JLBC - Monthly Fiscal Highlights

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

This Month
Total February General Fund revenue
collections were $373.4 million, or (17.5)%
below February of last year. This amount was
$(29.9) million below the forecast based on
the revised JLBC Baseline revenue estimate.
For the first 8 months of FY 2008, General Fund
collections are down (4.3)% when compared
to last year. When factoring in Urban Revenue
Sharing, year-to-date collections are (6.0)%
below last year. (See page 11 for detail
information).

www.azleg.gov/jlbc.htm

“For the first
8 months of
FY 2008, General
Fund collections
are down (4.3)%
when compared
to last year.”

March 2008

The decrease of (16.2)% in January reported in
last month’s highlights, along with the February
decrease of (17.5)%, represent the largest
percentage year over year declines since April
2002. The February decline in revenues
includes 2 of the 3 main revenue categories:
• Sales tax collections were down (4.9)%
compared to February 2007, and were $(18.4)
million short of the monthly forecast.
• Individual income tax collections were
down (53.3)%, which was $(10.7) million below
forecast.
• Corporate income tax collections were
1.3% above last year, and $2.2 million above
the forecast.
Based on new inputs to its consensus
forecasting process last month, the JLBC Staff
revised its FY 2008 Baseline General Fund
revenue forecast to $9.15 billion. (See page 6)
This February revision is $226.5 million less than
the January Baseline, and $924.5 million below

the enacted budget forecast. This revised
revenue level would translate into a (0.7)%
decline compared to FY 2007 revenues prior
to tax law changes, and (3.2)% after tax law
changes. The revised revenue forecast
increases the estimated budget shortfall from
$970 million to $1.2 billion.
In prior Monthly Fiscal Highlights, revenue
collections were measured against the
enacted budget. Collections will now be
measured against the February revised
Baseline forecast. This will enable the
Legislature to more easily measure how
monthly revenue collections may affect the
FY 2008 shortfall estimate.
Given the current volatility of the economy,
these latest revenue estimates could be
revised downward again. Any large
adjustments, however, would not likely occur
until May, when the level of 2007 individual
and corporate income tax filings becomes
clearer.
JLBC/JCCR Meetings – There were no JLBC or
JCCR meetings in March.
Finance Advisory Committee (FAC) – The FAC
met on March 6th (page 6). The FAC is a
panel of 16 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
decline by (0.3)% in FY 2008 and increase by

Table of Contents
February Revenues ................................................ 2
Recent Economic Indicators ................................ 3
Finance Advisory Committee Meeting............... 6
This report has been
prepared for the Arizona
Legislature by the Joint
Legislative Budget
Committee Staff on March
31, 2008.

Summary of Recent Agency Reports
• AHCCCS – Graduate Medical Education ..... 7
• AHCCCS – Capitation Rate Increases ............ 7
• AHCCCS – Redetermination Policy ................. 7
• ADOC – Community Accountability Pilot ...... 7
• ADOC – Report on Expenditures..................... 7

•
•
•
•
•
•
•
•
•
•
•

ADOC – Transition Release Program ............... 7
DES – State-Funded Food Distribution ............. 8
DES – Long Term Care Capitation ................... 8
DEMA – National Guard Training ..................... 8
DHS – Report on Arnold v. Sarn ........................ 8
DHS – Adverse Effects of Vaccines.................. 8
DHS – Behavioral Health Capitation................ 9
Dept of Insurance – Healthcare Group .......... 9
DPS – Sworn Personnel Staffing......................... 9
Secretary of State – Election Systems............10
Supreme Court – Lengthy Trial Fund..............10

2

JLBC – MONTHLY FISCAL HIGHLIGHTS –MARCH 2008

This Month

(continued)

0.5% in FY 2009, prior to tax law adjustments.
The 4-sector consensus growth rate of (0.3)%
can only be reached if revenues for the
remainder of FY 2008 increase by 4.5%. As a
result, JLBC Staff recommended during the
FAC meeting to lower the “Big 3” revenue
forecast to a (1.0)% decrease.
The FAC panel members’ economic outlook

for the next year is not favorable. As was the
case when the FAC last met in December,
the primary concern continues to be the real
estate market, including the oversupply of
housing, and the high level of loan defaults,
mainly associated with the subprime
mortgage market. Members expect
economic growth to bottom out in FY 2009,
followed by a gradual recovery.

February Revenues

revenues are

Sales Tax collections were $342.1 million in
February. This amount was down (4.9)%
compared to last February, and $(18.4) million
below the revised JLBC Baseline forecast. In
the first 8 months of FY 2008, sales tax revenues
are down (1.7)% compared to last year. Table
1 displays the February and year-to-date
growth rates for the major categories.

down (1.7)%

Table 1

“In the first
8 months of FY
2008, sales tax

compared to last
year”.

