MARICOPA REGIONAL AREA ROAD FUND TRANSPORTATION EXCISE TAX FISCAL YEAR 2000 YEAR-END REPORT PREPARED BY: ARIZONA DEPARTMENT OF TRANSPORTATION FINANCIAL MANAGEMENT SERVICES OFFICE OF FINANCIAL PLANNING AUGUST 2000 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 $3.8 billion for the period January 1986 through December 2005. The Maricopa County transportation excise tax collections for FY 2000 amounted to $248.6 million, an increase of 8.3 percent over the FY 1999 revenue level and 0.8 percent above the forecast. Excise tax collections moderated in FY 2000 due to higher interest rates and the maturing construction cycle with the growth rate slowing from 9.7 percent in FY 1999. For the fiscal year, revenue categories providing the most growth over last year’s revenues were “other” at 11.7 percent and retail sales at 9.6 percent. Restaurant and bar revenue growth was a close third with 9.3 percent. The FY 2000 revenue growth was attributable to high consumer confidence along with increased employment, personal income and population. PAGE 1 RARF COLLECTIONS $300.0 $250.0 $200.0 $150.0 $100.0 $50.0 $0.0 1999 ACT 2000 ACT FISCAL YEAR 2000 EST PERFORMANCE BY CATEGORY RETAIL SALES: Fiscal Year 2000 retail sales collections totaled $124.4 million, an increase of 9.6 percent over FY 1999 and 2.3 percent over the FY 2000 estimate. The retail sales growth rate in FY 2000 surpassed the growth rate in FY 1999 by 0.5 percent This revenue category continues to be the largest component of excise tax collections, contributing just over 50 percent of the total tax receipts in FY 2000. The sectors contributing to retail sales growth were motor vehicle dealers, home furnishing and equipment stores, furniture and other miscellaneous retail stores. Retail sales year-over-year growth has increased from 6.4 percent in FY 1997 to 9.6 percent in FY 2000. The increase in the growth rate has been a product of strong consumer confidence due to growth in employment, population and personal income. The continued growth in the Greater Phoenix economic indicators has overshadowed the increase in interest rates over the past twelve months. However, future retail sales growth is expected to moderate with projected slower job growth. The Greater Phoenix Blue Chip forecast for wage and salary employment growth is estimated to be 3.6 percent in Calendar Year (CY) 2000 and 3.3 percent in CY 2001 compared to 5.6 percent and 4.8 percent in CY 1998 and CY 1999, respectively. PAGE 2 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 99 00 FISCAL YEAR WAGE & SALARY EMPLOYMENT GROWTH MARICOPA COUNTY 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 92 93 94 95 96 97 98 99 00 01 ACT ACT ACT ACT ACT ACT ACT ACT EST EST CALENDAR YEAR Source: Greater Phoenix Blue Chip Economic Forecast, June 2000 RETAIL SALES: Continued In addition, the growth in personal income is forecast to be 6.7 percent and 6.3 percent in CY 2000 and CY 2001, respectively. This is a slight moderation in the personal income growth for Maricopa County compared to 7.9 percent in CY 1998 and 7.7 percent in CY 1999. The unemployment rate steadily decreased in Maricopa County to 2.9 percent in CY 1999 from a high of 6.4 percent in CY 1992. However, the estimated unemployment rate for Maricopa County in CY 2000 and CY 2001 is expected to move upward to 3.4 percent and 3.7 percent, respectively. The June 2000 Blue Chip Economic Forecast estimates retail sales in Maricopa County will increase by 6.1 percent in CY 2000 and 5.3 percent in CY 2001. PERSONAL INCOME MARICOPA COUNTY UNEMPLOYMENT RATE MARICOPA COUNTY 12.