MARICOPA REGIONAL AREA ROAD FUND TRANSPORTATION EXCISE TAX FISCAL YEAR 1999 YEAR-END REPORT PREPARED BY: ARIZONA DEPARTMENT OF TRANSPORTATION FINANCIAL MANAGEMENT SERVICES OFFICE OF FINANCIAL PLANNING AUGUST 1999 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, a tax which may equal 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) 1999, Maricopa County transportation excise tax collections totaled $229.5 million, an increase of 9.7 percent over the FY 1998 revenue level. When compared to the forecast, collections exceeded the estimate by 1.1 percent. The collections growth has moderated from a high of 12.2 percent in FY 1995 to 8.8 percent in FY 1998 and 9.7 percent in FY 1999. RARF COLLECTIONS $250.0 $200.0 $150.0 $100.0 On a percent basis, business activities providing the most growth over last year’s revenues were contracting at 16.2 percent and retail sales at 9.2 percent. Restaurant and bar revenues experienced growth of 8.5 percent. These growth levels were mainly attributable to high consumer confidence, increases in employment, personal income and population. PAGE 1 $50.0 $0.0 1998 ACT 1999 ACT FISCAL YEAR 1999 EST PERFORMANCE BY CATEGORY RETAIL SALES: Retail sales collections for FY 1999 totaled $113.7 million, an increase of 9.2 percent or $9.6 million over the FY 1998 revenue level. Retail sales collections finished the year 3.1 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 1999. Historically, tax revenues from retail sales have maintained positive growth. In FY 1999, the sectors most strongly contributing to retail sales growth were motor vehicle dealers, apparel and accessory stores, and building material and mobile home dealers. From a high of 13.6 percent growth in FY 1994, retail sales dropped to a still healthy 6.4 percent growth rate in FY 1997. Retail sales have since rebounded to 9.2 percent growth in FY 1999. This growth has been a product of strength in wage and salary employment, population and personal income growth, and low interest rates. The Greater Phoenix Blue Chip forecast for wage and salary employment growth is estimated to be 4.3 percent in Calendar Year (CY) 1999 and 3.5 percent in CY 2000. Although there is an expected slowdown in wage and salary employment growth compared to CY 1997 and CY 1998, retail sales growth is expected to remain healthy in the near future. RETAIL SALES 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 90 91 92 93 94 95 96 97 98 WAGE & SALARY EMPLOYMENT GROWTH MARICOPA COUNTY 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 92 93 ACT ACT 94 95 ACT ACT 96 ACT 97 98 ACT ACT 99 EST CALENDAR YEAR Source: Greater Phoenix Blue Chip Economic Forecast, April 1999 PAGE 2 99 FISCAL YEAR 00 EST RETAIL SALES: Continued The projected growth in personal income is forecast to be 6.9 percent and 6.4 percent in CY 1999 and CY 2000, respectively. Personal income growth in Maricopa County in CY 1998 was estimated at 7.7 percent, compared to 7.9 percent for CY 1997. The unemployment rate steadily decreased in Maricopa County to 2.7 percent in CY 1998 from 6.4 percent in CY 1992. However, the estimated unemployment rates for Maricopa County in CY 1999 and CY 2000 are expected to move slightly upward to 3.1 percent and 3.7 percent, respectively. The Blue Chip Economic Forecast estimates retail sales in Maricopa County will increase by 6.1 percent in CY 1999 and 5.4 percent in CY 2000. UNEMPLOYMENT RATE MARICOPA COUNTY PERSONAL INCOME MARICOPA COUNTY 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 92 ACT 93 ACT 94 ACT 95 ACT 96 EST 97 EST 98 EST 99 EST 92 ACT 00 EST 93 ACT 94 ACT 95 ACT 96 ACT 97 ACT 98 ACT 99 EST 00 EST CALENDAR YEAR CALENDAR YEAR Source: Greater Phoenix