JLBC - Monthly Fiscal Highlights

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

Summary
September General Fund revenue collections
were $830.0 million, or (10.3)% below
September 2007. September collections were
$(124.6) million below forecast.

consecutive month of year-over-year
reductions.
• September corporate income tax collections
were down (25.6)% from September 2007,
which was $(55.2) million below forecast.
September is a large collection month for
corporate income tax due to quarterly
payments.

For the first 3 months of FY 2009, General Fund
collections are down (8.9)% when compared
to last year (excluding URS and one-time
transfers). (See Table 1 and page 2 for more
information).

www.azleg.gov/jlbc.htm

“September

October 2008

• September individual income tax collections
were down (1.9)% compared to September
2007 and were $(26.9) million below forecast.

While there were declines in all 3 major
revenue categories, sales tax and corporate
income tax represent the largest dollar
declines:

As we have explained in previous months,
revenues would need to grow by 6.1% for the
entire year to meet the budget forecast.
Given the decline of (8.9)% in the first 3 months,
revenues will likely fall significantly short of
forecast.

• September sales tax collections were down
(6.7)% compared to September 2007 and
were $(46.5) million short of the monthly
forecast. September marked the 9th

collections were
$(125.4) million

Table of Contents

below forecast”.
September Revenues............................................. 2
Economic Indicators .............................................. 4
Finance Advisory Committee Meeting............... 7
JLBC Meeting Summary
•
•
•
•
•
•
•
•
•

ADOA – Review Risk Mgmt Deductible .......... 8
ADE – Review Transfer to SEI ............................. 8
ADE – Review JTEDs IGAs................................... 8
ADE – AIMS Study Guides .................................. 8
DES – Transfer of Appropriations....................... 8
DHS – CRS Cap Rate Changes......................... 8
AHCCCS – Cap Rate Changes........................ 8
JLBC Staff – Index for ASFB Construction ........ 8
ABOR – FY 2009 Tuition Revenues .................... 8

JCCR Meeting Summary

This report has been
prepared for the Arizona
Legislature by the Joint
Legislative Budget
Committee Staff on
October 31, 2008.

•
•
•
•
•
•
•
•

Mohave Comm College – Bond Issuance ..... 9
Pinal Comm College – Bond Issuance........... 9
ADOA – DOC Prison Beds/Treatment Plant.... 9
ADOA – Lewis & Tucson Prison Projects ......... 9
DOC – Energy Performance Contract............ 9
AZ Game & Fish – Building Renewal .............. 9
SFB – Lease-To-Own/New Construction......... 9
ADOA – Building Renewal ................................. 9

•
•
•
•
•
•
•

State Parks – Enhancement Fund Project .... 10
ADOT – Building Renewal ................................ 10
UA – Building Renewal .................................... 10
UA – Mosaic Project ......................................... 10
UA – Energy Bonds.......................................... 10
ASU – Bond Project ........................................... 10
Universities – Lottery Building Renewal.......... 10

Summary of Recent Agency Reports
•
•
•
•
•
•
•
•
•
•
•
•
•
•

AOC/DOC – Probation Revocation.............. 11
DOC/ADOA – Status of Public/Private Beds 11
DEMA – Camp Navajo Fund .......................... 11
AZ Historical Society Funds .............................. 11
DJC – Restitution Fund ..................................... 11
DPS – GIITEM Quarterly Report ...................... 11
State Parks Board – Out-of-State Travel........ 12
SFB – ASDB Costs ............................................... 12
SFB – Energy and Water Savings Pilot............ 12
Supreme Court – Case & Cash Mgmt .......... 12
Supreme Court – Automation Projects ......... 12
University Research Infrastructure .................. 13
DWR – Fees Collections ................................... 13
DWR – Interstate Water Banking .................... 13

2

JLBC – MONTHLY FISCAL HIGHLIGHTS – OCTOBER 2008

Summary

(Continued)

A Finance Advisory Committee meeting was
held on October 15th. (See summary on page
7). Based on the 4-sector consensus forecast,
FY 2009 revenues are projected to decrease
from (1.5)% to (5.7)% compared to the prior
year. Based on these projections, the FY 2009
shortfall could range from $(700) million to
$(1.1) billion.
JLBC/JCCR Meetings – The Monthly Fiscal
Highlights include summaries of the October
JLBC and JCCR meetings (pages 8-10).

In Memoriam – A former member of the JLBC
Staff, Henry “Hank” Reardon passed away on
October 29th. Hank was one of the first JLBC
employees, and began his career at JLBC as
its sole economist in 1970. He retired in 1999
as Chief Economist. The original version of
the Monthly Fiscal Highlights was first
published under Hank’s direction. Hank was a
dedicated public servant and he will be
missed by his many friends in the forecasting
community.

September Revenues
Table 1

September General Fund Revenues
Compared to Enacted Forecast and FY 2008 Collections
($ in Millions)
FY 2009
Difference From
Difference
Collections
June ‘08 Forecast
From FY 2008
September
$830.0
$(124.6)
$(95.4)
Year-to-Date
$2,283.8
$(304.8)
$(15.2)

“Sales Tax
collections
were…down
(6.7)% compared
to last
September, and
were $(46.5)
million below
forecast”.