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 92 93 94 95 96 97 98 ACT ACT ACT ACT ACT ACT EST 99 EST 00 EST 01 EST 92 ACT CALENDAR YEAR 93 ACT 94 ACT 95 ACT 96 ACT 97 ACT 98 ACT 99 ACT 00 EST 01 EST CALENDAR YEAR Source: Greater Phoenix Blue Chip Economic Forecast, June 2000 Source: Greater Phoenix Blue Chip Economic Forecast, June 2000 CONTRACTING: CONTRACTING 30.0% Contracting collections in FY 2000 were $37.4 million, an increase of 4.9 percent over FY 1999. This represents the lowest year-over-year growth since FY 1992 when contracting collections ended the fiscal year 8.1 percent below FY 1991. Contracting collections were 4.5 percent below the estimate for FY 2000. This revenue category is the second largest of the excise tax collection categories and has been one of the most volatile. PAGE 3 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 00 CONTRACTING: Continued Maricopa County single-family housing permits decreased by 1.7 percent in CY 1999, compared to an increase of 16.1 percent in CY 1998. As noted previously, the construction cycle has matured thus leading to a decrease in construction activity growth. Single family housing permits are projected to decrease 6.9 percent and 9.4 percent in CY 2000 and CY 2001, respectively. In addition, the multi-family housing permits saw a 1.5 percent decrease in CY 1999 from the CY 1998 level. For the next two years, the multi-family housing permits are expected to decrease by 11.7 percent in CY 2000 and 6.2 percent in CY 2001. Apartment vacancy rates are expected to increase from 7.1 percent in CY 2000 to 7.4 percent in CY 2001. SINGLE FAMILY HOUSING PERMITS MARICOPA COUNTY MULTI-FAMILY HOUSING PERMITS MARICOPA COUNTY 50.0% 250.0% 40.0% 200.0% 30.0% 150.0% 20.0% 10.0% 100.0% 0.0% 50.0% -10.0% 0.0% -20.0% 92 ACT 93 ACT 94 ACT 95 ACT 96 97 ACT A C T 98 ACT 99 ACT 00 EST -50.0% 01 EST 92 93 94 95 96 97 98 99 ACT A C T A C T A C T A C T A C T A C T EST CALENDAR YEAR CALENDAR YEAR Source: Greater Phoenix Blue Chip Economic Forecast, June 2000 00 EST 01 EST Source: Greater Phoenix Blue Chip Economic Forecast, June 2000 The Federal Reserve has raised interest rates six times since the summer of 1999 which impacted mortgage rates during FY 2000. In April 2000, the interest rate for a conventional 30 year fixed rate mortgage was 7.7 percent compared to 6.6 percent in June 1999. This 1.1 percent increase in interest rates has slowed the housing market in the Greater Phoenix area, but only slightly. However, high consumer confidence and continued growth in employment and population resulted in modest year-over-year growth. PAGE 4 CONTRACTING: Continued Construction employment in CY 1999 increased 7.6 percent over the CY 1998 level in part due to increased housing and commercial real estate construction. For CY 1999, construction employment totaled 112,300, compared to 104,400 in CY 1998. The forecast for construction employment shows a slight decrease to 111,700 in CY 2000, with further retrenchment to 108,500 in CY 2001. CONSTRUCTION EMPLOYMENT MARICOPA COUNTY MORTGAGE INTEREST RATES MARICOPA COUNTY 12 120 100 10 80 60 8 40 6 20 0 92 ACT 4 MAR 90 MAR 91 MAR 92 MAR MAR MAR MAR MAR MAR 93 94 95 96 97 98 Source: Arizona Business, May Issues MAR MAR 99 00 93 ACT 94 ACT 95 ACT 96 ACT 97 ACT 98 ACT 99 ACT 00 EST 01 EST CALENDAR YEAR Source: Greater Phoenix Blue Chip Economic Forecast, June 2000 UTILITIES: UTILITIES Utility tax collections in FY 2000 totaled $16.4 million, an increase of 4.8 percent over FY 1999 and 0.1 percent above the FY 2000 estimate. Although the Greater Phoenix area experienced a mild summer in 1999 and winter in 2000, utility tax revenue growth was fueled by population growth which spurred demand for additional housing and growth in commercial activities. 15.0% 10.0% 5.0% 0.0% -5.0% 90 91 92 93 94 95 96 FISCAL YEAR PAGE 5 97 98 99 00 RESTAURANT & BAR RESTAURANT AND BAR: Restaurant and bar collections increased 9.3 percent to $20.0 million in FY 2000 which was 0.9 percent above the estimate. Good economic conditions, coupled with population growth, are reflected in these increased collections. 