Maricopa County Transportation Excise Tax Fiscal Year 2009 Year-End Report Arizona Department of Transportation Financial Management Services Office of Financial Planning July 2009 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 $400.0 $360.0 MILLION OF DOLLARS Fiscal year (FY) 2009 Maricopa County Transportation Excise Tax collections amounted to $328.2 million, a decrease of 13.7 percent below FY 2008 and 13.7 percent lower than the forecast. This is the second consecutive year that RARF revenues posted negative year-over-year growth and was the worst performance in RARF revenues history. All RARF revenue categories posted year-over-year negative revenue growth. During FY 2009, RARF collections were negatively impacted by the severe recession, higher unemployment and the anemic housing market. Maricopa County consumers spending abilities were curtailed by the tight credit markets and falling home values. $320.0 $280.0 $240.0 $200.0 $160.0 $120.0 $80.0 $40.0 $0.0 2008 ACT 2009 ACT FISCAL YEAR PAGE 1 2009 EST PERFORMANCE BY CATEGORY RETAIL SALES: FY 2009 retail sales revenue amounted to $153.7 million, a decrease of 13.6 percent from FY 2008 and 15.7 percent below the estimate. The recession in Maricopa County significantly affected retail sales collections. Faced with job losses and lower household wealth, Maricopa County consumers continued to curb their discretionary spending in FY 2009 even though the prices of food and fuel were lower. % CHANGE RETAIL SALES 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% 00 01 02 03 04 05 06 07 08 09 The July 2009 Greater Phoenix Blue Chip report predicts Maricopa County retail sales will decline by 3.1 percent in CY 2009 after a 10.3 percent decrease in CY 2008. CY 2010 is expected to post a 4.1 percent gain after two years of decline. PERSONAL INCOME IN MARICOPA COUNTY 12.0% 10.0% % CHANGE Maricopa County retail sales are forecast based on three economic indicators - personal income, population and wage and salary employment. The Greater Phoenix Blue Chip expert panel forecast for personal income growth is 1.2 percent in CY 2009 and 2.7 percent in CY 2010. According to the panel members, the estimate for population growth shows an increase of 1.6 percent in CY 2009 and 1.9 percent in CY 2010. This represents the slowest population growth in Maricopa County since 1990. The Maricopa County wage and salary employment growth is estimated to decrease to a negative 2.9 percent in CY 2009 before improving to a positive 0.3 percent in CY 2010. FISCAL YEAR 8.0% 6.0% 4.0% 2.0% 0.0% 00 01 02 03 04 05 06 07 08 CALENDAR YEAR Source: Greater Phoenix Blue Chip Economic Forecast report, July 2009 PAGE 2 09 10 EST EST RETAIL SALES: Continued In CY 2008, the economic stimulus rebate checks were mailed to consumers to revive the economy. After the initial boost from the stimulus payments, the economy continued to weaken. In the near term, Maricopa County retail sales will continue to be weak until the employment picture and consumers’ confidence improves. On the positive side, food and fuel prices were lower during this fiscal year providing consumers with more disposable income. POPULATION MARICOPA COUNTY WAGE & SALARY EMPLOYMENT GROWTH MARICOPA COUNTY 8.0% 6.0% % CHANGE PERCENT 8.0% 6.0% 4.0% 2.0% 4.0% 2.0% 0.0% -2.0% -4.0% 0.0% 00 01 02 03 04 05 06 07 08 09 EST 00 10 EST 01 CALENDAR YEAR 02 03 04 05 06 07 08 09 10 EST EST CALENDAR YEAR Source: Greater Phoenix Blue Chip Economic Forecast report, July 2009 Source: Greater Phoenix Blue Chip Economic Forecast report, July 2009 CONTRACTING % CHANG E CONTRACTING: Contracting revenues for FY 2009 totaled $46.9 million, a decrease of 29.0 percent from FY 2008 and 13.5 percent below the estimate. In FY 2009, home foreclosures skyrocketed and building permits plunged as the recession deepened in Maricopa County. Every major employment sector in Maricopa County had job losses over the past year according to the Arizona Department of Commerce which led to slower population growth and lower demand for new construction. Increasing vacancies and decreasing activities in the office, retail and industrial markets sharply impacted the commercial construction sector. 