Backup Documents 09/09/2004 W
BCC-EDC
WORKSHOP
MEETING
BACKUP DOCUMENTATION
SEPTEMBER 9, 2004
SeptBmber 03, 2004
m
ANDERSON
ECONOMIC
GROUP
Fiscal Stability Analysis
for Couier County,
Florida
Prepared by:
Patrick L. Anderson, Principal
IIhan K. Geckil, Economist
Scott Watkins, Consultant
Anderson Ec'on\>dlic Group 1.1('
260 East Saginaw Road
East Lansing. Mìçhigan 48823
Tel: (517) 333~6984
Fax: (517) 333-70SA
http://www.AndersonEconomicGroup.com
Table of Contents
Table of Contents
I. Executive Summary........................................... 1
Purpose of the Study ......................................................1
Overview of Approach ..................................................1
Overview of Findings ................. .................. ....... ..... .....2
Policy Options ............................................................... 4
Observations .................................................................. 4
Limitations of this Analysis ........................ ................... 5
About the Authors ............................. ............................ 5
Table I: Summary of Policy Options .......................................6
Table 2: Likely Effects of Policy Options ................................ 6
II. Overview of Collier County Economy............. 7
Historical....................................................................... 7
Current Situation.................................. ................. ......... 7
III. Socio-economic and Demographic Analysis.. 8
Population ...................................................................... 8
Table 3: Population ................................................................... 9
Table 4: Households ................................................................. 9
Number of Households .................................. ..............1 0
Income ........ .................................... ......................... .... 10
Table 5: Income ......................................................................11
Labor Market ........................................ ...... ......... ........ 11
Table 6: Employment ............................................................. 12
Figure I: Annual Unemployment Rates, 1990-2003 .............. 13
rv: Economic Diversification and Recession
Risk Analysis.................................. ..................... 14
Description of Analysis ...............................................14
Table 7: Shares of Retail Trade and Service
Employment, 1988-2001 .....................................................15
Figure 2: Collier County: Change in Share of Total
Employment by Industry ..................................................... 17
Figure 3: State of Florida: Change in Share of Total
Employment by Industry .....................................................18
Figure 4: Collier County Employment Portfolios
Risk & Reward .....................................................................19
Anderson Economic Group
Table of Contents
Table of Contents
v: Baseline Economic and Demographic
Forecast............................................................... 20
Forecast Observations ... ................ ......... .......... ...... ...... 20
Table 8: Baseline Economic and Demographic Trends .........21
VI. Overview of Collier County Revenues .........23
Summary of 2004 Budgeted Revenue Sources ...........23
Other Available Sources of Revenue ...........................28
VII. Revenue Analyses........................................ 30
Sustainable Revenue .................................................... 30
Table 9: Sustainable Revenue Analysis .................................. 32
Sõurces of Potential Instabilities ................................. 33
Baseline Revenue and Expenditure Trends .................33
Conclusion: Shortfall Ahead ......................... .............. 34
Figure 5: Projected Revenues and Expenditures ...................35
Table 10: Major Source Revenues, Trend Projections ........... 36
Table 11: Expenditure History and Trend Projections ...........38
VIII. Policy Options ...... ......... ..... ..... ........... ....... 39
Policy Option 1: Maintain Current County
Revenue Structure ................ ... ....................... ............ 39
Policy Option 2: Adjust Mix of Development
Fees and Taxes ........................... ................................40
Policy Option 3: Restrict New Development ..............41
Policy Option 4: Promote Broader Industrial Growth .42
Limitations; Summary of Options ...............................43
Appendix A: Maps .......... ................ ...................A-1
Population Growth Rates, 2003-2008 ................. A-2
Median Household Income, 2003 ....................... A-3
Appendix B: Economic Diversification and
Risk Return Analysis of Collier County ............B-1
Purpose of Diversification .........................................B-1
Traditional Measures of Diversification ....................B-1
Caution Due to NAICS-SIC Conversion ...................B-2
Change in Employment Share ...................................B-2
Anderson Economic Group
Table of Contents
Table of Contents
Traditional "Diversification" Measures .....................B-2
Figure 6: Change in Employment, Florida v. Collier
County ................................................................................ B-4
Figure 7: Selected Diversification Measures - I ................... B-5
Figure 8: Selected Diversification Measures - II .................. B-6
Economic Risk & Return ...................................B-7
Methodology ................. ........ ........ ..... ............ ............B-7
Analysis ..................................................................... B-8
Observations .............................................................. B-8
Appendix C: About Anderson Economic
Group ............................................................... C-1
Firm Profile .....:-::.. ...................................................... C-1
Past Clients .... ............................... ............................. C-1
Quality Assurance Policy............. ..... ........................ C-2
Project Team .............................................................. C-2
Anderson Economic Group
Table of Contents
.. .~.----"--
List of Tables
List of Tables
TABLE l.Summary of Policy Options........................................ 6
TABLE 2.Likely Effects of Policy Options................................. 6
TABLE 3.Population ................................................................... 9
TABLE 4.Households....... ....... ............................................ ........ 9
TABLE 5.Income.......... .............................................. ................11
TABLE 6.Employment.................................................··.·......·.. 12
TABLE 7.Shares of Retail Trade and Service
Employment, 1988-2001... ............................................ ...... 15
TABLE 8.Baseline Economic and Demographic Trends .......... 21
TABLE 9.Sustainable Revenue Analysis .................................. 32
TABLE 10.Major Source Revenues, Trend Projections............ 36
TABLE 11.Expenditure History and Trend Projections ............ 38
Anderson Economic Group
List of Tables
-----~,.._"
List of Figures
List of Figures
FIGURE l.Annual Unemployment Rates, 1990-2003.............. 13
FIGURE 2.Collier County: Change in Share of Total
Employment by Industry ..................................................... 17
FIGURE 3.State of Florida: Change in Share of Total
Employment by Industry ......... ..................................... ....... 18
FIGURE 4.Collier County Employment Portfolios
Risk & Reward.................................................................... 19
FIGURE 5.Projected Revenues and Expenditures .................... 35
FIGURE B-1.Change in Employment, Florida v.
Collier County ............................. ...................................... B-4-
FIGURE B-2.Selected Diversification Measures - I ............... B-5
FIGURE B-3.Selected Diversification Measures - II.............. B-6
Anderson Economic Group
List of Figures
Executive Summary
1. Executive Summary
PURPOSE OF THE
STUDY
Collier County, located in southwest Florida, has experienced very rapid growth
in recent years. This growth has brought new population and new development
of residential and commercial property. The increased population, income, and
property development has generated, in turn, rapid revenue growth for the
County.
Such rapid economic and demographic growth cannot continue indefinitely, nor
can the related revenue growth. Although it is not clear when and by how much
growth will slow in the future, it is highly likely that Collier County's growth
will return to rates closer to the rest of Florida sometime in the next decade.
The County's revenues are dependent on both ongoing taxes and user fees from
residents, visitors, and employers, and impact fees levied one-time on devel-
oped property. Thus, the County runs the risk that a slowdown in development
will cause a significant reduction in revenue, without a corresponding reduction
in the demand for services.
To best plan for the future, the Economic Development Council (EDe) of Col-
lier County, with financial support from the Board of County Commissioners,
retained Anderson Economic Group to:
1. Analyze the County's economy, demography, and geography, to understand the fun-
damental drivers of employment and income in the area.
2. Analyze the major sources of tax and fee revenue that support the general operations
of County government, and further examine how these major revenue sources will
change in the future if the underlying economy changes.
3. Create a baseline forecast of key economic and demographic factors that will affect
the County's economy and revenue sources through 2014.
4. Analyze how the County's tax and fee revenue structure would likely generate reve-
nue for County government in the future, if the local economy experiences the
expected changes in the future.
5. Present policy options available to the County, and for each option, explain how
changes in the tax and fee structure will likely affect the County's revenues, eco-
nomic diversification efforts, housing affordability, and the incidence of taxes.
OVERVIEW OF
APPROACH
To complete this analysis, Anderson Economic Group undertook a set of tasks
that included:
. Collecting detailed data on Collier County's economy, demography, and other
key factors. This analysis is included in "Overview of Collier County Econ-
omy," on page 7, and "Socio-economic and Demographic Analysis," on page 8.
. Analyzing the sources of employment and income in Collier County, noting
how the distribution of employment across industries indicates risks in future
Anderson Economic Group LLC
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Executive Summary
downturns, and affects the prospects of continued employment growth. This
analysis is contained in "Economic Diversification and Recession Risk Analy-
sis," on page 14.
· Assembling a baseline forecast of key economic and demographic factors that
will affect the County's economy and revenue sources through 2014. This base-
line forecast is intended to allow comparisons among various policy options,
and provides the basis for analyzing how tax and fee revenue will change in the
future. This analysis is contained in "Baseline Economic and Demographic
Forecast," on page 20.
· Reviewing Collier County's revenue system, including the tax and fee policies
used in 2004. This analysis focuses on the major revenues available to the oper-
ations of County government largely funded by General Fund and Special Fund
revenues, including Constitutional Officer expenses. This review is contained in
the section entitled "Overview of Collier County Revenues," on page 23.
· Identifying policy options and discussing how each would impact the County's
revenues given likely economic and demographic changes and continued
demand for services. See "Policy Options," on page 39.
OVERVIEW OF
FINDINGS
Based on our analysis of the County's economy, demography, and current reve-
nue policies, we summarize our findings as follows:
1. Baseline Economic Conditions
I. The rate of population growth that has occurred in recent years cannot con-
tinue indefinitely. The County can expect rapid growth for the next few years.
(Population growth in excess of 2% per year is clearly rapid, and population
growth of 4% per year or higher is very rapid.) However, sometime during the
next decade, the growth will slow to a rate close to that of the State as a
whole.
ii. The County's economy is becoming more reliant on tourism-related earnings,
and therefore must take care to nourish this type of industry.
iii. The County's economy is also strong in the service area, which makes it less
vulnerable to a manufacturing slowdown than most areas of the country. As
evidence of that, the County's unemployment rate was much less affected by
the recent recession than the rate for the State of Florida as a whole.
2. Incidence of Taxes and Fees
i. The current tax and fee structure of the County, which is based partially on
Florida law and partially on County policy, places a relatively heavy burden
on those who purchase newly-developed property. Although "impact fees"
may be initially paid by developers, the cost is ultimately borne by those who
purchase or lease the property.
ii. Consistent with Florida law, taxpayers pay no direct income tax, but do pay a
general sales tax, as well as specific sales taxes. The incidence of the sales
taxes falls on both residents and visitors..
iii. The overall effect of the tax structure in Collier County is to discourage
development of property, place a significant share of the tax burden on vis i-
Anderson Economic Group LLC
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Executive Summary
tors, and reduce the tax burden on current residents who are employed by sta-
ble businesses, or are retired.
iv. During years in which the County is experiencing a boom in new growth, this
tax structure has the benefit of reducing the costs of government to many
long-time residents. However, it also has the effect of discouraging new
employers in non-tourism-related industries from locating in the County, and
of reducing the supply, and therefore increasing the price, of new housing
stock.
v. The County could pursue a strategy of encouraging broader-based industrial
development in non-tourism service and light manufacturing. However,
accelerating development in these areas would require an adjustment in tax
policy.