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 90 91 92 93 94 95 96 97 98 99 00 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 FISCAL YEAR Source: City of Phoenix, Aviation Department 98 ACT 99 ACT 00 EST Restaurant and bar revenues also have benefited from the strong growth of passenger air arrivals at Sky Harbor International Airport. In FY 2000, the number of air arrivals increased 7.3 percent over FY 1999. The increase is attributable to expanding business along with higher levels of leisure travel due to 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. However, the number of winter visitors has decreased due to a number of factors, including the Greater Phoenix area becoming too big and the stronger United States dollar impact on Canadian visitors. PAGE 6 RENTAL OF REAL PROPERTY: RENTAL OF REAL PROPERTY In FY 2000, rental of real property tax revenues totaled $22.1 million, an increase of 8.9 percent over FY 1999 which was 3.7 percent below the forecast. This category includes rental of commercial, residential and transient lodging (hotel/motel) facilities. The growth in recent years can be attributed to increased population, personal income and tourism. 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 90 91 92 93 94 95 96 97 98 99 00 FISCAL YEAR RENTAL OF PERSONAL PROPERTY: Rental of personal property collections in FY 2000 amounted to $13.4 million, an increase of 5.1 percent over the FY 1999 revenue level. However, rental of personal property collections ended the fiscal year 0.8 percent below the estimate. Collections have benefited from the popularity of leasing which accounts for approximately 25 percent of new car sales. RENTAL OF PERSONAL PROPERTY 20.0% 15.0% 10.0% 5.0% 0.0% 90 91 92 93 94 95 96 97 98 99 00 FISCAL YEAR OTHER: "Other" revenues totaled $14.8 million in FY 2000, an increase of 11.7 percent over FY 1999 which was 12.6 percent above the estimate. The "other" revenue category includes collections from amusements, communications, publishing and printing, advertising, transportation and towing, pipelines for oil and gas, and mining. The communications and amusement sectors were the largest contributors to the growth in revenues during FY 2000, increasing 17.7 percent and 13.4 percent, respectively. The communications sector has benefited from the growth in cellular phone ownership along with consumer demand for voice mail and second phone lines. PAGE 7 OTHER 20.0% 15.0% 10.0% 5.0% 0.0% 90 91 92 93 94 9 5 9 6 9 7 9 8 99 0 0 FISCAL YEAR REVENUE TREND ANALYSIS ANNUAL RARF REVENUE TRENDS MONTHLY RARF REVENUE TREND 14.0% 26.000 12.0% 24.000 22.000 10.0% 20.000 8.0% 18.000 6.0% 16.000 4.0% 14.000 12.000 2.0% 10.000 0.0% 90 91 92 93 94 95 96 97 98 99 00 FISCAL YEAR FY 2000 Actuals FY 2000 Estimate FY 1999 Actuals Transportation excise tax collections totaled $248.6 million in FY 2000, compared to $229.5 million in FY 1999. All revenue categories showed increases over last year’s revenue levels. The stronger than expected employment growth along with higher consumer confidence and population growth have attributed to higher excise tax collections in Maricopa County over the past fiscal year. In addition, the Maricopa County economy continues to become more diversified with advancement in the high technology and financial sectors. On a monthly basis, RARF revenue continues to follow consistent trends with sharp increases in revenues in the months of December and January due to holiday retail sales. PAGE 8 REVENUE COMPOSITION COMPARISON CONTRACTING RETAIL SALES 18.0% 52.0% 16.0% 51.0% 50.0% 49.0% 48.0% 47.0% 46.0% 86 88 90 92 94 96 98 00 FISCAL YEAR UTILITIES 12.0% 10.0% 8.0% Retail sales is the largest component of the excise tax collections, generating just over 50 percent of total revenues which has been consistent since the inception of the excise tax in FY 1986. The second largest category is contracting, representing 15 percent of total RARF collections. In FY 2000, all categories remained nearly unchanged in their proportion of revenue contributed to total RARF revenue. 