Blue Chip Economic Forecast, April 1999 Source: Greater Phoenix Blue Chip Economic Forecast, April 1999 CONTRACTING: CONTRACTING In FY 1999, contracting collections totaled $35.6 million. This represented a 16.2 percent increase over the FY 1998 revenue level. Contrary to expectations, stronger than anticipated growth occurred in FY 1999 due to low interest rates and a strong economy which drove continued strength in the single family housing and commercial sector. When compared to the forecast, contracting collections surpassed the estimate by 7.8 percent in FY 1999. 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 seven fiscal years. PAGE 3 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% 90 91 92 93 94 95 96 FISCAL YEAR 97 98 99 CONTRACTING: Continued According to the Greater Phoenix Blue Chip Newsletter, Maricopa County single-family housing permits increased by 16.1 percent in CY 1998, compared to 3.4 percent in CY 1997. Although the forecast for CY 1999 and 2000 calls for decreases of 9.6 and 7.6 percent, recent news suggests growth may be stronger in CY 1999 than anticipated. Construction activity in the multi-family sector saw a 0.7 percent decrease in CY 1998 from the CY 1997 level. In CY 1997, the multi-family category decreased by 7.1 percent. The multi-family housing sector is expected to decrease by 16.0 percent in CY 1999 and 8.8 percent in CY 2000. Vacancy rates are expected to increase moderately in CY 1999 and 2000. MULTI-FAMILY HOUSING PERMITS SINGLE FAMILY HOUSING PERMITS 250.0% 50.0% 40.0% 200.0% 30.0% 150.0% 20.0% 100.0% 10.0% 50.0% 0.0% 0.0% -10.0% -50.0% -20.0% 92 ACT 93 ACT 94 ACT 95 ACT 96 ACT 97 ACT 98 ACT 99 EST 92 ACT 00 EST 93 ACT 94 ACT 95 ACT 96 ACT 97 ACT 98 ACT 99 EST 00 EST CALENDAR YEAR CALENDAR YEAR Source: Greater Phoenix Blue Chip Economic Forecast, April 1999 Source: Greater Phoenix Blue Chip Economic Forecast, April 1999 In FY 1999, the contracting sector benefited from lower interest rates, strong population growth and high consumer confidence. Interest rates dropped significantly by the end of the second quarter of the 1999 fiscal year, and remained stable through the last half of the fiscal year. In May 1999, the interest rate for a conventional 30 year fixed rate mortgage was 6.8 percent, up from 6.4 percent in December 1998. The up tick in interest rates is expected to dampen house sales only slightly. Historically low interest rates have fueled the continued growth seen in the Phoenix housing market and around the country. The construction employment sector continues to see growth as a result of increased housing and commercial real estate construction. PAGE 4 CONTRACTING: Continued Total construction employment reached 104,300 in CY 1998, compared to 93,400 in CY 1997. The forecast for construction employment shows a slight increase to 105,760 in CY 1999 with gains reversing in CY 2000. The decrease is due to declining rates of population and employment growth anticipated for 1999 and 2000. With the decline in the single-family and multi-family housing categories during CY 1999 and 2000, growth in construction employment will be limited to the commercial and industrial construction sectors. CONSTRUCTION EMPLOYMENT MARICOPA COUNTY MORTGAGE INTEREST RATES MARICOPA COUNTY 12 120 100 10 80 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 MAR 98 9 2 A CT 9 3 A CT 9 4 A C T 9 5 A C T 9 6 A C T 9 7 A C T 9 8 A C T 99 EST 00 EST MAR 99 CALENDAR YEAR Source: Greater Phoenix Blue Chip Economic Forecast, April 1999 UTILITIES: UTILITIES Utility tax receipts totaled $15.8 million in FY 1999, compared to $15.1 million for the FY 1998. This amounts to a 4.5 percent increase over the FY 1998 level. Utility tax revenues finished 5.9 percent below the estimate in FY 1999. A relatively mild summer and reductions in electric rates contributed to the lower than estimated utility tax collections during FY 1999. 