ARIZONA

MONTHLY FISCAL HIGHLIGHTS
May 2004
General Fund revenue collections continued to be strong in May. The state collected $507.4 million, which was 21.8% above May
2003.
May collections resulted in a year-to-date surplus of $144.5 million above the recently enacted budget estimates. The enacted
budget includes “triggers,” which dedicate revenue for certain purposes above the approved budget.
The actual enactment of the FY 2004 triggers will depend on revenues through the end of June. If the current revenue surplus of
$144.5 million holds through June, three sets of triggers would be enacted. The first two sets of triggers would add a total of $102
million in funding for School Facilities Board Building Renewal and Deficiencies Correction, Child Care, State Employer Health
Insurance charges, Department of Public Safety communications system improvements, and the Budget Stabilization Fund. In
addition, this level of surplus would provide $42.5 million to be divided evenly between the General Fund and the Budget
Stabilization Fund.
This report also includes summaries of the May JLBC meeting and the June JCCR meeting.
General Fund Revenues
Compared to Revised FY 2004 Forecasts and FY 2003 Collections
($ in Millions)
FY 2004
Difference From
Difference From
Difference
Collections
1/04 Forecast 1/
5/04 Forecast 2/
From FY 2003 3/
May
$ 507.4
$ 70.2
N/A
$ 53.3
Year-to-Date
$ 5,836.7
$ 222.5
$ 144.5
$ 505.9
1/ Revised FY 2004 forecast (January 2004).
2/ Revised FY 2004 forecast (budget signed by Governor).
3/ Excludes federal cash assistance grant, URS, judicial enhancement and amnesty deposit.

Sales Tax revenue in May increased by 10.3%, bringing the
year-to-date growth rate up to 8.7%. Due to its new computer
system, the Department of Revenue does not have final May
receipts available by category as of this date.
Individual Income Tax collections in May were significantly
above last year. Withholding tax collections increased by $1.4
million or 2.5%. Estimated payments were up $1.3 million
over last May, and final payments were up $14.5 million. In
addition, refunds were $16.2 million less than last year, a
13.2% decline.
The overall individual income tax revenue growth rate of
37.2% for May brings the year-to-date growth rate up to
10.6%. Growth for the category has been led by significantly
higher than anticipated levels of estimated and final payments
during this year’s tax season.

Tax Amnesty distributions were completed by the
Department of Revenue (DOR) in May. Total amnesty
collections distributed to the General Fund were $69.1 million.
This amount had already been incorporated into the enacted
budget revenue estimates. Of this amount, $27.6 million was
distributed in November, and the remaining $41.5 million was
distributed in May. DOR has indicated that $22 million of the
total amnesty collections represent “normal” corporate income
tax audit activity. This amount has been included in year-todate corporate collections. The remaining $47.1 million
represents tax amnesty revenue. Amnesty collections by
revenue category are provided in the following table:

Corporate Income Tax revenue increased by $25.4 million in
May compared to last year. Year-to-date corporate income tax
revenue is 32% above last year’s results. May collections
included approximately $9.4 million in corporate audit
revenue which was taken in through the amnesty program.

FY 2004 Tax Amnesty Collections
$ in Millions
Sales Tax 1/
$ 12.3
Individual Income Tax
$ 3.0
Corporate Income Tax 2/
$ 31.7
Other
$ 0.1
Total
$ 47.1
1/ Amount is net of distributions to local jurisdictions.
2/ Does not include $22 million of normal audit activity.

JLBC
This report has been prepared for the Arizona Legislature by the Joint Legislative Budget Committee Staff on June 25, 2004. This report can also be
found on our Website at http://www.azleg.state.az.us/jlbc.htm
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Joint Legislative Budget Committee

Monthly Fiscal Highlights – May 2004

Recent Economic Indicators: The latest economic data
reflected continued growth. U.S. Semiconductor Billings
(three-month moving average) climbed 3.7% in April to
almost $3.2 billion, a 30.4% advance from a year ago. The
Semiconductor Industry Association reported that strong
growth in the U.S. and China helped to propel sales higher.

The Arizona Business Conditions Index (BCI) declined to
63.8 in May but remained well above the 50% mark associated
with an expanding economy. New orders and production fell,
but the employment component gained strength. The Arizona
Tourism Barometer dropped from its recent high in April but
remained 10.1% above the level reported a year ago.

