ARIZONA

MONTHLY FISCAL HIGHLIGHTS
July 2006
Summary
Preliminary June General Fund revenue collections were $1.08 billion, which was an increase of 12.9% from June 2005. For all of
FY 2006, preliminary General Fund revenue collections totaled $9.26 billion. This amount was $107.9 million above the recently
enacted state budget forecast for the year. Year-end book closing is still occurring, and these preliminary numbers are subject to
change.
FY 2006 revenues were $1.31 billion, or 16.5%, more than FY 2005. This is the second year of substantial revenue increases,
coming on top of an 18.8% General Fund growth rate in FY 2005.
All major tax categories demonstrated continued growth. Sales tax collections grew by 16.7%, while individual income tax
increased by 24.1%, and corporate income tax increased by 24.6%. The same trends exhibited in the prior fiscal year, including a
strong real estate market for most of the fiscal year, high levels of capital gains and dividends, and corporate and small business
profitability, are believed to have contributed to this continued growth.
The FY 2006 General Appropriation Act requires any revenues above the May 2005 forecast to be deposited into the Budget
Stabilization Fund (BSF). Permanent law caps BSF balances at 7% of General Fund revenue, which equates to $648.3 million. The
BSF already has a balance of $501.6 million, including excess revenues from the first half of FY 2006 deposited in February. The
FY 2006 General Appropriation Act requires JLBC Staff and the Governor’s Office of Strategic Planning and Budgeting to report
excess revenues for the second half of FY 2006 by July 31st. Given the 7% cap and existing balance, the two offices have agreed
that $146.7 million will be deposited into the fund to bring its total balance to $648.3 million.
In other fiscal news this month, the JLBC and the JCCR met on July 27th. A summary of the meetings can be found on pages 5 - 7.
The July Monthly Fiscal Highlights also includes a summary of recent statutory reports submitted to JLBC (see page 7).
Table of Contents
Page #

Page #

June Revenues ........................................................................3
Recent Economic Indicators...................................................3

July 27 JCCR Meeting Summary (Cont’d)
- ADOA – FY 2006 Building Renewal Reallocation ............ 7
- ADOA – FY 2007 Building Renewal Allocation Plan........ 7
- ADOA – Energy Conservation Project ............................... 7
- DWR – Williams Dam Repair Project ................................ 7

July 27 JLBC Meeting Summary
- DPS – Highway Patrol Positions and Salary Increases........5
- DPS – GITEM Expenditure Plan .........................................5
- DPS – Microwave Communications System Upgrade.........5
- DHS – Behavioral Health Title XIX Capitation Rates.........5
- DHS – Transfer of Appropriations and ASH Spending .......6
- DHS – CRS Capitation Rates...............................................6
- AHCCCS – KidsCare Capitation Rates ...............................6
- DES – FY 2007 WIA Expenditure Plan...............................6
- DES – WIA Incentive Funding ............................................6
- Game & Fish – Watercraft OUI Enforcement .....................6
- ASRS – FY 2007 IT Expenditure Plan ................................6
July 27 JCCR Meeting Summary
- Cochise Comm. Coll. District – Bond Projects....................6
- ASDB – Capital Projects Costs and Procurement................6
- ADOT – FY 2007 Construction Budget Expenditure Plan ..6
- ADOT – FY 2007 Building Renewal Allocation Plan.........7

Summary of Recent Agency Reports
- AHCCCS – Healthcare Group ............................................ 7
- Attorney General – Crane Lawsuit...................................... 7
- ADC – Community Accountability Pilot Program.............. 7
- DES – Arizona Training Program at Coolidge.................... 8
- DES – Arizona Works Pilot Program.................................. 8
- DES – Use of New Domestic Violence Funding ................ 8
- DES – Retained Earnings, Fees, and Federal Incentives..... 8
- OSPB – Federal Revenue Maximization............................. 8
- DHS – ASH Privatization Report........................................ 8
- DHS – Healthcare Licensure Backlog Funding .................. 9
- Mine Inspector – Mined Land Reclamation ........................ 9
- Parks Board – Out of State Travel....................................... 9
- DOR – BRITS ..................................................................... 9
- DOR – Ladewig Expenditures ............................................ 9
- ASU – Goldwater Papers Expenditure Plan ........................ 9

This report has been prepared for the Arizona Legislature by the Joint Legislative Budget Committee Staff on July 28, 2006. This report can also be
found on our Website at http:/www.azleg.gov/jlbc.htm
Page 1

State of Arizona
General Fund Revenue: Change from Previous Year and June Forecast
June 2006
Current Month

FY 2006 YTD (Twelve Months)

Change From

Change from

June 2005

Actual
June 2006

Amount

June 2005

Actual
Percent

June 2006

Amount

Revised Forecast
Percent

Percent

Amount

Taxes
Sales and Use

383,264,977

$49,751,333

$4,273,358,451

$612,189,828

Income - Individual

334,443,992

51,901,793

18.4

3,689,373,373

715,794,273

24.1

118,947,573

3.3

- Corporate

149,480,737

52,077,212

53.5

874,219,473

172,360,188

24.6

29,245,973

3.5

Property

5,509,337

2,293,226

(1.0)

Luxury

5,561,874

Insurance Premium

72,415,137

($19,652,149)

(0.5) %

71.3

24,998,760

1,998,760

8.7

66,732,368

2,286,295

3.5

732,368

1.1

7,393,919

11.4

373,701,860

14,949,459

4.2

1,612,360

0.4

(1,263,599)

