Maricopa County Transportation Excise Tax Fiscal Year 2008 Year-End Report Arizona Department of Transportation Financial Management Services Office of Financial Planning July 2008 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, transportation excise tax revenues were 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 were the principal source of funding for the Regional Freeway System in Maricopa County and were 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 extended 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. MARICOPA COUNTY TRANSPORTATION EXCISE TAX COLLECTIONS $600.0 $550.0 MILLION OF DOLLARS FY 2008 Maricopa County Transportation Excise Tax collections totaled $380.1 million, a decrease of 3.2 percent from FY 2007 and 7.0 percent below the forecast. This is the first year-over-year decrease in revenues since the inception of the tax in 1986. The transportation excise tax revenues were negatively impacted by the persistently weak housing and credit markets, higher fuel and food prices, and slower employment and population growth. All of these factors caused consumers to restrain their spending in FY 2008. $500.0 $450.0 $400.0 $350.0 $300.0 $250.0 $200.0 $150.0 $100.0 $50.0 $0.0 2007 ACT 2008 ACT FISCAL YEAR PAGE 1 2008 EST PERFORMANCE BY CATEGORY RETAIL SALES: RETAIL SALES 16.0% % CH AN GE Retail sales collections decreased from $187.8 million in FY 2007 to $177.9 million in FY 2008, a decrease of 5.3 percent and finished the year 8.0 percent below the estimate. Retail sales were negatively impacted by the continued weak housing market and higher fuel and food prices which strained consumers budgets. The Greater Phoenix Blue Chip Manufacturer survey showed a low level of optimism for the Maricopa County economy in CY 2008 and CY 2009. The Second Quarter 2008 Greater Phoenix Blue Chip panel members expect retail sales to grow by 2.2 percent in CY 2008 and 3.2 percent in CY 2009. 12.0% 8.0% 4.0% 0.0% -4.0% -8.0% 98 99 00 01 02 03 04 05 06 07 08 FISCAL YEAR PERSONAL INCOME MARICOPA COUNTY 12.0% % CHANGE Maricopa County retail sales are influenced by growth in personal income, population, wage and salary employment, interest rates and consumer confidence. Personal income growth slowed from a recent peak of 9.5 percent in CY 2005 to 7.2 percent in CY 2007 and is estimated to have lower growth rates in CY 2008 and CY 2009 of 5.0 and 5.4 percent, respectively. Similarly, population is expected to grow at a slower pace. In CY 2005, population growth was 3.9 percent versus 3.0 percent in CY 2007. Looking forward, Maricopa County population is estimated to grow at 2.5 percent for both CY 2008 and CY 2009. Maricopa County wage and salary employment growth rate was 6.2 percent in CY 2005 slowing to 1.0 percent in CY 2007. In CY 2008 and CY 2009, the panel members expect the wage and salary employment growth to be 0.5 and 1.4 percent, respectively. 9.0% 6.0% 3.0% 0.0% 99 00 01 02 03 04 05 06 CALENDARYEAR Source: Greater Phoenix Blue Chip Economic Forecast report, June 2008 PAGE 2 07 08 09 EST EST RETAIL SALES: Continued The Greater Phoenix Blue Chip report noted the Maricopa County economy has seen no job growth for the first half of CY 2008 and expects job creation in the county to be below average unless the housing sector begins to show signs of recovery. POPULATION MARICOPA COUNTY WAGE & SALARY EMPLOYMENT GROWTH MARICOPA COUNTY 8.0% 8.0% % CHANGE 6.0% 4.0% 2.0% 4.0% 2.0% 