3. Fiscal Stability
1. Our analysis of the County's fiscal structure focuses on the sustainable, recur-
ring revenue that funds the basic operation of government. These sources
fund a fraction of the County's entire budget that required expenditures of
approximately $350 million in FY2004, before "other" revenues were consid-
ered.
ii. The most important revenue sources for general government operations are:
property taxes, which make up the majority of the General and Special Fund
revenue; intergovernmental revenue from sales and gas taxes; charges for ser-
vices; and "miscellaneous" sources. See Table 9, "Sustainable Revenue Anal-
ysis," on page 32.
iii. When growth slows, these important sources of revenue will react differently.
In particular, property taxes will grow at a rate that is somewhat faster than
inflation; sales and gas taxes will grow near the rate of the general economy;
and charges for services should grow at the cost of the services. However,
"impact fee" revenue will probably decline. Using our baseline economic
forecast, we project the baseline major-source revenue over the next decade,
assuming no change in policy and a steadily slowing economic growth path.
The trend revenue forecast is contained in Table 5, "Projected Revenues and
Expenditures," on page 35.
iv. We expect that the recent growth in the County's budget will also slow, and
therefore forecast a slowdown trend expenditure path for the County. See
Table 11, "Expenditure History and Trend Projections," on page 38.
v. We compare the anticipated baseline revenue growth for major-source reve-
nue, and the trends for expenditures in the general and special funds. We con-
clude that, should current economic trends continue and County policy
remain the same, the County will experience significant shortfalls in revenue
by the end of the current decade. See Figure 5, "Projected Revenues and
Expenditures," on page 35.
vi. It is important to note that these trend projections are not specific forecasts of
specific revenue sources for a range of years. We do not anticipate that the
County will be unable to operate with a balanced budget during the next few
years. What the analysis does show is that the current trajectory of spending,
Anderson Economic Group LLC
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_._-_._._~------------..-~--
Executive Summary
POLICY OPTIONS
OBSERVATIONS
-- ----....-.----.- ...-~------_..__.._-
-- --- -----.-..-.-.----.----.- ------
- ---~-----
even allowing for a slowdown in spending growth, cannot be sustained with
the current tax policy.
The focus of our report is not to recommend a specific course of action, but to
ensure that the County has the best infonnation possible with which to make the
right decision, in advance of a future economic slowdown.
To help the County plan for potential instabilities, we have identified the follow-
ing policy options:
1. Maintain current County budget policies.
This option assumes the County does nothing to change the current policy mix. It is
included for comparison purposes.
2. Adjust the mix of development fees and taxes.
This option assumes the County reduces the impact fees, and substitutes property
and sales taxes that produce almost the same amount of revenue.
3. Discourage new growth in the County.
This option implies that the County move even farther toward imposing the maxi-
mum burden possible on new developments, including both "impact fees" and
restrictions on development.
4. Promote employment growth in broader range of industry.
This option involves reducing impact fees and taxes, requiring the County to trim its
budget growth more aggressively, but also encouraging more economic growth.
Each of these policy options are discussed in more detail in "Policy Options,"
on page 39. We summarize the policy options and their effects in Table 1,
"Summary of Policy Options, and Table 2, "Likely Effects of Policy Options,"
on page 6.
While we were not charged with making specific policy recommendations, the
results of our analysis signal, in our opinion, a short list of observations we are
comfortable providing the County:
. First, we note that the rapid economic growth, strong revenue growth, and con-
tinued demand for housing in the area indicate that the County's leaders have
been, overall, doing most things right. Natural endowments help, of course, but
there is no question that the desire of many individuals to move to the area is a
compliment to those who have been in leadership roles in the past.
. Second, we suggest that the County take seriously our conclusion that economic
and demographic growth, and therefore revenue growth, cannot continue on its
current path. This does not mean we anticipate a budget shortfall in the next
couple of years, nor that we observed something amiss in the County's budget
policies. It means that growth at recent rates will begin to outstrip the available
resources of land, workforce, and infrastructure.
4
Anderson Economic Group LLC
Executive Summary
LIMITATIONS OF THIS
ANALYSIS
ABOUT THE
AUTHORS
· Third, we note that the "no policy change" scenario will likely result in a budget
shortfall when economic growth slows. The County should, therefore, antici-
pate that a "do nothing" policy will not be sufficient to weather the next decade.
· Of the four options we outline, we suggest the County seriously consider
options 2 (adjust tax and fees) and 4 (encourage broader economic growth).
These, in our opinion, have the best chance of providing a strong quality of life
and economy 20 years from now.
· Such choices force the question of whether the County's residents consider their
primary economic development goal as attracting new industry, perhaps to its
undeveloped areas; or to preserve the current atmosphere of the coastal towns.
These are two different directions, and each direction has its costs as well as
benefits.
This report is based on a comprehensive analysis of the County's demography,
and its underlying economy. It involved examining the overall trends in both
revenues and expenditures, a breakdown of the sources of those revenues for the
General and Special Funds, and a brief inventory of tax and fee options avail-
able under Florida law.
However, there are some questions that this report cannot answer, such as:
· The fundamental policy choices are decisions that must be made by the County
and its citizens, not its consultants, however knowledgeable or earnest.
· The underlying economy in Florida, like the underlying economy everywhere
else, will move in unpredictable ways. Our examination of the underlying eco-
nomic base is intended to project the underlying trends, assuming no major dis-
ruptions, and ignoring the cyclical movements of the business cycle.
· While we zeroed in on the general fund revenues from recurring sources, we did
not examine every line of the budget, and did not conduct a fund-by-fund
assessment. Neither did we review the County's budget practices, other than to
prepare our underlying revenue and expenditure baseline analyses.
A brief sketch of the authors of this report, and of Anderson Economic Group, is
contained in "Appendix C: About Anderson Economic Group."
Anderson Economic Group LLC
5
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Overview of Collier County Economy
II. Overview of Collier County Economy
HISTORICAL
In the mid to late-1800s, agriculture and cattle ranching dominated the economy
of Southwest Florida, including Collier County. At this time much of the area
was inaccessible, and the landscape was dominated by the Everglades. How-
ever, it was not long until wealthy northerners began purchasing land in the area
for their winter homes, laying the foundation for the tourism industry that today
dominates the Collier County economy.
In 1922, Barron Gift Collier purchased 2,026 square miles of land in Southwest
Florida, and in 1923 the county bearing his name was established. To further
grow the economy, Collier invested over $1 million of his own money to start
construction of the Tamiami Trail, which was completed in 1928 and connected
Naples with Tampa to the north, and Miami to the east. The fmal cost was some
$8 million, and the outcome was a vital piece of infrastructure that set the stage
for the County's ecgpomy to grow.
CURRENT SITUATION By 2003, the County's population had grown to 287,435 permanent residents,
with approximately 111,700 more calling the County home on a seasonal basis.
The population and number of households continue to grow at a high rate, and
are expected to do so in the future as well.
In 2003, the County's economy was strong, with a median household income of
$51,925, more than $10,000 above the State median. Its unemployment rate
(4.5%) was well below the State's rate (5.1 %). Also, Collier County's labor
force grew nearly fifteen percent from 2000 to 2003.
The most recent data, from 2001, indicates that 54% of Collier County employ-
ment is in the service industry and 19% of it is in retail trade. Even though a
73% share in service and retail industries is very high compared to other
regional economies in the U.S, it is typical for a county in the State of Florida.
The third and fourth highest industry shares belong to construction with 13%
and F.I.R.E. (finance, insurance and real estate) with 8%. The sum of these four
industries is 94%, a total that is similar to that of the State as a whole.
A planned expansion of the Ave Maria University is expected to influence the
County's economy positively. The University's expanded campus is expected to
open in 2006, spurring growth in the recently formed Ave Maria Stewardship
District in eastern Collier County.
Anderson Economic Group LLC
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Soclo-economlc and Demographic Analysis
III. Socio-economic and Demographic
Analysis
Before examining Collier County's revenues, its important to understand the
economic and demographic elements that influence its revenue sources. To do
so we analyze data from recent years, as well as projections for population,
households, income, labor market, and expenditures.
Note on Precision of Data. This analysis is based on survey data from the US
Census and the Bureau of Labor Statistics, as well as supplemental data and
analysis from private demographers and geographers. It is not based on a "cost
of living" analysis, or on specific tax rates applied to example properties. There-
fore, we use these data to compare counties within the state, rather than to judge
the actual costs or expenditures of specific families.
POPULATION
Both Collier County and the Stat~of Florida experienced strong population
growth from 2000 to 2003. Collier County's population, however, grew at an
annual rate of 4.63%, more than double that of Florida's 2.15%. A similar trend
is expected to continue from 2003 to 2008, with Collier County expected to
realize a 3.64% annual increase in population, compared to Florida's expected
1.84%. The County's population growth rate is also high compared to its neigh-
boring counties ofBroward, Charlotte, Hendry, Lee, Miami-Dade, Monroe, and
Palm Beach. The County ranks first in annual population growth rate for 2000-
2003 and the projection for 2003-2008. See Table 1, "Population," on page 5,
and Map 1, "Population Growth Rates, 2003-2008," in Appendix A.
Population growth is an important element of a municipal revenue base. Clearly,
as population increases, so does the base of people who shop and pay sales
taxes, have dwellings and pay property taxes (either directly if owning property,
or indirectly if renting), and use municipal services and pay user fees. Thus, the
recent and forecasted population growth in Collier County provides the County
with an expanding source of potential revenues. 1
Note on Seasonal Population. Collier County Community Development and
Environmental Services estimates that the peak seasonal population within the
County is 33% greater than the pennanent resident population for coastal areas.
It also estimates that some 15,000 migrant workers are seasonal to the Immoka-
lee area. This seasonal population helps generate sales tax revenues for the
County, as well as tourist development tax revenues when they rent for a short-
tenn (under 6 months).2
I. The population of Collier County includes residents of incorporated and unincorporated areas,
each of which are treated differently for property taxation.
2. Source: Collier County, FL 2003 Economic, Demographic & Community Profile
Anderson Economic Group LLC
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Soclo-economlc and Demographic Analysis
TABLE 3. Population
Population Annual Change in Population
2000 2003 2008 2000-2003 2003-2008
Collier County 250,909 287,435 343,627 4.63% 3.64%
Florida 15,960,511 17,014,569 18,636,184 2.15% 1.84%
Broward County 1,621,734 1,746,018 1,937,170 2.49% 2.10%
Charlotte County 141,177 151,338 166,960 2.34% 1.98%
Hendry County 36,194 37,180 38,693 0.90% 0.80"10
Lee County 439,779 489,791 566,733 3.66% 2.96%
Miami-Dade County 2,250,589 2,364,796 2,540,413 1.66% - 1.44%
Monroe County 77,497 77,033 76,384 -0.20% -0.17%
Palm Beach County 1,130,832 1,216,309 1,347,772 2.46% 2.07%
Analysis: Anderson Economic Group; Data Source: Applied Geographic Solutions, Inc.