(97.0)

11,683,602

(19,552,464)

(62.6)

(3,316,398)

(22.1)

11.0

1,241,971

(1,338,224)

(51.9)

38,769

Other Taxes

53,404

5,287

$950,768,227

$161,169,736

20.4 %

(246,862)

16.7 %

(15.1)

(989,435)

Estate

Sub-Total Taxes

14.9 %

19.1 %

521,971
$130,090,458

72.5

$9,315,309,858

$1,496,442,493

1.4 %

(18.9)

45,323,800

9,262,000

25.7

0.9

33,252,192

3,758,815

12.7

(4,109,808)

(11.0)

14,289,469

28.6

Other Revenue
Lottery

7,012,700

License, Fees and Permits

3,330,057

Interest

(1,637,500)
30,598

321,200

10,232,839

2,838,716

38.4

64,289,469

34,410,149

115.2

4,673,382

(4,708,852)

(50.2)

51,475,158

2,512,066

5.1

Other Miscellaneous

16,902,874

(17,378,668)

(50.7)

38,220,418

(16,356,981)

(30.0)

Disproportionate Share

91,841,500

(20,164,445)

(18.0)

91,841,500

(20,164,445)

(18.0)

2,089,338

(18,406,003)

(89.8)

20,987,846

(52,231,642)

(71.3)

(18,912,154)

136,082,690

(59,426,154)

(30.4) %

345,390,383

(38,810,038)

(10.1) %

(22,182,717)

10.3 %

$9,660,700,241

Sales and Services

Transfers and Reimbursements
Sub-Total Other Revenue
TOTAL BASE REVENUE

$1,086,850,917

$101,743,582

$1,457,632,455

17.8 %

0.7

(691,842)

(1.3)

(13,079,582)

(25.5)

0

$107,907,741

0.0
(47.4)
(6.0) %
1.1 %

One-Time Revenue
Urban Revenue Sharing
'05 Budget Balancing Transfers

(35,435,744)
0

(4,346,362)
(175,632)

14.0

(425,228,927)

(100.0)

0

(52,156,348)

14.0

(27)

(120,122,353)

(100.0)

0

0.0
--

'07 Disproportionate Share

16,162,900

16,162,900

--

16,162,900

16,162,900

--

0

0.0

'06 In-Lieu Transfer

10,000,000

10,000,000

--

10,000,000

10,000,000

--

0

0.0

(9,272,844)

21,640,906

(70.0) %

(399,066,027)

(146,115,801)

57.8 %

(27)

$123,384,488

12.9 %

Sub-Total Transfers In
TOTAL REVENUE

$1,077,578,073

$9,261,634,214

$1,311,516,654

16.5 %

$107,907,714

0.0 %
1.2 %

Table 1

Joint Legislative Budget Committee

Monthly Fiscal Highlights – July 2006

JUNE REVENUES
Preliminary Sales Tax collections were $383.3 million in
June, or 14.9%, above June of last year. For FY 2006, total
collections were $4.27 billion. This amount was $612.2
million (16.7%) higher than FY 2005. The following table
displays the June and FY 2006 growth rates for the major
categories:
Table 2
Sales Tax Growth Rates
June
Retail
12.4%
Contracting
25.2%
Utilities
20.2%
Use
(15.9)%
Restaurant & Bar
10.2%

FY 2006
14.5%
27.5%
12.6%
17.9%
12.4%

Of the major categories, total FY 2006 contracting collections
increased 27.5% over FY 2005. This considerable increase
was largely due a boom in the construction industry. In
addition, FY 2006 use tax collections grew at a rate of 17.9%,
reflecting large energy price increases over the past year;
however, June use tax revenues were (15.9)% below last year.
This is likely due to a recent decrease in the price of natural
gas.
Preliminary Individual Income Tax collections were $334.8
million in June, an 18.4% increase from last June. Total
FY 2006 preliminary individual income revenues were $3.70
billion, or 24.1%, above FY 2005. The following table
displays the June and FY 2006 preliminary growth rates for
the major categories:
Table 3
Individual Income Tax Growth Rates
June
FY 2006
Withholding
18.9%
15.8%
Estimated + Final Payments
36.8%
43.2%
Refunds
69.7%
23.2%
While each category exhibited healthy growth over the course
of the year, FY 2006 estimated and final tax payments
increased substantially over FY 2005. This largely reflects the
strength of the real estate market and the level of capital gains
earnings achieved over the past year.

Preliminary Corporate Income Tax collections were $149.5
million in June, which was 53.5% above last year. For
FY 2006, total receipts were $874.2 million, an increase of
24.6% over FY 2005. Revenue collections in FY 2006 were
boosted by solid corporate and small business profits.
RECENT ECONOMIC INDICATORS
Revised estimates from the Bureau of Economic Analysis
(BEA) indicate that U.S. Gross Domestic Product (GDP)
advanced at a 5.6% annual rate in 2006’s first quarter, the
swiftest in almost 3 years.
Personal consumption
expenditures, exports, equipment and software, and federal
government spending led the way. BEA also reported that
U.S. corporate profits increased 28.5% from the same quarter
a year ago.
After 2 consecutive declines, the U.S. Index of Leading
Economic Indicators inched 0.1% higher in June. While
vendor performance and building permits declined, consumer
confidence, average manufacturing hours worked, and new
orders for capital goods moved into positive territory.
The Conference Board’s U.S. Consumer Confidence Index
improved 1.0% in June. Although the assessment of current
conditions was less favorable, consumers’ outlook for the next
6 months was brighter than the prior month and was boosted
by expectations for the job market.
Although the 3-month moving average of U.S. semiconductor
billings dropped a bit in May, it still stood 9.6% above the
level from a year ago.
The Semiconductor Industry
Association (SIA) cited cell phones and flash memory
products as key ingredients driving sales higher in 2006.
Although the U.S. Consumer Price Index (CPI) increased
just 0.2% on a month-to-month basis in June, the 3-month
moving average rose 0.5% and was up 4.0% from a year ago.
Fuel prices actually dipped in June, but it was a brief
interruption in the rising trend. Food prices increased 0.3% in
June. Excluding the impact of food and energy costs, the core
CPI increased 2.6% from June 2005.