Strengthening economic growth renewed concerns about
inflation, which trended upward in recent months. The U.S.
Consumer Price Index (CPI) (three-month moving average)
jumped 0.5% in May, with rising energy prices fueling much
of the gain. Over the same period, the core CPI, excluding
fuel and energy costs, increased 0.3%.

Looking ahead, the Arizona Index of Leading Economic
Indicators advanced 0.7% in April. Hours worked in
manufacturing was the primary positive force behind the
improvement.

Consumer sentiment held steady last month, with the
Conference Board’s Consumer Confidence Index edging up
0.2% in May. The index now stands at 93.2, an 11.5%
improvement from a year ago. The assessment of current
conditions component was the most significant factor driving
May’s results. The U.S. Index of Leading Economic
Indicators increased 0.5% in May, with 8 of the 10
components scoring gains. Average weekly manufacturing
hours made the largest positive contribution.
The state economy continued to demonstrate growing
strength. The Arizona unemployment rate dipped to 5.1%
(seasonally adjusted) in May, reversing much of the increase
from the prior month. Meanwhile, non-farm employment
increased by 3,000, or 2.5%, in May in spite of a loss of (500)
manufacturing jobs.
Once again, the health care and
construction sectors led the way.

The most recent statistics from AHCCCS and DES continue to
show lower caseloads. The number of acute-care AHCCCS
clients declined (1.1)% during the last three months. The
Proposition 204 caseload decreased (2.7)% during the latest
three-month period, but the number of clients remained 6.3%
higher than a year ago.
The number of TANF recipients (three-month average)
declined to 119,440 in April, a (4.5)% drop from the previous
three months. The caseload was (3.2)% below last year’s
level and (6.3)% below the forecast.
The Department of Corrections’ inmate population (threemonth average) expanded by an average of 171 inmates per
month from March through May, which was well above the
budgeted rate of 118 new inmates (net) per month. The head
count continued to be influenced by the unusually large
number of inmates that entered the system in March.

RECENT ECONOMIC INDICATORS
Indicator
Arizona
-Unemployment Rate
-Jobs
-Contracting Tax Receipts (3 month average)
-Retail Sales Tax Receipts (3 month average)
-Arizona Tourism Barometer
-Leading Indicators Index
-Business Conditions Index
(>50 signifies expansion)
-AHCCCS Recipients (3 month average)
Regular
Proposition 204
-TANF Recipients (3 month average)
-DOC Inmate Growth (3 month average)
U.S.
-Consumer Confidence Index
-Leading Indicators Index
-U.S. Semiconductor Billings
(3 month moving average)
-Consumer Price Index
(3 month moving average)

Time Period

Current Value

May
May
March-May
March-May
April
April
May

5.1%
2.350 million
$48.4 million
$133.3 million
91.6
124.9
63.8

March-May
February-April
March-May

562,348
168,041
119,440
31,832

May
May
February-April

93.2
116.5
$3.189 billion

March-May

186.3

Change From
Prior Period
(0.3)%
0.1%
5.3%
(4.3)%
(2.0)%
0.7%
(3.3)%
(1.1)%
(2.7)%
(4.5)%
171 inmates

Change From
Prior Year
(0.8)%
2.5%
18.1%
9.9%
10.1%
4.2%
20.9%
0.9%
6.3%
(3.2)%
1,193 inmates

0.2%
0.5%
3.7%

11.5%
4.4%
30.4%

0.5%

2.4%

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State of Arizona
General Fund Revenue: Change from Previous Year and January Revised Forecast
May, 2004
Current Month

FY 2004 YTD (Eleven Months)

Change From
Actual

May 2003

May 2004

Amount

Change from
Actual

Revised Forecast
Percent

Amount

Percent

May 2004

May 2003
Amount

Revised Forecast
Percent

Amount

Percent

Taxes
Sales and Use

$277,369,244

$25,789,288

$3,008,759,935

$240,482,556

Income - Individual

135,278,064

36,650,404

37.2

26,504,758

24.4

2,066,692,325

198,525,783

10.6

123,009,451

6.3

- Corporate

37,998,517

25,369,764

200.9

25,369,764

200.9

403,474,561

97,861,754

32.0

24,615,287

6.5

Property

6,203,222

(1,650,068)

(21.0)

1,342,388

27.6

30,084,280

1,755,475

6.2

(5,193,767)

(14.7)

Luxury

5,141,687

(188,831)

(3.5)

72,112

1.4

56,080,641

(3,383,878)