0.0% 0.0% -2.0% 99 00 01 02 03 04 05 CALENDAR YEAR 06 07 08 EST 09 EST 99 00 01 02 03 04 05 06 07 08 EST 09 EST CALENDAR YEAR Source: Greater Phoenix Blue Chip Economic Forecast report, Second Quarter 2008 Source: Greater Phoenix Blue Chip Economic Forecast report, Second Quarter 2008 CONTRACTING: Contracting revenues totaled $66.1 million, a decrease of 10.6 percent below both FY 2007 and the FY 2008 estimate. The contracting revenue category has been impacted by the continued slowdown in the housing market in Maricopa County caused by the large inventory of unsold homes, which in turn, has resulted in a substantial drop in most home values. Even consumers in the market to buy are reluctant due to falling home prices. With slower population growth the commercial construction sector has also begun to feel the affects with fewer commercial and retail construction activity. CONTRACTING 30.0% % CHANGE PERCENT 6.0% 20.0% 10.0% 0.0% -10.0% -20.0% 98 99 00 01 02 03 04 05 06 07 08 FISCAL YEAR PAGE 3 The single family housing permit growth rate in CY 2005 was 4.4 percent but had negative growth in CY 2006 and CY 2007 of 33.3 and 26.5 percent, respectively. The Greater Phoenix Blue Chip expert panel forecasts single-family housing permits will continue to drop by 43.5 percent in CY 2008 before reversing to increase by 26.4 percent in CY 2009. With more homeowners losing their homes, the demand for rental apartments or multi-family homes has increased in the short term. The number of multi-family housing permits grew by 20.7 percent in CY 2006 and 70.2 percent in CY 2007. However, in CY 2008 and CY 2009, the panel expects the multi-family permits growth rate to decline by 25.4 and 13.3 percent, respectively. Construction activity in the office, retail and industrial sectors is expected to drop in CY 2008 and CY 2009 and vacancy rates are expected to increase in CY 2009. In CY 2007, 3.8 million of square feet of office space was constructed in metropolitan Phoenix. The panel expects an additional 3.6 and 1.7 million square feet of office space to be added in CY 2008 and CY 2009, respectively. Although 11.6 million square feet of retail space was added in Phoenix during CY 2007, the Greater Phoenix area is expected to gain an additional 7.3 and 4.3 million square feet of retail space for CY 2008 and CY 2009, respectively. The industrial sector added 13.2 million of square feet of industrial space in CY 2007 to its inventory and forecast an additional 7.3 and 5.7 million in CY 2008 and CY 2009, respectively. MULTI-FAMILY HOUSING PERMITS MARICOPA COUNTY 100.0% 80.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% -40.0% -50.0% % C HAN GE % C HAN GE 40.0% 30.0% SINGLE FAMILY HOUSING PERMITS MARICOPA COUNTY 60.0% 40.0% 20.0% 0.0% -20.0% 99 00 01 02 03 04 05 06 07 -40.0% 08 09 EST EST 99 CALENDAR YEAR 00 01 02 03 04 05 06 07 08 09 ES T E ST CALENDAR YEAR Source: Greater Phoenix Blue Chip Economic Forecast, Second Quarter 2008 Source: Greater Phoenix Blue Chip Economic Forecast, Second Quarter 2008 The Federal Reserve aggressively reduced interest rates and provided cheap money to U. S. banks to provide liquidity to the financial markets in FY 2008. The Fed cut interest rates by 3.25 percentage points since September 2007. Nevertheless, single family housing is expected to be weak through CY 2008. PAGE 4 CONTRACTING: Continued According to the Arizona Department of Commerce, Maricopa County lost 25,900 non-farm