JLBC - Monthly Fiscal Highlights

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

This Month
August General Fund revenue collections were
$685.7 million. This amount was (2.7)% below
August of last year. August collections were
$(64.5) million below the monthly forecast
based on the recently enacted state budget.
For the fiscal year-to-date, General Fund
revenue collections are $(89.0) million less than
forecast. (See page 12.)
The August performance of the major
categories was again disappointing:

www.azleg.gov/jlbc.htm

“August
collections were
$(64.5) million
below the
monthly forecast
based on the
recently enacted
state budget.”

• Individual income tax collections decreased
(5.7)%, and were $(41.9) million short of the
monthly forecast.
• Corporate income tax collections were (9.1)%
lower than last August, or $(6.4) million less
than expected.
• While sales tax collections were 3.7% above
last year, this revenue level was $(14.8) million
below forecast.
FY 2007 Ending Balance – We first reported in
the July Monthly Fiscal Highlights that
preliminary FY 2007 year-end General Fund
revenues were $(226) million below the
forecast. Based on this preliminary figure, the
FY 2007 ending balance would be $303 million.
We had planned to provide an update on the
status of the FY 2007 ending balance in the

current edition of the Monthly Fiscal Highlights.
Laws 2006, Chapter 344 requires that the
Executive provide the JLBC by September 15,
2007 with an estimate of the FY 2007 ending
balance, including projections of total FY 2007
revenues and expenditures. To date, the
Executive has not provided this information.
The Department of Administration’s General
Accounting Office is responsible for these initial
estimates.
While the JLBC Staff has already calculated a
preliminary FY 2007 revenue number, the
Executive estimates would provide an initial
perspective on the level of unspent of FY 2007
appropriations, otherwise known as
“revertments.” The budget annually includes
an estimate for revertments, which can be
especially significant if caseloads in entitlement
programs are less than anticipated. The
FY 2007 budget, as revised during the last
session, included estimated revertments of $113
million.
Based on a JLBC Staff analysis, we believe that
FY 2007 revertments may be significantly higher
than expected, which would offset some of the
$(226) million revenue shortfall. The Depart-

Table of Contents
August Revenues ....................................................3
Recent Economic Indicators ................................4
Finance Advisory Committee Meeting ...............6

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

September 2007

JLBC Meeting Summary
• DES – Long Term Care Capitation Rates.........7
• DES – Family Preservation Projects ...................7
• ADE – eLearning Pilot Program .........................7
• ADE – Structured English Immersion Models...7
• ADOT – Third Party Progress Report..................7
• ABOR – FY 2008 Tuition Revenues.....................7
Summary of Recent Agency Reports
• DEMA – Camp Navajo Fund.............................8

Summary of Recent Agency Reports (cont’d)
• Gov. Council on Workforce Policy – Annual

Report ................................................................... 8
DHS – MethSMART Prevention Program .......... 9
Homeland Security – Funding........................... 9
Supreme Court – Automation Projects ........... 9
Supreme Court – Case and Cash
Management System.......................................10
• ASRS – Retirement Contribution Rate............10
•
•
•
•

Other Issues
• ABOR – Technology and Research Initiative
Fund.....................................................................11
• Early Childhood Health & Development Bd. –
FY 2007 Administrative Developments ..........11

2

JLBC – MONTHLY FISCAL HIGHLIGHTS – SEPTEMBER 2007

This Month

(Continued)

ment of Education and the Arizona Health
Care Cost Containment System (AHCCCS)
both appear to have had FY 2007 caseloads
that fell below budget. As a result, revertments
may be as high as $216 million, which would
provide $103 million in savings above the
budgeted amount and would offset the $(226)
million revenue loss from FY 2007.
Some of these savings may evaporate in
FY 2008. Agencies have a year to use their
revertments to pay any remaining bills from
FY 2007. Nonetheless, it is important to get an
initial reading on our FY 2007 book closing so
that any estimates of the FY 2008 shortfall can
be further refined.
FY 2008 Shortfall – While August is too early to
provide an exact estimate of a FY 2008 revenue
shortfall, some extrapolations may be made
from existing data. After accounting for the
lower-than-expected FY 2007 ending balance,
the overall FY 2008 shortfall appears to be in the
range of $(525) million to $(675) million. JLBC
Staff provided this information to the Governor’s
staff two weeks ago. Last week, the Governor’s
office estimated the size of the shortfall at
$(600) million.
Finance Advisory Committee – The Finance
Advisory Committee (FAC) met on September
12th (page 6). The FAC is a panel of 15 leading
economists that advises the Legislature 3 times
a year on the state’s economy. Based on the
FAC’s input and 3 other models, the largest
General
Fund revenue
categories are
forecasted to grow 3.5% in FY 2008 and 2.6% in
FY 2009, prior to tax law adjustments. FY 2008
revenues need to grow by 8.4% to meet the
budgeted levels.
Members’ economic outlook for the next year
was unfavorable. Of primary concern was the
real estate market, particularly the oversupply
of residential housing. In addition, members
were concerned over the level of loan defaults
associated with the subprime mortgage
market, which has resulted in higher lending
standards. Members generally believed that
economic growth would reach bottom in
FY 2008 or FY 2009, to be followed with a
gradual recovery.
FY 2008 Spending – On September 27, AHCCCS
reported that it may have a $(57) million
shortfall due to rising caseloads. While the
budget included a 2.6% growth in caseload,