“Year to date,
income tax
collections are
(5.1)% below last
year”.

Sales Tax Growth Rates

Retail
Contracting
Utilities
Use
Restaurant & Bar

February
(10.2)%
(12.0)%
9.1%
19.3%
(2.1)%

Year-to-Date
(2.9)%
(8.1)%
6.9%
9.5%
0.0%

There were significant variations in February
collections by sector. Retail and contracting
collections together account for two-thirds of
all sales tax revenues. The retail sector
declined by (10.2)%, and contracting fell by
(12.0)%. The restaurant and bars category also
declined by (2.1)%. The use tax and utilities
categories both showed positive growth in
February, with increases of 19.3% and 9.1%
respectively.
Individual Income Tax collections were $39.0
million, or (53.3)% below last year. Year-todate, income tax collections are (5.1)% below
last year. February collections were $(10.7)
million less than the revised JLBC Baseline
forecast. Table 2 displays individual category
growth rates.

Table 2

Individual Income Tax Growth Rates
February
Year-to-Date
Withholding
0.6%
2.2%
Estimated +
(2.8)%
(13.6)%
Final Payments
Refunds
20.1%
20.1%
February withholding was 0.6% above last year.
The February increase brings year-to-date
collections to 2.2% over the prior year.
Estimated and final payments decreased
from the previous year for the fourth month in
a row, although February is a small collection
month. Payments declined (2.8)% compared
to last February.
February refunds were approximately $46
million, or 20.1% over the prior year. This
amount was $19 million over the estimated
amount of refunds for the month.
The payment of refunds is extremely volatile.
A single day’s processing can result in $20
million or more in refunds. It is not clear that
the $19 million variance from the original
refund forecast for the month was the result of
an increased level of refunds, or simply the
result of the volatility in the processing of
refunds. In addition, there was one more
processing day in February compared to last
year. As a result, the forecast for refunds for
February was increased by $19 million, with an
equal reduction in the forecast in subsequent
months.
Corporate Income Tax collections were $21.4
million or 1.3% above last year. This amount is
$2.2 million above the revised JLBC Baseline
forecast for the month.

JLBC – MONTHLY FISCAL HIGHLIGHTS – MARCH 2008

February Revenues

3

(continued)

Table 3

General Fund Revenues
Compared to Enacted Forecast and FY 2007 Collections
($ in Millions)
FY 2008
Difference From
Difference From
Collections
June ’07 Forecast 1/
Feb ’08 Forecast 2/
$ 373.4
$ (86.1)
$ (29.9)
$ 5,649.6
$ (706.3)
$ (29.9)

February
Year-to-Date
____________
1/ Enacted FY 2008 budget (June 2007).
2/ Revised JLBC Baseline

Difference
From FY 2007
$ (79.1)
$ (361.3)

Recent Economic Indicators
NATIONAL
In February, the Conference Board’s U.S.
Consumer Confidence Index totaled 75.0, or
(14.1)% below January 2008 levels and (32.6)%
below levels a year ago. The decrease is
attributed to consumers’ deteriorating view of
current and future expectations as well as
consumers’ belief that jobs are hard to get.
The U.S. Index of Leading Economic Indicators
declined for the fifth straight month in February
by (0.3)% and is down (1.7)% year over year. Six
of the 10 components that make up the
composite index decreased in February.
Average weekly initial claims for unemployment
insurance and building permits were the largest
negative contributors, while the real money
supply and interest rate spread were the largest
positive contributors.
U.S. semiconductor billings (3-month moving
average) decreased by (5.6)% in February and
(6.9)% year over year. While some decline in
sales is consistent with traditional seasonal
patterns for the industry, the Semiconductor
Industry Association reports that slow growth in
the U.S. economy may also have negatively
impacted consumer purchases of electronic
products.
The U.S. Consumer Price Index (CPI) (3-month
moving average) increased by 1.4% in
February. The year over year increase was
4.4%. Seven of the 10 CPI sub-indices increased
in February, while the sub-indices for apparel,
transportation, and energy declined.

