JLBC - Monthly Fiscal Highlights

1716 W. Adams
Phoenix, AZ 85007
Phone:
(602) 926-5491
Fax:
(602) 926-5416

www.azleg.gov/jlbc.htm

What’s Inside
May General Fund revenue collections were
$735.2 million, or (13.9)% below May 2006. This
amount was $(165.5) million below the monthly
forecast based on the recently enacted state
budget. For the fiscal year-to-date, collections
are $(139.2) million below the enacted
forecast. (See Table 3 on page 3.)
Based on partial month data, we first reported
last month that revenues would likely be below
forecast in May. Now with full May data, the
magnitude of the shortfall is clearer. The May
results are primarily due to a decline in the level
of individual income tax collections; however,
sales and corporate income tax collections
were also below forecast in May. For the major
categories:
• Individual income tax collections were (27)%
below May 2006 and $(113.6) million below
the recently enacted budget forecast.

“For the fiscal
year-to-date,
collections are
$(139.2) million
below the

• Sales tax revenue growth was at the lowest
level in more than 4 years. May collections
fell short of the forecast by $(34.7) million.
• Corporate income tax collections also fared
poorly in May, with revenues declining by
(9.6)% from last year.
Overall, revenue collections have slowed for
the following reasons:

• The decline in construction activity. The real
estate market expanded considerably in FY
2005 and FY 2006 and produced some of
these one-time gains. As this sector has
receded, there has been a corresponding
slowdown in revenue collections and
construction employment. On a month-overmonth basis, construction employment
declined by 900 jobs in May. By way of
comparison, the 10-year average growth in
May construction employment is 2,200 jobs.
• A slower national economy. The national
economy has also slowed in FY 2007. For
example, the national Gross Domestic
Product (GDP) grew 0.6% in the first quarter of
2007, the lowest level since 2002. The
slowdown is being felt across the county.
Nationally, state and local government tax
collections in the first quarter of 2007 grew at
their lowest level since 2003.

Table of Contents
May Revenues .................................................................. 3
Recent Economic Indicators .......................................... 4
JCCR Meeting Summary
• ADOT – Asphalt Storage Tanks ................................... 5
• ADOT – De-Icer Buildings............................................. 5
• ASU – Building Renovation .......................................... 5
• NAU – Dining Expansion Project................................. 5

This report has been
prepared for the Arizona
Legislature by the Joint
Legislative Budget
Committee Staff on June
29, 2007.

• One-time FY 2006 gains were not repeated.
General Fund revenues increased 20% in FY
2006, prior to tax law adjustments. During this
same time period, Arizona personal income
grew 9%. This suggests that a portion of FY
2006 state revenue collections were onetime, given that collections grew at a rate
much faster than the underlying state
economy.

In general, the enacted budget forecast
captured the “soft landing” of Arizona revenue

enacted
forecast.”

June 2007

JLBC Meeting Summary
• Atty Gen – Allocation of Settlement Monies............ 6
• ADC – Transfer of Appropriations .............................. 6
• ACJC – Victim Compensation and Assistance ....... 6
• DES – Transfer of Appropriations ................................ 6
• ADE – Xanterra Settlement ......................................... 6
• DPS – Public Safety Communications Advisory
Commission ................................................................... 6

Summary of Recent Agency Reports
• AHCCCS – Healthcare Group.................................... 7
• ACJC – Methamphetamine Interdiction ................ 7
• Economic Estimates Commission – Budget
Stabilization Fund ........................................................ 7
• DES – Retained Earnings, Fees, and Federal
Incentives ..................................................................... 7
• ADE – Budget Status Report ...................................... 8
• DHS – MethSMART Prevention Program ................... 8
• DOR – General Fund Enforcement Revenue .......... 8
• SFB – New School Construction ................................ 8
Other Issues
• DEMA – Emergency Funding...................................... 9
• DHS – Health Crisis Fund Expenditures ..................... 9

2

JLBC – MONTHLY FISCAL HIGHLIGHTS – JUNE 2007

What’s Inside
“It is too early to
predict the FY
2008 implications
of falling below
the forecast. In
the short-term,
the FY 2007
budget will
remain
balanced.”

