JLBC

MONTHLY FISCAL HIGHLIGHTS
February 2007
January General Fund revenue collections were $1.01 billion,
or 9.8% above January 2006. This amount was $27.0 million
above the original enacted FY 2007 forecast. For the fiscal
year-to-date, collections are $104.3 million above the original
enacted FY 2007 forecast. (See Table 3 on page 2.)

Department of Corrections increased its FY 2007 shortfall
estimate from $(8.7) million to $(14.2) million.

The January collections can also be viewed from the revised
FY 2007 forecast that was released last month as part of the
January JLBC Baseline. That forecast raised the projected
level of FY 2007 collections by $295 million. When measured
against this higher forecast, January revenues were $(7.5)
million below target.

•

While overall January collections were strong at 9.8%, among
the major tax categories performance was mixed. Individual
income tax collections increased 17.9%, and corporate income
tax revenues were 9.6% above last year. Sales tax collections,
however, only increased 4.7%, the result of only 1.0% growth
in retail sales collections. For the year-to-date, total collections
are 8.7% above last year. (See Table 8 on page 10 for details.)
In other fiscal news this month, the JLBC met on February 6th
(pages 4 – 5).
The Monthly Fiscal Highlights also include a summary of
recent statutory reports to JLBC (pages 5 – 8). Of note, the
Arizona Department of Education increased its FY 2007
surplus estimate from $9.0 million to $10.1 million, while the

In addition, the Monthly Fiscal Highlights include an update
on the following budget issues (pages 8 – 9):

•

•

As the result of a 2003 criminal case in which a
Scottsdale-based company forfeited $28.7 million to the
state, the Attorney General has allocated $25.6 million.
Among the major items, the Attorney General plans to
distribute $17.7 million to the Department of Public Safety
for a crime lab in Tucson.
The JLBC Staff released its latest calculation of the state’s
appropriation limit. The Arizona Constitution limits the
appropriations of certain state revenues to no more than
7.41% of personal income. Under the JLBC Baseline,
appropriations would be 6.83% of personal income in
FY 2007 and 6.45% in FY 2008.
The JLBC Staff released its calculation of the Truth in
Taxation (TNT) adjustments to property tax rates. Each
year these rates are adjusted to offset increases in the value
of existing property. Due to 8.6% growth in existing
property values, the property tax rate for unified school
districts would be reduced by 27.5¢ in FY 2008. Since the
8.6% rate of growth was higher than forecasted, the JLBC
Baseline would need to be increased by $19.0 million to
fully fund the TNT adjustments.

Table of Contents
Page #

Page #

January Revenues.....................................................................2
Recent Economic Indicators ....................................................2

Summary of Recent Agency Reports (cont’d)
- Corp. Commission – Corporations Division Filings ..........6
- ADC – Community Accountability Pilot Program.............6
- ADC – Report on Expenditures..........................................6
- ADC – Transition Program ................................................6
- ACJC – Methamphetamine Interdiction Efforts.................6
- ADE – Budget Status Report..............................................6
- ADE – Excess Utilities Spending.......................................6
- DHS – Federal Vaccines Program......................................7
- DHS – MethSMART Prevention Program.........................7
- DPS – Staffing Levels ........................................................7
- ABOR – Differentiated Tuition..........................................7
- ABOR/UofA – Phoenix Medical Campus .........................7
- ADOT – MVD Wait Times................................................8
- ASU – Guaranteed Tuition Pilot Program..........................8
- DWR – Assured and Adequate Water Supply Fees ...........8

February 6 JLBC Meeting Summary
- Attorney General – Uncollectible Debts................................4
- Attorney General – Allocation of Settlement Monies............4
- ADC – Transfer of Appropriations ........................................4
- ADE – Kinder Morgan Settlement ........................................4
- DEQ – Water Quality Permit Processing Times....................5
- Land Dept. – Central Arizona Project Water Delivery .........4
- DPS – Arizona Public Safety Communications Advisory
Commission .....................................................................4
- DPS – Microwave Communication System ..........................4
- DOR – BRITS Contract Amendment ...................................5
- ASU – School of Journalism .................................................5
Summary of Recent Agency Reports
- AHCCCS – Graduate Medical Education Residencies.....….5
- AHCCCS – Redetermination Policy......................................5
- Comm. Colleges/DES/ADE/Universities – Public
Programs Eligibility ..........................................................5

Other Issues
- Attorney General Settlement Allocation ............................8
- State Appropriations Limit.................................................9
- Truth in Taxation K-12 Property Tax Rates.......................9

This report has been prepared for the Arizona Legislature by the Joint Legislative Budget Committee Staff on February 28, 2007. 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 – February 2007

JANUARY REVENUES

RECENT ECONOMIC INDICATORS

Sales Tax collections were $440.0 million in January, or 4.7%
above last January. The following table displays the January
and year-to-date growth rates for the major categories.

The first estimates for 2006’s 4th quarter indicated that U.S.
Gross Domestic Product (GDP) growth increased to a 3.5%
annual rate, up from the 2.0% pace posted in the 3rd quarter.
Increases in personal consumption expenditures, net exports,
and federal, state, and local government spending contributed
to the growth acceleration, while spending slowed for
nonresidential structures and software.

