ARIZONA

MONTHLY FISCAL HIGHLIGHTS
November 2006
October General Fund revenue collections were $730.3
million, or 20.7% above October 2005. This amount was
$88.2 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
$97.7 million above the forecast. (See Table 3 on page 2.)
Of the major tax categories, October sales tax grew at a rate of
9.4%, individual income collections increased 24.7%, and
corporate revenues were 88.7% above last year. Prior to
October, collections in the first quarter of FY 2007 increased
7.6% over last year, a much slower level of growth compared
to the overall growth in FY 2006 of 16.5%. With the surge in
October revenues, however, year-to-date collections are now
10.5% above last year. (See Table 6 on page 11 for details.)
The JLBC and the JCCR met on November 15th (pages 4 – 6).
Highlights included:
•

The JLBC favorably reviewed a report from ASU on the
operational and capital plans for the Downtown Phoenix
Campus. In FY 2007, 2,766 students are enrolled in 1 or
more courses at the campus. BY 2014, ASU expects this

•

•

number to increase to 15,000. To finance expansion of the
campus, the City of Phoenix issued $223 million in bonds,
while ASU contributed $20 million from its own budget.
At the time of the meeting, ASU did not provide details on
specific capital costs associated with the Schools of
Journalism or Nursing, or its long-term plan for student
housing. Regarding student housing, ASU expects the
private sector to contribute $135 million for the
development of housing units.
The JLBC favorably reviewed the Department of
Commerce agreement with Science Foundation Arizona to
manage $35 million from the 21st Century Fund. Major
spending items include $23 million for research and
development grants, $2 million to convert research into
startup companies, and $7.5 million to promote science
education at Arizona’s public schools and universities.
The JCCR favorably reviewed 2 university projects that
will be built through a public-private partnership. NAU
has partnered with a private company to build a 150 room
on-campus hotel, while ASU has entered into an
agreement with a private firm to develop student housing
for over 3,500 students.

Table of Contents
Page #

Page #

October Revenues ....................................................................2
Recent Economic Indicators ....................................................2

November 15 JCCR Meeting Summary (cont’d)
- UA – Law Commons Bond Project....................................... 6
- UA – Athletics Facilities Bond Projects................................ 6

November 15 JLBC Meeting Summary
- ADOA – Mileage and Travel Reimbursement ......................4
- ADOA – Statewide Telecommunications Contract ...............4
- ASU – Downtown Phoenix Campus......................................4
- ABOR – Enrollment Accounting Policies .............................4
- ADE – Information Technology Implementation Plan ..........5
- JLBC Staff – Condominium and Planned Community
Administrative Hearing Filing Fees ..................................5
- Land Dept. – Radio System Updgrades .................................5
- Commerce – 21st Century Fund Expenditure Plan.................5
November 15 JCCR Meeting Summary
- ADOT – Capitol Mall Modular Buildings.............................5
- SFB – New Construction Report and Litigation Account......5
- SFB – FY 2007 Building Renewal Distribution ....................6
- Lottery – FY 2007 Building Renewal Allocation ..................6
- Parks Board – State Lake Improvement Fund Projects .........6
- NAU – Hotel and Conference Center Indirect Financing ......6
- ASU – Honors College and South Campus Academic
Village Bond Projects .......................................................6

Summary of Recent Agency Reports
- ADOA – Alternative Fuel Vehicle Use................................. 7
- ADOA – Projected FY 2007 Utilities Funding Shortfall ...... 7
- AHCCCS – Hospital Inpatient Outlier Claims...................... 7
- Community Colleges – Annual Report ................................. 7
- Community Colleges – Dual Enrollment .............................. 7
- Corporation Commission – Corporations Division Filings ... 8
- ADC – Monthly Expenditures Report................................... 8
- ADC – Monthly Bed Plan Update......................................... 8
- ADE – Budget Status Report................................................. 8
- DES – Arizona Works Pilot Program.................................... 8
- DES – Projected FY 2007 Shortfall ...................................... 9
- Commission of Indian Affairs – Indian Town Hall Fund...... 9
- City of Phoenix – Convention Center Expansion.................. 9
- DPS – Staffing Levels ........................................................... 9
- ABOR – Credit Hour Threshold FTE Student Counts ........ 10
- SFB – ASDB Capital Costs................................................. 10
- ADOT – MVD Wait Times................................................. 10

This report has been prepared for the Arizona Legislature by the Joint Legislative Budget Committee Staff on November 30, 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

The Monthly Fiscal Highlights also include a summary of
recent statutory reports to JLBC (pages 6 – 10). Of particular
note, 3 additional state agencies are now projecting a FY 2007
General Fund budget shortfall.
•
•
•

The Arizona Department of Administration anticipates a
$1.7 million shortfall associated with higher than
budgeted utility costs (page 7).
The Arizona Department of Education projects a $9.7
million shortfall due to enrollment growth and
achievement testing costs (page 8).
The Department of Economic Security estimates a $24
million shortfall as a result of CPS residential placement
caseload growth and reduced federal funding for foster
care (page 8).

In addition to these newly reported shortfalls, the Arizona
Department of Corrections has increased its shortfall estimate,
first reported in October as $21.3 million, to $28.5 million
(page 8).
OCTOBER REVENUES
Sales Tax collections were $376.9 million in October, or 9.4%
above last October. The following table displays the October
and year-to-date growth rates for the major categories.
Table 1

Sales Tax Growth Rates
October
Year-to-Date
Retail
4.7%
5.0%
Contracting
21.9%
18.9%
Utilities
9.9%
12.6%
Use
1.4%
6.6%
Restaurant & Bar
8.8%
7.3%
Collections for some of the major sales tax categories
continued to grow at a slower pace in October, including use
tax collections. For the month, revenues were $9.3 million
above the forecast.
Individual Income Tax collections were $305.1 million in
October, or 24.7% above last year. Table 2 at the top of the
page displays the October and year-to-date growth rates for
the individual income tax categories.