(continued)

collections in FY 2007 compared to the
extraordinary growth of the prior 2 years. The
deceleration, however, is slightly faster than
projected, which now leaves overall revenue
growth about 1.4% lower than anticipated.
Preliminary figures from June suggest that the
state is unlikely to improve on the year-to-date
revenue shortfall of $(140) million by the end of
the fiscal year. June will probably cause the
state to end up further below the forecast, but
the magnitude of the monthly June decline is
likely to be significantly less than May.
It is too early to predict the FY 2008 implications
of falling below the forecast. In the short-term,
the FY 2007 budget will remain balanced. The
recently enacted budget includes a projected
year end FY 2007 surplus of almost $530 million.
If FY 2007 year-end revenues were to end up
$(140) million below forecast, for example, the
carry forward into FY 2008 would be reduced to
$390 million.
In FY 2008, the enacted budget has a year-end
balance of less than $1 million. Therefore, a
$(140) million shortfall in the FY 2007 carry
forward would create a cash shortfall at the
end of FY 2008 unless this was offset by better
than expected performance in other budget
assumptions.

“The overall

FY 2008 state
budget picture
may not come
into better focus
for at least a
minimum of 3 or
4 months.”

For example, the enacted budget includes a
forecasted growth rate in base revenue of 6.0%
for FY 2008, prior to tax law adjustments. To
generate an additional $140 million in FY 2008
to offset the FY 2007 loss, base FY 2008 revenues
would instead have to increase by 7.4%. The
possibility of achieving this higher growth rate
remains to be seen.
The FY 2008 cash balance will also depend on
the actual level of state spending compared to
projections. Recent news on that front has
been mixed. For example, the Arizona
Department of Education now estimates a FY
2007 surplus of $40.4 million. Previously, the
department had estimated a $14.3 million
surplus.
On the other hand, the School Facilities Board
reported on June 20th a potential $80 million FY
2008 shortfall. The SFB estimates a $40 million
shortfall in FY 2007 and FY 2008, or a total of $80
million for both years. The shortfall is the result of
expenditures for projects approved in prior
years occurring more quickly than expected, a

higher level of FY 2007 approvals than originally
anticipated (which impacts FY 2008
expenditures), and SFB providing additional
inflationary funding for individual projects.
To address the FY 2007 shortfall, the Board plans
to shift some FY 2007 expenditures into FY 2008
and temporarily transfer funds from other
sources. For FY 2008, the Board has stated that
it “would caution the committee (JCCR)
against relying too heavily on these projections.
The SFB has limited control over when and how
quickly districts choose to build awarded
schools.”
In summary, the overall FY 2008 state budget
picture may not come into better focus for at
least a minimum of 3 or 4 months. By
September, a preliminary estimate of the FY
2007 book-closing will be reported, which
determines the carry-forward into FY 2008. In
addition, that period of time will allow us to
assess actual FY 2008 revenue trends.
The Monthly Fiscal Highlights also include a
summary of the June JLBC and JCCR meetings
(pages 5-6), and a summary of recent statutory
reports submitted to JLBC (pages 7-8).

JLBC – MONTHLY FISCAL HIGHLIGHTS – JUNE 2007

3

May Revenues
Sales Tax collections were $357.6 million in May,
or (1.3)% below last year. This amount,
however, reflects an adjustment the
Department of Revenue made to the retail and
use categories to correct a prior month
accounting error. Without the adjustment, May
collections would have been about $364
million, or 0.4% above last year. This is the
lowest rate of monthly sales tax growth since
February 2003. Table 1 displays the May and
year-to-date growth rates for the major
categories.
Table 1

Sales Tax Growth Rates
May
Retail
5.0%
Contracting
(0.2)%
Utilities
8.7%
Use
(71.6)%
Restaurant & Bar
6.3%

YTD
4.1%
11.3%
12.8%
(4.9)%
8.3%

Due to the adjustment, the May results for
individual categories are somewhat misleading.
Without the adjustment, retail would have
actually decreased by (2.4)%, while use tax
collections would have increased by 16.1%.
Among the other categories, contracting
collections continued to be lower than last
year. Overall, collections for the month were
$(34.7) million below the forecast. Year-todate, revenues are $(93.1) million less than the
forecast.
Individual Income Tax collections were $310.3
million in May, or (26.8)% below last year. Prior
to this month, yearly revenues were running
above forecast. May collections, however,
were $(113.6) million less than expected, driving
the year-to-date total to $(61.6) million below
the forecast. Table 2 displays the May and
year-to-date growth rates for individual
categories.

Table 2

Individual Income Tax Growth Rates
May
YTD
Withholding
4.5%
8.8%
Estimated +
(33.3)%
4.8%
Final Payments
Refunds
35.4%
27.0%

While withholding was positive, the growth was
less than prior months. The primary reason
individual collections were below forecast,
however, was the decline in final payments.
Compared to last May, final payments
decreased $(86.3) million. This reduction likely
reflects a significant decline in the level of
payments made on capital gains. In FY 2005
and FY 2006, capital gains reported to the
Internal Revenue Service from Arizona
taxpayers increased 90.6% and 69.3%,
respectively. These one-time gains in prior years
have resulted in a substantial slowdown in the
current year.

