Regional Area Road Fund Maricopa Transportation Excise Tax Fiscal Year 2004 Year-End Report Arizona Department of Transportation Financial Management Services Office of Financial Planning August 2004 REGIONAL AREA ROAD FUND MARICOPA 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. 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 tax is expected to yield $3.8 billion for the period January 1986 through December 2005. In FY 2004, Maricopa County transportation excise tax collections totaled $288.6 million, an increase of 7.4 percent over FY 2003 and 4.2 percent above the forecast. All revenue categories posted increases over FY 2003 revenue levels, except rental of personal property and “other”. The FY 2004 RARF revenues included a one-time $0.6 million from the tax amnesty program for previous fiscal years activity. RARF COLLECTIONS $350.0 $300.0 $250.0 $200.0 $150.0 $100.0 RARF revenues benefited from an improved Maricopa County job market and tourism activity, population growth and low interest rates. PAGE 1 $50.0 $0.0 2003 ACT 2004 ACT FISCAL YEAR 2004 EST PERFORMANCE BY CATEGORY RETAIL SALES: Retail sales revenue totaled $144.8 million in FY 2004, an increase of 8.1 percent over FY 2003 and 3.7 percent above the forecast. As noted in the chart on the right, retail sales continued to improve from the negative growth experienced in FY 2002. FY 2004 retail sales growth accelerated due to an improved economy, a federal tax credit given to families and improved consumer confidence. RETAIL SALES 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% 95 Retail sales in Maricopa County are forecasted using three economic indicators: wage and salary employment, personal income and unemployment. In June 2004, the Greater Phoenix Blue Chip consensus estimates show that the Maricopa County economy continues to expand due to job growth, which triggers population growth. According to the Arizona Department of Economic Security, job growth increased in the leisure, hospitality, education and health service areas, but decreased in the manufacturing and information industries during the first half of CY 2004. With population growth and an improved economy, the panel expects retail sales to grow by 6.4 and 6.8 percent in CY 2004 and 2005, respectively. Wage and salary employment growth is estimated to increase from 1.3 percent in CY 2003 to 3.5 and 4.2 percent in CY 2004 and 2005, respectively. 96 97 98 99 00 01 03 04 FISCAL YEAR WAGE & SALARY EMPLOYMENT GROWTH MARICOPA COUNTY 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% 95 96 97 98 99 00 01 02 03 04 05 ACT ACT ACT ACT ACT ACT ACT ACT ACT EST EST CALENDAR YEAR Source: Greater Phoenix Blue Chip Economic Forecast, June 2004 PAGE 2 02 RETAIL SALES: Continued In addition, growth in Maricopa County personal income is estimated to reach 6.7 percent in CY 2004 and 7.3 percent in CY 2005 up from 4.4 and 5.3 percent in CY 2002 and CY 2003, respectively. Also, the Blue Chip panel expects the Maricopa County unemployment rate to decrease to 4.4 percent in CY 2004 and 4.2 percent in CY 2005 from its peak of 5.6 percent in CY 2002 and 4.9 percent in CY 2003. UNEMPLOYMENT RATE MARICOPA COUNTY PERSONAL INCOME MARICOPA COUNTY 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 95 96 97 98 99 00 01 02 03 ACT ACT ACT ACT ACT ACT ACT ACT EST 04 EST 05 EST 95 96 97 98 99 00 01 02 03 04 ACT ACT ACT ACT ACT ACT ACT ACT ACT EST CALENDAR YEAR 05 EST CALENDAR YEAR Source: Greater Phoenix Blue Chip Economic Forecast, June 2004 Source: Greater Phoenix Blue Chip Economic Forecast, June 2004 CONTRACTING: CONTRACTING Contracting collections totaled $43.5 million, an increase of 11.9 percent from FY 2003 and 16.7 percent above the forecast, which was quite a contrast from last fiscal year. Population growth and low interest rates fueled the increase in contracting revenues. According to the June 2004 issue of the Greater Phoenix Blue Chip, the boom in single family housing is continuing and vacancy rates are declining in the apartments, commercial offices and industrial buildings sectors. PAGE 3 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% 95 96 97 98 99 00 01 FISCAL YEAR 02 03 04 CONTRACTING: Continued Maricopa County single-family housing permits increased by 4.4 percent in CY 2002 and 15.6 percent in CY 2003. However, the Greater Phoenix Blue Chip estimates single family housing permits will decline by 2.0 percent in CY 2004 and 3.6 percent in CY 2005. If mortgage interest rates stay between 5.5 to 7.0 percent, the CY 2004 and CY 2005 estimates would be somewhat conservative since Maricopa County housing sales will probably set another record year