Table 4
General Fund Revenues
Compared to Enacted and Revised Forecasts and FY 2005 Collections
($ in Millions)
FY 2006
Difference From
Difference From
Difference
Collections
June 2006 Forecast 1/
Jan 2006 Forecast 2/
From FY 2005
June
$ 1,077.6
-$ 129.5
$ 123.4
Year-to Date
$ 9,261.6
$ 107.9
$ 604.5
$ 1,311.5
____________
1/ Enacted FY 2007 budget (June 2006)
2/ JLBC January Baseline Budget

Page 3

Joint Legislative Budget Committee

Monthly Fiscal Highlights – July 2006

Arizona’s job market experienced seasonal declines in June,
but it continued to show strong growth on a year-over-year
basis. Non-farm employment was 4.7% above its level from
June 2005, a gain of 116,700 positions. Manufacturing
contributed 1,500 new jobs in the last 12 months, while the
remaining goods-producing sectors – mining and construction
– added 1,200 and 23,600 jobs, respectively. Meanwhile, the
state’s unemployment rate edged up by 0.2% to 4.4% in
June.

family homes sold plummeted (52.7)% from a year ago. The
June townhouse-condominium median price was $174,700
in June, down slightly from $175,000 in May.

The Arizona Tourism Barometer climbed 2.2% in May.
While most components registered increases, national park
visitation declined from the previous month, with high
gasoline prices and wildfires among the potential causes.

The Department of Corrections’ inmate population
increased by an average of 281 inmates per month from April
through June. The total population increased by 1,925 inmates
from a year ago.

The Real Estate Center at Arizona State University reported
that the Greater Phoenix single-family median resale home
price reached a record high of $267,000 in June. Even so, the
year-over-year gain slowed to 6.8%, and the number of single-

The number of TANF recipients decreased (0.7)% to 87,152
in May and was (11.0)% below the level from May 2005. The
AHCCCS caseload decreased (0.6)% in July from the prior
month and was (1.2)% below the level from a year ago.

The Arizona Business Conditions Index dropped (8.9)% in
June but remained slightly above the mark of 50 associated
with an expanding economy. Deliver times and inventories
pushed the index lower, while production and purchases made
positive contributions.

Table 4
RECENT ECONOMIC INDICATORS
Indicator
Arizona
- Unemployment Rate
- Jobs
- Contracting Tax Receipts (3-month average)
- Retail Sales Tax Receipts (3-month average)
- Residential Building Permits - (3-month moving average)
Single-unit
Multi-unit
- Greater Phoenix Existing Home Sales
Single-Family
Townhouse/Condominium
- Greater Phoenix Median Home Sales Price
Single-Family
Townhouse/Condominium
- Arizona Tourism Barometer
- Phoenix Sky Harbor Air Passengers
- Arizona Average Natural Gas Price
($ per thousand cubic feet)
- Leading Indicators Index
- Business Conditions Index
(>50 signifies expansion)
- Consumer Confidence Index
- Business Leaders Confidence Index
- Arizona Personal Income
- Arizona Population
- AHCCCS Recipients
- TANF Recipients
- DOC Inmate Growth (3-month average)
United States
- Gross Domestic Product
(seasonally adjusted annual growth rate)
- Consumer Confidence Index
- Leading Indicators Index
- U.S. Semiconductor Billings (3-month moving average)
- Consumer Price Index (3-month moving average)