ARIZONA
February total statewide non-farm
employment increased, year over year, by
0.1%. By comparison, the February year-overyear average growth rate in the prior 10 years
was 3.2%. Arizona’s unemployment rate
decreased from 4.3% in January to 4.0% in
February as the civilian labor force fell by
(11,700) due to people dropping out of the
labor force. In comparison, the national
unemployment rate was 4.8%.
All industries except 1 reported job growth at
a rate below their 10-year monthly average
gains. Construction employment decreased
by (0.9)% from January and by (10.4)% year
over year with losses spread among all subsectors. The average year over year growth
rate for February in the past 10 years was
6.4%. Manufacturing employment was
unchanged from January and decreased by
(2.3)% year over year.
Statewide, the number of building permits
authorized (3-month moving average)
totaled 2,542, including 1,475 single-family
residential building permits and 1,067 multifamily building permits. The number of
permits authorized in the single family
segment fell (53.0)% from levels a year ago.
Permitting activity in the multi-unit segment,
however, increased 202.4% from last year.
According to the Real Estate Center at
Arizona State University, the single-family
median resale home price continued its fall in

4

JLBC – MONTHLY FISCAL HIGHLIGHTS –MARCH 2008

Recent Economic Indicators
February, totaling $220,000. At this level, the
single-family median resale home price has
declined (4.3)% from last month and (15.4)%
from levels a year ago. Year-over-year, the
number of single-family homes sold in
February also fell, totaling 3,710 homes, or
(13.3)% below February 2007 sales. Relative
to January however, the number of single
family homes sold increased by 10.7%.
In February, the townhouse-condominium
median price fell to $165,000 with 620 units
being bought and sold. Year-over-year, the
median resale price and number of units sold
has decreased (5.7)% and (41.0)%,
respectively.
The month’s supply of housing indicator uses
the ratio between the number of homes
listed for sale on the Arizona Regional
Multiple Listing Service (ARMLS) and the
number of homes sold in a given month to
gauge the supply and demand of homes.
The ARMLS area includes the real estate
markets of Maricopa and Western Pinal
Counties. Based on February MLS data, it
would take 16.6 months to sell the current
inventory of homes, 2.9 month less than
January levels. In February 2007 the
measure stood at 9.9 months.
The Arizona Business Conditions Index (BCI)
decreased (3.9)% in February to 46.3 and is
down (20.6)% year over year. A reading
below 50 suggests a slowdown in the overall
level of economic activity in the near term.
All 5 components that make up the
composite index declined in February, with
the largest drop reported for the production
component.
The Behavior Research Center’s Arizona
Consumer Confidence Index began the
year with a reading of 79.8, a (21.7)%
decrease from July 2007 levels. The index in
Pima and Maricopa Counties were at their
lowest levels since July 2002 and 2003,
respectively. The decrease is attributed to
a deteriorating view of current economic
conditions as well as expectations that
employment opportunities and business
conditions will worsen.
Arizona personal income totaled $212.5
billion (seasonally adjusted annual rate) in
the 4th quarter of 2007, reflecting a year
over year growth rate of 5.5%. By
comparison, the state’s personal income
grew by 8.0% in 2006. The deceleration in
personal income growth in the 4th quarter

(Continued)

was attributable to both wages and
proprietors' income. While the wage and
salary component was still a positive
contributor to personal income growth, it
ranked 4th from the bottom nationwide.
In March, AHCCCS caseload’s totaled
1,090,243 members, or 6,413 members more
than February 2008 totals. At this level
however, the AHCCCS caseload has
increased by 6.0%, or 61,675 members from
prior year totals.

“The Arizona
Consumer

The number of TANF recipients has declined
(1.6)% year over year to 80,067 recipients.
The state budget projects 84,700 recipients
in FY 2008.

Confidence

Between December 2007 and February
2008, the Department of Corrections’ (ADC)
inmate population increased by 182
inmates per month to an average
population of 37,916 inmates. Fiscal yearto-date however, ADC’s inmate population
growth totals 135 inmates, less than the
budgeted increase of 160 inmates per
month.

year with a

Index began the

reading of 79.8,
a (21.7)%
decrease from
July 2007 levels.
The index in Pima
and Maricopa
Counties were at
their lowest levels
since July 2002
and 2003
respectively.”

JLBC – MONTHLY FISCAL HIGHLIGHTS – MARCH 2008

Recent Economic Indicators

(continued)

Table 5

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
S&P/Case-Shiller Home Price Index
- Months Supply of Housing (ARMLS)
- 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
- Real 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

February
February
February
February
Dec-Feb
Dec-Feb

4.0%
2.67 million
179,600
203,900
$71.2 million
$170.1 million

(7.0)%
1.0%
0.0%
(0.9)%
(5.3)%
(2.6)%

5.3%
0.1%
(2.3)%
(10.4)%
(13.0)%
(5.6)%

Nov-Jan
Nov-Jan

1,475
1,067

(7.0)%
28.8%

(53.0)%
202.4%

February
February

3,710
620

10.7%
(3.1)%

(13.3)%
(41.0)%

February
February
December
February
January
December

$220,000
$165,000
187.67
16.6 months
3.2 million
$7.86

October
February

119.5
46.3

4th Quarter 2007
1 st Quarter 2008
4th Quarter 2007
July 1, 2007
March
January
Dec-Feb

