MARICOPA REGIONAL AREA ROAD FUND TRANSPORTATION EXCISE TAX FISCAL YEAR 1998 YEAR-END REPORT PREPARED BY: ARIZONA DEPARTMENT OF TRANSPORTATION FINANCIAL MANAGEMENT SERVICES OFFICE OF FINANCIAL PLANNING AUGUST 1998 REGIONAL AREA ROAD FUND MARICOPA TRANSPORTATION EXCISE TAX EXECUTIVE SUMMARY In October 1985, the voters of Maricopa County approved the Maricopa County Transportation Excise Tax in an amount up to ten percent of the State transaction privilege tax rates. This transportation excise tax, often referred to as the "1/2 cent sales tax", is levied upon business activities in Maricopa County, including retail sales, contracting, utilities, rental of real and personal property, restaurant and bar receipts, and other activities. The transportation excise tax revenues are deposited in the Maricopa County Regional Area Road Fund (RARF) which is administered by the Arizona Department of Transportation. The revenues deposited into the RARF account are the principal source of funding for the Regional Freeway System in Maricopa County and are dedicated by statute to the purchase of right-of-way, design and construction of controlled access highways. The "1/2 cent sales tax" is expected to yield $3.6 billion for the period January 1986 through December 2005. For Fiscal Year (FY) 1998, Maricopa County transportation excise tax collections totaled $209.3 million, an increase of 8.8 percent over the FY 1997 revenue level. When compared to the forecast, collections exceeded the estimate by 2.1 percent. The collections have moderated from a high of 12.2 percent in FY 1995 and 11.3 percent in FY 1996 to 8.8 percent in FY 1998. RARF COLLECTIONS $250 $200 $150 $100 On a percent basis, the major business activities providing the most growth over last year’s revenues were rental of personal property at 14.5 percent, and contracting at 13.6 percent. The retail sales and restaurant and bar had moderated growth of 8.1 percent and 6.9 percent respectively. These growth levels were mainly attributable to increases in employment, personal income and population. PAGE 1 $50 $0 1997 ACT 1998 ACT FISCAL YEAR 1998 EST PERFORMANCE BY CATEGORY RETAIL SALES: Retail sales collections for FY 1998 totaled $104.1 million, an increase of 8.1 percent or $7.8 million over the FY 1997 revenue level. Retail sales collections finished the year 0.6 percent above the forecast. This revenue category continues to represent the largest component of excise tax collections, contributing just under 50 percent of the total tax receipts in FY 1998. Historically, tax revenues from retail sales have maintained positive growth. In FY 1998, the strength of retail sales for was centered in apparel and accessory stores, miscellaneous automotive, motorcycle and boat stores, and motor vehicle dealers. Maricopa County’s retail sales collections have moderated from a high of 13.6 percent in FY 1994 and 12.1 percent in FY 1995 to 8.1 percent in FY 1998. This growth has been a product of strength in wage and salary employment, population and personal income growth, and low interest rates. The Arizona Business forecast for wage and salary employment growth is estimated at 4.2 percent in Calendar Year (CY) 1998 and 3.6 percent in CY 1999. Although there is an expected slowdown in employment growth compared to CY 1996 and CY 1997, retail sales growth is expected to be above average in the foreseeable future.. RETAIL SALES 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 89 90 91 92 93 94 95 96 97 98 CY 98 EST CY 99 EST FISCAL YEAR WAGE & SALARY EMPLOYMENT MARICOPA COUNTY 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% CY 92 ACT CY 93 ACT CY 94 ACT CY 95 ACT CY 96 ACT CY 97 ACT Source: Greater Phoenix Blue Chip Economic Forecast, April 1998 PAGE 2 RETAIL SALES: Continued Personal income growth in Maricopa County in CY 1997 was estimated at 7.9 percent, compared