(5.7)

1,150,517

2.1

17.4

2,694,594

11.3

248,892,790

56,822,305

29.6

7,896,855

(206,964)

(4.4)

1,287,156

39.9

36,686,789

(49,258,636)

(57.3)

(85,778)

(0.2)

47,872

13,796

40.5

2,735,005

(5,904,591)

(68.3)

(1,518,540)

(35.7)

$493,193,255

$89,722,139

Insurance Premium
Estate
Other Taxes
Sub-Total Taxes

26,640,793
4,513,856

10.3 %

3,944,750

22.2 %

$10,487,110

3.9 %

(463,028)

--

$67,294,854

15.8 %

$5,853,406,326

$536,900,768

31,000,000

1,435,000

8.7 %

10.1 %

$67,079,390

$216,953,415

2.3 %

3.3

3.8 %

Other Revenue
Lottery

0

(2,159,400)

(100.0)

0

License, Fees and Permits

1,697,283

(246,784)

(12.7)

30,875

1.9

22,985,710

Interest

1,343,816

342,712

34.2

229,098

20.6

23,398,484

Sales and Services

3,469,135

355,280

11.4

Other Miscellaneous

5,905,104

8,136,468

Disproportionate Share
Transfers and Reimbursements

0

TOTAL BASE REVENUE

0

--

369,575
8,208,836

(42,596,701)

(99.6)

0

(276,364)

(100.0)

12,573,930

(36,444,789)

(74.3) %

2,762,280

$53,277,350

11.8 %

$70,057,134

$505,767,185

(336,172)
9,644,721

4.9
(1.4)
70.1

0
967,318
(1,276,395)

0.0
4.4
(5.2)

11.9

43,185,171

2,486,768

6.1

578,126

1.4

(356.3)

38,401,192

25,360,637

194.5

14,134,536

58.2

0

158,592

BSF Transfer for Alt. Fuels
Sub-Total Other Revenue

--

--

(6,076,104)
0

--

5,625,187

5,625,187

(97.5)

13,433,412

(70,746,217)

(84.0)

--

187,594

(4,441,240)

(95.9)

28.2 %

178,216,750

(30,971,316)

16.1 %

$6,031,623,076

$505,929,452

--

0
(9,200,131)
187,594

-(40.6)
--

(14.8) %

5,391,048

3.1 %

9.2 %

$222,344,463

3.8 %

One-Time Revenue
Urban Revenue Sharing

(30,422,097)

5,457,824

(15.2)

0

(334,643,067)

60,036,064

(15.2)

0

32,043,121

32,043,121

--

123,527

--

47,123,527

47,123,527

--

123,527

--

Federal Cash Assistance

0

0

--

0

--

87,234,214

87,234,214

--

0

--

Judicial Enhancement

0

0

--

0

--

5,393,000

5,393,000

--

0

--

Sub-Total Transfers In

1,621,024

37,500,945

199,786,805

(50.6)

123,527

(0.1)

$507,388,209

$90,778,295

Tax Amnesty

TOTAL REVENUE

--

123,527
21.8 %

$70,180,661

0.0

--

(194,892,326)
16.1 %

$5,836,730,750

VP% = Percent change from comparable period in prior year
VF% = Variance from forecast
F% = Forecast percent change for the fiscal year.
R% = Average percent change from comparable period in prior year which must be attained over remaining months to realize the forecast for year.

$705,716,257

13.8 %

$222,467,990

0.0

4.0 %

Joint Legislative Budget Committee

Monthly Fiscal Highlights – May 2004

JLBC MEETING

•

At its May 25th meeting, the Joint Legislative Budget
Committee considered the following issues:

•

Department of Administration – Review of Self-Insurance
for State Employee Health Insurance –
The Committee gave a favorable review of the Department of
Administration’s (ADOA) plan to self-insure state employee
health benefits. The favorable review included the following
conditions: 1) that ADOA report to the Committee on whether
final negotiated integrated rates are lower than current
estimates; 2) that ADOA report to the Committee on what
performance measures they will establish to evaluate the new
contracts; 3) that ADOA report quarterly to the Committee on
the implementation of self-insurance including feedback from
state employees and retirees; 4) that ADOA should structure
the contribution strategy to treat the administrative costs of
integrated contracts nearly the same as non-integrated
contracts.
ADOA’s proposal is to move from a fully insured system for
state employee health insurance benefits to a self-insured
system, where the state assumes the risks associated with
providing health care coverage to its employees. ADOA was
required to self-insure by October 1, 2003. Due to concern
that there was insufficient time to implement self-insurance by
the October 1 deadline, Laws 2003, Chapter 2 removed the
deadline but established language allowing the department to
self-insure upon review of the Committee.
Self-insured and fully-insured options have comparable direct
costs in FY 2005. Actuarial analysis (contracted by ADOA)
has determined that administrative costs under self-insurance
are lower than under the state’s fully insured contract, which
would be offset by the need to establish a $50 million reserve
under the self-insurance option. ADOA actuaries believe that
administrative costs in the long run under self-insurance (5%
growth) will rise less quickly than administrative costs under a
fully integrated system (14% growth). This savings could
reach $40 million by FY 2009. CIGNA, the company that has
the current state employee health insurance contract, disputes
this analysis.
ADOA had originally proposed non-integrated multiple
vendors, and had issued an RFP for these contracts. A nonintegrated plan would allow vendors to bid on 5 contracts
separately on distinct components – medical services,
pharmacy benefits, utilization review/disease management,
stop-loss insurance and a third party administrator. There was
concern, however, that there was no integrated option, in
which one company would provide all of these services for the
entire network. As a result, ADOA issued an RFP in April for
an integrated plan.
Subsequent to the May 25th meeting, ADOA has moved
forward on awarding various contracts for state-employee
health care benefits. Contracts were awarded by geographic
area and type of plan.

•
•
•

Employees in Maricopa, Gila, Pinal, Pima and Santa Cruz
Counties have a choice between 3 non-integrated and 1
integrated plan.
Employees in all other counties have only 2 nonintegrated plans to choose from.
Employees will be required to pay $10 more per month if
they select an integrated plan (ADOA had originally
proposed a $15 differential) than a non-integrated plan.
Walgreen’s Health Initiative will be the pharmacy
manager. Walgreens, however, is contracting with nonWalgreen pharmacies throughout the state.
Patients will be able to see more specialists without first
seeing a primary care physician than under the current
contract.

Department of Economic Security – Approval of Transfer
of Appropriations for TANF Cash Benefits – The
Committee favorably reviewed the Department of Economic
Security’s (DES) plan to transfer $6.5 million of federal
Temporary Assistance for Needy Families (TANF) Block
Grant monies from the JOBS Special Line Item (SLI) into the
TANF Cash Benefits SLI.
This transfer was temporary and was reversed once FY 2004
supplemental funding for TANF Cash Benefits became
available to the agency.
JCCR MEETING
At its June 22nd meeting, the Joint Committee on Capital
Review considered the following issues:
Maricopa Community College District Bond Projects –
The Committee gave a favorable review to the district’s tenyear, $951.4 million General Obligation bond proposal.
Proceeds from the issuance will fund $651.4 million in capital
projects and $300.0 in technology upgrades. Debt service will
extend 22 years, ranging between $21.0 million and $97.2
million annually, paid through increases to secondary property
taxes in the district. These tax rates will fluctuate with
outstanding debt, but will average $16 for every $100,000 of
property value. The Committee recommended that the district
obtain Committee review before each actual bond issuance.
The district will sell the bonds in five biennial installments of
$190.3 million each. The total issuance still requires voter
approval in November.
Department of Transportation – The Committee gave a
favorable review to the ADOT FY 2005 highway construction
budget expenditure plan for consulting services, totaling $105
million.
Additionally, the Committee adopted traffic
congestion performance measures and required the department
to report on those measures as part of its FY 2006 expenditure
plan review. The Committee also requested a complete list of
over-capacity state highway segments by September 1, 2004.
Game and Fish Canyon Creek Hatchery – The Committee
gave a favorable review to the Arizona Game and Fish
Department (AGFD) Canyon Creek fish hatchery clarifier
project. AGFD will combine a total of $685,000 from
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Joint Legislative Budget Committee