79.8
40.4
$212.5 billion
6.34 million
1,090,243
80,067
37,916

4th Quarter 2007

$11.7 trillion

0.6%

2.5%

February
February
Nov-Jan
Dec-Feb

75.0
135.0
$3.45 billion
212.3

(14.1)%
(0.3)%
(5.6)%
1.4%

(32.6)%
(1.7)%
(6.9)%
4.4%

(4.3)%
(5.4)%
(3.5)%
(2.9) months
(4.6)%
(22.4)%
(0.7)%
(3.9)%
(21.7)%
(4.9)%
0.8%
173,066
0.6%
(2.1)%
182 inmates

(15.4)%
(5.7)%
(15.3)%
6.8 months
(0.8)%
(8.7)%
(0.1)%
(20.6)%
(24.2)%
(22.2)%
5.5%
2.8%
6.0%
(1.6)%
2,056 inmates

5

6

JLBC – MONTHLY FISCAL HIGHLIGHTS –MARCH 2008

FAC Meeting
At its March 6, 2008 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 16-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 decline by (0.3)% in FY 2008, prior
to any tax law changes. This is down from the
December FAC meeting, at which time the 4sector consensus projected a FY 2008 growth
rate of 1.5%.
JLBC Staff recommended a lower FY 2008
revenue level, based on year to date
collections. February year to date collections
(pre-tax cuts) are down (2.8)% as compared to
the same period last year. In order for the 4sector consensus growth rate of (0.3)% to be
reached, revenues for the remainder of the
year would have to increase by 4.5%. Given
the uncertain prospect of reaching that
revenue growth level, the JLBC Staff’s current
forecast is a (1.0)% decline.
JLBC Staff also noted that this (1.0)% rate may
still be too high and there is the potential for an
additional $100 - $200 million revenue loss.
In FY 2009, the 4-sector consensus predicts
growth will be 0.5%. Combined between FY
2008 and FY 2009, the 2-year 4-sector growth
rate is 0.2%. Given that JLBC Staff’s
recommended (1.0)% revenue decline for FY
2008, the FY 2009 revenue growth would need
to be 1.2% to remain consistent with the 2-year
4-sector forecast.
Panel members also heard formal presentations
from Elliott Pollack and Marshall Vest in addition
to comments from other panel members.

Committee members 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, Committee
members stated 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.
The Committee generally expects economic
growth to bottom out sometime in FY 2009.
With regard to the duration of the slowdown,
most members believe it will last several years,
and be followed by a gradual recovery.
Members noted that the adverse impacts of
the housing slump and credit crunch are
beginning to be felt in lowered consumer
spending and higher rates on loans outside
the highly leveraged and risky loans that
initiated the constriction of credit. Marshall
Vest and Elliott Pollack provided supporting
data that showed flat retail sales and
increasing credit spreads on high yield debt
instruments.
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
seemed to suggest that there are more
downside than upside risks to the 4-sector
consensus in FY 2009 and FY 2010.

“Committee
members 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.”

JLBC – MONTHLY FISCAL HIGHLIGHTS – MARCH 2008

7

Summary of Recent Agency Reports
AHCCCS – Report on Graduate
Medical Education Residency
Positions – Pursuant to A.R.S. § 362903.01, the Arizona Health Care Cost
Containment System has submitted its
annual report on the number of new
residency positions. The rep
t discusses the positions created by
the additional $4,000,000 GF
($12,000,000 TF) appropriated for
Graduate Medical Education in the
FY 2007 budget. The agency
indicates that the increased
appropriation provided partial
funding an additional 344 residency
positions in FY 2007. AHCCCS
provided a portion of the funding for
these positions, with the remaining
funding coming from other sources
such as Medicare and the hospital’s
own funds. Of the 344 newly-funded
positions, 27 are located in rural
areas. The FY 2008 budget included
an additional increase of $3,000,000
GF ($9,000,000 TF) for Graduate
Medical Education.
AHCCCS – Report on Preliminary
Actuarial Estimates of the Capitation
Rate Increases for the Following Fiscal
Year – Pursuant to a FY 2008 General
Appropriation Act footnote, AHCCCS
has submitted preliminary actuarial
estimates of the capitation rate
increases for FY 2009.
Based on a review of historical cost
and utilization trend data, capitation
rates are estimated to grow
approximately 4%-6% in the Arizona
Long Term Care System (ALTCS)
program beginning October 1, 2008.
Because the Acute Care program
contract is currently out for bid,
AHCCCS believes it would be
detrimental to release an estimated
growth rate for that population until
the potential contractors have
submitted their bids. AHCCCS says it
will provide a preliminary Acute Care
capitation rate range in May after
contracts are awarded.
The FY 2009 JLBC Baseline assumed
capitation rate growth of 6% for the
Acute Care program and 6% in the

