Maricopa County Transportation Excise Tax Fiscal Year 2011 Year-End Report Arizona Department of Transportation Financial Management Services Office of Financial Planning July 2011 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 is 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 FY 2011 Maricopa County Transportation Excise Tax revenues amounted to $309.2 million, an increase of 3.4 percent over FY 2010 and 2.7 percent above the estimate. RARF collections ended the year with nine consecutive months of year-over-year growth. With the improvement in the hospitality and tourism industries, along with modest increases in employment and personal income, RARF revenues finished the year with a positive gain for the first time since FY 2007. $320.0 $280.0 $240.0 $200.0 $160.0 $120.0 $80.0 $40.0 $0.0 2010 ACT 2011 ACT FISCAL YEAR PAGE 1 2011 EST PERFORMANCE BY CATEGORY RETAIL SALES: Maricopa County retail sales are affected by the growth in personal income, population and non-farm employment. The Greater Phoenix Blue Chip dated June 18, 2011 reported a negative personal income growth rate of 3.0 percent in CY 2009 and a positive growth rate of 2.0 percent in CY 2010. The Greater Phoenix Blue Chip panel members expect personal income to continue to increase at 3.4 and 4.5 percent in CY 2011 and CY 2012, respectively. According to the Arizona Office of Employment and Population Statistics, the Maricopa County population growth rate for CY 2009 and CY 2010 was 0.3 and 0.8 percent, respectively, and is forecast to increase by 1.5 percent in CY 2011 and 1.9 percent in CY 2012. The Arizona Workforce report dated April 28, 2011 noted that non-farm employment growth rates for CY 2009 and CY 2010 declined 7.9 and 2.1 percent, respectively. However Maricopa County employers are expected to increase hiring leading to non-farm employment growth of 0.9 percent in CY 2011 and 1.6 percent in CY 2012. % CHANGE RETAIL SALES 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% 02 03 04 05 06 07 08 09 10 11 FISCAL YEAR PERSONAL INCOME IN MARICOPA COUNTY % CHANGE Retail sales collections increased from $143.2 million in FY 2010 to $152.0 million in FY 2011, an increase of 6.1 percent and 4.0 percent over the estimate. Maricopa County consumers were very cautious in their spending for the first five months of the fiscal year but were willing to spend more as they gained confidence in the economy with the employment outlook looking better than CY 2010. However, the sharp increases in fuel and food prices in the last quarter did reduce consumers disposable income. 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% 03 04 05 06 07 08 09 10 11 EST CALENDAR YEAR Source: Greater Phoenix Blue Chip Economic Forecast report, 1st Quarter 2011 PAGE 2 12 EST RETAIL SALES: Continued PHOENIX-GLENDALE-MESA MSA NON-FARM EMPLOYMENT POPULATION MARICOPA COUNTY % CHANGE PERCENT 8.0% 6.0% 4.0% 2.0% 0.0% 03 04 05 06 07 08 09 10 11 EST 12 EST 9.0% 7.0% 5.0% 3.0% 1.0% -1.0% -3.0% -5.0% -7.0% -9.0% 03 CALENDAR YEAR 04 05 06 07 08 09 10 11 12 EST EST CALENDAR YEAR Source: Greater Phoenix Blue Chip Economic Forecast report, 1st Quarter 2011 Source: AZ Office of Employment and Population Statistics - AZ Workforce Annual Forecast April 28, 2011 The growth rate for single-family housing permits was negative 41.0 percent in CY 2009 and 19.6 percent in CY 2010. The Greater Phoenix Blue Chip expert panel forecasts single–family housing permits will increase by 35.8 percent in CY 2011 and 57.9 percent in CY 2012. The large increases are due PAGE 3 CONTRACTING % CHANGE CONTRACTING: FY 2011 contracting collections totaled $28.0 million, a decrease of 3.2 percent from last year, but 1.9 percent above the estimate. The contracting revenue category bottomed in December 2010 and ended FY 2011 with six consecutive months of year-over-year growth. However, concerns with falling home prices, the large inventory of unsold homes, and excess vacancy of retail and commercial office spaces will mean that any recovery will be slow. 