may come and go based on bond issues and other, local taxes voted in by local residents. Variables that help determine the forecast are as follows: Commercial: 1. Current inventory (from Cushman Wakefield); 2. Inventory under construction (permits data provided by the City of Redwood City); and 3. Capitalization rates (from Cushman Wakefield). Residential: 1. Housing Units (from Department of Finance estimates); 2. Building permits (from the City of Redwood City); 3. Median home prices for all homes (from Zillow Research); 4. Interest rate forecasts (from the Federal Reserve); and 5. Volume of Sales of all homes (from Zillow Research) for all municipalities in San Mateo County. On the commercial side, San Mateo County has approximately 826,000 square feet of office space under construction as of Q3 2016, according to Cushman/Wakefield. 1 In Redwood City, there is no industrial space under construction; of the 826,000 square feet, Redwood City has about 77,000. With an inventory of 6.6 million feet, sales pricing should change very little based on this new inventory versus demand. We assume here, based on the slow movement in commercial space and reassessments, that property tax revenue changes are driven by building permits overall. Data from 2005 to 2016 suggest that the volume of building permits pulled in California and in Redwood City follow each other

29 closely. Further, the California Department of Finance has estimated statewide permits for residential and commercial property through Using that forecast, the percent ascension in property taxes follows a forecasted percent ascension in Redwood City permits volume, which follows the stateside data less one percent growth. The expectation is that Redwood City would see slower permit growth than the state overall. The figures show these relationships and the table shows the forecasted for property tax revenues. By assuming slower growth in permits than the state overall, forecasted property taxes are at a conservative volume. There can also be assessment changes based on renovations and re-assessment through permitting processes. Due to the mix of an unknown renovation market and the number of owners that may improve their property without reporting it for re-assessment, variables such as construction employment are not necessarily informative beyond what would be captured naturally in the variables above. We assume the ascension of interest rates is slow and predictable through 2021 as to not distort market activity otherwise. Figure 44: Annual Change in Property Taxes, Turnover, and Home Prices Figure 45: Property Taxes in Redwood City Percent Change Year: Forecast Window to Property Taxes - Actual Property Taxes - Forecast Turnover and Median Price Change - Actual Turnover and Median Price Change - Forecast Percent Change Millions of Dollars Year: Forecast Window to Redwood City Property Taxes - Actual Redwood City Property Taxes - Forecast 64.8 Table 7. Property Tax Forecast (Dollars) Forecast Property Taxes 48,033,488 51,169,804 55,892,084 57,711,808 60,980,412 64,813,440 Source: City of Redwood City, California Board of Equalization, and CA Department of Finance Transient Occupancy Tax (TOT) This tax is basically a sales tax for hotel rooms, and depends on visitor volume. Visitors come in two flavors: business and leisure. Forecasts for business visitors depend on the global reach of local businesses and how travel versus technology is utilized for meetings. Leisure travel depends on four major factors: 1. Regional tourism forecasts of visitors and of personal income; 2. Occupancy rates of hotel rooms; 3. The percentage of visitor days that becomes overnight stays; and 4. The number of hotel rooms and those under construction. 27

30 We assume that the TOT rate itself is not a factor in the choice of where to stay, but is a factor in the choice to convert to an overnight stay from a day trip. The Bay Area is a draw for worldwide visitors, but also for regional visitors. A recent report by Tourism Economics suggested that over 70 percent of California visitors originate in California. 2 Their forecast suggests visitor growth in California is approximately 2.2 percent per year through Visitor growth alone does not generate growth of TOT revenues. If visitors only came for the day and never stayed overnight, TOT revenue would be zero. Tourism Economics expects the growth of overnight stays to be about 2.1 percent per year through We extend that to 2021 here. The forecasted growth from 2016 is for 4 percent per year on average through This is basically two times the Tourism Economics visitor growth rate for the state. This assumption is based on three ideas: 1. Visitor growth is forecasted to continue; 2. There is no recession currently predicted for the national or state economies, which suggests domestic demand for travel is unlikely to wane between 2017 and 2021; and 3. Average daily rates are likely to rise faster than 2.1 percent per year as demand continues to rise. Figure 46: Transient Occupancy Taxes in Redwood City Millions of Dollars Year: Forecast Window to 2021 Redwood City TOT Taxes - Actual Redwood City TOT Taxes - Forecast Table 8. Transient Occupancy Tax Forecast (Dollars) Forecast Property Taxes 6,451,477 6,677,278 6,961,063 7,274,311 7,547,098 7,848,982 Source: City of Redwood City, California Board of Equalization, and CA Department of Finance Employment Forecast An employment forecast for any city or county is generally a function of its employment history against the state or national forecast. Because the mix of industries are similar in Redwood City to San Mateo County and to California overall, how the broader economy trends go creates the basis

