Maricopa County Transportation Excise Tax Fiscal Year 2007 Year-End Report Arizona Department of Transportation Financial Management Services Office of Financial Planning July 2007 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, the Maricopa County voters approved Proposition 400, Maricopa County Transportation Excise Tax, which extends the 1/2 cent 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 transportation excise tax revenues benefited from continued growth in population and employment in Maricopa County but were offset by uncertainty in the housing market and higher fuel prices that triggered lower consumer spending as the year progressed. MARICOPA COUNTY TRANSPORTATION EXCISE TAX COLLECTIONS MILLION OF DOLLARS The Maricopa County transportation excise tax collections totaled $392.5 million in FY 2007, an increase of 6.7 percent over FY 2006 but 1.2 percent below the estimate. All major revenue categories posted year-over-year growth with double-digit growth in contracting, utilities and rental of real property. $600.0 $550.0 $500.0 $450.0 $400.0 $350.0 $300.0 $250.0 $200.0 $150.0 $100.0 $50.0 $0.0 2006 ACT 2007 ACT FISCAL YEAR PAGE 1 2007 EST PERFORMANCE BY CATEGORY RETAIL SALES: RETAIL SALES 16.0% % CHANGE Retail sales collections for FY 2007 totaled $187.8 million, an increase of 3.0 percent over FY 2006 but 4.2 percent below the forecast. Retail sales in Maricopa County grew moderately in FY 2007 as consumers had less disposable income due to lower home equity and higher fuel prices. In the June 2007 issue of the Greater Phoenix Blue Chip, panel members estimated retail sales growth would slow to 6.6 percent in CY 2007 and 6.4 percent in CY 2008. 12.0% 8.0% 4.0% 0.0% -4.0% 97 98 99 00 01 02 03 04 05 06 07 The two biggest drivers for retail sales are employment and personal income growth. Maricopa County retail sales have benefited from the growth in employment, personal income and population in recent years, but economic activity in FY 2007 slowed over the second half of the year. PAGE 2 WAGE & SALARY EMPLOYMENT GROWTH MARICOPA COUNTY 8.0% 6.0% % CHANGE The July 19, 2007 Department of Economic Security (DES) Arizona Workforce report stated that the Phoenix-Mesa MSA created 52,900 non-farm jobs from June 2006 to June 2007, an increase of 3.2 percent from June 2006. The wage and salary employment growth was 6.2 percent in CY 2005 and 4.4 percent in CY 2006. Going forward, the Greater Phoenix Blue Chip panel expects a slowdown in wage and salary employment with growth rates of 3.6 and 3.3 percent in CY 2007 and CY 2008, respectively. Based on the DES report, the Greater Phoenix Blue Chip panel may be a bit optimistic. FISCAL YEAR 4.0% 2.0% 0.0% -2.0% 98 99 00 01 02 03 04 05 06 07 08 EST EST CALENDAR YEAR Source: Greater Phoenix Blue Chip Economic Forecast report, June 2007 RETAIL SALES: Continued Personal income is estimated to grow by 7.3 and 7.1 percent in CY 2007 and CY 2008, respectively, compared to 8.4 percent for CY 2006. The growth trend in Maricopa County personal income has slowed from a recent high of 9.5 percent in CY 2005 to 7.1 percent in CY 2008. Maricopa County population is expected to continue to increase but at a slower rate, 3.5 percent in CY 2006 to 3.1 percent in CY 2007 and 3.0 percent in CY 2008. POPULATION MARICOPA COUNTY PERSONAL INCOME IN MARICOPA COUNTY 12.0% 8.0% 8.0% PERCENT % CHANGE 10.0% 6.0% 4.0% 2.0% 6.0% 4.0% 2.0% 0.0% 98 99 00 01 02 03 04 05 06 07 EST 08 EST 0.0% 98 99 00 01 02 03 04 05 06 CALENDAR YEAR 07 EST 08 EST CALENDAR YEAR Source: Greater Phoenix Blue Chip Economic Forecast report, June 2007 Source: Greater Phoenix Blue Chip Economic Forecast report, June 2007 PAGE 3 CONTRACTING % CHANGE CONTRACTING: Contracting revenues increased from $64.8 million in FY 2006 to $73.9 million in FY 2007, an increase of 13.9 percent and 2.7 percent above the forecast. This increase was mainly due to the growth in commercial and retail construction sectors supporting recent population growth. However, a majority of the growth occurred in the first half of FY 2007. U.S. Census Bureau ranked Maricopa County at the top spot in the nation for population growth with 696,000 new residents between 2000 and 2006. In addition, Phoenix is ranked as number one in terms of job growth among job markets with more than one million workers. 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% 98 99 00 01 02 03 04 FISCAL YEAR 05 06 07 Maricopa County single-family housing permits increased 4.4 percent in CY 2005 and then fell 33.3 percent in CY 2006. The Greater Phoenix Blue Chip experts estimate that single-family housing permits will continue to decline in CY 2007 by 13.4 percent but then increase by 9.8 percent in CY 2008. Tighter lending policies and an excess supply of new and resale homes will negatively impact the single-family residential housing market in the near future. Multi-family housing permits declined by 35.0 percent in CY 2005 but then grew by 20.7 percent in CY 2006. Going forward, the multi-family housing permits are expected to increase by 26.4 percent for CY 2007 and 9.5 percent in CY 2008. The office, retail and industrial construction sectors have entered a boom period. According to the Greater Phoenix Blue Chip, 2.2 million square feet of office space was built in CY 2006 with another 3.8 and 3.0 million square feet planned in CY 2007 and 2008, respectively. Retail sector construction is expected to remain healthy with 7.0 million square feet is expected to be built in CY 2007 compared to 4.5 million in CY 2006. As for the industrial sector, construction is expected to be strong with 7.8 and 7.2 million square feet to be added in CY 2007 and CY 2008, respectively. The office, retail and industrial construction activity should help to offset some of the decline in the residential housing market. 40% 100.0% 30% 80.0% 20% % CHANGE % CHANGE SINGLE FAMILY HOUSING PERMITS MARICOPA COUNTY 10% 0% -10% 60.0% 40.0% 20.0% -20% 0.0% -30% -20.0% -40% MULTI-FAMILY HOUSING PERMITS MARICOPA COUNTY -40.0% 98 99 00 01 02 03 04 05 06 07 08 EST EST 98 99 00 01 02 03 04 05 06 07 EST 08 EST CALENDAR YEAR CALENDAR YEAR Source: Greater Phoenix Blue Chip Economic Forecast, June 2007 Source: Greater Phoenix Blue Chip Economic Forecast, June 2007 The conventional 30 year mortgage rate increased to 6.2 percent in March 2007 from a low of 5.5 percent in March 2004. The Federal Reserve remains committed to keeping inflation under control which may move mortgage rates further upward in the near future. A rising interest rate environment will negatively impact the residential housing market in addition to the already tighter credit lending. PAGE 4 CONTRACTING: Continued Construction employment increased by 15.8 and 4.7 percent in CY 2005 and CY 2006, respectively, but is expected to decrease 1.6 and 0.5 percent in CY 2007 and CY 2008. Construction activity in the office, retail and industrial sectors should soften the decrease in construction employment caused by the residential sector slowdown. MORTGAGE INTEREST RATES 30 CONVENTIONAL FIXED RATE MORTGAGE AS OF MARCH OF EACH YEAR CONSTRUCTION EMPLOYMENT MARICOPA COUNTY 200.0 8.5% 180.0 THOUSANDS ANNUAL RATE 8.0% 7.5% 7.0% 6.5% 160.0 140.0 120.0 100.0 6.0% 80.0 5.5% 60.0 5.0% 98 98 99 00 01 02 03 04 05 06 99 00 01 07 02 03 04 05 06 CALENDAR YEAR Source: Federal Home Mortgage Corporation, July, 2007 07 EST Source: Greater Phoenix Blue Chip Economic Forecast report, June 2007 UTILITIES: UTILITIES 14.0% Utility tax collections