15.0% 10.0% 5.0% 0.0% -5.0% 90 91 92 93 94 95 96 FISCAL YEAR PAGE 5 97 98 99 RESTAURANT AND BAR: Restaurant and bar receipts increased to $18.4 million in FY 1999, compared to $16.9 million in FY 1998. This amounts to an 8.5 percent increase over FY 1998 revenue. When compared to the forecast, restaurant and bar collections were 2.7 percent below the estimate. The increase in restaurant and bar receipts was driven by strong personal income growth and continued increases in population. RESTAURANT & BAR 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 90 91 92 93 94 95 96 97 98 99 FISCAL YEAR PASSENGER AIR ARRIVALS SKY HARBOR INTERNATIONAL AIRPORT 20 16 12 8 4 0 92 ACT 93 ACT 94 ACT 95 ACT 96 ACT 97 ACT 98 ACT 99 EST Another factor spurring the increase in restaurant and bar revenues is the steady growth of passenger air arrivals at Sky Harbor International Airport. In FY 1999, the number of air arrivals increased 3.2 percent over FY 1998. The increase is attributable to increased business travel and lower airfares. Tourism is expected to continue to be an important factor for Maricopa County due to the climate, positive exposure associated with major sporting events and attractive tourist locations in the county and state. The strong national economy has also attributed to increased tourism in Maricopa County. FISCAL YEAR SOURCE: CITY OF PHOENIX, AVIATION DEPARTMENT PAGE 6 RENTAL OF REAL PROPERTY: RENTAL OF REAL PROPERTY Rental of real property revenues totaled $21.2 million in FY 1999, compared to $19.6 million in FY 1998. This amounts to an 8.6 percent increase over FY 1998. When compared to the forecast, rental of real property receipts were on target at 0.5 percent above the forecast. It should be noted that the sharp increase in 1990 was due to a change in the rental of real property tax. The growth in recent years can be attributed to increased population, personal income and tourism. RENTAL OF PERSONAL PROPERTY: 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 90 91 92 93 94 95 96 97 98 99 FISCAL YEAR RENTAL OF PERSONAL PROPERTY In FY 1999, rental of personal property collections were $12.5 million, an increase of 8.7 percent over FY 1998. This growth can be attributed to continued consumer and business demand for leased cars and equipment rental, such as construction equipment or home appliances. Rental of personal property collections were 12 percent below the estimate in FY 1999. 20.0% 15.0% 10.0% 5.0% 0.0% 90 91 92 93 94 95 96 97 98 FISCAL YEAR OTHER: "Other" revenues for FY 1999 reached $12.3 million, an increase of 7.3 percent over the FY 1998 total. When compared to the forecast, "other" revenues were 2.6 percent below 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 because of general overall strength in the economy. PAGE 7 OTHER 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 90 91 92 93 94 95 96 97 98 99 FISCAL YEAR 99 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 90 91 92 93 94 95 96 97 98 99 JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN FISCAL YEAR FY 1999 Actuals FY 1999 Estimate FY 1998 Actuals In FY 1999, transportation excise tax collections reached $229.5 million, compared to $209.3 million in FY 1998. All revenue categories showed increases over last year’s revenue levels. Lower interest rates and strong personal income and population growth 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 the high technology and financial sectors. On a monthly basis, RARF