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% -40.0% -50.0% 01 02 03 04 05 06 07 FISCAL YEAR 08 09 10 11 to the low single-family housing permit base. Due to the recession, the multiple family housing permits declined by 90.0 and 35.9 percent in CY 2009 and CY 2010, respectively. In the future, the panel estimates that multi-family housing permits will grow by 267.6 percent in CY 2011 and 117.8 percent in CY 2012. The estimates for the office, retail and industrial vacancy rates for CY 2011 are 24.6, 12.3 and 13.9 percent, respectively, and are expected to improve slightly in CY 2012 to 22.8, 11.4 and 12.3 percent, respectively. Excess inventories of vacant office, retail and industrial properties plagued metropolitan Phoenix in CY 2009 and CY 2010. As a result, the number of new commercial building construction starts are expected to be flat in CY 2011. Overall, the Greater Phoenix Blue Chip forecast for CY 2011 and CY 2012 estimates low employment and population growth with very strong growth in residential construction due to a smaller base along with little or no major construction projects expected in the office and commercial building sectors. 80% 300.0% 60% 250.0% 40% 200.0% % CHANGE % CHANGE SINGLE FAMILY HOUSING PERMITS MARICOPA COUNTY 20% 0% -20% MULTI-FAMILY HOUSING PERMITS MARICOPA COUNTY 150.0% 100.0% 50.0% 0.0% -40% -50.0% -60% 03 04 05 06 07 08 09 10 11 EST 12 EST -100.0% 03 CALENDAR YEAR 04 05 06 07 08 09 10 11 EST 12 EST CALENDAR YEAR Source: Greater Phoenix Blue Chip Economic Forecast report, 1st Quarter 2011 Source: Greater Phoenix Blue Chip Economic Forecast report, 1st Quarter 2011 It should be noted that FY 2011 contracting revenue collections remained at the FY 1997-1998 revenue level and may take years of significant gains to reach the FY 2007 peak level. The Greater Phoenix Blue Chip panel members reported a decrease in construction employment in CY 2009 and CY 2010 of 31.1 and 14.4 percent, respectively. For CY 2011, the panel members expect negative growth of 0.9 percent before reversing to a positive gain of 6.1 percent in CY 2012. PAGE 4 CONTRACTING: Continued The Federal Reserve continued its policy of maintaining a low interest rate environment in CY 2010 and during the first half of CY 2011. The annual average conventional 30-year fixed mortgage rate decreased to 4.7 percent in CY 2010 from 5.0 percent in CY 2009. Even with the end of second round of quantitative easing by the Fed on June 30, 2011, Federal Reserve Chairman Ben Bernanke said that the Federal Reserve will keep interest rates low for an “extended period” if necessary. CONSTRUCTION EMPLOYMENT MARICOPA COUNTY 200.0 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 180.0 THOUSANDS ANNUAL RATE MORTGAGE INTEREST RATES 30 CONVENTIONAL FIXED RATE MORTGAGE ANNUAL AVERAGE FOR EACH CALENDAR YEAR 160.0 140.0 120.0 100.0 80.0 60.0 02 02 03 04 05 06 07 08 09 10 03 04 05 11 06 07 08 09 10 11 EST CALENDAR YEAR Source: Federal Reserve News Release Note: CY 2011 rate as of May 2011 Source: Greater Phoenix Blue Chip Economic Forecast report, June 2011 UTILITIES: UTILITIES 15.0% % CHANGE Utilities revenues for FY 2011 totaled $29.5 million, an increase of 0.4 percent over FY 2010 but 0.6 percent below the estimate. Milder weather, no electric rate increases, and an excess supply of vacant residential homes and commercial business buildings pressured utilities revenues growth in FY 2011. 10.0% 5.0% 0.0% -5.0% 02 03 04 05 06 07 08 FISCAL YEAR PAGE 5 09 10 11 12 EST RESTAURANT AND BAR: RESTAURANT & BAR 15.0% 10.0% % CHANGE Restaurant and bar collections increased to $31.7 million in FY 2011 compared to $30.6 million in FY 2010. This represents an increase of 3.8 percent over last year and 0.7 percent above the forecast. The restaurant and bar revenue category benefitted from three college bowl games and a successful Cactus League spring training season with record attendance due to the relocation of two teams from Tucson to Phoenix. 