Maricopa County Transportation Excise Tax Fiscal Year 2006 Year-End Report Arizona Department of Transportation Financial Management Services Office of Financial Planning August 2006 MARICOPA COUNTY TRANSPORTATION EXCISE TAX EXECUTIVE SUMMARY The Maricopa County Transportation Excise Tax, often referred to as the "1/2 cent sales tax“ is levied upon business activities in Maricopa County, including retail sales, contracting, utilities, rental of real and personal property, restaurant and bar receipts, and other activities. Under Proposition 300, 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, Maricopa County Transportation Excise Tax, 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. All transportation excise tax revenue categories posted year-overyear double digit-growth rates with contracting and retail sales revenue categories leading the way at 23.9 and 15.3 percent, respectively. PAGE 1 MARICOPA COUNTY TRANSPORTATION EXCISE TAX COLLECTIONS $400.0 $360.0 MILLION OF DOLLARS In FY(fiscal year) 2006, Maricopa County transportation excise tax collections amounted to $367.6 million, an increase of 16.0 percent above FY 2005 and 8.3 percent over the estimate. FY 2006 transportation excise tax collections registered the highest year-over-year percentage growth since the excise tax became effective in January 1986. Strong growth in employment, personal income and population out weighed the effect of higher interest rates and fuel prices. $320.0 $280.0 $240.0 $200.0 $160.0 $120.0 $80.0 $40.0 $0.0 2005 ACT 2006 ACT FISCAL YEAR 2006 EST PERFORMANCE BY CATEGORY RETAIL SALES: RETAIL SALES 16.0% % CHANGE FY 2006 retail sales revenue totaled $182.4 million, an increase of 15.3 percent over FY 2005 and 7.0 percent above the forecast. Maricopa County consumers continued spending even with high fuel prices. Retail sales revenue benefited from healthy employment and population growth. 12.0% 8.0% 4.0% 0.0% The June 2006 Greater Phoenix Blue Chip economic expert panel predicts the Maricopa County economy will continue to expand but at a slower pace in calendar year (CY) 2006 and CY 2007. The expert economists expect the retail sales to grow by 8.0 percent in CY 2006 and another 7.0 percent in CY 2007. FY 2007 retail sales are expected to benefit from employment and population growth but be somewhat impacted by higher mortgage rates and fuel costs. -4.0% 97 98 99 00 01 02 03 04 05 06 FISCAL YEAR WAGE & SALARY EMPLOYMENT GROWTH MARICOPA COUNTY 8.0% 6.0% % CHANGE The June 2006 Greater Phoenix Blue Chip panel also expects wage and salary employment to grow by 4.5 percent for CY 2006 and then slow to 3.7 percent in CY 2007 from a high of 6.2 percent in CY 2005. In CY 2005, metropolitan Phoenix led the nation in job growth with 83,200 new jobs. 4.0% 2.0% 0.0% -2.0% 97 98 99 00 01 02 03 04 05 06 07 EST EST CALENDAR YEAR Source: Greater Phoenix Blue Chip Economic Forecast report, June2006 PAGE 2 RETAIL SALES: Continued The Blue Chip panel estimates personal income growth for Maricopa County to be 8.2 percent in CY 2006 and 7.6 percent in CY 2007 compared to a high of 9.4 percent in CY 2005. Maricopa County population grew by 3.7 percent in CY 2005 up from 3.3 percent in CY 2004. The Greater Phoenix Blue Chip panel expects population to continue to grow by 3.2 and 3.0 percent in CY 2006 and 2007, respectively. PERSONAL INCOME IN MARICOPA COUNTY POPULATION MARICOPA COUNTY 12.0% 8.0% 8.0% PERCENT % CHANGE 10.0% 6.0% 4.0% 2.0% 0.0% 97 98 99 00 01 02 03 04 05 06 0'7 EST EST 6.0% 4.0% 2.0% 0.0% 97 98 99 CALENDAR YEAR 00 01 02 03 04 05 06 EST 07 EST CALENDAR YEAR Source: Greater Phoenix Blue Chip Economic Forecast report, June2006 Source: Greater Phoenix Blue Chip Economic Forecast report, Jun e 2006 PAGE 3 CONTRACTING % CHANGE CONTRACTING: FY 2006 contracting collections totaled $64.8 millions, an increase of 23.9 percent over FY 2005 and 14.1 percent above the estimate. This represents the second highest percentage year-over-year increase since the Maricopa County Transportation Excise Tax was implemented in 1986. Employment and population growth along with the strengthening of retail and commercial construction sectors fueled construction activities in Maricopa County in FY 2006. In CY 2005, metropolitan Phoenix led the nation in housing permits with 63,570 new home permits. Single family housing permits were pushed higher by new residents and out-of-state investors during CY 2005. However, the Greater Phoenix Blue Chip panel forecasts single family permits to decline by 15.3 percent in CY 2006 and another 6.8 percent in CY 2007 due to higher interest rates and fewer real estate investors. 