JLBC - Monthly Fiscal Highlights

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

www.azleg.gov/jlbc.htm

Summary
The state’s fiscal year ended on June 30th.
While the books are still not closed on FY 2011,
several preliminary conclusions can be drawn
from the data:

•

General Fund base revenues grew by
11.6% during FY 2011, which was the first
annual increase since FY 2007. The
budgeted growth rate was 5.6%.

•

Base revenues were supplemented by
$873 million from the 1-cent temporary
sales tax. Total FY 2011 base and onetime revenues equaled $8.34 billion.

•

The FY 2011 rebound appears to be more
a reflection of one-time factors than a
rapidly expanding economy. It may still
take 2 to 4 years before the state
replaces the jobs lost in the recession and
substantially reduces its "underwater"
mortgages.

“With higher than
expected
revenues, we

•

currently
anticipate that at
least $300 million
of the $332
million budgeted
shortfall will be
eliminated by
the time of
official book

July 2011

•

The primary reason for the revenue
overage is the unexpectedly high 18.5%
increase in individual income taxes.
Given the lack of job and wage growth,
this spurt may have been caused by
higher capital gains and the loss of
mortgage interest deductions.
The enacted April budget assumed that
the state General Fund would end FY
2011 with a $(332) million shortfall. With
higher than expected revenues, we
currently anticipate that at least $300
million of the $332 million budgeted
shortfall will be eliminated by the time of
official book closing. The Executive is
scheduled to provide a preliminary FY
2011 balance estimate by midSeptember.

•

The enacted April budget assumed using
FY 2012 revenue to pay off the FY 2011
shortfall. Since at least $300 million of the
$332 million will no longer be needed for
that purpose, those monies will be freed
up in the FY 2012 budget. The ultimate
magnitude of the FY 2012 ending
balance, however, will depend on a
multitude of factors.

•

Given the higher than expected FY 2011
base, FY 2012 revenues may be higher
than budgeted. Several factors,
however, could result in unbudgeted FY
2012 costs, including the outcome of
federal budget negotiations, Federal
decisions on the AHCCCS Medicaid
waiver proposal, and court rulings that
could overturn state budget policy.

•

The FY 2012 ending balance will also
depend on Internal Revenue Service (IRS)
requirements for the state to begin
potential early pay off of its FY 2010
sale/leaseback and lottery bond
issuances.

The status of the budget projections will be
updated at the next Finance Advisory
Committee (FAC) meeting in October. At the
April FAC meeting, FY 2014 was projected to
have a $(600) million shortfall with the
expiration of the 1-cent sales tax. While the
higher-than-expected FY 2011 revenues
would bring the state closer to a balanced
budget in FY 2014, it does not create a
structural surplus.
All of these issues are also summarized in a
Budget Status Update slideshow presentation
on the JLBC website.

closing.”

Table of Contents
This report has been
prepared for the Arizona
Legislature by the Joint
Legislative Budget
Committee Staff on
July 27, 2011.

Summary .................................................................. 1
• FY 2011 Revenues ............................................... 2
• FY 2011 Ending Balance .................................... 3
• FY 2012 Implications ........................................... 3
• Long Term Budget Implications........................ 4
June Revenues........................................................ 5

Economic Indicators .............................................. 8
Summary of Recent Agency Reports
• ADC – Community Accountability Pilot
Program.............................................................. 11
• DES – AZ Training Program Placements ........ 11
• Public Programs Eligibility Report ................... 11
June Spending ...................................................... 12

2

JLBC – MONTHLY FISCAL HIGHLIGHTS – JULY 2011

Summary

(Continued)

FY 2011 Revenues
FY 2011 ended the unprecedented 3 consecutive years
of General Fund base revenue declines. Based on
preliminary data, FY 2011 base revenues grew by 11.6%.
Base revenues exclude the balance forward, tax law
changes such as the 3 year 1-cent sales tax, one-time
revenues and urban revenue sharing.
Including all one-time adjustments, FY 2011 General
Fund revenues totaled $8.34 billion, which was $335
million above forecast. Even with substantial growth in
FY 2011, however, revenues remain far below their peak
levels. After excluding one-time adjustments for
comparability, FY 2011 base revenues are estimated to
be $7.22 billion. At this level, FY 2011 is more than $2
billion below the high water mark of $9.62 billion in FY
2007 and is even below the FY 2005 level of $7.72 billion.
The 11.6% FY 2011 rebound was led by substantial
growth in income taxes – both individual and corporate.
As displayed in Table 1, individual income taxes grew by
18.5% while corporate income taxes grew 35.6%.
Table 1