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 86 88 90 92 94 96 98 00 FISCAL YEAR RESTAURANT & BAR 9.0% 8.8% 8.6% 8.4% 8.2% 6.0% 8.0% 4.0% 7.8% 2.0% 7.6% 7.4% 0.0% 86 86 88 90 92 94 96 98 88 90 10.0% 5.0% 8.0% 4.0% 6.0% 3.0% 4.0% 2.0% 2.0% 1.0% 5.6% 5.4% 5.2% 5.0% 4.8% 4.6% 4.4% 0.0% 0.0% 94 96 FISCAL YEAR 00 6.2% 6.0% 5.8% 6.0% 92 98 OTHER 12.0% 90 96 RENTAL OF PERSONAL PROPERTY RENTAL OF REAL PROPERTY 88 94 FISCAL YEAR FISCAL YEAR 86 92 00 98 00 86 88 90 92 94 FISCAL YEAR PAGE 9 96 98 00 86 88 90 92 94 FISCAL YEAR 96 98 00 REVENUE PERFORMANCE MARICOPA COUNTY TRANSPORTATION EXCISE TAX FY 2000 ACTUAL TOTAL= $248.6 MILLION DISTRIBUTIONS SOURCES RENTAL OF PERSONAL PROPERTY $13.4M 5.4% OTHER $14.8M 6.0% RENTAL OF REAL PROPERTY $22.1M 8.9% REGIONAL PUBLIC TRANSIT SYSTEM $7.1 M 2.9% RETAIL SALES $124.4M 50.1% RESTAURANT & BAR $20.0M 8.0% UTILITIES $16.5M 6.6% CONTRACTING $37.4M 15.0% REGIONAL FREEWAY SYSTEM $241.5 M 97.1% PAGE 10 MARICOPA COUNTY REGIONAL AREA ROAD FUND TRANSPORTATION EXCISE TAX REVENUE COMPARISON STATEMENT FY 2000 FY 1999 ACTUAL FY 2000 ACTUAL CHANGE FY 2000 ESTIMATE CHANGE RETAIL SALES $113,528,130 $124,428,395 9.6% $121,634,000 2.3% CONTRACTING 35,632,022 37,383,996 4.9% 39,132,000 -4.5% UTILITIES 15,680,268 16,437,080 4.8% 16,416,000 0.1% RESTAURANT & BAR 18,304,494 20,005,337 9.3% 19,826,000 0.9% RENTAL OF REAL PROPERTY 20,266,383 22,080,079 8.9% 22,926,000 -3.7% RENTAL OF PERSONAL PROPERTY 12,787,040 13,434,147 5.1% 13,544,000 -0.8% OTHER 13,271,864 14,826,955 11.7% 13,170,000 12.6% TOTAL $229,470,201 $248,595,990 8.3% $246,648,000 0.8% CATEGORY 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 - 2000 (Dollars in Thousands) FISCAL YEAR 1986 * 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 RETAIL RESTAURANT SALES CONTRACTING UTILITIES & BAR $19,244 48,085 51,405 53,927 55,798 56,769 59,108 64,033 72,737 81,546 90,454 96,281 104,073 113,528 124,428 TOTAL $1,091,416 RENTAL REAL PROPERTY RENTAL PERSONAL 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% 9.7% 8.3% $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 35,632 37,384 $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 15,680 16,437 $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 18,304 20,005 $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 20,266 22,080 $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 12,787 13,434 $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 13,272 14,827 $36,986 94,831 99,190 106,250 110,801 113,335 116,496 127,273 142,846 160,318 178,413 192,257 209,263 229,470 248,596 $292,778 $178,208 $180,067 $195,382 $110,996 $117,479 $2,166,326 COMPOUND ANNUAL GROWTH RATE (FY 1987 - FY 2000) = 7.7% *The tax became effective January 1, 1986 PAGE 12 ARIZONA TRANSACTION PRIVILEGE TAX EXCISE TAX RATES FY 2000 Taxable Activity Retail Sales Contracting Rental of Real Property (including hotels & motels) Restaurants and Bars Utilities Rental of Personal Property Communication Amusements Publishing and Printing Other Mining Wholesale Feed Percent of Total Maricopa County Transaction Privilege Tax Collections Transaction Privilege Tax Rate Transportation Excise Tax Rate 50.05% 15.04% 8.88% 5.00% 5.00% 1.82%* 0.50% 0.50% 0.512% 8.05% 6.61% 5.40% 3.41% 1.14% 0.87% 0.55% 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, and intrastate operation of pipelines for oil or natural or artificial gas. PAGE 14