ARIZONA

MONTHLY FISCAL HIGHLIGHTS
October 2006
September General Fund revenue collections were $931.7
million, or 8.5% above September 2005. This amount was
$15.3 million above the forecast for the month. The forecast
comparison is based on projected FY 2007 revenues from the
enacted budget. For the fiscal year-to-date, collections are
$9.5 million above the forecast. (See Table 3 on page 2.)
Of the major tax categories, September sales tax grew 10.5%,
individual income collections increased 10.1%, and corporate
revenues rose 12.2%. While these are healthy growth rates,
they are well below FY 2006 levels of growth. Through the
first quarter of FY 2007, collections for all revenue categories
are 7.6% above last year. When compared with the overall
growth rates of 18.8% in FY 2005 and 16.7% in FY 2006,
collections in the current year have slowed considerably. (See
Table 9 on page 13 for details.)
In other fiscal news this month, the JLBC met on October 24th
(pages 4 – 5). Highlights included:
•

•

The JLBC approved a 12.2% increase to the cost-persquare-foot factors used in the School Facilities Board’s
New School Facilities and Building Renewal formulas.
The adjustment is estimated to have a $38.9 million impact
on the New School Facilities Program over the next 4
years and increase the Building Renewal formula by $10.5
million to $19.7 million.
The JLBC unfavorably reviewed the Arizona Department
of Revenue’s request to amend its Business ReEngineering/Integrated Tax System (BRITS) contract by
$14.8 million to finish the conversion of the individual

income tax to BRITS. The Committee expressed concerns
that the project is over budget and behind schedule.
A JLBC Subcommittee on Actuarial Audits also met on
October 24th (page 5). The FY 2006 budget appropriated
funding to JLBC Staff to contract with actuaries to conduct an
independent review of existing state-contracted actuarial
services. The following areas were reviewed: 1) state pension
systems, 2) the state employee health insurance program, 3)
Title XIX capitation rates, and 4) the state risk management
program. While most of the findings issued by the actuarial
firms were favorable, several concerns were raised in the
review of the Public Safety Personnel Retirement System
(PSPRS), including the calculation of liabilities in the system.
As a result, the actuary recommended a parallel independent
audit of the system.
The Monthly Fiscal Highlights include a summary of recent
statutory reports submitted to JLBC (see pages 6 – 10). Of
particular note:
•

The Department of Economic Security’s semi-annual
report on Child Protective Services indicates caseload
ratios are near the goal for each case type, when
considering authorized caseworkers. Since only 722 of
979 positions are filled, however, actual ratios are
considerably below target. Turnover continues to be high
at an annual rate of 21%. Out-of-home placements,
specifically in congregate settings, are on a slight decline.

Table of Contents
Page #

Page #

September Revenues ................................................................2
Recent Economic Indicators ....................................................3

Summary of Recent Agency Reports (cont’d)
- DES – FY 2006 JOBS Expenditures and Placement............. 7
- DES – Child Care Programs in Public School Facilities....... 7
- DES – Medicaid Reimbursement Rates for DD Programs.... 8
- ADEQ – Progress of WQARF Sites...................................... 8
- Gov. Council on Workforce Policy – Annual Report............ 8
- DJC – CRIPA Compliance.................................................... 9
- OSPB – Federal Revenue Maximization............................... 9
- DPS/ADC – Take Home Vehicles ........................................ 9
- DWR – Interstate Water Banking........................................ 10

October 24 JLBC Meeting Summary
- JLBC Staff – Construction Costs Inflation Index ..................4
- DOR – BRITS Contract Amendment ....................................4
- DOR – General Fund Revenue Enforcement Goals ..............5
- ADOA – Emergency Telecommunications Spending Plan ...5
- AHCCCS – Capitation Rates .................................................5
- Arts – Arts Endowment Fund and Private Contributions ......5
JLBC Subcommittee on Actuarial Audits ................................5
Summary of Recent Agency Reports
- AG – Incarceration Costs Offset by Monetary Judgments ....6
- ADC – Monthly Expenditures ...............................................6
- DES – FY 2006 Child Care Expenditures .............................6
- DES – CPS Financial and Program Accountability...............6

Other Issues
- Safe and Stable Families Program....................................... 10
- K-12 Building Renewal Lawsuit......................................... 10
- Tribal Contributions ............................................................ 11
- FY 2007 Revenue and Ending Balance Projection.............. 11
- School Districts’ Aggregate Expenditure Limit .................. 12

This report has been prepared for the Arizona Legislature by the Joint Legislative Budget Committee Staff on October 31, 2006. This report can also
be found on our Website at http://www.azleg.gov/jlbc.htm
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Joint Legislative Budget Committee

Monthly Fiscal Highlights – October 2006

The Monthly Fiscal Highlights also include an update on some
current budget issues:
•

•

•

•

•

K-12 Building Renewal Lawsuit – The Arizona Superior
Court issued a judgment in favor of the state. The suit,
filed on behalf of certain school districts, alleged that the
state’s underfunding of the Building Renewal formula was
unconstitutional. The Court found that the districts’ claim
was premature as they had not attempted to secure all
available sources of facilities maintenance funds. (See
page 10.)
Tribal Contributions – The Tribal-State gaming pacts
require the tribes to make contributions to the state. In FY
2006, contributions were $92.1 million, which was 24%
greater than the FY 2005 level of contributions. (See page
11.)
Projected FY 2007 General Fund Ending Balance – As
part of an October 15th statutory report, JLBC Staff
estimates a FY 2007 General Fund balance of $324 to
$465 million. This would be $150 to $291 million above
the $174 million balance enacted in the FY 2007 budget.
This estimate is likely to change throughout the fiscal year
as revenue estimates are further updated. (See page 11.)
School Districts’ Aggregate Expenditure Limit – The
Arizona Department of Education (ADE) recently
reported that school district budgets for FY 2007 exceed
the constitutional aggregate expenditure limit by $8.0
million. District budgets are over the limit largely as a
result of a $100 million increase in base level funding in
FY 2007 and $80 million in new kindergarten funding.
The Arizona Constitution permits the Legislature to
authorize the districts to exceed the limit in the current
year with a 2/3 vote on or before March 1, 2007.
Otherwise, ADE will be required to instruct each district
to reduce its expenditures to remain within the limit. (See
page 12.)
Safe and Stable Families Program – The Federal
Promoting Safe and Stable Families Program was
reauthorized, providing Arizona an additional $940,000
for caseworker visits to foster children. These monies can
be used through FFY 2009. The reauthorization also
added new a new performance standard of a 90%
visitation rate by FFY 2012. Currently, DES reports a
65% visitation rate. (See page 10.)

