Maricopa County Transportation Excise Tax Fiscal Year 2012 Year-End Report Arizona Department of Transportation Financial Management Services Office of Financial Planning August 2012 MARICOPA COUNTY TRANSPORTATION EXCISE TAX EXECUTIVE SUMMARY The Maricopa County 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. Under Proposition 300, transportation excise tax revenues were 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 were the principal source of funding for the Regional Freeway System in Maricopa County and were dedicated by statute to the purchase of right-of-way, design and construction of controlled access highways through December 31, 2005. In November 2004, the Maricopa County voters approved Proposition 400, which extended the 1/2 cent sales tax for another 20 years through December 31, 2025. The sales tax extension is used for construction of new freeways, widening of existing freeways and highways, improvements to the arterial street system, regional bus service and high capacity transit services such as light rail. MARICOPA COUNTY TRANSPORTATION EXCISE TAX COLLECTIONS $400.0 $360.0 MILLION OF DOLLARS The Maricopa County Transportation Excise Tax collections totaled $324.2 million in fiscal year (FY) 2012, an increase of 4.8 percent over FY 2011 and 0.8 percent above the estimate. In spite of the persistent high unemployment and slow job growth in Maricopa County, RARF revenues managed to grow moderately. All the primary RARF revenue categories posted positive year-over-year growth with strength centered in retail sales, contracting and restaurant and bar. The Maricopa County economy has continued to improve but at a slower than normal rate. $320.0 $280.0 $240.0 $200.0 $160.0 $120.0 $80.0 $40.0 $0.0 2011 ACT 2012 ACT FISCAL YEAR PAGE 1 2012 EST PERFORMANCE BY CATEGORY RETAIL SALES: The major factors used to forecast retail sales are personal income, population and non-farm employment. According to the 2012 third quarter Phoenix Blue Chip report, personal income grew by 5.1 percent in CY 2011 and the expert panel of economists expect it to continue to grow by 4.6 and 5.5 percent in CY 2012 and 2013, respectively. In the same report Maricopa County’s population is projected to grow by 1.4 percent in CY 2012 and 1.6 percent in CY 2013, up from 1.3 percent in CY 2011. According to the Arizona Department of Administration’s Arizona Workforce Employment Report dated May 4, 2012, the non-farm employment is expected to increase by 2.3 percent in CY 2012 and 2.5 percent in CY 2012. PAGE 2 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% 03 04 05 06 07 08 09 10 11 12 FISCAL YEAR PERSONAL INCOME IN MARICOPA COUNTY 15.0% 10.0% % CHANGE FY 2012 retail sales revenue amounted to $162.4 million, an increase of 6.8 percent over FY 2011 and 1.7 percent over the estimate. Retail sales collections benefited from strong consumer spending which occurred in the first five months of FY 2012 but then slowed in the second half of the year. With an improving job market in Maricopa County during FY 2012, consumers were more willing to spend on discretionary items due to improved confidence in the economy. In an Arizona Republic article dated October 28, 2011, Dr. Dennis Hoffman from Arizona State University noted that consumers have reached a point where they cannot put off making major durable purchases forever. % CHANGE RETAIL SALES 5.0% 0.0% -5.0% -10.0% 04 05 06 07 08 09 10 11 12 EST CALENDAR YEAR Source: Phoenix Blue Chip Economic Forecast report, 3rd Quarter 2012 13 EST RETAIL SALES: Continued PHOENIX-GLENDALE-MESA MSA NON-FARM EMPLOYMENT POPULATION MARICOPA COUNTY 6.0% % CHANGE PERCENT 8.0% 4.0% 2.0% 0.0% 04 05 06 07 08 09 10 11 12 EST 13 EST 9.0% 7.0% 5.0% 3.0% 1.0% -1.0% -3.0% -5.0% -7.0% -9.0% 04 CALENDAR YEAR 05 06 07 08 09 10 11 12 13 EST EST CALENDAR YEAR Source: Phoenix Blue Chip Economic Forecast report, 3rd Quarter 2012 Source: ADOA Arizona Workforce Employment