the current AHCCCS population is 4.2% above
last year.
JLBC Staff also previously reported that the
School Facilities Board (SFB) may have a $(73)
million shortfall in its new school construction
costs. Neither the AHCCCS nor the SFB shortfalls
have yet been factored into the JLBC FY 2008
shortfall estimates.
Other News – The Monthly Fiscal Highlights
include a summary of the September JLBC
meeting (page 7). Among the items
considered, the Committee gave a favorable
review to the Structured English Immersion
models proposed by the English Learner Task
Force.
The Highlights also include a summary of recent
statutory reports submitted to JLBC (pages 810). Of note, the Arizona Department of
Homeland Security reports it received $28.0
million from the federal government in Federal
Fiscal Year (FFY) 2006. Of this amount, the state
will retain $8.4 million, with the remaining $19.6
million for local governments. The $28.0 million
amount is well below the $53.8 million received
in FFY 2004 and the $43.3 million received in
FFY 2005. The FFY 2007 federal grants, however,
are expected to reverse this loss in funding, and
rebound to $51.5 million.
In other fiscal news this month, the Arizona Board
of Regents reports that the Universities plan to
spend approximately $100 million from the
Technology and Research Initiative Fund in
FY 2008. This amount is about $20 million greater
than last year. (See page 11.)
The Early Childhood Development and Health
Board reports FY 2007 revenues of almost $75
million, of which the board spent $330,100.
Proposition 203, which was enacted by voters at
the November 2006 election, established the
board and an $0.80 per pack cigarette tax to
fund the activities of the board.
In addition, the board approved a FY 2008
budget at its June 2007 meeting. The board
projects FY 2008 revenues of $156.6 million. Of
this amount, the board has currently approved a
total of $27.2 million in expenditures, including
$13.5 million for program activities and $13.7
million for administration. (See page 11.)

JLBC – MONTHLY FISCAL HIGHLIGHTS – SEPTEMBER 2007

August Revenues
Sales Tax collections were $366.6 million in
August. This amount was 3.7% above last year,
but $(14.8) million below forecast. Table 1
displays the August and year-to-date growth
rates for the major sales tax categories.
Table 1

Sales Tax Growth Rates
August
Year-to-Date
Retail
0.0%
(0.3)%
Contracting
3.9%
(1.1)%
Utilities
5.8%
9.6%
Use
14.4%
11.0%
Restaurant & Bar
6.0%
4.9%
Retail collections, which account for almost half
of all sales revenues, were flat in August. As a
result of the continued housing slump and
tighter lending standards, consumers were
cautious and limited their spending.
While retail was stagnant, other categories
showed some positive signs of growth.
Contracting, which had declined for 4 months,
increased 3.9%. Average contracting receipts
over the last 3 months, however, are (1.7)%
below the same period last year. Another
bright spot was the use tax, which grew by
14.4%. The use tax is a tax on items bought
outside of Arizona and brought into the state.
Individual Income Tax collections were $267.4
million, or (5.7)% below last year. Table 2
displays individual category growth rates.
Table 2

Individual Income Tax Growth Rates
August
Year-to-Date
Withholding
(1.1)%
6.2%
Estimated +
10.8%
5.9%
Final Payments
Refunds
89.9%
41.9%
Withholding was (1.1)% below last year. This is
the second time in the last three months that
monthly withholding collections have
decreased. Withholding payments can vary in
any one month, however, depending on the
Table 3

3

“Due to its poor
timing of when they are processed. In July,
for example, withholding grew 14.9%.

performance,

August refunds were $32.4 million, an
increase of $15.3 million, or 89.9%, over last
year. This increase appears to be due to the
continued processing of 2006 tax returns.

individual

While estimated and final payments grew at
a double digit pace, August payments
represent only a small portion of the yearly
total. Therefore, the gains were minimal.

collections were

Due to its poor performance, individual
income tax collections were $(41.9) million
less than expected.

less than

income tax

$(41.9) million

expected.”

Corporate Income Tax collections were $29.1
million in August, or (9.1)% below last year. For
the fourth month in a row, corporate
revenues were less than the prior year. For
the month, corporate was $(2.9) million
below the forecast. August, however,
represents only a small portion of annual
corporate collections. Looking ahead,
however, September is one of the largest
months for corporate collections.
Transfers and Reimbursements were $11.0
million over the forecast. This is due to the
distribution of $11.1 million in State Criminal
Alien Assistance Program (SCAAP) monies
from the prior fiscal year. SCAAP provides
federal assistance to states for the costs of
incarcerating illegal immigrants. These funds
are usually distributed in the spring of each
year. However, the FY 2007 SCAAP
distribution was delayed until August 2007.
Urban Revenue Sharing (URS) payments were
$57.0 million, which was 24.2% higher than
last August. Under URS, the state shares 15%
of income tax revenues, from 2 years prior,
with the cities. The 24% gain in state income
taxes in FY 2006 is now resulting in these large
URS payments. While August base General
Fund revenue collections were (1.1)% below
last year, the increase in URS lowered total
collections to (2.7)% below FY 2007.

General Fund Revenues
Compared to Enacted Forecast and FY 2007 Collections
($ in Millions)
FY 2008
Difference From
Difference
Collections
Forecast 1/
From FY 2007
August
$ 685.7
$ (64.5)
$ (19.1)
Year-to-Date $ 1,373.9
$ (89.0)
$ 9.6
____________
1/ Enacted FY 2008 budget (June 2007).

“For the fourth
month in a row,
corporate
revenues were
less than the
prior year.”