revenue continues to follow consistent trends in estimated and previous year collections 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 88 90 92 94 96 98 FISCAL YEAR UTILITIES 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% Retail sales is the largest 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 15.5 percent of total RARF collections. In FY 1999, with the exception of contracting which grew by 0.9 % as a percentage of total revenue, all categories remained nearly unchanged in their proportion of revenue contributed to total RARF revenue. 0.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 86 88 90 92 94 96 98 FISCAL YEAR RESTAURANT & BAR 9.0% 8.8% 8.6% 8.4% 8.2% 8.0% 7.8% 7.6% 86 88 90 92 94 96 98 86 88 90 FISCAL YEAR 92 94 96 98 FISCAL YEAR RENTAL OF REAL PROPERTY RENTAL OF PERSONAL PROPERTY OTHER 5.8% 12.0% 6.0% 10.0% 5.6% 5.0% 5.4% 8.0% 4.0% 5.2% 6.0% 3.0% 4.0% 5.0% 2.0% 4.8% 2.0% 1.0% 4.6% 0.0% 86 88 90 92 94 FISCAL YEAR 96 98 0.0% 86 86 88 90 92 94 FISCAL YEAR PAGE 9 96 88 90 92 94 98 FISCAL YEAR 96 98 REVENUE PERFORMANCE MARICOPA COUNTY TRANSPORTATION EXCISE TAX FY 1999 ACTUAL TOTAL= $229.5 MILLION DISTRIBUTIONS SOURCES RENTAL OF PERSONAL PROPERTY $12.5M 5.4% REGIONAL PUBLIC TRANSIT SYSTEM $7.0 M 3.1% OTHER $12.3M 5.4% RENTAL OF REAL PROPERTY $21.2M 9.3% RETAIL SALES $113.7M 49.5% RESTAURANT & BAR $18.4M 8.0% UTILITIES $15.8M 6.9% CONTRACTING $35.6M 15.5% REGIONAL FREEWAY SYSTEM $222.5 M 96.9% PAGE 10 MARICOPA COUNTY REGIONAL AREA ROAD FUND TRANSPORTATION EXCISE TAX REVENUE COMPARISON STATEMENT FY 1999 FY 1998 ACTUAL FY 1999 ACTUAL CHANGE FY 1999 ESTIMATE CHANGE $104,072,752 $113,677,084 9.2% $110,269,994 3.1% CONTRACTING 30,610,453 35,574,142 16.2% 33,000,000 7.8% UTILITIES 15,100,775 15,784,238 4.5% 16,770,001 -5.9% RESTAURANT & BAR 16,916,822 18,357,658 8.5% 18,870,001 -2.7% RENTAL OF REAL PROPERTY 19,551,645 21,227,408 8.6% 21,130,001 0.5% RENTAL OF PERSONAL PROPERTY 11,539,117 12,540,965 8.7% 14,250,000 -12.0% OTHER 11,471,893 12,308,706 7.3% 12,640,001 -2.6% TOTAL $209,263,457 $229,470,201 9.7% $226,929,998 1.1% 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 - 1999 (Dollars in Thousands) RENTAL RENTAL RESTAURANT REAL PERSONAL CONTRACTING UTILITIES & BAR PROPERTY PROPERTY OTHER FISCAL YEAR RETAIL SALES 1986 * 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 $19,244 48,085 51,405 53,927 55,798 56,769 59,108 64,033 72,737 81,546 90,454 96,281 104,073 113,677 $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 35,574 $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 15,784 $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 18,358 $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 21,227 $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 12,541 TOTAL $967,136 $255,336 $161,875 $160,115 $174,263 $97,316 COMPOUND ANNUAL GROWTH RATE (FY 1987 - FY 1999) = 7.6% *The tax became effective January 1, 1986 PAGE 12 TOTAL PERCENT CHANGE $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 12,309 $36,986 94,831 99,190 106,250 110,801 113,335 116,496 127,273 142,846 160,318 178,413 192,257 209,263 229,470 4.6% 7.1% 4.3% 2.3% 2.8% 9.3% 12.2% 12.2% 11.3% 7.8% 8.8% 9.7% $101,689 $1,917,730 ARIZONA TRANSACTION PRIVILEGE TAX EXCISE TAX RATES FY 1999 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 49.54% 15.50% 9.25% 5.00% 5.00% 1.82%* 0.50% 0.50% 0.512% 6.88% 8.00% 5.47% 3.24% 0.93% 1.09% 0.11% 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 OTHER Includes leasing or renting tangible personal property such as leased vehicles and construction equipment. Includes operations of amusement places, intrastate telecommunication services, 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