jobs between June 2007 to June 2008 with the majority of the loss in the construction sector. The Blue Chip panel expects the construction job loss to continue and predicts a decrease of 11.4 and 2.6 percent in CY 2008 and CY 2009, respectively. CONSTRUCTION EMPLOYMENT MARICOPA COUNTY M ORTGAGE INTEREST RATES 3 0 CONVENTIONAL FIX ED RATE M ORTGAGE AS OF M ARCH OF E ACH Y EAR 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% 99 99 00 01 02 03 04 05 06 07 00 01 02 08 03 04 05 06 07 CALENDAR YEAR Source: Federal Reserve Bank of St Louis, April 2008 08 EST 09 EST Source: Greater Phoenix Blue Chip Economic Forecast report, Second Quarter 2008 UTILITIES: UTILITIES 14.0% PAGE 5 12.0% % CHANGE FY 2008 utility revenues totaled $28.6 million, an increase of 7.2 percent over FY 2007 but 1.6 percent below the estimate. The increase in utility collections was due to utility rate increases during the fiscal year. Utility companies in Maricopa County continue to seek rate increases from the Arizona Corporation Commission to recoup their high fuel and infrastructure costs. 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 99 00 01 02 03 04 05 FIS CAL YEAR 06 07 08 RESTAURANT AND BAR: RESTAURANT & BAR 15. 0% % CHANGE Restaurant and bar revenues in FY 2008 totaled $33.0 million, a decrease of 0.2 percent from FY 2007 and 7.5 percent below the forecast. The restaurant and bar revenue category was affected by the slower economy and higher fuel prices as budget-minded consumers opted to cut down on the number of trips to restaurants. However, in FY 2008, restaurant and bar revenues benefited from a temporary increase in revenues due to the Super Bowl and spring training games. 10. 0% 5. 0% 0. 0% 99 00 01 02 03 04 05 06 07 08 -5. 0% FISCAL YEAR RENTAL OF REAL PROPERTY: RE NTAL O F REAL PRO PE RTY 14 .0% % CH AN GE FY 2008 rental of real property revenues amounted to $38.6 million, a 6.1 percent increase over last year but was 2.8 percent below the estimate. Hospitality and leisure activities including rental of commercial and transient lodging provided the increase in this revenue category. The Super Bowl event brought in an additional 12.4 percent in February sales tax collections for hotels and motels according to the Arizona Department of Revenue as reported in the Arizona Republic on April 27, 2008. 12 .0% 10 .0% 8 .0% 6 .0% 4 .0% 2 .0% 0 .0% 99 00 01 02 03 04 FISC AL YEA R PAGE 6 05 06 07 08 RENTAL OF PERSONAL PROPERTY: RE N TAL O F P E RS O NAL P R OP E R TY 1 4.0 % % C HAN GE Rental of personal property revenues in FY 2008 amounted to $15.1 million, an increase of 0.4 percent from FY 2007 but was 6.7 percent below the forecast. This category includes rental vehicles, business and construction equipment leasing and rental of tangible personal properties. Due to the slump in the construction industry, there was less demand for construction equipment leasing. 1 0.0 % 6.0 % 2.0 % - 2.0 % - 6.0 % -1 0.0 % 99 00 01 02 03 04 05 06 07 08 FIS C A L Y E A R OTHER: OT HER 16.0% % C HA NGE “Other” revenues for FY 2008 totaled $20.8 million, an increase of 6.4 percent over FY 2007 and 0.5 percent above the forecast. The revenue growth in FY 2008 was due mainly to a one-time revenue gain in the miscellaneous other revenue. The “other” revenue category includes collections from towing and transportation, communications, railroad and aircraft, private rail and pipeline, publishing, printing, amusement, jet fuel tax and miscellaneous other revenues. 