to 8.7 percent for CY 1996. The projected growth in personal income is estimated at 7.2 percent and 6.7 percent in CY 1998 and CY 1999, respectively. The unemployment rate has steadily decreased in Maricopa County to 2.9 percent in CY 1997 from 6.4 percent in CY 1992. However, the estimated unemployment rates for Maricopa County in CY 1998 and CY 1999 are expected to move slightly upward to 3.6 percent and 3.9 percent, respectively. The Blue Chip Economic Forecast estimates retail sales in Maricopa County will increase by 6.0 percent in CY 1998 and 5.6 percent in CY 1999. PERSONAL INCOME MARICOPA COUNTY UNEMPLOYMENT RATE MARICOPA COUNTY 12.00% 8.00% 7.00% 10.00% 6.00% 5.00% 8.00% 6.00% 4.00% 3.00% 2.00% 4.00% 2.00% 1.00% 0.00% 0.00% CY92 ACT CY93 ACT CY94 ACT CY95 ACT CY96 EST CY97 EST CY98 EST CY92 ACT CY99 EST CY93 ACT CY94 ACT CY95 ACT CY96 ACT CY97 ACT CY98 EST CY99 EST Source: Greater Phoenix Blue Chip Economic Forecast, April 1998 Source: Greater Phoenix Blue Chip Economic Forecast, April 1998 CONTRACTING: CONTRACTING In FY 1998, contracting collections totaled $30.6 million. This represented a 13.6 percent increase over the FY 1997 revenue level. The much anticipated construction slowdown never materialized due to continued strength in the single family housing and commercial sector. When compared to the forecast, contracting collections surpassed the estimate by 3.4 percent in FY 1998. This revenue category is the second largest of the excise tax collection categories and has posted growth rates over ten percent in each year of the last six fiscal years. PAGE 3 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% 88 89 90 91 92 93 94 FISCAL YEAR 95 96 97 98 CONTRACTING: Continued Maricopa County single family housing permits increased by 3.5 percent in CY 1997, compared to 5.0 percent in CY 1996. The forecast for CY 1998 and 1999 shows decreases of 6.8 and 8.6 percent, respectively. Construction activity in the multi-family sector saw a 7.1 percent decrease in CY 1997 from the CY 1996 level. In CY 1996, the multi-family category increased by 6.8 percent. The multi-family housing sector is expected to decrease by 17.6 percent in CY 1998 and 3.1 percent in CY 1999. Vacancy rates are expected to increase moderately in CY 1998 and 1999. MULTI-FAMILY HOUSING PERMITS SINGLE FAMILY HOUSING PERMITS 250.00% 50.00% 40.00% 200.00% 30.00% 150.00% 20.00% 100.00% 10.00% 50.00% 0.00% 0.00% -10.00% -50.00% -20.00% CY92 ACT CY93 ACT CY94 ACT CY95 ACT CY96 ACT CY97 ACT CY98 EST CY92 ACT CY99 EST CY93 ACT CY94 ACT CY95 ACT CY96 ACT CY97 ACT CY98 EST CY99 EST Source: Greater Phoenix Blue Chip Economic Forecast, April 1998 Source: Greater Phoenix Blue Chip Economic Forecast, April 1998 In FY 1998, the contracting sector benefited from lower interest rates, population growth, and high consumer confidence. Interest rates dropped slightly during the first quarter of FY 1998, and continued downward in the second quarter and stayed level for the last two quarters. In March 1998, the interest rate for a conventional 30 year fixed rate mortgage was 6.8 percent, compared to 7.8 percent in March 1997. The Federal Reserve increased the discount rate by 25 basis points in March 1997, but monetary policy change did not impact contracting in Maricopa County during FY 1998. PAGE 4 CONTRACTING: Continued The construction employment sector continues to see growth as a result of increased housing and commercial real estate construction. Total construction employment reached 92,000 in CY 1997, compared to 89,000 in CY 1996. The forecast for construction employment shows a slight decrease with figures reaching 91,000 in CY 1998 to 87,000 in CY 1999. The decrease is due to slower rates of population and employment growth anticipated for 1998 and 1999. With the decline in the single-family and multi-family housing categories during