5.0% 0.0% -5.0% -10.0% -15.0% 02 02 03 04 05 06 07 08 09 10 11 FISCAL YEAR RENTAL OF REAL PROPERTY: RENTAL OF REAL PROPERTY 10.0% % CHANGE FY 2011 rental of real property revenue was $35.7 million, a decrease of 0.3 percent from last fiscal year and 1.3 percent below the estimate. Unlike the last two years of negative growth in the hospitality industry due to the economic recession, the FY 2011 rental of real property revenue category posted flat revenue growth. 15.0% 5.0% 0.0% -5.0% -10.0% 02 03 04 05 06 07 08 FISCAL YEAR PAGE 6 09 10 11 RENTAL OF PERSONAL PROPERTY: RENTAL OF PERSONAL PROPERTY 10.0% % CHANGE The rental of personal property revenues totaled $11.6 million, a decrease of 3.1 percent from FY 2010 and 3.3 percent below the forecast. This category includes rental of vehicles, business and construction equipment leasing and rental of tangible personal properties. The rental of personal property revenue category continued to be pressured by the decrease in construction and heavy equipment rental activities. However, this decrease is partially offset by an increase in vehicle rentals by tourists and the resurgence of vehicle leasing. 15.0% 5.0% 0.0% -5.0% -10.0% -15.0% 01 02 03 04 05 06 07 08 09 10 11 FISCAL YEAR OTHER: OTHER PAGE 7 15.0% % CHANGE In FY 2011, the “other” collections totaled $20.6 million, an increase of 8.0 percent above FY 2010 and 15.3 percent over the estimate. The increase in “other’ collections category was due to higher revenues in the miscellaneous other collections and revenue audits of businesses. 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% 02 03 04 05 06 07 08 FISCAL YEAR 09 10 11 REVENUE TREND ANALYSIS MONTHLY MARICOPA COUNTY TRANSPORTATION EXCISE TAX REVENUE TREND ANNUAL MARICOPA COUNTY TRANSPORTATION EXCISE TAX TRENDS 60.0 55.0 MILLIONS OF DOLLARS 20.0% % CHANGE 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% 50.0 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 -15.0% JUL 03 04 05 06 06 07 08 09 10 AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN 11 FISCAL YEAR FY 2010 Actual FY 2011 Estimate FY 2011 Actual In FY 2011, the Maricopa County transportation excise tax reversed a three year period of negative yearover-year growth to finish the year with total revenues of $309.2 million. Higher revenue collections from retail sales, restaurant and bar, and other revenue categories led the turnaround in RARF collections. However, the contracting and rental of personal property revenue categories continue to limit RARF collections growth due to excess inventories of residential homes and commercial office spaces, and the lack of construction equipment leasing. When compared on a monthly basis, the transportation excise tax revenue collections had a positive year-over-year growth for every month except for the first three months. The monthly seasonality revenue trend continues to follow a consistent trend with December holiday retail sales and college bowl games pushing up January revenue collections and the spike in April revenues were due to the Cactus League baseball spring training and winter visitors. PAGE 8 REVENUE PERFORMANCE MARICOPA COUNTY TRANSPORTATION EXCISE TAX FY 2011 ACTUAL TOTAL= $309.2 MILLION DISTRIBUTIONS SOURCES RENTAL OF PERSONAL PROPERTY $11.6M 3.7% RESTAURANT & BAR $31.7M 10.3% OTHER $20.7M 6.7% RETAIL SALES $152.0M 49.1% PUBLIC TRANSPORTATION FUND $102.7M 33.2% REGIONAL PLANNING /1 $8.8M 2.8% UTILITIES $29.5M 9.5% CONTRACTING $28.0M 9.1% ARTERIAL STREETS $32.4M 10.5% RENTAL OF REAL PROPERTY $35.7M 11.6% 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 REGIONAL TRANSPORTATION PLAN $165.3M 53.5% /2 MARICOPA COUNTY TRANSPORTATION EXCISE TAX REVENUE COMPARISON STATEMENT FY 2010 AND 2011 FY 2010 ACTUAL FY 2011 ACTUAL CHANGE FY 2011 ESTIMATE CHANGE RETAIL SALES $143,204,938 $152,002,580 6.1% $146,200,000 