Arizona Department of Transportation MARICOPA COUNTY TRANSPORTATION EXCISE TAX Forecasting Process & Results FY 2004-2006 Financial Management Services November 2003 MARICOPA COUNTY TRANSPORTATION EXCISE TAX OFFICIAL FORECAST UPDATE RISK ANALYSIS OF EXPECTED VALUES as of November 2003 Introduction This document contains the Arizona Department of Transportation’s (the Department) forecast of expected values for the Maricopa County Transportation Excise Tax for the period FY 2004-2006. Background Since 1986, the Department has used a comprehensive regression-based econometric model to estimate Transportation Excise Tax revenues for Maricopa County. These revenues, which flow into the Regional Area Road Fund (RARF), are the major funding source for the Maricopa County Freeway Program. The revenue forecast is highly dependent on estimates of independent variables. In order to deal with variability between estimated and actual values, the Department introduced the Risk Analysis Process (RAP) in 1992. The RAP relies on probability analysis and the independent evaluation of the model’s variables by an expert panel of economists. The process results in a series of forecasts, with specified probabilities of occurrence, rather than a single or “best guess” estimate. Enhanced forecasting accuracy was achieved in July 1996, when Hickling Lewis Brod Inc. (HLB) working in conjunction with Dr. Dennis Hoffman of Arizona State University, incorporated economic data and independent variables which were not included in the 1986 model. In September 2000 and 2003, HLB reviewed the model and updated the equations. The independent variables contained in the updated model include: • • • • • Maricopa County real income growth per capita Maricopa County population growth Maricopa County construction employment growth Phoenix Consumer Price Index (CPI) Prime interest rate. November 2003 1 Risk Analysis Panel The Risk Analysis Process relies heavily on the judgments of an expert panel of economists to provide information critical to the forecasting process. In September 2003, an expert panel of nine economists, representing public, private, and academic sectors provided their individual estimates of the model’s independent variables and comments on the future economic outlook. The information gathered from the panelists was input into the updated model to produce a series of forecasts with associated probabilities of occurrence. The data are detailed in the tables at the back of this report. Model Results The model results from the panelists inputs produced a mean forecast of $775.2 million for the period FY 2004-2006 with a compound growth rate of 7.5 percent. The Department’s Official Forecast for FY 2004-2006 totals $773.0 million with a compound growth rate of 8.7 percent. The FY 2004 forecast of $277.0 million was developed independently of the econometric model using time series techniques and historic and projected growth rates from the model. The FY 2004 forecast is 3.1 percent above the FY 2003 collections. The FY 2004-2006 forecast utilizes the 50% confidence interval to account for less uncertainty in the future due to the expiration of the excise tax in two and a half years. The Mean Forecast and the Department’s Official Forecast are detailed below. FY 2004 Official Forecast (Dollars in Millions) November 2003 Fiscal Year 2004 2005 2006 Mean Forecast $281.9 $303.1 $190.2 Official Forecast $277.0 $305.0 $191.0 Total $775.2 $773.0 Ave. CGR 7.5% 8.7% Confidence Level N/A 50% 50% 2 