20.0% 12.0% 8.0% 4.0% 0.0% -4.0% 99 00 01 02 03 04 05 F IS CAL Y E AR PAGE 7 06 07 08 REVENUE TREND ANALYSIS 60. 0 20.0% 55. 0 MILLIONS OF DOLL ARS ANNUAL MARICOPA COUNTY TRANSPORTATION EXCISE TAX TRENDS % CH ANGE 15.0% 10.0% 5.0% 0.0% MONTHLY MARICOPA COUNTY TRANSPORTATION EXCISE TAX REVENUE TREND 50. 0 45. 0 40. 0 35. 0 30. 0 25. 0 20. 0 15. 0 10. 0 5. 0 -5.0% 99 00 01 02 03 04 05 06 07 JUL 08 AUG SE P FY 2007 Actuals F ISCA L YEA R OCT NOV DE C JAN FY 2008 Estimate F EB M AR APR M AY JUN FY 2008 Actuals FY 2008 was the first year the Maricopa County Transportation Excise Tax posted negative growth year-overyear since the inception of the tax in 1986. July was the only month when the excise tax collections exceeded the estimate for FY 2008. On the positive side, the utilities, rental of real property, rental of personal properties and other revenue categories posted higher revenues than in FY 2007. Monthly excise tax revenue collections continue to follow a consistent trend. The spike in January collections was because of holiday retail sales collections. The increase in April collections was due to baseball spring training and winter visitors. PAGE 8 REVENUE PERFORMANCE MARICOPA COUNTY TRANSPORTATION EXCISE TAX FY 2008 ACTUAL TOTAL= $380.1 MILLION DISTRIBUTIONS SOURCES RENTAL OF PERSONAL PROPERTY $15.1M 4.0% RENTAL OF REAL PROPERTY $38.6M 10.1% OTHER $20.8M 5.5% RETAIL SALES $177.9M 46.8% PUBLIC TRANSPORTATION FUND $126.4M 33.2% REGIONAL PLANNING. /1 $8.3M 2.2% RESTAURANT & BAR $33.0M 8.7% UTILITIES $28.6M 7.5% ARTERIAL STREETS $39.8M 10.5% CONTRACTING $66.1M 17.4% REGIONAL FREEWAY SYSTEM $205.6M 54.1% /2 Note: 1/ Funds split evenly between Maricopa Association of Government and the Public Transportation Fund to be used for planning purposes. 2/ Percentage variance due to Prop. 300 collections. Total may not add due to rounding. PAGE 9 MARICOPA COUNTY TRANSPORTATION EXCISE TAX REVENUE COMPARISON STATEMENT FY 2008 FY 2007 ACTUAL FY 2008 ACTUAL CHANGE FY 2008 ESTIMATE CHANGE RETAIL SALES $187,816,622 $177,844,654 -5.3% $193,400,000 -8.0% CONTRACTING $73,864,335 $66,045,770 -10.6% 73,900,000 -10.6% UTILITIES $26,697,238 $28,629,604 7.2% 29,100,000 -1.6% RESTAURANT & BAR $33,073,445 $33,021,064 -0.2% 35,700,000 -7.5% RENTAL OF REAL PROPERTY $36,398,154 $38,605,418 6.1% 39,700,000 -2.8% RENTAL OF PERSONAL PROPERTY $15,053,411 $15,111,170 0.4% 16,200,000 -6.7% OTHER $19,548,401 $20,807,875 6.4% 20,700,000 0.5% TOTAL $392,451,606 $380,065,555 -3.2% $408,700,000 -7.0% 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 – 2008 (Dollars in Thousands) FISCAL YEAR RETAIL SALES CON TRACTIN G UTILITIES RESTAURAN T & BAR REN TAL REAL PROPERTY REN TAL PERSON AL PROPERTY OTH ER TOTAL 1986 * $19,244 $5,716 $3,073 $3,682 $1,923 $1,733 $1,615 $36,986 1987 48,085 14,849 8,542 7,579 6,822 4,172 4,782 $94,831 1988 51,405 14,188 9,535 8,379 5,994 4,728 4,961 $99,190 1989 53,927 13,947 10,336 8,795 8,952 4,883 5,410 $106,250 1990 55,798 13,286 10,685 9,282 10,808 5,289 5,653 $110,801 1991 56,769 12,715 11,353 9,655 11,091 5,708 6,044 $113,335 1992 59,108 11,688 10,999 10,280 11,707 6,043 6,671 $116,496 1993 64,033 13,385 11,874 11,171 12,993 6,672 7,145 $127,273 1994 72,737 17,039 12,680 12,166 13,414 7,002 7,808 $142,846 1995 81,546 21,107 13,132 13,291 14,660 8,198 8,384 $160,318 1996 90,454 24,284 14,198 14,739 16,822 8,734 9,183 $178,413 1997 96,281 26,948 14,583 15,821 