Change From
Prior Period

Change From
Prior Year

Time Period

Current Value

June
June
Mar-May
Mar-May

4.4%
2.59 million
$76.7 million
$166.8 million

0.2%
(1.2)%
3.5%
(3.7)%

(0.3)%
4.7%
28.6%
13.1%

Mar-May
Mar-May

6,034
1,171

9.6%
14.3%

(14.0)%
13.1%

June
June

5,460
1,035

(20.5)%
(29.6)%

(52.7)%
(51.3)%

June
June
May
May
April

$267,000
$174,700
103.8
3.57 million
$6.90

0.8%
(0.2)%
2.2%
(0.1)%
(5.2)%

6.8%
15.7%
0.8%
0.7%
9.9%

(1.1)%
(8.9)%

(0.5)%
(19.1)%

May
June

118.9
53.8

2nd Quarter 2006
3rd Quarter 2006
1st Quarter 2006
July 1, 2005
July
May
Apr-Jun

102.4
49.6
$186.8 billion
5.94 million
1,035,635
87,152
34,574

1st Quarter 2006

$11.4 trillion

5.6%

3.7%

June
June
Mar-May
Apr-Jun

105.7
138.1
$3.52 billion
202.3

1.0%
0.1%
(2.1)%
0.5%

(0.5)%
0.7%
9.6%
4.0%

(7.2)%
(14.5)%
1.9%
3.5%
(0.6)%
(0.7)%
281 inmates

10.0%
(16.1)%
7.6%
3.5%
(1.2)%
(11.0)%
1,925 inmates

Page 4

Joint Legislative Budget Committee

JLBC MEETING
At its July 27, 2006 meeting, the Joint Legislative Budget
Committee (JLBC) considered the following issues:
Department of Public Safety – Review of Expenditure Plans
for Staffing of Additional Highway Patrol Positions and
Sworn Salary Increases – The Committee gave a favorable
review of the department’s expenditure plan for additional
Highway Patrol Personnel and Sworn Officer Salary increases.
The Committee requested that DPS report back by November
1, 2006 on an updated salary comparison with the 5 highest
paying law enforcement agencies as well as the largest (100+
officers) agencies. As part of the report, the Committee
requested the department include information on the new jobs
taken by sworn officers who leave DPS.
With the $5.5 million appropriated to DPS for additional
Highway Patrol Personnel in FY 2007, the department plans to
hire 46 FTE Positions, of which 41 would be sworn positions.
With the $2.8 million appropriated to DPS from the Parity
Compensation Fund, DPS is proposing to bring all sworn
officer classifications within 3.6% of the August 2005 gross
pay of the 5 highest paying local agencies. (DPS officers,
however, have an extra 5% of their retirement contribution
paid by the state compared to the local jurisdictions.) As a
result, supervisory related salaries would increase between
9.9% and 16.6%, while officer positions would increase
between 6.4% and 9.4%.
Additionally, the Committee expressed concern over DPS’
failure to fill sworn officer positions provided in FY 2006. In
that year, DPS diverted $1.2 million that had been provided to
add 25 new positions, and instead used the funding for salary
increases. Since then, DPS has used $387,800 from the Parity
Compensation Fund to hire 6 of these positions. The
department has indicated it will provide JLBC Staff with a
long-term plan for filling the remaining positions.
Department of Public Safety – Review of the Gang and
Immigration Intelligence Team Enforcement Mission
(GITEM) Expenditure Plans – The Committee gave a
favorable review of the department’s expenditure plan for $1
million (of their $10 million appropriation) on license plate
readers and expanding their gang tracking database as well as
for $410,000 (of their $7 million appropriation) to expand
their recruiting efforts. The $10 million appropriation is to be
used to expand GITEM at the local level, including the
funding of local border personnel and other border security
efforts. The $7 million appropriation is to be used for an
additional 100 sworn positions within DPS, including 50 for
immigration and border security.
The Committee also required DPS to submit an expanded
expenditure plan prior to spending any additional monies
above what has been reviewed. In the interim, the department
would be allowed to expend up to $500,000 to hire new staff
prior to additional Committee review. The Committee also

Monthly Fiscal Highlights – July 2006

requested a timeline for hiring the additional personnel and
accomplishing the other objectives of the legislation.
In addition, the Committee recommended that DPS pursue
negotiations with a local law enforcement jurisdiction to
construct a regional holding facility for illegal immigrants
near the Arizona-Mexico border. The purpose of the facility
would be to house illegal immigrants until a qualified federal
agency takes custody. The Committee also requested DPS to
report on the concept of using funding to assist local law
enforcement in transporting illegal immigrants to a qualified
federal agency when the federal government refuses to take
custody in at timely fashion.
Department of Public Safety – Review of the Microwave
Communications System Expenditure Plan and Project
Timeline – The Committee gave a favorable review of the
department’s request and plan relating to the Microwave
Communications System with the provisions that DPS submit
an updated cost estimate on the southern loop and the entire
project in its December 31 report, and that DPS request
Committee review of any expenditure from the $1.2 million
contingency greater than $100,000.
The total cost to upgrade their existing analog microwave
communications system to a digital system in the southern
loop is estimated to be $12.4 million ($4.1 million annually
from FY 2007 through FY 2009). Based on the department’s
3-year expenditure plan, a total of 3 new sites will be
constructed in the southern loop, 19 existing sites would be
refurbished (3 located outside the southern loop) and digital
equipment would be installed on 15 southern sites.
Per an agreement between the Governor and the Legislature,
DPS originally anticipated funding the project with $7.6
million in state appropriations and $4.6 million in federal
Homeland Security funding. The state Office of Homeland
Security (OHS), however, recently informed DPS it has
already allocated all federal monies received to date. OHS
does not know if future federal funding will be sufficient to
provide DPS with monies for this project. The Committee
requested OHS provide information on its allocation of
Homeland Security funds received from the federal
government in FY 2006.
Department of Health Services – Review of Behavioral
Health Capitation Rate Changes – The Committee gave a
favorable review to the Department of Health Services’ (DHS)
FY 2007 capitation rate adjustments for the behavioral health
population with the stipulation that the favorable review does
not constitute an endorsement of a supplemental request by the
agency. The Committee also directed DHS to report to the
Committee by August 31, 2006 with an explanation as to how
increased methamphetamine money will be coordinated with
the $3 million appropriated by the Legislature in FY 2007 for
increased methamphetamine treatment. The capitation rate
adjustment is expected to cost approximately $900,000 more
than what was budgeted for this population in FY 2007,
although continued caseload declines may offset this cost.