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% 97 98 99 00 01 02 03 FISCAL YEAR 04 05 06 CONTRACTING: Continued SINGLE FAMILY HOUSING PERMITS MARICOPA COUNTY 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% MULTI-FAMILY HOUSING PERMITS MARICOPA COUNTY 100.0% 80.0% % CHANGE % CHANGE Multi-family permits declined by 35.0 percent in CY 2005 but are expected to increase by 96.0 percent in CY 2006 and 5.3 percent in CY 2007, respectively. The conversion of rental units to condos and the slowdown in construction of new apartments reduced the supply of multi-family units in CY 2005 which then lowered vacancy rates and pushed rents higher justifying new construction of multi-family units in CY 2006. Vacancy rates in office buildings decreased from 18.2 percent in CY 2004 to 12.9 percent in CY 2005 and are expected to continue to decline modestly to 12.4 percent in CY 2006 due to continued employment and population growth. Retail construction activities are expected to stay strong in response to population growth in the Phoenix metro area. Vacancy rate for retail space is expected to be 6.1 percent in CY 2006 and 6.2 percent in CY 2007. According to the Blue Chip panel, the industrial construction sector enjoyed lower vacancy rates at 8.5 percent in CY 2004 and 5.6 percent in CY 2005. The panel expects the vacancy rate for the industrial sector to be 6.5 percent in CY 2006 and 6.4 percent in CY 2007. 60.0% 40.0% 20.0% 0.0% -20.0% -40.0% 97 98 99 00 01 02 03 04 05 06 07 EST EST 97 98 99 00 01 02 03 04 05 06 EST 07 EST CALENDAR YEAR CALENDAR YEAR Source: Greater Phoenix Blue Chip Economic Forecast, June 2006 Source: Greater Phoenix Blue Chip Economic Forecast, June 2006 Mortgage rates rose in FY 2006 and may negatively impact the contracting sector over the next year or two. The conventional 30 year fixed rate mortgage increased from 5.9 percent in March 2005 to 6.3 percent in March 2006. The Blue Chip panel expects new single family residential permits to slow to 53,370 in CY 2006 and 49,760 in CY 2007. The estimates may be a bit optimistic if mortgage rates continue to rise above the current level. In the commercial construction sector, the panel estimates growth to continue due to the growing economy and the need for more retail space to support population growth. PAGE 4 CONTRACTING: Continued Total construction employment increased to 163,100 in CY 2005 from 140,900 in CY 2004. Construction employment is estimated to increase by 4.7 percent in CY 2006 and 0.8 percent in CY 2007. The shortage of construction workers over the past two years will soften the impact on construction employment in CY 2006 and CY 2007. MORTGAGE INTEREST RATES 30 CONVENTIONAL FIXED RATE MORTGAGE AS OF MARCH OF EACH YEAR CONSTRUCTION EMPLOYMENT MARICOPA COUNTY 180 8.5% 160 THOUSANDS ANNUAL RATE 8.0% 7.5% 7.0% 6.5% 6.0% 140 120 100 80 5.5% 60 97 5.0% 97 98 99 00 01 02 03 04 05 98 99 00 01 02 03 04 05 CALENDAR YEAR 06 Source: Federal Home Mortgage Corporation, July, 2006 06 EST Source: Greater Phoenix Blue Chip Economic Forecast report, June2006 UTILITIES: UTILITIES 14.0% In FY 2006, utility tax revenues amounted to $23.6 million, compared to $20.8 million in FY 2005, an increase of 13.4 percent above FY 2005 and 6.8 percent above the estimate. The increase in utility collections was due mainly to the record number of new residential housing permits along with recent utility rate increases. % CHANGE 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 97 98 99 00 01 02 03 FISCAL YEAR PAGE 5 04 05 06 07 EST RESTAURANT AND BAR: Restaurant and bar collections in FY 2006 totaled $30.7 million, an increase of 12.7 percent above FY 2005 and 4.6 