Monthly Fiscal Highlights – November 2006
Table 2

Individual Income Tax Growth Rates
October
Year-to-Date
Withholding
13.2%
7.1%
Estimated + Final Payments
139.6%
41.5%
Refunds
54.4%
38.1%
The large increase in overall monthly collections was driven
by substantial growth in October final tax payments. These
payments likely represent liabilities that were deferred from
the spring of 2006. Taxpayers incurred large liabilities from
prior year gains, and since the Internal Revenue Service
allows an extension of 6 months for some payments, some
taxpayers may have waited until October to make those
payments. For these deferred liabilities, taxpayers are also
required to make an interest payment.
In addition to the growth in final payments, October
withholding collections rebounded from the slow performance
of the past few months, while refunds continued to be above
forecast. Net revenues, therefore, were $41.3 million above
the forecast for the month.
Corporate Income Tax collections were $53.9 million in
October, or 88.7% above last year. For the month, corporate
income tax revenues were $22.8 million above the forecast.
Though this is a substantial increase, October accounts for
only a small portion of overall collections. Year-to-date,
revenues are 22.7% above last year.
RECENT ECONOMIC INDICATORS
Preliminary estimates for 2006’s 3rd quarter indicated that U.S.
Gross Domestic Product (GDP) growth slowed to a 1.6%
annual rate, down from the 2.6% pace posted in the 2nd
quarter. The decline in residential investment was the largest
since the 1st quarter of 1991.
Other indicators suggested the 4th quarter was off to a
somewhat better start. The U.S. Index of Leading Economic
Indicators increased 0.2% in October, following a revised
0.4% gain in September. Manufacturing hours worked, stock
prices, and declining unemployment insurance claims pushed
the index higher, while vendor performance and building
permits made negative contributions.

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
October
$
730.3
$ 88.2
$ 125.3
Year-to-Date
$ 3,026.3
$ 97.7
$ 286.5
____________
1/ Enacted FY 2007 budget (June 2006)

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Joint Legislative Budget Committee

Monthly Fiscal Highlights – November 2006

Consumer sentiment faded slightly but remained at relatively
high levels. After increasing by a revised 5.7% in September,
the Conference Board’s U.S. Consumer Confidence Index
edged (0.5)% lower in October. Consumers’ assessments of
current conditions and the job market were responsible for the
decline. Even so, consumer confidence remained 23.7%
above its level from a year ago.
Electronics manufacturers continued to benefit from a banner
year. U.S. semiconductor billings (3-month moving average)
climbed 1.8% in September and were running 12.9% ahead of
last year’s results. The Semiconductor Industry Association
(SIA) noted that the pending release of the Windows Vista
operating system is driving sales of DRAM memory devices
to PC producers. In a separate report, the SIA projected a
9.0% compound annual growth rate for semiconductor sales
through 2009. In addition to PC sales, cell phones, MP3
devices, and digital televisions are expected to contribute to
strong product demand for the next several years.

The good news on inflation continued. The U.S. Consumer
Price Index (CPI) (3-month moving average) dipped (0.5)%
in October, which reduced the year-over-year increase to
2.4%. Gasoline prices dropped (12.0)% from September
while other transportation expenses continued to decline.
Meanwhile, food prices increased 0.4% from the prior month.
Excluding food and fuel costs, the core CPI increased 0.1% in
October and stood 2.7% higher than a year ago.
Arizona’s job market posted another round of solid results in
October. Non-farm employment expanded by more than
121,000 jobs in the last 12 months, a 4.7% increase. The
goods-producing industries, led by construction, combined for
a year-over-year growth rate of 6.5%. The retail and
hospitality sectors added almost 9,000 employees over the
prior month in anticipation of the holiday season. Although
the seasonally adjusted statewide unemployment rate
increased to 3.9%, it remained well below the 4.4% U.S.
average.

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

October
October
Aug-Oct
Aug-Oct

3.9%
2.68 million
$81.3 million
$159.6 million

0.2%
1.1%
(2.0)%
(5.6)%

(0.9)%
4.7%
17.8%
4.4%

Jul-Sep
Jul-Sep

3,904
629

(16.7)%
(5.2)%

(42.6)%
(43.6)%

October
October

4,985
915

2.3%
(1.6)%

(40.8)%
(46.6)%

October
October
June
June
August

$257,000
$175,000
106.9
3.61 million
$7.22

0.0%
0.9%
3.0%
1.0%
3.4%

(1.1)%
8.0%
4.9%
1.1%
(12.0)%

0.9%
(3.1)%

0.1%
(10.9)%

September
October

119.2
60.8

4th Quarter 2006
4th Quarter 2006
2nd Quarter 2006
July 1, 2005
November
September
Aug-Oct

105.3
48.1
$194.3 billion
5.94 million
1,029,898
87,605
35,397

3rd Quarter 2006

$11.4 trillion

1.6%

2.9%

October
October
Jul-Sep
Aug-Oct

105.4
138.3
$3.89 billion
202.9

(0.5)%
0.2%
1.8%
(0.3)%

23.7%
1.0%
12.9%
2.4%

2.5%
(3.0)%
2.0%
3.5%
(0.0)%
(0.3)%
253 inmates

7.3%
(12.1)%
9.8%
3.5%
(3.0)%
(12.3)%
2,365 inmates

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Joint Legislative Budget Committee

