City of Arvada Letter of Transmittal Annual Comprehensive Financial Report plans for these funds, the City is able to identify future challenges and work towards meeting them. The longrange financial planning process also makes sure that any decisions to add expenditures today can be paid for in the future. FUTURE ECONOMIC FACTORS The first quarter of 2022 is sending mixed signals. On the positive side, COVID cases have reduced to their lowest levels since the start of the pandemic, unemployment has fallen to 3.6%, its lowest level since February of 2020 and consumer sentiment is up over the prior months. These are all signals of a healthy economy and one that is in the start of a longer term growth pattern. On the negative side, inflation has reared its ugly head, up 8.5% year over year, the highest since 1981 and GDP was down (1.4%), the worst number since the second quarter of 2020, the 2-year and 10-year treasury yields inverted for the first time since 2019 and the S&P 500 had its worst month since 2008 (other than the shock drop of March 2020). These are all signs of a recession. In fact, 100% of the time a recession follows when the 2-year and 10-year treasury yields cross. The challenge will be determining when that will happen and how long it will last. The Federal Reserve is doing everything in its power to fight the meteoric rise in inflation. The Feds raised interest rates 25 basis points in March and are expected to raise rates 50 basis points in May. Additional 50 basis point rate hikes are expected in June and July, landing the short term rate at 1.75% before the summer session is over. Additional rate hikes are expected to continue throughout the year before stabilizing in the 1st quarter of 2023. The Feds are also going to start quickly reducing their balance sheet which currently sits at over $9 trillion dollars, the largest in history. The hope is that these measures will further tighten credit and slow down inflation. The real balancing act will be between slowing down the economy to a more normal pace and throwing it into a recession. The City of Arvada’s current sales tax base is largely supported by supermarkets, grocery, health, small retail stores and now on-line retail. Businesses like Costco, Sam’s Club, King Soopers, Safeway, Target, Walmart, Home Depot and Lowes provide essential items to the residents of Arvada and its surrounding communities. Other retailers like Ulta Beauty, Michael’s, Big 5, Kohl’s and Floor and Décor meet specific needs and offer the in-person buying experience desired by many consumers. A diverse offering of restaurant and bar establishments helps to round out the in-person sales tax portfolio. The wild card continues to be on-line retail and what consumer habits will be now that the pandemic has slowed down. Inflation pressures are significant and will affect the retail industry over the next year. Expected annual sales tax growth is 9% with all categories increasing as compared to 2021. Building activity is expected to return to more of a normal pattern in 2022. Single-family detached building permits, multi-family apartments and new businesses are still coming to the market, just at a slower more consistent pace. One large multi-family project, Olde Town Residences (252 units) has received final approval and will begin construction later this year. Three major development areas continue to be keys to the growth of the City. These are the “Ralston Fields” urban renewal area, Transit-Oriented Development (TOD) in and around the G Line stations and the Candelas/ Jefferson Center Metropolitan District (JCMD) project area, including completion of the 470 beltway. Each one of these areas has its own challenges; however, if properly developed, all will be favorable economic drivers in the years to come. The “Ralston Fields” area was established in 2003 by City Council as an economic development area. The first phase of redevelopment included the addition of a Target, Big 5 and many smaller retail restaurants and
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