“This is the lowest

rate of monthly
sales tax growth
since February
2003.”

Corporate Income Tax collections were $47.8
million in May, or (9.6)% below last year.
Following several months of positive growth,
May revenues decreased from last year. For
the month, collections were $(15.7) million
below the enacted forecast. Even though
corporate revenues were below expectations
in May, for the year-to-date they are 17.7%
above last year and $7.5 million above the
forecast.

“These one-time

gains in prior
years have
resulted in a
substantial

Table 3

General Fund Revenues
Compared to Enacted Forecast and FY 2006 Collections
($ in Millions)
FY 2007
Difference From
Difference
Collections June 2007 Forecast 1/ From FY 2006
May
$ 735.2
$ (165.5)
$ (118.4)
Year-to Date
$ 8,579.7
$ (139.2)
$ 395.7
____________
1/ Enacted FY 2008 budget (June 2007).

slowdown in the
current year.”

4

JLBC – MONTHLY FISCAL HIGHLIGHTS – JUNE 2007

Recent Economic Indicators
“Final” U.S. Gross Domestic Product (GDP)
estimates for 2007’s 1st quarter reflected a small
revision, from 0.6% to 0.7%, in the economy’s
annual growth pace. Although changes in the
estimates for net exports and personal consumption expenditures boosted the growth estimate
slightly, it was still the economy’s worst performance since 2002’s 4th quarter. Although
corporate profits increased by 1.4% in the 1st
quarter and by 6.5% on a year-over-year basis,
this was well below the double-digit growth rates
registered in recent years.

“The
manufacturing
sector endured a
loss of 300 jobs in
May and was
down (0.4)% from
a year ago.”

U.S. semiconductor billings dropped again in
April (3-month moving average), this time by
(3.0)%. Sales by American manufacturers continued to lag last year’s results by (10.0)%. The
Semiconductor Industry Association (SIA) cited
competitive market conditions and falling prices
in major industry segments as the forces driving
sales revenue lower. SIA reported that unit sales
were up by almost 10% from a year ago.
The U.S. Index of Leading Economic Indicators
advanced 0.3% in May, which followed a revised
0.3% decline in April. The index has remained in
a holding pattern for several months and stands
at the same level reported at the beginning of
2007. May’s improvement was led by rising stock
prices and falling unemployment insurance
claims, while interest rates and manufacturing
hours worked made negative contributions.
The U.S. Consumer Confidence Index retreated
(4.2)% in June and reached its lowest level since
August 2006. The Conference Board reported
that the decline in consumer sentiment was
mostly due to a lower appraisal of current
conditions and a dimmer view of job market
prospects.
Soaring gasoline prices in most of the nation
continued to fuel inflation in May. The U.S.
Consumer Price Index (CPI) (3-month moving
average) jumped 0.7% for the 3rd month in a
row. Petroleum-based energy prices rose 9.8% in
May, while food prices increased 0.3%, slightly
less than the prior month. Excluding the impact
of food and fuel, the core CPI rose 0.1% in May
and was 2.2% higher than a year ago.
Arizona’s economy continued to show slower
growth in May. Total non-farm employment
edged down by (1,100) jobs, to 2.73 million,
which was 3.3% higher than a year ago.
Construction employment, which normally
increases by 1,900 in May (based on its 10-year
average), dropped by (900) in May 2007. The
special trades segment that is most closely
associated with the housing industry lost (800)
jobs in May and now stands (4.2)% below its