Page 5

Joint Legislative Budget Committee

Department of Health Services – Review of Requested
Transfer of Appropriations and Report on Arizona State
Hospital Expenditure Plan – The Committee gave a favorable
review to the Department of Health Services’ (DHS) request
to transfer $538,900 from the Arizona’s State Hospital’s
operating budget to the Sexually Violent Person’s Special
Line Item. The transfer is technical and will allow the
department to implement its Direct Care Worker salary plan.
The Committee also received a summary of DHS’ plan to
allocate $3.1 million in salary increases to direct care workers
at ASH. According to the department, the Civil and Forensic
Hospital will receive $2.6 million for salary increases to
approximately 397 workers, with the remaining $538,900
going to the Arizona Community Protection and Treatment
Center’s (ACPTC) approximately 95 employees.
Department of Health Services – Review of Children’s
Rehabilitative Services Capitation Rate Changes – The
Committee gave a favorable review to the Department of
Health Services’ (DHS) FY 2007 capitation rate adjustments
for the children’s rehabilitative services population. The
capitation rate adjustment is within the department’s FY 2007
budget.
AHCCCS – Review of KidsCare Behavioral Health
Capitation Rate Changes – The Committee gave a favorable
review to the Arizona Health Care Cost Containment System’s
(AHCCCS) FY 2007 capitation rate adjustments for the
behavioral health care portion of the KidsCare and KidsCare
Parents population, with the stipulation that the favorable
review does not constitute an endorsement of a supplemental
request by the agency. The capitation rate adjustment is
expected to cost approximately $200,000 more that what was
budgeted for this population in FY 2007.
Department of Economic Security – Review of FY 2007
WIA Expenditure Plan – The Committee gave a favorable
review to $3.1 million of planned FY 2007 Workforce
Investment Act (WIA) Grant expenditures. The Department
of Economic Security (DES) had submitted for review a total
spending plan of $3.3 million. The Committee, however,
deferred consideration of $250,000 DES has set aside for
Master Teacher Programs until it receives more information
about the program.
Department of Economic Security – Review of WIA
Incentive Funding – The Committee gave a favorable review
to the DES plan for spending $709,600 of WIA incentive
funds. The incentive monies expenditure plan is to provide
targeted services to increase the healthcare labor force.
Arizona Game and Fish Department – Review of
Watercraft Operation Under the Influence Equipment
Expenditure Plan – The Committee gave a favorable review to
the Arizona Game and Fish Department’s $160,000
expenditure plan for Watercraft OUI Enforcement equipment.
The department intends to purchase 2 field station mobile
operating command post trailers, each equipped with

Monthly Fiscal Highlights – July 2006

evidentiary breath testing instruments.
The department
anticipates that the trailers will be used mainly on the
Colorado River, Lake Powell and Lakes on the Salt River.
Arizona State Retirement System – Review of FY 2007
Information Technology Expenditure Plan – The Committee
gave a favorable review to the Arizona State Retirement
System’s (ASRS) FY 2007 Information Technology (IT)
Expenditure Plan. The agency’s proposed expenditure plan is
in line with the expenditures outlined in the Project and
Investment Justification (PIJ) document approved by the
Information Technology Authorization Committee (ITAC).
JCCR MEETING
At its July 27, 2006 meeting, the Joint Committee on Capital
Review (JCCR) considered the following issues:
Cochise Community College District Bond Proposal – The
Committee favorably reviewed the $87.7 million general
obligation (GO) bond issuance scheduled for the November 7
election, with the provision that the district return to the
Committee for review prior to each actual bond issuance. The
district plans to have 3 issuances, with an issuance occurring
every 2 years. The issuance schedule includes $25 million in
FY 2007, $40 million in FY 2009, and $22.7 million in FY
2011, with final payoff in FY 2031. Overall, the issuances
would increase the secondary property tax rate by an average
of $0.57. A total of 16 new projects and 5 renovation projects
are planned for the district’s 2 main campuses in Sierra Vista
and Douglas, and 2 smaller facilities in Willcox and Benson.
Arizona State Schools for the Deaf and the Blind Capital
Projects and Procurement Method – The Committee
favorably reviewed the preliminary expenditure plan for the
$19 million capital appropriation and the use of the
Construction Manager at Risk procurement method, with the
provision that ASDB contract with a third party to assist with
the project. ASDB will use the funding to construct a new
Middle School and High School on the Phoenix campus, and
construct a new Vocational Building, remodel the annex and
install air conditioning in dorms at the Tucson campus. To the
extent additional funding remains available, ASDB may also
construct a new Student Health Center in Tucson and renovate
existing space on the Phoenix campus. ASDB is required to
submit the scope, purpose and estimated cost of the projects to
the Committee before construction begins.
Arizona Department of Transportation FY 2007
Professional and Outside Services and Traffic Congestion
Measures – The Committee favorably reviewed the use of up
to $34.6 million for consulting services expenditures through
the end of October. The Committee intends to review the full
year expenditure plan after it has had time to review the
Auditor General report on Construction Management. The
Committee also included a provision that ADOT report back
on spending plans for Statewide Transportation Acceleration
Needs Account monies by December 31, 2006, and adopted
the highway congestion performance measures with the
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Joint Legislative Budget Committee