For comparison purposes, the November 2002 Official Forecast and the November 2003 Official Forecast are shown below: FY 2004 Comparative Forecast (Dollars in Millions) Fiscal Year 2004 2005 2006 Nov. 02 Official Forecast $290.4 $307.5 $190.5 Nov. 03 Official Forecast $277.0 $305.0 $191.0 Difference ($13.4) ($2.5) $0.5 Total $788.4 $773.0 ($15.4) 6.0% 8.7% Avg. CGR Summary The Department’s Official Forecast for FY 2004-06 totals $773.0 million which reflects the remaining two and a half years of the Maricopa County Transportation Excise Tax. The November 2003 Official Forecast was reduced by $15.4 million from the November 2002 Official Forecast. The decrease in the forecast is a result of the prolonged slow economic recovery in Maricopa County created by job losses in the manufacturing and tourism sectors. FY 2004 expects to see improved economic conditions with businesses slowly increasing spending and hiring new employees. Supplementary Information The remainder of this report presents supplementary information on the Department’s model, the values of the independent variables forecast by the expert panel, and detailed results of the Risk Analysis Process. November 2003 3 November 2003 RARF Official Revenue Forecast With Category Detail and Confidence Interval by Fiscal Year (Current Dollars in Millions) Fiscal Year Percentile 2003 Actual 2004 N/A 2005 50% 2006 50% Retail Sales $133.9 $139.7 $155.4 $97.7 Contracting 38.9 37.3 44.1 27.3 Utilities 18.5 19.0 20.1 12.1 Restaurant / Bar 22.6 23.8 26.5 16.6 Rental - Real Property 25.7 27.3 27.9 18.1 Rental - Personal Prop. 12.8 13.1 13.4 8.6 Other 16.2 16.8 17.6 10.6 $268.7 $277.0 $305.0 $191.0 Total 4 November 2003 RARF TOTAL TAX REVENUE RISK ANALYSIS RESULTS (Current Dollars in Millions) Fiscal Year Mean 10% 20% 30% 40% 50% 60% 70% 80% 90% 2004 $281.9 $304.6 $298.7 $292.8 $288.2 $284.4 $279.2 $273.6 $267.2 $254.7 2005 303.1 332.3 322.4 315.7 310.1 305.0 299.6 293.0 284.6 269.3 2006 190.2 209.7 203.5 198.8 193.9 191.0 187.6 183.8 177.5 167.6 5 Official Forecast Results (Current Dollars in Millions) Fiscal Year Official Forecast Mean Forecast 80% Conf. Interval 20% Conf. Interval 2004 $277.0 $281.9 $267.2 $298.7 2005 305.0 303.1 284.6 322.4 2006 191.0 190.2 177.5 203.5 Total $773.0 $775.2 $729.3 $824.5 $450 Millions of Current Dollars $400 $350 $300 $250 $200 $150 $100 2004 2005 2006 Fiscal Year Official Fcst November 2003 Mean Fcst 80% Conf. Interval 20% Conf. Interval 6 Maricopa County Real Income Per Capita 4.0% 3.5% 3.0% Growth Rate 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% 2004 2005 2006 Fiscal Year Median Lower 10% Upper 10% Maricopa County Population 4.0% 3.5% Growth Rate 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2004 2005 2006 Fiscal Year Median November 2003 Lower 10% Upper 10% 7 Maricopa County Construction Employment Growth Rate 10.0% 8.0% 6.0% Growth Rate 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% -10.0% 2004 2005 2006 Fiscal Year Median Lower 10% Upper 10% Prime Interest Rate 12.0% 11.0% 10.0% Growth Rate 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 2004 2005 2006 Fiscal Year Median November 2003 Lower 10% Upper 10% 8 Phoenix CPI 4.0% 3.5% Growth Rate 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2004 2005 2006 Fiscal Year Median November 2003 Lower 10% Upper 10% 9 Mean Panelist Data Values FY 2004 Upper 10% Lower 10% Median FY 2005 Upper 10% Lower 10% Median FY 2006 Upper 10% Lower 10% Median Income Growth Population Growth Construction Employment