Sales Tax collections were $342.3 million in
September. These revenues were down (6.7)%
compared to last September, and were $(46.5)
million below forecast. Table 2 displays the
September growth rates for the largest
categories.
Table 2

Sales Tax Growth Rates
Compared to Prior Year

Retail
Contracting
Utilities
Use
Restaurant & Bar
Table 3

Sept
(5.9)%
(19.0)%
15.7%
(4.4)%
(0.8)%

YTD
(8.4)%
(17.9)%
12.7%
0.6%
(4.0)%

As noted in previous months, retail and contracting together account for two-thirds of all
sales tax revenues. The retail sector decreased
by (5.9)% and contracting fell by (19.0)%.
For August (the latest available subcategory
data), taxable sales in the retail category are
down (9.6)% from the prior year. The largest
subcategory within retail is the General
Merchandise and Miscellaneous Retail
category, which is down (3.3)%. The largest
subcategory decline is in Motor Vehicles,
which represents over 21% of the total, and is
down almost (30)% compared to the prior
year. Taxable retail sales by category are
shown in Table 3. (Eric Jorgensen)

August Taxable Retail Sales by Subcategory

General/Misc. Merchandise
Motor Vehicles/Misc. Auto.
Bldg Hardware, Mfg Home
Food and Liquor Stores
Furniture, Home Furnishings
Clothing and Accessories
Manufacturing
Other Subcategories
Total

% of
Total Sales
30.1%
21.7%
7.5%
7.3%
6.9%
5.8%
5.6%
15.1%
100.0%

% Change
Over FY 2008
(3.3)%
(28.1)%
(14.7)%
2.7%
(17.3)%
(9.9)%
(10.5)%
5.6%
(10.3)%

3

JLBC – MONTHLY FISCAL HIGHLIGHTS – OCTOBER 2008

September Revenues
Individual Income Tax collections were $355.4
million in September, or (1.9)% below last year.
September collections were $(26.9) million less
than forecast. Table 4 displays September
and year-to-date growth rates for individual
categories.
Table 4

Individual Income Tax Growth Rates
Compared to Prior Year

Withholding
Estimated +
Final Payments
Refunds

“Combining the
two months,
withholding tax
collections are
(1.1)% below
August and
September of
last year”.

September
9.8%
(17.5)%

YTD
(0.4)%
(18.4)%

15.4%

6.5%

As reported last month, the large decline in
individual income taxes in August was mostly
attributable to August having 2 processing
days less than in the prior year. The opposite
holds true for September, which included 2
extra processing days relative to last year. This
means that tax payments that would have
normally been processed in August were
instead recorded in September.
This difference in processing days helps to
explain the (10.4)% decline in withholding in
August and 9.8% increase in September.
Combining the two months, withholding tax
collections are (1.1)% below August and
September of last year. (Hans Olofsson)
Corporate Income Tax collections were $132.1
million, (27.4)% below last year’s collections,
and $(55.2) million below the forecast for the
month of September. Through the 1st quarter,
collections totaled $248.0 million, or $(73.4)
less than the forecast.
Looking forward, October and November
have historically been relatively small
collection months for corporate income tax,
while December is relatively larger due to
quarterly estimated payments. (Martin
Lorenzo)

(Continued)

4

JLBC – MONTHLY FISCAL HIGHLIGHTS – OCTOBER 2008

Economic Indicators
NATIONAL
The nation’s output of goods and services in
the 3rd quarter of 2008 contracted by (0.3)%,
according to the federal Bureau of Economic
Analysis’ advance estimate of the real Gross
Domestic Product. Personal consumption
expenditures, which comprise 70% of GDP, fell
by (1.3)%. This was the first decline in
consumer spending since the 4th quarter of
1991 and the largest drop since the 2nd
quarter of 1980.

“…September
marked the 6th
consecutive
month with
accelerating
job losses.”

The Conference Board’s U.S. Consumer
Confidence Index for October declined by
(23.4) points to a reading of 38.0—the lowest
level recorded in the history of the survey.
Year over year, the index is down by (60.1)%.
The sharp decline in consumer confidence
reflects declining employment, real incomes,
and household wealth combined with frozen
credit markets and falling stock prices.
The Conference Board’s U.S. Index of Leading
Economic Indicators increased by 0.3% in
September, the first month-over-month
increase since April this year. Six of the 10
components that make up the composite
index advanced in September, with money
supply, interest rate spread and consumer
expectations being the strongest positive
contributors. Declining stock prices and
building permits combined with rising initial
unemployment insurance claims all exerted a
negative pressure on the leading index.
Many analysts, including Global Insight,
believe that the 0.3% increase of the index
was distorted by the sharp rise in money
supply and interest rate spread resulting from
the ongoing crisis in financial markets.
The U.S. Consumer Price Index remained
unchanged in September following a (0.1)%
decline in the prior month. While inflationary
pressures have eased over the last two
months, consumer prices still remain high
relative to last year as evidenced by a yearover-year CPI increase of 4.9%. The largely
unchanged CPI reading is primarily due to the
offsetting effect of falling energy prices.
ARIZONA
Most economic indicators released in
September were negative. The Arizona
Department of Commerce reported that the

state lost (59,200) or (2.2)% of nonfarm jobs in
September compared to the same month last
year. Additionally, September marked the 6th
consecutive month with accelerating job
losses. To provide some perspective, yearover-year job losses never exceeded (1.3)%
during the 2001 recession and (0.2)% during
the 1990/91 recession.
Job losses continue to be heavily
concentrated in the goods-producing sectors
of the economy where employment is down
by (7.0)% year-over-year compared to (0.8)%
for service-providing industries. The
construction sector continues to weigh down
the Arizona economy with a loss of (38,600)
jobs in September. The construction sector
now employs (17.2)% fewer individuals than a
year ago.
Apart from the aerospace industry, the
manufacturing sector is generally not
performing well. Although the industry has
experienced year-over-year job losses for 23
consecutive months, the decline has been
relatively modest when compared to prior
downturns. In September, the manufacturing
sector lost (3,000) jobs or 1.7% of its workforce
relative to the same month in the prior year.
The state’s unemployment rate in September
increased to 5.9% from 5.6% in the prior
month.
Other signs of a weakening job market can
be found in the state’s unemployment
insurance statistics. The Department of
Commerce reported that 24,197 initial claims
for unemployment insurance were recorded
in September, an increase of 40.0% over last
year.
Building permit activity is often viewed as a
leading indicator for the economy in general
and the construction sector in particular.
Data from the U.S. Census Bureau shows that
single family units authorized by building
permits have declined year-over-year for 31
consecutive months (or since February 2006).
There is nothing in the U.S. Census data to
suggest that this trend will end soon.
Permitting activity in the state has now
reached levels comparable to those
recorded during the 1990/91 recession.
Between June and August, the number of