for single family housing permits in CY 2004. Multi-family housing permits declined 22.1 and 13.8 percent in CY 2002 and CY 2003, respectively. Looking into the future, multi-family housing permits are expected to decrease by 3.2 percent for CY 2004, but increase by 5.2 percent in CY 2005. The apartment vacancy rate is predicted to decline to 9.8 percent in CY 2004 and 9.3 percent in CY 2005. SINGLE FAMILY HOUSING PERMITS MARICOPA COUNTY MULTI-FAMILY HOUSING PERMITS MARICOPA COUNTY 20.0% 40.0% 30.0% 15.0% 20.0% 10.0% 10.0% 0.0% 5.0% -10.0% 0.0% -20.0% -5.0% -30.0% 95 96 97 98 99 00 01 02 03 04 ACT ACT ACT ACT ACT ACT ACT ACT ACT EST 95 ACT 05 EST CALENDAR YEAR 96 ACT 97 ACT 98 ACT 99 ACT 00 ACT 01 ACT 02 ACT 03 ACT 04 EST 05 EST CALENDAR YEAR Source: Greater Phoenix Blue Chip Economic Forecast, June 2004 Source: Greater Phoenix Blue Chip Economic Forecast, June 2004 The conventional 30 year fixed rate mortgage decreased from 5.4 percent in March 2003 to 5.1 percent in March 2004. With the help of low mortgage rates and higher job growth, home buyers sent the residential housing market to a record sales level in CY 2003. The first increase in interest rates by the Federal Reserve since June 2000 occurred in June 2004, which may slow the future growth in residential housing permits. PAGE 4 CONTRACTING: Continued In CY 2003, construction employment increased by 3.3 percent and the Blue Chip panel predicts it will continue to increase by 1.8 and 0.8 percent in CY 2004 and 2005, respectively. The commercial office vacancy rate was 18.7 percent in CY 2003 and is expected to decrease to 18.5 percent in CY 2004. In the retail sector, the vacancy rate for CY 2003 was 7.4 percent and is estimated to increase by 9.0 percent in CY 2004. There was tremendous growth in the residential housing market in FY 2004, but it did not follow through to the commercial office and retail sectors. With the expectation of higher interest rates, construction employment is expected to level off in CY 2004 and CY 2005. CONSTRUCTION EMPLOYMENT MARICOPA COUNTY MORTGAGE INTEREST RATES MARICOPA COUNTY 12 140 120 10 100 80 8 60 40 6 20 0 95 ACT 4 MAR MAR MAR MAR MAR MAR MAR MAR MAR MAR MAR MAR 93 94 95 96 97 98 99 00 01 02 03 04 96 ACT 97 ACT 98 ACT 99 ACT 00 ACT 01 ACT 02 ACT 03 ACT 04 EST 05 EST 01 02 CALENDAR YEAR Source: Arizona Business, May Issues Source: Greater Phoenix Blue Chip Economic Forecast, June 2004 UTILITIES UTILITIES: 12.0% 10.0% In FY 2004, utility tax collections totaled $20.0 million, an increase of 8.1 percent above FY 2003 and 5.2 percent above the forecast. The utility tax revenue growth was fueled by the record number of new residential housing permits and homeowners higher energy usage. 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% 95 96 97 98 99 00 FISCAL YEAR PAGE 5 03 04 RESTAURANT AND BAR: RESTAURANT & BAR In FY 2004, restaurant and bar collections totaled $24.8 million, an increase of 9.5 percent over FY 2003 and 4.2 percent above the forecast. In FY 2004, the restaurant and bar revenue category benefited from higher tourism activities, consumers willingness to dine-out more frequently and record baseball attendance at Cactus league spring training games. 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 95 96 97 98 99 00 01 02 03 04 FISCAL YEAR RENTAL OF REAL PROPERTY: RENTAL OF REAL PROPERTY Rental of real property tax collections amounted to $27.2 million, an increase of 5.5 percent over FY 2003, but 0.5 percent below the forecast. This category includes rental of commercial, residential and transient lodging (hotel/motel) facilities. Lodging activities continue to recover in Maricopa County from the low point in FY 2002. According to the Arizona Office of Tourism, the lodging occupancy rate for metro Phoenix decreased by 0.7 percent in CY 2002, but increased by 3.5 percent in CY 2003. In the first half of CY 2004, the increase in lodging activities was 6.9 percent higher than the same period last year. PAGE 6 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 95 96 97 98 99 00 01 FISCAL YEAR 02 03 04 RENTAL OF PERSONAL PROPERTY: Rental of personal property revenues in FY 2004 amounted to $12.6 million, a decrease of 1.6 percent from FY 2003 and 3.6 percent below the forecast. This category includes rental vehic les, business and construction equipment leasing and rental of tangib le personal properties. Due to the low interest rates in FY 2004, many consumers and business owners preferred to buy rather than lease new vehicles or business equipment. In addition, with the glut in office and commercial building spaces, there was less demand for commercial construction equipment