stipulation that ADOT report on these performance measures
as part of next year’s review.
Arizona Department of Transportation FY 2007 Building
Renewal – The Committee favorably reviewed the $3,702,900
Building Renewal allocation plan, which includes $3,627,100
from the State Highway Fund for 142 projects and
contingencies, and $75,800 from the State Aviation Fund for 1
project at the Grand Canyon Airport. The review included
provisions related to reporting of transfers between projects,
and allocations from contingency amounts.
Arizona Department of Administration FY 2006 Building
Renewal Reallocations – The Committee favorably reviewed
the reallocation of $422,200 from FY 2006 building renewal
to fund water leak repairs at the Capitol Center Building,
completion of chiller replacements at the Department of
Revenue building, and contingencies. The $422,200 became
available from projects that were completed under budget or
funded with non-building renewal monies.
Arizona Department of Administration FY 2007 Building
Renewal – The Committee favorably reviewed the $7,249,200
Building Renewal allocation plan, which includes 12 projects
plus emergencies and contingencies.
Arizona
Department
of
Administration
Energy
Conservation Project – The Committee favorably reviewed
the use of $521,200 from ADOA’s utility budget to fund
energy conservation projects that include lighting controls,
HVAC lockouts and vending misers to ensure these systems
are only in operation when needed. ADOA estimates annual
utility savings of $300,200. ADOA also anticipates the
projects to generate $212,300 in rebates from the utility
provider. The rebates will be returned to the utilities budget.
Arizona Department of Water Resources City of Williams
Dam Repair – The Committee favorably reviewed the use of
$1.5 million appropriated to repair the City of Williams dam.
Deficiencies to be addressed include stabilizing the dam wall
and downstream slope, as well as fixing seepage and
improving flood capacity. Local matching contributions of
$136,000 will also be applied to the project.
SUMMARY OF RECENT AGENCY REPORTS
AHCCCS – Semi-Annual Report on Healthcare Group –
Pursuant to A.R.S. § 36-2912 AHCCCS is submitting its semiannual report to the Committee on the number and types of
businesses participating in Healthcare Group (HCG). This
report also provides a description of HCG activities since its
last semi-annual report submitted November 2005, AHCCCS
reports that, as of June 13, 2006 total statewide HCG
enrollment was 21,603, with participating members from
7,684 private employers and 13 political subdivisions.
AHCCCS reports that since June 2005, enrollment has
increased by 6,977 people, or 47.7%. AHCCCS’ FY 2007
budget request projected June 2006 enrollment to come in at
32,000.

Monthly Fiscal Highlights – July 2006

The AHCCCS submission also includes an update on the
marketing activities AHCCCS is undertaking to promote
Healthcare Group. In January 2006, HCG began offering
optional dental and vision benefits to its members. As of June
13, 2006 13,336 members have chosen to pay for these
optional benefits. An additional 476 individuals have signed
up for only dental and/or vision coverage. Starting July 1,
2006 HCG will cover more preventative services. Since
January 2006, HCG has held 26 training meetings for brokers
on new HCG products with 10 of those meetings taking place
in Pima and Maricopa Counties and the other 16 meetings
being held in the northern counties. Of the approximately
3,100 new members since January 2006, brokers have brought
39%, or 1,212 of those members.
HCG notes that overall customer satisfaction has increased 7%
from 73% in 2004 to 80% in 2005.
Attorney General – Quarterly Report on Expenditures from
Appropriation for Crane Lawsuit – In September 2001, 7
school districts filed the Crane lawsuit, which claimed that the
current Arizona school finance system is unconstitutional
because it does not provide at-risk students with programs and
funding needed in order to meet state academic standards. In
FY 2004, the Legislature appropriated $500,000 to the
Attorney General for legal fees incurred by outside counsel in
defending the state.
Pursuant to Laws 2003, 2nd Special Session, Chapter 4, the
Office of the Attorney General is required to report on a
quarterly basis to the JLBC the amount expended from the
appropriation for the Crane lawsuit. As of June 30, 2006, a
total of $470,400 has been spent. Of this amount, $461,400
was spent on outside legal services, $4,500 was spent on
expert witnesses, and $4,500 was spent on external printing.
The agency has not expended additional funds from the
appropriation since last quarter’s report. The remaining
unexpended balance is $29,600.
Department of Corrections – Report on Community
Accountability Pilot Program – Laws 2004, Chapter 204
required ADC to establish a Community Accountability Pilot
Program. Chapter 204 authorized the department to contract
with a private or non-profit entity to provide supervision and
treatment services for eligible offenders who have violated the
terms and conditions of community supervision.
The department awarded the contract to Redman Investment
Group and the program began on April 13, 2006. As of June
2006, a total of 17 eligible offenders were referred to the
Community Accountability Pilot Program since program
inception. Of those referred, 7 offenders, or 41%, were
terminated from the program due to failed urinalysis tests,
absconding, or failure to report to parole officers. To date, the
program has provided 5,616 hours of electronic monitoring
and program participants have spent 165.5 hours in
programming and counseling services.

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Joint Legislative Budget Committee