TABLE 4. Households
Number of Households (HH) Annual Change in Number of HHs
2000 2003 2008 2000-2003 2003-2008
Collier County 102,764 118,206 142,048 4.78% 3.74%
Florida 6,327,383 6,755,160 7,413,140 2.20% 1.88%
Broward County 653,783 694,881 755,868 2.05% 1.70%
Charlotte County 63,651 68,891 77,104 2.67% 2.28%
Hendry County 10,845 11,055 11,370 0.64% 0.56%
Lee County 188,015 210,979 246,841 3.92% 3.19%
Miami-Dade County 775,357 807,028 854,375 1.34% 1.15%
Monroe County 34,015 33,852 33,627 -0.16% -0.13%
Palm Beach County 474,041 508,653 561,347 2.38% 1.99%
Analysis: Anderson Economic Group; Data Source: Applied Geographic Solutions, Inc.
Anderson Economic Group LLC
9
Soclo-economic and Demographic Analysis
NUMBER OF
HOUSEHOLDS
As shown in Table 4, "Households," on page 9, both Florida and Collier County
are experiencing annual household growth rates very similar to their annual
population growth rates. Again, Collier County has more than double the annual
growth rate of the State of Florida for 2000-2003, and is expected to have nearly
double the annual growth rate of Florida for 2003-2008. The same is true when
comparing Collier County with its neighbors.
Like population, the number of households gives us information about the size
and growth or decline of a tax base. However, household data does differ subtly
as expenditures are more closely linked to the number of households than to
population. This is because data on households provide a better measure of the
demand for large items; for example, households of 5 people and 2 people both
need one refrigerator.
INCOME
Collier County's per capita income and median household income are far higher
than Florida's, and appear likely to stay that way. As shown in Table 5 on
page 11 the annualized change in per capita income from 2000 to 2003 for C~
lier County and Florida were nearly identical, 2.87% and 2.85% respectively.
The median household income change from 2000 to 2003 were also nearly iden-
tical, 2.26% and 2.30% respectively. While these growth rates are similar, the
impact is more profound in Collier County, where income levels are higher to
begin with. For 2008, there is a projected $10,899 difference between the
median household incomes of Collier County and Florida.
In comparing Collier County and its neighbors, Collier ranks fourth in annual
per capita income growth, and fifth in annual median household income growth.
However, the County does have the highest levels of per capita income.3
For a geographic illustration of the median household income, see Map 2,
"Median Household Income, 2003," in Appendix A.
3. Some of this minor discrepancy may be due to the large amount of non-labor income (such as
investment income, distributed corporate profits, and retirement benefits) that support the liv-
ing expenses of residents in the area.
Anderson Economic Group LLC
10
Soclo-economic and Demographic Analysis
TABLE 5. Income
Per Capita Income Median Household Income
Annualized Annualized
Change Projected Change Projected
2000 2003 2000-2003 2008 2000 2003 2000-2003 2008
Collier County $30,790 $33,514 2.87% $37,580 $48,551 $51,925 2.26% $57,844
Florida $21,198 $23,063 2.85% $25,986 $38,945 $41,689 2.30% $46,945
Broward $22,897 $24,352 2.07% $26,824 $42,028 $44,719 2.09% $50,059
County
Charlotte $21,434 $23,456 3.05% $26,841 $36,491 $39,066 2.30010 $43,947
County
Hendry $13,056 $14,491 3.54% $15,966 $33,758 $36,108 2.27% $40,071
County
Lee County $24,202 $26,365 2.89% $29,968 $40,348 $43,079 2.21% $48,330
Miami-Dade $18,156 $19,558 2.51% $21,715 $36,099 $38,624 2.28% $43,329
County
Monroe $25,665 $27,893 2.81% $31,417 $42,872 $45,815 2.24% $51,308
County
Palm Beach $28,502 $30,787 2.60% $34,468 $45,067 $48,261 2.31% $54,097
County
Analysis: Anderson Economic Group; Data Source: Applied Geographic Solutions, Inc.
LABOR MARKET
Employment Data. As shown in Table 6, "Employment," on page 12, both Col-
lier County and Florida have experienced growth in the number of employed
people. Unemployment in Collier County is also lower than that in the State. In
2003, Collier County's unemployment rate (4.5%) was well below that ofF1or-
ida's (5.1 %). Compared to the other counties, Collier County's labor market has
been fairly strong. See Figure I, "Annual Unemployment Rates, 1990-2003,"
on page 13. Its 2000 and 2003 unemployment rates were the third lowest.
When analyzing revenue bases, employment data provides important infonna-
tion about the number of people actually earning an income. We consider both
the size of the labor force (the number of people looking for work, or actually
working) and the number employed. This data shows that Collier County has a
growing labor force and relatively low unemployment rates, which means that
more people are earning an income. Some of this new income will be used to
buy goods, raising sales tax revenue, and some of it will be used to buy more
valuable properties, further raising property tax revenue.
Anderson Economic Group LLC
11
Soclo-economlc and Demographic Analysis
Labor Force, Employment, and Retirees. The unemployment rate is calculated
by dividing the number of unemployed people actively seeking work by the
labor force, which consists of employed people and unemployed people seeking
work. People completely out of the work force do not show up in the employ-
ment data.4 Given Florida's high number of retirees, people out of the labor
force comprise a significant portion of the population. One must consider that
retired people still contribute to the County through property taxes and expendi-
tures, even though they do not have jobs.
TABLE 6. Employment
Total Number of Employed Unemployment Rate
1994 1997 2000 2003 1994 1997 2000 2003
Collier County 75,694 86,009 101,009 115,627 8.2% 5.0% 3.5% 4.5%
Florida 6,500,572 7,016,201 7,538,269 7,743,804 6.6% 4.8% 3.6% 5.1%
Broward 682,457 739,328 787,517 828,624 6.5% 4.9% 3.7% 5.5%
County
Charlotte 43,047 44,951 50,397 50,411 5.6% 4.0% 2.7% 4.4%
County
Hendry 13,538 15,073 13,396 13,752 16.7% 13.1% 11.6% 11.7%
County
Lee County 162,523 171,311 186,535 208,376 4.9% 3.4% 2.6% 4.0"10
Miami-Dade 974,312 1,005,446 1,036,945 1,024,206 8.4% 7.1% 5.3% 7.2%
County
Monroe 42,088 45,994 45,507 47,294 3.1% 2.3% 2.0% 2.2%
County
Palm Beach 424,943 470,250 518,614 552,047 8.8% 6.3% 4.4% 5.6%
County
Analysis: Anderson Economic Group; Data Source: BLS
4. While outside the employment data, these people are vital to a community. They include
homemakers, students, homeless people, and retired pensioners as well as millionaires. Most
contribute to the community; some do not.
Anderson Economic Group LLC
12
Socio-economic and Demographic Analysis
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13
Economic Diversification and Recession Risk Analysis
TV: Economic Diversification and Recession
Risk Analysis
DESCRIPTION OF
ANALYSIS
As part of our analysis of Collier County's economy and revenue sources, we
completed a sophisticated economic diversification analysis for the County. The
analysis considers the dispersion of employment across industries, as well as
comparative advantages that are present in the local economy. The result is a
measure of both economic risk and reward.
Please see "Appendix B: Economic Diversification and Risk Return Analysis of
Collier County," for a more complete discussion of the methodology used in this
analysis.
Caution Due to NAICS-SIC Conversion. After 1997, the U.S. Census changed
the industry coding system to the North American Industrial Classification Sys-
tem (NAICS). The new system substantially reclassified industries across the
economy, and the change affected two major industries monumentally: service
and retail trade industries. Thus, the data we use, while compiled by the US
Government and quite reliable for each year, exaggerates the changes over the
time period we are examining.
For comparative purposes, the change in employment shares is a very instruc-
tive indicator. However, the distortion caused by the classification system
change will result in some exaggeration in the graphics, which we will point out
occasionally.
Finding: Similarity With Florida State Economy
We found a strong similarity between the State of Florida and the Collier
County economies, in terms of both the shares of employment by industry, and
the direction of change in employment by industry.
Figure 2, "Collier County: Change in Share of Total Employment by Industry,"
on page 17 and Figure 3, "State of Florida: Change in Share of Total Employ-
ment by Industry," on page 18 show the change in the shares of employment by
industries in Collier County and the State of Florida between 1988 and 2ool.
Note the similarity in the overall employment trends in the most recent years.
Another view is shown in Table 7, "Shares of Retail Trade and Service Employ-
ment, 1988-2001," on page 15, both the Florida and Collier County economies
are very specialized in service and retail trade, with the total shares of these
industries increasing over time. Both economies have also become more ser-
vice-oriented and less retail trade-oriented. However, the classification change
noted above exaggerates this change on the table.
Anderson Economic Group LLC
14
-~-'~'-"-'~"'._.".....
~'''-'--~'--''-''-'-
Economic Diversification and Recession Risk Analysis
TABLE 7. Shares of Retail Trade and Service Employment, 1988-2001
Retail Trade (%) Service (0/0) Retail Trade + Service (%)
1988 1995 2001 1988 1995 2001 1988 1995 2001
State of Florida 26% 24% 15% 31% 40% 55% 57% 64% 70%
Collier County 30% 30% 19% 35% 39% 54% 65% 69% 73%
Note: The classification change in 1997 noted above makes comparing 1995 data to 2001 data difficult.
Source: US Census Bureau. County Business Patterns, 1988-2001; Analysis: Anderson Economic Group
Finding: Low, Though Growing, Risk
As wut of our analysis, we look at both the risk and the reward of the current
mix of industries. A graphical illustration of both these measures is shown in
Figure 4, "Collier County Employment Portfolios Risk & Reward," on page 19.
The figure shows, on the horizontal axis, the risk associated with a specific eco-
nomic diversification. Economies that are further to the right are more "risky,"
as they will show larger year-to-year swings in perfonnance.
The vertical axis shows returns. Economies that are higher on the chart will pro-
vide a greater return for the workers in those industries. Note that attracting
equal-shares across industries is the most risky approach for the Collier County
economy. "Florida Weights, 2001" and "Collier Economy, 1995-2001" are
sound mixes of industries for the County economy.
Note that the NAICS conversion results in some exaggeration in the differences
in risk. 5
5. After 1997, the U.S. Census changed the industry coding system to the North American indus-
trial Classification System, or NAICS. The new system substantially reclassified industries
across the economy, and the change affected two major industries monumentally: service and
retail trade industries. Thus, the data we use, while compiled by the US Government and quite
reliable for each year, exaggerates the changes over the time period we are examining. Hence,
the difference between the "Collier Economy, 1988-1994" and "Collier Economy, 1995-200 I"
is exaggerated in tenns of scale.