5

JLBC – MONTHLY FISCAL HIGHLIGHTS – OCTOBER 2008

Economic Indicators
authorized building permits (3-month moving
average) statewide totaled 2,375, including
1,740 single-family residential building permits
and 635 multi-family building permits.
Compared to the prior month, permitting
activity in the single family and multi-family
segments have decreased by (10.7)% and
(11.7)%, respectively. Year-over-year,
authorized permits in the single family
segment are down by (49.4)%, while permits in
the more volatile multi-family segment are
down by(19.5)%.
One piece of good news for September was
that the average supply of housing in the
market fell from 10.5 to 8.9 months. The
decline was mostly attributable to a higher
sales volume since the number of homes
listed on the MLS has remained largely
unchanged. In a normal market there is
typically no more than 4 to 5 months’ supply
of housing.

“For the first time
in the current
business cycle,
Phoenix had the
largest yearover-year price
decline among
the 20
metropolitan
areas that are
included in the
index.”

Housing data from ASU’s Realty Studies also
indicates that the number of homes resold in
Greater Phoenix is increasing. The number of
single-family homes sold in September
totaled 8,280, of which 4,625 represented
traditional sales and 3,655 the sale of
foreclosed homes. The year-over-year
increase for traditional home sales was 71.6%
compared to 359.7% for foreclosed
properties. The rapid increase in foreclosures
is evident from the fact that foreclosed homes
now constitute 44% of total resales compared
to 33% in April.
The increased sales activity in the housing
market has been spurred by falling home
prices. Based on the September report, the
Greater Phoenix single-family median resale
home price was $180,000 for traditional
homes and $153,000 for foreclosed properties.
Year over year, the median resale price has
fallen by (29)% for both traditional and
foreclosed single-family homes.
The S&P/Case-Shiller Home Price Index, which
is an alternative measure of housing price
changes based on repeat sales, shows a
similar decline for the Phoenix Metropolitan
area as that reported by ASU. In August, the
index for Phoenix stood at 144.83, or (30.7)%
below August 2007 levels. The home price, as
reflected by the index, is back to the level
recorded in October 2004. For the first time in

(Continued)

the current business cycle, Phoenix had the
largest year-over-year price decline among
the 20 metropolitan areas that are included in
the index.
The Arizona Business Leaders Confidence
Index for the 4th quarter of 2008 gained 3.9
points or 10.1% over the prior quarter for a
reading of 42.4. Although the index
improved, it remains below 50, which means
that panelists still expect the Arizona
economy to worsen during the last quarter of
this calendar year. Since the survey was
closed prior to the onset of the turmoil in
financial markets, it is likely that the 4th quarter
reading would have been less than 42.4
points if panelists had been surveyed today.
The Phoenix Sky Harbor International Airport
publishes passenger statistics monthly. In
August, a total of 3,316,110 passengers
entered and exited aircraft, which was a
decline of (8.0)% compared to the same
month last year.
AHCCCS caseloads in October decreased by
(0.1)%, or (1,445) members, to 1,130,112. At
current levels, the AHCCCS caseloads are 4.4%
above October 2007 levels. The FY 2009
budget funded a projected caseload growth
of 2.6%, or a total of 1,189,224 members.
There were a reported 80,732 TANF recipients
in the state in August, an increase of 2.3%
from July. Year-over-year, caseload is down
(2.0)%. The FY 2009 budget assumes the
TANF caseload will grow by 2.5%.
The Department of Corrections’ (ADC) inmate
population increased by an average of 123
inmates per month between July and
September. ADC has now an average
population of 39,091 inmates, or 1,647 more
inmates than in the same period last year.
(Hans Olofsson, Martin Lorenzo)

6

JLBC – MONTHLY FISCAL HIGHLIGHTS – OCTOBER 2008

Economic Indicators

(Continued)

Table 5

ECONOMIC INDICATORS
Indicator
Arizona
- Unemployment Rate
- Initial Unemployment Insurance Claims
- 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, Traditional Sales
Single-Family, Foreclosed Sales
Townhouse/Condominium, Traditional Sales
Townhouse/Condominium, Foreclosed Sales
- Greater Phoenix Median Home Sales Price
Single-Family, Traditional Sales
Single-Family, Foreclosed Sales
Townhouse/Condominium, Traditional Sales
Townhouse/Condominium, Foreclosed Sales
S&P/Case-Shiller Home Price Index (Jan. 2000 = 100)
- Months Supply of Housing (ARMLS)
- Phoenix Sky Harbor Air Passengers
- Arizona Average Natural Gas Price
($ per thousand cubic feet)
- Consumer Confidence Index (1985 = 100)
- 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 (1985 = 100)
- Leading Indicators Index (2004 = 100)
- U.S. Semiconductor Billings (3-month moving average)
- Consumer Price Index (1982-84 = 100)

Time Period

Current Value

Change From
Prior Period

Change From
Prior Year

September
September
September
September
September
July-Sept
July-Sept

5.9%
24,197
2.61 million
177,600
185,700
$65.4 million
$147.2 million

0.3%
7.5%
0.3%
(0.1)%
(2.1)%
(4.0)%
(2.2)%

2.1%
40.0%
(2.2)%
(1.7)%
(17.2)%
(17.9)%
(8.4)%

June-August
June-August

1,740
635

(10.7)%
(11.7)%

(49.4)%
(19.5)%

September
September
September
September

4,625
3,655
500
300

9.9%
(10.9)%
(15.3)%
7.1%

71.6%
359.7%
(47.1)%
300.0%

September
September
September
September
August
September
August
July

$180,000
$153,000
$145,000
$117,455
144.83
8.9 months
3.3 million
$8.99

2nd Quarter 2008
4th Quarter 2008
2nd Quarter 2008
July 1, 2007
October
August
July-Sept