Table 1

Sales Tax Growth Rates
January
Year-to-Date
Retail
1.0%
4.1%
Contracting
14.4%
16.6%
Utilities
0.9%
10.4%
Use
1.9%
4.2%
Restaurant & Bar
8.5%
9.4%
Overall, sales collections continued to grow at a slower rate
than prior months in FY 2007. The slower growth was largely
driven by a weak month for retail collections, the result of
poor holiday shopping season sales. For the month, revenues
were $(7.0) million below the June 2006 forecast.
Individual Income Tax collections were $544.3 million in
January, or 17.9% above last year. Table 2 displays the
January and year-to-date growth rates for the individual
income tax categories.
Table 2

Individual Income Tax Growth Rates
January
Year-to-Date
Withholding
17.5%
9.1%
Estimated + Final Payments
31.4%
26.0%
Refunds
254.8%
78.6%
Withholding collections for the month were strong, as were
estimated payments. The gains in these categories were
somewhat offset by the continued high growth in refunds.
Overall, monthly revenues were $35.6 million above the June
2006 forecast.
Corporate Income Tax collections were $37.3 million in
January, or 9.6% above last year. For the month, corporate
income tax revenues were $(2.0) million below the June 2006
forecast.

U.S. semiconductor billings reached new highs in 2006.
Although December sales (3-month moving average) slipped
(4.2)% from the prior period, they increased 4.5% on a yearover-year basis. For all of 2006, the Semiconductor Industry
Association (SIA) reported that American manufacturers
totaled $45.0 billion in sales, a 12.4% increase from 2005.
After dipping in late 2006, prices were moving higher again at
the start of 2007. The U.S. Consumer Price Index (CPI) (3month moving average) increased 0.1% in January, while the
corresponding year-over-year increase was 2.2%. Medical
care and food and beverages were among the categories
showing sharp price increases in January. Excluding the
impact of food and energy prices, the core CPI rose 2.7% from
a year ago.
The Conference Board’s U.S. Consumer Confidence Index
climbed 0.3% in January. Consumers’ view of labor market
prospects improved and their overall assessment of current
conditions was brighter, but the outlook for the next 6 months
was less sanguine than in December.
The U.S. Index of Leading Economic Indicators edged up
0.1% in January. The improvement was led by consumer
sentiment, stock prices, and declining unemployment
insurance claims, while manufacturing hours worked, new
orders, building permits, and interest rates were among the
factors making negative contributions.
Arizona’s residential real estate market continued to languish.
Statewide, the number of single-family residential building
permits (3-month moving average) dropped (2.0)% in
December and was down (48.4)% on a year-over-year basis.
Multi-family permits decreased (2.3)% from the prior month
and declined (48.9)% from a year ago. For all of 2006, 65,752
housing units were authorized in Arizona, a decrease of

Table 3
General Fund Revenues
Compared to Enacted and Revised Forecasts and FY 2006 Collections
($ in Millions)
FY 2007
Difference From
Difference From
Difference
Collections
June 2006 Forecast 1/
Jan 2007 Forecast 2/
From FY 2006
February
$ 1,012.1
$ 27.0
$ (7.5)
$ 90.4
Year-to Date
$ 5,558.4
$ 104.3
$ (7.5)
$ 443.7
____________
1/ Originally enacted FY 2007 budget (June 2006)
2/ JLBC January Baseline Budget

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Joint Legislative Budget Committee

Monthly Fiscal Highlights – February 2007

The Realty Studies group at Arizona State University
estimated that the Greater Phoenix single-family median
resale home price rose 1.6% in January to $260,000. The
number of single-family homes sold declined (2.2)% from the
prior month and by (14.1)% on a year-over-year basis.

The Behavior Research Center’s Arizona Consumer
Confidence Index started the year with a reading of 106.3 for
2007’s 1st quarter, a 0.9% increase from the 4th quarter of
2006. Although consumers in the Phoenix area were growing
more optimistic, confidence was falling in Tucson and the
rural regions of the state. Overall, consumers’ assessment of
current business conditions was mostly unchanged, while their
perspective on the job market dimmed from the previous
quarter.

The townhouse-condominium median price was $175,000
in January, unchanged from December and 6.1% higher than a
year ago. The number of units sold dipped (3.4)% from
December to 850 in January, which was a (30.6)% decrease
from a year ago.

The number of air passengers counted at Phoenix Sky Harbor
International Airport dipped (0.1)% on a year-over-year basis
in December. For all of 2006, more than 41.4 million
passengers flew through the airport, a 0.5% increase from
2005.

The Arizona Business Conditions Index dropped (2.6)% to
53.4 in January, which was still above the mark of 50
associated with an expanding economy. The production and
purchases categories fell sharply, but the new orders
component regained some of the ground it lost in recent
months.

The Department of Corrections’ inmate population
increased by an average of 37 inmates per month from
November through January. The total population increased by
2,385 inmates from a year ago.

(27.6)% from 2005. The total value of residential permits
issued was $1.1 billion in 2006, a (22.1)% decrease from
2005’s $1.4 billion total.