The Arizona Business Conditions Index (BCI) decreased
(3.1)% to 60.8 in October but remained within the range it has
occupied for most of the current business expansion and above
the mark of 50 associated with an expanding economy.
Delivery times and materials prices were among the factors
contributing to the decline, while the new order component
was climbing. An increase in new orders is usually followed
by rising production and employment.
The Arizona Leading Economic Indicators Index jumped
0.9% in September, its second increase following four
consecutive declines. Production, employment and the money
supply were among the factors pushing the index higher.
Arizona’s housing market continued to slump. The number of
single-family residential building permits issued (3-month
moving average) declined (16.7)% in September and was
(42.6)% below the number issued a year ago. The number of
multi-family housing units authorized decreased (5.2)% in
September and was down by (43.6)% from a year ago.
The Real Estate Center at Arizona State University reported
that the Greater Phoenix single-family median resale home
price was stable in October, rising by $100 from the previous
month to $257,000. The number of existing single-family
homes sold increased 2.3% from the prior month but was
(40.8)% less than the number sold a year ago. The number of
multi-family units sold plunged (43.6)% on a year-over-year
basis, but the townhouse-condominium median price edged
up 0.9% to $175,000 and was 8.0% higher than a year ago.
The Department of Corrections’ inmate population
increased by an average of 253 inmates per month from
August through October. The total population increased by
2,365 inmates from a year ago.
The number of TANF recipients decreased (0.3)% to 87,605
in September and was (12.3)% below the level from
September 2005. The AHCCCS caseload was virtually
unchanged in November from the prior month and was (3.0)%
below the level from a year ago.
JLBC MEETING
At its November 15th meeting, the Joint Legislative Budget
Committee considered the following issues:
Department of Administration – Approval of Maximum
Mileage and Travel Reimbursement Rates – The Committee
gave a favorable review to the Department of Administration’s
maximum reimbursement amounts for state travel by motor
vehicle, meal and incidental expenses, and lodging expenses,
effective immediately. These changes include: 1) increasing
the personal vehicle mileage reimbursement rate from 40.5
cents to 44.5 cents per mile to conform to the federal
government rate; 2) increasing the standard meals and
incidental reimbursement rate from $29.50 to $34.00 per day;
and 3) adjusting the lodging rates by keeping the standard
overnight rate at $60.00, and making several increases and a
few decreases to the lodging rate in non-standard areas to
conform to the federal government rate. The reimbursement

Monthly Fiscal Highlights – November 2006

for non-standard areas will have an average increase of $21.00
per day.
Department
of
Administration
–
Review
of
Telecommunications Contractor and Carrier Cost Rate
Structure – The Committee gave a favorable review to the
revised contractor and carrier cost rate structure of the
Statewide Telecommunication Management Contract, with the
provision that the favorable review does not constitute an
endorsement of any FY 2008 General Fund appropriation to
cover higher AZNet costs or the Department of
Administration’s (ADOA) expenditure plan. For FY 2008,
ADOA is recommending a rate structure that would decrease
the state’s overall telecommunications budget by $(654,600).
Arizona State University – Review of Downtown Phoenix
Operational and Capital Plans – The Committee gave a
favorable review to Arizona State University’s (ASU)
operational and capital plans for the ASU Downtown Phoenix
Campus (DPC) with the provision that the favorable review
did not constitute the endorsement of any level of General
Fund appropriation for the DPC.
In March 2006, the citizens of Phoenix approved $223 million
in bond funds, of which $188 million has been dedicated for
campus construction projects and $35 million has been
designated for the development of civic space and street
improvements within the campus district.
Since the city will be responsible for financing these projects,
the cost of the debt service will not be applied toward the
university’s debt ratio. For each university, statue limits the
amount of debt service to be paid on all outstanding bonds and
certificates of participation to 8% of total annual university
expenditures. If ASU had been responsible for financing the
projects, the university’s debt ratio would have increased from
5.3% to 6.1%.
Once the bonds are paid off, the City will transfer ownership
of the facilities to ASU at no cost, on the condition that they
continue to be used as educational facilities. Although ASU is
not required to make any lease payments prior to taking
possession of the facilities, the university has agreed to
annually contribute, from FY 2009 to FY 2012, about $1.5
million for repair costs. In addition, ASU will contribute $20
million from its own budget for furniture and equipment costs.
ABOR and ASU will also transfer ownership of the
Downtown Center/Mercado property (currently valued at $16
to $23 million) to the City of Phoenix in 2024.
According to 21st day counts for the fall semester of 2006,
2,766 students are enrolled in one or more classes at the
downtown campus. ASU expects the number of students to
grow to 15,000 by 2014.
Arizona Board of Regents – Review of Enrollment
Accounting Policies – The Committee gave a favorable review
of the Arizona Board of Regents’ (ABOR) assessment of the
FTE student enrollment accounting policies and procedures.

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Joint Legislative Budget Committee

The Committee also requested that ABOR submit information
on students attending courses as part of their professional
continuing education requirement.
Statute requires that ABOR make recommendations
concerning the necessity of minimum requirements for
students enrolled in classes to qualify as part of the FTE
enrollment count. The FTE count is used as the basis to
determine the state’s contribution to enrollment funding.
ABOR’s report did not recommend any changes to its current
enrollment policy.
Department of Education – Review of Information
Technology Special Line Item Program – The Committee
gave a favorable review to the Arizona Department of
Education’s (ADE) implementation plan for the Information
Technology Project.
ADE’s FY 2007 budget included a $2.5 million one-time
appropriation to develop and implement an Education Data
Warehouse (EDW) that would integrate into a single database
long-term historical data on student funding and achievement
that currently reside in separate, non-interacting data “silos.”
ADE indicates that this would make its historical data much
more accessible to users, enabling that data to be used more
effectively for analysis and planning and allowing ADE to file
required reports (such as for No Child Left Behind) more
efficiently.
JLBC Staff – Review of Filing Fee for Administrative
Hearing Pursuant to the Condominium and Planned
Community Program – The Committee gave a favorable
review to the Department of Fire, Building and Life Safety’s
(DFBLS) $550 fee charged to parties for filing for an
administrative hearing for disputes regarding Condominiums
and Planned Communities. Laws 2006, Chapter 324 created a
new program in the DFBLS, under which a homeowner or a
homeowner association may file for an administrative hearing
for a dispute involving the owner and a condominium or
planned community association. After receiving the petition,
the DFBLS refers cases to the Office of Administrative
Hearings (OAH). Monies in the fund are used first to
reimburse the OAH hearing costs, and second to offset the
costs of the DFBLS administering case filings.
State Land Department – Review of Expenditure Plan for
Radio System Upgrades – The Committee gave a favorable
review to the State Land Department’s plans to expend the
one-time General Fund appropriation of $96,000 during
FY 2007 to upgrade its Statewide Radio Repeater System
(SRRS). The SRRS expansion will increase the safety of
flight crews by providing information on the exact locations of
aircraft engaged in support or wildfire fighting missions, and
by allowing dispatcher and flight crews to be in constant
communication.
Department of Commerce – Review of Memorandum of
Understanding for the Arizona 21st Century Competitive
Initiative Fund – The Committee gave a favorable review to