SEPTEMBER REVENUES
Sales Tax collections were $379.9 million in September, or
10.5% above September of last year. The following table
displays the September and year-to-date growth rates for the
major categories:
Table 1

Sales Tax Growth Rates
September
Year-to-Date
Retail
5.6%
5.0%
Contracting
16.1%
17.9%
Utilities
22.7%
13.5%
Use
9.9%
8.5%
Restaurant & Bar
3.8%
6.7%
Collections for some of the major sales tax categories
continued to grow at a slower pace in September, while use
tax collections rebounded from last month. The slower
growth in collections may reflect a sluggish real estate market.
For the month, revenues were $11.9 million above the
forecast.
Individual Income Tax collections were $355.5 million in
September, or 10.1% above last year. The following table
displays the September and year-to-date growth rates for the
individual income tax categories:
Table 2

Individual Income Tax Growth Rates
September
Year-to-Date
Withholding
(0.5)%
5.0%
Estimated + Final Payments
33.2%
24.8%
Refunds
42.7%
31.9%
Withholding tax collections for September were slightly less
than September collections last year, bringing the year-to-date
total down to 5.0%. While withholding collections were
significantly below forecast for the month, estimated and final
tax payments increased markedly from last year, and refunds
for the month were again higher than anticipated. Total
revenues, therefore, were $(7.9) million below the forecast for
the month.
The large increase in payments may reflect a reaction to
taxpayers having to make large final payments last spring.
Taxpayers may have increased their estimated payment levels

Table 3
General Fund Revenues
Compared to Enacted Forecast and FY 2006 Collections
($ in Millions)
FY 2007
Difference
Difference
Collections
From Forecast 1/
From FY 2006
September
$
931.7
$ 15.3
$ 73.1
Year-to-Date
$ 2,296.0
$ 9.5
$ 161.2
____________
1/ Enacted FY 2007 budget (June 2006)

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Joint Legislative Budget Committee

Monthly Fiscal Highlights – October 2006

to avoid being penalized for underreporting. We have seen no
indication that actual tax liability has increased at this rate
however, and some of these increased payments may be
returned as refunds later in the year.
In addition, it is unclear at this point in the fiscal year why
withholding tax collections are below forecast. While the first
quarter has been below forecast, so far in October collections
are over the forecast.
Corporate Income Tax collections were $191.2 million in
September, or 12.2% above last year. September is typically
one of the strongest months each year for corporate collections
since quarterly payments are due then. For the fiscal year to
date, corporate income tax revenues are $16.1 million above the
forecast. Corporate profit reports are running consistent with
tax collections. The U.S. Bureau of Economic Analysis
(BEA) reported that national corporate profits increased
18.5% on a year-over-year basis, while state corporate income
taxes rose by 21.2% in 2006’s 2nd quarter.

RECENT ECONOMIC INDICATORS
The “final” estimate from BEA for the 2nd quarter of 2006
showed that U.S. Gross Domestic Product (GDP) increased
at a 2.6% annual rate, somewhat slower than the previous
estimate. Personal consumption, exports, and nonresidential
construction were among the leading growth categories.
The U.S. Index of Leading Economic Indicators edged 0.1%
higher in September, interrupting its recent downward trend.
Half of the index components increased, including consumer
expectations, stock prices and manufacturers’ new orders.
Consumer sentiment was much better in September, with the
Conference Board’s U.S. Consumer Confidence Index rising
4.3% from the prior month. Confidence was buoyed by a
better assessment of current conditions and a more optimistic
outlook for the next 6 months.
A significant improvement in inflation helped to boost
confidence in the economic outlook. The 3-month moving

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

September
September
Jul-Sep
Jul-Sep

3.7%
2.65 million
$81.9 million
$163.2 million

0.1%
1.1%
1.6%
(4.5)%

(1.1)%
4.7%
17.9%
5.0%

Jun-Aug
Jun-Aug

4,687
663

(13.6)%
(31.4)%

(34.9)%
(32.8)%

September
September

4,875
930

(12.2)%
(15.5)%

(50.3)%
(47.5)%

September
September
June
June
July

$256,900
$173,500
106.9
3.61 million
$6.98

(2.1)%
2.1%
3.0%
1.0%
3.6%

(2.3)%
8.4%
4.9%
1.1%
(1.3)%

0.7%
3.6%

(0.5)%
(3.1)%

August
September

118.6
62.7

4th Quarter 2006
4th Quarter 2006
2nd Quarter 2006
July 1, 2005
October
August
Jul-Sep

105.3
48.1
$194.3 billion
5.94 million
1,030,004
87,903
35,144

2nd Quarter 2006

$11.4 trillion

2.6%

3.5%

September
September
Jun-Aug
Jul-Sep

104.5
137.7
$3.83 billion
203.4

4.3%
0.1%
3.6%
0.0%

19.4%
1.4%
18.3%
3.3%

2.5%
(3.0)%
2.0%
3.5%
0.2%
2.5%
170 inmates

7.3%
(12.1)%
9.8%
3.5%
(2.4)%
(11.0)%
2,227 inmates

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Joint Legislative Budget Committee

average for the U.S. Consumer Price Index (CPI) was
unchanged in September and stood 3.3% higher than a year
ago. Gasoline prices plunged (13.5)% from the previous
month while other transportation costs also were falling.
Excluding food and energy prices, the core CPI increased
0.2% in September and stood 2.9% higher than a year ago.
The advanced technology sector continued to perform well in
recent months.
U.S. semiconductor billings (3-month
moving average) improved 3.6% in August to $3.83 billion, an
18.3% increase from a year ago. The Semiconductor Industry
Association (SIA) reported that strong consumer spending
pushed PC sales higher, and with falling fuel costs helping to
increase spending power, manufacturers were gearing up for
what is expected to be a strong holiday season. The SIA noted
that semiconductors account for an average of 40% of the cost
of products such as cell phones, MP3 players and digital
cameras.
The improved economic climate was reflected in recent results
for Arizona. The Behavior Research Center’s Arizona
Consumer Confidence Index climbed 2.5% in 2006’s 4th
quarter and was 7.3% above its level from a year ago. While
confidence was essentially unchanged in Maricopa County,
the rest of the state showed substantial improvement from the
summer months. The latest survey responses suggested that
consumers were less pessimistic about business conditions, the
job market, and their income prospects.
The latest survey of supply chain managers throughout the
state corroborated the results from the consumer sector. The
Arizona Business Conditions Index (BCI) increased 3.6% to
62.7 in September and remained well above the mark of 50
associated with an expanding economy. The production
component, which soared 11.4%, was the main driver in
September’s performance.
The overall index reading
continued to hover in the mid-60s range it has occupied for
most of the last 3 years.
Arizona’s job market continued to perform very well in
September. The state’s employers added 119,000 jobs in the
last 12 months, pushing total non-farm employment to 2.65
million, a 4.7% increase from September 2005. All of the
goods-producing sectors remained in positive territory, with
construction, mining and manufacturing registering increases.
The seasonally adjusted statewide unemployment rate inched
up to 3.7% but remained far below the 4.6% U.S. average.
The good news on Arizona’s economy came in spite of the
struggling residential real estate market. The Real Estate
Center at Arizona State University reported that the Greater
Phoenix single-family median resale home price dropped to
$256,900 in September, the first year-over-year decline in 10
years. Meanwhile, the townhouse-condominium median
price increased 2.1% to $173,500 and was 8.4% higher than a
year ago. The number of existing single-family homes sold
for the year to date through September 2006 was (41.0)%
below the level from a year ago, while the number of multifamily units sold plummeted (31.9)%.
New home construction continued to trace the same
downward path. The number of single-family residential