percent over the estimate. Personal income, population and employment together with higher tourism and convention activities contributed to the growth in restaurant and bar revenues. % CHANGE RESTAURANT & BAR 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 97 98 99 00 01 02 03 04 05 06 FISCAL YEAR RENTAL OF REAL PROPERTY: RENTAL OF REAL PROPERTY 14.0% 12.0% % CHANGE FY 2006 rental of real property tax revenues amounted to $32.9 million, an increase of 12.4 percent over FY 2005 and 5.6 percent above the forecast. Rental of real property benefited from strong hospitality and leisure activities including rental of commercial and transient lodging (hotel/motel) facilities. As noted in the construction section, the increase in multi-family housing in CY 2006 should bode well for future rental of real property revenues. 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 97 98 99 00 01 02 03 FISCAL YEAR PAGE 6 04 05 06 RENTAL OF PERSONAL PROPERTY: RENTAL OF PERSONAL PROPERTY 14.0% % CHANGE Rental of personal property revenues in FY 2006 totaled $13.9 million compared to $12.6 million in FY 2005, which represents an increase of 10.3 percent over FY 2005 and 9.6 percent above the estimate. Rental of personal property category benefited from strong economic activities and tourism. Demand for leased business and construction equipment, motor vehicles, and tangible personal property were higher in FY 2006. Higher interest rates have encouraged increased leasing of equipment and motor vehicles. 10.0% 6.0% 2.0% -2.0% -6.0% -10.0% 97 98 99 00 01 02 03 04 05 06 FISCAL YEAR OTHER: OTHER 20.0% 16.0% % CHANGE FY 2006 “Other" revenues amounted to $19.3. million, an increase of 18.0 percent over FY 2005 and 13.6 percent above the forecast. The increase in “other” revenues was due to higher miscellaneous other revenues, communications, amusement and printing 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. 12.0% 8.0% 4.0% 0.0% -4.0% 97 98 99 00 01 02 03 FISCAL YEAR PAGE 7 04 05 06 REVENUE TREND ANALYSIS ANNUAL MARICOPA COUNTY TRANSPORTATION EXCISE TAX TRENDS 44.0 40.0 MILLIONS OF DOLLARS % CHANGE 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% MONTHLY MARICOPA COUNTY TRANSPORTATION EXCISE TAX REVENUE TREND 36.0 32.0 28.0 24.0 20.0 16.0 12.0 8.0 2.0% 0.0% 4.0 97 98 99 00 01 02 03 04 05 JUL 06 AUG SEP FY 2006 Actuals FISCAL YEAR OCT NOV DEC JAN FY 2006 Estimate FEB MAR APR MAY JUN FY 2005 Actuals Building on the momentum from FY 2005, the Maricopa County transportation excise tax revenues finished FY 2006 with a record $367.6 million. Every revenue categories posted a double-digit year-over-year growth rates in FY 2006 with the contracting and retail sales revenue categories providing the strongest growth. The monthly seasonality trend of transportation excise tax revenues continues to follow a consistent trend. Holiday retail sales pushed up the January collections while baseball spring training and winter visitors along with tourism activities lifted the April collections. PAGE 8 REVENUE PERFORMANCE MARICOPA COUNTY TRANSPORTATION EXCISE TAX FY 2006 ACTUAL TOTAL= $367.6 MILLION DISTRIBUTIONS SOURCES RENTAL OF PERSONAL PROPERTY $13.9M 3.8% RENTAL OF REAL PROPERTY $32.9M 9.0% REGIONAL PLANNING. /1 PUBLIC $7.9M TRANSPORTATION 2.1% FUND $51.1M 13.9% OTHER $19.3M 5.3% RETAIL SALES $182.4M 49.6% ARTERIAL STREETS $16.1M 4.4% RESTAURANT & BAR $30.7M 8.3% UTILITIES $23.6M 6.4% REGIONAL FREEWAY SYSTEM $292.5M 79.6% CONTRACTING $64.8M 17.6% Note: 1/ Funds split evenly between Maricopa Association of Government and the Public Transportation Fund to be used for plannin g purposes. PAGE 9 MARICOPA COUNTY TRANSPORTATION EXCISE TAX REVENUE COMPARISON STATEMENT FY 2006 FY 2005 ACTUAL FY 2006 ACTUAL CHANGE FY 2006 ESTIMATE CHANGE RETAIL SALES $158,179,314 $182,377,935 15.3% $170,500,000 7.0% CONTRACTING $52,325,393 $64,822,303 23.9% 56,800,000 14.1% UTILITIES $20,813,151 $23,600,464 13.4% 22,100,000 6.8% RESTAURANT & BAR $27,190,928 $30,655,980 12.7% 29,300,000 4.6% RENTAL OF REAL PROPERTY $29,309,616 $32,949,106 12.4% 31,200,000 5.6% RENTAL OF PERSONAL PROPERTY $12,623,626 $13,922,691 10.3% 12,700,000 9.6% OTHER $16,363,534 $19,308,917 18.0% 17,000,000 13.6% TOTAL $316,805,562 $367,637,396 16.0% $339,600,000 8.3% CATEGORY NOTE: Division of collections to business categories is imputed based upon reported taxable income. Total may not add due to rounding. PAGE 10 MARICOPA COUNTY TRANSPORTATION EXCISE TAX REVENUES COLLECTED BY CATEGORY FY 1986 – 2006 (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 2006 $19,244 48,085 51,405 53,927 55,798 56,769 59,108 64,033 72,737 81,546 90,454 96,281 104,073 113,528 124,428 131,608 131,393 133,922 144,817 158,179 182,378 $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 64,822 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 23,600 $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 30,656 $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 32,949 $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 13,923 $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 19,309 $36,986 94,831 99,190 106,250 110,801 113,335 116,496 127,273 142,846 160,318 178,413 192,257 209,263 229,470 248,596 264,722 267,563 268,721 288,600 316,805 367,637 COMPOUND ANNUAL GROWTH RATE (FY 1987 - FY 2006) = 7.4% *The tax (Prop. 300) became effective January 1, 1986 and was extended (Prop. 400) on January 1, 2006 for another 20 years. PAGE 11 MARICOPA COUNTY TRANSPORTATION EXCISE TAX REVENUE DISTRIBUTION FY 1986 – 2006 (Dollars in Thousands) FISCAL YEAR 1986/1 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006/3 Total REGIONAL AREA ROAD FUND FREEWAYS RPTA/MAG /2 ARTERIAL STREETS $36,986 89,831 $5,000 94,056 5,135 100,963 5,287 105,325 5,477 107,652 5,683 110,579 5,917 121,141 6,132 136,553 6,293 153,864 6,454 171,826 6,587 185,507 6,750 202,380 6,883 222,450 7,020 241,505 7,091 257,529 7,194 260,222 7,341 261,219 7,502 281,012 7,588 309,092 7,713 292,487 7,877 $16,127 $3,742,177 $130,925 $16,127 PUBLIC TRANSPORTATION FUND $51,146 $51,146 TOTAL $36,986 94,831 99,190 106,250 110,801 113,335 116,496 127,273 142,846 160,318 178,413 192,257 209,263 229,470 248,596 264,722 267,563 268,721 288,600 316,805 367,637 $3,940,375 Notes: 1/ The Maricopa County transportation excise tax became effective on January 1, 2006 per Prop. 300. Prop. 300 collections total $3,786,783,000 but will change over time as adjustments, refunds and audits occur. 2/ The Regional Public Transportation Authority received a portion of the excise tax funds for transit costs through December 31, 2006. On January 1, 2007 these funds are distributed evenly to the Maricopa Association of Governments and the Regional Transportation Fund to be used for planning purposes per Prop. 400. These funds are netted from the Freeway funds. 3/ The Prop. 400 became effective on January 1, 2006 and the distributions are as follows: Freeways 56.2%, Arterial Streets 10.5% and Public Transportation Fund 33.3%. PAGE 12 ARIZONA TRANSACTION PRIVILEGE TAX EXCISE TAX RATES FY 2006 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 transportatio n 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 13 REVENUE CATEGORY DEFINITIONS RETAIL SALES Includes retail sales of automobiles, durable goods and other general merchandise, apparel, building materials, furniture and other tangible personal property. The tax on food was repealed in July, 1980. CONTRACTING Includes prime contracting and dealership of manufactured buildings and owner-builder operations. UTILITIES Includes producing and/or furnishing to consumers electricity, natural or artificial gas and water. RESTAURANT AND BAR Includes operations of restaurants and drinking establishments. RENTAL OF REAL PROPERTY Includes leasing or renting real property, hotels and motels. RENTAL OF PERSONAL PROPERTY Includes leasing or renting tangible personal property such as leased vehicles and construction equipment. OTHER Includes intrastate transportation of persons, freight or operations of property, intrastate telecommunication services, intrastate operation of pipelines for oil or natural or artificial gas, job printing, engraving, embossing and publication, publication of newspapers, magazines and other periodicals, operations of amusement places and miscellaneous other revenues PAGE 14