ARIZONA

MONTHLY FISCAL HIGHLIGHTS
June 2006
Summary
General Fund revenue collections were $853.6 million in May. These collections were 28.6% higher than May 2005 revenues.
Year-to-date, General Fund revenues are 17.0% higher than in 2005.
May collections were $183.8 million higher than the revised January JLBC Baseline FY 2006 forecast. The recently enacted budget
legislation assumes that FY 2006 revenue collections will be $496 million higher than the JLBC January Baseline estimate by the
end of June. For the fiscal year-to-date through May, revenues are $475.0 million above the January forecast.
Collections in May exceeded the already high rates of growth seen throughout most of the fiscal year. Of the 3 largest revenue
categories, May sales tax collections were 14.8% above last year, consistent with prior months’ growth for that category. Individual
income tax collections nearly doubled from last year, growing at a rate of 85.0%. The high rate of growth in collections was driven
by a large increase in final payments, which more than tripled final payments from last year. Corporate income tax collections
decreased (22.3)% from the prior year. The reduction, however, appears to be the result of early processing of corporate collections
in April.
In other fiscal news this month, the JLBC met on June 14th and the JCCR met on June 15th. A summary of the meetings can be
found on pages 5 - 7. The two committees favorably reviewed a number of year-end fund transfers, except for a Department of
Economic Security (DES) transfer from the Temporary Assistance to Needy Families (TANF) Special Line Item to other areas of the
DES budget, which received an unfavorable review from JLBC. JCCR also favorably reviewed a report by the School Facilities
Board on projected FY 2007 new school construction spending. The board expects to oversee 75 construction projects and spend a
total of $360.7 million in that year. (See page 9 for a list of all projects.)
The June Monthly Fiscal Highlights also includes a summary of recent statutory reports submitted to JLBC (see page 7).

Table of Contents
Page #

Page #

May Revenues ........................................................................3
Recent Economic Indicators...................................................3

June 15 JCCR Meeting Summary
- ADOT – Transfer of Funds and Asphalt Storage Tanks ..... 6
- ADOT – FY 2007 Construction Budget Expenditure Plan . 6
- SFB – FY 2007 New School Construction Report.............. 7
- DJC – Suicide Prevention Renovations............................... 7
- ADOA – Department of Real Estate Rent Exemption ........ 7

June 14 JLBC Meeting Summary
- ADC – Transfer of Appropriations ......................................5
- DES – Transfer of Appropriations .......................................5
- Pioneers’ Home – Transfer of Appropriations .....................5
- AHCCCS – Rural Hospital Capitation Rate Change ...........5
- Attorney General – Allocation of Settlement Monies..........5
- ADOT – Third Party Quality Assurance Report ..................5
- ADE – Kinder Morgan Settlement.......................................6
- DPS – Arizona Public Safety Communications Advisory
Commission ......................................................................6
- DOR – Ladewig Expenditure Plan.......................................6
- DOA – Transfer of Appropriations .....................................6

Summary of Recent Agency Reports
- ADOA/GITA – AZNet Implementation ............................. 7
- ADC – Monthly Bed Plan Update....................................... 7
- Economic Estimates Commission – Budget Stabilization
Fund................................................................................ 8
- ADE – Budget Status Report............................................... 8
- Land – State Trust Land Activities...................................... 8
- DOR – Revenue Generating Program ................................. 8

This report has been prepared for the Arizona Legislature by the Joint Legislative Budget Committee Staff on June 29, 2006. This report can also be
found on our Website at http:/www.azleg.gov/jlbc.htm
Page 1

State of Arizona
General Fund Revenue: Change from Previous Year and January Forecast
May 2006
Current Month

FY 2006 YTD (Eleven Months)

Change From
May 2005

Actual
May 2006

Amount

Change from
Revised Forecast

Percent

Percent

Amount

May 2005

Actual
May 2006

Revised Forecast
Percent

Amount

Percent

Amount

Taxes
Sales and Use

$362,497,362

$46,832,852

14.8 %

$20,018,820

Income - Individual

423,818,481

194,696,448

85.0

188,725,575

80.3

- Corporate

52,843,691

(15,205,029)

(22.3)

(16,381,710)

3,165,364

(2,121,472)

(40.1)

(1,249,609)

Property
Luxury

$562,438,095

3,354,929,381

663,892,480

(23.7)

724,738,736

120,282,976

(28.3)

19,489,423

(2,540,087)

16.9 %

$93,201,456

24.7

339,185,111

19.9

55,281,166

(11.5)

(510,577)

2.5 %
11.2
8.3
(2.6)

3.2

357,911

6.3

61,170,493

3,275,729

5.7

999,568

1.7

(5,787,297)

(18.4)

244,262

1.0

301,286,723

7,555,540

2.6

(292,177)

(0.1)

Estate

81,923

(1,544,432)

(95.0)

(693,077)

(89.4)

11,644,833

(18,288,866)

(61.1)