Monthly Fiscal Highlights – October 2006

building permits issued (3-month moving average) declined
(13.6)% in August and was (34.9)% below the number issued
a year ago. The number of multi-family housing units
authorized resumed its downward trend, falling (32.8)% on a
year-over-year basis.
The Department of Corrections’ inmate population
increased by an average of 170 inmates per month from July
through September. The total population increased by 2,227
inmates from a year ago.
The number of TANF recipients increased 2.5% to 87,903 in
August and was (11.0)% below the level from August 2005.
The AHCCCS caseload increased 0.2% in October from the
prior month and was (2.4)% below the level from a year ago.
JLBC MEETING
At its October 24th meeting, the Joint Legislative Budget
Committee considered the following issues:
JLBC Staff – Approval of Index for School Facilities Board
Construction Costs – The Committee adjusted the cost-persquare-foot factors used on the School Facilities Board (SFB)
building renewal and new school construction financing by an
inflation factor of 12.2%, as requested by SFB. The 12.2%
increase was based on an average of Phoenix construction cost
indices developed by a project management firm and an
international construction consulting group. The 12.2%
increase may generate $38.9 million through FY 2011 for new
construction authorized in the next year and could also
increase Building Renewal costs by $10.5 million to $19.7
million in FY 2008.
The Committee also discussed the adequacy of prior year
inflationary adjustments and heard testimony from SFB as
well as from representatives from various school districts on
the ability of school districts to build a school within the New
School Facilities (NSF) formula amount. In addition, the
Arizona Chapter of the Arizona Institute of Architects (AIA)
requested an increase of 20% for FY 2008.
In FY 2006, SFB funded 38% of their projects over the new
construction amount (total additional funding of $20.4
million) and so far in FY 2007, SFB has funded 82% of its
projects over the funding amount (for a total additional
funding of $9.2 million). SFB can fund above the per square
foot factors if they determine that a school cannot be built
within the minimum standards under the current funding
formula. In FY 2007 SFB has funded K-6 schools at an
average of $131 per-square-foot, which is roughly equal to the
12% price adjustment approved by the Committee.
Department
of
Revenue
–
Review
Business
Reengineering/Integrated Tax System Contract Amendment –
The Committee gave an unfavorable review to the Department
of Revenue’s (DOR) amendment to its Business
Reengineering/Integrated Tax System (BRITS) contract due to
the project being over-budget and not on-time.

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Joint Legislative Budget Committee

The BRITS amendment is expected to cost $14.8 million and
would enable the department to finish converting individual
income tax collections to BRITS. The $14.8 million would
result in foregone revenue to the General Fund ($12.6
million), cities and counties ($1.7 million) and Proposition
301 education programs ($500,000). The $14.8 million
contract amendment does not cover all of the original
components of the BRITS project which included document
imaging and customer relationship management (CRM)
capabilities, whose costs could total approximately $10
million.
In addition to the amendment, the Committee also discussed
the gain-sharing agreement between the contractor and the
state. Under the agreement, the BRITS contractor receives
85% of the increased enforcement revenue attributable to
BRITS, with the state receiving the remaining 15%. The
Committee had concerns that revenues paid to the contractor
may not be attributable to the BRITS system versus other
causes like the improved Arizona economy. DOR contends
that the BRITS system has generated $182 million in new
revenues as a result of the system’s implementation.
Beyond the unfavorable review, the Committee also adopted
the following provisions: 1) DOR/GITA provide joint monthly
status reports on the project until its conclusion; 2) DOR not
pursue contract amendments for the document imaging and
“customer relationship management” components until the
individual income tax is implemented; 3) The Information
Technology Authorization Committee (ITAC) report by
December 31, 2006 to the JLBC as to improving general
procedures for ensuring that all agencies keep them apprised
of high dollar value contract changes to automation projects,
and GITA’s efforts to ensure that they provide sufficient
monitoring; 4) JLBC Staff with DOR and OSPB jointly
convene an outside panel to evaluate the BRITS baseline
calculation and provide feedback regarding the effects of
automation versus an improving economy on the increased
level of collections; and 5) The Arizona Department of
Administration (ADOA) report to the JLBC by November 30,
2006 as to steps to improve agencies’ understanding of
contract provisions.
Department of Revenue – General Fund Revenue
Enforcement Goals – The Committee gave a favorable review
to the Department of Revenue’s FY 2007 General Fund
Revenue Enforcement Goals. DOR’s overall General Fund
revenue enforcement goal for FY 2007 is $333.4 million,
which is $12.1 million, or 3.8% above their FY 2006 goal of
$321.3 million. However, the $333.4 million goal for
FY 2007 is $(57.6) million or (14.7)% below their FY 2006
actual General Fund revenue enforcement collections of
$391.1 million.
DOR’s revenue enforcement goal consists of audit revenue,
collections revenue, and accounts receivable.

Monthly Fiscal Highlights – October 2006

Arizona Department of Administration – Review
Emergency Telecommunications Services Revolving Fund
Expenditure Plan – The Committee gave a favorable review to
the Department of Administration’s (DOA) wireless portion of
its Emergency Telecommunications Services Revolving Fund
(ETSF) expenditure plan. The expenditure plan allocates $9.4
million for the development and implementation of 911
telecommunication systems. Of the $9.4 million, 1) $1.4
million will be spent on Phase I costs associated with
identifying the phone number and nearest cell phone tower of
a caller and 2) $8 million will be spent on Phase II costs,
which will enable answering facilities to be able to identify the
location of the caller.
Arizona Health Care Cost Containment System – Review
of Capitation Rate Changes – The Committee gave a favorable
review to capitation rate changes proposed by the Arizona
Health Care Cost Containment System (AHCCCS) for the
Traditional, Proposition 204, KidsCare and KidsCare Parents
as well as the Long-Term Care populations. The capitation
rate adjustments being sought by the agency were below
budgeted levels and are expected to save the General Fund
approximately $6.4 million in FY 2007.
Arizona Commission on the Arts – Review of the Arizona
Arts Endowment Fund and Private Contributions – The
Committee gave a favorable review to the Arizona Arts
Endowment Fund and Private Contributions Report submitted
by the Arizona Commission on the Arts. According to the
report, private contributions to the fund totaled $3.2 million in
CY 2005, which was $2 million less than contributions
collected in CY 2004. According to the Commission, private
contributions decreased due to staff vacancies as well as the
retirement of the previous director.
JLBC SUBCOMMITTEE ON ACTUARIAL AUDITS
On October 24, 2006 a JLBC Subcommittee on Actuarial
Audits met to hear presentations and recommendations of
actuaries contracted by JLBC Staff.
The FY 2006 budget (Laws 2005, Chapter 286) appropriated
monies to the JLBC Staff budget to contract with actuarial
firms to conduct independent reviews of state-contracted
actuarial services. The intent of this appropriation was to
provide additional insight to the Legislature regarding state
programs where costs are driven in part by actuarial
assumptions and rates.
After reviewing the use of actuarial analysis within state
government, the JLBC Staff determined that 4 programs had
the greatest potential for budgetary impact: the pension
systems, the state employee self-funded health insurance
program, Title XIX capitation rates, and the state risk
management system. Contracts to review existing actuarial
assumptions, methods, and conclusions were awarded to 4
companies:

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Joint Legislative Budget Committee

•
•
•
•

Pensions: Segal, Inc.
Employee Health Insurance: Milliman, Inc.
Title XIX: Lewis and Ellis, Inc.
Risk Management: ARMTech, Inc.