Monthly Fiscal Highlights – November 2006

the Memorandum of Understanding (MOU) between the
Department of Commerce (DOC) and Science Foundation
Arizona (SFAz). The MOU contained SFAz’s expenditure
plan for $35 million in General Fund monies that was
appropriated to the Arizona 21st Century Competitive
Initiative Fund for the purpose of strengthening Arizona’s
medical, scientific, and engineering research programs and
infrastructure. The $35 million expenditure plan includes:
• $23 million for research and development (R&D) grants
with an emphasis on partnerships between industry and the
universities and other research institutions;
• $2 million for seed capital to develop research into startup
companies that can win federal assistance and attract
venture capital;
• $4 million for competitive scholarships to 80 first-year
graduate students in science and engineering fields to
attend Arizona’s research universities;
• $1.5 million to expand programs that increase Arizona K12 students’ knowledge of math and science;
• $2 million for a program of paid academic or business
based summer research internships for high school science
and math teachers; and
• $2 million in discretionary monies.
In addition to the favorable review, the Committee also
requested that SFAz provide the Committee with a specific list
of performance measures with numeric goals for the first year
in its first quarterly report as well as an update of its specific
long-term goals and performance measures, including numeric
goals, by October 31, 2007.
JCCR MEETING
At its November 15, 2006 meeting, the Joint Committee on
Capital Review (JCCR) considered the following issues:
Arizona Department of Transportation Report on
Modular Buildings – The Committee gave a favorable review
to the use of operating budget monies to install and lease 2
modular buildings at 1611 and 1615 West Jackson Street with
the following provisions: 1) Money is not spent from the
Motor Vehicle Division, 2) ADOT negotiate with the vendor
to count the lease payment toward the purchase price of the
buildings, and 3) ADOT inform the Committee of the
purchase price of the buildings by December 15, 2006.
School Facilities Board New School Construction and New
School Facilities Fund Litigation Account – The Committee
deferred its review of the New School Construction Report
until May 1, 2007 when the School Facilities Board (SFB) will
have completed its project approval process. The New School
Construction Report details the demographic assumptions,
proposed construction schedule, and new school construction
cost estimates for the FY 2008 year.
The SFB estimates that new school construction will cost
approximately $401.8 million in FY 2008. Of this amount,
$366.8 million is projected to be for construction projects and
$35.0 million is projected for land costs. SFB is requesting a
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Joint Legislative Budget Committee

$399.0 million appropriation from the General Fund to pay for
new school construction in FY 2008, with the remaining
revenues coming from other sources.
The Committee gave a favorable review to the report on the
Litigation Account. To date the account has not made any
expenditure, nor has it received any revenues.
School Facilities Board FY 2007 Building Renewal – The
Committee gave a favorable review to the proposed
distribution of FY 2007 Building Renewal Fund monies in 2
equal installments of $43.1 million in November 2006 and
May 2007. Prior to receiving building renewal monies, statute
requires districts to submit a 3-year building renewal plan.
Due to many school districts not submitting building renewal
plans, only $8.4 million will be distributed November.
Arizona State Lottery Commission Building Renewal –
The Committee gave a favorable review to the $53,600 FY
2007 Building Renewal Allocation Plan. Of this amount,
$20,000 will be used to paint the interior of its Phoenix
building, $15,000 will be used to repair the roof of the
Phoenix warehouse, and the remaining $18,600 will be for
project contingencies. The Committee requested that the
Lottery Commission report on the use of the $18,600
contingency prior to its expenditure.
Arizona State Parks Board State Lake Improvement
Funds – The Committee gave a favorable review to 11 State
Lake Improvement Fund (SLIF) capital grants and projects
totaling $2,223,800. The review excluded $560,000 for the
design and engineering of the Town of Buckeye Recreational
Lake, and $1,232,000 for the Bullhead City boat ramp launch.
The Buckeye lake project was unfavorably reviewed due to
questions regarding the appropriateness of using large
amounts of SLIF money to create new lakes, and the Bullhead
City boat ramp was unfavorably reviewed because as per
statute, SLIF money is for use on waters that allow gasoline
powered boats.
Northern Arizona University New Conference/Hotel
Complex – The Committee gave a favorable review to the
Conference/Hotel complex project.
Northern Arizona
University (NAU) has entered into 2 partnerships to indirectly
debt finance a 150 room on-campus hotel, a 41,000 square
foot conference center, and a 344 space parking structure.
Indirect debt financing includes bond issuances or leasepurchase agreements for capital projects located on university
land or that will house university activities, whereby the
financing is executed by a private developer or a tax-exempt
non-profit organization affiliated with the university. When
calculating their debt ratio, the universities do not include
indirect debt financing. For each university, statue limits the
amount of debt service to be paid on all outstanding bonds and
certificates of participation to 8% of total annual university
expenditures.