73.4
42.4
$216.6 billion
6.34 million
1,130,112
80,732
39,091

(8.0)%
10.1%
1.6%
173,066
(0.1)%
2.3%
123 inmates

(31.0)%
(0.2)%
4.6%
2.8%
4.4%
(2.0)%
1,647 inmates

3rd Quarter 2008

$11.7 trillion

(0.3)%

0.8%

October
September
June-August
September

38.0
100.6
$3.32 billion
218.81

(38.1)%
0.3%
(0.8)%
0.0%

(60.1)%
(3.0)%
(7.3)%
4.9%

(7.0)%
(5.5)%
(9.4)%
(6.6)%
(2.9)%
(1.6) months
(4.9)%
(3.7)%

(29.1)%
(29.2)%
(21.6)%
(17.0)%
(30.7)%
(8.0) months
(8.0)%
20.5%

7

JLBC – MONTHLY FISCAL HIGHLIGHTS – OCTOBER 2008

FAC Meeting
At its October 15, 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 (4.4)% in FY 2009, prior
to any tax law changes. This is down from the
March FAC meeting, at which time the 4-sector
consensus projected a FY 2009 growth rate of
0.5%. Year to date collections through
September are down (8.9)% as compared to
the same period last year.
In FY 2010, the 4-sector consensus predicts a
further decline of (0.7)%.
Panel members also heard formal presentations
from Elliott Pollack, Pete Ewen of Arizona Public
Service, and Brian Cary of Salt River Project, 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
escalation of the credit crunch and the
downturn in the real estate market as the
primary reasons for concern.
Members noted that the adverse impacts of
the housing slump and credit crunch are being
felt in lowered consumer spending, increased
unemployment, and higher rates on loans
outside the highly leveraged and risky loans
that initiated the credit crunch.
In addition, Committee members expressed
concern that current estimates for revenue

may be too optimistic. Members cited the
large over-supply of homes and below trend
population growth as motivating factors for
the negative sentiment.
The Committee generally expects economic
growth to bottom out sometime in FY 2009 or
FY 2010. With regard to the duration of the
slowdown, most members believe it will last
several years, and be followed by a gradual
recovery.
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 2012. In general, the FAC
panel suggested that there are more
downside than upside risks to the 4-sector
consensus in FY 2009 and FY 2010.
As noted above, the 4-sector consensus
revenue forecast for FY 2009 projects a
decline of (4.4)%. The 4 components of the
consensus forecast ranged from a decrease
of (1.5)% to a decrease of (5.7)%. At these
rates, the General Fund budget shortfall for FY
2009 is projected to be $(700) million to $(1.1)
billion.

8

JLBC – MONTHLY FISCAL HIGHLIGHTS – OCTOBER 2008

JLBC Meeting
At its October 2, 2008 meeting, the Joint
Legislative Budget Committee considered the
following issues:
Arizona Department of Administration (ADOA)
– Review of Risk Management Deductible –
The Committee gave a favorable review to
the Arizona Department of Administration’s
(ADOA) plan to continue to apply a $10,000
deductible (the statutory maximum) in risk
management cases. Currently, ADOA may
charge a $10,000 deductible for each risk
management claim of $150,000 or more
unless the agency implements an ADOA
approved plan to limit or eliminate similar
future losses.
Department of Education – Review of Transfer
to Structured English Immersion – The
Committee gave a favorable review to the
department’s proposal to transfer $646,300
from Basic State Aid monies to the Structured
English Immersion Fund.
Department of Education – Review of Joint
Technological Education District (JTED)
Intergovernmental Agreements (IGAs) – The
Committee gave a favorable review to the
JTED IGAs. This review requirement was
instituted by Laws 2006, Chapter 341.
Department of Education – Report of Plan to
Fund AIMS Study Guides – The Department of
Education notified the Committee of its plan
to use some unused achievement monies to
fund AIMS study guides. This item was for
information only.
Department of Economic Security – Review of
Requested Transfer of Appropriations – The
Committee gave a favorable review to the
Department of Economic Security’s (DES)
request to transfer funds from the Day Care
Subsidy Special Line Item (SLI) to the
Temporary Assistance for Needy Families
(TANF) Cash Benefits SLI. This transfer fulfills
technical and federal requirements.
Department of Health Services – Review of CRS
Capitation Rate Changes – The Committee
gave a favorable review to the DHS Children’s
Rehabilitative Services (CRS) capitation
adjustments with provisions that administrative
costs remain within the FY 2009 budgeted
levels, and any capitation rate savings be
reverted and not transferred for program
expansions. The proposed capitation rates

cost the General Fund $(1.4) million less than
budgeted.
The Chairman scheduled the following items
for information only and did not take votes at
this meeting. The Chairman is seeking further
information on the Governor’s plans to resolve
the FY 2009 budget shortfall and whether the
funding associated with these particular
agenda items could be part of the solution.
AHCCCS – Capitation Rate Changes –
AHCCCS requested Committee review of its
proposed capitation rate changes. The
proposed rates would cost $34.4 million more
from the General Fund than budgeted in FY
2008, assuming budgeted caseload levels.
JLBC Staff – Index for School Facilities Board
Construction Costs – The School Facilities
Board (SFB) requested Committee approval
of a possible 5.14% increase in the cost-persquare-foot factors for new school
construction, which is based on an average
of the Pinnacle One and Rider indices. This
adjustment is projected to increase new
construction spending by $17.0 million from FY
2009 through FY 2013. Of that amount, about
5%, or $392,200, will be expended in the
current fiscal year.
Arizona Board of Regents – FY 2009 Tuition
Revenues – The Arizona Board of Regents
(ABOR) requested Committee review of its
expenditure plan for tuition revenues for FY
2009. 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.
Non-appropriated, locally retained tuition
and fees in FY 2009 are estimated at $391.4
million, or $32.0 million higher than FY 2008. Of
that amount, $251.3 million is dedicated to
student financial aid. The remaining portion of
tuition and fee collections in FY 2008 is subject
to legislative appropriation. Appropriated
tuition collections in FY 2009 are expected to
be $ 538.1 million, representing a $ 69.7million
increase above the FY 2008 total, and $56.7
million above the original FY 2009 budget. The
overall increase in collections is primarily due
to higher tuition and fees, which ABOR
indexed for inflation.

