Regional Area Road Fund Maricopa Transportation Excise Tax Fiscal Year 2005 Year-End Report Arizona Department of Transportation Financial Management Services Office of Financial Planning August 2005 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 through December 31, 2005. In November 2004, Maricopa County’s voters approved Proposition 400, which extends the one-half sales tax for another 20 years through December 31, 2025. The sales tax extension will be 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. The main revenue categories that contributed to the year-overyear growth in RARF revenues were contracting at 20.2 percent, restaurant and bar at 9.6 percent, retail sales at 9.2 percent, rental of real property at 7.9 percent, other revenue category at 4.4 percent and utilities at 4.2 percent. The growth in RARF revenues was attributed to growth in employment and population along with low interest rates. PAGE 1 RARF COLLECTIONS $350.0 $300.0 MILLION OF DOLLARS Fiscal year (FY) 2005 Maricopa County transportation excise tax collections totaled $316.8 million, an increase of 9.8 percent over FY 2004 and 3.2 percent above the estimate. RARF collections have posted two consecutive years of strong growth after little growth in FY 2002 and FY 2003. Except for rental of personal property, all revenue categories posted positive gains in FY 2005. $250.0 $200.0 $150.0 $100.0 $50.0 $0.0 2004 ACT 2005 ACT FISCAL YEAR 2005 EST PERFORMANCE BY CATEGORY RETAIL SALES: RETAIL SALES 14.0% PERCENTAGE CHANGE Retail sales collections for FY 2005 totaled $158.2 million, an increase of 9.2 percent over FY 2004 and 1.8 percent above the forecast. As noted in the chart on the right, retail sales have continued to improve from the negative growth experienced in FY 2002. An improved economy with growth in employment and population provided for the strength in retail sales during FY 2005. 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% Maricopa County population grew from 2.9 percent in CY 2003 to 3.3 percent in CY 2004. The Greater Phoenix Blue Chip estimates the population will grow by 3.1 and 3.0 percent in CY 2005 and CY 2006, respectively. PAGE 2 96 97 98 99 00 01 02 03 04 05 FISCAL YEAR WAGE & SALARY EMPLOYMENT GROWTH MARICOPA COUNTY 10.0% PERCENTAGE CHANGE Maricopa County retail sales benefited from the growth in wage and salary employment, personal income and population along with the “wealth effect” created by the high appreciation in home prices. Retail sales growth is expected to continue into FY 2006 for the same reasons. According to the Greater Phoenix Blue Chip report, June 2005 issue, the wage and salary employment growth for calendar year (CY) 2004 was 3.6 percent, up from 1.2 percent in CY 2003. It is estimated that wage and salary employment will grow by 4.4 and 4.1 percent in CY 2005 and 2006, respectively. Employment growth was centered in the construction and tourism industries. The manufacturing sector continued to decline. 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% 96 ACT 97 ACT 98 ACT 99 ACT 00 ACT 01 ACT 02 ACT 03 ACT 04 ACT 05 EST 06 EST CALENDAR YEAR Source: Greater Phoenix Blue Chip Economic Forecast report, June2005 RETAIL SALES: Continued Population and employment growth have led to higher personal income in Maricopa County. As mentioned in the Greater Phoenix Blue Chip, personal income increased by 6.9 percent in CY 2004 compared to 4.7 percent in CY 2003. Personal income growth in Maricopa County is projected to be 7.6 and 7.4 percent in CY 2005 and 2006, respectively. The unemployment rate has decreased to 4.4 percent in CY 2004 from 5.2 percent in CY 2003 and is estimated to decrease to 4.0 percent in CY 2005 and 3.9 percent in CY 2006. UNEMPLOYMENT RATE MARICOPA COUNTY PERSONAL INCOME MARICOPA COUNTY 10.0% PERCENT PERCENTAGE CHANGE 12.0% 8.0% 6.0% 4.0% 2.