4

JLBC – MONTHLY FISCAL HIGHLIGHTS – SEPTEMBER 2007

Recent Economic Indicators
NATIONAL
According to final estimates provided by the
Bureau of Economic Analysis (BEA), the U.S.
Gross Domestic Product (GDP) increased at an
annual rate of 3.8% in the 2nd quarter of 2007,
a (0.2)% revision to the preliminary August
estimates. BEA attributed the downward
revision to lower business spending on
nonresidential structures and higher imports.
The U.S. Index of Leading Economic Indicators
declined (0.6)% in August. The index has been
alternating between monthly increases and
decreases this year, and as a result, it is
essentially at the same level as in January
2007. Of the 10 components that make up the
composite index, only real money supply was
a positive contributor in August.
“The
Construction
Sector lost
(2,600) jobs in
August from July,
which left
statewide
construction
employment
(3.4)% below the
level reported a
year ago”

U.S. semiconductor billings increased 5.1% in
July (3-month moving average) to $3.47 billion.
However, year over year, chip sales were
down (6.2)%. The Semiconductor Industry
Association (SIA) attributed the July growth to
increases in the sales of microprocessors, MOS
logic devices, and flash memory products.
September marked the second month in a
row with a (5.5)% decline in The Conference
Board’s U.S. Consumer Confidence Index. The
index is currently at its lowest level in almost 2
years. The Conference Board believes that
the combination of weaker business conditions
and a softening labor market has contributed
to the recent erosion in consumer confidence.
The U.S. Consumer Price Index (CPI) (3-month
moving average) remained unchanged in
August. The year-over-year increase was 2.3%
compared to 2.6% in the prior month. The
August deceleration in price inflation was
mostly due lower gasoline and natural gas
prices. Excluding the impact of food and
energy prices, the core CPI increased 0.2% in
August and was 2.1% higher than a year ago.
ARIZONA
Total statewide non-farm employment
increased, year over year, by 2.7% in August.
By comparison, the August year-over-year
average growth rate in the prior 10 years was
3.5%. Arizona’s unemployment rate remained
unchanged at 3.7%, which was considerably
below the 4.6% U.S. average.
The construction sector lost (2,600) jobs in

August from July, which left statewide
construction employment (3.4)% below the
level reported a year ago. The average yearover-year growth rate for August in the prior 10
years was 6.3%.
Manufacturing employment was essentially flat
in August but compared to the same month
last year, the industry is employing (1,700)
fewer workers.
Recent problems in the subprime lending
market were also evident in August
employment data, as businesses engaged in
credit intermediation shed 1,800 jobs (or 2.2%
of its workforce) in the state that month.
The impact of the ongoing housing slump was
reflected in statistics released by the Realty
Studies group at Arizona State University.
According to its news release, the Greater
Phoenix single-family median sales price for
existing homes was reportedly $255,000 in
August, a decline of (2.9)% from the same
month last year. The number of existing
Greater Phoenix single-family homes sold
decreased (2.1)% in August from July and was
(25.4)% below the number sold in August 2006.
The existing townhouse-condominium median
sales price grew 0.8% in August to $182,500, or
7.4% above the August 2006 figure. The
increase in the median resales price is due in
part to first-time buyers seeking affordable
housing. The number of units resold fell by
(2.6)% from the prior month and was also
(13.2)% less than the number sold a year ago.
The growing excess supply of homes in the real
estate market continues to adversely affect
permitting activity. Statewide single-family
residential building permits (3-month moving
average) were down (4.0)% from the prior
period and (30.1)% on a year-over year basis.
The multi-family segment had similar results,
with month-to-month and year-to-year
declines of (2.3)% and (23.7)%, respectively.
Through the first 7 months of 2007, 33,781
housing units were authorized statewide,
which was (26.1)% less than the number
authorized for the same period in 2006. The
total value of housing units permitted was
$5.65 billion for the year to date through July
2007, a (28.1)% drop from a year ago.
The BEA reported that Arizona personal
income reached an annualized total of $209.2

JLBC – MONTHLY FISCAL HIGHLIGHTS – SEPTEMBER 2007

Recent Economic Indicators
billion in the 2nd quarter of 2007. Compared
to last year, personal income is up 7.5%.
The general downshift in the economy could
also be inferred from August’s Arizona
Business Conditions Index (BCI), which
dropped (9.7)% to 58.8, the largest percent
decline recorded since December 2006.
While all of the components of the index fell in
August, it was primarily the decline in new
orders and prices that contributed to the
lower reading. Because the overall index has
displayed considerable volatility this year, it is
still too early to identify a discernable trend.
The 4th quarter Arizona Business Leaders
Confidence Index fell 8 points, or (15.8)%, to
the lowest reading since the inception of the
index 4 years ago. While the general
slowdown in the economy was clearly
weighing on panelists’ minds, it was likely the
bad economic news related to the problems
in the high-risk mortgage lending industry

(Continued)

(which coincided with the timing of the
survey) that contributed to the record-low
reading. An index below 50 indicates a
contracting economy.
The Department of Corrections’ inmate
population increased by an average of 269
inmates per month from June through
August. The total population grew by 2,333
inmates from a year ago. 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
(1.5)% to 77,689 in July and was (9.4)%
below the level reported in July 2006. The
FY 2008 budget projects the TANF caseload
will grow by 2.5%. The AHCCCS caseload
increased 0.8% in September and is now
4.2% higher than one year ago. The FY
2008 budget projects growth of 1.9% from
June 2007 to June 2008.

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

August
August
August
August
Jun-Aug
Jun-Aug

3.7%
2.71 million
186,400
242,300
$81.2 million
$163.8 million

0.0%
1.4%
(0.1)%
(1.1)%
6.6%
(5.1)%

(0.2)%
2.7%
(0.9)%
(3.4)%
(1.7)%
(0.4)%

May-Jul
May-Jul

3,795
738

(4.0)%
(2.3)%

(30.1)%
(23.7)%

August
August

4,240
955

(2.1)%
(2.6)%

(25.4)%
(13.2)%

August
August
June
June

$255,000
$182,500
3.66 million
$8.11

(3.8)%
0.8%
0.3%
(2.3)%

(2.9)%
7.4%
1.3%
20.3%

July
August

121.1
58.8

1.0%
(9.7)%

2.3%
(2.9)%

3rd Quarter 2007
4th Quarter 2007
2nd Quarter 2007
July 1, 2006
September
July
Jun-Aug