October 2006 peak. The manufacturing sector
endured a loss of 300 jobs in May and was down
(0.4)% from a year ago. In spite of the losses in
these key sectors, the state’s unemployment rate
dipped to 3.6% in May, well below the 4.5% U.S.
average.
The Arizona Business Conditions Index (BCI) also
lost ground. May’s reading of 59.3 was (1.3)%
below the previous month’s result but remained
above the mark of 50 associated with an
expanding economy. A large drop in the
employment component was the main factor
pushing the index lower, while improvements in
production and new orders helped to cushion the
blow and set the stage for better results in the
months ahead.
The Realty Studies group at Arizona State
University reported that that the Greater Phoenix
single-family median sales price decreased from
$265,000 to $262,000 in May, a (1.1)% year-over
year decline. The number of existing singlefamily homes sold increased in May from April but
was (24.0)% below last year’s total and was less
than half the number of sales reported for May
2005.
The attached-home market continued to
compare favorably. The townhousecondominium median sales price reached a
record $184,990 in May and stood 5.7% higher
than a year ago. The number of units sold
dropped (4.6)% from the prior month and by
(15.3)% on a year-over-year basis.
The state’s muted economic performance was
evident in other statistics. Arizona personal
income totaled $202.3 billion (seasonally adjusted
annual rate) in 2007’s 1st quarter, reflecting a
year-over-year growth rate of 6.2%. The state’s
personal income grew between 8.5% and 9.0%
from 2004 through 2006.
The Department of Corrections’ inmate population increased by an average of 275 inmates per
month from March through May, which was
similar to the prior period’s results. The total
population grew by 2,260 inmates from a year
ago, a 6.6% increase. The budget for FY 2008
anticipates inmate population growth of 1,920, or
a net increase of 160 inmates per month.
The number of TANF recipients decreased (1.4)%
to 78,713 in April and was (10.3)% below the level
reported in April 2006. The FY 2008 budget
projects the TANF caseload will grow by 2.5%.
The AHCCCS caseload climbed 0.3% in June and
now stands 0.8% higher than the total from a year
ago. The FY 2008 budget projects growth of 1.9%
from June 2007 to June 2008.

JLBC – MONTHLY FISCAL HIGHLIGHTS – JUNE 2007

5

Recent Economic Indicators (Continued)
Table 4

RECENT ECONOMIC INDICATORS
Indicator
Arizona
- Unemployment Rate
- Non-Farm Employment – Total
Manufacturing
Construction
- 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
- 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

May
May
May
May
Mar-May
Mar-May

3.6%
2.73 million
186,400
246,000
$76.2 million
$172.7 million

(0.4)%
(0.0)%
(0.2)%
(0.4)%
(7.0)%
(4.1)%

(0.5)%
3.3%
(0.4)%
1.3%
(0.7)%
3.5%

Feb-Apr
Feb-Apr

4,069
1,452

2.7%
7.7%

(26.1)%
41.7%

May
May

5,220
1,245

7.5%
(4.6)%

(24.0)%
(15.3)%

May
May
April
March

$262,000
$184,990
3.61 million
$9.53

(1.1)%
0.0%
(7.4)%
5.5%

(1.1)%
5.7%
1.3%
30.9%

March
May

120.4
59.3

0.2%
(1.3)%

0.2%
(0.9)%

1st Quarter 2007
2nd Quarter 2007
1st Quarter 2007
July 1, 2006
June
April
Mar-May

106.3
53.0
$202.3 billion
6.17 million
1,050,017
78,713
36,553

1st Quarter 2007

$11.5 trillion

0.7%

1.9%

June
May
Feb-Apr
Mar-May

103.9
138.0
$3.24 billion
206.7

(4.2)%
0.3%
(3.0)%
0.7%

(1.4)%
0.3%
(10.0)%
2.7%

0.9%
2.1%
2.1%
3.6%
0.3%
(1.4)%
275 inmates

(3.7)%
(8.6)%
6.2%
3.6%
0.8%
(10.3)%
2,260 inmates

JCCR Meeting
At its June 19, 2007 meeting, the Joint
Committee on Capital Review (JCCR)
considered the following issues:

highways during winter months. The
buildings will be located in Springerville,
Indian Pine, Page, and Flagstaff.

Arizona Department of Transportation
– Review of Asphalt Storage Tanks
Project – The Committee gave a
favorable review to the proposal to
expend $1.1 million for the installation
of 4 asphalt storage tanks, concrete
containment basins, and the disposal
of existing tanks.

Arizona State University – Review of
Revised Scope of Academic
Renovations – The Committee gave a
favorable review to a scope revision in
the Physics Chair Renovation project,
which is increasing from $1.1 million to
$1.9 million. ASU originally proposed
to renovate 2,300 square feet of
space. The university now plans to
renovate 4,500 square feet, resulting in
the cost increase. The additional
square feet will allow ASU to house
more research space.

Arizona Department of Transportation
– Review of De-Icer Buildings Project –
The Committee gave a favorable
review to the proposal to expend $1.5
million for the construction of 4 new
buildings to house chemicals, bulk
sand, and cinders used to de-ice

Northern Arizona University – Review
of Dining Expansion Bond Project – The

Committee gave a favorable review
to the dining expansion project, to be
financed with $9.5 million in system
revenue bonds. The debt service on
the bonds will be paid with auxiliary
funds, which includes dorm and
dining fees. The project is a 26,000
square foot, two-story dining hall
addition to the north side of the
existing student union. The expansion
would add a dining capacity of 450.
While the Committee gave the
proposal a favorable review, some
members expressed concerns over
the justification for additional space.
As a result, JLBC Staff has requested
further information from NAU.