In most cases, the findings of the reports were favorable. Only
in the case of the Public Safety Personnel Retirement System
(PSPRS), which also includes the Correction Officers
Retirement Plan (CORP) and Elected Officials’ Retirement
Plan (EORP), were serious concerns raised. These concerns
were of sufficient severity that Segal recommended that
PSPRS conduct a parallel audit, or a full replication of the
valuations and experience studies for all 3 plans, using an
independent, third-party actuary. PSPRS expressed concern
with several of these findings. While they agreed with some
of the findings, they believe them to be largely immaterial in
the overall funding of the systems. Nevertheless, PSPRS
indicated that they intend to perform parallel audits to identify
the magnitude of the problem and correct any errors, as
recommended in the findings.
Findings for the Arizona State Retirement System (ASRS)
were favorable, with only minor technical recommendations.
ASRS either agreed with each recommendation or, in 2 cases,
indicated why they believe the recommendations were not
relevant, due to plan changes or other factors.
In the Arizona Department of Administration (ADOA) selfinsured employee health program, the findings were generally
favorable with some recommendations for improvements to
methodology and documentation, as well as setting a 10%
contingency reserve target in addition to the current Incurred
But Not Paid (IBNP) claims target. ADOA indicated that they
agreed with the findings, with the exception of the of the
reserve target.
The Title XIX programs also received a generally favorable
review with recommendations for improved data collection
and use, and to change administration funding from a flat
percent of program costs. The Department of Health Services
(DHS) disagreed with the latter finding.
Findings for the ADOA Risk Management System were
favorable, with only minor technical recommendations. In
ADOA’s response, they indicated that they will discuss each
of the recommendations with the actuary who conducts the
FY 2007 actuarial reports. The only recommendation with
which ADOA had significant concerns was setting caps on the
fluctuations of agency rates.
The Subcommittee requested that agencies report back to the
full Committee by March 1, 2007 on the implementation of
the recommendations found in the reports.
SUMMARY OF RECENT AGENCY REPORTS
Attorney General – Report on Incarceration Costs Offset by
Monetary Judgments – Pursuant to A.R.S. § 31-238, the
Office of the Attorney General is required to report semi-

Monthly Fiscal Highlights – October 2006

annually on the use of monetary judgments awarded to
inmates to offset the costs of incarceration. According to the
statute, if an inmate obtains a monetary judgment against the
state, and the state offsets the cost of incarceration from the
total amount of the judgment, 70% of the monies set off are
transferred to the General Fund and 30% are transferred to the
Attorney General’s office to cover the cost of litigation. From
January 1, 2006 to June 30, 2006, the state did not exercise its
right to offset the costs of incarcerating inmates under this
statute, since no monetary judgments were awarded during
this time period. The agency does, however, indicate that it
believes the existing statute results in reduced negotiated
settlement amounts, which also discourages the filing of
frivolous lawsuits.
Arizona Department of Corrections – Report on
Expenditures – Pursuant to Laws 2006, Chapter 344 (General
Appropriation Act), the Arizona Department of Corrections
(ADC) is required to report on the monthly and year-to-date
expenditures for the current and prior fiscal year. The report
is also to include potential shortfalls, any estimated surpluses
to offset the shortfalls, and a plan for eliminating the shortfall.
Based on the report, the department is estimating a FY 2007
shortfall exceeding $(21.3) million. The budget line items
where the department is estimating expenditures above or
below the appropriated amounts are as follows:
•
•
•
•
•

Correctional Officer Personal Services - $(10.1) million
Health Care Personal Services - $7.7 million
All-Other Personal Services - $4.7 million
Overtime & Compensatory Time - $(27.2) million
Employee Related Expenditures - $3.6 million

Department of Economic Security – Report on Annual Child
Care Expenditures – A.R.S. § 46-810 requires the Department
of Economic Security (DES) to provide an annual child care
report to the Committee. The FY 2006 report shows that the
average number of children served increased to 44,538, or
3.3% above FY 2005; the number of families served increased
by 3.6%. Across categories, the number of children served in
the Low Income Working category increased 8.8% and CPS
related placements increased by 13.7%, while the number of
children receiving transitional child care decreased by (6.9)%
and the number of TANF-related children decreased by
(14.7)%.
The amount spent by DES on child care subsidies increased to
$165,339,198, or 5.4% above FY 2005. The average monthly
subsidy paid per child increased $6.19, or 2.0%, to $309.40.
This represents a caseload shift to more expensive placements,
rather than an increase in rates, as most providers have rates
near or at the maximum DES reimbursement. There will be a
legislatively-authorized
provider
rate
increase
of
approximately 4-5% in FY 2007. The total amount of copayments increased 9.1% from FY 2005 to $14,345,023.
Caseload growth was significantly lower this year than last, as
last year’s growth rates reflected the end of the child care
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Joint Legislative Budget Committee

Monthly Fiscal Highlights – October 2006

waitlist. No waitlist was implemented for FY 2006. The
department reports that no waitlist is expected in FY 2007.
Department of Economic Security – Semi-Annual Report on
CPS Financial and Program Accountability – Pursuant to
A.R.S. § 8-818, the Department of Economic Security (DES)
has submitted its semi-annual financial and program
accountability report.
The report includes 7 measures
specifically identified in the Special Session legislation as well
as 12 other measures requested by the JLBC. The highlights
of this report, covering the last 6 months of FY 2006, are
summarized below.
•

•

•

•

•

•

The Child Protective Services (CPS) Training Academy
enrolled 196 new case managers and graduated 191, while
186 remain in the 22-week program. This represents a
6% increase in enrollment over the previous 6 months.
This increase is due, in part, to newly authorized case
manager positions in the FY 2006 budget.
As of June 2006, case manager caseloads were at or close
to the department’s goals in 2 of the 3 categories, based
on authorized positions. Investigations were at 9.5 (goal:
10), in-home cases were at 19.5 (goal: 19), and out-ofhome cases were at 21 (goal: 16). These caseload ratios
are nearly unchanged from the previous 6 months. The
number of filled positions was 722 of 979 authorized and
funded positions. When considering only filled positions,
caseloads are considerably higher (investigations: 15, inhome: 29.8, out-of-home: 25.1). These caseload numbers
are slightly better than those in the previous 6 months
(investigations: 15, in-home: 32.7, out-of-home: 27.5).
DES reports that annualized case manager turnover
during the last 6 months of FY 2006 was at 21.4%, with
102 case managers leaving the Division of Children,
Youth and Families (DCYF). The turnover rate varies
dramatically by district, from a high of 42.1% in District 4
to a low of 6.3% in the CPS Hotline. For the previous 6month period, annualized turnover was at 25.4%, losing
113 employees. The report also shows that 182 new case
managers were hired over the same time period.
The percent of CPS dependency cases denied or
dismissed in the last 6 months fell slightly from 0.3% to
0.1%, while the percent of Office of Administrative
Hearings decisions affirming CPS case findings fell from
83.3% to 82.6%. The percent of complaints validated by
the Ombudsman also fell from 6.6% to 3.0% (44 of 1,464
complaints).
The number of children in out-of-home family placements
fell slightly from 7,483 in December to 7,407 in June,
while the number of congregate care placements declined
from 1,804 to 1,797. DES also reports the number of
children aged 0-3 in shelter care, the number of children
aged 0-6 in group homes and the number of children in
shelter care for more than 21 days. The accuracy of this
data is questionable as the caseload numbers changed
dramatically for both past and current caseloads compared
to the previous semi-annual report.
DES reports that they have begun to spend federal monies
under the Title IV-E waiver for intensive family

•

reunification and continuing services. In the last quarter
of FY 2006, DES expended $2,550 for services. They
estimate expenditures of $975,600 for the first half of
FY 2007.
At its September 28, 2005 meeting, the Committee asked
DES to report on the participation of faith-based
organizations in providing services. DES reports that
they are planning a Faith Based Summit in association
with private and other public interests. They expect the
summit to eventually result in the creation of a statewide
program similar to Colorado’s Project 127, which
“recruits churches to support Colorado’s child welfare
department in meeting the needs of foster children.”