101.9
42.5
$209.2 billion
6.17 million
1,069,769
77,689
37,307

2nd Quarter 2007

$11.5 trillion

3.8%

1.9%

September
August
May-Jul
Jun-Aug

99.8
137.8
$3.47 billion
208.2

(5.5)%
(0.6)%
5.1%
0.0%

(5.8)%
0.6%
(6.2)%
2.3%

(4.1)%
(15.8)%
1.1%
3.6%
0.8%
(1.5)%
269 inmates

(0.8)%
(11.6)%
7.5%
3.6%
4.2%
(9.4)%
2,333 inmates

5

6

JLBC – MONTHLY FISCAL HIGHLIGHTS – SEPTEMBER 2007

Finance Advisory Committee Meeting
At its September 12th meeting, the Finance
Advisory Committee (FAC) heard presentations
on General Fund Revenue collections, the U.S.
economy, and implications of the slumping
housing market and the resultant credit crunch.
The FAC is a 15-member panel comprised of
leading economists in the state. The panel
meets 3 times a year and advises the
Legislature on the state economy.
JLBC staff provided members with the latest 4sector consensus estimates for “Big 3” revenue
collections. The 4-sector consensus estimate is
a composite of equally-weighted estimates
from:
• The University of Arizona Economic and
Business Research (EBR) General Fund
baseline model;
• The EBR conservative forecast model;
• The FAC panel; and
• JLBC Staff.
Based on the 4-sector consensus, revenues are
projected to grow 3.5% in FY 2008, prior to any
tax law changes. (See Table 5 below.) This is
down from the March FAC meeting, at which
time the 4-sector consensus projected a FY
2008 growth rate of 4.3%.
The enacted FY 2008 budget was based on the
Executive projected growth rate of 6.0% (prior
to tax law changes). Since FY 2007 revenues
were less than expected, FY 2008 would
instead have to grow by 8.4% to generate the
same level of revenues included in the
enacted budget.
In FY 2009, the 4-sector consensus predicts
growth will be 2.6%. The FAC panel projects a
higher rate of growth in FY 2009, while the
University of Arizona models were both below
the 4-sector consensus.
Table 5

4-Sector Consensus Forecast
FY 2008
FY 2009
UofA Baseline
4.2%
2.3%
UofA Conservative
1.0%
(1.3)%
FAC Panel
3.6%
4.7%
JLBC Staff
5.0%
4.9%
Weighted Average
3.5%
2.6%
Panel members then heard formal
presentations from Elliott Pollack and Tracy
Clark, in addition to comments from other
panel members.

The Committee had an unfavorable outlook
with regard to economic and revenue growth
going forward. Members cited the downturn in
the real estate market, and the resulting excess
supply of housing currently on the market, as
the primary reason for concern. In addition,
the Committee believes that high levels of loan
defaults and delinquencies, mainly associated
with the subprime mortgage market, have
resulted in higher lending standards, which
may exacerbate the housing slump by limiting
the pool of potential borrowers going forward.
The Committee expects economic growth to
bottom out sometime in FY 2008 or FY 2009, but
was divided on the exact timing of when this
would occur. With regard to the duration of
the slowdown, most members believe it will last
several years, and be followed by a gradual
recovery.
Some members maintained that, to date, the
adverse impacts of the housing slump and
credit crunch have been limited to only certain
sectors, and have yet to be felt throughout the
entire economy. As evidence of this, members
suggested that banks are still lending to
creditworthy borrowers, consumers are still
spending, albeit at a slower rate, and income
growth remains strong.
Overall, the 4-sector consensus model projects
two to three years of below trend revenue
growth before returning to the 7% trend level in
FY 2011. In general, the FAC panel concurred
with these projections, but was slightly more
optimistic than the 4-sector consensus in FY
2009 and FY 2010.
The Committee presentations and a video of
the meeting can be viewed at the following
link: www.azleg.gov/jlbc/meeting.htm.

JLBC – MONTHLY FISCAL HIGHLIGHTS – SEPTEMBER 2007

7

JLBC Meeting
Department of Economic Security –
Review of Long Term Care Capitation
Rate Changes – The Committee
gave a favorable review of DES’
capitation rate changes with the
provision that the favorable review
does not constitute an endorsement
of a supplemental request.
Capitation rates are a fixed amount
paid for every person in the
Developmentally Disabled Long Term
Care Program. The new total
enrolled capitation rate is $3,556.71,
representing a 3.86% increase from
last year. Assuming the same
caseload growth rate as FY 2007, the
expected costs for the program is
expected to exceed the General
Fund budgeted amount by $2.4 to
$4.4 million in FY 2008.
Department of Economic Security –
Review of Family Preservation
Projects – The Committee gave a
favorable review of the DES proposal
to spend $1 million for Adoption
Services’ Family Preservation Projects
in FY 2008, with the provisions that:
1) the Department provide additional
details on the expenditure plan to
JLBC Staff, and 2) JLBC Staff finds that
the detailed expenditure plan is
consistent with legislative intent.
The Legislature appropriated $1
million in FY 2007 for Family
Preservation Projects. Last December
DES submitted a plan to the
Committee to spend about $600,000
in FY 2007 and $1.8 million in FY 2008.
The Committee gave DES a
favorable review, with the provision
that DES restructure their spending to
remain within the $1 million
appropriation in FY 2008, if the
appropriation were to be continued.
The Department has since stated that
expenditures will remain within the
$1 million limit.
Department of Education – Review of
Draft Request for Proposals for
eLearning Pilot Program – The
Committee gave a favorable review
to the preliminary Request for
Proposals (RFP) for the eLearning Pilot
Program. Laws 2006, Chapter 375