Monthly Fiscal Highlights – November 2006

The parking structure and conference center are estimated to
cost $16 million. Of the $16 million, a majority of the funding
will be provided through a $12.4 million bond issuance by the
Northern Arizona Capital Facilities Finance Corporation
(NACFFC). The NACFFC is a non-profit limited liability
company (LLC) established to support university initiatives.
The partnership for the hotel requires the hotel company to
finance the hotel.
Arizona State University System Revenue Bond Project –
The Committee gave a favorable review to the issuance of
$18.5 million in system revenue bonds. Of the total, $12.5
will be used to move and expand to 38,000 square feet the
Police Department Facility. The remaining $6 million will be
used to clear land to build housing for 3,550 students at the
proposed site of Barrett College and the South Campus
Academic Village.
A private entity, American Campus Communities (ACC) will
construct the 3,550 units at a cost of $230 million. ASU will
not provide financing for construction of the housing units.
Upon completion of the development, ACC will transfer title
to ASU, and in exchange will receive a 65-year operating
agreement with revenue sharing stipulations.
The Committee requested that ASU submit the following
information by December 15, 2006: 1) ASU’s options if ACC
does not meet minimum operating standards for the residential
facilities, and 2) room and board fees for the South Campus
Academic Village and Barrett College.
University of Arizona Law School Expansion – The
Committee gave a favorable review to the issuance of $7
million in system revenue bonds for the expansion and
renovation of the law school, contingent on approval from the
Arizona Board of Regents. The $7 million system revenue
bond represents one-third of the total project cost for a total of
$21 million. The other $14 million will be funded by gifts
prior to groundbreaking. The project includes renovation of
71,000 square feet of existing library, student organization,
faculty office, and instructional space; and adds 4,900 square
feet of new office space.
University of Arizona Intercollegiate Athletics Facility –
The Committee gave a favorable review to the issuance of $19
million in system revenue bonds for the Intercollegiate
Athletics Facility Additions and Renovations project. The $19
million system revenue bond represents most of the $20
million total project cost. The other $1 million will be funded
by current university gifts. The project includes a new 18,389
square foot indoor basketball and volleyball practice facility, a
1,930 expansion of the gymnastics training facility, and a new
8,210 square foot diving pool.

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Joint Legislative Budget Committee

SUMMARY OF RECENT AGENCY REPORTS
Arizona Department of Administration – Report on the Use
of Alternative Fuels and Clean Burning Fuels in the State
Motor Vehicle Fleet – Pursuant to A.R.S. § 41-803R, the
Arizona Department of Administration reported on the FY
2006 year-end inventory of state-owned alternative fuel
vehicles. Of the 11,946 state vehicles 5,171, or 43.3%, are
subject to the alternative fuel vehicle requirements found in
A.R.S. § 41-803.
The vehicles exempt from these
requirements fulfill one or more of the following criteria:
weigh over 8,500 pounds, are law enforcement vehicles,
motorcycles, ambulances, fire suppression apparatus, or are
all-terrain (4x4) vehicles.
Of the 5,171 state vehicles subject to the alternative fuel
vehicle requirements 2,960, or 57.2%, are alternative fuel
vehicles. This is an increase of 4.5% from the prior year, and
exceeds the 40% target established by statute.
A.R.S. § 41-803K, which applies to state fleets operating
primarily in counties with populations exceeding 1.2 million,
requires 90% of the vehicles to be capable of using alternative
fuels and clean burning fuels. The state reports that of its
2,694 vehicles operating primarily within Maricopa County
2,018, or 74.9%, are alternative fuel vehicles. This is an
increase of 2.2% from the prior year, but falls below the
statutory requirement of 90%.
Notwithstanding the quantity of vehicles capable of using
alternative fuel, a relatively small percent of users actually
utilize a vehicle’s alternative fuel capabilities. Of the
$6,387,781 spent on fuel during FY 2006, only $372,897 or
5.8% was for alternative fuels.

Monthly Fiscal Highlights – November 2006

Although the outlier threshold is adjusted annually for
inflation, these adjustments have not kept pace with the
increases in hospital charges, resulting in more claims falling
above the outlier threshold. Once a claim has passed the
threshold, a cost-to-charge ratio (CCR) is used to determine
the payment. This ratio is meant to approximate the actual
cost of the services compared to the amount charged by the
hospital. AHCCCS reports that the CCRs have not been
updated since 1998. While hospital costs have risen 21% from
2001 to 2005, hospital charges rose 48% during that same
period, resulting in higher costs for outlier payments. In FY
2001, outlier payments totaled $10 million, which represented
2% of the total value of all inpatient claims. In FY 2005, that
figure rose to $112 million.
Due to the high number of claims that qualify as outliers,
AHCCCS has recommended that the current methodology be
adjusted by utilizing updated Medicare CCRs for urban and
rural hospitals, omitting routine maternity stays from outlier
consideration, and researching procedures or services that
should be omitted or paid under a different methodology.
AHCCCS estimates these changes would slow the rate of
growth of outlier reimbursement and result in approximately
$185 million in outlier payments in FY 2011 if phased in over
3 years. This is $98 million below the current FY 2011
estimate of $283 M. Any changes to the current methodology
will require statutory changes, changes to administrative rules,
and changes to AHCCCS’ State Plan with the Centers for
Medicare and Medicaid Services.
Arizona Community Colleges – Annual Report – Pursuant to
A.R.S. § 15-1427, the Arizona Community Colleges are
required to report on their progress during the previous year.
The FY 2006 report includes the following summary
information on the state system:

Arizona Department of Administration – Report on FY
2007 Utilities Appropriation Shortfall – Pursuant to A.R.S. §
35-131.D, the Arizona Department of Administration (ADOA)
provided notification of an anticipated shortfall in the FY 2007
allocation for the Utilities Special Line Item (SLI). Based on
current expenditure levels, ADOA is projecting utility costs of
$7,432,400 in FY 2007. This is $1,698,600 more than the
Capital Outlay Stabilization Fund appropriated amount of
$5,733,800 in FY 2007. ADOA is requesting a FY 2007
supplemental appropriation from the General Fund to cover
the shortfall. Without a supplemental appropriation ADOA is
considering entering into interagency service agreements to
have tenant agencies pay for the increased utility costs.