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)

Time Period

Current Value

Change From
Prior Period

Change From
Prior Year

December
December
Nov-Jan
Nov-Jan

4.1%
2.72 million
$84.3 million
$178.9 million

0.0%
0.6%
3.7%
12.1%

(0.6)%
4.5%
13.6%
3.0%

Oct-Dec
Oct-Dec

2,969
479

(2.0)%
(4.1)%

(48.4)%
(48.9)%

January
January

4,520
850

(2.2)%
(3.4)%

(14.1)%
(30.6)%

January
January
December
December
November

$260,000
$175,000
107.5
3.41 million
$9.05

1.6%
0.0%
2.1%
(0.1)%
46.0%

1.2%
6.1%
2.1%
(0.9)%
1.9%

(0.1)%
(2.6)%

(1.1)%
(15.3)%

November
January

119.0
53.4

1st Quarter 2007
1st Quarter 2007
3rd Quarter 2006
July 1, 2006
February
December
Nov-Jan

106.3
51.9
$195.4 billion
6.17 million
1,024,916
84,237
35,820

4th Quarter 2006

$11.5 trillion

3.5%

3.4%

January
January
Oct-Dec
Nov-Jan

110.3
138.5
$3.80 billion
201.9

0.3%
0.1%
(4.2)%
0.1%

3.3%
(0.1)%
4.5%
2.2%

0.9%
7.9%
1.8%
3.6%
(0.5)%
0.0%
37 inmates

(3.7)%
(13.4)%
7.1%
3.6%
(1.9)%
(13.7)%
2,385 inmates

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Joint Legislative Budget Committee

The number of TANF recipients was virtually unchanged in
December. The 84,237 who received benefits were just 9
more than the November total but (13.7)% fewer than the
number reported a year ago. The AHCCCS caseload
decreased (0.5)% in February from the prior month and was
(1.9)% below the level from a year ago.
JLBC MEETING
At its February 6, 2007 meeting, the Joint Legislative Budget
Committee considered the following issues:
Attorney General – Review of Uncollectible Debts – The
Committee gave a favorable review to the Attorney General’s
listing of $16.8 million in uncollectible debt from FY 2005,
with the exception of $3.4 million involving a debtor that can
not be located and $3.4 million involving a now-defunct
corporation that secured a loan from the Department of
Commerce. The favorable review by the Committee will
allow the State Comptroller to remove debt, certified by the
Attorney General (AG) as uncollectible, from the state
accounting system. In addition to the favorable review, the
Committee requested from the Department of Commerce more
information on the loan to the now-defunct corporation.
Attorney General – Review of Allocation of Settlement
Monies – The Committee gave a favorable review of the
allocation plans from the Sony BMG settlement agreement
and the Deed and Note Traders consent degree. The Sony
BMG settlement was due to the company placing anti-copying
software on certain CDs without adequate disclosures to
consumers, which exposed some consumers to computer
viruses. The Deed and Note Traders Consent Decree
settlement was due to the company operating fraudulent home
ownership programs targeted to consumers facing foreclosure
or with bad credit. The General Appropriation Act contains a
footnote that requires JLBC review of the expenditure plan for
settlement monies over $100,000.
Department of Corrections – Consider Approval and Review
of Requested Transfer of Appropriations – The Committee
approved a transfer of $7.5 million to the Overtime/
Compensatory Time (OT/CT) line item. Of this, $6 million
will be transferred from the Department of Correction’s
employee benefits line item. The remaining $1.5 million will
come from the County Jail Beds Special Line Item. These
excess monies occurred due to the cancellation of a contract
with the Coconino County jail for 88 beds. The Committee
also deferred action on transferring monies from the Private
Prison Per Diem SLI to the Provisional Beds SLI until the
department negotiates a contracted rate for replacement beds.
The agency had requested a transfer of $12.3 million.
Department of Education – Review of Kinder Morgan
Settlement – The Committee gave a favorable review to the
Department of Education request to provide $306,400 in
additional Basic State Aid Funding to school districts in Pinal
County due to assessment evaluation changes pertaining to the
recent Kinder Morgan Settlement. At two earlier JLBC
meetings, the Committee favorably reviewed similar requests

Monthly Fiscal Highlights – February 2007

pertaining to school districts in Yuma, Cochise, and Maricopa
Counties. Statute requires that the state make up the lost
revenues as a result of the revised assessment valuation.
Arizona Department of Environmental Quality – Review
of Water Quality Permit Processing Times – The Committee
gave a favorable review to the Department of Environmental
Quality’s (DEQ) report on water quality permit processing
times for FY 2006 and FY 2007. In FY 2006 the department
processed approximately 2,900 water quality permit
applications, with an average staff time of 30 hours per permit,
and a total cost of $4.2 million. In FY 2007, DEQ expects to
process about 3,150 permits, with an average permit time of
31 hours and a total cost of $5.1 million.
In addition to the favorable review, the Committee also asked
DEQ to report by February 26, 2007 on its rationale for not
using $200,000 allocation from the Water Quality Fee Fund in
FY 2007 for additional contract permitting staff, given the
increase in applications.
State Land Department – Consider Approval of Amended
Contract for Permanent Central Arizona Water Delivery – The
Committee approved the State Land Department request to
amend a contract originally approved by the Committee in
1986 which allows the agency to purchase approximately
32,000 acre-feet of Municipal and Industrial (M&I) CAP
water to maintain the value of trusts lands in Maricopa, Pinal
and Pima counties. The amended contract extends the period
of the contract from 50 to 100 years. This amendment does
not change the financial obligations of the State nor does it
change the amount of water purchased by the Land
Department.
Department of Public Safety – Quarterly Review of Arizona
Public Safety Communication Advisory Committee – The
Committee gave a favorable review of first quarter
expenditures for the Public Safety Communication Advisory
Commission (PSCC) statewide interoperability project. First
quarter expenditures totaled $209,700 of the nearly $4.3
million funding. A technical writer position was filled,
bringing the total staff to 7 of 9 positions. The Arizona PSCC
was established to develop a statewide standard based
interoperability system that allows public personnel from one
agency to communicate, via mobile radio, with personnel from
other agencies. The PSCC timeline targets the establishment
of a financing and development plan for the system by July
2008.
Department of Public Safety – Review of Microwave
Communication System Upgrade Expenditures and Progress –
The Committee gave a favorable review to the Department of
Public Safety (DPS) on its expenditures and progress of the
upgrade to its microwave communication system. The
microwave system is the backbone of the DPS statewide radio
system. The system provides dispatch control of radio base
stations and connects 53 remote radio communication sites
and 20 state office locations.