Anderson Economic Group LLC
15
Economic Diversification and Recession Risk Analysis
Conclusion: Economy Moves Toward Florida s
We reserved much of the discussion of this analysis to "Appendix B: Economic
Diversification and Risk Return Analysis of Collier County," and encourage
motivated readers to examine the discussion there. However, the implication for
the analysis we will conduct in "Revenue Analyses," on page 30 is worth not-
ing: Collier County has benefited from an excellent economic growth record,
but its underlying industrial employment base is becoming much like that of the
State of Florida as a whole. Thus, we expect that the tax base in the future will
also become closer to that of the State as a whole.
Anderson Economic Group LLC
16
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(Reward Equal to Employment Growth)
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Equal Weights
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: Collier Economy 1995-2001
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Weights: Share of Total Employment
Collier Economy 1988-1994 Collier Economy 1995-200 1
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Generated Date: 07/15/]004
Source: Anderson Economic Group; Ba~e Data; US Census Bureau. C()un~v Business Patterns, 1988-]001
Page 19
Baseline Economic and Demographic Forecast
FORECAST
OBSERVATIONS
"V Baseline Economic and Demographic
Forecast
To detennine a baseline economic and demographic forecast, we relied on infor-
mation from several sources, including:
· That highlighted in our analysis of economic and demographic data, as shown
in "Socio-economic and Demographic Analysis," on page 8 and "Economic
Diversification and Recession Risk Analysis," on page 14.
· The 2003 Economic, Demographic & Community Profile for Collier County,
Florida, as published by the Collier County Development & Environmental Ser-
vices Division Comprehensive Planning Department.
· The Florida long-tenn economic forecast by county, as available from the
Bureau of Economic and Business Research (BEBR), University of Florida.
· The Collier County Office of Management & Budget.
· Our own notes and observations made while visiting the County in June, 2004.
Using the above as a base, we assembled a baseline forecast of economic and
demographic data, and reviewed it for consistency. We believe these data are a
reasonable basis from which to construct a revenue forecast.
See Table 8, "Baseline Economic and Demographic Trends," on page 21.
The economic and demographic trend data assembled in the Table 8, "Baseline
Economic and Demographic Trends," on page 21 indicate that:
· Overall, while property value, sales, income, and population will continue to
increase through 2014, the rate of growth is expected to slow compared to that
of recent years.
The number of total housing starts, and the value of construction contracts, are
the only indicators expected to decline throughout the forecast horizon. This is
consistent with our analysis of the underlying economy.
Note that we do not expect the stock of housing to drop, just that it will no
longer grow rapidly.
· The number of pennanent residents, while continuing to grow at a rate well
above the national population growth rate, is expected to increase at a slower
rate each year.
· The taxable property value, which grew at an extremely high rate from 2000 to
2004, is expected to grow much more slowly between 2004 and 2014.
· Taxable sales are expected to grow at a fairly constant rate from 2004 to 2014.
20
Anderson Economic Group LLC
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Overview of CollIer County Revenues
SUMMARY OF 2004
BUDGETED REVENUE
SOURCES
VI Overview of Collier County Revenues
Below we review the sources of revenues budgeted for 2004 by the County, and
identify other revenue sources that are available under Florida law that are not
currently in place in the County.
For 2004 the County budgeted receipts of revenue from the following sources:
· Property Taxes (ad valorem)
· Bond Proceeds and Interest
· State Shared Revenues
· Gas Tax Revenue
· Impact Fees
· Tourism Development Tax Revenue
· Service Charges and Enterprise Fund Revenues
Note that, under the County's budget convention, internal transfers, as well as
debt proceeds, debt repayments, and internal transfers, are all included in the
budget presentation. This can result in confusion over the source of revenue
used to pay for programs, as well as the size of the budget. In particular, internal
transfers and charges are included as both a source of revenue, and as an expen-
diture. This treatment ensures that the amounts are not double counted, but also
creates an impression to a cursory reader that the County's revenue is larger
than it really is. As a result, we do not include these items in our revenue analy-
sis.6
Each of the major revenue sources is discussed in more detail below.
Property Taxes
Collier County's property tax is based on the appraised value of both real and
tangible personal property, less exemptions.7 State law dictates that the
appraised value must equal the full market value of the property.
In 2004 the total County-wide millage rate for properties in incorporated areas
was 3.8722 mills for the general fund. In unincorporated areas the millage rate
6. Carry Forward is an estimate of the surplus revenue from the preceding fiscal year that can be
used as a source of funding for the coming fiscal year. Internal Revenues consist of both inter-
fund transfers and internal service operating revenues.
7. The "Homestead Exemption," which entitles pennanent state residents who own the property
in which they reside an exemption of up to $25,000 on the value of their property, is the most
common exemption.
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Overview of Collier County Revenues
was 0.8069 for the general fund. There was also a County-wide levy of 0.0347
mills for the water pollution control fund (fund 114). and 0.25 mills for "Con-
servation Collier." Other special funds for which property taxes are collected
bring the 2004 aggregate Millage Rate to 4.7994 mills. The levy of these addi-
tional taxes vary by Municipal Services Taxing Unit (MSTU).
State law prohibits millage rates for County services (general fund) from
exceeding 10 mills. Since January I, 1995. the maximum at which the valuation
of homestead properties can be increased has been set at 3% annually.s
As the County's population and numbers of households continue to grow, as dis-
cussed in the "Socio-economic and Demographic Analysis." on page 8. so will
the County's property tax base.
Bond Proceeds and Interest
For 2004, the principal program areas for the Bond Proceeds and Interest Reve-
nues are roads; water and wastewater facility expaasions; a regional park; a jail
expansion; a new courthouse annex: a new fleet maintenance facility: and a
Sheriffs Office special operations facility.
State Shared Revenues
The local half-cent sales tax and state revenue sharing make up Collier County's
state shared revenues. State revenue sharing is funded by 2.9% of net cigarette
tax collections and 2.25% of sales and use tax collections. Collections from both
the local half-cent sales tax and state revenue sharing are deposited into the
General Fund, less a small portion for debt service.
With growth in population, number of households. income, and employment
expected to continue in the County, sales tax revenues are also likely to grow.
Gas Tax Revenue
Gas tax revenues, which are collected by the State on behalf of the County, pro-
vide the major source of funding for road building and maintenance. The
County gets revenues from the following gas taxes:
· The constitutional gas tax. which is collected as a two-cent tax on each gaIJon of
motor fuel and special fuel sold. in accordance with Article XII. Section 9(c) of
the Florida Constitution. The state aIJocates 80% of this tax to counties after
8. :Ylillage rates :m: set by the Board of COWlty Commissioners in compliance with Florida Stat-
utes Chapter 200. ..Determination of Millage."
Florida Constitutional Amendment l O. Article VII, Section 4 limits the increase in homestead
valuation.
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Overview of Collier County Revenues
first withholding amounts pledged for debt service on bonds issued pursuant to
provisions of the State Constitution for road and bridge purposes. The remain-
ing 20% goes directly to the County to support road construction programs.
· The local option 6th cent gas tax, which is collected on each gallon of motor
fuel and special fuel sold in the County.
· The County 7th cent gas tax. which collects one cent on each gallon of motor
fuel and special fuel sold in accordance with Section 206.60 of the Florida Stat-
utes.
· The County 9th cent gas tax, which collects one cent on each gallon of motor
fuel and special tùel sold and taxed under the provisions of Section 336.02.
Florida Statutes. This tax revenue is used to pay the cost of acquisition, con-
struction and maintenance of roads and streets.
· The local option 5-cent gas tax is levied on each gallon of motor fuel sold in the
County. The local option is allowed under Florida Statutes, section 336.025.
The County is currently collecting the maximwn gasoline taxes allowed under
Florida law. However, as the County population grows, so likely will gasoline
sales, resulting in some growth in revenues from this source. It shottld also be
noted that revenues from 5th, 6th, 7th, and 9th cent gas taxes are pledged to the
2003 Gas Tax Revenue Bonds Fund, which matures in June 2023.
Impact Fees
Funding for capital improvement associated with new development in Collier
County is largely provided for through the collection of impact fees. For 2004
the County estimated receipt of revenues from the following impact fees:
· Road Impact Fees
· Community Park. Impact Fees
· Regional and Community Parks, Unincorporated
· Library Impact Fees
· Water Impact Fees
· Sewer Impact Fees
· Correctional Facilities Impact Fees
· Isle of Capri and Ochopee Fire Impact Fees
· EMS Impact Fees
· County Building Impact Fee
· School Impact Fee
Road Impact Fees. Six road-planning districts in Collier County collect road
impact fees to fund road projects that benefit the districts. Revenues from road
impact fees fluctuate from year to year as they are based on the level of con-
struction activity in the County.
Anderson Economic Group LLC
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-.- -~ - - -----
Overview of Collier County Revenues
Park Impact Fees. These impact fees are categorized as "regional parks - incor-
porated areas" and "community and regional parks - unincorporated areas."
Library Impact Fees. Only residential properties are assessed the library impact
tee, which is set to build library facilities and maintain a 1.10 books per capita
ratio.
Water and Sewer Impact Fees. These fees are used to fund water and sewer
expansion needs incurred because of gro\\o1h.
Correctional Facilities Impact Fees. This fee funds growth driven facility expan-
sions and additions, and is highly variable based on the types of commercial
buildings pennitted each year.
Fire Impact Fees. These fees fund the growth driven needs of fire departments in
Ochopee and the Isle of Capri.
EMS Impact Fees. This fee, which is used to support growth driven EMS facility
and.equipment needs, is particularly impacted by the types of buildings pennit-
ted.
County BuDding Impact Fees. Effective April I, 2004, the County will levy an
impact fee to generate revenues to finance new or expanded general government
building facilities.
School Impact Fees. These fees are collected to the County, but fully distributed
to school districts. They are not a revenue item for the County.
Tourism Development Tax Revenue
The Tourist Development Tax is a 3% tourist tax levied on short-term (6 months
or less) rentals such as hotels, campgrounds, and seasonal apartments / condo-
miniums. This is allocated for beach nourishment. tourism promotion, special
events, and economic disaster recovery. The 3% rate is the maximum tax
allowed to be levied on short-tenn rentals.9
Service Charges and Enterprise Fund Revenues
Parks and Recreation Fees. There is a charge to use many athJetic and recre-
ational programs, as well as the Golden Gate Aquatic Facility.
Building Permit Fees. This service charge includes the fees charged for building
and other development pennits, and are charged by the Community Develop-
ment Division.
9. An additiomll 0/. tax can be levied on short-term rentlls (6 months or less) under as a tourist
impact tax. This is discussed further in "Other Available Sources of Revenue:' on page 28.
Anderson Economic Group llC
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_._<----_......~._-~.