6

JLBC – MONTHLY FISCAL HIGHLIGHTS – JUNE 2007

JLBC Meeting
At its June 19, 2007 meeting, the Joint Legislative
Budget Committee (JLBC) considered the
following issues:
Attorney General – Review of Allocations of
Settlement Monies – The Committee took no
action regarding the Office of the Attorney
General’s (AG) notification of the allocation of
monies received from the Purdue Pharma L.P.
consent judgment. In May 2007, the Attorney
General and 25 other states entered into a
consent judgment with Purdue as a result of
allegations the company encouraged doctors
to prescribe the pain drug, OxyContin, for uses
not approved by the Federal Drug Administration (FDA). The Chairman requested that the
AG provide further detail of the costs incurred
during the litigation and how they plan to
allocate the $717,500 awarded them in this
case.
Arizona Department of Corrections – Consider
Approval and Review of Requested Transfer of
Appropriations – The Committee gave a
favorable review to nearly $4.2 million in
transfers within the department’s budget. The
largest transfers include $2.3 million to Overtime/
Compensation Time and $1.3 million to
Correctional Officer Personal Services. The
largest sources of surplus are $2.1 million from
the Out of State Rented Provisional Beds and
$1.5 million from Private Prisons. The $2.1 million
available from the Provisional Beds resulted
from the department not filling all of the 1,260
Indiana beds as scheduled due to an April 24
disturbance at the facility. Only 630 Arizona
inmates are currently housed in Indiana and
the department does not anticipate transferring
the other 630 inmates until the department has
finished its investigation and is satisfied with the
conditions at the facility. The Chairman
requested that DOC continue to apprise the
Committee of the status of filling the Indiana
provisional beds.
Arizona Criminal Justice Commission – Review
of Intended Use of Monies in the Victim
Compensation and Assistance Fund – The
Committee gave a favorable review to the
planned expenditure of $300,000 above the
appropriated level for the Victim Compensation
and Assistance Fund. A footnote in the
General Appropriation Act allows additional
monies in excess of the appropriated amount
be spent by the Commission with JLBC review.
The fund will receive an estimated $2.9 million
due to an Attorney General fraud prosecution.

The Commission plans to draw down $300,000
annually to increase funding for the Victim
Compensation Program through FY 2016. The
transfer increases the projected FY 2008 Victim
Compensation Program size from $2.5 million to
$2.8 million.
Department of Education – Review of Xanterra
Settlement – The Committee gave a favorable
review to the ADE’s plan to provide school
districts in Coconino County with $1,002,600 in
corrected Basic State Aid funding due to a
recent settlement in the Arizona Tax Court. The
funding plan conforms with statutory requirements regarding state aid corrections required
as a result of Arizona Tax Court decisions.
Department of Public Safety – Quarterly Review
of the Arizona Public Safety Communications
Advisory Commission – The Committee gave a
favorable review to the FY 2007 third quarter
expenditures and progress for the statewide
interoperability design project. Third quarter
expenditures were about $250,000, leaving
approximately $3.5 million for the remainder of
FY 2007. Third quarter expenditures included
$122,200 for costs associated with 7 FTE Positions
and $125,100 to a consulting firm for the
conceptual design of the long-term interoperability solution. The Commission expects that in
July 2007, the U.S. Departments of Commerce
and Homeland Security will announce awards
to states for statewide interoperability
communications systems, using proceeds from
a commercial radio spectrum sale, anticipated
at $960 million. These federal dollars will help
defray the state’s cost of the interoperability
project and will be distributed based on a risk
assessment formula.
Department of Economic Security – Review of
Requested Transfer Appropriations – The
Committee reviewed $24.3 million of requested
budget transfers that address most of DES’
projected $28.5 million FY 2008 shortfall. The
Committee gave an unfavorable review to the
requested $6 million transfer to the Division of
Benefit and Medical Eligibility (DBME) operating
budget due to concerns with using savings from
declining entitlement benefits to fund
administrative expansion. DES is expected to
have a surplus of at least $14 million due to
declining welfare caseloads, which would fund
the bulk of these transfers. The Committee has
requested that DES report back on July 15, 2007
on how the department ultimately solved the
entire shortfall.