9

JLBC – MONTHLY FISCAL HIGHLIGHTS – OCTOBER 2008

JCCR Meeting
At its October 2, 2008 meeting, the Joint
Committee on Capital Review considered the
following issues:
Mohave Community College District – Review
of General Obligation Bond Issuance – The
Committee gave a favorable review to the
issuance of $111.5 million in general obligation
bonds, with the provision that the college
report to the Committee prior to each
issuance. Each bond issuance will be repaid
over 25 years by increasing the secondary
property tax rate, if approved by the voters in
November 2008. The district estimates that
the average annual tax increase would be
$1.33 for every $100,000 of property value.
Pinal County Community College District –
Review of General Obligation Bond Issuance
– The Committee gave a favorable review to
the issuance of $99.0 million in general
obligation bonds. The bond will be repaid
over 25 years by increasing the secondary
property tax rate, if approved by the voters in
November 2008. The district estimates that
the average annual tax increase would be
$10.95 for every $100,000 of property value.
Arizona Department of Administration –
Review of Arizona Department of Corrections
Prison Beds and Yuma Water Treatment Plant
– The Committee gave a favorable review of
the Arizona Department of Administration
(ADOA) to lease-purchase finance $202
million for 4,000 prison beds and a water
treatment plant. The Committee’s review was
limited to the project specifics, as the
Committee previously favorably reviewed
and approved the debt-financing for these
projects.
Arizona Department of Administration –
Review of Lewis and Tucson Prison Water and
Wastewater Projects – The Committee gave a
favorable review to 2 Arizona Department of
Corrections prison water and wastewater
projects totaling $4.6 million.
Arizona Department of Corrections – Review
and Approval of Energy Performance
Contract – The Committee gave a favorable
review and approval for the Arizona
Department of Corrections (ADC) to enter
into an Energy Performance Contract with a
private vendor with the provisions that ADC
retains all energy savings in excess of debt

service payments and this does not constitute
endorsement of any level of General Fund
appropriations for purchase of the energy
equipment or the debt service payments.
Arizona Game and Fish Department – Review
of FY 2009 Building Renewal Allocation Plan
and Report on Flood Warning System – The
Committee gave a favorable review to the FY
2009 Building Renewal Allocation Plan
presented by the Arizona Game and Fish
Department. The $531,000 plan includes
$52,200 for fish hatchery projects, $45,300 for
shooting range projects and $433,500 for
office projects. In addition, AGFD submitted a
report on expenditures for the $350,000 Flood
Warning System project appropriated by Laws
2006, Chapter 345.
School Facilities Board – Review of FY 2009
$585 Million Lease-to-Own Agreement and FY
2009 New School Construction Report – The
Committee favorably reviewed the $585
million lease-to-own agreement, which
excludes Full-Day Kindergarten (FDK) capital
costs of $8 million. SFB expects to oversee 29
on-going school construction projects in FY
2009 and will spend a total of $245.3 million.
All of these 29 projects have been approved
by the board and began construction prior to
the FY 2009 new construction moratorium. Of
the $585 million lease-to-own agreement, SFB
will use $229 million for FY 2009 construction
expenditures, which excludes $8 million for
FDK.
The Chairman scheduled the following items
for information only and did not take votes at
this meeting. The Chairman is seeking further
information on the Governor’s plans to resolve
the FY 2009 budget shortfall and whether the
funding associated with these particular
agenda items could be part of the solution.
Arizona Department of Administration – FY
2009 Building Renewal Allocation Plan and
Reallocation of FY 2008 Building Renewal
Funds – The Arizona Department of
Administration (ADOA) requested Committee
review of its FY 2009 Building Renewal
Allocation Plan totaling $6.1 million from the
Capital Outlay Stabilization Fund. ADOA also
requested Committee review of its intention
to reallocate $1.3 million of FY 2008 Building
Renewal monies for the Department of
Revenue’s elevator renovation project.

10

JLBC – MONTHLY FISCAL HIGHLIGHTS – OCTOBER 2008

JCCR Meeting

(Continued)

Arizona State Parks Board – State Parks
Enhancement Fund Project – The Arizona
State Parks Board requested Committee
review and approval of its plan to use of $1.2
million in State Parks Enhancement Fund
monies for repairs to the Douglas Mansion at
Jerome State Historical Park.
Arizona Department of Transportation –
FY 2009 Building Renewal Allocation Plan –
The Arizona Department of Transportation
(ADOT) requested Committee review of its
proposed allocation of $3.9 million from the
State Highway Fund for 286 projects,
contingencies, and project management
support and $156,900 from the State Aviation
Fund for 25 projects.
University of Arizona – Residence Halls and
Residence Life Building Renewal – The
University of Arizona requested Committee
review of its proposal to spend $159.3 million
in system revenue bonds to construct two
new residence halls and $37.3 million for
residence life building renewal projects. For
both issuances, the proposed debt service will
be paid from dorm rental revenues, for a cost
of $9.8 million from FY 2009 to FY 2011 and a
cost of $13 million starting in FY 2012.
University of Arizona – Enterprise Systems
Replacement (Mosaic) Project – The University
of Arizona requested Committee review of its
proposal to spend $33.3 million in system
revenue bonds to replace its major computer
systems, which support the university’s
personnel system, research administration,
and financial reporting. The proposed debt
service will be paid from 2 revenue sources:
indirect cost recovery and administrative
service charges, for an annual cost of $3.3
million.
University of Arizona – Energy Bonds – The
University of Arizona (UA) requested
Committee review of its proposal to enter into
a third party debt financing agreement for
$2.3 million to purchase solar panels. Under
this agreement, a private vendor would issue
Clean Renewable Energy Bonds on behalf of
UA. UA would be responsible for the annual
principal amount and a small portion of the
interest payments. The proposed debt service
will be paid from Indirect Cost Recovery
funds, for an annual cost of $186,000.