ALTCS program. At a range of 4% 6%, there would be General Fund
savings of $0 to $2.6 million solely for
the ALTCS program based on the
caseloads included in the FY 2009
JLBC Baseline budget. The impact on
the cost of the Acute Care program
will depend on the capitation rate
increase for that population.
AHCCCS – Report on
Redetermination Policy – Pursuant to
the FY 2008 Health and Welfare
Budget Reconciliation Bill (Laws 2007,
Chapter 263), AHCCCS has submitted
its report 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 55,564
letters were sent during a 7-month
period (June 2007 through December
2007) to redetermine eligibility. Of the
total, 8,412 are no longer receiving
AHCCCS benefits because they were
deemed no longer eligible for the
program or failed to come in for their
eligibility redetermination interview.
These figures reflect the number of
family units, not individuals, subject to
the redetermination process.
Arizona Department of Corrections –
Report on Community Accountability
Pilot Program – A.R.S. § 41-1609.05
required the Arizona Department of
Corrections (ADC) to establish a
Community Accountability Pilot
Program (CAPP). 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 pilot
program is scheduled to end July 1,
2012.
The department awarded the CAPP
contract to a private vendor and the
program began in April 2006. Since
the program’s inception, a total of
304 eligible offenders have been
referred to the program. Of those
referred to CAPP:

•
•
•
•

2 ( 0.2%) declined to participate,
44 (14.5 %) remain enrolled in the
program,
72 ( 23.7%) successfully
completed the program, and
186 (61.2%) were terminated from
the program.

Arizona Department of Corrections –
Report on Expenditures – Pursuant to
Laws 2007, Chapter 255 (General
Appropriation Act), the Arizona
Department of Corrections (ADC) is
required to report monthly on their
expenditures.
ADC just released its second report of
the fiscal year. The department is
estimating a FY 2008 surplus
exceeding $19.4 million. The primary
reason for the surplus is savings
generated in the Provisional Beds
Special Line Item. These savings are a
result of: 1) delays in transferring
inmates to 2 contracted facilities in
the state of Oklahoma, and 2) the
state of Indiana capping the number
of inmates housed at a contracted
facility in that state to 630 of an
anticipated 1,260.
Arizona Department of Corrections –
Report on Transition Release 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 and the number of
participants who did not receive an
early release under the Transition
Program. Statute requires ADC to
contract with a private or nonprofit
entity to provide eligible drug
offenders with transition services. The
ADC Transition Release Program
began in March 2004 and allows
eligible inmates in the Transition
Program to be released 3 months
earlier than the inmate's earliest
release date.
Between October 1 and December
31, 2007, the department reports that
the Transition Program is responsible

8

JLBC – MONTHLY FISCAL HIGHLIGHTS –MARCH 2008

Summary of Recent Agency Reports
for 14,729 bed days saved, yielding a
savings of $250,393. These savings
were a result of 308 participants
successfully completing the Transition
Program.
While a significant number of
participants have successfully
completed the program, 19
participants failed to complete the
early transition release by violating
their conditions of supervision.
Department of Economic Security –
Report on State-Funded Food
Distribution – Pursuant to a FY 2008
General Appropriation Act footnote,
the Department of Economic Security
(DES) is reporting on food distribution
effort funded through the
Coordinated Hunger Special Line
Item. For the last 6 months of
calendar year 2007, there were 6
regional food banks that distributed
37.7 million pounds of food, a (24)%
decrease when compared to the
same time period during the previous
year. DES has attributed the decline
to increasing food and fuel prices.
Additionally, the footnote required
DES to include letters from each
participating regional food bank
stating its satisfaction with the
distribution process. This year, 4 of the
participating food banks submitted
letters indicating they were satisfied
with the distribution process. The
remaining 2 food banks were not
asked by DES to submit letters,
because they were only involved in
the program for 2 months.
Department of Economic Security
(DES) – Report on Preliminary
Actuarial Estimates of the Long Term
Care Developmental Disabilities
Capitation Rate Increases for the
Following Fiscal Year – Pursuant to a
FY 2008 General Appropriation Act
footnote, the Department of
Economic Security (DES) has
submitted preliminary actuarial
estimates of the FY 2009 capitation
rate increases for its Title XIX Long
Term Care Developmental Disabilities