JLBC – MONTHLY FISCAL HIGHLIGHTS – JUNE 2007

Summary of Recent Agency Reports
AHCCCS – Semi-Annual Report on Healthcare
Group – Pursuant to A.R.S. § 36-2912 AHCCCS
submitted its semi-annual report to the
Committee on the number and types of
businesses participating in Healthcare Group
(HCG). AHCCCS reports that, as of May 13,
2007, total statewide HCG medical plan
enrollment was 26,914, with participating
members from 9,316 private employers and 16
political subdivisions. AHCCCS reports that
since May 2006, enrollment has increased by
6,116 people, or 29.4% in HCG medical plans.

Maricopa County had spent $2,300 on
consulting and contractual expenses related to
the Arizona Meth Project (AMP), a multimedia
public service program targeting youth, young
adults and their parents. Maricopa County has
taken on the role of project coordinator for the
statewide program, and ACJC reported
Maricopa County had finalized intergovernmental agreements with 8 other counties to use
Chapter 337 funding for AMP. Greenlee
County is participating in AMP using funding
from private sources.

HCG notes that member retention has
remained at 98% from May 2006 to May 2007.

Santa Cruz County also spent $1,300 on a law
enforcement and prevention project called
Weed and Seed, which included drug activity
surveillance and officer training.

In addition to the aforementioned information,
the report also included the following
information:
• 19,949 individuals in Maricopa and Pima
Counties were enrolled, which represents a
28.3% increase over May 2006 total of 15,543.
• 6,965 individuals were enrolled in all Arizona
counties except Maricopa and Pima, which
represents a 33% increase from May 2006.
• 73.4% of employer groups were one person
businesses, as compared to 75.7% in May.
One person businesses represented 45.3% of
all HCG members in May 2007.
• HCG employers with 10 or more eligible
employees represented 8% of total members
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 March 31, 2007, $28,300 had
been spent by 4 counties. Of this amount,
Navajo and Greenlee Counties had spent the
most to date. Navajo County had expended
$12,700 on its Major Crimes Apprehension
Team, which included purchasing a drugdetecting dog and training for the dog and its
police handler. Greenlee County spent $12,000
for a school resource officer who provided
meth education in the Clifton Unified, Morenci
Unified, Duncan Unified and Blue Elementary
School Districts.

Economic Estimates Commission – Report on
the Budget Stabilization Fund – Pursuant to
A.R.S. § 35-144(F), the Economic Estimates
Commission (EEC) is annually required to
calculate the amount of monies that may be
deposited to or withdrawn from the Budget
Stabilization Fund (BSF). The EEC estimate is
calculated based on a formula that compares
the growth rate of real adjusted Arizona
personal income in the most recent calendar
year to the average in the last 7 calendar
years. Since the calendar year 2006 growth
rate exceeded the 7-year average by 1.98%,
EEC reported on May 25, 2007 that the formula
calls for a BSF deposit of $173.9 million in FY
2007. EEC calculations under the formula do
not result in any automatic deposits or
withdrawals, as they must be authorized by
legislative action.
Under statute, the total balance of the BSF is
not allowed to exceed 7.0% of the current
year’s General Fund revenues, excluding the
beginning balance. Since the BSF balance is
essentially at its cap, the recommended EEC FY
2007 deposit could not occur unless the cap
was statutorily lifted.
Department of Economic Security – Report on
Use of State Share of Retained Earnings, Fees &
Federal Incentives – A footnote in the FY 2007
General Appropriation Act allows the
Department of Economic Security (DES) to
expend retained earnings, fees and federal
incentives in the Division of Child Support
Enforcement above the appropriated amount.
The footnote also requires DES to report the
intended use to the President of the Senate, the
Speaker of the House, the chairmen of the

7

8

JLBC – MONTHLY FISCAL HIGHLIGHTS – JUNE 2007

Summary of Recent Agency Reports
Senate and House Appropriations
Committees, and the directors of the
Joint Legislative Budget Committee
and the Governor’s Office of
Strategic Planning and Budgeting.
DES reports that it intends to use
$3,000,000 plus federal matching
monies above the appropriated
$14,287,200 to continue initiatives
begun earlier in the year in
anticipation of these increased
revenues. These initiatives include
upgrades to the information
technology systems and additional
staffing. DES reports that these uses
will assist the agency in meeting
federal performance measures.
The department was appropriated
an additional $3,222,100 from the
General Fund in FY 2008 to backfill
reduced federal funding associated
with the 2006 Federal Deficit
Reduction Act. During the budget
process, the use of higher than
budgeted revenues was not
presented as an alternative to the
General Fund backfill.
Department of Education – Budget
Status Report – Pursuant to A.R.S. § 35131(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 $40.4 million
net funding surplus for FY 2007. ADE
had previously reported an estimated
surplus of $14.3 million.
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 youth.
Grants were provided to 15 Boys and
Girls Clubs across the state to
implement the MethSMART preven-