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Joint Legislative Budget Committee

In addition to the favorable review, the Committee requested
the Department include the following with its June 30, 2007
statutory report: 1) an updated cost estimate on the southern
loop of the project and the entire project; 2) an updated
expenditure plan and project timeline for the entire project
which addresses the lack of Homeland Security monies. The
Committee also requested an explanation directly from the
Arizona Department of Homeland Security regarding why the
project has not received federal homeland security monies so
far in FY 2007.
Arizona Department of Revenue – Review of Business
Reengineering/Integrated Tax System Contract Amendment –
The Committee gave a favorable review of the Department of
Revenue’s request for a $2.2 million contract amendment to
continue operation of the Business Reengineering/Integrated
Tax System (BRITS) data center. The amendment extends the
vendor’s operation of the system for 1 year from October 2007
to September 2008. Statute requires any Committee review of
any BRITS contract extension or modification. BRITS is the
computer system being implemented by the DOR to further
automate and integrate their separate tax systems. It was
designed to improve enforcement and ultimately increase
revenues to the state.

Monthly Fiscal Highlights – February 2007

being able to report on the number of residency positions
funded by February 1, 2008.
AHCCCS – Report on Redetermination Policy – Pursuant to
Laws 2006, Chapter 331, AHCCCS has submitted a report to
the Joint Legislative Budget Committee on the effects of
shortening the redetermination period to 6 months for
Temporary Assistance for Needy Families (TANF) Cash
Benefit clients age 21 or older.
According to AHCCCS’ report, a total of 49,959 letters were
sent during a 7-month period (June 2006 through December
2006) to redetermine eligibility. Of that total, their current
status is as follows:
36,488 (73%) – Interviewed
34,865 (95.6%) – Interviewed and retained benefits
A total of 12,408 individuals were terminated because they did
not show up for their redetermination interview.
Approximately 53% of these individuals, however, returned to
the AHCCCS program within 3 months of their initial
termination.

SUMMARY OF RECENT AGENCY REPORTS

Comm. Colleges/Dept. of Economic Security/Dept. of
Education/Universities – Public Programs Eligibility Report
– As enacted by voters at the November 2006 election,
Proposition 300 limits participation in the Adult Education
and Child Care programs to citizens, legal residents, or other
persons lawfully present in the United States. Proposition 300
also prohibits persons who are not citizens, legal residents, or
otherwise lawfully present from being entitled to classification
as an in-state or in-county resident for university or
community college tuition purposes, or from receiving state
funded financial assistance. The proposition requires the state
agencies administering the programs described above (and the
Family Literacy Program) to report twice annually to the Joint
Legislative Budget Committee the total number of persons
qualifying for these programs, as well as the number of
persons deemed ineligible due to their citizenship, residency,
or immigration status.

AHCCCS – Report on Graduate Medical Education
Residency Positions – Pursuant to Laws 2006, Chapter 331,
the Arizona Health Care Cost Containment System
(AHCCCS) has submitted a report on the number of residency
positions created by the additional $4,000,000 General Fund
($12,000,000 Total Funds) appropriated for Graduate Medical
Education in the FY 2007 budget. The agency indicates that
stakeholder meetings were conducted early in the fiscal year to
agree upon a methodology for distributing the funding. On
January 12, 2007, this methodology was filed as a proposed
Rule and is expected to become effective in May or June
2007. Monies will then be distributed to state hospitals as
soon as the Rule is finalized. Due to the timing of these
distributions, AHCCCS indicates that no data is currently
available regarding the number of positions funded with the
FY 2007 appropriation for Graduate Medical Education. After
distributing these monies this summer, AHCCCS anticipates

Reports were received from the universities, community
colleges, and the Department of Economic Security. The
Arizona Department of Education, however, did not provide a
report. The reporting entities indicated that because the
effective date of this legislation was December 7, and the first
report was due December 31, there is no information available
to report, as many of these institutions previously did not
record this type of information. Because of early spring
registrations, however, Cochise County Community College
District provided information on the number of students
entitled to classification as an in-county student, and the
number of students who applied for financial aid. Cochise
reports that none of their students were ineligible either for
classification as an in-county resident or for financial aid
because of citizenship status. The eligibility information
submitted by Cochise was based on self-verification from
students.