CY 1998 and 1999, growth in construction employment will be limited to the commercial and industrial construction sectors. CONSTRUCTION EMPLOYMENT MARICOPA COUNTY MORTGAGE INTEREST RATES MARICOPA COUNTY 12 100 80 10 60 8 40 6 20 0 4 MAR 90 MAR MAR MAR MAR MAR MAR 91 92 93 94 95 96 SOURCE: ARIZONA BUSINESS - MAY ISSUES MAR 97 CY 92 ACT MAR 98 CY 93 ACT CY 94 ACT CY 95 ACT CY 96 ACT CY 97 ACT CY 98 EST CY 99 EST Source: Greater Phoenix Blue Chip Economic Forecast, April 1998 UTILITIES: UTILITIES Utility tax receipts totaled $15.1 million in FY 1998, compared to $14.6 million for the FY 1997. This amounts to a 3.5 percent increase over the FY 1997 receipts level. Utility tax revenues finished 2.4 percent below the estimate in FY 1998. The relatively mild temperatures from El Nino contributed to the lower than estimated utility tax collections during FY 1998. 15.00% 10.00% 5.00% 0.00% -5.00% 88 89 90 91 92 93 94 FISCAL YEAR PAGE 5 95 96 97 98 RESTAURANT AND BAR: Restaurant and bar receipts increased to $16.9 million in FY 1998, compared to $15.8 million in FY 1997. This amounts to a 6.9 percent increase over the FY 1997 revenue level. When compared to the forecast, restaurant and bar collections were 1.9 percent below the estimate. The increase in restaurant and bar receipts was a result of increased Maricopa County personal income, population and tourism. The sharp percentage increase in FY 1996 was partly due to increased tourism as a result of the Super Bowl, and the college football national championship game. PASSENGER AIR ARRIVALS SKY HARBOR INTERNATIONAL AIRPORT 20 16 12 8 4 0 FY 92 ACT FY 93 ACT FY 94 ACT FY 95 ACT FY 96 ACT FY 97 ACT FY 98 EST SOURCE: CITY OF PHOENIX, AVIATION DEPARTMENT RESTAURANT & BAR 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 88 89 90 91 92 93 94 95 96 97 98 FISCAL YEAR Another factor reflecting the increase in restaurant and bar revenues is the steady growth of passenger air arrivals at Sky Harbor International Airport. In FY 1998, the number of air arrivals at Sky Harbor International Airport increased 1.2 percent over FY 1997 level. The increase in air arrivals during FY 1998 is mainly attributable to increased business travel and tourism. The growth in air arrivals for FY 1999 is estimated to be between 1 and 3 percent over the FY 1998 level. Tourism is expected to continue to be an important factor for Maricopa County due to the climate, the positive exposure associated with major sporting events, and the attractive tourist locations in Maricopa County and the State. The strong national economy has also attributed to increased tourism to Maricopa County. PAGE 6 RENTAL OF REAL PROPERTY: RENTAL OF REAL PROPERTY Rental of real property revenues totaled $19.6 million in FY 1998, compared to $18.3 million in FY 1997. This amounts to an 6.9 percent increase over the FY 1997 total. When compared to the forecast, rental of real property receipts exceeded the estimate by 5.7 percent. It should be noted that the sharp increase in 1989 was due to a change in the rental of real property tax. The growth in recent years can be attributed to increased population and tourism. 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% 88 89 90 91 92 93 94 95 96 97 98 FISCAL YEAR RENTAL OF PERSONAL PROPERTY: In FY 1998, the rental of personal property collections amounted to $11.5 million, an increase of 14.5 percent over the FY 1997 level. Rental of personal property collections were 13.1 percent above the estimate in FY 1998. This growth can be attributed to continued consumer and business demand for leased cars and other durable goods. In addition, growth in population and tourism have also played an important role. RENTAL OF PERSONAL PROPERTY 20.0% 15.0% 10.0% 5.0% 0.0% 88 89 90 91 92 93 94 95 96 97 98 FISCAL YEAR OTHER: "Other" revenues for FY 1998 reached $11.5 million, a strong