tion program. During the second
quarter, the program expended
$120,000 on various programmatic
activities.
The MethSMART program provides
separate curriculum for children,
youth, and teens and also includes a
workshop for parents. The department reports that 2,383 youth and
teens participated in the program
during the 3rd quarter of FY 2007. Of
that amount, 734 youths participated
in single program events, such as a
health fair or community event, and
1,649 youths participated in recurring
programs. Approximately 1,544
children and youth completed the
entire MethSMART curriculum for their
age group. The department reports
that there was a 16-18% increase in
youth’s knowledge about methamphetamine following participation in
the program. In its last report, DHS
reported a 13-21% increase in
knowledge among participants
during the first 3 months of the
program.
Department of Revenue – Report on
General Fund Enforcement Revenue
– A footnote in the FY 2007 General
Appropriation Act requires the
Department of Revenue (DOR) to
report quarterly to the Committee on
the effectiveness of the department’s
overall enforcement and collections
program, including a comparison of
projected and actual General Fund
revenue enforcement collections for
FY 2007. DOR had General Fund
enforcement revenues of $302.6
million through the third quarter of FY
2007, which was $52.5 million above
their goal of $250.1 million. In
comparison, DOR collected $265.5
million through 3 quarters of FY 2006.
School Facilities Board – FY 2008 New
School Construction Report – Pursuant
to A.R.S. § 15-2002, the School
Facilities Board (SFB) is annually
required to submit a new school
construction report, including
demographic assumptions, proposed
construction schedule, and new
school construction costs estimates

(Continued)

for the upcoming fiscal year. The
board’s report was received on June
20.
The board approved $392.5 million
worth of new construction projects
(excluding land purchases) in FY 2007,
which was a $(46.2) million decrease
below FY 2006 approvals. After a
project is approved, though, it takes
several years for the project to be
completed and the full cost to be
expended.
In terms of the agency’s cash flow,
SFB expects to expend $373.6 million
on new construction projects and
land in FY 2007 and $413.0 million in
FY 2008. These expenditures mainly
reflect projects approved in prior
years.
According to SFB, this would leave
them with about a $(40) million
shortfall in both FY 2007 and FY 2008,
or a total of $(80) million across both
years. To address the FY 2007 cash
shortfall, SFB plans to shift some FY
2007 expenditures into FY 2008 and
temporarily transfer monies from the
Building Renewal and Emergency
Deficiencies Correction Funds. While
SFB is also projecting a FY 2008
shortfall, SFB includes the following
caveat in their cover letter: "SFB staff
would strongly caution the
committee against relying too heavily
on these projections. The SFB has
limited control over when and how
quickly districts choose to build
awarded schools."

JLBC – MONTHLY FISCAL HIGHLIGHTS – JUNE 2007

9

Other Issues
DEMA Emergency Funding
The Governor is authorized by A.R.S. §
35-192 to declare emergencies in
response to major disasters. This
section also allocates $4 million from
the General Fund to the Governor’s
Emergency Fund every fiscal year for
liabilities, expenses, and
reimbursements arising from these
disasters. Through the end of April,
$3,143,000 had been allocated. In
May and June, three additional
allocations used most of the
remaining funding.

On May 14, 2007, $100,000 was
allocated from the Governor’s
Emergency Fund to search and
rescue in order to reimburse the
various state and local agencies
that had incurred related costs. On
June 25, 2007 an additional $65,000
was allocated from the fund to
search and rescue along with
$672,000 for the summer 2006
monsoon and flooding emergency.
This brought the total allocated to
search and rescue for FY 2007 to

Date of
Emergency Fund Allocation

$265,000 and the total for the
summer 2006 monsoon and
flooding emergency to $1,172,000.

Description of Emergency

Allocation

08/01/2006

Glassy-Winged Sharpshooter
Emergency

$543,000

08/08/2006
12/11/2006
06/25/2007

Summer 2006 Monsoons &
Flooding Emergency*

11/30/2006
05/14/2007
06/25/2007

Search & Rescue
Contingency Fund

$265,000

12/11/2006

Northern AZ Winter Storm
Emergency

$500,000

12/11/2006

February 2005 Winter Storms &
Flooding Emergency

12/11/2006

La Paz County Summer
Monsoon Emergency (SEC
Allocation)

Department of Health Services
Report on Expenditures from the
Health Crisis Fund – Pursuant to
A.R.S. § 36-797, the Department of
Health Services (DHS) is required to
report expenditures from the Health
Crisis Fund. The Health Crisis Fund
receives $1,000,000 annually from
the Medically Needy Account of
the Tobacco Tax and Health Care
Fund. The Governor may declare a
health crisis or a significant potential
for a health crisis and authorize
monies from the Health Crisis Fund
for the emergency.