Arizona State University – Science Building
Bond Project – Arizona State University
requested Committee review of its proposal
to spend $185 million in system revenue bonds
to construct a new science building. The
proposed project includes lab space, offices
and an auditorium. The proposed debt
service will be paid from 4 revenue sources:
Indirect Cost Recovery funds, Proposition 301
funds, tuition, and other local funds, for an
annual cost of $12.9 million.
Universities – University Lottery Bond Projects Building Renewal – The Universities requested
Committee review of their Building Renewal
projects (Arizona State University $34.4 million;
the University of Arizona $68.5 million; and
Northern Arizona University $64.8 million).
These issuances represent a portion of the $1
billion University Lottery Bonding package as
authorized by the FY 2009 Education Budget
Reconciliation Bill (BRB) (Laws 2008, Chapter
287). The proposed debt service is designed
to be funded with 2 separate revenue
streams as prescribed by the FY 2009
Education BRB. Approximately $11.3 million, or
80%, will come from state Lottery proceeds,
while $2.9 million will come from local
university funds.

11

JLBC – MONTHLY FISCAL HIGHLIGHTS – OCTOBER 2008

Summary of Recent Agency Reports
Administrative Office of the Courts/State
Department of Corrections – Report on
Probation Revocation and Crime Reduction
Performance – A.R.S. § 12-270 (F) requires the
Administrative Office of the Courts (AOC) and
the State Department of Corrections (ADC) to
report, by October 1, on various statistics for
the previous fiscal year. A summary of the
reported data for FY 2008 is as follows:
•

On average, 43,403 (ranged from 125 in
La Paz County to 26,428 in Maricopa
County) people were on “direct”
supervised probation.
•
A total of 6,801 probationers were
revoked to ADC for a term of
imprisonment.
•
Approximately 3,174 (ranged from 4 in La
Paz County to 2,222 in Maricopa County)
people on probation had a new felony
conviction.
•
ADC had contracts in place with private
prison companies for a total of 8,010
beds at an average cost of $57.24 per
bed, per day.
(Martin Lorenzo)
Department of Corrections/ADOA – Report on
the Status of Public and Private Beds – Laws
2007, Chapter 261 authorized the Arizona
Department of Administration (ADOA) to
contract for 2,000 new private prison beds, as
well as the construction of 4,000 new public
beds, to be funded via a 20-year, $200 million
lease-purchase agreement. Highlights of this
report are as follows:
2,000 Private Beds
ƒ Management and Training Corporation
(MTC) has been awarded the contract and
had indicated financing would be
complete mid-November 2008.
ƒ Separate from the report, MTC has
subsequently indicated that problems in the
credit market continue to make it difficult to
obtaining financing at reasonable rates.
4,000 Public Beds
ƒ ADOA has authorized construction to begin
and the entire project is anticipated to be
completed in late-January 2010.
(Martin Lorenzo)
DEMA - Report on Camp Navajo Fund Pursuant to A.R.S. § 26-152, the Department of
Emergency and Military Affairs (DEMA) is

required to submit an annual report
describing the activity in the Camp Navajo
Fund by August 31 of each year. The Camp
Navajo Fund pays for the National Guard to
operate a regional training site and storage
facility located at Bellemont. The fund’s
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 $10.0 million and had
expenditures of $9.8 million in FY 2008. This left
a fund balance of $2.3 million at the end of
the fiscal year due to a beginning balance.
(Eric Billings)
Arizona Historical Society – Report on NonAppropriated Expenditures – Pursuant to
A.R.S. § 41-821E, the Arizona Historical Society
is required to report on non-appropriated
fund expenditures for the society. Nonappropriated expenditures for FY 2008 were
$856,500, an increase of $142,300 above the
FY 2007 total of $714,200. (Caitlin Acker)
Department of Juvenile Corrections – Report
on Restitution Fund – Pursuant to A.R.S. § 412826F, the Department of Juvenile Corrections
(DJC) is required to submit an annual report
detailing all revenues and expenditures made
from the department’s Restitution Fund. DJC
submitted its latest report on September 25,
2009.
These monies are used to pay restitution and
monetary assessments on behalf of youth
working in the Committed Youth Work
Program who were unable to make these
court-ordered payments when they were
originally sentenced to DJC. As of June 30,
2008, the DJC reports that Restitution Fund
revenues and expenditures for FY 2008
totaled $24,564, as compared to $33,245 in FY
2007. According to DJC, the 26.1% decrease
is due to a lower juvenile population in FY
2008. (Jon McAvoy)
Arizona Department of Public Safety –
Quarterly Report on GIITEM – Pursuant to Laws
2008, Chapter 285 (General Appropriation
Act), the Arizona Department of Public Safety
(DPS) is required to report quarterly on the
Gang and Immigration Intelligence Team
Enforcement Mission (GIITEM).