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% -40.0% 99 00 01 02 03 04 05 06 07 08 09 FISCAL YEAR PAGE 3 The huge inventory of foreclosed and traditional homes available for sale put a damper on the single-family housing market. According to the Greater Phoenix Blue Chip panel, single-family permits in Maricopa County are expected to continue to decline in CY 2009 with a negative growth rate of 52.5 percent before reversing upward with a positive growth rate of 51.9 percent in CY 2010. The multi-family housing permits decreased by 4.7 percent in CY 2008 and are expected to decline further by another 68.1 percent in CY 2009. However, the panel members do expect a minor uptick in the multi-family apartment sector in CY 2010 with an increase of 1.0 percent. Due to the recession in Maricopa County, vacancy rates for office buildings, retail and industrial spaces are expected to increase in CY 2009. The office building vacancy rate is expected to increase from 19.1 percent in CY 2008 to 24.2 percent in CY 2009. Similarly, the retail vacancy rate was 7.5 percent in CY 2008 and is forecast to increase to 12.9 percent in CY 2009. According to the Greater Phoenix Blue Chip panel, the industrial vacancy rate is expected to increase to 15.2 percent in CY 2009 from 12.5 percent in CY 2008. SINGLE FAMILY HOUSING PERMITS MARICOPA COUNTY 80.0% 60% 60.0% % CHANGE 40% % CHANGE MULTI-FAMILY HOUSING PERMITS MARICOPA COUNTY 20% 0% -20% 40.0% 20.0% 0.0% -20.0% -40% -40.0% -60% -60.0% -80% -80.0% 00 01 02 03 04 05 06 07 08 09 10 EST EST 00 01 02 03 04 05 06 07 08 09 EST 10 EST CALENDAR YEAR CALENDAR YEAR Source: Greater Phoenix Blue Chip Economic Forecast report, July 2009 Source: Greater Phoenix Blue Chip Economic Forecast report, July 2009 The Federal Reserve added liquidity to the financial system to ease the housing and the financial crisis in FY 2009. The Fed pumped over a trillion dollars into the economy to stabilize the financial system and lower mortgage rates. Mortgage rates continued to decline in FY 2009 from FY 2008. The conventional 30-year fixed rate mortgage decreased to 5.4 percent in June 2009 from 6.3 percent in June 2008. PAGE 4 CONTRACTING: Continued In the July 2009 report, the Greater Phoenix Blue Chip panel expects the loss in construction jobs to slow over the next two years with 16.9, 13.6 and 2.0 percent losses in CY 2008, 2009 and 2010, respectively. Maricopa County construction employment peaked at 180,000 jobs in June 2006 and is expected to decrease to an estimated 121,000 jobs in CY 2009. MORTGAGE INTEREST RATES 30 CONVENTIONAL FIXED RATE MORTGAGE AS OF JUNE OF EACH YEAR CONSTRUCTION EMPLOYMENT MARICOPA COUNTY 200.0 8.5% 180.0 THOUSANDS ANNUAL RATE 8.0% 7.5% 7.0% 6.5% 6.0% 160.0 140.0 120.0 100.0 5.5% 80.0 5.0% 60.0 4.5% 00 01 02 03 04 05 06 07 08 00 09 01 02 03 04 05 06 07 08 CALENDAR YEAR Source: Federal Reserve Bank of St Louis, June 2009 09 EST 10 EST Source: Greater Phoenix Blue Chip Economic Forecast report, July 2009 UTILITIES: UTILITIES Utilities tax revenues in FY 2009 totaled $28.5 million, a decrease of 0.4 percent from FY 2008. Utility collections were 6.8 percent below the forecast. The forecast shortfall can be attributed to milder weather, slower population growth, and the decrease in construction activity. The utility companies did increase their rates in FY 2009 but this did little to boost utility tax revenue. PAGE 5 % CHANGE 15.0% 10.0% 5.0% 0.0% -5.0% 00 01 02 03 04 05 06 FISCAL YEAR 07 08 09 RESTAURANT AND BAR: RESTAURANT & BAR 15.0% 10.0% % CHANGE In FY 2009, restaurant and bar collections totaled $30.8 million compared to $33.0 million in FY 2008, a decrease of 6.8 percent and 11.3 percent below the forecast. With the economy in a recession and high unemployment, consumers opted to have more meals at home instead of going out to restaurants. In addition, restaurant and bar revenues were negatively affected by the cutback in corporate conventions and business travel. 