(2,606,750)

(18.3)

Other Taxes

49,984

1,830

3.8

(17,016)

(25.4)

1,188,567

(1,343,511)

(53.1)

$874,206,678

$217,057,518

Sub-Total Taxes

184,618

$3,890,093,074

25,718,962

Insurance Premium

6,030,911

5.8 %

33.0 %

$191,005,156

28.0 %

$8,364,541,230

$1,335,272,356

19.0 %

533,864
$485,791,661

81.5
6.2 %

Other Revenue
Lottery

(53.9)

38,311,100

10,899,500

39.8

1,168,300

License, Fees and Permits

2,502,267

120,581

5.1

674,367

36.9

29,922,134

3,728,216

14.2

1,295,187

4.5

Interest

4,346,430

1,299,695

42.7

(252,170)

(5.5)

54,056,631

31,571,433

140.4

8,395,801

18.4

Sales and Services

4,659,732

1,195,638

Other Miscellaneous

2,311,162

Disproportionate Share
Transfers and Reimbursements
Sub-Total Other Revenue
TOTAL BASE REVENUE

922,000

(2,218,400)

(920,512)

(70.6)

(1,078,000)

3.1

34.5

1,409,332

43.4

46,801,777

7,220,919

18.2

2,130,574

4.8

(28.5)

(2,863,238)

(55.3)

21,309,346

1,013,489

5.0

(8,577,951)

(28.7)

0

0

--

0

--

0

0

--

0

--

43,923

(16,638,239)

(99.7)

(5,116,077)

(99.1)

18,898,507

(33,825,640)

(64.2)

(15,247,600)

(44.7)

14,785,514

(17,161,237)

(53.7) %

(7,225,786)

(32.8) %

209,299,495

20,607,917

10.9 %

26.1 %

$8,573,840,725

$1,355,880,273

18.8 %

$888,992,192

$199,896,281

29.0 %

$183,779,370

(10,835,689)
$474,955,972

(4.9) %
5.9 %

One-Time Revenue
Urban Revenue Sharing

(35,435,744)

(4,346,362)

14.0

0

(389,793,183)

(47,809,986)

14.0

0

VLT Transfer

0

(5,500,888)

(100.0)

0

--

0

(117,825,282)

(100.0)

0

--

Judicial Enhancement

0

(559)

(100.0)

0

--

0

(2,121,439)

(100.0)

0

--

Sub-Total Transfers In

(35,435,744)

(9,847,809)

38.5 %

0

0.0 %

(389,793,183)

(167,756,707)

75.6 %

0

0.0 %

28.6 %

$183,779,370

27.4 %

17.0 %

$474,955,972

6.2 %

TOTAL REVENUE

$853,556,448

$190,048,472

0.0

$8,184,047,542

$1,188,123,566

0.0

Table 1

Joint Legislative Budget Committee

Monthly Fiscal Highlights – June 2006

MAY REVENUES

RECENT ECONOMIC INDICATORS

Sales Tax revenue increased by 14.8% on a year-over-year
basis in May and was $20.0 million above the revised forecast
for the month. The following table displays the May and yearto-date growth rates for the major categories:

Energy costs continued to push prices higher. The U.S.
Consumer Price Index (CPI) 3-month moving average
climbed 0.6% in May and stood 3.7% above its level from a
year ago. Energy costs jumped 2.4% in May, while food costs
edged up 0.1% from the prior month. Excluding food and fuel
prices, the core CPI increased 2.4% from May 2005.

Table 2
Sales Tax Growth Rates
May
Year-to-Date
Retail
14.3%
14.7%
Contracting
24.2%
27.7%
Utilities
10.9%
11.9%
Use
0.1%
21.1%
Restaurant & Bar
8.6%
12.6%
May use tax collections were relatively flat from last year.
This is in part due to the strength of May 2005 collections.
The other major categories grew at a healthy rate, though at a
slightly slower pace than prior months.
Individual Income Tax collections were $423.8 million in
May, an 85.0% increase from last May and $188.7 million
above the revised forecast for the month. Final payments
increased $169.6 million, or 212.6%, over May of last year.
Withholding collections grew at a rate of 13.4%, while refunds
increased by 13.0% on a year-over-year basis. Year-to-date,
total collections are 24.7% above last year.

Although the 3-month moving average of U.S. semiconductor
billings dipped slightly in April, it remained 11.4% above the
level from a year ago.
The Semiconductor Industry
Association (SIA) cited intense competition and falling prices
in the microprocessor market segment as the source of the
nominal decline. The SIA revised its 2006 forecast for
worldwide semiconductor sales growth from 7.9% to 9.8%.
The U.S. Index of Leading Economic Indicators dropped
(0.6)% in May. Building permits, vendor performance, stock
prices, unemployment insurance claims, and hours worked in
manufacturing all made negative contributions, while
manufacturers’ new orders improved.
The Conference Board’s U.S. Consumer Confidence Index
declined (6.0)% in May, reversing the gain from the prior
month when it reached a 4-year high. Apprehension about the
economic outlook, the labor market, and future earnings drove
the expectations components of the index down to the levels
reported in the wake of last summer’s hurricanes.