appropriated $3 million in one-time
funding from the General Fund in FY
2007 to fund an eLearning Pilot
Program. The purpose of the
program is to provide mathematics
instruction through a digital
curriculum to students in grades 6
through 9.
Department of Education – Review of
Research Based Models of Structured
English Immersion for English
Language Learners – The Committee
gave a favorable review to the
proposed Structured English
Immersion models that were
developed by the English Learner
Task Force established by Laws 2006,
Chapter 4. These models provide a
curriculum for teaching English to
students who are not proficient in
English. The Committee’s review had
two conditions; 1) the review is
limited to compliance with Laws
2006, Chapter 4, and 2) the models
will be implemented in a manner that
is consistent with requirements of
Proposition 203 from the November
2000 General Election.
Department of Transportation –
Review of Third Party Progress Report
– The Committee gave a favorable
review of ADOT’s third party report,
given the progress that ADOT is
making in increasing its use of third
parties and reducing the quality
assurance backlog. Motor Vehicle
Division (MVD) third parties allow the
public to conduct certain MVD
transactions through private sector
third party entities instead of using
MVD customer service offices. With
the exception of traffic survival
schools, ADOT continues to increase
its number of third parties. ADOT’s
backlog of title transactions
decreased from 16 business days in
the third quarter of FY 2007 to 11
business days (down from 31 business
days in FY 2006).
Arizona Board of Regents – Review of
FY 2008 Tuition Revenues – The
Committee took no action on the
Arizona Board of Regents (ABOR)
expenditure plan for tuition revenues

for FY 2008, requesting further
information on how financial aid is
determined and disbursed by the
universities. Each year, ABOR sets
aside a portion of tuition and fee
collections to be locally retained by
the universities. These monies are
non-appropriated and are primarily
used for financial aid and debt
service payments. Nonappropriated, locally retained tuition
and fees in FY 2008 are estimated at
$354.3 million, or $31.1 million higher
than FY 2007. Of that amount, $224.1
million is dedicated to student
financial aid, an increase of $18.7
million above FY 2007.
The remaining portion of tuition and
fee collections in FY 2008 is subject to
legislative appropriation.
Appropriated tuition collections in FY
2008 are expected to be $468.4
million, representing a $62.3 million
increase above the FY 2007 total,
and $25.3 million above the original
FY 2008 budget. The overall increase
in collections is primarily due to
higher tuition and fees, which ABOR
indexed for inflation.

8

JLBC – MONTHLY FISCAL HIGHLIGHTS – SEPTEMBER 2007

Summary of Recent Agency Reports
Policy (GCWP) submitted its annual
report on workforce development.
Total workforce spending from state,
federal, and local sources for FY 2007
was $473.9 million. Of this total, DES
accounted for $190.6 million, ADE for
$17.5 million, ADOC for $6.9 million,
and the Community Colleges for
$258.9 million. These totals do not
include $274.3 million for the
Unemployment Insurance (UI)
program included in the report. Most
of the UI expenditures represent cash
payments to unemployed individuals,
and not workforce development
services.

Department of Emergency and
Military Affairs – Report on Camp
Navajo Fund – Pursuant to A.R.S. § 26152, the Department of Emergency
and Military Affairs (DEMA) submitted
its annual report on the activity in the
Camp Navajo Fund. The Camp
Navajo Fund pays for the National
Guard to operate a regional training
site and storage facility located at
Bellemont. Fund revenues consist of
monies received from federal and
other government sources for storage
of government commodities and
services provided by the camp.
DEMA reports that the Camp Navajo
Fund received revenues of $9.1
million and had expenditures of $9.1
million in FY 2007. This left a fund
balance of $2.1 million at the end of
the fiscal year due to a beginning
balance. In FY 2006, the Camp
Navajo Fund received revenues of
$7.2 million and had expenditures of
$7.3 million. The increase in revenues
for FY 2007 is attributable to higher
fees, which are adjusted for inflation,
and the increased use of facilities
due in part to marketing efforts.

Among the community colleges,
Maricopa has the largest program,
spending $178.8 million in FY 2007.
Pima had the second highest amount
at $22.5 million. Other large programs
in FY 2007 include the JOBS program,
which provides employment and
training services to TANF recipients
($24 million), Vocational
Rehabilitation ($79.5 million), and the
Workforce Investment Act program at
($38.8 million). The Job Training
program, which provides incentives
to companies to provide training
programs, is expected to spend $26.4
million in FY 2008, up from $6.1 million
FY 2007.

Governor’s Council on Workforce
Policy – Report on FY 2007 Annual
Report – Pursuant to A.R.S. § 41-1542,
the Governor’s Council on Workforce
Table 6

Total FY 2007 state workforce
development spending was $254.8
million, of which the largest recipient
was Maricopa Community Colleges
with $158.6 million in expenditures.
Table 6 below shows the total
reported funding for FY 2006 – FY 2008
by agency. Table 7 summarizes FY
2007 funding by source and agency.
The report includes federal and statemandated performance measures
pursuant to A.R.S. § 41-1542, such as
the number of individuals trained and
businesses’ recruited. The report did
not include several changes that
were requested in response to last
year’s report. The information
provided was not standardized
across years, and a summary table
displaying expenditures by agency
and fund type was not included.
Additionally, results were not reported
for many of the performance
measures identified in the Council’s
submission. Finally, a strategic plan
that addresses how the workforce
programs met the state mandated
performance measures was not
included as required by statute.