(Continued)

program.
DES estimates that the Division of
Developmental Disabilities FY 2009
capitation rate will increase between
3.5% and 5.5% over the FY 2008 rate.
The FY 2009 JLBC Baseline assumes
capitation rate growth of 3.0%. DES’
estimated capitation rate increase
represents a cost of between $2.5
million and $8.4 million General Fund
above the amount included in the
JLBC Baseline.
Arizona Department of Emergency
and Military Affairs – Report on
Request to Conduct Training on the
Arizona-Mexico Border – Pursuant to
the General Appropriation Act (Laws
2007, Chapter 255), the Arizona
Department of Emergency and
Military Affairs (DEMA) has submitted
a response to a footnote directing
the department to request permission
from the U.S. Department of Defense
(DOD) to conduct training exercising
along the state’s southern border.
DEMA reports that Arizona National
Guard units are currently training at
the Arizona-Mexico border under
Operation Jump Start. This operation
has deployed up to 6,000 members of
the National Guard along the U.S.Mexico Border to support efforts of
the U.S. Border Patrol.
The department also responded that
training locations for guard units are
selected by unit commanders and
approved by the Arizona National
Guard, not by the DOD.
Consequently, DEMA did not request
permission from the DOD to conduct
training along Arizona’s southern
border.
Department of Health Services (DHS) –
Report on Arnold v. Sarn – Pursuant to
a footnote in the FY 2008 General
Appropriation Act, the Department of
Health Services (DHS) has submitted a
quarterly report to the Joint
Legislative Budget Committee on the
department’s progress toward settling
the Arnold v. Sarn lawsuit.

The Court Monitor completed her
annual audit and filed the report in
January 2008. The report measured
39 requirements that were previously
agreed upon. Of the 11 items that
had a 2007 target established, only 2
items met their goal. Additionally, 26
items did not have a 2007 target but
had a 2006 target; of those, only 3
targets were met. Of the 39 items
measured, all but 3 items scored
lower than last year. DHS attributes
these low scores, in part, to the
system instability during the final 3
months of transition from
ValueOptions to Magellan.
Based on the Court Monitor’s findings,
the involved parties have discussed
the resolution of 46 problem cases.
DHS reports that these cases have
been resolved and are continuing to
be monitored. The Court Monitor and
parties have scheduled to meet to
determine the corrective actions that
need to be taken due to the findings
included in the report. Additionally,
the parties continue to discuss DHS’s
compliance with prior court-ordered
obligations.
Department of Health Services (DHS) –
Report on Current National and State
System for Reporting and Collecting
Information Regarding Adverse
Effects of Vaccines – Pursuant to a FY
2008 General Appropriation Act
footnote, DHS has submitted a report
on the adverse effects of vaccines.
According to the report, all 50 states,
Indian Health Service, and 8 U.S.
territories collect and report
information relating to adverse
effects of vaccines to the national
Vaccine Adverse Events Reporting
System (VAERS).
Public health facilities can report
adverse events to the state
immunization program or directly to
VAERS. The state immunization
program reports all adverse events to
VAERS. Between January 1, 2007 and
October 31, 2007, there were 439
unduplicated adverse events

JLBC – MONTHLY FISCAL HIGHLIGHTS – MARCH 2008

Summary of Recent Agency Reports
reported from Arizona. A total of 253
of the 439 adverse events reported
were for children age 2 months
through 18 years. During that same
period, the Arizona State
Immunization Information System
shows that almost 2.2 million vaccines
were provided. Thus, an adverse
event was reported .02% of the time.
The 6 most frequently reported
adverse effects during 2007 in Arizona
were: 1) drug ineffective; 2) redness
at the injection site; 3) weakness; 4)
pain at injection site; 5) itching; and
6) joint pain.
Department of Health Services (DHS) –
Report on Preliminary Actuarial
Estimates of the Capitation Rate
Increases for the Following Fiscal Year
– Pursuant to a FY 2008 General
Appropriation Act footnote, DHS has
submitted preliminary actuarial
estimates of the capitation rate
increases for FY 2009. Based on a
review of utilization trend data and
inflation, DHS estimates capitation
rates growth as follows:
Children’s Behavioral
Health (CBH)

2.9% - 4.9%

Seriously Mentally Ill
(SMI)

3.0% - 5.0%

General Mental
Health/Substance
Abuse (GMH/SA)

9.2% -11.2%

DHS has not submitted estimates
for the Children’s Rehabilitative
Services (CRS) program. They
have indicated that they are in the
process of a competitive bid, and
doing so could impact the
responses. DHS has offered to
provide these estimates in June
after the bids have been received.
The FY 2009 JLBC Baseline assumed
capitation rate growth of 6.0% for
the CBH, SMI, GMH/SA and CRS
Programs. Overall, the midpoint of
DHS estimated capitation growth
rate is less than what was assumed