4.0% CONTRACTING 28,952,861 28,012,067 -3.2% 27,500,000 1.9% UTILITIES 29,385,405 29,511,098 0.4% 29,700,000 -0.6% RESTAURANT & BAR 30,557,645 31,728,534 3.8% 31,500,000 0.7% RENTAL OF REAL PROPERTY 35,824,612 35,730,775 -0.3% 36,200,000 -1.3% RENTAL OF PERSONAL PROPERTY 11,983,058 11,606,271 -3.1% 12,000,000 -3.3% OTHER 19,115,032 20,642,646 8.0% 17,900,000 15.3% TOTAL $299,023,551 $309,233,971 3.4% $301,000,000 2.7% 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 – 2011 (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 2010 2011 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 96,281 104,073 113,528 124,428 131,608 131,393 133,922 144,817 158,179 182,378 187,817 177,845 153,681 143,205 152,003 $2,788,263 CONTRACTING UTILITIES $5,716 $3,073 14,849 8,542 14,188 9,535 13,947 10,336 13,286 10,685 12,715 11,353 11,688 10,999 13,385 11,874 17,039 12,680 21,107 13,132 24,284 14,198 26,948 14,583 30,610 15,101 35,632 15,680 37,384 16,437 38,820 17,862 41,218 18,432 38,894 18,485 43,524 19,980 52,325 20,813 64,822 23,600 73,864 26,697 66,046 28,630 46,865 28,511 28,953 29,385 28,012 29,511 $816,121 $440,114 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 30,763 30,558 31,729 $487,653 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 37,757 35,825 35,731 $543,509 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 13,470 11,983 11,606 $258,576 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 20,808 17,139 19,115 20,643 $315,100 COMPOUND ANNUAL GROWTH RATE (FY 1987 - FY 2011) = 5.0% *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 TOTAL $36,986 94,831 99,190 106,250 110,801 113,335 116,496 127,273 142,846 160,318 178,413 192,257 209,263 229,470 248,596 264,722 267,563 268,721 288,600 316,806 367,637 392,452 380,066 328,186 299,024 309,234 $5,649,336 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% -8.9% 3.4% MARICOPA COUNTY TRANSPORTATION EXCISE TAX REVENUE DISTRIBUTION FY 1986 – 2011 (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 2009 2010 2011 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 41,050 205,576 8,334 39,832 176,235 8,555 34,376 159,604 8,742 31,327 165,321 8,845 32,379 $4,662,032 $173,496 $195,091 PUBLIC TRANSPORTATION FUND $51,146 130,188 126,324 109,020 99,351 102,689 $618,718 TOTAL $36,986 94,831 99,190 106,250 110,801 113,335 116,496 127,273 142,846 160,318 178,413 192,257 209,263 229,470 248,596 264,722 267,563 268,721 288,600 316,806 367,637 392,452 380,066 328,186 299,024 309,234 $5,649,336 Notes: 1/ The Maricopa County transportation excise tax became effective on January 1, 1986 per Prop. 300. Prop. 300 collections total $3,791 million but will change over time due to adjustments, refunds and audits. 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 $1,858 million from date of inception. Total may not add due to rounding. PAGE 12 MARICOPA COUNTY TRANSPORTATION EXCISE TAX FY 2011 ACTUAL REVENUE DISTRIBUTION FLOW (Millions of Dollars) Retail Sales $152.0 Contracting Utilities $28.0 $29.5 Restaurant Rental of Rental of & Bar Real Prop. Pers. Prop. $31.7 $35.7 $11.6 Other $20.7 Maricopa County Transportation Excise Tax Collections /1,2 $309.2 Arizona Department of Revenue NOTES: /1. Prop 300 expired on December 31, 2005 and Prop. 400 became effective on January 1, 2006. FY 2011 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. $309.2 /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. $102.7 Public Transportation Fund 33.3% Regional Area Road Fund $32.4 $174.2 /3 Arterial Streets 10.5% Freeways 56.2% $8.8 MAG and RPTA PAGE 13 ARIZONA TRANSACTION PRIVILEGE TAX EXCISE TAX RATES FY 2011 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 49.16% 9.06% 11.55% Transaction Privilege Tax Rate 5.00% 5.00% 1.82%* Transportation Excise Tax Rate 0.50% 0.50% 0.512% 10.26% 9.54% 3.75% 3.27% 1.18% 0.52% 1.71% 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 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