-----------~--- ------.--
Overview of Collier County Revenue.
Water-Sewer District Revenue. Water rates include a base rate plus a volume
charge based on use. Sewer charges also have a base rate plus a volume charge
that is based on water use. This volume charge is capped for residential custom-
ers since not all water used is returned via the sewer system.
landfill! Mandatory Collection Fees. The solid waste disposal department gets a
majority of its revenue from landfill tipping fees.
Ambulance Fees. This user fee is evaluated annually to maximize revenue,
reducing the subsidy needed from the General Fund.
Airport Revenues. The airport authority, which operates the Marco Island Exec-
utive Airport, the Immokalee Regional Airport, and the Everglades City Air-
port, generates revenue from fuel sales and leases of hanger space.
Anderson Economic Group LLC
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--.-- -.--.- --.----.---.....-.
Overview of Collier County Revenues
-...--
OTHER AVAILABLE
SOURCES OF
REVENUE
As demonstrated above, the County collects revenue from a variety of sources.
However, Florida law docs provide several other potential revenue sources from
taxes. 10 Potential revenue sources include:
Discretionary Sale Surtaxes. Authorized counties may levy a discretionary surtax
of up to I % on all transactions occurring in the County that are subject to the
state tax on sales. use, rentals, admissions, and services. The surtax is calculated
by multiplying the rate imposed by the County \\<ithin which the sale occurs by
the amount of the taxable sale. Sales of any item of tangible personal property in
excess of 55.000 are exempt. Two or more items that comprise part of one
working unit may be considered a single item for the purposes of the surtax.
Allowable discretionary sales surtaxes include: 1 t
· Local government infrastructure surtax
· Charter county transit system surtax
· Small county surtax
· Indigent health care surtax
· County public hospital surtax
· Small county indigent care surtax
Tourist Development Tax on Food and Beverage Expenditures. In addition to the
tax on short-term rentals, a 2% sales tax may be imposed on the sale of food,
beverages, and alcoholic beverages in hotels and motels, and 1% on the sale of
food, beverages and alcohol in all other establishments that are licensed by Flor-
ida to sell alcoholic beverages for consumption on the premises. There are
exemptions from this tax: establishments (other than hotels and motels) that had
gross annual revenues of5400,000 or less in the previous calendar year,
licensed veterans' organizations, transactions that are exempt from the state
sales tax, and sales in cities or towns that impose a municipal resort tax.
Tourist Impact Tax. This tax is levied at the rate of I % of each dollar and major
fraction thereof of the total consideration charged for the rental of designated
living quarters for a tenn of six months or less. The tax may be imposed in areas
of"critical state concern, provided that a local comprehensive plan meeting
applicable requirements is in effect and the tax is approved by referendum."
Note on Approval. Inc:idence, and Eligibility. The imposition of these ta:<es would
require approval by the County government, the citizens, or both: and in some
cases may require the adoption of a particular plan. In addition. the County
l O. Our major source for Florid:! t:lX law is the 2003 CCH Guidebook to FloriCÚl Taxe.v. Of course,
ta.'< laws change fi'equently. and this is not an exhaustive list of all legal or political possibili-
ties.
II. Florida statutes 212.055 states outlines the legislative intent, the authorization, and the allow-
able use of proceeds from discretionary sales taxes.
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Overview of Collier County Revenues
would have to review the eligibility requirements in the law. Finally, the inci-
dence of these taxes should be reviewed before the County proposed them. In
particular, the Tourist Development Tax would impose a sales tax that varies by
the establishment. Without a careful review, the amount of revenue such a tax
would raise could be easily overestimated. 12
12. The overestimation errors typically occur because the incentives of consumers to avoid the tax
by patronizing different establishments are ignored, or because accurate information about the
eligible sales weren't used to establish the baseline revenue forecasts.
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Revenue Analyses
VII. Revenue Analyses
We previously surveyed the revenues that support the overall budgeted expendi-
tures of the County. In this section, we focus on a critical question: will the
anticipated economic conditions in the future support the expenditure trajectory
the County has enjoyed in the recent past?
-
To answer this question, we perfonn the following further analyses:
1. [solate the major sources of revenues for the County's core functions of government.
We used the operations funded by the General and Special Funds ("GF" and "SF")
as our defmition of core government.
Note that the majority of the budgeted revenues and expenditures need not be part of
the core government services. In particular, the enterprise funds are not. Further-
more, depending on the budget practices of the organization, the recurring revenue
sources may be a fraction of the overall budgeted revenue. 13
2. Examine revenues from recurring sources that are dependent on identified tax bases.
We termed these "sustainable" revenues, because they are expected to consistently
produce revenue, based on a sustainable tax base. during future years. For example.
property, sales, and income taxes are all sustainable revenue sources, with long his-
tories and fairly predictable revenue swingS.14
3. Compare the "sustainable" major-source revenues for Collier Couraty's GF and SF
expenditures in the current (FY 2004) budget with the overall budgeted revenues.
4. Model the COLOny's major-source revenues and project Couraty GF and SF expendi-
tures under the following baseline assumptions: current revenue policies are not
adjusted. economic and demographic conditions in the County are similar to those
discussed in "Baseline Economic and Demographic Forecast," on page 20, and
COwtty expenditures continue to grow at a rate similar to the recent trend.
SUSTAINABLE
REVENUE
A top-level analysis of the County's budgeted revenue for FY 2004 is the basis
for our analysis. See Table 9, "Sustainable Revenue Analysis," on page 32.
The overall County budget is $1.3 billion. However, over $400 million of this
are internal transfers, and $461 million are bond proceeds.IS
13.In particular, bond proceeds may be 3 party of the one-time revenues: and internal transfers
and fund balances may appear as revenues.
14. By "fairly predictable," we mean that the change in ta:< revenue can be predicted to within a
reasonable margin of error given knowledge of the tax base, the ta.'( rate, and the underlying
economy, at least for small changes in policy covering a weU-defwed and relatively broad tax
base.
1 S. Of course, bond proceeds are one-time revenues. and furthennore must be repaid with interest
Therefore, we ignored bond proceeds in this analysis.
Anderson Economic Group LLC
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-..---. -.----..-----.---...-- --"'"--------
Revenue Analyses
For the reasons stated above. we are most concerned with the budgeted revenues
to the general fund (GF) and special funds (SF) that are based on sustainable
major sources. "B: Major-Source General and Special Fund Revenue Base" on
Table 9 lists the recurring major-source revenues that we can identify. 16 Note
that these are only about 25% of the total budgeted amount for the County.
The most important sustainable major sources are:
. Property or "ad valorem" taxes. which make up the majority of the General and
Special Fund revenue;
· [ntergovemmental revenue from sales and gas taxes;
· Charges for services; and
· "NHscellaneous" sources. of which we have isolated a portion deriving from
sales taxes that are largely paid by tourists.
The trajectories of these recurring revenue sources can be predicted within a
reasonable margin of error, given accurate forecasts of underlying economic
conditions and policy choices. We will use that ability in the discussions below.
t 6. This is a judgement call. and we acknowledge that there may be some recurring a predictable
revenue in the "other" or "miscellaneous" lines that we have ignored.
Anderson Economic Group LLC
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..-.--,--
Table 10: Sustainable Revenue Analysis
A: Collier County Budgeted Revenue
Beginning Fund Balance
Estimated Revenues:
Taxes:
Ad Valorem Taxes
Local Gas Taxes
Franchise Fees
Licenses & Penn its
Intergovernmental Revenues
Charges For Services
Fines & Forfeitures
Miscellaneous Revenues
Other Financing Sources
Total Revenues & Other Financing Sources
Total Estimated Revenues & Beginning Fund
Balances
Revenue. All Budgeted Funds
$ (45,148,800)
Share of Total
-3.5%
$ 221,569,100 17.0%
$ 13,466,300 1.0%
$ 14,061,600 1.1%
$ 17,676,500 1.4%
$ 45,562,500 3.5%
$ 145,104,600 11.1%
$ 6,647,000 0.5%
$ 55,035,000 4.2%
$ 827,538,100 63.6%
$ 1,346,660,700 103.5%
$ 1,301,511,900 100.0%
Source: Collier County Budget, A-28
"Summary of Budgeted Revenue, by Fund Type and Functional Area, FY 2004"
B: Major-Source General and Special Fund Revenue Base
Revenue. GF and SF. 2004
Taxes:
Ad Valorem Taxes
Local Gas Taxes
Franchise Fees
Licenses & Pennits
Intergov't Revenue: Sales and Gas Taxes
Charges For Services
Fines & Forfeitures
Miscellaneous
Other: Tourist Development Tax
Other: Recurring
Total GF & SF, Major Revenue Sources
Memo:
Total Sustainable GF and SF as Share of Total Bud)
Share of Total
$
$
$
$
$
$
$
$
$
$
$
221,567,100
60.0%
0.0%
3.6%
4.4%
9.8%
8.8%
1.7%
5.3%
6.4%
0.0%
13,130,600
16,261,100
36,168,100
32,382,000
6,390,600
19,385,600
23,782,200
369,067,300
100.0%
28%
Source: AEG Analysis of Collier County FY 2004 Budget
Anderson Economic Group LLC
SustainRev:T9 Sustainable
page 32
Revenue Analyses
SOURCES OF
POTENTIAL
INSTABILITIES
BASELINE REVENUE
AND EXPENDITURE
TRENDS
-. -.--
Based on our analysis of the County's economy. demography. and current reve-
nue policies, we believe that the following factors present the most likely causes
of revenue instability:
1. Slowdown in Population Growth [nevi/ahle
The mte of population growth. and economic growth. cannot be sustained. Collier
County is a desirable place to live. and it attracts a significant number of wealthy
retirees and visitors who can afford to pay high land and building prices. However,
the rapid growth documented above cannot last indefinitely.
2. Small Fraction of Budget from Sustainahle Sources
The County's budget practices have included prudent allowances for fund balances
("carry forward"). as well as internal transfers. The inclusion of these tines in the
budget allow policymakers to see the sources and uses of funds, including internal
transfers. However. totalling these items may obscure the share of the County's gen-
eral and special fund revenues that come from revenue sources that are sustainable.
even when growth slows down.
3. Reliance on "Impact Fees"
In particular. the County appears to have become overly reliant on the additional rev-
enue brought into gove~t by "impact fees." We did not examine the question of
whether these "fees" are sufficient to pay for the properly-allocated infrastructure or
operating costs of additional dwellings in the area. However. we did consider the
aggregate revenue, and the prospects for future growth--or decline--in those reve-
nucs.
As illustrated in Table 9. "Sustainable Revenue Analysis." on page 32, the "other
revenues" line includes substantial impact fee revenue that is vulnerable to a slow-
down in new construction. Given that only about 1/4 of the total budgeted amounts
for the County are from sustainable revenue sources used for the general and special
funds. this reliance should be an area of concern.