Prime Rate Phoenix CPI Growth 2.46 0.96 1.71 3.49 2.02 2.64 3.21 -3.02 0.44 6.17 4.22 4.86 2.43 1.34 1.79 2.72 1.07 1.91 3.51 1.97 2.62 5.04 -2.47 1.48 6.86 4.59 5.47 2.92 1.55 2.14 2.87 1.16 1.90 3.56 1.98 2.62 6.19 -1.39 2.56 7.84 5.08 6.36 3.68 1.71 2.44 All data in the above table are percentage growth rates with the exception of the Prime Rate column which are nominal percentage values. November 2003 10 Per Capita Income Growth Rate 2004 2005 2006 Upper 10% Lower 10% Median 2.20 0.30 1.00 2.50 0.40 1.40 2.90 0.50 1.50 Upper 10% Lower 10% Median 2.75 1.50 2.00 2.75 1.50 2.00 2.50 1.40 1.90 Upper 10% Lower 10% Median 2.80 1.70 2.00 3.50 1.90 2.30 4.00 2.10 2.50 Upper 10% Lower 10% Median 2.10 1.00 1.50 2.30 1.20 1.70 2.50 1.40 1.90 Upper 10% Lower 10% Median 2.40 1.10 2.00 2.50 0.60 2.00 2.60 0.50 1.90 Upper 10% Lower 10% Median 2.20 1.20 1.80 2.40 1.20 1.80 2.50 1.00 1.60 Upper 10% Lower 10% Median 3.20 0.00 1.70 3.70 0.70 2.20 3.70 1.50 2.00 Upper 10% Lower 10% Median 2.00 0.50 1.50 2.20 0.70 1.80 2.70 0.80 2.00 Upper 10% Lower 10% Median 2.50 1.30 1.90 2.60 1.40 2.00 2.40 1.20 1.80 Panelist 1 Panelist 2 Panelist 3 Panelist 4 Panelist 5 Panelist 6 Panelist 7 Panelist 8 Panelist 9 All data in the above table are percentage growth rates. November 2003 11 Maricopa County Population Growth Rate 2004 2005 2006 Upper 10% Lower 10% Median 3.80 2.20 2.80 3.80 2.10 2.70 4.00 2.00 2.60 Upper 10% Lower 10% Median 3.50 1.90 3.00 3.50 1.90 3.00 3.40 2.30 2.90 Upper 10% Lower 10% Median 5.00 1.50 2.40 5.00 1.50 2.40 5.00 1.50 2.40 Upper 10% Lower 10% Median 2.90 1.90 2.40 2.90 1.90 2.40 2.80 1.80 2.30 Upper 10% Lower 10% Median 3.00 2.00 2.60 3.20 1.90 2.60 3.30 1.90 2.60 Upper 10% Lower 10% Median 3.50 2.20 2.70 3.50 2.20 2.70 3.50 2.00 2.70 Upper 10% Lower 10% Median 3.70 2.40 2.90 3.70 2.40 2.90 3.90 2.70 3.10 Upper 10% Lower 10% Median 3.00 2.10 2.50 3.10 1.90 2.40 3.20 2.00 2.60 Upper 10% Lower 10% Median 3.00 2.00 2.50 2.90 1.90 2.50 2.90 1.60 2.40 Panelist 1 Panelist 2 Panelist 3 Panelist 4 Panelist 5 Panelist 6 Panelist 7 Panelist 8 Panelist 9 All data in the above table are percentage growth rates. November 2003 12 Maricopa Construction Employment Growth Rate 2004 2005 2006 Upper 10% Lower 10% Median 3.00 -1.00 1.00 5.50 0.00 2.50 7.00 1.10 3.70 Upper 10% Lower 10% Median 1.00 -3.00 -1.00 2.00 -2.00 -1.00 5.00 0.00 1.00 Upper 10% Lower 10% Median 12.00 -15.00 1.00 15.00 -15.00 2.00 15.00 -10.00 3.00 Upper 10% Lower 10% Median 2.00 0.00 1.00 4.00 1.00 3.00 6.00 2.00 5.00 Upper 10% Lower 10% Median 1.20 -1.20 0.00 2.90 -1.00 1.80 3.20 -1.30 2.30 Upper 10% Lower 10% Median 1.00 -2.00 0.00 1.00 -2.00 0.00 3.00 -2.00 1.00 Upper 10% Lower 10% Median 6.00 -1.00 4.00 10.00 0.00 5.00 10.00 0.00 5.00 Upper 10% Lower 10% Median 0.00 -2.50 -2.00 1.00 -2.00 -1.50 2.50 -1.00 0.00 Upper 10% Lower 10% Median 0.70 -1.50 -0.06 4.00 -1.20 1.50 4.00 -1.30 2.00 Panelist 1 Panelist 2 Panelist 3 Panelist 4 Panelist 5 Panelist 6 Panelist 7 Panelist 8 Panelist 9 All data in the above table are percentage growth rates. November 2003 13 Prime Interest Rate 2004 2005 2006 Upper 10% Lower 10% Median 6.00 4.20 4.70 7.70 4.80 5.60 9.10 6.30 7.70 Upper 10% Lower 10% Median 5.00 4.00 4.50 5.50 4.00 4.50 7.50 4.00 5.00 Upper 10% Lower 10% Median 10.00 4.00 5.00 10.00 4.00 6.00 10.00 4.00 7.00 Upper 10% Lower 10% Median 5.50 4.50 5.00 6.50 5.50 6.00 7.50 6.50 7.00 Upper 10% Lower 10% Median 5.00 3.75 4.25 6.00 3.75 5.00 7.50 4.00 6.00 Upper 10% Lower 10% Median 6.00 4.50 5.00 6.00 4.50 5.00 6.50 4.50 