FY 2006 – FY 2008 Workforce Development Funding

State Organization
Department of Economic Security
Department of Education
Department of Commerce
Community Colleges

FY 2006
$148,543,500
15,151,500
6,832,200
$203,467,900

FY 2007
$162,407,600 1/
17,457,400 1/
6,919,600
$258,855,300

FY 2008 1/
N/A 2/
$ 17,575,600
27,277,300
$282,827,200

____________
1/ Estimated
2/ Information was not provided
Table 7

FY 2007 Workforce Development Funding

State Organization
Department of Economic Security 1/
Department of Education 1/
Department of Commerce
Community Colleges
Total
____________
1/ Estimated

Total Funds
$162,407,600
17,457,400
6,919,600
258,855,300
$445,639,900

State
$ 20,516,200
4,443,800
6,296,200
223,577,800
$254,834,000

Federal
$140,827,400
13,013,600
623,400
9,202,500
$163,666,900

Other
$ 1,064,000
26,075,100
$27,139,100

JLBC – MONTHLY FISCAL HIGHLIGHTS – SEPTEMBER 2007

Summary of Recent Agency Reports
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 of General Fund monies 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 prevention program.
During the fourth quarter, the
program expended the remaining
$120,000 appropriated for the
program.
The MethSMART program provides
separate curriculum for children,
youth, and teens and also includes a
workshop for parents. The
department reports that 5,328 youth
and teens participated in the
program during the fourth quarter of
FY 2007, for a total of 9,719 during FY
2007. The department reports that
there was a 27% increase in
knowledge about methamphetamine
for 6-9 year olds and a 40% increase
for 10-13 year olds during this quarter;
teens were not asked the same
question. Increases were noted in
ability to identify that a person is using
methamphetamine with an average
percentage increase of 5% for 6-9
year olds, 42% for 10-13 year olds, and
18% for children 14 and over. In
addition, understanding of ways in
which methamphetamine can harm

the body increased by 10% for 6-9
year olds, 46% for 10-13 year olds, and
14% for children 14 and over.
Arizona Department of Homeland
Security – Report on Homeland
Security Funding – Pursuant to A.R.S. §
41-4255, the Arizona Department of
Homeland Security has submitted an
annual report detailing grant
allocations and expenditures for
Homeland Security Grants from
FFY 2001 through FFY 2006. (See Table
8 below.)
The state was allocated and the
Arizona Department of Homeland
Security awarded $28.0 million in
homeland security grants for FFY
2006. The department reported total
expenditures of $7.8 million, leaving
$20.2 million unexpended. State
agencies were awarded $8.3 million,
of which $5.1 million has been
expended. Local governments were
awarded $19.6 million, of which $2.6
million has been expended. The
largest local grantee was the City of
Phoenix ($3.0 million). The largest
state grantee was the Arizona
Department of Emergency and
Military Affairs (DEMA) ($6.0 million).
The largest individual grant of $3.6
million went to DEMA to help structure
individual emergency management
programs, strengthen emergency
management capabilities, and
develop systems that encourage the
building of partnerships with the
public and private sector.
FFY 2006 represented a reduction
from the amounts received in FFY
2004 and FFY 2005. While Arizona

(Continued)

only received $28 million in FFY 2006,
the state received $53.9 million and
$43.3 million in FFY 2004 and FFY 2005,
respectively. Of the funds received,
99% have been expended for FFY
2004, and 81% have been expended
for FFY 2005. The department has
reported that the FFY 2007 award is
expected to be significantly larger
than FFY 2006, with anticipated grants
of $51.5 million.
Supreme Court – Report on Current
and Future Automation Projects –
Pursuant to a General Appropriation
Act footnote, the Administrative
Office of the Courts (AOC) has
provided its FY 2008 report to the
JLBC on current and future
automation projects coordinated by
the AOC. The report is to include a list
of court automation projects that
receive state monies in the current
fiscal year, as well as projects
planned for the next 2 fiscal years. In
addition, the report is to provide a
description of each project as well as
the funding source, estimated cost for
each fiscal year, the number of FullTime Equivalent (FTE) Positions, the
entities involved, and the goals and
anticipated results for each
automation project.
The AOC estimates automation
expenditures in FY 2008 will be
approximately $22.1 million. Of this
amount, approximately $14.6 million,
or 66%, will be spent on ongoing
automation support, and $7.4 million,
or 34%, will be spent on 11 new
projects in FY 2008. Of the 11 new
projects, the larger projects include:

Table 8

Awards and Expenditures by Homeland Security Grant Recipients
FFY 2004
FFY 2005
State Awards
$15,724,800
$12,886,100
Local Government Awards
38,132,600
30,418,700
Total Awards
$53,857,400
$43,304,800
State Expenditures
Local Government Expenditures
Total Expenditures
Percentage of Total Awards Currently Expended

$15,712,700
38,101,500
$53,814,200
99.92%

9

$12,148,700
23,030,700
$35,179,400
81.24%

FFY 2006
$ 8,354,900
19,625,900
$27,980,800
$5,148,000
2,645,200
$7,793,200
27.85%

10

JLBC – MONTHLY FISCAL HIGHLIGHTS – SEPTEMBER 2007

Summary of Recent Agency Reports
• Updating the general jurisdiction
case management system for 13 of
the 15 counties in Arizona
($4,514,400)
• Updating and enhancing the
Juvenile On-Line Tracking System
(JOLTS) ($1,319,000)
• Updating the limited jurisdiction
case management system for
statewide utilization ($658,900)
• Further development of electronic
filing ($395,200)
Additionally, the AOC anticipates
costs relating to “New Projects” in FY
2009 and FY 2010 to be $8.1 million
and $6.6 million, respectively. FTE
Positions required to complete all
automation projects categorized as
“New Projects” is estimated to be
50.8.
The report does not meet the
reporting guidelines as required by
the FY 2008 General Appropriation
Act for the $14.6 million in ongoing
projects, as it does not itemize
funding levels for specific projects
associated with the $14.6 million in
ongoing automation projects and
support.
Supreme Court – Report on Case and
Cash Management System – Pursuant
to a footnote in the FY 2007 General
Appropriation Act (Laws 2006,
Chapter 344), the Administrative
Office of the Courts (AOC) is required
to report to the JLBC on the monies
expended from the Case and Cash
Management System (CMS) line item
and progress related to the
development and deployment of the
system. Monies are to be used for the
replacement of the aging case
management systems in the largervolume Superior and limited
jurisdiction courts within Maricopa
and Pima Counties, as well as in 145
of the 180 state, county and
municipal courts throughout the
state. The report also shall include a
timeline and expenditure plan for the
project, identify the courts involved,
and their financial and non-financial
contributions.