Department of Economic Security – Report on JOBS
Expenditure Detail and Placement Data – Pursuant to a
FY 2006 General Appropriation Act footnote, the Department
of Economic Security (DES) is reporting on its education and
training activities in the Job Opportunities and Basic Skills
(JOBS) program for FY 2006. The footnote stated it was the
intent of the Legislature that DES use $4.5 million of its $22.6
million JOBS appropriation to contract with education and
training entities to assist JOBS clients in obtaining jobs paying
at least $10 per hour. DES reports that while it did expend
$4.7 million on education and training services, the average
wage was only $8.19 per hour (an increase of $0.18 from
FY 2005). DES reports the following difficulties in meeting
the legislative intent:
•

•

Demand by JOBS clients for services leading to higher
paying placements is low. DES reports that 45% of clients
do not have a high school diploma or G.E.D. Most prefer
immediate employment to long-term education or training
goals.
The federal government requires the state to meet specific
work participation rates. Some training activities likely to
produce wages above $10 per hour do not count towards
the work participation rate.

The department did provide information on placements and
expenditures for FY 2006. It is unclear, however, to what
extent these monies were specifically intended for training
entities to help clients get $10-per-hour jobs. According to the
agency:
•
•
•
•
•

$3.4 million was expended for education services.
$1.2 million was expended for training related expenses.
$124,900 was expended for assessment services to clients.
4,676 clients received education and training services.
22,701 clients gained employment at an average hourly
wage of $8.19.

DES also recommends eliminating this reporting requirement
with the impending privatization of the JOBS program.
Department of Economic Security – Report on Participating
Child Care Programs Operated in Public School Facilities –
Pursuant to a FY 2007 General Appropriation Act footnote,
the Department of Economic Security (DES) submitted details
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Joint Legislative Budget Committee

Monthly Fiscal Highlights – October 2006

for each child care program that receives a reimbursement
from DES and is operated out of a public school facility. DES
reported results of a survey administered to child care
providers in the program. With 1,072 of the 1,409 programs
responding, DES found that 381 centers reported operating out
of public schools. The report did not list details for individual
programs, but rather reported summary data. Only 145 of the
381 centers reported their rent costs. The median annual rent
cost was $6,347, and the range was between $192 and
$110,400.
Department of Economic Security – Report on Adequacy
and Appropriateness of Title XIX Reimbursement Rates for
Developmental Disabilities Programs – Pursuant to A.R.S. §
36-2959 the Department of Economic Security (DES) has
provided its annual study of the adequacy and appropriateness
of Title XIX Medicaid reimbursement rates to service
providers in the developmentally disabled (DD) program. The
firm DES hired to conduct the study states that the adopted
rates are adequate and appropriate for FY 2007. The
Division’s inflationary changes in FY 2006 and FY 2007 total
5.6%. The report indicates that this is slightly below what the
increase would have been if the Division had used the Home
Health Agency Market Basket inflationary changes, which
JLBC Staff estimates at 6.0%. If it is the desire to keep the
benchmark rates current with inflation for FY 2008, the
contracted firm recommends that the Division make a 3.2%
adjustment to the benchmark rates to reflect inflation in
FY 2008.
Department of Environmental Quality – Report on Progress
of Water Quality Assurance Revolving Fund Sites – Pursuant
to a General Appropriation Act footnote, the Arizona
Department of Environmental Quality (ADEQ) is required to
report to the JLBC by October 2, 2006 detailing the
remediation status of each site listed on the Water Quality
Assurance Revolving Fund (WQARF) registry at the end of
FY 2006, and expected progress in FY 2007 and FY 2008.
The WQARF Program is similar to the federal Superfund
program in that it is designed to monitor, contain, and
remediate contaminated groundwater at specified sites.
There are 10 steps in the WQARF process, beginning with a
preliminary investigation, continuing through various studies
and remediation once a site has been placed on the registry,
and ending with the delisting of a site once the investigation or
cleanup has been completed.

The report contained a listing of 33 of the 35 WQARF sites on
the registry, omitting 2 sites. Of the 33 reported sites, 23 were
listed in the Early Response Action phase at least partially
during FY 2006.
Three sites had advanced to the
Implementation of Remedy Phase or further during this same
period.
By the end of FY 2008, the department anticipates 1 site will
be delisted, 28 sites will advance through at least one phase of
the WQARF process, and 4 sites are anticipated to remain in
the same phase through the end of FY 2008.
A separate General Appropriation Act footnote requires
ADEQ to submit a report annually by September 1 to the
JLBC on the progress of the WQARF Program. This report
provides additional details on the various steps involved in the
WQARF program, the annual budget, and remediation work
accomplished during the year.
Governor’s Council on Workforce Policy – Report on
FY 2006 Annual Report – Pursuant to A.R.S. § 41-1542, the
Governor’s Council on Workforce Policy (GCWP) submitted
its annual report to the Committee as well as the Governor, the
President of the Senate and the Speaker of the House. Laws
2006, Chapter 331 expands the reporting requirement to
include spending on state workforce programs and state
specific performance measures, and added the Committee as a
recipient. The GCWP only reported spending by agency and
did not provide a statewide spending total. The implied total
workforce spending for FY 2006 was $657 million. The
single largest component of this amount is $286 million for
Unemployment Insurance benefits. Of that amount $258
million was for benefits. Among the community colleges,
Maricopa County has the largest program, spending $189
million in FY 2006. Pima County had the second highest
amount at $25 million. Other large programs in FY 2006
include the JOBS program, which provides employment and
training services to TANF recipients ($33 million), Vocational
Rehabilitation ($57 million), and the Workforce Investment
Act program ($39 million). The Job Training program, which
provides incentives to companies to provide training
programs, is expected to spend $21 million in FY 2007. Total
FY 2006 state workforce development spending was $202
million.
Table 5 shows the total reported funding for FY 2005 –
FY 2007 by agency.
Table 6 on the following page
summarizes FY 2006 funding by source and agency.