increase of 11.9 percent over the FY 1997 total. When compared to the forecast, "other" revenues were 4.3 percent above the estimate. The "other" revenue category includes amusements, communications, publishing and printing, advertising, transportation and towing, pipelines for oil and gas, private cars, and mining. These items are influenced by the overall level of business activity in the Valley. Historically, this category has maintained strong growth on a year-to-year basis primarily due to the diversity of the components of this category. PAGE 7 OTHER 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 88 89 90 91 92 93 94 95 96 97 98 FISCAL YEAR REVENUE TREND ANALYSIS ANNUAL RARF REVENUE TRENDS MONTHLY RARF REVENUE TREND 14.0% 24 12.0% 22 10.0% 20 8.0% 18 6.0% 16 4.0% 14 2.0% 12 0.0% 10 88 89 90 91 92 93 94 95 96 97 98 JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN FISCAL YEAR FY 1998 Actuals FY 1997 Actuals In FY 1998, transportation excise tax collections reached $209.3 million, compared to $192.3 million in FY 1997. All revenue categories showed increases over last year’s revenue levels. Strong personal income and population growth, lower interest rates, increased single-family and multi-family construction activity, and increased tourism are some of the factors that have affected the revenue growth in recent years. The Maricopa County economy continues to become more diversified with strong growth in high technology and financial jobs. On a monthly basis, RARF revenues continue to follow consistent trends as in previous years with sharp increases in revenues in the month of January due to Christmas retail sales. PAGE 8 REVENUE COMPOSITION COMPARISON RETAIL SALES CONTRACTING 52.0% 18.0% 16.0% 51.0% 50.0% 49.0% 48.0% 47.0% 46.0% 86 87 88 89 90 91 92 93 94 95 96 97 98 FISCAL YEAR UTILITIES 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% Retail sales is the most important component of the excise tax collections, generating just under 50 percent of total revenues. This revenue category has consistently tracked around 50 percent since the inception of the excise tax in FY 1986. The second largest category is contracting, representing 14.6 percent of total RARF collections. In FY 1998, rental of personal property and the “other” category showed slight increases in percentage of total revenues, while the remaining revenue categories all showed slight decreases. 0.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 86 87 88 89 90 91 92 93 94 95 96 97 98 FISCAL YEAR RESTAURANT & BAR 9.0% 8.8% 8.6% 8.4% 8.2% 8.0% 7.8% 7.6% 86 87 88 89 90 91 92 93 94 95 96 97 98 86 87 88 89 90 91 92 93 94 95 96 97 98 FISCAL YEAR FISCAL YEAR RENTAL OF REAL PROPERTY RENTAL OF PERSONAL PROPERTY OTHER 5.80% 12.00% 6.00% 10.00% 5.60% 5.00% 5.40% 8.00% 4.00% 5.20% 6.00% 3.00% 4.00% 5.00% 2.00% 4.80% 2.00% 1.00% 4.60% 0.00% 86 87 88 89 90 91 92 93 94 95 96 97 98 FISCAL YEAR 0.00% 86 87 88 89 90 91 92 93 94 95 96 97 98 86 87 88 89 90 91 92 93 94 FISCAL YEAR PAGE 9 95 96 97 98 FISCAL YEAR REVENUE PERFORMANCE MARICOPA COUNTY TRANSPORTATION EXCISE TAX FY 1998 ACTUAL TOTAL= $209.3 MILLION SOURCES RENTAL OF PERSONAL PROPERTY $11.5M 5.5% USES REGIONAL PUBLIC TRANSIT SYSTEM $6.9 M 3.3% OTHER $11.5M 5.5% RENTAL OF REAL PROPERTY $19.6M 9.3% RETAIL SALES $104.1M 49.8% RESTAURANT & BAR $16.9M 8.1% UTILITIES $15.1M 7.2% CONTRACTING $30.6M 14.6% REGIONAL FREEWAY SYSTEM $202.4 M 96.7% PAGE 10 MARICOPA COUNTY REGIONAL AREA ROAD FUND TRANSPORTATION EXCISE TAX REVENUE COMPARISON STATEMENT FY 1998 FY 1997 ACTUAL FY 1998 ACTUAL CHANGE FY 1998 ESTIMATE CHANGE $96,281,460 $104,072,752 8.1% $103,500,000 0.6% CONTRACTING 26,947,785 30,610,453 13.6% 29,600,000 3.4% UTILITIES 14,583,395 15,100,775 3.5% 15,470,000 -2.4% RESTAURANT & BAR 15,820,990 16,916,822 6.9% 16,600,000 1.9% RENTAL OF REAL PROPERTY 18,298,162 19,551,645 6.9% 18,500,000 