12

JLBC – MONTHLY FISCAL HIGHLIGHTS – OCTOBER 2008

Summary of Recent Agency Reports
DPS Personnel
In the first quarter of FY 2009, DPS
spent or encumbered $2.3 million of
the $10 million appropriation for the
100 DPS immigration staff. As of
September 30, 2008, 62 of the 100
DPS positions were filled.
Local Law Enforcement Efforts
(Multi-Jurisdictional Task Force)
During the first quarter, DPS did not
spend any of the $10 million for FY
2009 local law enforcement grants.
Currently, DPS reports that the
agency is spending the remaining
portion of the non-lapsing FY 2008
appropriation. Of the $10 million FY
2008 appropriation, $288,900 had
been spent at the end of FY 2008,
which leaves $9,711,100 in nonlapsing funding available. DPS’
spending of that funding was not
available for the first quarter.
State Parks Board – Annual Report
on Out-of-State Travel – Pursuant to
a FY 2008 General Appropriation
Act footnote, the State Parks Board
is submitting a report of out-of-state
travel expenses in FY 2008. The
footnote stipulates that during FY
2008 and FY 2009, out-of-state travel
expenses by State Parks Board staff
shall not exceed $5,000 each year
from appropriated or nonappropriated monies.
At a total of $3,300, out-of-state
travel expenses for State Parks
Board staff for FY 2008 were within
the $5,000 limit. These out-of-state
travel expenses were incurred
primarily for attendance at
conferences and meetings. (Art
Smith)
School Facilities Board – Report on
Costs for Building Renewal and New
Construction at the Arizona State
Schools for the Deaf and the Blind –
Pursuant to A.R.S. § 15-2002, the
School Facilities Board (SFB) is
required to biennially report on the
resources needed to fulfill the
building renewal and new
construction requirements in A.R.S §

15-2031 and 15-2041 for the Arizona
State Schools for the Deaf and the
Blind (ASDB). ASDB operates 2
campuses, a campus in Phoenix
and a campus in Tucson.
According to SFB, the total cost for
building renewal for ASDB is
projected to be $658,961 in FY 2010
and $709,951 in FY 2011. SFB also
estimates new construction costs
totaling $36,879,668 for ASDB to
meet minimum space requirements
through FY 2011. ASDB has
requested a total of $3,069,418 in
capital improvements for FY 2010.
(J.A. Brown)
School Facilities Board – Report on
Energy and Water Savings Pilot
Program – Pursuant to Laws 2007,
Chapter 266, the School Facilities
Board (SFB) shall report by October
1, 2008 and October 1, 2009 on
active grants made from the Energy
and Water Savings Grant Fund,
energy and water savings, cost
savings, and other benefits
implemented by grant recipients.
Of the $2,500,000 appropriated to
the fund in FY 2008, SFB has
awarded $2.25 million in
development and implementation
grants, while the remaining $0.25
million was used for administrative
and technical assistance costs.
Development grants are used to
assess existing school facilities and
develop recommendations for
improvements, while
implementation grants are used to
implement energy savings projects.
(Leatta McLaughlin)
Supreme Court – Report on Case
and Cash Management System Pursuant to a footnote in the FY
2008 General Appropriation Act,
the Administrative Office of the
Courts (AOC) is required to report
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

(Continued)

systems in courts throughout the
state. (Jon McAvoy)
AOC has estimated that the
upgrade of these systems will
continue through FY 2012. As of
June 30, 2008, the report listed
current expenditures of $5,422,900
and planned expenditures of
$26,807,400. AOC selected a
vendor to develop the general
jurisdiction case and case
management system. AOC
received the final test version of this
software on April 25, 2008 and
scheduled pilot implementations for
Yuma and LaPaz Counties during
the summer of 2008. AOC is
currently evaluating 2 options
available for use as the limited
jurisdiction case management
system: AmCad and the system
currently under development by
the Tempe Municipal Court. (Jon
McAvoy)
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 2009
report to the JLBC on current and
future automation projects
coordinated by the AOC. The AOC
estimates total state automation
expenditures in FY 2009 will be
approximately $19.8 million. Of this
amount, approximately $5.1 million
(26%) will be spent on ongoing
automation support, and $7.8
million (40%) will be spent on 10 new
projects in FY 2009. Of the 10 new
projects, the larger projects include:

• Updating the general jurisdiction

case management system for 13
of the 15 counties in Arizona
($5,162,500)
• Updating and enhancing the
Juvenile On-Line Tracking System
(JOLTS) ($1,306,800)
• Updating the limited jurisdiction
case management system for
statewide utilization ($657,100)
• Further development of

13

JLBC – MONTHLY FISCAL HIGHLIGHTS – OCTOBER 2008

Summary of Recent Agency Reports
electronic filing ($338,100)
The report does not meet the
reporting guidelines as required by
the FY 2009 General Appropriation
Act for the $5.1 million in ongoing
projects, as it does not itemize
funding levels for specific projects
associated with the $5.1 million in
ongoing automation projects and
support. (Kim Cordes-Sween)
University Research Infrastructure –
Report on General Fund Deposits –
Laws 2003, Chapter 267
appropriated a total of $34,625,000
from the General Fund to the state
university system from FY 2008
through FY 2031 to finance leasepurchase payments for research
infrastructure project agreements
entered into before July 1, 2006.
Beginning in fiscal year 2008,
Chapter 267 (A.R.S. § 15-1670)
requires the universities to deposit
into the state General Fund a
portion of the income from
licensure and royalty payments or
the sale and transfer of intellectual
property developed by the
university. All 3 universities have
recently reported that no deposits
were made in FY 2008, but did not
report revenues as required by
statute. (Leah Kritzer)
Department of Water Resources –
Report on Fees Collections in the
Assured and Adequate Water
Supply Fund – Pursuant to a FY 2008
General Appropriation Act
footnote, the Department of Water
Resources (DWR) has submitted the
amount of fees collected by the
Assured and Adequate Water
Supply (AAWS) program.
Laws 2005, Chapter 217 established
the fund to provide for the costs
and expenses incurred by DWR
when determining and declaring
assured and adequate water
supplies. The AAWS Administration
Fund consists of monies that are
paid to the DWR for applications
related to assured and adequate