Arizona State University – Review of Walter Cronkite
School of Journalism – The Committee gave a favorable
review of Arizona State University’s (ASU) agreement with a
private developer to design and construct the Cronkite School
of Journalism/KAET Channel 8 project.
The project involves the construction of a 217,700 square-foot
6-story building that will cost approximately $71 million. The
construction of the school will be financed with proceeds from
the $188 million bond approved by City of Phoenix voters to
construct and renovate several buildings at ASU’s Downtown
Phoenix Campus. ASU estimates that beginning in FY 2009,
1,800 students attending the Downtown Campus would be
enrolled in the School of Journalism.

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Joint Legislative Budget Committee

Currently, the universities and the community colleges are
developing guidelines for implementation of Proposition 300.
The Arizona Department of Education has indicated that they
are currently waiting for guidance from the Attorney General
before enacting implementation measures. The Department of
Economic Security, under its currently adopted set of rules
and policies, already requires proof of citizenship status for
the Child Care program. The next report from all agencies
affected by Proposition 300 is due June 30.
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 23 business days on March
25, 2005, to 4.2 business days on December 31, 2006. At the
end of the first quarter of FY 2007, the turnaround time was
3.6 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 68 business days on March 25,
2005, to 43 business days on December 31, 2006. At the end
of the first quarter of FY 2007, the turnaround time was 34.8
business days. The commission’s goal for processing regular
filings is 30 business days or less.
The commission updated its corporate filings reporting to
include the processing times for Annual Reports, which has
changed the results of its quarterly reports as well as its
reporting baseline.
Department of Corrections – Report on Community
Accountability Pilot Program – A.R.S. § 41-1609.05 required
the Arizona Department of Corrections to establish a
Community Accountability Pilot Program. Statute authorizes
the department to contract with a private or non-profit entity to
provide supervision and treatment services for eligible
offenders who have violated the terms and conditions of
community supervision.
The department awarded the contract to Redman Investment
Group and the program began on April 13, 2006. As of the
program’s inception in January 2007, a total of 101 eligible
offenders have been referred to the Community Accountability
Pilot Program. Of those referred, 71 offenders, or 70.3%,
were terminated from the program due to committing new
crimes, failed urinalysis tests, absconding, or failure to report
to parole officers. To date, program participants have spent
1,038.1 hours in programming and counseling services.
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

Monthly Fiscal Highlights – February 2007

is also to include potential shortfalls, any estimated surpluses
to offset the shortfalls, and a plan for eliminating the shortfall.
Based on the December 2006 report, the department is now
estimating a FY 2007 shortfall of $(14.2) million, which
matches the Executive supplemental request. This projected
shortfall is an increase of $5.5 million from last month, when
the department projected a shortfall of $(8.7) million.
Department of Corrections – Report on Transition Program
– Pursuant to A.R.S. § 31-285B, the Arizona Department of
Corrections (ADC) is required to submit a quarterly report that
details the cost reductions to the department from an inmate
early release Transition Program. Statute requires ADC to
contract with a private or nonprofit entity to provide eligible
drug offenders with transition services.
The ADC Transition Program began in March 2004. From
October 1 through December 31, 2006, the department reports
that 127 inmates successfully completed the Transition
Program and their term of community supervision. As a
result, there were 8,812 bed days saved and $149,804 in
savings. Since program inception, a total of 754 inmates, or
55.8% of program participants, successfully completed the
Transition Program and their term of community supervision
with savings of 84,806 bed days and $1,441,700. In total,
84.3% of participants that completed the program have
remained in the community without committing additional
offenses.
Arizona Criminal Justice Commission – Report on
Statewide Methamphetamine Interdiction Efforts – Pursuant to
Laws 2006, Chapter 337, the Arizona Criminal Justice
Commission (ACJC) is required to report quarterly with a
summary outlining the use and effectiveness of $3 million
appropriated in FY 2007 for increased methamphetamine
interdiction efforts by the counties.
All monies have been allocated to counties based on the
formula in Chapter 337. ACJC reported that as of December
31, 2006, $5,600 had been spent. Maricopa County reported
the expenditure of $2,300 on consulting and contractual
expenses. Maricopa County has taken on the role of project
coordinator for the Arizona Meth Project (AMP), a multimedia public service program targeting youth, young adults
and their parents. Maricopa County reported finalizing
intergovernmental agreements with 7 counties to use their
methamphetamine funding for AMP.
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 $10.1 million net funding surplus for FY 2007.
ADE had previously reported a surplus of $9.0 million.
Department of Education – Excess Utilities Report –
Pursuant to A.R.S. § 15-910.03(C), the Arizona Department