Table 5

FY 2005 – FY 2007 Workforce Development Funding
State Organization
Department of Economic Security
Department of Education
Department of Commerce
Community Colleges

FY 2005
$511,979,615
N/A2/
10,645,575
N/A2/

FY 2006
$431,750,601
15,151,473
10,164,575
203,467,878

FY 2007 1/
N/A2/
$14,404,900
22,002,400
264,393,876

____________
1/ Estimated.
2/ These amounts were not reported by the agency.

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Joint Legislative Budget Committee

Monthly Fiscal Highlights – October 2006

Table 6

FY 2006 Workforce Development Funding
State Organization
Department of Economic Security 1/
Department of Education 1/
Department of Commerce
Community Colleges
Total

Total Funds
$431,750,601
15,151,473
6,832,299
203,467,878
$657,202,181

State
$9,242,349
4,454,689
6,207,890
181,608,266
$201,513,194

Federal
$160,068,208
10,696,784
624,339
4,530,063
$175,919,394

Other
$262,440,044
17,329,549
$279,769,593

____________
1/ Estimated.

The report includes federally-required performance measures,
but does not include the new state specific performance
measures this year. The GCWP reports that these measures
will be included in the FY 2007 annual report. The report also
excludes the original reporting requirements included in
A.R.S. § 41-1542, such as minimum qualifying wage
information and performance measures on training individuals
and recruiting businesses.
Department of Juvenile Corrections – Consultant’s Report
on CRIPA Compliance – As a result of 3 youth suicides in
FY 2003, DJC was investigated by the U.S. Department of
Justice (DOJ) for violations of the Civil Rights of
Institutionalized Persons Act (CRIPA). On September 15,
2004, the Governor signed a Memorandum of Agreement that
requires the DJC to improve certain programs and facilities,
including suicide prevention, special education, medical care,
and mental health care. As a contingency of this agreement,
the Department of Justice requires a 4-person Consultants
Committee to complete CRIPA compliance evaluations every
6 months until the 3-year agreement period ends in September,
2007. This Committee consists of subject matter experts
chosen by the involved parties and includes mostly academic
scholars. To date, the State of Arizona has provided
$11,349,500 in CRIPA-related funding, of which $10,091,000
is ongoing monies.
In the fourth CRIPA Consultant’s Report, dated September 15,
2006, the majority of previously identified deficiencies at the
Department of Juvenile Corrections have now been labeled as
in “Substantial Compliance,” indicating that further
improvements are not currently required. Remaining issues
identified as in “Partial Compliance” relate mainly to internal
operations and staffing issues, such as vacancies, retention and
recruiting. There are no issues that are in “Non-Compliance.”
At this time, the consultants have identified no additional
items that require further state funding in FY 2008.
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 9 ongoing projects, a decrease of 1 from
the July report. This is the result of finalizing the following
project:

•

Medicare Part B: The Department of Health Services
finalized its claims for Medicare Part A and Part B
revenues for the period covering October 1, 2003 through
December 31, 2005 at Arizona State Hospital. The final
amount of $316,900 was close to the $335,000 estimated
in June.

In addition to that project there were two other projects with
changes since the last report:
•

•

Targeted Case Management:
The Department of
Economic Security reports that no additional revenue will
be available for this child welfare-related case
management reimbursement for FY 2006.
Traumatic Brain Injury Waiver: AHCCCS reports that
the vendor proposing to create a new waiver for those
with traumatic brain injury that would allow for a more
expansive scope of services has decided not to pursue this
after further review.

Department of Public Safety/Arizona Department of
Corrections – Report on Take Home Vehicles – Pursuant to
Laws 2006, Chapter 344 (General Appropriation Act), the
Arizona Department of Corrections (ADC) and Department of
Public Safety (DPS) are required to report by October 1, 2006
on department policy and allocations of take-home vehicles
that are owned by each department and that do not remain on
department property at the end of the work day.
Currently, DPS maintains approximately 1,936 vehicles that
are assigned to 1 of 8 different categories based on their
intended use. Of the 8 classifications, Category 1 includes
vehicles assigned to personnel on a 24-hour basis, allowing
the individuals to take-home the vehicles overnight. Category
1 vehicles are also vehicles used by other agency personnel
assigned to inter-agency task forces. Vehicles assigned to this
category currently total 1,262, or 65.2% of all department
vehicles. The remaining 674 vehicles the department operates
are not take-home vehicles. As a comparison, in FY 2006
Category 1 vehicles totaled 1,120, or 61.7% of all department
vehicles.
A portion of the additional 142 Category 1 vehicles in FY 2007
may be attributed to DPS now accounting for vehicles provided
to other agency personnel assigned to inter-agency task forces
and vehicles allocated to currently vacant positions. Table 7 on
the following page identifies the number of employees/vehicles
by division who are allocated a Category 1 vehicle.
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Joint Legislative Budget Committee

Monthly Fiscal Highlights – October 2006

With regard to ADC, their fleet consists of 1,925 vehicles. Of
this amount, 71 vehicles (increased from 68 vehicles in
FY 2006) are assigned to employees on a 24-hour basis and 48
vehicles are stationed off department property, but on other
law enforcement property, at the end of the work day. The
remaining vehicles are secured on department property.
ADC’s policy indicates the director must authorize access to
take home vehicles and those vehicles are assigned to specific
positions located at various facilities. The majority of vehicles
are assigned to Wardens (7), Deputy Wardens (51) and Majors
(7).
Table 7

DPS Eligible Take Home Vehicles
Division
Director’s Office
Highway Patrol - Aviation
Highway Patrol Bureau
Criminal Investigations
Agency Support
Criminal Justice Support
Total

FTE Positions/Vehicles
FY 2006
FY 2007
18
26
15
12
756
851
265
320
42
33
24
20
1,120
1,262

Arizona Department of Water Resources – Report on
Interstate Water Banking – Pursuant to A.R.S. § 45-2473, the
Arizona Department of Water Resources has submitted a
report accounting for all monies received through the
Interstate Water Banking Agreement with Nevada and for all
disbursements made with those monies. In addition, the report
also includes monies used to purchase or store water or
otherwise fulfill contractual obligations, prepaid monies to the
Central Arizona Project, monies received that are placed in an
account with the State Treasurer, and any contract that
obligates the Arizona Water Banking Authority (AWBA) to
pay or disburse these monies to any other entity, including the
Central Arizona Project.
In 2001, the AWBA entered into an agreement with the
Southern Nevada Water Authority (SNWA) to use its best
efforts to store 1.25 million acre-feet of long-term water
storage credits for future use by SNWA. In 2004, the
agreement was amended and required SNWA to pay AWBA
$230 million for delivery and storage of the water. Equal
payments of $23 million per year from Nevada to the AWBA
will begin in 2009 and continue through 2018.
In the 2004 agreement, SNWA also agreed to pay an
additional $100 million to AWBA to guarantee the availability
of the 1.25 million credits for Nevada. The $100 million may
be used to purchase water prior to receiving the $230 million.
If the additional $100 million is not needed to guarantee the
credits in the short term, Arizona may use this amount for its
own purposes, subject to Legislative appropriation. Any
amount used from the $100 million to purchase storage credits
will be repaid, with interest.