(Continued)

Funding and Expenditure Plan
The Case and Cash Management
project was established with monies
from the Supreme Court’s operating
budget and Automation line item.
AOC has estimated that the upgrade
of these systems will continue through
FY 2012. As of June 30, 2007, the
report listed current expenditures of
$370,200 and planned expenditures
of $23,453,900. The planned
expenditure estimate increased by
$14,668,500 from the amount
reported in January 2007. AOC
reports that part of the reason for this
increase comes from the assumption
that the costs would only be for the
implementation of the new system
being developed by Pima County.
AOC adjusted the estimate when it
was determined that the Pima
County system was no longer an
option for other general jurisdiction
courts. As a result, the Commission on
Technology issued an RFP and the
Arizona Judicial Council selected a
vendor whose software package fit
the courts’ needs. The cost estimates
were increased due to the acquisition
and implementation of the vendor’s
software package.

(ASRS) submit quarterly reports to the
Joint Legislative Budget Committee
(JLBC) “on the discussions and
actions of the ASRS Board regarding
their efforts to minimize the retirement
contribution rate.” ASRS has
submitted a report covering the
fourth quarter of FY 2007.

Progress
As noted above, AOC reports that
the Pima County general jurisdiction
(Superior Courts) CMS, called AGAVE,
is no longer a viable statewide option
and has been terminated from further
statewide consideration. However,
AOC does report working with the
Superior Courts in Yavapai, Yuma,
Coconino, Cochise, Navajo, Mohave
and Pinal Counties to assess needs
and options for a new CMS and
compare the findings with the Pima
AGAVE reported functionality. AOC
along with these counties
participated in the RFP review and
selection process of the new software
package.

Additionally, during the summer of
2007, ASRS staff convened a series of
work groups aimed at developing
proposals to mitigate the upward
pressure on the contribution rate.
Each work group was tasked with
looking at a different aspect of the
retirement system (i.e., plan design,
return to work/membership rules,
employer enrollment oversight) and
determining whether weaknesses,
leakages, or inefficiencies existed
that could be addressed. The work
groups are still meeting, but it is
anticipated that these groups will
provide legislative proposals that will
further reduce the contribution rate.

Arizona State Retirement System –
Report on Board Discussion and
Actions to Minimize the Contribution
Rate – A footnote in the General
Appropriation Act requires that the
Arizona State Retirement System

In the 2007 legislative session, ASRS
has sought 4 legislative changes to
help minimize the contribution rate.
The Legislature passed 1 of the 4
initiatives, HB 2145. This bill modifies
the Social Security offsets to 85% for a
member who becomes disabled on
or after July 1, 2008; modifies the preexisting condition look back to 6
months for a member hired on or
after July 1, 2008; and requires ASRS
to recover any overpaid money by
reducing a benefit owed to any
member, beneficiary, or alternate
payee. These changes are expected
to reduce total annual contributions
by $16.0 million and reduce the
contribution rate of each employer
and employee by 0.09% after all
claims subject to current offset and
pre-existing condition rules have
terminated.

JLBC – MONTHLY FISCAL HIGHLIGHTS – SEPTEMBER 2007

11

Other Issues
Arizona Board of Regents Report on Technology and Research Initiative Fund (Proposition 301)
A.R.S. § 15-1648 mandates an Arizona
Board of Regents (ABOR) report on
the Technology and Research
Initiative Fund (TRIF). Proposition 301,
enacted into law by voters during the
November 2000 General Election,
established TRIF to support public
higher education and research
initiatives in emerging technologies.
TRIF receives funding from a portion of
the Transaction Privilege (Sales) Tax.

In FY 2007, ABOR received $71.8 million
in TRIF revenues along with a carry
forward of $32.5 million, of which they
expended $77.3 million.
In FY 2008, ABOR estimates $74.3
million in TRIF revenues along with a
carry forward of $27.2 million, of which
they plan to expend $98.6 million.
Major spending items for ongoing
projects at the universities include
$42.2 million for support of the

Biodesign/Biomedical campuses and
health science programs.
Additionally, the universities budgeted
$23.3 million for support of workforce
development and e-learning initiatives
at the universities, and $11.9 million for
infrastructure.

Early Childhood Development and Health Board Report on Administrative Developments in FY 2007
The passage of Proposition 203 in
November 2006 created the Early
Childhood Development and Health
Board and increased tobacco taxes
to generate revenues for deposit in
the Early Childhood Development
and Health Fund. The bulk of revenue
garnered from the taxes is a $0.80 per
pack cigarette tax. The Board uses
revenues generated from the taxes to
fund early childhood development
and health at the local level.
Proposition 203 states that all FY 2007
revenues can be deposited into an
Administrative Fund, while in
subsequent years 10% of monies go
toward Administration and 90% go
into a Program Fund. In FY 2007,
$74,929,400 in tax revenue was
deposited into the Administrative Fund
with expenditures of $330,100.
The Early Childhood Development
and Health Board approved an FY
2008 budget during its June 2007
meeting. The FY 2008 budget includes
expected revenues of approximately
$156.6 million. Of approximately $141
million, or 90% of tax revenues, that is
expected to be available to spend
from the Program Fund, the Board has
approved expenditures of $13.5 million
in costs that are as yet undetermined.
Furthermore, the Board has approved
expenditures of $13.7 million from the
Administrative Fund to cover the
estimated costs of additional staff.
The Administrative Fund will have a