Growth Rates Compared to
Prior Year By Revenue Category

Sales*
Ind. Income
Corp. Income

Budgeted
2.9%
5.9%
40.8%

Prelim. Actual
2.5%
18.5%
35.6%

* Without 1-cent

Upon closer examination, the high FY 2011 growth rate
may be a reflection of one-time factors:

•

•

•

FY 2010 was the bottom of the state’s worst
economic downturn since the 1930’s, making it
easier to post high percentage gains off such a low
base. For example, FY 2010 corporate income tax
collections were almost 60% below their peak
collection year of 2007. While the 35.6% FY 2011
gain appears substantial, the $560 million in
collections is $400 million less than the FY 2007 level.
The large corporate tax growth does reflect
increased profitability, but many analysts believe
that business has been able to generate these gains
through higher productivity rather than substantially
higher sales growth.
A significant share of the individual income tax
growth of 18.5% appears related to higher capital
gains and a reduction in mortgage deductions.

Compared to the substantial gains in income taxes,
sales tax collections excluding the 1-cent grew by 2.5%
in FY 2011. But as a potential sign of growth in the
economy, collections were noticeably higher in the

second half of the fiscal year. The retail sector of sales
taxes grew by over 10% while contracting increased by
over 7%.
The Surprising Increase in Withholding Collections
The individual income tax is the single largest factor in
explaining the error in the FY 2011 revenue forecast. Of
the $335 million forecast overage, $305 million is due to
the individual income tax. There were several reasons
why the 18.5% growth was difficult to predict in
advance.
First, withholding grew by a surprising 7.3% in FY 2011 in
light of the underlying economic data. Withholding
increases are typically related to some combination of
growth in jobs and average wages. According to the
most recent data, however, Arizona:

•
•

Employment growth was less than 0.5%
Average private wages were up 2-3%

These results were inconsistent with the much stronger
withholding growth of 7.3%. As a result, when the
withholding gains started to appear in the summer of
2010, there was speculation that the growth was due to
the July 2010 change in withholding tables. At that
point, the withholding percentages were changed to
delink the state from federal withholding. Taxpayers
had to choose a new withholding rate based on a
percentage of their income rather than as a percent of
their federal withholding.
Given the high collection levels, the transition to the new
withholding tables may have caused some taxpayers to
be overwithheld. Based on available data, the level of
overwithholding has been difficult to quantify. If
taxpayers had been substantially overwithheld as a
result of the new tables, some would have likely lowered
their withholding rates after they filed their taxes in April.
In the last quarter, however, the 12% withholding growth
rate exceeded all prior quarters in the year.
While strong state withholding growth may be difficult to
explain, it is part of a national trend. Nationwide state
income tax withholding grew by 8.3% in the 3rd quarter
of FY 2011. One possible explanation is that the
economic data – such as employment – is not
accurately capturing the economy’s expansion. For
example, the survey methodology may not always
accurately reflect job formation, especially in new firms.
More complete wage and job data will probably not be
available until next year.
Capital Gains and Mortgage Deductions
Beyond withholding, individual income tax estimated
and final payments grew by 13.3% and refunds fell by
(9.6)%. Payments and refunds accounted for
approximately $250 million of the $304 million individual

3

JLBC – MONTHLY FISCAL HIGHLIGHTS – JULY 2011

Summary

(Continued)

income tax overage. While there is no definitive
explanation for this growth in taxpayer liability, higher
capital gains and fewer mortgage deductions are 2
potential reasons.

Given the magnitude of these problems, a full recovery
would appear to take 2 to 4 years.