in the JLBC Baseline and would
produce a General Fund savings
of $2.8 million relative to the JLBC
Baseline.
Department of Insurance – Report
on Financial Audit of Healthcare
Group – Pursuant to Laws 2007,
Chapter 263 the Department of
Insurance (DOI) has released a
financial audit of Healthcare
Group (HCG). The HCG program
provides health insurance
coverage for small businesses.
Chapter 263 made many changes
to the HCG program including an
enrollment freeze and requiring
DOI to perform a financial audit of
HCG. The Legislature also
included an $8.0 million General
Fund subsidy for HCG in the FY
2008 budget.
DOI estimates that HCG had an FY
2007 ending deficit of $(24.0)
million. This includes $20.1 million in
FY 2007 losses and a FY 2007
beginning deficit of $(3.8) million.
Of the $20.1 million in losses for FY
2007, $16.4 million was associated
with the Health Maintenance
Organization (HMO) plans and $4.5
million was associated with the
Preferred Provider Organization
(PPO) plan.
Of the $16.4 million in losses from the
HMOs, $10.1 million was associated
with Mercy Healthcare Group.
Although they insure similar numbers
of clients, Mercy Healthcare Group
had a combined ratio of 132.2% while
University Physicians had a ratio of
117.7% and losses of only $3.9 million.
The combined ratio represents
medical expenses plus administration
expenses compared to revenues
(meaning for every $1 in revenue
received, Mercy Care spent $1.32).
Because the health plans are not at
risk under the HCG contract, this
combined ratio is the reason for the
large reconciliation payments. The
PPO had a higher combined ratio of
142.8%, but only $4.5 million in losses,
due to the comparatively small

9

(Continued)

number of members.
DOI estimates the FY 2008 ending
deficit to be $(8.6) million, after the
$8.0 million General Fund subsidy has
been used to pay off old obligations.
AHCCCS notes that due to
administrative changes and premium
increases they now believe the FY
2008 ending deficit will be
"significantly under" the DOI estimate.
DOI reports that if HCG were a
private insurer it would need to
maintain positive assets in excess of
$9 million to avoid regulatory actions.
AHCCCS believes it can meet that
reserve standard within 2 years,
providing no additional restrictive
actions are taken by the Legislature.
The report speculates that several
policies contributed to an unhealthy
and costly membership population,
including allowing brokers to sell HCG
products, eliminating the requirement
that the plans pay non-contracted
hospitals at the AHCCCS per diem
default rates, implementing a 6month “go bare” period, and offering
multiple plan options, even among
members from the same employment
group. Additionally, the report also
contends that HCG priced its
premiums to attract healthy groups,
rather than at the rates needed to
support its population. This resulted in
increased losses as HCG enrollment
increased.
Arizona Department of Public Safety –
Report on Sworn Personnel Staffing –
Pursuant to Laws 2007, Chapter 255
(General Appropriation Act), the
Arizona Department of Public Safety
(DPS) is required to report quarterly on
sworn personnel staffing levels. As of
December 31, 2007, DPS had 1,355
authorized sworn full-time positions,
including 100 authorized sworn
positions for the Gang and
Immigration Intelligence Team
Enforcement Mission (GIITEM). Of the
1,355 authorized sworn positions,
1,195 (or 88.2%) are currently filled,
representing a net increase of 19
positions in the 2nd quarter.

10

JLBC – MONTHLY FISCAL HIGHLIGHTS –MARCH 2008

Summary of Recent Agency Reports
Secretary of State – Report on
Election Systems Improvement Fund
Expenditures – Pursuant to a footnote
in the FY 2008 General Appropriation
Act, the Secretary of State is reporting
on actual expenditures from the
Election Systems Improvement Fund
in FY 2007 as well as estimated
expenditures from the fund in FY 2008
and FY 2009.
Monies in the fund are to be used to
implement the provisions of the Help
America Vote Act (HAVA). HAVA is
federal election reform legislation
that imposes several requirements on
the states with respect to the
conduct of federal elections.
In FY 2007 the Secretary of State’s
office spent a total of $12,493,200
from the Election Systems
Improvement Fund, including
$12,278,200 provided from federal
funding and $215,000 provided from
the state General Fund. Expenditures
included $3,354,300 for acquisition,
maintenance, and support of the
voter registration system and
$7,288,000 to reimburse counties for
making voting locations more
accessible.
The Secretary of State’s office
currently estimates spending
approximately $19 million, $10 million
in FY 2008 and $9 million in FY 2009.
Of the $19 million in total spending,
about $10 million will be used on the
finalization of the statewide voter
registration system. Funds will also be
spent on a poll worker recruitment
and education campaign for the fall
2008 elections and to pay for
operation, maintenance, and
support for accessible voting
machines. Any remaining funding will
be spent on voter education, making
election sites more accessible,
improvements to the telephonic
grievance system, administration,
consulting, poll worker and election
official training, and telecommunications.