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 96 ACT 0.0% 96 ACT 97 ACT 98 ACT 99 ACT 00 ACT 01 ACT 02 ACT 03 ACT 04 ACT 05 EST 06 EST 97 ACT 98 ACT 99 ACT 00 ACT 01 ACT 02 ACT 03 ACT 04 ACT 05 EST 06 EST CALENDAR YEAR CALENDAR YEAR Source: Greater Phoenix Blue Chip Economic Forecast report, June2005 Source: Greater Phoenix Blue Chip Economic Forecast report, Jun e 2005 CONTRACTING: PAGE 3 CONTRACTING 25.0% PERCENTAGE CHANGE FY 2005 contracting revenues totaled $52.3 million, an increase of 20.2 percent over FY 2004 and 12.3 percent above the forecast. For the second consecutive year, contracting revenue has posted strong yearover-year growth. Population growth, along with low interest rates, have fueled the increase in new home permits. In CY 2004, single family housing permits reached another record according to the Greater Phoenix Blue Chip report, June 2005 issue. In CY 2004, vacancy rates for apartments, commercial offices and industrial buildings sectors continued to decline . 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% 96 97 98 99 00 01 FISCAL YEAR 02 03 04 05 CONTRACTING: Continued The Greater Phoenix Blue Chip reported that Maricopa County single-family housing permits increased by 20.3 percent in CY 2004 and 18.2 percent in CY 2003. However, the Blue Chip experts estimate that single family housing permits will decline by 7.8 percent in CY 2005 and 4.1 percent in CY 2006, which may be too conservative based on the first six months of CY 2005 data. Even then, CY 2005 is expected to be the second best year for single housing permits. Multi-family housing permits declined 13.8 and 3.2 percent in CY 2003 and CY 2004, respectively. The Blue Chip panel expects multi-family permits to increase by 6.6 and 9.5 percent in CY 2005 and CY 2006, respectively. The apartment building vacancy rate declined to 7.9 percent in CY 2004 but is expected to increase to 8.5 percent in CY 2005. 15.0% PERCENTAGE CHANGE PERCENTAGE CHANGE 25.0% MULTI-FAMILY HOUSING PERMITS MARICOPA COUNTY SINGLE FAMILY HOUSING PERMITS MARICOPA COUNTY 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0% -10.0% -25.0% 96 ACT 97 ACT 98 ACT 99 ACT 00 ACT 01 ACT 02 ACT 03 ACT 04 ACT 05 EST 06 EST 96 ACT 97 ACT 98 ACT 99 ACT 00 ACT 01 ACT 02 ACT 03 ACT 04 ACT 05 EST 06 EST CALENDAR YEAR CALENDAR YEAR Source: Greater Phoenix Blue Chip Economic Forecast, June 2005 Source: Greater Phoenix Blue Chip Economic Forecast, June 2005 In FY 2005, the contracting sector benefited from low mortgage rates. Although the conventional 30 year fixed rate mortgage increased from 5.5 percent in March 2004 to 5.9 percent in March 2005, the mortgage interest rate is still historically low. Investors, first time homebuyers and move-up homebuyers took advantage of the low interest rate environment to send residential housing to another record in CY 2004. Since June 2004, the Federal Reserve has raised the federal fund rate ten times. Short-term interest rates have climbed from record low levels but long term rates have held relatively level. PAGE 4 CONTRACTING: Continued As a result of increased construction activities, the construction employment sector continues to grow. Total construction employment increased to 139,400 in CY 2004 from 128,900 in CY 2003. The Greater Phoenix Blue Chip panel members estimate construction employment will increase by 4.0 percent in CY 2005 and 1.2 