Report, May 4, 2012 PAGE 3 CONTRACTING 30.0% 20.0% % CHANGE CONTRACTING: Contracting revenues for FY 2012 totaled $30.5 million, an increase of 8.9 percent from FY 2011 and even with the estimate. The contracting revenue category benefited from a decrease in the supply of residential homes for sale and lower commercial real estate vacancy rates. Continued lower interest rates and affordable home prices have also attributed to stronger contracting revenues. This is the first year the contracting revenue category posted a year-over-year gain since FY 2008. However, contracting revenue collections were still at the 1998 revenue levels. 10.0% 0.0% -10.0% -20.0% -30.0% -40.0% -50.0% 03 04 05 06 07 08 FISCAL YEAR 09 10 11 12 The Phoenix Blue Chip panel estimates single-family permits in Maricopa County to increase by 92.6 and 61.4 percent in CY 2012 and CY 2013, respectively, from a decline of 7.9 percent in CY 2011. The multi-family permits increased 380.6 percent in CY 2011 and is forecast to increase by another 116.5 percent in CY 2012 before slowing down to 48.4 percent in CY 2013. The large year-over-year increases are due to the low housing permit base. CY 2012 is expected to be the best year in housing permit growth since CY 2007. Construction activity in the office, retail and industrial sectors is estimated to be modest in CY 2012 and CY 2013 as the excess inventory continues to be absorbed. In CY 2011, 0.44 million square feet of office space was added in Maricopa County. The panel expects another 0.22 million square feet of new office space in CY 2012 and 0.4 million in CY 2013. The retail sector that added 0.36 million square feet in CY 2011 is forecasted to add another 0.55 million square feet in CY 2012 and 0.74 million square feet in CY 2013. The industrial sector added 1.49 million of square feet to its inventory while the Phoenix Blue Chip panel expects another 1.25 and 2.88 million square feet to be added in CY 2012 and 2013, respectively. MULTI-FAMILY HOUSING PERMITS MARICOPA COUNTY 400.0% 100% 80% 60% 40% 20% 0% -20% -40% -60% -80% 350.0% 300.0% % CHANGE % CHANGE SINGLE FAMILY HOUSING PERMITS MARICOPA COUNTY 250.0% 200.0% 150.0% 100.0% 50.0% 0.0% -50.0% 04 05 06 07 08 09 10 11 12 EST -100.0% 13 EST 04 05 06 07 08 09 10 11 12 EST 13 EST CALENDAR YEAR CALENDAR YEAR Source: Greater Phoenix Blue Chip Economic Forecast report, 2nd Quarter 2012 Source: Greater Phoenix Blue Chip Economic Forecast report, 2nd Quarter 2012 During the Great Recession, many construction workers left the state or changed their vocation resulting in a shortage of construction workers. The 2012 third quarter Phoenix Blue Chip report noted that construction employment increased by 1.0 percent in CY 2011. The panel forecasts construction employment will increase by 5.0 percent in CY 2012 and 8.5 percent in CY 2013. PAGE 4 CONTRACTING: Continued The contracting revenue category is also affected by the interest rates. The 30-year fixed mortgage rate decreased from 4.7 percent in CY 2010 to 4.5 percent in CY 2011. According to Freddie Mac, the 30-year fixed mortgage rate has fallen to 3.7 percent in June 2012. With the U.S. economy recovery being less robust and the unemployment rate still high, the Federal Reserve is expected to continue a low interest rate environment. MORTGAGE INTEREST RATES 30-YEAR CONVENTIONAL FIXED RATE MORTGAGE ANNUAL AVERAGE FOR EACH CALENDAR YEAR CONSTRUCTION EMPLOYMENT MARICOPA COUNTY 200 180 THOUSANDS ANNUAL RATE 8.0% 7.0% 6.0% 5.0% 160 140 120 100 80 4.0% 60 3.0% 03 03 04 05 06 07 08 09 10 11 04 05 06 12 07 08 09 10 11 CALENDAR YEAR Source: Freddie Mac http://www.freddiemac.com/pmms/pmms30.htm Note: CY 2012 rate as of June 2012 12 EST 13 EST Source: Greater Phoenix Blue Chip Economic Forecast report, 3rd Quarter 2012 UTILITIES: UTILITIES 15.0% % CHANGE FY 2012 utilities collections were $30.2 million, an increase of 2.4 percent from the prior fiscal year and 1.4 percent over the estimate. Warmer weather and lower residential and commercial vacancies attributed to the growth in utilities revenues. In CY 2011, SRP and APS had no rate increases due to excess capacity and consumers being watchful of their utility usage. 