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Joint Legislative Budget Committee

of Education (ADE) recently provided a report regarding
school district Excess Utilities funding. The report shows that
135 school districts (out of 238 total statewide) budgeted for
Excess Utilities for FY 2007. Of that total, 114 submitted a
statutorily required Excess Utilities report to ADE for FY
2007 and 21 did not. The 114 respondents reported total
budgeted utility costs of $211 million for FY 2007, of which
$89 million was budgeted as “Excess Utilities.” School
districts can increase their local property taxes to fund “Excess
Utilities” through FY 2009 pursuant to A.R.S. §15-910(A-F).
Department of Health Services – Report on Federal 317
Vaccines Program – Pursuant to a footnote in the General
Appropriation Act, the Department of Health Services (DHS)
is reporting to the Committee on the amount of federal monies
received for FY 2007 for the Federal 317 vaccines program.
The Federal 317 Vaccines program provides immunizations to
children in public settings, such as malls and clinics. The
department reports that as of February 1, it has received
$2,089,800 in Federal 317 monies.
In FY 2006, the department received $2,226,400 in Federal
317 Vaccines funding.
Department of Health Services – Report on MethSMART
Prevention Program – Pursuant to Laws 2006, Chapter 337,
Section 5, the Department of Health Services has submitted a
quarterly report on the effectiveness of the department’s
curriculum based methamphetamine prevention services. In
FY 2007, $500,000 was appropriated to the department for
methamphetamine prevention programming for youths.
Grants were provided to 15 Boys and Girls Clubs across the
state to implement the MethSMART prevention program.
The MethSMART program provides separate curriculum for
children, youth, and teens and also includes a workshop for
parents. The department reports that 1,415 youth and teens
have participated in the program since it began in October
2006. Approximately 1,238 of those children and youth
completed the entire MethSMART curriculum for their age
group. The department reports that there was a 13-21%
increase in youth’s knowledge about methamphetamine
following participation in the program.
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
amount, 124 (or 86.7%) are currently filled, as compared to
126 filled at the end of the prior quarter.
DPS currently has 1,359 authorized sworn full-time positions,
including 100 authorized sworn positions for the Gang and
Immigration Intelligence Enforcement Mission (GITEM).
The additional 100 GITEM positions were not reflected in the
1st quarter report. Of the 1,359 authorized sworn positions,
1,119 (or 82.3%) are currently filled. Of the 169 new

Monthly Fiscal Highlights – February 2007

positions funded in the last 2 years, DPS has realized a net
increase of 37 filled positions.
Arizona Board of Regents – Report on Differentiated Tuition
for Students Above the Credit Hour Threshold – A footnote in
the General Appropriation Act requires the Arizona Board of
Regents (ABOR) to report to the JLBC on its plan for
establishing, pursuant to A.R.S. § 15-1626, a differentiated
tuition and fee rate structure for students who have earned
credit hours in excess of the credit hour threshold. The credit
hour threshold is set at 155 hours in FY 2007, 150 hours in
FY 2008, and 145 hours from FY 2009.
In November 2006, ABOR approved a tuition surcharge equal
to 20% of the resident undergraduate tuition for the 2007-2008
academic year for all resident and non-resident undergraduate
students in excess of the 150 credit hour threshold. For
students taking 1 to 6 credit hours, the surcharge is based on a
per-credit-hour charge. For students taking 7 or more credit
hours, the surcharge is 20% of full-time tuition. The
following table displays resident undergraduate tuition rates
and the surcharge amounts for students taking 7 or more credit
hours in FY 2008 by campus:
Table 5
FY 2008 Arizona University System
Resident Undergraduate Tuition & Threshold Surcharge

ASU Main
ASU East & West
NAU
UA Main & HSC

Tuition Rate
$4,821
4,620
4,595
4,824

Above Threshold
Surcharge
$964
924
919
965

Arizona Board of Regents/University of Arizona College of
Medicine – Report on Phoenix Update – Pursuant to a
General Appropriation Act footnote, the Arizona Board of
Regents (ABOR), with input from the University of Arizona
(UA) and Arizona State University (ASU), is required to
provide an update to the JLBC on the University of Arizona
Phoenix Medical Campus.
ABOR previously submitted a report on the Phoenix Medical
Campus on September 15, 2006. The report submitted by
ABOR on February 15, 2007 includes updated information on
the following topics:
Formal Relationships with Area Hospitals – In December
2006, the College of Medicine entered into a memorandum of
understanding (MOU) with Banner Health, under which
Banner Health will become the college’s primary academic
hospital affiliation in Phoenix. According to the MOU,
Banner Health will construct a new teaching hospital on the
Phoenix Biomedical Campus and build a new comprehensive
cancer center in conjunction with the UA College of
Medicine’s Arizona Cancer Center. In addition to their
affiliation with Banner Health, the college will establish an
academic affiliation with the Maricopa Integrated Health
System.
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Joint Legislative Budget Committee