previously appropriated and federal grant monies to upgrade
effluent treatment facilities at the hatchery.
NAU Research Infrastructure Lease-Purchase Projects –
The Committee gave a favorable review to the issuance of
$39.3 million in Certificates of Participation (COP) for the
College of Engineering and Technology Renovation, as well
as to the Applied Research and Development Facility. The
COP issuance will be $15.0 million for the College of
Engineering, $18.0 million for the Applied R&D Facility, and
$6.3 million to capitalize interest until General Fund support
becomes available in FY 2008. Starting in FY 2008, debt
service will extend 23 years at $2.9 million annually. The
financing will increase NAU’s debt ratio (debt service as a
percent of total expenditures) from 4.2% to 5.3%. The
statutory cap is 8%.
The Committee requests that NAU report on any project
changes that exceed 10% of the budgeted contingency. The
Committee’s favorable review does not endorse future General
Fund appropriations for related operational costs. Lastly, the
Committee requested a cost-benefit analysis of the building’s
“green building” standards.
U of A Arizona Capital Project Revisions – The Committee
gave a favorable review to the revised cost of the Chemistry
Building Expansion research infrastructure lease-purchase
project. At its September 2003 meeting, the Committee
favorably reviewed a total project cost of $45,000,000. Since
then, construction material costs, especially for steel, rose
significantly. To address these cost increases, U of A will
reduce the expansion from 88,500 to 85,000 square feet,
reallocate $2.6 million of contingency funds, and spend an
additional $1.1 million of indirect cost recovery and gift
monies. Some Committee members expressed concerns that
this university research infrastructure project, originally more
costly than any other by $50 per square-foot, now requires an
additional $30 per square-foot to complete.
Building
expansions tend to have a higher cost than new construction.
U of A also reported to the Committee on contingency
reallocations for two other projects, both related to rising
construction material costs.
ASU Academic Renovations and Maintenance – The
Committee gave a favorable review to the issuance of $10.0
million in system revenue bonds for Academic Renovations
and Deferred Maintenance Phase I. Debt service will extend
15 years at $1.0 million annually, paid through tuition
collections. This financing will increase ASU’s debt ratio
from 5.8% to 5.9%. The statutory cap is 8%.
The Committee requested that ASU report on any project
changes that exceed 10% of the budgeted contingency. The
Committee’s favorable review does not endorse future General
Fund appropriations to offset tuition collection shortfalls.
Lastly, the Committee recommended that bonding not finance
any repairs whose typical life span is less than the bond
repayment period.

Monthly Fiscal Highlights – May 2004

School Facilities Board – The Committee approved
conversion of $247.1 million in short-term variable-rate
taxable bonds to long-term fixed-rate tax-exempt bonds. The
Committee approved the original short-term bond issuance at
its August 2003 meeting to fund deficiencies correction in
light of certain IRS issues, but requested that SFB obtain
approval before converting the bonds.
Converting to tax-exempt bonds will save SFB $33.4 million
in taxes over the life of the issuance. However, bond-rating
agencies indicated they would issue a junk bond rating to SFB
unless the board established a reserve fund. The poor rating
resulted from uncertain annual revenues to the Permanent
State School Fund, which SFB will use for debt service. To
obtain the highest bond rating, SFB had to purchase $7.2
million in insurance and establish a $12.8 million reserve
fund. Some Committee members expressed concerns that the
board did not anticipate the IRS issues, conversion fees, or its
potential low credit rating.
The Committee also gave a favorable review to the board’s list
of potential new school construction projects, to be financed
with $230 million in lease-purchase agreements. The list
covers 35 projects in 27 school districts. Debt service will
extend 15 years at approximately $18.6 million annually.
State Parks Board Yuma Crossing Transfer – The
Committee approved a land transfer of approximately 2.2
acres at Yuma Crossing State Historical Park to the City of
Yuma. The City of Yuma requested this land as part of its
downtown redevelopment, while the state originally obtained
the land at no cost and the board had no plans to develop it.
The Committee recommended that the U.S. General Services
Administration also approve the transfer.
ADC Prison Reports – The Committee received a report
from the Arizona Departments of Administration and
Corrections on prison projects that the Committee approved at
its March 2004 meeting.
The 1,000-bed state prison
expansion projects are on schedule for completion in
November 2004. Meanwhile, ADC is reviewing contract
proposals for 1,000 new private prison beds and expects to
award the contract in July 2004, with occupancy beginning
March 2005. The Committee requested continuing reports at
least every other month.
Telecommunications Privatization – The Committee
received an informational update on the State
Telecommunications Privatization Solicitation, issued by the
Arizona Department of Administration (ADOA). Some
Committee members expressed concerns that the released
request for proposals, by allowing the possibility of full scale
telecommunications outsourcing, could reduce competition.
The Committee requested more detail on ADOA planned
oversight and control of any final contracts. ADOA must
secure Committee review and award any final contracts by
mid-August.

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