10.0% 5.0% 0.0% -5.0% 03 04 05 06 07 08 09 FISCAL YEAR PAGE 5 10 11 12 RESTAURANT AND BAR: RESTAURANT & BAR 15.0% 10.0% % CHANGE In FY 2012, restaurant and bar revenues totaled $34.3 million, an increase of 8.0 percent over FY 2011 and 4.5 percent above the estimate. The restaurant and bar revenue category benefited from the improved hospitality and tourism industry and Maricopa County consumers became more willing to dine out as the economy added more jobs. In the summer of CY 2011, hotels promoted heavily and major conventions, including the Major League Baseball All-Star Game in Phoenix, attracted many vacationers which helped the restaurant and bar collections. 5.0% 0.0% -5.0% -10.0% -15.0% 03 04 05 06 07 08 09 10 11 12 FISCAL YEAR RENTAL OF REAL PROPERTY: PAGE 6 RENTAL OF REAL PROPERTY 15.0% 10.0% % CHANGE FY 2012 rental of real property collections increased to $36.4 million, an increase of 1.9 percent over last year and 0.9 percent above the estimate. The rental of real property revenue category includes rental of apartments and houses and motel and hotel activity. In FY 2012, 81 percent of rental of real property revenues were derived from the rental of apartments and houses and the remaining 19 percent from motel and hotel. In FY 2012, the motel and hotel sector increased by 6.3 percent and apartment and houses rental increased by 0.9 percent. The increase in rental of real property revenues was due to the increased activity in the hospitality and tourism industry. 5.0% 0.0% -5.0% -10.0% 03 04 05 06 07 08 09 FISCAL YEAR 10 11 12 RENTAL OF PERSONAL PROPERTY: RENTAL OF PERSONAL PROPERTY 10.0% % CHANGE FY 2012 rental of personal property collections totaled $12.0 million, an increase of 3.1 percent over FY 2011 and 2.3 percent over the estimate. This revenue category benefited from increased vehicle rentals by tourists, vehicle leasing, business and construction equipment leasing and rental of tangible personal property. 15.0% 5.0% 0.0% -5.0% -10.0% -15.0% 03 04 05 06 07 08 09 10 11 12 FISCAL YEAR OTHER: OTHER PAGE 7 20.0% 15.0% % CHANGE “Other” revenues amounted to $18.4 million in FY 2012 a decrease of 10.9 percent from FY 2011 and 12.8 percent below the forecast. The decrease in other revenues was due to FY 2011 having higher than normal revenue audit collections that significantly boosted one-time revenues. The “other” revenue category includes collections from towing and transportation, communications, railroad and aircraft, private rail and pipeline, publishing, printing, amusement, jet fuel tax and miscellaneous other revenues. 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0% 03 04 05 06 07 08 09 FISCAL YEAR 10 11 12 REVENUE TREND ANALYSIS ANNUAL MARICOPA COUNTY TRANSPORTATION EXCISE TAX TRENDS MONTHLY MARICOPA COUNTY TRANSPORTATION EXCISE TAX REVENUE TREND 60.0 20.0% MILLIONS OF DOLLARS 55.0 % CHANGE 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% 50.0 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 -15.0% 5.0 03 04 05 06 07 08 09 10 11 JUL 12 FISCAL YEAR AUG SEP FY 2011 Actual OCT NOV DEC JAN FEB FY 2012 Estimate MAR APR MAY JUN FY 2012 Actual The Maricopa County Transportation Excise Tax has posted two consecutive years of positive year-over-year growth and ended the year at $324.2 million. Although the Maricopa County economy continues to grow at a slow pace, all the primary RARF revenue categories managed to end the year with positive year-over-year growth. The monthly seasonality revenue trend has consistently seen spikes in January and April due to the holiday season shopping along with spring training baseball games and winter visitors. The reporting of the revenues lags one month. PAGE 8 REVENUE PERFORMANCE MARICOPA COUNTY TRANSPORTATION EXCISE TAX FY 2012 ACTUAL TOTAL= $324.2 MILLION DISTRIBUTIONS SOURCES RENTAL OF PERSONAL PROPERTY $12.0M 3.7% RESTAURANT & BAR $34.3M 10.6% OTHER $18.4M 5.7% RETAIL SALES $162.4M 50.1% PUBLIC TRANSPORTATION FUND $107.9M 33.3% REGIONAL PLANNING /1 $8.9M 2.7% CONTRACTING $30.5M 9.4% UTILITIES $30.2M 9.3% ARTERIAL STREETS $34.0M 10.5% RENTAL OF REAL PROPERTY $36.4M 11.2% Note: 1/ Funds split evenly between Maricopa Association of Governments and the Public Transportation Fund to be used for planning purposes. 