been used to store water for Nevada. By December 2006, the
AWBA expects to expend another $28 million to store
additional water. As noted above, this $65 million will be
repaid with interest.
AWBA estimates that a total of 423,000 acre feet of water, or
34% of the contractual amount, will have been stored on
behalf of SNWA by the end of December 2006.
OTHER ISSUES
Safe and Stable Families Program – The Promoting Safe
and Stable Families Program is a federal program that helps
states provide family support, preservation and reunification
services and adoption services. The program was recently
reauthorized (P.L. 109-288) and in that reauthorization new
monies were added to the Federal Title IV-B, Part 2
appropriation. The new monies, $40 million nationwide, are
intended to support monthly caseworker visits to foster
children and to provide grants for programs to improve
outcomes
for
children
whose
parents
abuse
methamphetamines and other substances.
In FFY 2006, the full $40 million will be used for caseworker
visits and the appropriated monies will available for use
through FFY 2009. In FFY 2007, all monies will be use to
fund the methamphetamine program grants. Only $5 million
in FFY 2008 and $10 million in FFY 2009 are designated for
caseworker visits, with the remaining amounts for the
methamphetamine program grants. In FFY 2010 and 2011,
the amount is split at $20 million for each program.
For FFY 2006, the Department of Economic Security (DES)
received an additional $940,000 in Title IV-B, Part 2 monies
for Arizona’s share of this program for caseworker visits to
foster children. That amount is available for use through FFY
2009. In FFY 2007, all new monies will be used for
competitive methamphetamine program grants, making it
impossible to say how much the state might receive; the grants
range, however, from $500,000 to $1 million.
In addition to the new monies, the reauthorization included a
new federal standard that 90% of foster children receive a
monthly visit from their caseworker. This standard must be
met by October 1, 2011. Currently, DES reports 65% of foster
children, or 6,400 out of 9,990 children, receive a monthly
visit. They also report that this number may be understated
due to missing or incorrect data in the tracking system.
K-12 Building Renewal Lawsuit – On October 3, 2006, the
Arizona Superior Court issued a summary judgment in favor
of the state in the K-12 Building Renewal lawsuit. The suit,
which was originally filed by 4 school districts in October
1999, alleged that the state’s underfunding of the statutory
Building Renewal formula was unconstitutional as it resulted
in districts being unable to meet the minimum facility
guidelines.

As of October 2006, AWBA has received the $100 million
from SNWA. Of that amount, approximately $37 million has
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Joint Legislative Budget Committee

Monthly Fiscal Highlights – October 2006

Building Renewal funding provides school districts with
monies to maintain the adequacy of existing school facilities.
Building Renewal monies are for major renovations and
repairs, system upgrades to extend the life of a building and
infrastructure costs on academic buildings owned by a district.
The state began providing school districts with Building
Renewal funding in FY 1999. Except for FY 2001, the
formula has never been fully funded.
The Court found that the school districts had not made an
effort to obtain all sources of state funding to maintain their
facilities at the minimum guidelines, and therefore, their claim
was premature. Other sources of funding available to school
districts include Capital Outlay Revenue Limit (CORL)
monies provided by the Arizona Department of Education and
Emergency Deficiencies Correction funds provided by the
School Facilities Board (SFB). The Court noted that if the
plaintiff school districts are denied Emergency Deficiencies
Correction monies when they have used all other available
funding, their claim may be reinstated.
Sierra Vista Unified School District recently applied to SFB
for emergency funding for several items. The board has not
made a decision as to whether or not these items qualify for
emergency funds.
Tribal Contributions – Pursuant to A.R.S. § 5-601.02, the
Arizona Department of Gaming submitted its report on tribal
contributions for FY 2006. The Tribal-State gaming compacts
require the gaming tribes in Arizona to make contributions to
the state on a quarterly basis.
In FY 2006, total tribal contributions were $92,145,300 based
on $1,790,475,500 in aggregate gross gaming revenues. Per
the Tribal-State gaming compacts, 88% of the tribes’ annual
contributions are paid to the Arizona Benefits Fund, which is
administered by the Department of Gaming. Monies in the
Arizona Benefits Fund are distributed as follows:
•
•

2% - Department of Gaming for the prevention and
treatment of problem gambling ($1.6 million).
9% or $8 million (whichever is greater) –Department of
Gaming for regulation of the state’s tribal gaming

•
•
•
•

industry ($8 million).
56% of the remaining monies – Instructional
Improvement Fund to be used for education ($40 million).
28% of the remaining monies – Trauma and Emergency
Services Fund to be used for state healthcare programs
($20 million).
8% of the remaining monies – Arizona Wildlife
Conservation Fund to be used by the Arizona Game and
Fish Department ($5.7 million).
8% of the remaining monies – Tourism Fund to be used
by the Department of Tourism ($5.7 million).

In addition to the monies contributed to the Arizona Benefits
Fund, the tribes allocate 12% of their total annual
contributions to Arizona cities, towns and counties. These
monies are used to provide government services that benefit
the general public, including public safety, mitigating the
impacts of gaming, and promoting commerce and economic
development. In FY 2006, the aggregate amount contributed
by all gaming tribes to cities, towns, and counties was
$11,057,400.
Overall, FY 2006 tribal contributions grew by 24% over the
FY 2005 total. The increase is attributed to strong state
population growth, a robust economy, tourism, and the
introduction and expansion of gaming and non-gaming
amenities such as hotels, spas and golf courses at existing
facilities. According to gaming industry reports, in calendar
year 2005 Arizona was the third highest grossing tribal
gaming state after California and Connecticut.
Looking forward, the Arizona Department of Gaming expects
strong tribal contributions growth rates in future years on
account of strong visitation figures and tribal gaming
expansion. In the first quarter of FY 2007, another gaming
facility opened and by FY 2008 the Navajo Nation is expected
to open 3 gaming facilities in Arizona. The Tribal-State
gaming compacts also stipulate an automatic across-the-board
increase in tribal gaming device allocations every five years
based on state population growth, which will take effect in
February 2008. At present, the Department of Gaming
predicts tribal contribution growth rates of 25% in FY 2007,
19% in FY 2008 and 19% in FY 2009.

Table 8

FY 2006 Tribal Contributions
Recipient
State Govt - Arizona Benefits Fund
Local Govt Contribution
Total
Arizona Benefits Fund Distribution
Dept. of Gaming- Regulation
Dept. of Gaming- Problem Gambling
Instructional Improvement Fund
Trauma and Emergency Services Fund
Arizona Wildlife Conservation Fund
Tourism Fund
Total

Distribution Formula
88% of total
12% of total

$8M or 9%, whichever is greater
2% of original state amount
56% of remaining monies
28% of remaining monies
8% of remaining monies
8% of remaining monies

FY 2006 Actual
$81,087,900
11,057,400
$92,145,300

$ 8,000,000
1,621,800
40,021,000
20,010,500
5,717,300
5,717,300
$81,087,900
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Joint Legislative Budget Committee

FY 2007 Revenue and Ending Balance Projection – Laws
2006, Chapter 344 requires the JLBC Staff to report to the
Committee by October 15, 2006 as to whether the estimated
FY 2007 General Fund revenue and ending balance are
expected to change by more than $50 million from budgeted
projections. In a memo to Committee members, JLBC Staff
reported that it did anticipate that FY 2007 revenues and the
FY 2007 ending balance will exceed the budget by more than
$50 million. The report noted three main factors JLBC Staff
anticipated influencing the magnitude of the increase:
•

FY 2006 Revenue Performance: Preliminary actual
revenue collections exceeded the General Fund revenue
forecast enacted in June of $9,153.7 million by
approximately $126 million. This amount will carry
forward into FY 2007.

