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National, State and Regional Economy
During the 3rd quarter of 2009, the U.S. economy expanded for the first time in five quarters. Driven by government spending and special one-time programs such as “Cash for Clunkers,” the economy grew at an annualized rate of 2.2%. Since the economy is highly dependent on consumer spending, sustained growth in personal consumption expenditures will be necessary to continue a recovery if the enormous government stimulus starts to recede as expected during the first half of 2010. Delta Associates in its Washington Area Retail Outlook publication expects an increase in Gross Regional Product in the Washington DC area of 2.7% in 2010. Retail spending is expected to increase 5.5% in the Washington Metro area during 2010.
The Washington area year-over-year consumer price index increased by 1.6%, the first year-over-year increase since April 2009. The CPI-U in November excluding food and energy was 1.7% higher than it was in November 2008. The “fuels and utilities” category of the CPI-U, which makes up a significant part of the City’s non-personnel budget, decreased by 3.4% compared to a year earlier.
Alexandria's Economy and Revenues
Alexandria’s economy continues to perform relatively well compared to the national economy. For the first time since September 2008, a year-over-year comparison of Alexandria’s sales tax revenues for the last three months ending October 2009 (the most recent data available) turned positive, by 0.2% compared to 2008. Since the bottom dropped out of the economy during the last quarter of 2008, the year-over-year comparisons are getting better. The level of sales tax collections, however, still remained 3.5% below its level in October 2007.
The unemployment rate in Alexandria dipped from 4.8% in September to 4.6% in October. Although an improvement, it is till not as good as the 3% rate in October 2008. According to the Quarterly Census of Employment and Wages, the number of jobs in Alexandria in the 2nd quarter 2009 decreased 1.9% from a year earlier. (These data lag behind unemployment data.) By major job category, public administration employment fared the best with an increase of 5.7% from a year earlier, while retail employment fared worst with a decrease of 8.4%. Retail continues to lag other categories of employment.
A long term perspective shows a significant decline in retail employment in the City. In the 2nd quarter of 1999, the City had 8,738 retail positions; in the 2nd quarter of 2009, the City had 7,548 retail positions, a decrease of over 13% over ten years. On the other hand, significant increases occurred in public administration employment, which more than doubled between the 2nd quarter 1999 to the 2nd quarter 2009 due largely to the location of the U.S. Patent and Trademark Office in the City.
Real estate sales soared during the month of November, driven by historically low interest rates and the perceived expiration of the first time homebuyer’s tax credit. The number of homes sold more than doubled from 84 in November 2008 at the depth of last year’s financial crisis to 183 in November 2009. Normally, November is a slow month for housing, but this was the best November for sales since the peak of the market in 2005. The tax credit has since been extended to purchases made by April of 2010.
The average sales price of a home decreased by 5.2% through October. It is interesting from the graph below to note the significant moderation in the decline in the average year-over-year sales price coincided with the implementation of the first time homebuyer’s tax credit in February 2009.
A three month trailing average of foreclosures in November was 23, down substantially from last year’s November’s number, though still high by historical standards. Interestingly, the national foreclosure rate has also dropped, even while mortgage delinquencies continue to rise.
The commercial real estate market is trending downwards. According to the blog Calculated Risk, the MOODY’s/REAL Commercial Property Price Index, a national index, has dropped 44% below its peak in October 2007. The City has processed no permits for a major commercial building project since July 2009. According to Code Administration, total estimated construction costs for the fiscal year-to-date through November is down by 46% compared to last year. The decline in permits is an indication that the City will see little contribution from new construction to its real property tax base for the next several years.
Governor Kaine’s Proposed Budget
Governor Kaine, in his FY 2010-2012 budget released in late December, proposed significant reductions to local governments, including the City of Alexandria, in his budget. The proposal includes across the board reductions to General Fund revenues, including cuts in HB599 aid to jurisdictions with full service law enforcement departments, sharp cuts in Compensation Board reimbursements, reductions in reimbursements for state prisoners held in the Alexandria Detention Center, and reductions in non-General Fund transfers including a reduction in K-12 education funding. In addition, Governor Kaine proposed ending the state payment of $950 million in car tax reimbursements, replacing the car tax with a 1% increase to Virginia’s income tax rate to be distributed to localities. The proposal is expected to face heavy sledding from the new governor-elect McDonnell and the General Assembly.