percent in CY 2006. The office vacancy rate decreased to 18.2 percent in CY 2004 from 18.7 percent in CY 2003. Similarly, the retail vacancy rate decreased to 6.1 percent in CY 2004 from 7.4 percent in CY 2003. The Blue Chip panel estimates the office and retail vacancy rates to be 16.6 and 8.3 percent, respectively, in CY 2005. MORTGAGE INTEREST RATES 30 CONVENTIONAL FIXED RATE MORTGAGE CONSTRUCTION EMPLOYMENT MARICOPA COUNTY 160 140 10 THOUSANDS ANNUAL PERCENTAGE RATE 12 8 120 100 80 60 40 6 20 0 96 ACT 4 97 ACT 98 ACT 99 ACT 00 ACT 01 ACT 02 ACT 03 ACT 04 ACT 05 EST CALENDAR YEAR MAR 94 MAR 95 MAR 96 MAR 97 MAR 98 MAR 99 MAR 00 MAR 01 MAR 02 MAR 03 MAR 04 MAR 05 Source: Federal Home Mortgage Corporation, July 18, 2005 Source: Greater Phoenix Blue Chip Economic Forecast report, June2005 UTILITIES: UTILITIES 12.0% PERCENTAGE CHANGE Utility tax collections in FY 2005 totaled $20.8 million, compared to $20.0 million in FY 2004. Utility revenues finished the year with an increase of 4.2 percent over last year but was 0.4 percent below the estimate. The modest growth in utility collections was due to a warmer winter and cooler summer in Maricopa County, and conservation efforts during the summer months due to supply problems. 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% 96 97 98 99 00 01 FISCAL YEAR PAGE 5 02 03 04 05 06 EST RESTAURANT AND BAR: RESTAURANT & BAR Restaurant and bar receipts increased to $27.2 million in FY 2005, compared to $24.8 million in FY 2004, an increase of 9.6 percent and 1.8 percent over the estimate. The restaurant and bar revenue category benefited from growth in population and personal income along with higher tourism and convention activities including record attendance at Cactus league baseball spring training games. PERCENTAGE CHANGE 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 96 97 98 99 00 01 02 03 04 05 FISCAL YEAR RENTAL OF REAL PROPERTY: FY 2005 rental of real property revenues totaled $29.3 million compared to $27.2 million in FY 2004. This amounts to a 7.9 percent increase over the prior year’s total. When compared to the forecast, rental of real property collections were 1.4 percent above the estimate in FY 2005. Rental of real property benefited from the recovery in tourism activities. Rental of commercial and transient lodging including hotel and motel facilities are included in this revenue category. PAGE 6 PERCENTAGE CHANGE RENTAL OF REAL PROPERTY 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 96 97 98 99 00 01 FISCAL YEAR 02 03 04 05 RENTAL OF PERSONAL PROPERTY: RENTAL OF PERSONAL PROPERTY PERCENTAGE CHANGE In FY 2005, rental of personal property revenues totaled $12.6 million, a decrease of 0.1 percent below the FY 2004 level but 0.2 percent above the estimate. Rental and leasing of vehicles, business and construction equipment along with tangible personal property are included in this revenue category. This revenue category has been hurt by the low interest rates which make it more economical for consumers and businesses to purchase vehicles or equipment rather than lease them. 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% 96 97 98 99 00 01 02 03 02 03 04 05 FISCAL YEAR OTHER: OTHER PERCENTAGE CHANGE “Other" revenues for FY 2005 totaled $16.4 million, an increase of 4.4 percent over FY 2004 and 3.6 percent above the forecast. The increase in “other” revenues was due to higher communications, railroad and aircraft, printing and amusement collections. 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. 