water supplies. Previously, fees
were deposited into the General
Fund.
DWR reports that for the quarter
ending September 30, 2008, the
department collected $83,700. This
amount is $(37,600), or (31)%, below
collections for the same period in FY
2008. (Leah Kritzer)
Department of Water Resources –
Report on Interstate Water Banking
– Pursuant to A.R.S. § 45-2473, the
Department of Water Resources has
submitted a report accounting for
all monies received through the
Interstate Water Banking
Agreement with Nevada and other
obligations.
In 2004, the Southern Nevada Water
Authority (SNWA) agreed to pay
the Arizona Water Banking Authority
(AWBA) $230 million for delivery and
storage of water. Equal payments
of $23 million per year from Nevada
to the AWBA will begin in 2009 and
continue through 2018.
In the 2004 agreement, SNWA also
agreed to pay an additional $100
million to AWBA to guarantee the
availability of the 1.25 million
storage credits for Nevada. If the
additional $100 million is not
needed to guarantee the credits in
the short term, Arizona may use this
amount for its own purposes,
subject to legislative appropriation.
AWBA received the $100 million
from SNWA in 2 installments in 2005,
which were deposited in a
subaccount with the State
Treasurer. In FY 2007, the AWBA did
not receive any additional funds
from SNWA. In FY 2008, AWBA used
$4.7 million to store water for
Nevada. Combined with
expenditures from prior years, the
ending balance for FY 2008 is
estimated to be $18.9 million (of the
$100 million). (Leah Kritzer)

(Continued)

14

JLBC – MONTHLY FISCAL HIGHLIGHTS – OCTOBER 2008

State of Arizona
General Fund Revenue:

Change from Previous Year and Enacted Forecast
September 2008
Current Month

FY 2009 YTD (Three Months)

Change From
Actual

September 2007

September 2008

Amount

Change from
Actual

Forecast

Percent

Amount

Percent

September 2007

September 2008

Amount

Forecast

Percent

Amount

Percent

Taxes
Sales and Use

342,275,305

($24,567,568)

($46,461,195)

(12.0) %

$1,043,707,764

($82,652,486)

Income - Individual

355,393,041

(6,860,355)

(1.9)

(26,910,459)

(7.0)

852,434,132

(43,671,018)

(4.9)

(87,389,268)

(9.3)

132,083,502

(45,503,559)

(25.6)

(55,238,398)

(29.5)

174,529,171

(65,961,762)

(27.4)

(73,435,329)

(29.6)
(76.4)

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

(6.7) %

(7.3) %

($145,078,336)

43,350

(27,657)

(38.9)

13,750

46.5

270,669

(156,712)

(36.7)

(876,431)

4,849,128

(956,062)

(16.5)

(189,772)

(3.8)

14,621,216

(60,937)

(0.4)

(192,784)

32.5

124,855,252

38,373,912
(18,466)
37,800

6,905,444
(18,466)
821

21.9
-2.2
(7.5) %

9,417,912

6,628,746

5.6

13,628,452

(18,466)

--

4,196

(249,880)

(98.3)

4,196

(14,700)

(28.0)

130,941

(9,938)

(7.1)

(26,559)

$2,210,553,341

($186,133,987)

($119,401,328)

(12.0) %

(7.8) %

($293,366,059)

(12.2) %

(1.3)
12.3
-(16.9)

$873,037,572

($71,027,402)

(11.7) %

Lottery

2,416,500

(3,262,300)

(57.4)

(1,921,000)

(44.3)

4,823,000

(4,413,219)

(47.8)

(3,336,800)

License, Fees and Permits

2,469,936

(48,503)

(1.9)

(1,288,364)

(34.3)

7,774,671

(170,558)

(2.1)

(2,643,729)

(25.4)

Interest

2,915,831

(20,429,227)

(87.5)

(2,369,569)

(44.8)

5,124,457

(25,795,760)

(83.4)

(5,011,843)

(49.4)

Sales and Services

3,848,140

(15.7)

(1,794,360)

(31.8)

8,825,801

(9.7)

(4,003,799)

(31.2)

Other Miscellaneous

4,168,195

2,415,244

137.8

2,019,595

94.0

8,948,566

5,605,922

4,425,466

97.8

0

0

0

0

1,822,361

1,283,347

Other Revenue

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

(715,404)

-238.1

0
162,361

-9.8

4,128,092

(945,829)

(8,066,275)

167.7
-(66.1)

0
(851,908)

(40.9)

-(17.1)

17,640,963

(20,756,843)

(54.1) %

(5,191,337)

(22.7) %

39,624,587

(33,785,719)

(46.0) %

(11,422,613)

(22.4) %

$890,678,535

($91,784,245)

(9.3) %

($124,592,665)

(12.3) %

$2,250,177,928

($219,919,706)

(8.9) %

($304,788,672)

(11.9) %

Other Adjustments
Urban Revenue Sharing
Budget Plan Transfers
Sub-Total Other Adjustments
TOTAL REVENUE

(60,639,783)
0
(60,639,783)
$830,038,752

(3,594,872)
0

6.3
--

(3,594,872)

6.3 %

($95,379,117)

(10.3) %

0
0
0
($124,592,665)

0.0
--

(181,919,349)

(10,784,617)

215,546,792

215,546,792

0.0 %

33,627,443

(13.1) %

$2,283,805,371

204,762,175
($15,157,531)

6.3
--- %
(0.7) %

0

0.0

0

0.0

0
($304,788,672)

0.0 %
(11.8) %