Creation of New Residencies – Once it is operational, the
Banner Health teaching hospital will be eligible to establish
new residency positions that could be funded under the federal
Medicare program. The new cancer center would also add
residency positions.
In their August 15th update, ABOR reported that the College
of Medicine intended to seek accreditation for 7 or more
residency programs scheduled to start in July 2008. The UA
College of Medicine now reports that they will seek
accreditation for 8 residency programs, of which 6 will start in
2008 and 2 will start in 2009. Once all 8 programs are fully
operational in 2012, they will establish an estimated 118 new
resident position.
Additional Reporting Requirements – ABOR’s report does not
include further updates from the August 15th report on the
availability of clinical rotations for medical students in the
state, the expansion of medical services in the state’s rural
areas, and their partnerships with private medical schools. In
February 2007, the Phoenix program curriculum received
accreditation from the Liaison Committee on Medical
Education, the accrediting body for the College of Medicine.
Arizona Department of Transportation – Quarterly Report
on Motor Vehicle Division Wait Times – 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. 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 63, or
9%, from 698 in FY 2006 to 761 in the 1st half of FY 2007,
with a resultant decrease in customer wait time from receiving
a ticket until arriving at the counter of (8.6) minutes, or
(30.9)%, from 27.8 minutes in FY 2006 to 19.2 minutes in the
1st half of FY 2007. A pilot program at 4 MVD offices (South
Mountain, Scottsdale, Northwest Phoenix and East Mesa)
showed an additional wait time of 6.6 minutes from arrival at
the office until receiving a numbered ticket.
Arizona State University – Guaranteed Tuition Pilot Plan –
A footnote in the General Appropriation Act requires Arizona
State University (ASU) to report to the Joint Legislative
Budget Committee by December 1, 2006 on the development
of a 4-year pilot program for an optional flat rate tuition for
incoming undergraduate students beginning in academic year
2007-2008.
The Arizona Board of Regents (ABOR) approves tuition
increases for the upcoming academic year in the fall. As a
general guideline, ABOR approves tuition rates that would
rank in the top of the bottom third of tuition charged by all
other public universities. The flat rate tuition pilot program
will allow students to pay a guaranteed yearly tuition rate.
The program applies to tuition only, allowing all student fees
to be assessed at the same rate. The pilot program will be
implemented at all ASU campuses and will be offered for 4-

Monthly Fiscal Highlights – February 2007

year, 3-year, and 2-year guarantee periods. Students that
choose the flat rate tuition option cannot elect to pay the
yearly tuition rate until their guarantee period ends.
The following table displays guaranteed tuition rates at each
campus and for each guarantee period in the 2007 – 2008
academic year:
Table 6
Arizona State University
Guaranteed Rate Tuition Pilot Program
4 Year
3 Year
2 Year

Tempe & Downtown
5,635
5,407
5,189

East & West
5,402
5,183
4,974

By contrast, the 2007-2008 academic year tuition rate at the
Tempe and Downtown campuses will be $4,821 and the
tuition rate at the East and West campuses will be $4,620.
These rates would have to increase by 10.5% on average each
year for total tuition paid over a 4-year period to equal the
total amount of tuition paid under the flat rate option.
Arizona Department of Water Resources – Report on Fee
Collections in the Assured and Adequate Water Supply Fund –
Pursuant to a FY 2007 General Appropriation Act footnote,
the Arizona Department of Water Resources (DWR) is
required to report quarterly on the amount of fees collected by
the Assured and Adequate Water Supply (AAWS) Program.
Laws 2005, Chapter 217 established the AAWS
Administration Fund to provide for the costs of the AAWS
Program. New fees were approved in September 2006.
Collections in the first quarter of FY 2007 amounted to
$74,500. The collections in the second quarter amounted to
$250,200, making the total collections in the first half of FY
2007 approximately $324,700. DWR anticipates that the fees
will eventually generate approximately $1,100,000 per year
for the operations of the AAWS program.
OTHER ISSUES
Attorney General Settlement Allocation
In 2003, the Attorney General’s office successfully prosecuted
C.P. Direct, a Scottsdale-based company that marketed
nutritional supplements, for fraud and money laundering. As a
result of the lawsuit, C.P. Direct forfeited $28.7 million to the
state. Of this amount, the Attorney General’s office has
allocated $25.6 million, while $3.1 million remains
unallocated. The allocations to date include:
•
•

$17.7 million to the Department of Public Safety (DPS)
for construction of a new crime lab;
$2.2 million to DPS for the detail design phase of a fully
interoperable communications system for public safety
agencies' communications statewide;

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Joint Legislative Budget Committee

•
•
•
•

$2.1 million to the Arizona Criminal Justice commission
for victim compensation;
$1.5 million to the Attorney General Anti-Racketeering
Fund;
$1.4 million to DPS to replace personal computers;
$0.7 million to DPS for a tri-agency disaster recovery
system;

The Executive’s FY 2008 proposed budget had originally
included General Fund monies to fund the interoperable
communications system, personal computer replacement, and
the tri-agency disaster recovery system, while the JLBC
Baseline included General Fund monies for only the
interoperable communications system. On February 12, 2007,
the Joint Appropriations Subcommittee on Transportation and
Criminal Justice adopted a motion to specify legislative intent
that all 3 of these items be funded with monies from the
settlement.
State Appropriations Limit
A.R.S. § 41-1273 requires JLBC Staff to annually report on
how state spending compares to the constitutional
appropriations limit. The Arizona Constitution limits the
appropriation of certain state revenues to no more than 7.41%
of Arizona personal income. Under the January JLBC
Baseline budget, total FY 2007 state appropriations (both
General and Other Funds) would be $13.79 billion, or 6.83%
of personal income. The FY 2008 JLBC Baseline includes
spending of $14.03 billion, which is 6.45% of personal
income.

Monthly Fiscal Highlights – February 2007

Table 7
K-12 Education Tax Rates
FY 2007

FY 2008

Unified QTR

$3.4788

$3.2040

Non-Unified QTR

$1.7394

$1.6020

Based on the most recent information submitted by county
assessors, statewide assessed values are expected to increase
by 15.2% in FY 2007, of which 6.6% would be due to new
construction, and 8.6% would be due to the higher value of
existing properties. The TNT adjustment is made to only
offset growth in the assessed valuation of existing property.
Since the state share of K-12 education costs depends on the
amount of revenues generated from the QTR and the County
Equalization Tax Rate, any reduction in these rates requires
the state to provide the Arizona Department of Education
(ADE) with additional funding. Based on the forecasted
growth rate of 5.6% in existing NAV, the FY 2008 JLBC
Baseline already included additional funding to ADE. Since
actual existing rates grew by 8.6%, the QTR will need to be
adjusted lower. As a result, the JLBC Baseline would need to
be adjusted upward by $19.0 million to fund the revised rates.
Of this total, $2.0 million would fund additional Homeowner’s
Rebate costs resulting from the increase in existing NAV.