• 199,081 students (headcount) were enrolled for credit,
resulting in a Full-Time Student Equivalent count of
118,506
• 89% of enrolled students resided within the district, while
10% did not reside within the district
• Total number of instructors employed was 10,232, of
which 2,443 (24%) were full-time and 7,789 (76%) were
part-time
• Total operating revenues were $1.1 billion (this amount
excludes bond proceeds and fund balance which total $242
million).
• Total expenditures were $1.2 billion.

AHCCCS – Report on Hospital Inpatient Outlier Claims –
Pursuant to Laws 2006, Chapter 331, AHCCCS has submitted
a report to the Committee on the methodology used to
reimburse hospitals for outlier inpatient costs and has provided
recommendations for revising this methodology based, in part,
on the practices of other states. Outlier claims refer to
services that exceed the average cost of services or are
extremely more expensive than the average cost within the
service’s specific category.

In addition, each district provided a description of their major
accomplishments in FY 2006.
Arizona Community Colleges – Report on Dual Enrollment
– Pursuant to A.R.S. § 15-1821.01 the Arizona Community
Colleges are reporting on dual enrollment courses offered in
FY 2006. Students in a dual enrollment course can earn both
high school and community college credit. The courses are
taught at the high schools.

Page 7

Joint Legislative Budget Committee

Highlights of the FY 2006 report include:
• 36,750 students were dual enrolled
• 937 courses were offered, of which 366 courses were
classified as Academic and 571 were Occupational
• Courses were offered at 240 locations in 9 districts
• 35,181 students, or 98% of those enrolled, completed the
course
• 33,729 students earned a C or better, qualifying those
students for both high school and community college credit
• 3,571 freshman and sophomore students were dual enrolled
Corporation Commission – Report on Corporations Division
Filings – Pursuant to a footnote in the General Appropriation
Act, the Corporation Commission submitted a quarterly report
on the status of reducing processing delays in its Corporations
Division.
For expedited filings, the amount of time required to process
the filings fell from an average of 42 business days on March
25, 2005 to 4.6 business days on September 30, 2006. At the
end of the fourth quarter of FY 2006, the turnaround time was
3.8 business days. The commission’s goal for processing
expedited filings is 5 business days or less.
For regular filings, the amount of time required to process the
filings fell from an average of 103 business days on March 25,
2005 to 28 business days on September 30, 2006. At the end
of the fourth quarter of FY 2006, the turnaround time was 23
business days. The commission’s goal for processing regular
filings is 30 business days or less.
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 now estimating a
FY 2007 shortfall exceeding $28.5 million based primarily on
overtime and compensatory time expenditures. This is an
increase of $7.2 million from last month, when the department
projected a FY 2007 shortfall of $21.3 million.
Arizona Department of Corrections – Report on Monthly
Bed Plan Update – The Department of Corrections (ADC) has
been providing monthly reports to JLBC Staff updating the
status of several topics:
Bed Update
• Arizona inmates currently occupy all of the 2,064 available
provisional beds located at out-of-state facilities in
Oklahoma and Texas. As mentioned in prior reports, Geo
Group, the operator of the Reeves County facility in Pecos,
Texas, cancelled ADC’s contract for 864 of these beds.
The department anticipates returning these inmates to state
beds by December 15, 2006. The Oklahoma provisional

Monthly Fiscal Highlights – November 2006

contract for 1,200 inmates expires at the end of FY 2007.
ADC is currently out to bid for all 2,064 beds.
• Coconino County canceled its contract with ADC for 44
beds, effective November 3, 2006. The department is
currently using all of the 48 Navajo County jail beds
available and ADC plans to renew that contract shortly.
Department of Education – Budget Status Report – Pursuant
to A.R.S. § 35-131(D) and a footnote in the FY 2007 General
Appropriation Act, the Arizona Department of Education
(ADE) recently provided an update regarding its budget status
for FY 2007. In that report, ADE estimates that it will
experience a $9.7 million net funding shortfall for FY 2007,
which includes an estimated $5.1 million shortfall for Basic
State Aid and an estimated $4.6 million shortfall for
achievement testing. The estimated $5.1 million shortfall for
Basic State Aid is based mostly on reported FY 2006 Average
Daily Membership (ADM) counts for school districts, since
FY 2007 ADM counts are not yet available. Basic State Aid
costs in FY 2007 will depend on both FY 2006 and FY 2007
ADM counts, since that funding is based on current year
counts for growing districts and prior year counts for nongrowing ones. ADE’s $9.7 million net shortfall estimate
therefore is subject to considerable change once FY 2007
ADM counts become available and potentially could change
to a surplus. FY 2007 ADM counts are not expected to be
available until at least February 2007.
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 May and June 2006. This job
placement pilot serves clients in District I-E, which generally
covers the eastern part of Maricopa County.
In June 2006, MAXIMUS placed a total of 94 Arizona Works
clients in full-time paid employment in District I-E, an 8%
increase from the June 2005 figure of 87. (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, increased 9%.) In June 2006, the number of DES
JOBS clients placed in full-time paid employment in the rest
of Maricopa County was 223, a decrease of (12)% from the
253 clients placed in June 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, increased
18%.) 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.
DES is in the selection process for statewide contracts to
privatize the JOBS program.
Implementation of these
contracts is expected by the end of FY 2007. The current
MAXIMUS contract was originally extended to December