totaled $26.7 million, an increase of 13.1 percent over FY 2006 and 3.9 percent above the forecast. The growth in utility revenues was fueled by utility rate increases and strength in the commercial, industrial and retail construction sectors. % CHANGE 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 98 99 00 01 02 03 04 FISCAL YEAR PAGE 5 05 06 07 08 EST RESTAURANT AND BAR: % CHANGE RESTAURANT & BAR In FY 2007, restaurant and bar revenues amounted to $33.1 million, an increase of 7.9 percent over FY 2006 and 0.8 percent above the estimate. The restaurant and bar revenue category benefited from three college football bowl games played in December 2006 and January 2007, the FBR Open golf tournament in January 2007 and the Cactus league spring training in March 2007. However, higher fuel prices may have slowed the growth, which was the slowest growth since FY 2003. 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 98 99 00 01 02 03 04 05 06 07 FISCAL YEAR RENTAL OF REAL PROPERTY: RENTAL OF REAL PROPERTY PAGE 6 14.0% 12.0% % CHANGE Rental of real property collections totaled $36.4 million in FY 2007, an increase of 10.5 percent above FY 2006 and 3.4 percent over the forecast. This revenue category includes rental of commercial, residential and transient lodging (hotel/motel) facilities. According to Arizona Office of Tourism, the lodging occupancy rate in metro Phoenix increased to 68.2 percent in CY 2006 compared to 67.0 percent in CY 2005, an increase of 1.8 percent year-over-year. Rental of real property revenue category benefited from the strong sporting and tourism activities during the year along with higher room rates. 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 98 99 00 01 02 03 04 FISCAL YEAR 05 06 07 RENTAL OF PERSONAL PROPERTY: RENTAL OF PERSONAL PROPERTY 14.0% 10.0% % CHANGE FY 2007 rental of personal property collections amounted to $15.1 million, an increase of 8.1 percent over FY 2006 and 1.7 percent above the estimate. Rental of personal property benefited from the strong commercial and industrial construction activities which led to higher demand for leasing of construction equipment. 6.0% 2.0% -2.0% -6.0% -10.0% 98 99 00 01 02 03 04 05 06 07 05 06 07 FISCAL YEAR OTHER: PAGE 7 OTHER 20.0% 16.0% % CHANGE In FY 2007 ”other” collections totaled $19.5 million, an increase of 1.2 percent over FY 2006 but was 5.6 percent below the forecast. The higher “other” revenue category was due to higher communications, amusement, railroad and aircraft collections during the fiscal year. The revenue growth in FY 2006 was due to a one-time revenue gain in the miscellaneous other revenue. 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% 98 99 00 01 02 03 04 FISCAL YEAR REVENUE TREND ANALYSIS MONTHLY MARICOPA COUNTY TRANSPORTATION EXCISE TAX REVENUE TREND 60.0 55.0 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% MILLIONS OF DOLLARS % CHANGE ANNUAL MARICOPA COUNTY TRANSPORTATION EXCISE TAX TRENDS 50.0 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 98 99 00 01 02 03 04 05 06 07 5.0 JUL FISCAL YEAR AUG SEP FY 2006 Actuals OCT NOV DEC JAN FY 2007 Estimate FEB MAR APR MAY JUN FY 2007 Actuals The Maricopa County transportation excise tax collections totaled $392.5 million in FY 2007, another record year for excise tax revenue collections. Although the excise tax revenues came up short of the estimate by 1.2 percent, all major revenue categories showed year-over-year increases with contracting, utilities and rental of real property posting double-digit growth. It should be noted the majority of the revenue growth occurred in the first half of the fiscal year. On a monthly basis, transportation excise tax revenues continued to follow a consistent trend with sharp increases