Economic Update

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Economic Update Loudoun Revenue Impact

• Economic Development Commission
• November 7, 2008

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Overview

• Housing Bubble/Housing Bust - Precursor
• Credit Crises deleveraging / deflation
• Recession length depth
• Recovery
• County Revenue Impact

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Housing - Precursor

• Housing Bubble
• Volume Price Appreciation
• Affordability
• Innovative lending practices
• Credit Standards Decrease
• Overbuilding
• Housing Bust
• Affordability
• Variable Rate Loan Reset
• Construction Industry Layoffs
• Interest Rates Climb/Credit standards increase
• Consumer Sentiment Decline
• Supply increases from Foreclosures
• Demand decreases from Subprime

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U.S.
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Credit Crisis

• Mortgage Delinquencies Default
• Derivatives Leverage
• Margin Calls asset fire sales
• Commercial Paper
• Money Market
• Interest Rates Spreads (LIBOR/T-BILL)
• Bank, Insurance Mortgage Failures
• Commodity Price Swings
• Flight to quality T-bill yields approach 0

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March Sept-Oct Flight to safety!
Federal Reserve Bank, 11/03/08
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Result - Recession

• Overleveraged investments
• Housing bubble bursting just one aspect
• Credit problems migrated worldwide
• Consumer demand, business, and state local
  investment sharply reduced
• Deleveraging requires devaluation
• Commercial real estate next bank risk

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U.S.
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U.S.
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U.S.
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U.S.
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Institute of Supply Management Index of
Manufacturing Activity
Lowest since 1982
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National Conditions

• National Macroeconomic Outlook
• GDP Growth -0.3 for Q3 2008.
• Likelihood of Recession We are there
• Interest Rates Inflation 1 Fed fund rate
• Consumption Very weak
• Unemployment 5.7 July - 6.1 September.
• Auto Sales lowest since 1940s
• Retail Sales October lower than weak expectation

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Local Conditions

• Local Economy
• Federal Expenditures
• State Budget
• Employment Growth
• Retail

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Local Conditions

• Local Economy, continued
• Delinquencies and Foreclosures Home Sales Units
  up price down
• Major regional employer risks
• Airport

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Recovery(s) Housing/Credit/Recession

• Loudoun early in housing boom
• Foreclosure Response
• Federal Credit Rescue - ongoing
• International Credit Response
• Stimulus - rounds 1 2
• Public works/jobs programs

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Source U.S. Bureau of the Census Loudoun
County Department of Management Financial
Services (11/5/08)
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LIBOR Declines sharply from Oct 10 peak
Measures bank-to-bank lending willingness used
as adjustable rate mortgage index, so lower LIBOR
translates into lower interest rate resets
Source Wall Street Journal 11/6/08
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TED Spread Difference between T-Bill Interest
rate and Eurodollar rate measures perceived
credit risk
Decreasing from October peak.
Source Bloomberg.com 11/6/08
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Decrease creates an immediate consumer stimulus
effect, but more volatility ahead in longer term.
Source U.S. DOE/EIA
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Foreclosures Loudoun County
Oct217
Sep256
Source Clerk of the Circuit Court. Compiled by
Loudoun County Department of Management
Financial Services. (11/3/08)
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Source Loudoun County Department of Management
Financial Services. (10/9/08)
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Loudoun Residential Sales Activity New
Existing Homes
Volume
Price
Note Reduced prices for foreclosed homes now
leading to higher sales volume. Price for new and
existing homes excludes foreclosed property
sales.
Source Loudoun County Department of Management
Financial Services. (11/6/08)
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July
September
August
2006
2007
2008
Reflects national trend.
Source Virginia Automobile Dealers Association,
11/03/08
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County Revenue Impact

• Revenues impacted by Real Property Market
• Revenues impacted by Energy Prices/Travel/Personal
  Consumption
• Revenues linked to state and federal budget
  issues

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Real Property Assessment Changes
Source Residential Assessment Loudoun County
Assessor, October Forecast
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Selected Revenues Year-to-Date through Sept FY 09
Source Loudoun County Department of Management
Financial Services. (11/6/08)
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Building Permit Revenue Declines
Source Loudoun County Department of Management
Financial Services. (11/6/08)
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Source Loudoun County Department of Management
Financial Services. (11/3/08)
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No growth this year even with population increase
and substantial new store construction.
Accrual period
Source Loudoun County Department of Management
Financial Services. (11/3/08)
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Based on Virginia communication tax receipts
trend is now flat.
Source Loudoun County Department of Management
Financial Services. (11/3/08)
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FY 10 - Unanswered questions

• State Aid
• Further declines in RP
• Flattening Other Revenues
• Board Actions in Response