Corporate Income Tax collections were $52.8 million in May,
a (22.3)% decrease from a year ago and $(16.4) million below
the revised forecast. As noted in the prior Monthly Fiscal
Highlights, April collections were $58.0 million above the
revised forecast, which appears to be the result of early
processing of collections in April. For the fiscal year to date,
corporate income tax revenues have increased 25.3% from last
year.

Arizona’s job market continued to perform well in May.
Although non-farm employment edged down slightly due to
seasonal influences, it remained 4.7% above May 2005.
Financial services experienced job losses, perhaps in response
to the slowdown in the state’s housing market. However,
construction added another 2,100 workers over the previous
month. The state’s unemployment rate dipped (0.1)% to
4.2% in May.

The General Fund portion of May Luxury Tax collections
was $6.4 million, or 9.7% above May 2005.

The Real Estate Center at Arizona State University reported
that the Greater Phoenix single-family median resale home
price inched up from $264,900 to $265,000 in May, which
was 12.8% higher than a year ago and matched the record first
reached in September 2005. Although the number of singlefamily homes sold increased from April, it was (34.1)% below
the level reported in May 2005. The May townhousecondominium median price remained at $175,000 and was
22.0% above the level from a year ago.

Table 3
General Fund Revenues
Compared to Enacted and Revised Forecasts and FY 2005 Collections
($ in Millions)
FY 2006
Difference From
Difference From
Difference
Collections
May 2005 Forecast 1/
Jan 2006 Forecast 2/
From FY 2005
May
$ 853.6
$ 282.1
$ 183.8
$ 190.0
Year-to Date
$ 8,184.0
$ 1,176.5
$ 475.0
$ 1,188.1
____________
1/ Originally enacted FY 2006 budget (May 2005)
2/ JLBC January Baseline Budget

Page 3

Joint Legislative Budget Committee

Monthly Fiscal Highlights – June 2006

Arizona personal income reached an annual rate of $186.8
billion in 2006’s 1st quarter, a 7.6% increase from the prior
year. Arizona’s 1.9% improvement from 4th quarter 2005
ranked 4th among the states.
The Arizona Leading Economic Indicators Index increased
0.2% in March. Employment, new orders, and inventories all
showed improvement, while production and sensitive
materials prices were among the negative factors.
The Arizona Business Conditions Index sank (11.9)% in
May but remained above the mark of 50 associated with an
expanding economy. New orders declined and the purchases
component of the index dropped to its lowest level since
October 2002.

The University of Arizona’s Business Leaders Confidence
Index (BLCI) decreased (14.5)% in the 3rd quarter 2006
survey, the largest drop since the survey began in 2003. The
latest report was the first time the index dipped below the 50
point that represents neutral business sentiment. While
expectations fell for all 6 BLCI components, the outlook for
the national economy registered the lowest reading.
The Department of Corrections’ inmate population
increased by an average of 310 inmates per month from March
through May. The total population increased by 1,669 inmates
from a year ago.
The number of TANF recipients decreased (1.3)% to 87,765
in April and was (11.7)% below the level from April 2005.
The AHCCCS caseload decreased (0.3)% in June from the
prior month and was (1.1)% below the level from a year ago.

Table 4
RECENT ECONOMIC INDICATORS
Indicator
Arizona
- Unemployment Rate
- Jobs
- Contracting Tax Receipts (3-month average)
- Retail Sales Tax Receipts (3-month average)
- Residential Building Permits - (3-month moving average)
Single-unit
Multi-unit
- Greater Phoenix Existing Home Sales
Single-Family
Townhouse/Condominium
- Greater Phoenix Median Home Sales Price
Single-Family
Townhouse/Condominium
- Arizona Tourism Barometer
- Phoenix Sky Harbor Air Passengers
- Arizona Average Natural Gas Price
($ per thousand cubic feet)
- Leading Indicators Index
- Business Conditions Index
(>50 signifies expansion)
- Consumer Confidence Index
- Business Leaders Confidence Index
- Arizona Personal Income
- Arizona Population
- AHCCCS Recipients
- TANF Recipients
- DOC Inmate Growth (3-month average)
United States
- Gross Domestic Product
(seasonally adjusted annual growth rate)
- Consumer Confidence Index
- Leading Indicators Index
- U.S. Semiconductor Billings (3-month moving average)
- Consumer Price Index (3-month moving average)