4. Cyclicality of Economy
As shown by our diversification and recession risk analysis, the economy of Collier
County has grown more diverse, which provides greater returns during good eco-
nomic times. but also increases the risk associated with economic downturns. There-
fore. strong economic times will mean more economic activity in the County.
boosting revenues more than previous strong economic times may have. On the
other hand. a bad economy will mcan greatcr impacts on the economic activity in the
County, resulting in greater reductions to tax revenues than may have previously
been experienced. See "Conclusion: Economy Moves Toward Florida's," on
page 16.
To quantify the risks, we project the baseline GF and SF revenues from recur-
ring sources. and compare those with the trend expenditures of the GF and SF.
This analysis should reveal whether the sources of instability we identify above
are likely to cause a budget shortfall anytime in the next several years.
Expenditure Trend. We use Collier County FY 1998-1999 through FY 2001-
2002 actual expense data. as well as 2002-2003 forecast expenses and 2003-
2004 adopted expenses. as the basis for a trend analysis of County expenditures.
Anderson Economic Group LLC
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Revenue Analyses
CONCLUSION:
SHORTFALL AHEAD
The trends we use lor baseline expenditures assume a slowdown in expenditure
growth. Specitically, we assume that the gro,^,1h rate will slow to approximately
70% of the rate experienced in the most recent 5-year period.
See Table 11. "Expenditure History and Trend Projections," on page 38.
Baseline Revenue Projections. We modeled the County's revenues from recur-
nng sources that support the GF and SF expenditures, which is our detinition of
core government.
We began with data covering the 1997-2004 period from the Collier County
Office of Management and Budget. We also assembled a large set of economic
and demographic indicators for which forecasts were available from the County
and the State of Florida. These are summarized in Table 8, "Baseline Economic
and Demographic Trends," on page 21.
We then modeled each revenue line in the "sustainable" portion of the GF and
SF revenue base previously described in Table 9, "Sustainable Revenue ~naly-
sis," on page 32. The model uses economië: indicators to project, assuming no
change in policy, the likely revenue trend in the future. The results are contained
in Table 10, "Major Source Revenues, Trend Projections," on page 36.
"A: Collier County Budgeted Revenue" on Table 10 shows the revenue trend
for each major revenue source. The specific factors used to forecast each reve-
nue line are indicated in part B of the table.
Trend Projections, Not Budget Forecasts. The comparison of baseline revenues
with baseline expenditures is essential to governments, and indeed to every
organization. Such an exercise is not the same as one- or two~year forecasts. In
particular, it assumes there are no policy changes, ignores temporary cycles in
economic conditions, and also assumes that taxpayers go on paying taxes in the
same manner as before, despite all the other changes that will occur in their
lives. We expect policy makers, and taxpayers, to change their behavior over
time.
Furthennore, as we are interested in the underlying economic base and the
underlying expenditure trends, we are projecting shares of the overall budget
that do not exactly match. These factors all limit the usefulness of this analysis
in preparing a budget in anyone year. However, the analysis is intended to show
what will happen over a 5-year horizon or longer.
Our quantitative analysis provides the same answer as our qualitative one: some
time over the next 5 years or so, the County is likely to discover that it cannot
atTord to continue to grow its budget, as revenues will grow much more slowly
Anderson Economic Group LLC
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-..---.--.-- --..---. -- _._---
~ n_~___
Revenue Analyses
than recent expenditure growth. This is likely to occur even if the expenditure
growth slows to about 70% of its recent pace.
We iIlustrate this in Figure 5, "Projected Revenues and Expenditures:' below.
RecaIling that this is a comparison of baseline economic and revenue growth
with expenditure trends. we note that the spending trajectory easily exceeds that
of the revenue baseline.17
The underlying data for this are contained in the revenue projection table
(Table lOon page 36), and the expenditure projection table (Table lion
page 38), although they have been normalized to equal each other in FY 2004.
Reviewing these shows how the recurring revenues-such as property taxes and
sales taxes-will likely grow at a rate between the inflation rate and the nominal
growth of the economy. However, the expenditure trends (even with the slow-
down we anticipate) are expected to grow much faster.
FIGURE 5. Projected Revenues and Expenditures
1600
- Major Source Revenue Baseline
. -, -, GF and SF Expenditure Trend
,
,
1400
"
"
,
,
,
I/J 1200
....
~
õ
CI
Õ 1000
I/J
c::
~
~
,
,
,
,
,
,
,
,
,
400
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: Anderson Economic Group Projections
17.As notcd abovc, thc spccific revenuc lincs and the entire OF and SF budgeted expenditures do
not match c:uctly, so we have nonnalizcd thc amounts to bc equal in FY 2004.
Anderson Economic Group LLC
35
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Policy Options
----~--~---_._~-~------------- ---_._----_._-_._---~-- -_._-----_._-~._,-...._.._---_._-
.-._-_.._-----_._--~_..__.
POLICY OPTION 1:
MAINTAIN CURRENT
COUNTY REVENUE
STRUCTURE
VIIl.Policy Options
The focus of our report is not to recommend a specific course of action, but to
ensure that the County has the best information possible with which to make the
right decisions in advance of a future economic slowdown. To assist with this,
we present below four policy options:
1. Maintain current County revenue structures
2. Adjust mix of development fees and taxes
3. Discourage new growth in the County
4. Promote employment growth in broader range of industry
Below, we discuss the impact of each option on the:
· Stability of the County's revenues
· Promotion of beneficial economic diversification within the County
· Price of housing within the County
· Incidence of taxes
We highlight the key points of each in Table 1, "Summary of Policy Options,"
and in Table 2, "Likely Effects of Policy Options," on page 6 of the Executive
Summary.
Impact on County Revenues. We identified the likely consequences of the "no
change" option earlier. Table 5, "Projected Revenues and Expenditures," on
page 35, shows the trend path of general fund (GF) and special fund (SF)
County revenues that can be expected if current revenue policy is maintained.
Under this option Collier County will continue to see property tax revenue grow
steadily, largely on the basis of continued value in existing property. State-
shared revenue from gas and sales tax, as well as bona fide user fees, will con-
tinue to grow. However, the amount of revenue from "impact fees" from new
development will drop sharply.
The net effect would be a clash between the growing expectations of residents
for more services and better facilities, and the suddenly-arriving reality of flat
revenues. We do not forecast when this clash will occur-our analysis focuses
on underlying trends-but we are quite certain it will occur.
The result of this scenario could be a difficult time for the County and its tax-
payers. Accustomed to government revenue that has often grown faster than
nominal earnings in the economy, residents of Collier County may have formed
expectations that this rapid revenue growth will continue indefmitely. Similarly,
govemment officials and elected policymakers may be uncomfortable trimming
budgets and services that have consistently grown in previous years.
Anderson Economic Group LLC
39
- - ---------------
Policy Options
PeLlCY OPTION 2:
ADJUST MIX OF
DEVELOPMENT FEES
AND TAXES
We note that the prudent County practice of setting aside a statutory required
5% of its revenues will cushion this blow. as will other prudent budget practices.
However. if the current revenue structure is kept in place. a future slowdown in
economic growth will produce a disproportionate slowdown in County reve-
nucs.
Diversification. Housing Arrordability. and Tax Incidence. There would be little
change in economic diversitìcation. at least until a budget shortfall forces signif-
icant changes in County policy. Also. housing prices will remain high as devel-
opers pass the costs 0 f impact fees on to buyers 0 f ne\v homes.
As a result of this, the incidence of taxes will continue to rest more heavily on
residents who live in newer homes. and businesses that operate in new facilities,
than on those in homes and buildings built before impact fees were assessed at
higher levels. Though these residents and businesses do not directly pay the
impact fees, they do pay higher prices to buy or lease their newer properties.
To avoid the vulnerability of the share of revenues. that are directly dependent
on new development, the County could adjust the mix of development fees,
taxes, and user fees that make up the bulk of the County's revenues.
In particular, the County could raise property tax rates (which apply consistently
to all property owners) while lowering the "impact fee" charges that apply to
new developments only. Other options for tax revenues are listed in "Other
Available Sources of Revenue," on page 28.
Of course, the County could also reduce expenditures or trim the growth of
expenditures; this option is discussed in "Promote broader industrial growth,"
on page 39.
Impact on County Revenues. This option assumes that the County reduces
impact fee costs, and replaces approximately the same revenue with a mixture
of property taxes and sales taxes. This would potentially allow for a relatively
"soft landing" when growth slows, for two reasons:
1. Lower impact fees would encourage some beneficial diversification. increasing the
underlying tax base.
2. The replacement revenue sources are sustainable and recurring.
Discussion: User and Impact Fees. We are aware that the topic of "impact fees"
has been a contentious one in the County. Our analysis did not focus on impact
fees, but cannot avoid noting the importance of impact fee revenues on the
County's overall budget. and its economy.
To pursue this option, the County would have to conduct a serious analysis of
the costs of providing services to its citizens. and the perfonnance of service
Anderson Economic Group LLC
40
----.---------- ----
Policy Options
POLICY OPTION 3:
RESTRICT NEW
DEVELOPMENT
-----
providers receiving enterprise lùnds. Many programs have an identiliable cost,
lòr which users and residents could be expected to pay directly. If the fees and
taxes that are directly related to these programs approximate the costs of them.
no change in policy would be necessary.
For some "impact" and "user" fees. however. citizens may discover that a por-
tion of the resulting revenue supports general government activities. This vio-
lates the underlying purpose of "user fees," and may be teoned a "tax" under the
standard legal detìnition of "tax." A de jåcto tax levied by a local government
could also be chalIenged successfully in court. if the requirements for taxation
are not lòllowed when levying the charge. I:!
Obviously, popular support for such a policy would depend partially on the
degree of trust residents placed in the commitment to permanently reduce one
government charge in return for permanently increasing another.
Impact on Housing Costs and Tax Incidence. Reducing the "impact fee" burden
would increase the supply of hOHSing at all price ranges, as more land becomes
economical to develop. Together with somewhat higher property taxes, -County
residents would continue to pay approximately the same share of their income
in taxes to the County, and the County would have relatively little disruption in
their revenue stream, even when growth slows. Housing in the County, particu-
larly housing that would be profitable for developers to build, and which could
be sold to middle-class workers, would become more plentifuL
However, we note that the economy and geography of the County is such that
the most desirable locations, particularly scarce coastline property, will be quite
expensive for the foreseeable future.
Another potential option is to further restrict growth by maintaining high impact
fees, increase the rate at which property is purchased under "Conservation Col~
lier, and possibly ration building pennits. The likely result would be an increase
in the price of property, especially in the most desirable areas.
Property tax rates may also need to be increased. as the slowdown in demo-
graphic growth would cause a reduction in the nwnber of new developments.
13. The City of Lansing, the capital of ~[ichigan. for example. found [tself on the losing end of a
~[jchigan Supreme Court decision (Boil v City a/Lansing) that culminated in tbem halting tbe
collection of a "user fee" that turned out to be a tax.