Supreme Court – Report on Arizona
Lengthy Trial Fund – Pursuant to A.R.S.
§ 21-222(F), the Supreme Court is
required to report annually on the
amount of monies collected and
expended, as well as the number of
jurors receiving monies from the
Lengthy Trial Fund (LTF). The fund is
intended to reimburse jurors who lose
their regular employment income
while serving as jurors. Eligibility of
funding is limited to jurors serving on
trials lasting in excess of 5 days. A $15
filing fee for civil complaints, answers,
and requests to intervene is
deposited into the LTF.
In FY 2007, LTF revenues totaled
$757,847 and the total amount
reimbursed for trials completed in
FY 2007 was $608,773. Throughout
FY 2007, 727 jurors serving on 172 trials
were paid from the LTF.

(Continued)

JLBC – MONTHLY FISCAL HIGHLIGHTS – MARCH 2008

11

State of Arizona
General Fund Revenue

Change from Previous Year and Enacted Forecast
February 2008
Current Month

FY 2008 YTD (Eight Months)

Change From
February 2007

Actual
February 2008

Percent

Amount

Change from
Forecast
Percent

Amount

February 2007

Actual
February 2008

Forecast

Percent

Amount

Percent

Amount

Taxes
Sales and Use
Income - Individual
- Corporate
Property

342,061,289

($17,582,649)

39,047,564

(44,488,470)

21,391,706
652,557

(4.9) %

($18,420,501)

(5.1) %

$2,977,323,969

($50,631,940)

(1.7) %

2,291,531,897

(123,346,864)

(5.1)

(10,704,877)

11.3

420,959,782

(128,341,375)

(23.4)

2,168,706

0.5

8.8

11,837,031

(2,425,298)

(17.0)

52,557

0.4

(53.3)

(10,704,877)

(21.5)

264,828

1.3

2,168,706

(226,687)

(25.8)

52,557

($18,420,501)

(0.6) %
(0.5)

Luxury

3,598,000

629,627

21.2

(1,655,000)

(31.5)

39,637,010

(5,412,260)

(12.0)

(1,655,000)

Insurance Premium

6,708,514

2,749,901

69.5

2,708,514

67.7

159,140,677

10,889,458

7.3

2,708,514

1.7

268,122

1,146,118

0

0.0

Estate
Other Taxes

0

(71,962) (100.0)

46,463

(2,989)

$413,506,093

($58,728,401)

Lottery

2,655,800

(3,430,200)

(56.4)

(581,600)

License, Fees and Permits

3,291,963

1,310,282

66.1

751,563

Interest

5,587,324

(4,302,866)

(43.5)

Sales and Services

3,309,935

(833,537)

Other Miscellaneous

2,146,375

(1,753,656)

Sub-Total Taxes

(6.0)

0

397,186

(39,977)
($298,162,138)

(18.0)

21,999,419

(3,002,981)

(12.0)

(581,600)

29.6

24,101,508

(3,173,357)

(11.6)

751,563

(2,064,276)

(27.0)

69,896,100

6,309,813

9.9

(2,064,276)

(2.9)

(20.1)

(1,266,665)

(27.7)

33,789,349

1,197,491

3.7

(1,266,665)

(3.6)

(45.0)

(815,425)

(27.5)

19,720,069

(2,889,167)

(12.8)

(815,425)

(4.0)

--

0

0

--

35,331,182

27,290,942
25,732,741

($25,854,459)

(7.7)

--

$5,901,095,674

(12.4) %

(3,858)

--

(5.9) %

(9.1)
(4.8) %

(3,858)

(4.0)

($25,854,459)

(1.0)
(0.4) %

Other Revenue

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

0
(14,493)

0
(225,140)

---

0
(114,493)

16,976,904

(9,235,117)

(35.2) %

(4,090,896)

(19.4) %

204,837,627

$430,482,997

($67,963,518)

(13.6) %

($29,945,355)

(6.5) %

$6,105,933,301

($272,429,397)

-339.4

0
(114,493)

(2.6)
3.2

-(0.3)

14.4 %

(4,090,896)

(2.0) %

(4.3) %

($29,945,355)

(0.5) %

One-Time Revenue
Urban Revenue Sharing

(57,044,911)

(11,109,023)

24.2

0

0.0

(456,359,285)

(88,872,178)

24.2

0

0.0

Sub-Total One-Time Revenue

(57,044,911)

(11,109,023)

24.2 %

0

0.0 %

(456,359,285)

(88,872,178)

24.2 %

0

0.0 %

($79,072,541)

(17.5) %

($361,301,575)

(6.0) %

TOTAL REVENUE

$373,438,086

($29,945,355)

(7.4) %

$5,649,574,016

($29,945,355)

(0.5) %