Change From
Prior Period

Change From
Prior Year

Time Period

Current Value

May
May
Feb-Apr
Feb-Apr

4.2%
2.62 million
$73.0 million
$160.0 million

(0.1)%
(0.1)%
(1.5)%
(7.9)%

(0.5)%
4.7%
31.7%
12.9%

Feb-Apr
Feb-Apr

5,505
1,024

(0.6)%
(8.9)%

(16.3)%
(15.1)%

May
May

6,870
1,470

14.8%
5.8%

(34.1)%
(28.5)%

May
May
March
March
March

$265,000
$175,000
100.4
3.81 million
$7.28

0.0%
0.0%
(7.1)%
21.9%
(11.0)%

12.8%
22.0%
(1.6)%
0.3%
20.3%

0.2%
(11.9)%

(0.6)%
(6.5)%

March
May

120.1
59.1

2nd Quarter 2006
3rd Quarter 2006
1st Quarter 2006
July 1, 2005
June
April
Mar-May

102.4
49.6
$186.8 billion
5.94 million
1,041,638
87,765
34,293

1st Quarter 2006

$11.4 trillion

5.3%

3.6%

May
May
Feb-Apr
Mar-May

103.2
137.9
$3.59 billion
201.3

(6.0)%
(0.6)%
(3.7)%
0.6%

1.0%
1.7%
11.4%
3.7%

(7.2)%
(14.5)%
1.9%
3.5%
(0.3)%
(1.3)%
310 inmates

10.0%
(16.1)%
7.6%
3.5%
(1.1)%
(11.7)%
1,669 inmates

Page 4

Joint Legislative Budget Committee

JLBC MEETING
At its June 14, 2006 meeting, the Joint Legislative Budget
Committee (JLBC) considered the following issues:
Department of Corrections – Consider Approval of
Requested Transfer of Appropriations – The Arizona
Department of Corrections (ADC) originally requested
Committee approval to transfer $1.8 million from the Personal
Services line item and $0.2 million from the Employee
Related
Expenditures
(ERE)
line
item to
the
Overtime/Compensatory Time Special Line Item.
The
department initially reported that additional funding was
needed to make the final cash overtime payment for FY 2006
and to make a partial payment to employees with
compensatory leave balances owed to them. The department
subsequently withdrew its request, stating that the enacted
supplemental appropriation would cover the immediate needs
in these areas. Because ADC withdrew its request, this item
was for information only and no committee action was taken.
Since the meeting, ADC has submitted to JLBC Staff year-end
estimates for these line items. The department’s estimates
indicate that no transfers will be required prior to the end of
the fiscal year.
Department of Economic Security – Review Transfer of
Appropriations – The JLBC gave an unfavorable review to the
Department of Economic Security’s (DES) plan to transfer
General Fund and Federal Temporary Assistance to Needy
Families (TANF) Block Grant monies totaling $13,500,000
from the TANF Cash Benefit Special Line Item (SLI). Of this
amount, $6,500,000 would be transferred to the Division of
Benefits and Medical Eligibility (DBME) operating budget
($3,500,000 GF and $3,000,000 TANF), $5,000,000 to the
Children Support Services SLI ($3,500,000 GF and
$1,500,000 TANF), and $2,000,000 (all GF) to the Foster
Care Placements SLI. The Committee gave an unfavorable
review due to concerns with transferring monies from an
entitlement program into the administrative program of the
DBME operating budget.
The Committee gave a favorable review to a DES plan for a
Federal Child Care Development Fund (CCDF) Block Grant
transfer of $4.0 million from the Day Care Subsidy Special
Line Item (SLI) to the Transitional Child Care SLI.
Arizona Pioneers’ Home – Review Transfer of Appropriations
– The Committee gave a favorable review to a proposed
Pioneers Home transfer of approximately $257,800 from the
Personal Services line and the Prescription Drug Special Line
Item (SLI) to the Employee Related Expenditures (ERE) line in
FY 2006.
The transfer is necessary due to the current allocation for ERE
not being sufficient to fulfill required employee benefits
payments through the end of FY 2006. Because the Arizona
Pioneers’ Home has a detailed line item budget, A.R.S. § 35-