Page 8

Joint Legislative Budget Committee

2006 and may be extended again until the privatization
transition is complete.
Department of Economic Security – Projected FY 2007
Shortfall – The Department of Economic Security (DES) is
projecting a $24 million General Fund shortfall for FY 2007.
DES indicates there are 2 sources of the shortfall. First, the
department projects higher than budgeted caseload growth in
the CPS Residential Placement line item at a cost of $4.3
million. For FY 2007, the Legislature provided an additional
$14.4 million for in-home and out-of-home services growth
and increased out-of-home placements.
The second source of the reported shortfall is the federal
Deficit Reduction Act (DRA). The DRA changed the federal
match requirements for administration and training expenses
in the Federal Title IV-E program serving foster children. The
50% match on administration expenditures is no longer
available for expenses associated with unlicensed foster
families, unless that family is in the process of being licensed.
In recent years, DES has been working to put more children in
relative placements, which are generally unlicensed and
unpaid. DES reports that about 40% of current Title IV-E
eligible foster placements are unlicensed. DES estimates that
the FY 2007 shortfall created by the DRA changes will be $14
million. This provision became effective March 1, 2006,
adding $5.7 million in one-time FY 2006 costs to the shortfall.
DES is increasing the number of licensed relative placements;
however, when relatives are licensed, they receive a placement
subsidy, eliminating some of the savings.
DES has indicated that it will look for sources to offset as
much of the shortfall as possible, including a recently
announced federal adoption bonus of $1.0 million.
Arizona Commission of Indian Affairs – Report on Uses of
Monies in the Arizona Indian Town Hall Fund – Pursuant to
A.R.S. § 41-545, the Arizona Commission of Indian Affairs is
providing the annual Indian Town Hall Fund expenditure
report for FY 2006. The fund receives monies collected or
received at Indian Town Halls as fees for Commission
administration. The purpose of the fund is to defray
administrative costs related to Indian town halls. Statute
limits expenditures from the fund to $15,000 per fiscal year.
New fund revenues during the 26th Annual Arizona Indian
Town Hall totaled $3,792. This amount does not include the
$1,798 balance carried forward from the prior year. As of
October 2006, the Commission had not utilized any of the
funds in the Indian Town Hall Fund. Expenditures for the
Town Hall were funded from agency operating monies,
sponsor donations and fees.
City of Phoenix – Report on the Phoenix Convention Center
Expansion Project – The City of Phoenix has issued its fifth
progress report on the Convention Center expansion project.
The state’s obligation for the Convention Center expansion
project is to pay the debt service and related costs on $300

Monthly Fiscal Highlights – November 2006

million in construction bonds. The City’s report indicates that
construction will be completed in 2008, with the first year of
the state’s obligation beginning in FY 2010.
Based on the City’s report and subsequent correspondence
with the City, the following items are highlighted:
Total Project Cost – A.R.S. §9-605 provides that, in order for
a project to be eligible for the state’s participation in the
funding of the project, the project’s total cost must not exceed
$600 million.
Documentation provided by the City indicates that the current
estimate for total expenditures on the project is $659 million.
The City has moved $59 million in “soft costs” out of the total
project budget in order to keep the cost under $600 million.
These additional soft costs will be funded by the City with a
combination of Convention Center operating revenues and
interest proceeds from the City’s expansion bonds. These
additional soft costs include furniture, fixtures and equipment,
city staff costs, and additional consulting services.
State’s Total Financial Obligation – In June 2003, during the
discussion of the enabling legislation, the City estimated that
the state’s total financial obligation could result in
approximately $625 million of payments from state funds,
including principal and interest.
Based on the bonded debt service schedule included with the
City’s current report, the debt service payments on the $300
million bonds would total approximately $852 million. This
amount did not include interest earnings from unexpended
funds, and proceeds from the reserve fund.
Follow-up information provided by the City indicates that,
accounting for the interest proceeds and the reserve fund, the
state’s total financial obligation on the project will be
approximately $630 million.
Bond Interest Rate/State’s Financial Obligation – The
estimate of a total state financial obligation of $625 million
from June 2003 was based on an assumed bond interest rate of
about 5.25%. The actual bond sale was completed in October
2005, with an interest rate on the $300 million state’s portion
of 4.73%.
As noted above, the state’s total financial obligation on the
project is currently estimated at $630 million. It is unclear
why the state’s obligation is slightly higher than the June 2003
estimate of $625 million, yet the bonds were sold with an
interest rate of over 50 basis points below the estimate. JLBC
Staff has requested clarification of this issue from the City.
Arizona Department of Public Safety – Report on Staffing –
Pursuant to Laws 2006, Chapter 344 (General Appropriation
Act), the Arizona Department of Public Safety (DPS) is
required to report quarterly on staffing levels for both crime
lab and sworn personnel. The department indicates they
currently have 143 authorized crime lab positions. Of this

Page 9

Joint Legislative Budget Committee

Monthly Fiscal Highlights – November 2006

amount, 126 (or 88.1%) are filled. In FY 2006 and FY 2007,
DPS received 22 new positions. All 11 positions authorized in
FY 2006 were initially filled and they are compiling a hiring
list for the additional 11 positions they received in FY 2007.
DPS currently has 1,259 authorized sworn full-time positions,
of which 1,109 (or 88.1%) are currently filled. Of the 69 new
positions funded in the last 2 years, DPS has experienced a net
increase of 25 filled positions.

Arizona Department of Transportation – Report on Motor
Vehicle Division Wait Times – FY 2007, 1st Quarter – The
Motor Vehicle Division (MVD) was appropriated an
additional 25 FTE Positions in FY 2007 for MVD customer
service staff to reduce customer wait time. Wait time had
increased from 14.2 minutes in FY 2003 to 27.8 minutes in
FY 2006, while the number of counter clerks had decreased
from 866 in FY 2003 to 698 in FY 2006.

Arizona Board of Regents – Report on Credit Hour
Threshold FTE Student Counts – Pursuant to A.R.S. § 151626, the Arizona Board of Regents (ABOR) is required to
report on the number of students that met or exceeded the
undergraduate credit hour threshold at universities under
ABOR’s jurisdiction during FY 2006. A.R.S. § 15-1626 states
that the Legislature shall not appropriate monies to support,
and ABOR may differentiate tuition paid by, university
students who have exceeded 155 credit hours in FY 2006, 150
credit hours in FY 2007, and 145 credit hours in FY 2008 and
each year thereafter. A.R.S. § 15-1626 exempts certain types
of credits from the undergraduate credit hour threshold, such
as credits earned in a degree program that requires credits
above the threshold.