18,298 10,074 10,252 $192,257 1998 104,073 30,610 15,101 16,917 19,552 11,539 11,472 $209,263 1999 113,528 35,632 15,680 18,304 20,266 12,787 13,272 $229,470 2000 124,428 37,384 16,437 20,005 22,080 13,434 14,827 $248,596 2001 131,608 38,820 17,862 21,395 24,112 14,416 16,510 $264,722 2002 131,393 41,218 18,432 21,748 24,529 13,928 16,314 $267,563 2003 133,922 38,894 18,485 22,646 25,747 12,834 16,192 $268,721 2004 144,817 43,524 19,980 24,807 27,163 12,631 15,678 $288,600 2005 158,179 52,325 20,813 27,191 29,310 12,624 16,364 $316,806 2006 182,378 64,822 23,600 30,656 32,949 13,923 19,309 $367,637 2007 187,817 73,864 26,697 33,073 36,398 15,053 19,548 $392,452 2008 177,845 66,046 28,630 33,021 38,605 15,111 20,808 $380,066 TOTAL $2,339,374 $712,292 $352,707 $394,604 $434,197 $221,517 $258,203 $4,712,893 COMPOUND ANNUAL GROWTH RATE (FY 1987 - FY 2008) = 6.8% *The tax (Prop. 300) became effective January 1, 1986 and was extended (Prop. 400) on January 1, 2006 for another 20 years. Total may not add due to rounding. 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% -3.2% MARICOPA COUNTY TRANSPORTATION EXCISE TAX REVENUE DISTRIBUTION FY 1986 – 2008 (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 2008 Total PUBLIC REGION AL AREA ROAD FUN D TRAN SPORTATION FREEWAYS RPTA/ MAG / 2 ARTERIAL STREETS FUN D $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 $51,146 213,119 8,095 41,050 130,188 205,576 8,334 39,832 126,324 $4,160,872 $147,354 $97,009 $307,657 TOTAL $36,986 94,831 99,190 106,250 110,801 113,335 116,496 127,273 142,846 160,318 178,413 192,257 209,263 229,470 248,596 264,722 267,563 268,721 288,600 316,806 367,637 392,452 380,066 $4,712,893 Notes: 1/ The Maricopa County transportation excise tax became effective on January 1, 1986 per Prop. 300. Prop. 300 collections total $3,788,997,000 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 $923,896,000 from date of inception. 4/ Total may not add due to rounding. PAGE 12 ARIZONA TRANSACTION PRIVILEGE TAX EXCISE TAX RATES FY 2008 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 46.8% 17.4% 10.1% 5.00% 5.00% 1.82%* 0.50% 0.50% 0.512% 8.7% 7.5% 4.0% 3.3% 1.1% 0.5% 0.6% 0.0% 0.0% 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 MARICOPA COUNTY TRANSPORTATION EXCISE TAX FY 2008 ACTUAL REVENUE DISTRIBUTION FLOW (Millions of Dollars) Retail Sales 177.9 Contracting Utilities 66.1 28.6 Restaurant Rental of Rental of & Bar Real Prop. Pers. Prop. 33.0 38.6 15.1 Other 20.8 Maricopa County Transportation Excise Tax Collections /1 380.1 Arizona Department of Revenue NOTES: /1. Prop 300 expired on December 31, 2005 and Prop. 400 became effective on January 1, 2006. FY 2008 collections and distributions are a mix of both Prop. 300 and Prop. 400. Prop. 300 monies will continue over time due to adjustments, refunds and audits. 380.1 /2. Under Prop. 400, the Regional Area Road Fund (ADOT) receives the Freeways 56.2% and the Arterial Streets 10.5% revenues. MAG programs projects for the Arterial Streets 10.5% monies and then bills ADOT for the costs. /3. A portion of the Freeways 56.2% monies are distributed equally to MAG and the Public Transportation Fund to be used for planning purposes. 126.3 Public Transportation Fund 33.3% Regional Area Road Fund 39.8 Arterial Streets 10.5% 214.0 /3 Freeways 56.2% 8.3 MAG and RPTA G: \FMS \ RARF \ year end \ Working File \ RARF Tank Actual FY 08 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