Monthly Fiscal Highlights – June 2006

173 requires Committee approval of transfers to or from the
Personal Services and ERE line items.
AHCCCS – Review of Rural Hospital Reimbursement
Capitation Rate Change – The Committee gave a favorable
review to an AHCCCS request for an adjustment to its
capitation rates in order to allocate monies from the Rural
Hospital Reimbursement Special Line Item. The increase will
affect only June 2006 payments and rates will return to their
prior level in July 2006. AHCCCS reports that The Centers
for Medicare and Medicaid Services (CMS) does not allow a
Medicaid agency to make supplemental payments to providers
in a managed care system and that an adjustment to the
capitation rate is the only manner in which CMS will allow
these monies to be distributed to the impacted hospitals.
Attorney General – Review of Allocation of Settlement
Monies – The Committee gave a favorable review of the
Attorney General’s (AG) allocation plan related to the Liberty
League International consent judgment. The judgment is the
result of an investigation by the AG that was prompted by
numerous consumer complaints. The state alleged that
Liberty, a marketing company that sells personal development
products, misled customers into spending money on their
products by promising sizable commissions if they recruited
new participants who were willing to purchase their products.
As more individuals joined the program, however, recruitment
became more difficult and as a result, participants earned little
or no income from the business.
The judgment against Liberty required that they pay $100,000
in civil penalties as well as AG costs and fees in the amount of
$15,000. The civil penalties and costs and fees have been
placed in the Consumer Fraud Revolving Fund. Liberty
League International will also make partial restitution to
approximately 60 consumers who filed complaints.
Arizona Department of Transportation – Review of Third
Party Quality Assurance Report – The Committee gave a
favorable review of the Arizona Department of
Transportation’s (ADOT) third party quality assurance report.
The FY 2006 General Appropriation Act included an increase
of $140,000 and 3 FTE Positions for increased workload in the
third party quality assurance program. ADOT is required to
submit quarterly progress reports regarding increasing third
party transactions, the status of third party quality assurance
staffing, workload, backlog and the moratorium on accepting
new third parties.
According to ADOT, the department has made progress
toward eliminating the waiting list for new third party title and
registration vendors. The department increased staffing by 2
FTE Positions in the third quarter of FY 2006, making a total
of 22 filled FTE Positions out of 23 approved FTE Positions.
In addition, ADOT authorized 5 current vendors to expand to
other offices, and is currently conducting site visits for 19
more existing vendors who would like to expand to other
offices. The department is also in the process of reviewing
business plans for 67 prospective vendors.

Page 5

Joint Legislative Budget Committee

Arizona Department of Education – Review of Kinder
Morgan Settlement – The Committee gave a favorable review
to the Department of Education’s (ADE) plan to provide
school districts in Yuma County with $927,900 in corrected
Basic State Aid funding due to a recent settlement in the
Arizona Tax Court regarding property taxes paid in prior years
by the Kinder Morgan Corporation. The favorable review
conforms with statutory requirements regarding state aid
corrections required as a result of Arizona Tax Court rulings.
The Arizona Court of Appeals on December 9, 2005 upheld an
earlier Arizona State Tax Court ruling requiring the Arizona
Department of Revenue to lower the assessed value of
property owned by Kinder Morgan retroactively for FY 2001,
FY 2002, FY 2003 and FY 2005. This has the effect of
reducing the amount of K-12 Qualifying Tax Rate (QTR) and
County Equalization Tax Rate (CETR) owed by Kinder
Morgan for those years, with the state being required to make
up the difference pursuant to A.R.S. § 15-915(B). Based on
“before” and “after” property value numbers for Kinder
Morgan under the court rulings, ADE has determined that
affected school districts in Yuma County collectively are
entitled to $927,900 in additional Basic State Aid funding for
the fiscal years in question
Arizona Department of Public Safety – Quarterly Review of
the Arizona Public Safety Communications Advisory
Commission – The Committee gave a favorable review of the
Arizona Pubic Safety Advisory Commission’s (PSCC) FY
2006 third quarter expenditures and progress for the statewide
interoperability design project. Third quarter expenditures
totaled $151,100 of nearly $4.3 million in available FY 2006
funding. Through the third quarter, FY 2006 expenditures
totaled $421,200. Activities in the third quarter addressed
projects identified in the PSCC timeline relating to both the
“short-term” and “long-term” interoperable solutions. In the
third quarter, the PSCC expended roughly $151,100 for costs
associated with the 6 filled staff positions. The PSCC filled
none of the remaining 3 vacant FTE Positions (2
telecommunication engineer and 1 technical writer positions).

Monthly Fiscal Highlights – June 2006

DOR’s permanent staff assigned to the Ladewig project and
temporary personnel will continue to respond to the public and
handle internal issues.
Arizona Department of Administration – Consider
Approval of Transfer of Appropriations – The Committee
gave a favorable review to the Department of Administration’s
(ADOA) request to transfer up to $250,000 from the FY 2006
Capital Outlay Stabilization Fund (COSF) lump sum
appropriation to the Utilities Special Line Item (SLI) to pay
for increased utility rates. ADOA reports that, due to
increased utility costs, the FY 2006 appropriation to the
Utilities SLI is insufficient to cover actual costs. Actual
utilities costs are projected to be $5,971,400, which exceeds
the FY 2006 $5,733,800 Utilities SLI Appropriation by
$237,600. The increase of $250,000 for the Utilities SLI
represents a 4.4% increase.
JCCR MEETING
At its June 15, 2006 meeting, the Joint Committee on Capital
Review (JCCR) considered the following issues:
Arizona Department of Transportation Asphalt Storage
Tanks Project – Contingent on enactment of the FY 2007
Capital Outlay Bill, the Committee favorably reviewed the use
of $406,400 to construct 2 asphalt storage tanks. Additionally,
the Committee approved the transfer of $11,600 from a
FY 2005 capital appropriation for oil storage tanks to the
proposed asphalt storage tank project.
The Arizona
Department of Transportation requested this review prior to
the passage of the FY 2007 Capital Outlay Bill in order to take
advantage of an existing bid.