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% 96 97 98 99 00 01 FISCAL YEAR PAGE 7 04 05 REVENUE TREND ANALYSIS MONTHLY RARF REVENUE TREND ANNUAL RARF REVENUE TRENDS MILLIONS OF DOLLARS PERCENTAGE CHANGE 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 96 97 98 99 00 01 02 03 04 34.0 32.0 30.0 28.0 26.0 24.0 22.0 20.0 18.0 16.0 14.0 12.0 10.0 JUL 05 AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN FISCAL YEAR FY 2005 Actuals FY 2005 Estimate FY 2004 Actuals FY 2005 Maricopa Transportation excise tax collections increased to $316.8 million, compared to $288.6 million in FY 2004. This is the second consecutive year that tax revenues have shown strong growth since the September 11, 2001 tragedy. All major RARF revenue categories showed year-over-year increases in revenues, except for rental of personal property. The stronger than expected RARF revenues were due mainly to the low interest rate environment along with growth in employment and population. FY 2005 RARF revenue growth was the strongest since 1996, and the fourth strongest growth year in the history of the tax. On a monthly basis, RARF revenues continue to follow consistent trends with sharp increases in revenues in January due to holiday retail sales and April due to baseball spring training and winter visitors. PAGE 8 REVENUE PERFORMANCE MARICOPA COUNTY TRANSPORTATION EXCISE TAX FY 2005 ACTUAL TOTAL= $316.8 MILLION DISTRIBUTIONS SOURCES RENTAL OF PERSONAL PROPERTY $12.6 M 4.0% REGIONAL PUBLIC TRANSIT SYSTEM $7.7 M 2.4% OTHER $16.4M 5.2% RENTAL OF REAL PROPERTY $29.3M 9.2% RETAIL SALES $158.2M 49.9% RESTAURANT & BAR $27.2 M 8.6% UTILITIES $20.8M 6.6% CONTRACTING $52.3M 16.5% REGIONAL FREEWAY SYSTEM $309.1 M 97.6% PAGE 9 MARICOPA COUNTY REGIONAL AREA ROAD FUND TRANSPORTATION EXCISE TAX REVENUE COMPARISON STATEMENT FY 2005 FY 2004 ACTUAL FY 2005 ACTUAL CHANGE FY 2005 ESTIMATE CHANGE RETAIL SALES $144,816,883 $158,179,314 9.2% $155,400,000 1.8% CONTRACTING 43,523,844 52,325,393 20.2% 46,600,000 12.3% UTILITIES 19,979,852 20,813,151 4.2% 20,900,000 -0.4% RESTAURANT & BAR 24,806,732 27,190,928 9.6% 26,700,000 1.8% RENTAL OF REAL PROPERTY 27,163,395 29,309,616 7.9% 28,900,000 1.4% RENTAL OF PERSONAL PROPERTY 12,630,667 12,623,626 -0.1% 12,600,000 0.2% OTHER 15,678,427 16,363,534 4.4% 15,800,000 3.6% TOTAL $288,599,800 $316,805,562 9.8% $306,900,000 3.2% 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 REGIONAL AREA ROAD FUND TRANSPORTATION EXCISE TAX REVENUES COLLECTED BY CATEGORY FY 1986 – 2005 (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 2005 TOTAL $19,244 48,085 51,405 53,927 55,798 56,769 59,108 64,033 72,737 81,546 90,454 96,281 104,073 113,528 124,428 131,608 131,393 133,922 144,817 158,179 $1,791,335 $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 52,325 $507,559 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 20,813 $273,779 $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 27,191 $297,854 $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 29,310 $326,244 $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 12,624 $177,429 $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 16,363 $198,537 $36,986 94,831 99,190 106,250 110,801 113,335 116,496 127,273 142,846 160,318 178,413 192,257 209,263 229,470 248,596 264,722 267,563 268,721 288,600 316,805 $3,572,737 COMPOUND ANNUAL GROWTH RATE (FY 1987 - FY 2005) = 6.9% *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% 9.8% ARIZONA TRANSACTION PRIVILEGE TAX EXCISE TAX RATES FY 2005 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 49.93% 16.52% 9.25% 5.00% 5.00% 1.82%* 0.50% 0.50% 0.512% 8.58% 6.57% 3.98% 3.20% 1.05% 0.61% 0.31% 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