in revenues in January and April due to holiday retail sales, college bowl games, baseball spring training and winter visitors. PAGE 8 REVENUE PERFORMANCE MARICOPA COUNTY TRANSPORTATION EXCISE TAX FY 2007 ACTUAL TOTAL= $392.5 MILLION DISTRIBUTIONS SOURCES RENTAL OF PERSONAL OTHER PROPERTY $19.5M 5.0% $15.1M 3.8% RENTAL OF REAL PROPERTY $36.4M 9.3% RETAIL SALES $187.8M 47.9% PUBLIC TRANSPORTATION FUND $130.2M 33.2% REGIONAL PLANNING. /1 $8.1M 2.1% RESTAURANT & BAR $33.1M 8.4% UTILITIES $26.7M 6.8% ARTERIAL STREETS $41.1M 10.4% CONTRACTING $73.9M 18.8% REGIONAL FREEWAY SYSTEM $213.1M 54.3% /2 Note: 1/ Funds split evenly between Maricopa Association of Government and the Public Transportation Fund to be used for planning purpose. 2/ Percentage variance due to Prop. 300 collections. PAGE 9 MARICOPA COUNTY TRANSPORTATION EXCISE TAX REVENUE COMPARISON STATEMENT FY 2007 FY 2006 ACTUAL FY 2007 ACTUAL CHANGE FY 2007 ESTIMATE CHANGE RETAIL SALES $182,377,935 $187,816,622 3.0% $196,000,000 -4.2% CONTRACTING $64,822,303 $73,864,335 13.9% 71,900,000 2.7% UTILITIES $23,600,464 $26,697,238 13.1% 25,700,000 3.9% RESTAURANT & BAR $30,655,980 $33,073,445 7.9% 32,800,000 0.8% RENTAL OF REAL PROPERTY $32,949,106 $36,398,154 10.5% 35,200,000 3.4% RENTAL OF PERSONAL PROPERTY $13,922,691 $15,053,411 8.1% 14,800,000 1.7% OTHER $19,308,917 $19,548,401 1.2% 20,700,000 -5.6% TOTAL $367,637,396 $392,451,606 6.7% $397,100,000 -1.2% 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 TRANSPORTATION EXCISE TAX REVENUES COLLECTED BY CATEGORY FY 1986 – 2007 (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 2007 TOTAL $19,244 48,085 51,405 53,927 55,798 56,769 59,108 64,033 72,737 81,546 90,454 96,281 104,073 113,528 124,428 131,608 131,393 133,922 144,817 158,179 182,378 187,817 $2,161,530 $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 73,864 $646,246 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 26,697 $324,077 $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 33,073 $361,583 $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 36,398 $395,591 $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 15,053 $206,405 $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 16,364 19,309 19,548 $237,395 $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 $316,806 $367,637 $392,452 $4,332,827 COMPOUND ANNUAL GROWTH RATE (FY 1987 - FY 2007) = 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 PERCENT CHANGE N/A 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% 16.0% 6.7% MARICOPA COUNTY TRANSPORTATION EXCISE TAX REVENUE DISTRIBUTION FY 1986 – 2007 (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 2007 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 $16,127 213,119 8,095 $41,050 $3,955,296 $139,020 $57,177 PUBLIC TRANSPORTATION FUND $51,146 $130,188 $181,334 TOTAL $36,986 94,831 99,190 106,250 110,801 113,335 116,496 127,273 142,846 160,318 178,413 192,257 209,263 229,470 248,596 264,722 267,563 268,721 288,600 316,805 367,637 392,452 $4,332,827 Notes: 1/ The Maricopa County transportation excise tax became effective on January 1, 1986 per Prop. 300. Prop. 300 collections total $3,788,281,000 but will change due to 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%. Prop. 400 collections total $544,546,000 from date of inception. PAGE 12 ARIZONA TRANSACTION PRIVILEGE TAX EXCISE TAX RATES FY 2007 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 Pe rce nt of Total Maricopa County Transaction Privile ge Tax Colle ctions Transaction Privile ge Tax Rate Transportation Excise Tax Rate 47.86% 18.82% 9.27% 5.00% 5.00% 1.82%* 0.50% 0.50% 0.512% 8.43% 6.80% 3.84% 2.93% 1.06% 0.53% 0.46% 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 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