5.0% 0.0% -5.0% -10.0% -15.0% 00 01 02 02 03 04 05 06 07 08 09 FISCAL YEAR RENTAL OF REAL PROPERTY: PAGE 6 RENTAL OF REAL PROPERTY 15.0% 10.0% % CHANGE Rental of real property revenues totaled $37.7 million, a 2.2 percent decrease below last year and 7.7 percent below the estimate. The rental of real property revenue category was affected by lower hospitality and leisure activities due to the economic downturn as more people were unemployed and consumers curbed their discretionary spending. Hotels and motels were also impacted by fewer corporate conventions and lower business travel. Some of the decline in FY 2009 was due to comparisons to higher revenues generated from Super Bowl fans filling hotel rooms in February 2008. 5.0% 0.0% -5.0% -10.0% 00 01 02 03 04 05 06 FISCAL YEAR 07 08 09 RENTAL OF PERSONAL PROPERTY: RENTAL OF PERSONAL PROPERTY % CHANGE FY 2009 rental of personal property revenues totaled $13.5 million, a decrease of 10.9 percent from FY 2008 and 14.7 percent below the forecast. This category includes rental vehicles, business and construction equipment leasing and rental of tangible personal properties. This revenue category was sharply impacted by the decreased demand for auto and equipment leasing as the economy plunged into a recession. 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% 00 01 01 02 03 04 05 06 07 08 09 08 09 FISCAL YEAR OTHER: OTHER PAGE 7 15.0% % CHANGE “Other” revenues amounted to $17.1 million in FY 2009, a decrease of 17.6 percent from last year and 22.1 percent below the estimate. The decrease in FY 2009 was due mainly to the drop in communications and amusement revenues, which are discretionary spending. 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% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0% 00 01 02 03 04 05 06 FISCAL YEAR 07 REVENUE TREND ANALYSIS ANNUAL MARICOPA COUNTY TRANSPORTATION EXCISE TAX TRENDS 60.0 20.0% MILLIONS OF DOLLARS 55.0 % CHANGE 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% 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 -15.0% 5.0 01 02 03 04 05 06 06 07 08 JUL 09 FISCAL YEAR AUG SEP FY 2008 Actuals OCT NOV DEC JAN FY 2009 Estimate FEB MAR APR MAY JUN FY 2009 Actuals In FY 2009, the Maricopa County Transportation Excise Tax posted its second consecutive negative year-overyear growth. FY 2009 collections were affected by the global recession, weak housing and credit markets, higher unemployment and slower population growth in Maricopa County. Looking forward, economic experts are projecting the recession will bottom by the end of CY 2009 and the economy should start to grow moderately in CY 2010. The monthly seasonality of the transportation excise tax revenues continues to follow a consistent trend with the spike in the month of January (December collections) due to holiday retail sales. The higher collections in April are due to baseball spring training and winter visitors. PAGE 8 REVENUE PERFORMANCE MARICOPA COUNTY TRANSPORTATION EXCISE TAX FY 2009 ACTUAL TOTAL= $328.2 MILLION DISTRIBUTIONS SOURCES RENTAL OF PERSONAL PROPERTY $13.5M 4.1% RENTAL OF REAL PROPERTY $37.7M 11.5% OTHER $17.1M 5.2% RETAIL SALES $153.7M 46.8% PUBLIC TRANSPORTATION FUND $109.0M 33.2% REGIONAL PLANNING. /1 $8.6M 2.6% RESTAURANT & BAR $30.8M 9.4% UTILITIES $28.5M 8.7% ARTERIAL STREETS $34.4M 10.5% CONTRACTING $46.9M 14.3% REGIONAL FREEWAY SYSTEM $176.2M 53.7% /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 2009 FY 2008 ACTUAL FY 2009 ACTUAL CHANGE FY 2009 ESTIMATE CHANGE RETAIL SALES $177,844,654 $153,681,000 -13.6% $182,300,000 -15.7% CONTRACTING $66,045,770 $46,865,099 -29.0% 54,200,000 -13.5% UTILITIES $28,629,604 $28,510,606 -0.4% 30,600,000 -6.8% RESTAURANT & BAR $33,021,064 $30,762,755 -6.8% 34,700,000 -11.3% RENTAL OF REAL PROPERTY $38,605,418 $37,757,332 -2.2% 40,900,000 -7.7% RENTAL OF PERSONAL PROPERTY $15,111,170 $13,469,970 -10.9% 15,800,000 -14.7% OTHER $20,807,875 $17,138,956 -17.6% 22,000,000 -22.1% TOTAL $380,065,555 $328,185,718 -13.7% $380,500,000 -13.7% 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 – 2009 (Dollars in Thousands) FISCAL YEAR 1986 * 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 TOTAL RETAIL SALES $19,244 48,085 51,405 53,927 55,798 56,769 59,108 64,033 72,737 81,546 90,454 96,281 104,073 113,528 124,428 131,608 131,393 133,922 144,817 158,179 182,378 187,817 177,844.7 153,681 $2,493,055 CONTRACTING $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 66,045.7 $46,865 $759,156 UTILITIES $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 $28,630 $28,511 $381,217 RESTAURANT & BAR $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 33,021.1 30,763 $425,367 RENTAL REAL PROPERTY $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 38,605.4 37,757 $471,954 RENTAL PERSONAL PROPERTY $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 15,111.2 13,470 $234,987 OTHER $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 20,807.9 17,139 $275,342 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 $328,186 $5,041,078 COMPOUND ANNUAL GROWTH RATE (FY 1987 - FY 2009) = 5.8% *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% -13.7% MARICOPA COUNTY TRANSPORTATION EXCISE TAX REVENUE DISTRIBUTION FY 1986 – 2009 (Dollars in Thousands) PUBLIC REGIONAL AREA ROAD FUND FISCAL TRANSPORTATION YEAR FREEWAYS RPTA/MAG /2 ARTERIAL STREETS FUND TOTAL 1986/1 $36,986 $36,986 1987 89,831 $5,000 94,831 1988 94,056 5,135 99,190 1989 100,963 5,287 106,250 1990 105,325 5,477 110,801 1991 107,652 5,683 113,335 1992 110,579 5,917 116,496 1993 121,141 6,132 127,273 1994 136,553 6,293 142,846 1995 153,864 6,454 160,318 1996 171,826 6,587 178,413 1997 185,507 6,750 192,257 1998 202,380 6,883 209,263 1999 222,450 7,020 229,470 2000 241,505 7,091 248,596 2001 257,529 7,194 264,722 2002 260,222 7,341 267,563 2003 261,219 7,502 268,721 2004 281,012 7,588 288,600 2005 309,092 7,713 316,806 2006/3 292,487 7,877 $16,127 $51,146 367,637 2007 213,119 8,095 41,050 130,188 392,452 2008 205,576 8,334 39,832 126,324 380,066 2009 176,235 8,555 34,376 109,020 328,186 Total $4,337,107 $155,909 $131,385 $416,678 $5,041,078 Notes: 1/ The Maricopa County transportation excise tax became effective on January 1, 1986 per Prop. 300. Prop. 300 collections total $3,789,793,000 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 Public 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 $1,251,285,000 from date of inception. 4/ Total may not add due to rounding. PAGE 12 ARIZONA TRANSACTION PRIVILEGE TAX EXCISE TAX RATES FY 2009 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 46.83% 14.28% 11.50% Transaction Privilege Tax Rate 5.00% 5.00% 1.82%* Transportation Excise Tax Rate 0.50% 0.50% 0.512% 9.37% 8.69% 4.10% 2.99% 1.19% 0.49% 0.56% 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 MARICOPA COUNTY TRANSPORTATION EXCISE TAX FY 2009 ACTUAL REVENUE DISTRIBUTION FLOW (Millions of Dollars) Retail Sales $153.7 Contracting Utilities $46.9 $28.5 Restaurant Rental of Rental of & Bar Real Prop. Pers. Prop. $30.8 $37.7 $13.5 Other $17.1 Maricopa County Transportation Excise Tax Collections /1 $328.2 Arizona Department of Revenue NOTES: /1. Prop 300 expired on December 31, 2005 and Prop. 400 became effective on January 1, 2006. FY 2009 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. $328.2 /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. $109.0 Public Transportation Fund 33.2% Regional Area Road Fund $34.4 $184.5/3 Arterial Streets 10.5% Freeways 56.3% $8.6 MAG and RPTA G:\FMS\RARF\year end\Working File\RARF Tank Actual FY 09 PAGE 14 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 15