Department of Economic Security – Report on Arizona
Training Program at Coolidge (ATP-C) Campus and Other
Placements – Pursuant to a General Appropriation Act
footnote, the Department of Economic Security (DES) is
reporting on placements of developmentally-disabled (DD)
clients into state-owned ICF-MRs or at the ATP-C campus in
FY 2006. DES reports that there were no placements of DD
clients at the ATP-C campus, but that they made one new
placement into the state-owned ICF-MR in Phoenix. The
department placed this client in the state-owned ICF-MR at
the request of the legal guardian. The client has been in stateoperated group-homes since 1987 and was at the Arizona
Training Program at Phoenix prior to that time.
Department of Economic Security – Report on Arizona
Works Pilot Program – Pursuant to A.R.S. § 46-342, DES has
provided reports submitted by MAXIMUS, the program
contractor for the Arizona Works program, along with
comparable DES data, for February and March 2006. This job
placement pilot serves clients in District I-E, which generally
covers the eastern part of Maricopa County.
In March 2006, MAXIMUS placed a total of 122 Arizona
Works clients in full-time paid employment in District I-E, an
(8)% decrease from the March 2005 figure of 133. (Over the
same time period, the total number of District I-E Arizona
Works clients placed by MAXIMUS in all new employment
placements, including unpaid work experience and community
service positions, decreased (3)%.) In March 2006, the
number of DES JOBS clients placed in full-time paid
employment in the rest of Maricopa County was 267, a
decrease of (17)% from the 322 clients placed in March 2005.
(Over the same time period, total DES JOBS clients placed in
all new employment placements in the rest of Maricopa
County, including unpaid work experience and community
service positions, decreased (3)%.) Because of potential
differences in the demographic and economic makeup of both
regions, it is difficult to draw conclusions about the relative
effectiveness of both programs from this data.
Department of Economic Security – Report on Use of New
Domestic Violence Funding in FY 2006 – Pursuant to a
General Appropriation Act footnote, DES is submitting its
report to the Committee on the recipients and uses of the new
$1,500,000 General Fund appropriation to fund new domestic
violence emergency shelter beds in FY 2006. Originally the
appropriation was estimated to add only 75 additional beds,
but local and private funds increased the number of beds
added to 129. The $1,500,000 was awarded to 8 provider
organizations in 5 counties. From November 2005 to April
2006, 607 individuals have been served by these new beds.
Because FY 2006 reports are not yet complete, DES has
indicated that it will submit an update on the new beds by
October 1, 2006.
Department of Economic Security – Report on Use of State
Share of Retained Earnings, Fees & Federal Incentives – A
footnote in the General Appropriations Act allows the

Monthly Fiscal Highlights – July 2006

Department of Economic Security (DES) to expend retained
earnings, fees and federal incentives in the Division of Child
Support Enforcement above the appropriated amount. The
footnote also requires DES to report the intended use to the
Legislature and the Governor’s Office. DES reports that it
intends to use $500,000 plus federal matching monies above
the appropriated $13,197,800 to upgrade technology systems,
increase employee training and add staff to increase customer
service. DES reports that these uses will assist the agency in
meeting federal performance measures.
Governor’s Office of Strategic Planning and Budgeting –
Report on Federal Revenue Maximization Initiative – Pursuant
to a General Appropriation Act footnote, the Governor’s
Office of Strategic Planning and Budgeting (OSPB) has
submitted its quarterly report on the status of a Federal
Revenue Maximization Initiative.
The summary lists 10 ongoing projects, unchanged from the
January report. OSPB reports that one ongoing project had
new monetary developments from the prior report:
Medicare Part B: The Department of Health Services reported
that it claimed a total of about $335,000 in Medicare Part A
and Part B revenues for the period covering October 1, 2003
through December 31, 2005 at Arizona State Hospital. The
department expects to be current with billing at the end of FY
2006.
Department of Health Services – Arizona State Hospital
Privatization Report – Laws 2005, Chapter 328 permitted the
Department of Health Services (DHS) privatize the Arizona
State Hospital (ASH) and required the agency to report to the
Joint Legislative Budget Committee if DHS chose to move
forward with privatization efforts.
DHS reports that they will not to privatize ASH at this time
and cites 2 main reasons for this decision. First, DHS states
that ASH already provides cost effective care in an efficient
manner, noting that ASH recently received a favorable review
and high marks for improvement and innovation from the
Joint Commission on Accreditation of Healthcare
Organizations.
The second reason not to privatize DHS cites is that there are
barriers to privatizing ASH, including the location of the
Hospital is on state trust land which must always be used for
trust beneficiaries, the mentally ill in the state. Also, A.R.S. §
36-214 authorizes leases for 5 years with 2 five-year
extensions and allows the state to cancel the contract after the
first year, with no penalty to the state. DHS states that this is
an impediment for a buyer or lessee of the hospital if they
have significant capital or committed costs under the contract.
DHS suggests that the quality of care would likely decrease as
a result of privatization due to cost cutting and that cuts are
primarily made in staffing and using the least expensive
medications, even if those medications are not clinically
sound. DHS reports that private management of civil

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Joint Legislative Budget Committee