2/ Net of Regional Planning monies of $8.9 million. Total may not add due to rounding. PAGE 9 FREEWAYS $173.4M 53.5% /2 MARICOPA COUNTY TRANSPORTATION EXCISE TAX REVENUE COMPARISON STATEMENT FY 2011 AND 2012 FY 2011 ACTUAL FY 2012 ACTUAL CHANGE FY 2012 ESTIMATE CHANGE RETAIL SALES $152,002,580 $162,391,152 6.8% $159,600,000 1.7% CONTRACTING 28,012,067 30,513,491 8.9% 30,500,000 0.0% UTILITIES 29,511,098 30,216,580 2.4% 29,800,000 1.4% RESTAURANT & BAR 31,728,534 34,278,481 8.0% 32,800,000 4.5% RENTAL OF REAL PROPERTY 35,730,775 36,415,145 1.9% 36,100,000 0.9% RENTAL OF PERSONAL PROPERTY 11,606,271 11,966,269 3.1% 11,700,000 2.3% OTHER 20,642,646 18,388,999 -10.9% 21,100,000 -12.8% TOTAL $309,233,971 $324,170,117 4.8% $321,600,000 0.8% CATEGORY NOTE: Division of collections to business categories is imputed based upon reported taxable income. Total may not add due to rounding. PAGE 10 MARICOPA COUNTY TRANSPORTATION EXCISE TAX REVENUES COLLECTED BY CATEGORY FY 1986 – 2012 (Dollars in Thousands) RENTAL RENTAL FISCAL RETAIL RESTAURANT REAL PERSONAL YEAR SALES CONTRACTING UTILITIES & BAR PROPERTY PROPERTY OTHER TOTAL 1986 * $19,244 $5,716 $3,073 $3,682 $1,923 $1,733 $1,615 $36,986 1987 48,085 14,849 8,542 7,579 6,822 4,172 4,782 94,831 1988 51,405 14,188 9,535 8,379 5,994 4,728 4,961 99,190 1989 53,927 13,947 10,336 8,795 8,952 4,883 5,410 106,250 1990 55,798 13,286 10,685 9,282 10,808 5,289 5,653 110,801 1991 56,769 12,715 11,353 9,655 11,091 5,708 6,044 113,335 1992 59,108 11,688 10,999 10,280 11,707 6,043 6,671 116,496 1993 64,033 13,385 11,874 11,171 12,993 6,672 7,145 127,273 1994 72,737 17,039 12,680 12,166 13,414 7,002 7,808 142,846 1995 81,546 21,107 13,132 13,291 14,660 8,198 8,384 160,318 1996 90,454 24,284 14,198 14,739 16,822 8,734 9,183 178,413 1997 96,281 26,948 14,583 15,821 18,298 10,074 10,252 192,257 1998 104,073 30,610 15,101 16,917 19,552 11,539 11,472 209,263 1999 113,528 35,632 15,680 18,304 20,266 12,787 13,272 229,470 2000 124,428 37,384 16,437 20,005 22,080 13,434 14,827 248,596 2001 131,608 38,820 17,862 21,395 24,112 14,416 16,510 264,722 2002 131,393 41,218 18,432 21,748 24,529 13,928 16,314 267,563 2003 133,922 38,894 18,485 22,646 25,747 12,834 16,192 268,721 2004 144,817 43,524 19,980 24,807 27,163 12,631 15,678 288,600 2005 158,179 52,325 20,813 27,191 29,310 12,624 16,364 316,806 2006 182,378 64,822 23,600 30,656 32,949 13,923 19,309 367,637 2007 187,817 73,864 26,697 33,073 36,398 15,053 19,548 392,452 2008 177,845 66,046 28,630 33,021 38,605 15,111 20,808 380,066 2009 153,681 46,865 28,511 30,763 37,757 13,470 17,139 328,186 2010 143,205 28,953 29,385 30,558 35,825 11,983 19,115 299,024 2011 152,003 28,012 29,511 31,729 35,731 11,606 20,643 309,234 2012 162,391 30,513 30,217 34,278 36,415 11,966 18,389 324,170 TOTAL $2,950,654 $846,635 $470,331 $521,932 $579,924 $270,542 $333,489 $5,973,507 COMPOUND ANNUAL GROWTH RATE (FY 1987 - FY 2012) = 5.0% *The tax (Prop. 300) became effective January 1, 1986 and was extended (Prop. 400) on January 1, 2006 for another 20 years. Total may not add due to rounding. PAGE 11 PERCENT CHANGE N/A 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% 6.5% 1.1% 0.4% 7.4% 9.8% 16.0% 6.7% -3.2% -13.7% -8.9% 3.4% 4.8% MARICOPA COUNTY TRANSPORTATION EXCISE TAX REVENUE DISTRIBUTION FY 1986 – 2012 (Dollars in Thousands) FISCAL YEAR 1986/1 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006/3 