Arizona Department of Revenue – Review of Ladewig
Expenditure Plan – The Committee gave a favorable review of
the Department of Revenue’s (DOR) estimated administrative
expenditure plan of $974,600 for the FY 2007 Ladewig
project, with the condition that DOR report back with a
revised expenditure plan if the provision to eliminate the
requirement for the newspaper advertising of names of
individuals with unclaimed property is enacted.

Arizona Department of Transportation FY 2007
Construction Budget Expenditure Plan – Contingent on
enactment of the FY 2007 Capital Outlay Bill, the Committee
favorably reviewed the use of up to $17.3 million for
Professional and Outside Services (contracted consultants) for
the first 2 months in FY 2007 with 2 provisions. The first is
that prior to the expenditure of any monies beyond the $17.3
million, the Arizona Department of Transportation (ADOT)
submit a complete highway construction budget expenditure
plan for Professional and Outside Services, including an
estimate of consulting services from the Statewide
Transportation Acceleration Needs Account. The second
provision is that the highway construction budget include
performance measures on traffic congestion for the Phoenix
and Tucson areas and for the balance of the State.

The bulk of the cost will be for Other Operating Expenditures
for printing, postage and mailing warrants and form 1099’s for
taxpayer payments, and for unclaimed property advertising of
returned Ladewig warrants.
DOR’s estimated cost of
$276,200 for unclaimed property advertising of returned
Ladewig warrants will likely be reduced since the FY 2007
State Government Budget Reconciliation contained a
provision to eliminate the requirement for the newspaper
advertising of names of individuals with unclaimed property.

The proposed FY 2007 Capital Outlay Bill requires
Committee review of expenditures for Professional and
Outside Services prior to the expenditure of any monies. The
favorable review of 2 months worth of expenditures, $17.3
million, will allow ADOT time to submit more complete
information on the proposed Professional and Outside
Services expenditures, the Statewide Transportation
Acceleration Needs Account, and traffic congestion
performance measures.
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Joint Legislative Budget Committee

School Facilities Board New School Construction Plan –
The Committee favorably reviewed the demographic
assumptions, proposed construction schedule, and cost
estimates of the FY 2007 New School Construction Report.
This item was previously presented at the October Committee
meeting, but action was deferred until the board completed its
project approval process for the current fiscal year. For
FY 2007, the School Facilities Board projects:
• Increased enrollment growth of 7.1%
• New and ongoing construction of 75 schools
• School construction costs of $360.7 million
(See page 9 for highlights of the report.)
Arizona Department of Juvenile Corrections Suicide
Prevention Renovations – Contingent on enactment of the
FY 2007 Department of Juvenile Corrections (DJC) budget,
the Committee favorably reviewed the use of $489,000 of the
proposed budget for suicide prevention modifications of
secure care facilities. This funding represents the last phase of
the suicide prevention renovations, which will have cost a
total of $3,358,600 since FY 2003. The Committee’s
favorable review allows DJC to continue working with its
current contractor for renovations without a construction
delay, which would have been caused by re-bidding the
project. The department will use an additional $44,600 from
its lump sum appropriation to fund the total project cost of
$533,600.
Arizona Department of Administration Rent Exemption
for the Arizona Department of Real Estate – The
Committee approved the $10,000 rent exemption requested for
the Arizona Department of Real Estate (ADRE). ADRE will
use the savings to reconfigure its remaining office space and
purchase equipment. The 3 offices vacated by the ADRE will
be filled by the Arizona Department of Liquor Licenses and
Control (ADLLC). The existing FY 2007 ADLLC budget is
sufficient to cover the $10,000 rent increase.
SUMMARY OF RECENT AGENCY REPORTS
Arizona Department of Administration – GITA Quarterly
Report on AZNet Implementation – In December 2004, the
Joint Committee on Capital Review requested that the Arizona
Department of Administration (ADOA) and the Government
Information Technology Agency (GITA) to report quarterly
on the Arizona Network (AZNet), as created by the Statewide
Telecommunications Management Contract. The primary
contractor completed the migration of all 39,208 state users to
the new network in April 2006. The contract requires state
agencies to install 22,000 new internet phones over the 5-year
contract term. As of April 1, ADOA reported 449 installations
complete and another 575 underway.
Monthly contract payments rose from $2.1 million in the
second quarter of the fiscal year (Q2) to $3.4 million in the
third quarter (Q3), as additional agencies transitioned to
AZNet. Of the latter amount, $1.8 million paid monthly
contractor service fees, $1.4 million per month paid carrier