We did not review the [egal status of any impact fee, and note the Constitution and laws of
Florida differ from those of Ylichigan. However, the common-law detinition of "ta:<" ( a gov-
ernment exaction which is paid involuntarily, and for which no specitic service is received: or
;). government charge that supports the genernl operntions of government) the revenue supports
extends across all states.
Anderson Economic Group LLC
41
Policy Options
---_..~----,------_._---~..._----------
--~-_._-~--------------.-
--...--------- --------- ----------_.~_._---------_._-
POLICY OPTION 4:
PROMOTE
EMPLOYMENT
GROWTH IN
BROADER RANGE OF
INDUSTRY
Expanding the tourist development tax, and pursuing a tourist impact tax, a dis-
cretionary sales surtax, and a local government infrastructure tax might also be
considered as ways to slow development while generating revenues.
Impact on Diversification and Tax Incidence. The County already has high
impact fees and restrictions on development, as well as a limited amount ofland
available. 19 Thus, this policy only leans farther in the same direction as the cur-
rent policy, and will have similar effects as the "no change" option described
above.
We are not recommending this policy, but recognize it as an option the County
could consider.
The fourth option is quite different. The County could pursue a strategy of
attracting workers and employers to the undeveloped portions of the County,
and try to build a cluster of service or light manufacturing firms.
Florida does have a relatively attractive business climate. Collier County land
prices and taxes are not the lowest in Florida, but they would be attractive to
some employers in high-tax locations, particularly in heavily unionized states.
This strategy would involve lowering impact fees and taxes, especially on new
business development, and furthermore orienting some tourist attraction spend-
ing toward business attraction.20 Continuing and expanding the availability of
development incentives, like those currently available, could also be consid-
ered.21
Of course, a key part of the attraction of Collier County is its attractive resort
areas, large tracts of natural parks, and coastline. Thus, this scenario also calls
for protecting the quality of life and the natural areas of the County.
Impact on County Revenues and Economic Diversification. This option would
require the County to trim expenditure growth somewhat more than option 2,
stated above. Otherwise, the effect is similar, including the beneficial effects of
19. We note two serious limitations: the oceanfront land is finite; and a huge amount of land in
Collier County is reserved for parks and preservation, and is therefor tax exempt.
20. We are aware that much of the tourism development funds are eannarked for that purpose, and
are not suggesting any eannarked funds be diverted away from their intended purpose. How-
ever, the County, the EDC, and other organizations could shift the emphasis of some efforts
toward encouraging employers to locate here.
21. Current incentive programs include fast track permitting, fee payment assistance, property tax
stimulus, job creation investment, broadband infrastructure investment, and the Imrnokalee
housing incentive.
Anderson Economic Group LLC
42
-- --.-------..----------------- - -.- .---.---------.-
--- ---. -- ----_.__._---"---~----
Policy Options
diversitication and increased tax base, though this option would encourage
faster economic growth and faster diversification.
Impact on Housing Affordability and Tax Incidence. Under this policy, housing
of all types would become more affordable as impact fees were reduced, and
development became more economical. This is an essential element in attracting
new employers as their employees need reasonably priced housing.
The incidence of taxes under this policy would remain relatively unchanged,
though by growing the tax base with the addition of new residents and new busi-
nesses, the County could grow its revenues without increasing the tax burden of
current residents.
LIMITATIONS;
SUMMARY OF
OPTIONS
Limitations. We understand that each option would involve decisions on specific
County spending targets, specific taxes and fees, and specific budget years. This
analysis does not attempt to outline the implications of each option by area of
the budget in anyone year. However, we are comfortable providing the County
with several obsePIations, which can be found at "Observations," on page 4 of
the Executive Summary.
Summary of Options. A summary of the options is contained in Table 1, "Sum-
mary of Policy Options, and in Table 2, "Likely Effects of Policy Options," on
page 6 of the Executive Summary.
Anderson Economic Group LLC
43
. _0··_ ___.·_~_._._____..__.____h_·._ __~_________._.__..__.___________.__ ._______
--.--------------- -----------
Append¿r: A: Maps
The following maps serve as exhibits to this report.
. Map 1: Population Growth Rates. 2003-2008
. Map 2: Median Household Income, 2003
Anderson Economic Group
A
Population Growth Rates, 2003-2008
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----------
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Compound Annual Growth Rates
Population 2003 to 2008
Greater than 2% Growth
0,5% to 2% Growth
Little Dectine or Growth
0.5% to 2% Decline
More Than a 2% Decline
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Date: August 5, 2004 Page A-2
Source: Applied Geographic Solutions
Median Household Income, 2003
1-------
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Median Household Income
Greater Than $80,000
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Date: August 5, 2004 Page A-3
Source: Applied Geographic Solutions
- -- _.--- --------- -- ----
PURPOSE OF
DIVERSIFICATION
TRADITIONAL
MEASURES OF
DIVERSIFICATION
Appendix B: Economic Divers{/ication and Risk Return
Analysis of Collier County
As part of our analysis of Collier County's economy and revenue sources,
we completed a sophisticated economic diversitìcation analysis tòr the
County. This analysis is qualitatively and quantitatively ditTerent from what
is commonly called a "diversification" analysis. We explain below its pur-
pose, and how it atTects our analysis.!
Most discussions of economic diversitìcation are based on one goal: the
reduction of economic risk. By spreading employment into various sectors,
so as not to have "aU its eggs in one basket," a region could lower its risk of
losing significant employment in a future recession.
A thorough discussion of diversification should recognize another objective
besides reducing rijJc. That goal is increasing reward. A regional economy
can increase its reward by utilizing its comparatìŸe advantages, so that the
region's workers can benefit from the unique qualities of the workforce,
institutions, and natural resources of the area.
A careful review of economic diversification measures shows that tradi-
tional approaches for measuring diversification are fraught with difficulty.
In particular, the standard approaches are not rooted in a finn concept of
lower risk, comparative advantage, or independence. Instead, they are based
on a notion of confonning to a standard of dispersion of employment across
industries. The standard approaches rely on a measure of how far away the
regional economy is from that standard. The standard approach produces
two types of traditional diversification measures:
1) Equal-Share Basis Measures. Earlier measures, such as the Ogive Index,
take equal share in each industry sector as the nonn.2 Other measures,
developed for intra-industry comparison, such as the Herfindahl-Hirschman
Index and the Top 4 Market Share, have also been adapted to measure inter-
industry diversification. Such statistics are based on the implicit assumption
that the most diversified economy is the one that has an equal number of
employees in the various industrial sectors.
I. A reference on this approach is Patrick L. Anderson. Bu.~ine.~.~ &·onomÌL".~ and Finance,
CRC Press, 2004.
2. For additional comment on such measures, see ~ichael J. Waslenko &; Rodney A. Erick-
son. "'On Measuring Economic Diversification': Comment:' Land Economics. 54: I, Feb-
ruary 1978.
Anderson Economic Group LLC
8-1
-~'---' ~--_.._--
CAUTION DUE TO
NAICS-SIC
CONVERSION
CHANGE IN
EMPLOYMENT SHARE
TRADITIONAL
"DIVERSIFICATION"
MEASURES
2) State-Share Basis Measures. A more appropriate standard than an equal-
share approach. a State-share measure takes the share of workers in each
industry in the state of that local economy as the norm. This standard for
computing measures of diversification is now given preference among most
economists writing in this field. The assumption here is that the State econ-
omy is diversitled, and therefore, those regional economies in that state
approximating the state proportions are also diversified. However, the key
weakness of this approach is that local comparative advantage is disre-
garded, as is the desire to have some independence from outside influences.
After [997, the U.S. Census changed the industry coding system to the
1'<orth American Industrial Classification System (i'iAlCS). The new system
substantially reclassified industries across the economy, and the change
affected two major industries monumentally: service and retail trade indus-
tries. Thus, the data we use, while compiled by the US Government and
quite reliable for each year, exaggerates the changes over the time period we
are examining.
For comparative purposes, the change in employment shares is a very
instructive indicator. However, the distortion caused by the classification
system change will result in some exaggeration in the graphics, which we
will point out occasionally.
Figure B-1, "Change in Employment, Florida v. Collier County," on page B-
4; Figure 2, "Collier County: Change in Share of Total Employment by
Industry," on page 17; and Figure 3, "State of Florida: Change in Share of
Total Employment by Industry," on page 18 show the change in the shares
of employment by industries in Collier County and the State of Florida
between 1988 and 200 l.
These figures show us the similarity of the Florida and Collier County econ-
omies in tenns of both the shares of employment by industry and the direc-
tion of change in employment by industry. Both the Florida and Collier
County economies are very specialized in service and retail trade. The total
shares of those industries increased over time. See Table 7, "Shares of Retail
Trade and Service Employment, 1988-200 I," on page 15. Between 1988
and 2001, both the Florida and CoUier County economies became more ser-
vice-oriented and less retail trade-oriented. However, the classification
change noted above exaggerates this change on the table.
Figure B-2, "Selected Diversification Measures - I," on page B- 5 and
Figure B-3, "Selected Diversification Measures - II," on page B- 6 show the
Anderson Economic Group LLC
8·2
__u. __._ _____.____ _.__ .._ _. _._
-_.~-
standard diversification statistics calculated for the Collier County. and ho\\'
they have changed over the past decade.
A review of these traditional measures show the following:
. Collier County is moving away slightly from a hypothetical economy in
wl1ich all industries have an equal share of employees.
. Collier County is becoming more similar to the Florida economy.
These standard measures make it appear that Collier County is becoming
slightly less diversified based on equal shares as optimum measures, and
slightly more diversified based on the "Florida as optimum" measures, by
using Hachman Index. A portion of these appearances, however, are caused
by the classification change described above.
Anderson Economic Group LLC
EJ.3
---,._-~
"---"-~_."--"'- ,.,-',-"._._--"-
Figure 8-1. Regional Employment Share, 1988-2001
Collier County, 1988
< 1% 2%
4%
3%
Collier County, 1995
< 1% 2%
10%
3%
9%
Collier County, 1001
< 1% < 1%
13%
2%
19%
Anažysis: Anderson Economic Group
Florida, 1988
Agr. Services,
Forestry & Fishing
Mining
ConstructIon
Manufacturing
Transportation and
Warehousing
Wholesale Trade
Retail Trade
F.I.R.E.
Services
39%
54%
Base Data: US Census Bureau, County Business Patterns. 1988-2001
< 1% < 1%
8%
6%
6%
26%
Florida, 1995
6%
< 1% 1%
6%
6% 40%
8%
Florida, 1001
6% < 1% < 1%
5%
55%
15%
Generated Date: 07/30/2004
Page 8-4
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METHODOLOGY
- .-.-----,-. - -_.. --.,---.-.--.. -.__.__._------_.~
Economic Risk & Return
Modem financial portfolio theory provides a new approach to viewing
industrial diversification. We believe it is a strong way to view a local econ-
omy, as it is rooted properly in the desire of employees to use their compara-
tive advantages to earn a good living, on a consistent basis, from their labor.