On June 1, 2007, the Executive
authorized $200,000 to mitigate the
effects of out-of-hospital cardiac
arrests. According to DHS, the
average number of out-of-hospital
cardiac arrests in Arizona is 5,000
per year, with a survival rate of 3%.
Monies will be used for public
education, CPR training, and
Automated External Defibrillator
(AED) training.

$1,172,000

$1,200,000
$300,000

10

JLBC – MONTHLY FISCAL HIGHLIGHTS – JUNE 2007

State of Arizona
General Fund Revenue

Change from Previous Year and Enacted Forecast
May 2007
Current Month

FY 2007 YTD (Eleven Months)

Change From
Actual

May 2006

May 2007

Percent

Amount

Change from

Revised Forecast

Actual

Percent

Amount

May 2006

May 2007

Revised Forecast
Percent

Amount

Percent

Amount

Taxes
Sales and Use

357,610,064

($4,887,298)

Income - Individual

310,268,127

(113,550,354)

47,753,442
2,835,652

- Corporate
Property
Luxury
Insurance Premium
Estate
Other Taxes
Sub-Total Taxes

5,322,950
37,587,305
0
52,752
$761,430,292

(1.3) %

($34,717,336)

$4,136,850,519

$246,757,045

(26.6)

3,435,651,117

80,721,736

2.4

(15,658,866)

(24.7)

853,345,020

128,606,284

(4,364,348)

(60.6)

17,830,071

(26.8)

(112,446,477)

(5,090,249)

(9.6)

(329,712)

(10.4)

(707,961)

(11.7)

11,868,343

46.1

(81,923) (100.0)
2,768
($112,776,386)

5.5
(12.9) %

(8.8) %

365,950

7.4

60,303,576

4,587,305

13.9

327,741,459

0
(24,373)
($162,258,145)

-(31.6)
(17.6) %

(571,457)

6.3 %

($93,093,841)
(61,617,058)

(2.2) %
(1.8)

17.7

7,461,951

0.9

(1,659,352)

(8.5)

(4,759,289)

(21.1)

(866,918)

(1.4)

(2,242,327)

(3.6)

8.8

(2,079,410)

26,454,736
(12,216,290)

1,290,241

101,674

$8,832,440,546

$467,898,915

-8.6
5.6 %

(0.6)

381,216

(40.0)

590,346

84.3

($155,358,412)

(1.7) %

Other Revenue
Lottery

3,513,900

2,591,900

281.1

(683,100)

(16.3)

36,567,600

(1,743,500)

(4.6)

License, Fees and Permits

2,989,355

487,088

19.5

593,355

24.8

36,960,486

7,038,352

23.5

187,380

0.5

Interest

6,156,761

1,810,331

41.7

(943,239)

(13.3)

87,534,405

33,477,774

61.9

9,122,146

11.6

Sales and Services

6,782,381

2,122,649

45.6

50,178,827

3,377,050

7.2

2,029,412

4.2

28,686,175

7,368,631

34.6

4,112,436

16.7

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

(584,848)

(2,896,010)

--

0

0

--

802,523

758,600

--

19,660,072
$781,090,364

4,874,558
($107,901,828)

1,694,881
(3,565,248)
0
(347,477)

33.3
---

0

(30.2)

12,660,599

0
(6,237,908)

(2,691,500)

--

0

(33.0)

3,427,702

33.0 %

(3,250,828)

(14.2) %

252,588,092

43,280,399

20.7 %

(12.1) %

($165,508,973)

(17.5) %

$9,085,028,638

$511,179,314

6.0 %

16,187,576
($139,170,836)

(6.9)

-37.1
6.8 %
(1.5) %

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

(45,935,888)

(10,500,144)

29.6

0

0.0

(505,294,772)

(115,501,589)

29.6

0

0.0

(45,935,888)

(10,500,144)

29.6 %

0

0.0 %

(505,294,772)

(115,501,589)

29.6 %

0

0.0 %

($118,401,972)

(13.9) %

$735,154,476

($165,508,973)

(18.4) %

$8,579,733,866

$395,677,725

4.8 %

($139,170,836)

(1.6) %