Monthly Fiscal Highlights – June 2006

expenses, and $0.2 million paid oversight and other retained
costs. ADOA estimates that state agencies cumulatively saved
$80,000 per month on carrier bills during Q3.
Also in Q3, ADOA awarded a new contract for
telecommunications carrier services and issued a request for
proposals for a new network equipment contract. The
contractor has begun upgrades to the state’s core network and
security infrastructure. Additionally, state agencies invested
$1.8 million in 16 capital projects under the contract during
Q3, of which 13 are still active in the fourth quarter.
While GITA generally concurs with ADOA on the status of
AZNet, the agency notes that the management contractor
failed to provide guaranteed service levels on 4 occasions in
Q2, all related to untimely repairs. As a result, the contractor
provided the state with $1,600 in credits for Q3. Also,
departments are still experiencing difficulty and significant
delays with the billing system, although the contractor
continues to implement improvements.
Arizona Department of Corrections – Report on Monthly
Bed Plan Update – The Department of Corrections (ADC) has
been providing monthly reports to JLBC Staff updating the
status of several topics:
Bed Update
• Arizona inmates currently occupy all of the 2,064
available provisional beds located at out-of-state facilities
in Oklahoma and Texas. However, the department was
notified that the firm operating the provisional prison in
Pecos, Texas canceled its contract with the department.
Of the 2,064 provisional beds, 864 are located in Pecos.
The department reported that the contract was set to
expire at the end of FY 2006. The department has
requested an extension until January 2007 of its contract.
At that time, the department plans to transfer the inmates
to an in-state private prison facility. There were no
estimates on when the request would be approved or
denied. No changes were reported to the other 1,200 beds
at the other provisional facility in Oklahoma.
• Inmates currently occupy all of the available leased jail
beds at the Coconino and Navajo county jails. The
department reports a total of 92 available beds in its daily
bed capacity report but indicates an increase of 2 beds at
the Navajo County jail, bringing the total to 94 beds at the
2 facilities.
• The vendor operating the inmate stores has not begun to
reimburse inmates for overcharges, the department
reported. In the transition to privatize inmate stores,
disagreement arose regarding the vendor’s practice of
rounding costs up to the next nickel, which was similar to
ADC’s practice prior to privatization. The total amount
overcharged was about $45,000. The department reported
that the vendor also continues to have problems filling
orders on an increasing number of out-of-stock items.
Maricopa Health Care Contract
• ADC expects to receive a best and final offer soon from
Maricopa Integrated Health Systems (MIHS), the only
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Joint Legislative Budget Committee

Monthly Fiscal Highlights – June 2006

remaining bidder after Phoenix Memorial withdrew its
bid in February. The department reported it is in the final
stage of evaluation and plans to award the healthcare
contract for services in Maricopa County by June 30.
Community Accountability Program
• Through the end of May, ADC has referred 9 violators to
the program, which provides supervision and treatment to
eligible offenders who have violated the terms of their
parole or community supervision. The program began
accepting participants in mid-April.
Economic Estimates Commission – Report on the Budget
Stabilization Fund – Pursuant to A.R.S. § 35-144(F), the
Economic Estimates Commission (EEC) is annually required
to calculate the amount of monies that may be deposited to or
withdrawn from the Budget Stabilization Fund (BSF). The
EEC estimate is calculated using a formula based on historical
Arizona personal income growth and the Gross Domestic
Product (GDP) deflator. On May 31, 2006, the EEC reported
that the formula would have called for a $190.9 million
deposit into the BSF in FY 2006.
Statute does not
automatically appropriate this amount to the BSF but rather
allows the Legislature to include the amount in that year’s
General Appropriation Act.
As part of the 2005 General Appropriation Act, the
Legislature adopted certain conditional FY 2006
appropriations (otherwise known as “triggers”) that would be
enacted if revenues exceeded the budgeted forecast for
FY 2006. These triggers are expected to result in a total
deposit of $474.5 million to the BSF in FY 2006.
Department of Education – Budget Status Report – Pursuant
to A.R.S. § 35-131(D) and a footnote in the FY 2006 General
Appropriation Act, the Arizona Department of Education
(ADE) recently provided an update regarding its budget status
for formula-funded and other major programs for FY 2006. In
that report, ADE indicates that as of May 15, 2006 it projected
a funding shortfall of $(18.1) million for FY 2006. Since May
15, however, the department received approximately $23.3
million in supplemental funding from Laws 2006, Chapter 316
(the FY 2006 supplemental bill). With the supplemental
funding ADE would experience a net funding surplus of
approximately $5.2 million under current estimates.