Portfolio theory looks at investments in terms of risk and reward. "Risk"
includes all types of losses, as well as surprising gains. "Rewards" include
earnings and jobs. Collier County should view its land, buildings, equipment
and-most importantly-its "human capital" as investments in the Collier
economy. These investments produce for us a return. This return can be
measured in tenns of personal income and employment. L
Each investment also carries with it a certain amount of risk. In the portfolio
theory approach, "risk" generally applies to the variation in returns. If an
investment tends to have big swings in returns-big negative returns corre-
sponding with big positive returns and lots of volatility in between-we say
it is risky.2 Typically, an investor that holds such investments will demand a
higher average return to compensate for the added risk.
We took the following steps in applying portfolio theory to the diversifica-
tion question:
1. Take the data on employment for various industries. Calculate the average com-
pounded growth rate for each industry, for employment. This describes the aver-
age return on each industry.
2. Calculate the risk in each industry, which is the typical variation in the return.
Some industries have larger swings than others, and will show a higher risk
because of this.
3. Using the periods at the beginning and the end of our time frame, create model
investment portfolios ofthe Collier County industries.
4. Using financial and statistical techniques, calculate the risk and reward charac-
teristics of the local economy now, as well as the local economy of the past.
5. Compare the local economy now with that of the state as a whole.
I. Other measures of that return, including the benefits these industries and their employers
and employees provide to our society, can not be easily measured. They are normally
assumed to be highly correlated with employment and income. There may also be envi-
ronmental and social benefits and costs which are not correlated with output
2. There is no negative moral connotation in the term "risk" in this context; many prudent
investors deliberately choose more risky investments, because they provide better returns
over long periods.
Anderson Economic Group LLC
8-7
ANAL YSIS
OBSERVATIONS
. ----- -- -- --_... ._--.-.-~- -'-----------------~----
We calculate the risk and return for the nine major Collier County industries,
using historical data for the 14-year period ending in 2001. In this case, the
retum is growth in employment within a sector, and risk is the variation in
that growth.
Figure 4, "Collier County Employment Portfolios Risk & Reward," on
page 19 compares the risk and return of the four primary diversification
portfolios that we analyzed earlier in the report. The portfolios include the
actual Collier County employment profile for two time periods over the past
decade. The figure also shows comparison portfolios of hypothetical equal-
weight and Florida-share economies.
The figure shows, on the horizontal axis, the risk of each portfolio. Portfo-
lios that are further to the right are more "risky," as they will show larger
year-to-year swings in perfonnance. The vertical 3,xis shows returns. Portfo-
lios that are higher on the chart will provide a greater return for the workers
in those industries.
Note on "Growtb.: versus "Returns". We note that this portfolio approach
distinguishes the returns earned in each industry-expressed as underlying
growth rate in employment within each industry-from the overall growth
of the demography or number of employers in the area. Thus, a typical
return of, say, 1 % in employment growth for an industry over the past
decade could occur in a County that was also attracting, or losing, a large
number of jobs. As Collier County is rapidly growing, we are careful in this
analysis to separate the growth and risk in specific industries ftom the over-
all growth.
The analysis indicates that attracting equal-shares across industries is the
most risky approach for the Collier County economy. "Florida Weights,
2001" and "Collier Economy, 1995-200 1" are the most sound mix of indus-
tries for the County economy, as displayed in Figure 4, "Collier County
Employment Portfolios Risk & Reward," on page 19 of the report. t
1. After 1997, the U.S. Census changed the industry coding system to the North American
Industrial Classification System, or NArCS. The new system substantially reclassified
industries across the economy, and the change affected two major industries monumen-
tally: service and retail trade industries. Thus, the data we use, while compiled by the US
Government and quite reliable for each year, exaggerates the changes over the rime period
we are examining. Hence, the difference between the "Collier Economy, 1988-1994" and
"Collier Economy, 1995-200 I" is exaggerated in terms of scale.
Anderson Economic Group LLC
B-8
FIRM PROFILE
PAST CLIENTS
- --.--------. -- .~---
Appendix C: About Anderson Economic Group
Anderson Economic Group, L.L.C. specializes in providing consulting ser-
vices in economics, finance, public policy, and market assessments. Our
approach to work in these fields is based on our core principles of profes-
sionalism, integrity, and expertise.
We insist on a high level of integrity in our analyses, together with technical
expertise in the field. For these reasons, work by Anderson Economic Group
is commonly used in legislative hearings, legal proceedings, and executive
strategy discussions.
Since our founding in 1996, our analyses have helped publicly-held
corporations, private businesses, governments, and non-profit organizations.
Our work has included markets throughout the United States, as well as in
Canada, Mexico, and Barbados. Recent Anderson Economic Group clients
include:
Governments
· State of Michigan
· State of Wisconsin
State of North Carolina
· Oakland County, Michigan
· City of Detroit, Michigan
· Detro it- Wayne County Port Authority
· City of Norfolk, Vll'ginia
· City of Fort Wayne, Indiana
· City of Cincinnati, Ohio
Businesses
· General Motors Corporation
· PG&E Generating
· Beck's North America
· SBC and SBC Ameritech
· The Detroit Lions
· Kmart Corporation
· Toyota, Honda, Ford, Mercedes-Benz, BMW and Lincoln-Mercury
dealers, or their associations.
· Labatt USA
· W. Grant & Sons
· Ann Arbor Railroad
· Taubman Centers, Inc.
Anderson Economic Group LLC
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^ ~'_" ..,,_...",.,.'d_~.~-.....~~_,__·'_"'··_
---------------
QUALITY ASSURANCE
POLICY
PROJECT lEAM
---- --------.-------
Nonprojit and Trade Organizations
· International Mass Retailers Association
· Hudson Institute
· Michigan Chamber of Commerce
· Telecommunications Association of Michigan
· Michigan Catholic Conference
· Automation Alley
· Michigan Retailers Association
· American Automobile Manufacturers Association
· Michigan State University
· Wayne State University
· Van Andel Institute
Anderson Economic Group follows a written quality assurance program,
based on the elements ofISO 9000. Among the quality assurance steps we
insist upon are the use of a sound, written methodology; documentation of
important sources; file organization and retention schedules; proper summa-
rization of technical work; and high quali~ standards fur written reports and
graphics.
The project team was headed by Patrick L. Anderson. Ilhan K. Geckil and
Scott D. Watkins contributed to the report, as did additional staff. Profiles of
project team members are below.
Patrick L. Andenon. Mr. Anderson founded Anderson Economic Group in
1996, and serves as a Principal in the company. In this role he has success-
fully directed projects for state governments, cities, counties, nonprofit orga-
nizations, and corporations in over half of the United States.
Mr. Anderson has written over ninety articles published in periodicals such
as The Wall Street Journal, The Detroit News. The Detroit Free Press. Amer-
ican Outlook, Crain's Detroit Business; and monographs published by the
Mackinac Center for Public Policy, The Economic Enterprise Foundation of
Detroit, the Ethan Allen Institute in Vennont, and the Heartland Institute of
Chicago. His book Business Economics and Finance was published by CRC
Press in August 2004.
Mr. Anderson is a graduate of the University of Michigan, where he earned a
Masters degree in Public Policy and a Bachelors degree in Political Science.
He has been a member of the National Association for Business Economics
since 1983.
lIhan K. Geckil. ~Ir. Geckil is an Economist with Anderson Economic Group
with a background in applied economics, industrial organization, statistics,
Andfwson Economic Group LLC
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and public finance. He has contributed to projects for clients in automotive
and beer industries; retailers; and local and state governments. Additionally,
he provides economic forecasts for Bloomberg's monthly economic survey.
Prior to joining Anderson Economic Group, Mr. Geckil worked as an Assis-
tant Consultant for PDF Corporation in Istanbul, Turkey. He holds a Masters
degree in Economics from the Eli Broad Graduate School of Management at
Michigan State University, and a Bachelor degree in Economics from KOC
University in Istanbul, Turkey.
Scott D. Watkins. Mr. Watkins is the Director of Marketing and Administra-
tion at Anderson Economic Group. In this role he oversees the finn's admin-
istrative staff and procedures and implements marketing strategies. Mr.
Watkins also works as a Consultant on projects involving policy analysis
and market assessments. Among the clients for whom he has worked are
General Motors Corporation, the State of Wisconsin, SBC Ameritech, Mich-
igan Chamber of Commerce, Michigan Retailers Association, and the City
of Detroit.
Mr. Watkins is a graduate of Michigan StaiëUniversity with a B.A. in Mar-
keting from Eli Broad College of Business and a B.A. in International Rela-
tions from the James Madison College.
Anderson Economic Group LLC
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3301 EastTamiami Trail- Naples, Florida 34112.4977
(239) 774-8097 - Fax (239) 774-3602
Donna Fiala
District 1
Frank Halas
District 2
Tom Henning
District 3
Fred W. Coyle
District 4
Jim Coletta
District 5
September 15, 2004
Joe Swaja, Chairman
Productivity Committee
c/o County Manager's Office
Collier County Government Center
3301 E. Tamiami Trail
Naples, Fla. 341I2
Dear Mr. Swaja;
As a result of a joint workshop held by the Board of County Commissioners (BCC) and the Economic
Development Council (EDC) on Sept. 9, 2004, I would like to request on behalf of the BCC that the
Productivity Committee review the attached Fiscal Stability Analysis, which was produced by the
Anderson Economic Group and presented with the EDC to the BCC. We recognize your experience
and expertise on fiscal issues and would truly appreciate your input.
In addition, the BCC would like to invite you to appoint a representative of the Productivity
Committee to participate on a newly-created ad hoc committee called the Fiscal Committee, which will
also include County Manager Jim Mudd, Commissioner Fred Coyle (District 4), EDC Executive
Director Tammie Nemecek, Collier Building Industry Association Executive Director David Ellis,
Greater Naples Chamber of Commerce President Michael Reagen, and Ellie Krier of the Naples Area
Board of Realtors.
As you are well aware, Collier County has been experiencing dramatic, exponential growth in
population, as well as, the accompanying rapid development of residential and commercial property.
Recognizing that this economic growth and associated revenue will not continue indefinitely, yet the
demand for services will continue to chaHenge resources, we are endeavoring to vision for the future
through a deliberate and measured assessment of fiscal alternatives.
I look forward to the Productivity Committee's response upon evaluation of the EDC's Fiscal Stability
Analysis and also your representative's involvement on our new Fiscal Committee. Your cooperation
and consideration are appreciated. Please don't hesitate to call if you have questions.
Sin~..elY' d
I, "
. VJL.-
Do a Fiala, Chairman
Board of County Commissioners
Cc: James V. Mudd, County Manager
Leo E. Ochs, Deputy County Manager
Board of County Commissioners
Attachment: Fiscal Stability Analysis for Collier County, Florida