31 of a forecast for jobs. However, if there are some growth industries identified that are unique to San Mateo County, this can make jobs more volatile upward or downward depending on the economic cycle. We assume that one strength for San Mateo County is in life sciences, specifically in the northern portion of the County. The southern portion, where Redwood City is, may be more like the Santa Clara County economy in terms of economic cycles. Unfortunately, data for the city economy and jobs does not provide a lot of detail other than industry sectors. Thus the forecast elements for local employment are: 1. Recent employment (employment is cyclic and based on local employment in previous years); 2. Regional employment (the local area may lead or lag county employment historically); 3. State employment forecasts, and how regional employment has led or lagged behind specifically the state economy; and 4. Local specialties or legislation that may enhance or restrict hiring. For example, the minimum wage legislation that is now statewide may slow down local forecasts for San Francisco because surrounding areas are now ascending minimum wages in a more competitive manner (assuming higher wages in San Francisco provided an incentive for Redwood City residents to commute). However, we use the current DOF forecast as the basis of the employment forecast, with recent cyclic behavior of employment as a way to add or subtract from the state-level forecast. Employment is a regional phenomenon. Cities and counties share their residents among their employers. Redwood City is no different. The non-farm employment level in Redwood City is officially stated as of February 2017 by the Census Bureau as 56,150 workers in These are the latest data. However, the California Employment Development Department (EDD) estimates that Redwood City had 46,810 working residents in This suggests that Redwood City imports workers to satiate the needs of local employers. The forecast here is for non-farm employment at Redwood City employers, regardless of where the workers live. San Mateo County has official data estimates from EDD through Between 2002 and 2014, Redwood City was between 14.2 and 15.5 percent of the County total. San Mateo employment is now forecasted by the Bureau of Labor Statistics (BLS) and EDD through We use this trajectory for San Mateo County as a way to guide a forecast for Redwood City employment. 29

32 Figure 47: Employment in Redwood City Index = 100 in Year: Forecast Window to 2021 California - Actual San Mateo County - Actual Redwood City - Actual Forecast Forecast Forecast Table 9. Employment Forecast (# of Jobs in Redwood City) Forecast Total Employment 60,955 62,662 64,228 65,705 66,362 67,026 Source: City of Redwood City, California Board of Equalization, and CA Department of Finance As can be seen in the figure, the San Mateo County and Redwood City estimates before 2014 tracked each other closely. Matching the current forecast from EDD for Redwood City is a good indicator of the employment level for the city s economy. Given the recent increase in the percentage of the County s employment that is Redwood City, notice that at the end of the forecast window, Redwood City s non-farm employment level rises slightly more quickly than the County overall. Summary The forecasts show three key conclusions for Redwood City: 1. The employment and sales tax forecasts follow forecasts for the state and county economies, and also show no recession as of 2021; 2. The property tax forecasts show no significant slowdown in home prices or commercial real estate values between 2017 and 2021; and 3. These forecasts depend critically on a smooth path of national and state gross product/personal income growth, interest rate stability during a slow escalation and continued demand for living and working in San Mateo County tied to the greater Bay Area s economic growth. References Bureau of Economic Analysis: Local Area Personal Income, accessed at newsreleases/regional/lapi/lapi_newsrelease.htm Bureau of Labor Statistics: Quarterly Census of Employment and Wages, accessed at https: // 30

33 Census Bureau: Longitudinal Employment and Housing Dynamics, accessed at ces.census.gov/ City of Redwood City: data on tax revenues and buildign permits provided by city department of finance Employment Development Department: Labor Force and Unemployment Rate for Cities and Census Designated Places, accessed at html Tourism Economics: California Travel and Tourism Outlook, accessed at com/media/uploads/files/editor/ca%20forecast%20september%202016%20-final.pdf Zillow Research: City Data, accessed at 31