5.50 Upper 10% Lower 10% Median 7.00 4.00 5.30 7.50 4.50 5.60 8.50 5.50 6.50 Upper 10% Lower 10% Median 5.00 4.20 4.60 5.50 4.30 5.00 6.00 4.40 5.50 Upper 10% Lower 10% Median 6.00 4.80 5.40 7.00 6.00 6.50 8.00 6.50 7.00 Panelist 1 Panelist 2 Panelist 3 Panelist 4 Panelist 5 Panelist 6 Panelist 7 Panelist 8 Panelist 9 All data in the above table are nominal percentage values. November 2003 14 Phoenix CPI Growth Rate 2004 2005 2006 Upper 10% Lower 10% Median 2.30 1.40 1.80 3.00 2.00 2.40 5.10 2.20 3.10 Upper 10% Lower 10% Median 3.00 1.00 1.80 3.50 1.25 2.00 3.75 1.50 2.50 Upper 10% Lower 10% Median 3.00 1.80 2.00 4.50 2.10 3.50 6.00 2.20 4.00 Upper 10% Lower 10% Median 2.10 1.50 1.80 2.30 1.70 2.00 2.60 2.00 2.30 Upper 10% Lower 10% Median 2.10 1.30 1.70 2.50 1.40 1.80 4.00 1.50 2.00 Upper 10% Lower 10% Median 1.80 1.20 1.50 2.00 1.30 1.70 2.20 1.30 1.80 Upper 10% Lower 10% Median 3.00 1.00 1.80 3.50 1.00 1.90 3.50 1.00 1.80 Upper 10% Lower 10% Median 2.40 1.50 1.90 2.60 1.60 2.00 3.00 1.70 2.10 Upper 10% Lower 10% Median 2.20 1.40 1.80 2.40 1.60 2.00 3.00 2.00 2.40 Panelist 1 Panelist 2 Panelist 3 Panelist 4* Panelist 5 Panelist 6 Panelist 7 Panelist 8 Panelist 9 All data in the above table are percentage growth rates. November 2003 15 HISTORICAL DATA GROWTH IN REAL INCOME PER CAPITA Using Phoenix CPI to Measure Inflation (Annual Percent Change) HISTORIC DATA BY FISCAL YEAR (July 1 through June 30) 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1.2% -4.9% -3.1% 1.9% 4.5% 3.5% 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 -0.2% -2.0% -2.8% -0.2% 4.6% 3.4% 2.0% 1.5% 1.7% 0.5% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 0.2% -2.6% -1.5% -0.5% 0.5% 1.1% 0.2% 0.8% 1.8% 0.5% 2000 2001 2002 2003* 2004 2005 2006 2007 2008 2009 3.7% 2.2% 0.2% 1.1% *Estimate HISTORICAL DATA - GRAPHED Percent Change 0.06 0.04 0.02 0 -0.02 -0.04 2002 2003 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1984 1987 1986 1989 1988 1991 1990 1982 1985 1980 1983 1978 1981 1976 1979 1974 1977 1972 1975 -0.06 Fiscal Year HISTORICAL DATA - ANALYSIS Period 5 Years 10 Years Full Period November 2003 Historical Min. Max. Mean 1.20% 2.10% 1.65% 0.00% 2.10% 1.49% -5.09% 4.43% 0.63% Std. 80% Range Dev. Lower Upper 0.42% 1.26% 2.10% 0.68% 0.88% 2.10% 2.29% -2.43% 3.19% 16 HISTORICAL DATA MARICOPA COUNTY POPULATION GROWTH (Annual Percent Change) HISTORIC DATA BY FISCAL YEAR (July 1 through June 30) 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 4.7% 4.5% 3.7% 2.7% 2.2% 2.2% 2.5% 3.1% 4.4% 5.7% 5.9% 6.4% 5.2% 3.0% 2.1% 3.9% 4.4% 4.9% 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 4.0% 3.4% 2.9% 3.2% 4.4% 5.3% 4.2% 4.5% 2.9% 2.6% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 1.4% 2.4% 2.8% 3.5% 4.2% 4.7% 4.2% 3.3% 3.1% 3.8% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1.4% 2.5% 2.5% 2.4% DES smoothed out the 1991 to 1995 figures. 1996-1999 data from October 2000 approved DES estimates and 2000-2003 from February 1997 approved DES projections. HISTORICAL DATA - GRAPHED 0.07 0.07 Percent Change Change 0.06 0.06 0.05 0.05 0.04 0.04 0.03 0.03 0.02 0.02 2002 2003 2000 2001 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 1979 1978 1977 1976 1975 1974 1973 1972 1971 1970 1969 1968 1967 1966 1965 1964 00 1963 1962 0.01 0.01 Fiscal Year HISTORICAL DATA - ANALYSIS Period 5 Years 10 Years Full Period November 2003 Historical Min. Max. 1.40% 3.80% 1.40% 4.70% 1.36% 6.39% Std. Mean Dev. 2.54% 0.98% 3.30% 1.05% 3.57% 1.17% 80% Lower 1.72% 2.26% 2.21% Range Upper 