psychiatric facilities, as well as prisons, generally results in the
selection of patients or inmates based on cost of care. They
also report that states which have recently privatized civil
hospitals have seen mixed results and that actual cost savings
promised to states are not as high as expected.
Department of Health Services – Report on Healthcare
Licensure Backlog Funding – Pursuant to Laws 2005, Chapter
286, the Department of Health Services (DHS) submitted a
report detailing the impact of the $200,000 appropriation on
healthcare licensure backlogs. The funding was used to
address backlogs in 3 different program areas: the Office of
Assisted Living Licensing, the Office of Behavioral Health
Licensing, and the Office of Medical Facilities Licensing.
The largest backlog existed in Office of Assisted Living
Licensing. As a result of the additional funding, 1200 renewal
surveys were conducted in FY 2006, compared to 976 in FY
2005. The completion of additional surveys reduced the
backlog in this office from 338 in July 2005 to 237 in May
2006.
The Office of Behavioral Health Licensing conducted 617
renewal surveys in FY 2006, 57 less than FY 2005; however,
168 of the surveys were conducted by seasonal employees
funded through the $200,000 appropriation. The office lost 10
permanent employees during this period. Backlogs were
decreased slightly from 268 in FY 2005 to 203 in FY 2006.
The Office of Medical Facilities Licensing conducted 288
renewal surveys, 68 of which were completed by seasonal
employees. The office conducted 240 renewal surveys in FY
2005. Backlogs remained approximately the same, but DHS
states that the additional funding prevented an increase in the
backlog.
State Mine Inspector – Report on Mined Land Reclamation
Services – According to A.R.S. §§ 27-935 and 27-1234, the
State Mine Inspector may contract with a private consultant in
reviewing mined land reclamation plans for sand and gravel
operations, as well as all other reclamation operations. The
State Mine Inspector must then report to the JLBC any
expenditures of money for this purpose, the name and address
of each consultant, and the submitted plans of the consultants.
There were no contracts with private consultants during
FY 2006.
State Parks Board – Annual Report on Out of State Travel –
Pursuant to a General Appropriation Act footnote, the State
Parks Board is submitting a report of out of state travel
expenses in FY 2006. The footnote stipulates that during FY
2006 and FY 2007, out of state travel expenses by State Parks
Board staff shall not exceed $5,000 each year from
appropriated or non-appropriated monies.
Out of state travel expenses for State Parks Board staff for FY
2006 totaled $4,500, so were within the $5,000 limit. These
out of state travel expenses were incurred primarily for
attendance at conferences and meetings.

Monthly Fiscal Highlights – July 2006

Department of Revenue – Report on Business ReEngineering/Integrated Tax System (BRITS) – BRITS is the
new computer system being implemented by the Department
of Revenue (DOR) to integrate their separate tax systems,
improve enforcement, and increase revenues to the state.
Given the importance of this issue, in April 2003 the
Appropriations Chairmen asked DOR to provide quarterly
reports on the additional revenue received from implementing
BRITS. The implementation of BRITS began in FY 2003
with the awarding of the contract to Accenture, LLP on
August 20, 2002. Accenture is financing the cost of BRITS,
and is paid from the increased revenues generated by BRITS.
The original contract called for BRITS to be completed in
FY 2007. The BRITS conversion of corporate income tax has
been delayed from September 2004 to August 2006, and the
individual income tax has been delayed from September 2006
to an undetermined date.
During the last quarter, $3.3 million was collected in BRITS
revenue. In total, DOR reports $132.5 million of total
cumulative BRITS additional revenue through June 30, 2006
compared to a projected $95.6 million, or $36.9 million ahead
of schedule.
Department of Revenue (DOR) – Report on Ladewig
Expenditures – DOR reports monthly on the status of the
Ladewig litigation. DOR’s monthly status report shows
expenditures of $22,500 for Ladewig administrative costs in
June 2006. FY 2006 Ladewig expenditures total $57.8 million
through June 2006, out of the $58.3 million allocation. Any
unused amounts revert to the General Fund. DOR’s estimates
a total cost of $94.8 million in FY 2007 for the third and final
year of payments required by the court settlement, including
$88.8 million for taxpayer payments which is due to the
taxpayers by July 21, 2006.
Arizona State University – Arizona Historical Foundation
Senator Barry Goldwater Papers Expenditure Plan – The FY
2007 General Appropriations Act provides a one-time increase
of $529,000 from the General Fund to the Main Campus of
Arizona State University (ASU), allowing the Arizona
Historical Foundation (AHF) to preserve the files of the late
Senator Barry Goldwater. The budget includes a footnote
requiring ASU to provide the AHF expenditure plan to JLBC
before the foundation can spend the monies.
AHF, a non-profit archive housed in the Main Campus’
Hayden Library, possesses 1,200 boxes of various media
collected by Senator Goldwater. A contractor will digitize
film reels and beta tapes, which were previously inaccessible
due to a lack of viewing equipment, along with VHS tapes, to
DVD over a 6 month period. Microfilm will be digitized to
CD over 4 months. These DVD and CD records will then be
available to researchers on a computer system at AHF.
AHF will scan print materials and photographs over 18
months and place that information on its website. AHF
expects to complete the work by the end of 2007.

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Joint Legislative Budget Committee

Monthly Fiscal Highlights – July 2006

AHF does not plan to hire a new archivist for this project.
Rather, the current archivist will process the Goldwater papers
full time, while existing AHF staff and perhaps new ancillary
staff cover vacated duties. The appropriated monies can
accommodate these positions for up to 2 years.
The table below summarizes the presented budget for the
$529,000 appropriation.

AHF has requested that ASU deposit the funds into a private
foundation account. AHF believes this arrangement will be
more efficient than using ASU staff time to process payroll
and purchase orders. Meanwhile, ASU prefers to set up a nonappropriated state fund for the foundation and to make 4
quarterly payments conditional upon status and expenditure
updates from AHF.

Arizona Historical Foundation
Senator Barry Goldwater Papers Expenditure Plan
Budget Item
Personal Services and ERE
1.5 FTE for up to 2 years
Professional and Outside Services
Digitization & Preservation of Scrapbooks, Film, and Microfilm

Amount

$ 133,500

326,000

Other Operating Expenditures
Website Design and Maintenance
Storage
Archival Supplies

2,500
15,000
7,400

Equipment
Computer System, Scanner, and Printer
Database and Search Software
Shelves (for Memorabilia)
Microfilm Reader and Printer
Film Freezer
Shrink Wrapper (for Memorabilia)

8,200
12,000
7,000
16,000
1,000
400

Total

$ 529,000

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