Revenues subject to the limit include: 1) taxes, 2) university
collections, and 3) licenses, fees, and permits. These revenues
may either be deposited in the General Fund or used for a
dedicated purpose. The following appropriated revenues are
not subject to the limit: 1) interest and dividends earnings,
2) sales, rentals, and service receipts, 3) federal grants, 4) gifts
and donations, and 5) monies received by the state as a trustee,
custodian, or agent.
Truth in Taxation K-12 Property Tax Rates
A.R.S. § 41-1276 requires the JLBC Staff to annually
calculate and report the Truth in Taxation (TNT) adjustments
to the K-12 property tax rates. The K-12 property tax rates
consist of the Qualifying Tax Rate (QTR) and the County
Equalization Tax Rate; however, the County Equalization Tax
Rate was suspended from FY 2007 through FY 2009.
Each year these rates are adjusted to offset increases in the
valuation of existing property, with the intended result of
producing no change in statewide property tax liability. The
following table displays the current rates, as well as the new
rates after making the adjustment.

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State of Arizona
General Fund Revenue: Change from Previous Year and June Forecast
January 2007
Current Month

FY 2007 YTD (Seven Months)

Change From
Actual

January 2006

January 2007

Amount

Change from
Actual

Forecast

Percent

Amount

Percent

January 2006

January 2007

Amount

Forecast

Percent

Amount

Percent

Taxes
Sales and Use

439,996,411

$19,714,084

Income - Individual

544,268,647

82,698,699

17.9

35,623,547

7.0

- Corporate

37,266,911

3,260,627

9.6

Property
Luxury
Insurance Premium
Estate
Other Taxes
Sub-Total Taxes

4.7 %

($7,048,589)

(1.6) %

$2,668,311,971

$201,970,454

2,331,342,727

201,816,941

8.2 %
9.5

$23,511,471
(6,235,373)

(0.3)

0.9 %

55,802,378

11.8

(1,958,889)

(5.0)

528,174,278

95,399,253

22.0

(711,450)

--

(106,275)

--

13,383,086

(1,007,117)

(7.0)

(1,733,768)

(28.6)

(1,305,006)

(23.2)

42,080,897

4,221,210

11.1

2,705,897

6.9

414,042

364.2

(3,728,263)

(87.6)

144,292,606

6,943,851

5.1

8,736,606

6.4

2,716

(511,374)

(99.5)

2,716

73,441

(4,636)

(5.9)

8,316

(106,275)
4,319,994
527,737

$1,026,349,582

$103,126,224

11.2 %

$21,487,557

-12.8
2.1 %

(949,957)
387,711
$5,727,023,319

(516,914)

(3.7)

(11,840,631)

--

(1,149,957)

--

(10,069)

(2.5)

(68,164)

(15.0)

$497,493,892

9.5 %

$82,785,944

1.5 %

Other Revenue
Lottery

2,891,100

(267,100)

(8.5)

License, Fees and Permits

2,893,478

43,965

1.5

10,083,838

3,764,880

59.6

Sales and Services

7,839,672

339,384

Other Miscellaneous

3,100,966

1,398,526

Interest

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

(2,908,900)

(50.2)

18,916,400

(5,484,600)

(22.5)

(9,683,600)

(33.9)

(443,222)

(13.3)

25,293,184

6,929,124

37.7

3,537,684

16.3

3,483,838

52.8

53,696,097

25,658,909

91.5

19,096,097

55.2

4.5

416,272

5.6

28,448,387

(3,333,203)

(10.5)

(2,296,313)

82.1

1,779,466

134.7

18,709,205

4,768,770

34.2

9,943,705

0

0

--

0

4,896,696

(7,463,289)

(60.4)

3,196,696

31,705,750

(2,183,634)

$1,058,055,332

$100,942,590

-188.0

0

0

--

0

7,829,593

(8,876,499)

(53.1)

929,593

(7.5)
113.4
-13.5

(6.4) %

5,524,150

21.1 %

152,892,866

19,662,501

14.8 %

21,527,166

16.4 %

10.5 %

$27,011,707

2.6 %

$5,879,916,185

$517,156,393

9.6 %

$104,313,110

1.8 %

One-Time Revenue
Urban Revenue Sharing
Sub-Total Transfers In
TOTAL REVENUE

(45,935,888)

(10,500,144)

29.6

0

0.0

(321,551,216)

(73,501,009)

29.6

0

0.0

(45,935,888)

(10,500,144)

29.6 %

0

0.0 %

(321,551,216)

(73,501,009)

29.6 %

0

0.0 %

9.8 %

$27,011,707

2.7 %

8.7 %

$104,313,110

1.9 %

$1,012,119,444

$90,442,446

$5,558,364,969

$443,655,384

Table 8