2007 2008 2009 2010 2011 2012 Total FREEWAYS $36,986 89,831 94,056 100,963 105,325 107,652 110,579 121,141 136,553 153,864 171,826 185,507 202,380 222,450 241,505 257,529 260,222 261,219 281,012 309,092 292,487 213,119 205,576 176,235 159,604 165,321 173,334 $4,835,365 REGIONAL AREA ROAD FUND RPTA/(PTF and MAG) /2 ARTERIAL STREETS $5,000 5,135 5,287 5,477 5,683 5,917 6,132 6,293 6,454 6,587 6,750 6,883 7,020 7,091 7,194 7,341 7,502 7,588 7,713 7,877 8,095 8,334 8,555 8,742 8,845 8,928 $182,424 $16,127 41,050 39,832 34,376 31,327 32,379 34,019 $229,110 PUBLIC TRANSPORTATION FUND $51,146 130,188 126,324 109,020 99,351 102,689 107,889 $726,607 TOTAL $36,986 94,831 99,190 106,250 110,801 113,335 116,496 127,273 142,846 160,318 178,413 192,257 209,263 229,470 248,596 264,722 267,563 268,721 288,600 316,806 367,637 392,452 380,066 328,186 299,024 309,234 324,170 $5,973,506 Notes: 1/ The Maricopa County transportation excise tax became effective on January 1, 1986 per Prop. 300. Prop. 300 collections (effective January 1, 1986 through December 31, 2005) total $3,792 million but will change over time due to adjustments, refunds and audits. 2/ The Regional Public Transportation Authority received a portion of the excise tax funds for transit costs through December 31, 2005. As of January 1, 2006, these funds are distributed evenly to the Maricopa Association of Governments and the Public Transportation Fund to be used for planning purposes per Prop. 400. These funds are netted from the Freeway funds. 3/ The Prop. 400 became effective on January 1, 2006 and the distributions are as follows: Freeways, 56.2%; Arterial Streets, 10.5%; and Public Transportation Fund, 33.3%. Prop. 400 collections total $2,182 million since inception. Total may not add due to rounding. PAGE 12 MARICOPA COUNTY TRANSPORTATION EXCISE TAX FY 2012 ACTUAL REVENUE DISTRIBUTION FLOW (Millions of Dollars) Retail Sales $162.4 Contracting Utilities $30.5 $30.2 Restaurant Rental of Rental of & Bar Real Prop. Pers. Prop. $34.3 $36.4 $12.0 Other $18.4 Maricopa County Transportation Excise Tax Collections /1,2 $324.2 Arizona Department of Revenue NOTES: /1. Prop 300 expired on December 31, 2005 and Prop. 400 became effective on January 1, 2006. FY 2011 collections and distributions are a mix of both Prop. 300 and Prop. 400. Prop. 300 monies will continue over time due to adjustments, refunds and audits. $324.2 /2. Under Prop. 400, the Regional Area Road Fund (ADOT) receives the Freeways 56.2% and the Arterial Streets 10.5% revenues. MAG programs projects for the Arterial Streets 10.5% monies and then bills ADOT for the costs. /3. A portion of the Freeways 56.2% monies are distributed equally to MAG and the Public Transportation Fund to be used for planning purposes. $107.9 Public Transportation Fund 33.3% Regional Area Road Fund $34.0 Arterial Streets 10.5% $182.3 /3 Freeways 56.2% $8.9 MAG and PTF PAGE 13 ARIZONA TRANSACTION PRIVILEGE TAX EXCISE TAX RATES FY 2012 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 Percent of Total Maricopa County Transaction Privilege Tax Collections 50.10% 9.40% 11.20% Transaction Privilege Tax Rate 5.00% 5.00% 1.82%* Transportation Excise Tax Rate 0.50% 0.50% 0.512% 10.60% 9.30% 3.70% 3.10% 1.20% 0.40% 1.00% 0.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 3.125% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.3125% * 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. PAGE 14 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 such as leased vehicles and construction equipment. OTHER Includes intrastate transportation of persons, freight or operations of property, intrastate telecommunication services, intrastate operation of pipelines for oil or natural or artificial gas, job printing, engraving, embossing and publication, publication of newspapers, magazines and other periodicals, operations of amusement places and miscellaneous other revenues PAGE 15