3.41% 4.30% 4.92% 17 HISTORICAL DATA MARICOPA COUNTY GROWTH IN CONSTRUCTION EMPLOYMENT (Annual Percent Change) HISTORIC DATA BY FISCAL YEAR (July 1 through June 30) 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 8.3% 3.6% 33.3% -10.5% 59.2% -1.9% 5.2% 46.9% 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 18.2% 5.9% 24.9% 21.3% 0.4% -19.3% -16.3% 14.7% 38.7% 32.7% 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 5.2% -6.7% -6.5% 5.4% 23.4% 20.3% 7.9% -5.8% -9.8% -9.1% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 -7.2% -6.5% -2.4% 9.5% 15.4% 15.8% 9.7% 5.8% 8.7% 9.7% 2000 5.8% 2001 3.1% 2002 -0.9% 2003 * -2.4% 2004 2005 2006 2007 2008 2009 *Estimate 2002 2003 2000 2001 1999 1998 1996 1997 1994 1995 1992 1993 1991 1990 1988 1989 1986 1987 1984 1985 1983 1982 1980 1981 1978 1979 1976 1977 1974 1975 1972 1973 1970 1971 1968 1969 1966 1967 1964 1965 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 -0.1 -0.2 -0.3 1962 1963 Percent Change HISTORICAL DATA - GRAPHED Fiscal Year HISTORICAL DATA - ANALYSIS Period 5 Years 10 Years Full Period November 2003 Historical Min. Max. -1.10% 9.66% -1.10% 15.79% -19.33% 59.23% Std. Mean Dev. 4.13% 4.76% 7.99% 5.61% 8.66% 16.75% 80% Lower -0.25% 1.16% -9.10% Range Upper 8.63% 15.46% 32.72% 18 HISTORICAL DATA PRIME INTEREST RATE HISTORIC DATA BY FISCAL YEAR (July 1 through June 30) 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 4.57% 4.50% 4.50% 4.50% 4.50% 4.94% 5.80% 5.96% 6.91% 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 8.37% 6.62% 5.38% 6.06% 9.79% 9.82% 7.22% 6.59% 7.71% 10.85% 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 14.98% 16.62% 17.53% 12.01% 11.29% 11.38% 9.24% 7.73% 8.66% 10.56% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 10.30% 9.46% 7.25% 6.00% 6.23% 8.37% 8.52% 8.32% 8.50% 7.98% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 8.60% 8.74% 5.31% 4.42% 2002 2003 2000 2001 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 1979 1978 1977 1976 1975 1974 1973 1972 1971 1970 1969 1968 1967 1966 1965 1964 20.0% 20.0% 18.0% 18.0% 16.0% 16.0% 14.0% 14.0% 12.0% 12.0% 10.0% 10.0% 8.0% 8.0% 6.0% 6.0% 4.0% 4.0% 2.0% 2.0% 0.0% 0.0% 1963 1962 Percent Change HISTORICAL DATA - GRAPHED Fiscal Year HISTORICAL DATA - ANALYSIS Period 5 Years 10 Years Full Period November 2003 Historical Min. Max. 5.31% 8.74% 5.31% 8.74% 4.50% 17.53% Std. 80% Range Mean Dev. Lower Upper 7.66% 1.60% 6.11% 8.70% 7.84% 1.21% 6.05% 8.63% 8.29% 3.09% 4.61% 11.37% 19 HISTORICAL DATA PHOENIX CPI GROWTH RATE (Annual Percent Change) HISTORIC DATA BY FISCAL YEAR (July 1 through June 30) 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 6.1% 1973 5.6% 1974 7.6% 1975 11.7% 1976 11.1% 1977 7.7% 1978 7.7% 1979 10.7% 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 13.7% 13.6% 10.0% 5.5% 3.5% 4.6% 4.2% 2.9% 3.4% 4.3% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 4.9% 4.7% 3.4% 3.1% 3.6% 4.0% 4.6% 4.9% 4.4% 3.9% 2000 2001 2002 2003* 2004 2005 2006 2007 2008 2009 3.4% 2.4% 1.8% 1.7% * Estimate 2002 2003 2000 2001 1998 1999 1996 1997 1994 1995 1992 1993 1990 1991 1988 1989 1986 1987 1984 1985 1982 1983 1980 1981 1978 1979 1976 1977 1974 1975 0.16 0.14 0.12 0.1 0.08 0.06 0.04 0.02 0 1972 1973 Percent Change HISTORICAL DATA - GRAPHED Fiscal Year HISTORICAL DATA - ANALYSIS Period 5 Years 10 Years Full Period November 2003 Historical Min. Max. 1.80% 3.85% 1.80% 4.91% 1.80% 13.70% Std. Mean Dev. 2.85% 0.92% 3.65% 1.02% 5.90% 3.31% 80% Range Lower Upper 1.98% 3.70% 2.28% 4.67% 3.09% 11.10% 20