•

FY 2007 Revenues: The enacted FY 2007 budget was
based on total revenues of $9,478.0 million, which
assumed a growth rate of 7.7% in permanent on-going
revenues. Based on higher than expected FY 2006
collections, the enacted budget forecast amount results in
a growth rate of 6.4%.
Based on preliminary data, first quarter revenues are up
approximately 9.0% above FY 2006 collections,
compared to a budgeted growth rate of 8.2% for the
period. The budgeted growth rate for FY 2007 assumes
that growth will be higher in the first quarter of the year,
then decline each quarter, ending the fiscal year with a
total growth rate of 6.4% compared to prior year actual
collections.
The growth for the first quarter translates into revenues
which are about $19 million above the forecast.
Adjusting for approximately $13 million in individual
income tax estimated payments, which we believe will
ultimately be returned to the taxpayers as refunds in the
upcoming tax season, revenues for the first quarter are
about $6 million over the forecast. Extrapolating this
result to a full year would result in surplus revenue of $24
million.
The JLBC’s four sector consensus model, based on the
September Finance Advisory Committee forecast, the
base and low University of Arizona econometric model,
and the JLBC Staff forecast, provides a forecast of 8.0%
growth for FY 2007. With this growth rate, year-end
revenues would exceed the forecast by $165 million.

Monthly Fiscal Highlights – October 2006

Department of Health Services also do to lower than
anticipated caseloads. These potential surpluses could be
offset by a shortfall of $(19) million in the Child Services
programs in the Department of Economic Security (DES)
due to changes in federal law, as well as higher than
expected caseloads. Note that DES is not reporting a
department-wide shortfall for FY 2007. Also, the
Department of Corrections has indicated that overtime
and compensatory time increases could result in a
shortfall of $(21) million.
The total impact of the revenue changes noted above is
currently estimated at $150 million to $291 million above the
FY 2007 ending balance of $174 million in the enacted
budget. This estimate will be subject to change during the
remainder of the fiscal year. The above amounts include no
estimates for potential supplementals.
School Districts’ Aggregate Expenditure Limit – Pursuant
to A.R.S. § 15-911, Subsection B, the State Board of
Education reported on October 25, 2006 that currently
budgeted expenditures for all school districts collectively
statewide for FY 2007 exceed by $7,984,500 the aggregate
expenditure limitation (AEL) defined in Article IX, Section
21, subsection (4) of the Constitution of Arizona. The AEL,
which was established in the State Constitution in 1980, limits
growth in statewide K-12 expenditures to the combined rate of
growth for enrollment and inflation, with exceptions for items
like bonding and Proposition 301 monies (the latter were
exempted from the AEL through voter enactment of
Proposition 104 in November 2002). The AEL apparently is
being exceeded for FY 2007 due to increases in per pupil
funding for the year that are above and beyond amounts
required for enrollment growth and inflation (the 2 factors
involved in computing the AEL). These increases include the
additional $100 million in inflation funding and $80 million in
new Kindergarten weight funding that were appropriated for
FY 2007.
The State Constitution permits the Legislature to authorize K12 expenditures above the AEL for the current year with a
2/3rds majority vote on or before March 1, 2007 (Article IX,
Section 21, Subsection 3). Otherwise on or before March 5,
2007, the State Board of Education is required to instruct each
school district to reduce its expenditures on a pro rata basis in
order to get statewide K-12 spending below the AEL (A.R.S. §
15-911.E).

As result, it is estimated that FY 2007 revenues could
exceed the forecast by $24 million to $165 million.
•

FY 2007 Spending: The FY 2007 ending balance will
also depend on whether or not spending projections are
met. Some agencies are reporting potential shortfalls, but
these may be made up by surpluses elsewhere. Potential
surpluses include $20 to $30 million in AHCCCS due to
caseloads below forecast, and as high as $7 million in the
Page 12

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

FY 2007 YTD (Three Months)

Change From
September 2005

Actual
September 2006

Percent

Amount

Change from
Revised Forecast
Percent

Amount

September 2006

Actual
September 2006

Revised Forecast

Percent

Amount

Percent

Amount

Taxes
Sales and Use

379,889,665

$36,105,106

Income - Individual

355,502,457

32,543,736

- Corporate

191,161,918

20,781,530

Property
Luxury

46,789

(45,485)

10.5 %

$1,123,816,353

$98,205,563

9.6 %

$16,657,453

10.1

(7,913,643)

(2.2)

871,975,435

61,363,526

7.6

(22,701,565)

12.2

18,136,518

10.5

262,212,926

33,124,741

14.5

16,094,026

(49.3)

$11,880,265

46,789

3.2 %

--

438,544

(21,133)

(51.3)

(591,167)

(3.5)

5,517,151

(247,515)

(4.3)

(107,849)

(1.9)

16,283,833

(7,665,509)

(25.9)

(8,929,331)

(28.9)

104,574,281

(4,643,390)

(4.3)

(6,725,719)

(6.0)

Estate

40,505

(1,281,717)

(96.9)

40,505

--

145,219

(8,785,450)

(98.4)

(54,781)

(27.4)

Other Taxes

38,771

(1,882)

(4.6)

(26,354)

(40.5)

152,818

683

0.4

(42,557)

(21.8)

$2,379,599,409

$179,503,825

Sub-Total Taxes

$954,167,925

$80,188,264

9.2 %

$13,126,900

1.4 %

1.6

6.5

(461,456)

21,970,669

Insurance Premium

259,285

(4.6)

1.5 %
(2.5)

8.2 %

$2,174,234

0.1 %

Other Revenue
Lottery

3,321,300

929,700

38.9

(1,078,700)

(24.5)

6,694,200

1,836,400

37.8

(1,205,800)

License, Fees and Permits

5,041,510

1,716,411

51.6

1,521,410

43.2

12,499,451

4,464,787

55.6

3,073,351

32.6

Interest

7,571,444

3,878,597

105.0

471,444

6.6

18,275,055

10,651,268

139.7

6,075,055

49.8

Sales and Services

4,330,332

(1,730,014)

(28.5)

(6.7)

9,901,048

(3,421,762)

(25.7)

(1,489,652)

(13.1)

Other Miscellaneous

2,634,229

1,052,992

66.6

6,034,589

2,290,405

61.2

3,143,589

108.7

Disproportionate Share
Transfers and Reimbursements
Sub-Total Other Revenue
TOTAL BASE REVENUE

0
600,699

0
(2,473,916)

-(80.5)

(312,568)
1,655,829
0
(99,301)

169.2
--

0

(14.2)

797,182

0
(2,602,953)

-(76.6)

0
(2,302,818)

(15.3)

-(74.3)

23,499,514

3,373,770

16.8 %

2,158,114

10.1 %

54,201,525

13,218,145

32.3 %

7,293,725

15.5 %

$977,667,439

$83,562,034

9.3 %

$15,285,014

1.6 %

$2,433,800,934

$192,721,970

8.6 %

$9,467,959

0.4 %

One-Time Revenue
Urban Revenue Sharing

(45,935,888)

(10,500,144)

29.6

0

0.0

(137,807,664)

(31,500,432)

29.6

0

0.0

'05 Budget Balancing Transfers

0

0

--

0

--

0

0

--

0

--

'07 Disproportionate Share

0

0

--

0

--

0

0

--

0

--

'06 In-Lieu Transfer

0

0

--

0

--

0

0

--

0

--

29.6 %

0

0.0 %

29.6 %

0

0.0 %

8.5 %

$15,285,014

1.7 %

7.6 %

$9,467,959

0.4 %

Sub-Total Transfers In
TOTAL REVENUE

(45,935,888)
$931,731,551

(10,500,144)
$73,061,890

(137,807,664)
$2,295,993,270

(31,500,432)
$161,221,538

Table 9