5.7% RENTAL OF PERSONAL PROPERTY 10,073,759 11,539,117 14.5% 10,200,000 13.1% OTHER 10,251,945 11,471,893 11.9% 11,000,000 4.3% TOTAL $192,257,496 $209,263,457 8.8% $204,870,000 2.1% CATEGORY RETAIL SALES NOTE: DIVISION OF COLLECTIONS TO BUSINESS CATEGORIES IS IMPUTED BASED UPON REPORTED TAXABLE INCOME. PAGE 11 MARICOPA COUNTY REGIONAL AREA ROAD FUND TRANSPORTATION EXCISE TAX REVENUES COLLECTED BY CATEGORY FY 1986 - 1998 (Dollars in Thousands) FISCAL RETAIL YEAR SALES 1986 * 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 RENTAL RENTAL RESTAURANT REAL PERSONAL CONTRACTING UTILITIES & BAR PROPERTY PROPERTY OTHER TOTAL PERCENT CHANGE 4.6% 7.1% 4.3% 2.3% 2.8% 9.3% 12.2% 12.2% 11.3% 7.8% 8.8% $19,244 48,085 51,405 53,927 55,798 56,769 59,108 64,033 72,737 81,546 90,454 96,281 104,073 $5,716 14,849 14,188 13,947 13,286 12,715 11,688 13,385 17,039 21,107 24,284 26,948 30,610 $3,073 8,542 9,535 10,336 10,685 11,353 10,999 11,874 12,680 13,132 14,198 14,583 15,101 $3,682 7,579 8,379 8,795 9,282 9,655 10,280 11,171 12,166 13,291 14,739 15,821 16,917 $1,923 6,822 5,994 8,952 10,808 11,091 11,707 12,993 13,414 14,660 16,822 18,298 19,552 $1,733 4,172 4,728 4,883 5,289 5,708 6,043 6,672 7,002 8,198 8,734 10,074 11,539 $1,615 4,782 4,961 5,410 5,653 6,044 6,671 7,145 7,808 8,384 9,183 10,252 11,472 $36,986 94,831 99,190 106,250 110,801 113,335 116,496 127,273 142,846 160,318 178,413 192,257 209,263 TOTAL $749,387 $189,152 $130,990 $124,840 $133,484 $73,236 $77,908 $1,478,996 AVERAGE ANNUAL GROWTH (FY 1987 - FY 1998) = 7.5% *The tax became effective January 1, 1986 PAGE 12 ARIZONA TRANSACTION PRIVILEGE TAX EXCISE TAX RATES FY 1998 Taxable Activity Retail Sales Contracting Rental of Real Property (including hotels & motels) Utilities Restaurants and Bars Rental of Personal Property Communication Publishing and Printing Amusements Other Mining Wholesale Feed Percent of Total Maricopa County Transaction Privilege Tax Collections Transaction Privilege Tax Rate Transportation Excise Tax Rate 49.74% 14.63% 9.34% 5.00% 5.00% 1.82%* 0.50% 0.50% 0.512% 7.22% 8.08% 5.51% 3.20% 0.96% 1.19% 0.13% 0.00% 0.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 3.125% 0%** 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.3125% 0.00% * In 1990 and 1993, legislation reduced the transaction privilege tax rate for real property rentals, however, for transportation excise tax purposes, the rate was retained at its prior level. ** In 1994, legislation repealed the transaction privilege tax for livestock and poultry feed, salts, vitamins and other additives for livestock and poultry. The tax rate was reduced to zero on July 17, 1994 and then the tax classification was repealed on October 1, 1994. PAGE 13 REVENUE CATEGORY DEFINITIONS RETAIL SALES Includes retail sales of automobiles, durable goods and other general merchandise, apparel, building materials, furniture and other tangible personal property. The tax on food was repealed in July, 1980. CONTRACTING Includes prime contracting and dealership of manufactured buildings and owner-builder operations. UTILITIES Includes producing and/or furnishing to consumers electricity, natural or artificial gas and water. RESTAURANT AND BAR Includes operations of restaurants and drinking establishments. RENTAL OF REAL PROPERTY Includes leasing or renting real property, hotels and motels. RENTAL OF PERSONAL PROPERTY Includes leasing or renting tangible personal property. OTHER Includes operations of amusement places, intrastate telecommunication services, publication of a directory of subscribers, job printing, engraving, embossing and publication, publication of newspapers, magazines and other periodicals, intrastate transportation of persons, freight or property, intrastate operation of pipelines for oil or natural or artificial gas, and intrastate operation of private car lines. PAGE 14