balance of approximately $75 million
from unused FY 2007 monies.
In FY 2007, the Early Childhood
Development and Health Board was
established with 9 members
appointed by the Governor and 3
non-voting ex officio members
including the Superintendent of Public
Instruction, the Director of the
Department of Health Services and
the Director of the Department of
Economic Security.
There are currently 14 staff members,
including an Executive Director. It is
not known how large the
administrative staff will eventually be;
however, some estimates have put full
staffing between 50 and 150 positions.
With an expected increase in staffing,
the Board will move into a permanent
office space this fall with a five year,
$20 million lease.
One factor affecting hiring is the
amount of staff needed to run a
grants administration program. The
Board is currently researching
approaches to grants administration in
Virginia and North Carolina, as well as
organizations in Arizona, in order to
gauge potential workloads and
personnel requirements.
Another factor that will affect the
number of staff members is the
number of Regional Partnership

Councils that will be established. The
Board is seeking to establish 30
Regional Partnership Councils
throughout the state, although this
number may increase should Arizona
Tribal Governments opt to serve as
their own regions, rather than be part
of a board determined region. The
Board estimates that each Regional
Partnership Council will require at least
two staff members from the Board to
provide direct support.
Pursuant to A.R.S. § 8-1173, the
Regional Partnership Councils are
required to forward recommendations
to the Board by May 15 of each year
with action taken on grant proposals
by the following June 15, beginning in
2009. The 9 voting members of the
Board have the discretion to approve
or deny the recommendations of a
regional council. Proposition 203
authorizes the Board to approve
distribution of monies to Regional
Partnership Councils in order to award
grants to public and private grantees
whose proposals are recommended
by local council members.
Monies can be used to serve children
before entering kindergarten and their
families by providing parent and
family support programs, child care,
preschool, health screenings, and
access to preventive health services.

12

JLBC – MONTHLY FISCAL HIGHLIGHTS – SEPTEMBER 2007

State of Arizona
General Fund Revenue

Change from Previous Year and Enacted Forecast
August 2007
Current Month

FY 2008 YTD (Two Months)

Change From
August 2006

Actual
August 2007

Percent

Amount

Change from
Forecast
Percent

Amount

August 2006

Actual
August 2007

Forecast

Percent

Amount

Percent

Amount

Taxes
Sales and Use

366,627,555

$13,161,098

Income - Individual

267,438,218

(16,152,167)

29,100,662
84,584

- Corporate
Property
Luxury
Insurance Premium

3.7 %

($14,762,745)

$759,517,377

$15,590,689

(13.5)

535,467,755

18,994,776

3.7

(33,226,445)

(5.8)

(6,434,638)

(18.1)

62,903,871

(8,147,137)

(11.5)

(13,294,329)

(17.4)

(815,416)

(90.6)

356,374

(35,380)

(9.0)

(893,626)

(71.5)

(36.0)

(2,254,682)

(38.1)

7,625,048

(3,141,634)

(29.2)

(4,204,952)

(35.5)

(8.6)

(5,211,110)

(10.2)

86,758,038

4,154,426

5.0

(2,041,962)

(2.3)

--

254,076

149,362

142.6

(39.5)

103,901

(10,146)

(5.7)

(41,906,782)

(2,917,104)

(9.1)

(4,852)

(5.4)

3,660,318

(2,057,740)

45,888,890

(4,318,770)

Estate

31,220

2,913

10.3

31,220

Other Taxes

39,410

(6,677)

(14.5)

(25,715)

$712,870,857

($12,293,299)

Sub-Total Taxes

(1.7) %

($71,379,868)

(3.9) %

(9.1) %

$1,452,986,440

$27,554,956

2.1 %

(8.9)
1.9 %

($42,008,123)

254,076
(26,349)
($95,441,710)

(5.2) %

-(20.2)
(6.2) %

Other Revenue
Lottery

3,557,419

License, Fees and Permits

3,476,046

(1,975,000)

184,519

5.5
(36.2)

11.8

3,557,419

(1,026,554)

375,519

(22.8)

5,426,790

(2,031,151)

184,519

(27.2)

5.5

(1,529,910)

375,519

11.8
(22.0)

Interest

6,943,912

(3,892,145)

(35.9)

(2,237,388)

(24.4)

7,575,159

(3,128,452)

(29.2)

(1,311,941)

(14.8)

Sales and Services

3,209,955

(501,282)

(13.5)

(1,372,045)

(29.9)

5,208,086

(362,630)

(6.5)

(1,677,214)

(24.4)

Other Miscellaneous

1,550,098

(669,116)

9.6

1,589,693

(1,810,667)

(53.2)

(695,007)

(30.4)

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

(30.2)

135,498

0

0

--

0

--

0

0

--

0

--

11,181,042

11,143,180

--

10,971,042

--

11,655,353

11,458,870

--

11,235,353

--

4,290,156

16.7 %

6,846,072

29.7 %

35,012,500

4,310,489

14.0 %

6,396,800

22.4 %

(8.0) %

$1,487,998,940

$31,865,445

2.2 %

29,918,472
$742,789,329

($8,003,143)

(1.1) %

($64,533,796)

($89,044,910)

(5.6) %

One-Time Revenue
Urban Revenue Sharing

(57,044,911)

(11,109,023)

24.2

0

0.0

(114,089,821)

(22,218,044)

24.2

0

0.0

Sub-Total One-Time Revenue

(57,044,911)

(11,109,023)

24.2 %

0

0.0 %

(114,089,821)

(22,218,044)

24.2 %

0

0.0 %

($19,112,166)

(2.7) %

TOTAL REVENUE

$685,744,418

($64,533,796)

(8.6) %

$1,373,909,119

$9,647,401

0.7 %

($89,044,910)

(6.1) %