ADE’s current $(18.1) million estimate (apart from
supplemental funding) is $7.1 million less than its most recent
prior estimate of $(25.2) million. The difference is primarily
due to a $(4.0) additional savings from prior year adjustments
and a $(1.4) million reduction in the estimated state aid cost
for charter schools.
The exact FY 2006 surplus amount will not be known until
after the close of the fiscal year because corrections to Basic
State Aid funding allocations can be made after a fiscal year
ends pursuant to A.R.S. §15-915. Allocations for current year
ADM growth, in particular, are subject to change after the end
of a fiscal year due to ongoing data revisions and corrections.
State Land Department - Quarterly Report on State Trust
Land Activities – The FY 2006 General Appropriation Act
(GAA) provided the Land Department with $3.1 million in
additional monies for the planning and disposition of state
trust lands. The GAA also required the department to submit
quarterly reports to the JLBC regarding state trust land
activities. During the third quarter of FY 2006, the Land
Department leased 384 acres of state trust land for right of
way use valued at $5.5 million, and sold 93.5 acres valued at
$54.6 million. Fiscal year-to-date, the department sold and
leased a total of 1,310.5 acres of state trust land valued at
$394.8 million.
Department of Revenue – Report on Revenue Generating
Program – A footnote in the General Appropriation Act
requires the Department of Revenue (DOR) to report quarterly
to the Committee on the effectiveness of the revenue
generating program and the department’s overall enforcement
and collections program, including a comparison of projected
and actual revenue enforcement collections for FY 2006. The
revenue generating program was expected to produce $75.1
million of gross additional enforcement revenue, including a
net increase of $53.2 million to the State General Fund.
DOR has reported their General Fund enforcement revenue,
which includes both their baseline and revenue generating
program monies. They did not separate out the enforcement
monies attributed to the revenue generating program. DOR
had General Fund enforcement revenues of $265.5 million
through the third quarter of FY 2006, which was $24.9 million
above their year-to-date goal of $240.6 million. The following
table summarizes these results.

DOR’s General Fund Enforcement Revenue in FY 2006 (Net of Duplications)

Corporate Tax Audit
Individual Tax Audit
Transaction Privilege Tax Audit
License Compliance
Collections
Accounts Receivable1/
Total

Goal
$40,105,700
6,187,800
11,835,500
9,075,300
140,503,500
32,908,000
$240,615,800

FY 2006 Through 3/31/05
Actual
Over/(Under)
$ 38,906,500
$ (1,199,200)
8,281,300
2,093,500
11,073,000
(762,500)
15,191,900
6,116,600
158,928,400
18,424,900
33,132,700
224,700
$265,513,800
$24,898,000

___________
1/ Taxpayer accounts paid before they would have been moved to Collections, which allows collectors to work on other accounts.

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Joint Legislative Budget Committee

Monthly Fiscal Highlights – June 2006

School Facilities Board New Construction Report Highlights
Demographic Projections
• For FY 2007, SFB projects enrollment growth of 7.1%.
• High growth areas include the cities of Chandler and Gilbert, districts outlying the western edge of Phoenix, and northwest Pinal
County.
Construction Schedule
• SFB estimates overseeing approximately 75 projects in FY 2007.
o Includes 30 continuing projects and approximately 45 projects that will begin construction in FY 2007.
• SFB has approved another 8 projects that probably won’t start until FY 2008.
Cost Estimates
• Total FY 2007 projected spending equals $360.7 million.
• Leaves SFB with $421,200 in FY 2008.
Financing

Expenditures

Land
Architecture & Engineering
Construction Projects
Emergency Deficiencies
Total

$ 35.0 M
15.8 M
308.9 M
1.0 M
$360.7 M

Prior Lease-Purchase Proceeds
Cash
Lease Revenues (Land Dept.)
Transfer from Deficiencies Corrections
New School Facilities Fund Balance
Total

$ 17.2 M
250.0 M
10.0 M
25.9 M
57.6 M
$360.7 M

District Projects
District

# of
Projects

Apache County
Red Mesa Unified
Cochise County
Palominas Elementary

1
1

Maricopa County (NE)
Cave Creek Unified

1

Maricopa County (NW)
Dysart Unified
Cartwright Elementary
Nadaburg Elementary
Pendergast Elementary
Isaac Elementary
Peoria Unified

7
2
2
2
1
1

Maricopa County (SE)
Chandler Unified
Higley Unified
Queen Creek Unified
Maricopa County Regional

4
3
2
1

Maricopa County (SW)
Saddle Mountain Unified

4

District
Laveen Elementary
Littleton Elementary
Agua Fria Union High
Buckeye Elementary
Buckeye Union High School
Fowler Elementary
Liberty Elementary
Palo Verde Elementary
Riverside Elementary
Tolleson Union High School
Union Elementary

# of
Projects
3
2
1
1
1
1
1
1
1
1
1

Navajo County
Blue Ridge Unified
Navajo County Accommodation

1
1

Pima County
Marana Unified
Sahuarita Unified
Sunnyside Unified
Vail Unified
San Fernando Elementary

2
2
2
2
1

District

# of
Projects

Pinal County
Maricopa Unified
Casa Grande Elementary
Coolidge Unified
Florence Unified
JO Combs Elementary
Apache Junction Unified
Casa Grande Union
Stanfield Elementary

4
3
3
3
3
1
1
1

Santa Cruz County
Santa Cruz County Accommodation
Santa Cruz Valley Unified

1
1

Yuma County
Crane Elementary
Yuma Elementary
Yuma Union High School
TOTAL - 45 Districts

2
2
1
83

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