Laws 2006, Chapter 344, requires the Arizona Department of
Transportation to report to the Legislature quarterly on
customer wait times in MVD field offices and vehicle
registration renewal by mail turnaround times. The number of
MVD counter clerks increased by 57, or 8.2%, from 698 in FY
2006 to 755 in the 1st Quarter FY 2007, with a resultant
decrease of (7) minutes, or (25.2)%, in customer wait time
from receiving a ticket until arriving at the counter from 27.8
minutes in FY 2006 to 20.8 minutes in the 1st Quarter FY
2007. Transaction time at the counter was unchanged at 8.3
minutes. A pilot program at 4 MVD offices (South Mountain,
Scottsdale, Northwest Phoenix and East Mesa) showed an
additional wait time of 7.2 minutes from arrival at the office
until receiving a numbered ticket.

ABOR reports 183 full-time equivalent (FTE) students over
the 155 credit hour threshold throughout the Arizona
University System as of the 21st day of the fall 2005 semester.
Table 1 below summarizes the number of FTE students in
excess of the 155 credit hour threshold by campus:
Table 5

Credit Hour Threshold FTE Students
Fall 2005
Campus
ASU–Main
ASU–East
ASU–West
NAU
UofA - Main
UofA - HSC
Total

FTE Students
112
3
12
14
42
0
183

School Facilities Board – Report on Costs for Building
Renewal and New Construction at the Arizona State Schools
for the Deaf and the Blind – Pursuant to A.R.S. § 15-2002, the
School Facilities Board (SFB) is required to biennially report
on the resources needed to fulfill the building renewal and
new construction requirements in A.R.S. § 15-2031 and § 152041 for the Arizona State Schools for the Deaf and the Blind
(ASDB). ASDB operates 2 campuses, a campus in Phoenix
and a campus in Tucson. According to SFB, the total cost for
building renewal for ASDB is $582,700 in FY 2008 and
$650,700 in FY 2009. SFB also estimates new construction
costs totaling $33,882,300 for ASDB to meet minimum space
estimates through FY 2010.

Page 10

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

FY 2007 YTD (Four Months)

Change From
October 2005

Actual
October 2006

Percent

Amount

Change from
Revised Forecast
Percent

Amount

October 2006

Actual
October 2006

Amount

Revised Forecast

Percent

Percent

Amount

Taxes
Sales and Use

376,890,480

$32,305,711

$1,500,706,833

$130,511,274

Income - Individual

305,050,149

60,333,005

24.7

41,259,349

15.6

1,177,025,584

121,696,531

11.5

18,557,784

1.6

- Corporate

53,938,585

25,350,276

88.7

22,752,085

73.0

316,151,511

58,475,017

22.7

38,846,111

14.0

(44.1)

(1,011,706)

(53.2)

1,326,837

(35.2)

(1,473,163)

(52.6)

44.2

1,696,134

30.2

23,604,967

2,503,706

11.9

1,104,967

4.9

--

114,312,668

4,855,103

4.4

3,012,668

Property

888,294

(701,080)

Luxury

7,321,134

2,244,421

Insurance Premium

9,738,387

9,498,493

Estate
Other Taxes
Sub-Total Taxes

(66,668)
59,879
$753,820,240

9.4 %

--

$9,281,480

9,738,387

2.5 %

(722,215)

9.5 %

$25,938,933

1.8 %

2.7

(164,812)

--

(66,668)

--

78,551

(8,950,262)

(99.1)

(121,449)

(60.7)

(5,346)

(8.2)

(5,246)

(8.1)

212,696

(4,664)

(2.1)

(47,804)

(18.4)

$128,860,668

20.6 %

$83,643,815

12.5 %

$3,133,419,647

$308,364,490

10.9 %

$85,818,047

2.8 %

Other Revenue
Lottery

4,113,300

554,400

15.6

213,300

5.5

10,807,500

2,390,800

28.4

License, Fees and Permits

3,763,816

1,332,491

54.8

448,216

13.5

16,263,267

5,797,278

55.4

Interest

7,293,512

3,115,500

74.6

2,293,512

Sales and Services

3,266,904

Other Miscellaneous

3,812,952

2,014,433

0

0

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

138,914

(56,112)

(4,951)

(1.7)
112.0
-(3.4)

(478,296)
2,643,052
0
(561,086)

(992,500)
3,521,567

(8.4)
27.6

45.9

25,568,567

13,766,768

116.6

8,368,567

48.7

(12.8)

13,167,952

(3,477,874)

(20.9)

(1,967,948)

(13.0)

225.9

77.7

5,786,642

142.5

9,847,542

4,304,838

--

0

0

(80.2)

936,096

(2,607,904)

-(73.6)

0
(2,863,904)

-(75.4)

22,389,398

6,955,761

45.1 %

4,558,698

25.6 %

76,590,924

20,173,906

35.8 %

11,852,424

18.3 %

$776,209,638

$135,816,429

21.2 %

$88,202,513

12.8 %

$3,210,010,571

$328,538,396

11.4 %

$97,670,471

3.1 %

One-Time Revenue
Urban Revenue Sharing

(45,935,888)

(10,500,144)

29.6

0

0.0

(183,743,552)

(42,000,576)

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 %

20.7 %

$88,202,513

13.7 %

10.5 %

$97,670,471

3.3 %

Sub-Total Transfers In
TOTAL REVENUE

(45,935,888)
$730,273,750

(10,500,144)
$125,316,285

(183,743,552)
$3,026,267,019

(42,000,576)
$286,537,820

Table 6