leasing. RENTAL OF PERSONAL PROPERTY 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% -10.0% 95 96 97 98 99 00 01 02 03 04 02 03 04 FISCAL YEAR OTHER: OTHER In FY 2004, “other" revenues totaled $15.7 million, a decrease of 3.2 percent from FY 2003 and 6.7 percent below the forecast. The decrease in “other” revenues was due to lower “miscellaneous other” revenues in FY 2004 even though communications and amusement revenues were higher during the fiscal year. The “other” revenue category includes collections from transportation and towing, communications, railroad and aircraft, private rail and pipeline, publishing, printing, amusement, jet fuel tax and miscellaneous other revenues. PAGE 7 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% 95 96 97 98 99 00 01 FISCAL YEAR REVENUE TREND ANALYSIS MONTHLY RARF REVENUE TREND ANNUAL RARF REVENUE TRENDS 30.000 14.0% 28.000 12.0% 26.000 10.0% 24.000 22.000 8.0% 20.000 6.0% 18.000 16.000 4.0% 14.000 2.0% 12.000 10.000 0.0% 95 96 97 98 99 00 01 02 03 JUL 04 FISCAL YEAR AUG FY 2004 Actuals SEP OCT NOV DEC JAN FEB FY 2004 Estimate MAR APR MAY JUN FY 2003 Actuals In FY 2004, Maricopa Transportation excise tax collections totaled $288.6 million compared to $268.7 million in FY 2003. All revenue categories showed increases over last year’s revenue levels except for rental of personal property and “other” revenue categories. The stronger than expected RARF revenues were due mainly to the improved job market, low interest rates and the recovery in tourism activities. What was a limited job growth recovery in the second half of CY 2003 turned into a modest job growth in the first half of CY 2004. The monthly seasonality of excise tax collections continues to follow consistent trends with sharp increases in revenues in the month of January (December collections) due to holiday retail sales and April due to tax refunds and credit. PAGE 8 REVENUE PERFORMANCE MARICOPA COUNTY TRANSPORTATION EXCISE TAX FY 2004 ACTUAL TOTAL= $288.6 MILLION DISTRIBUTIONS SOURCES RENTAL OF PERSONAL PROPERTY $12.6 M 4.4% REGIONAL PUBLIC TRANSIT SYSTEM $7.6 M 2.7% OTHER $15.7M 5.4% RENTAL OF REAL PROPERTY $27.2M 9.4% RETAIL SALES $144.8M 50.2% RESTAURANT & BAR $24.8 M 8.6% UTILITIES $20.0M 6.9% CONTRACTING $43.5M 15.1% REGIONAL FREEWAY SYSTEM $281.0 M 97.3% PAGE 9 MARICOPA COUNTY REGIONAL AREA ROAD FUND TRANSPORTATION EXCISE TAX REVENUE COMPARISON STATEMENT FY 2004 FY 2003 ACTUAL FY 2004 ACTUAL CHANGE FY 2004 ESTIMATE CHANGE RETAIL SALES $133,922,028 $144,816,883 8.1% $139,700,000 3.7% CONTRACTING 38,893,686 43,523,844 11.9% 37,300,000 16.7% UTILITIES 18,484,778 19,979,852 8.1% 19,000,000 5.2% RESTAURANT & BAR 22,645,998 24,806,732 9.5% 23,800,000 4.2% RENTAL OF REAL PROPERTY 25,747,438 27,163,395 5.5% 27,300,000 -0.5% RENTAL OF PERSONAL PROPERTY 12,834,486 12,630,667 -1.6% 13,100,000 -3.6% OTHER 16,192,486 15,678,427 -3.2% 16,800,000 -6.7% TOTAL $268,720,901 $288,599,800 7.4% $277,000,000 4.2% CATEGORY NOTE: Division of collections to business categories is imputed based upon reported taxable income. PAGE 10 MARICOPA COUNTY REGIONAL AREA ROAD FUND TRANSPORTATION EXCISE TAX REVENUES COLLECTED BY CATEGORY FY 1986 - 2004 (Dollars in Thousands) FISCAL YEAR RETAIL SALES CONTRACTING 1986 * 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 TOTAL $19,244 48,085 51,405 53,927 55,798 56,769 59,108 64,033 72,737 81,546 90,454 96,281 104,073 113,528 124,428 131,608 131,393 133,922 144,817 $1,633,156 $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 38,820 41,218 38,894 43,524 $455,234 UTILITIES RESTAURANT & BAR RENTAL REAL PROPERTY RENTAL PERSONAL PROPERTY OTHER TOTAL $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 17,862 18,432 18,485 19,980 $252,966 $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 21,395 21,748 22,646 24,807 $270,663 $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 24,112 24,529 25,747 27,163 $296,934 $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 14,416 13,928 12,834 12,631 $164,806 $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 16,510 16,314 16,192 15,678 $182,174 $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 $3,255,932 COMPOUND ANNUAL GROWTH RATE (FY 1987 - FY 2004) = 6.8% *The tax became effective January 1, 1986 PAGE 11 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% 6.5% 1.1% 0.4% 7.4% ARIZONA TRANSACTION PRIVILEGE TAX EXCISE TAX RATES FY 2004 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 50.18% 15.08% 9.05% 5.00% 5.00% 1.82%* 0.50% 0.50% 0.512% 8.60% 6.92% 4.38% 3.34% 1.06% 0.63% 0.76% 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 12 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 13