Capital gains appear to have grown significantly in tax
year 2010, which led to higher tax filings in April 2011.
The Internal Revenue Service will eventually publish
Arizona-specific capital gains data, but that is unlikely to
occur for a year. Several factors, however, suggest that
the gains will be substantial:

While FY 2011 ended on June 30th, the state's books do
not officially close until July 29th. During this "13th
month," the state continues to record FY 2011 revenues
and spending obligations. After July 29th, it will take
several months to confirm year-end adjustments and
calculate the state's official fiscal year ending balance.

•

The General Appropriation Act requires the Executive
Branch to provide a preliminary estimate of the FY 2011
ending balance by September 15, 2011. The
Department of Administration is required to publish its
final FY 2011 accounting by December 1, 2011.

•

Recovery in the stock market - Nationwide, stock
market values increased by 17% in tax year 2010.
Growth in investor residential real estate
transactions - “Flipping” of foreclosure properties
likely produced substantial profits for some investors.
Investors have been estimated to account for 30%
to 45% of recent Arizona residential real estate
transactions.

Income tax liability probably also grew as fewer
households took advantage of the residential mortgage
interest deduction due to the downturn in the state’s
real estate market. While data is not specifically
available on the mortgage interest deduction, the
dollar value of total itemized deductions on Arizona
state income taxes fell 30% in tax year 2010. A decline in
mortgage interest is a likely reason. As evidence of this
possible trend, outstanding mortgage debt in Arizona
fell $18 billion between calendar years 2009 and 2010.
Relationship to Overall Economy
The strong revenue growth in FY 2011 did not translate
into a healthy economy. While there has been some
positive news, the key economic indicators suggest
problems remain:

•

•

•

•

State employment remains 300,000 below the high
point in December 2007. Over the last 6 months, job
growth has generally been less than 0.5%. As noted
earlier, however, current employment data may not
be accurately capturing job creation based on the
state's 7.3% withholding growth.
Pending Maricopa County foreclosures total 26,000.
While there would typically be less than 5,000
foreclosures annually, at least the trend is in the right
direction. Pending foreclosures have fallen from
51,000 in December 2010.
Almost 50% of mortgage holders continue to be
“underwater” – their outstanding loan exceeds the
value of their house. This trend serves to inhibit
higher consumer spending.
The annual level of new housing permits is below
10,000, compared to 40,000 to 50,000 in a normal
expansion.

FY 2011 Ending Balance

Prior to 13th month adjustments, FY 2011 total base and
one-time revenues are $8.34 billion, which would
exceed the enacted April budget forecast by $335
million. Pre-13th month General Fund spending is also
$8.34 billion (see page 12), which would essentially
match the revenue level. This expenditure level is
approximately $10 million higher than budgeted,
potentially due to revertments being less than
anticipated. Revertments are an estimate of unspent
appropriations at the end of the year.
Year-end adjustments could result in the ending
balance being either slightly positive or negative. The
enacted April budget assumed that the state's General
Fund cash balance would end FY 2011 with a $(332)
million shortfall. We currently anticipate that at least
$300 million of the $332 million budgeted shortfall would
be eliminated by the time of official book closing.
In addition to a cash balance, the state's fiscal
condition can also be evaluated from the perspective
of its operating fund balance. The cash balance
reflects General Fund revenues minus General Fund
spending on a fiscal year basis. In contrast, the state
pays its bills out of the operating fund balance, which
consists of General Fund monies and certain dedicated
funds. As opposed to the cash balance, the operating
fund balance at the end of FY 2011 is approximately
$1.6 billion. Unlike FY 2010, the operating fund balance
remained positive throughout the course of FY 2011 and
the state did not need to borrow funds overnight from a
private bank to pay its bills.
FY 2012 Implications
The enacted April budget assumed using $332 million of
FY 2012 revenue to pay off the FY 2011 shortfall. Since
at least $300 million of the $332 million will no longer be
needed for that purpose, those monies will be freed up
and available at the end of FY 2012. The ultimate
magnitude of the FY 2012 ending balance, however, will
depend on the outcome of multiple issues.

4

JLBC – MONTHLY FISCAL HIGHLIGHTS – JULY 2011

Summary

(Continued)

For example, FY 2012 General Fund revenues could be
higher than budgeted in light of the FY 2011 experience.
The enacted budget presumed that FY 2012 base
revenues would grow by 5.7% to $7.83 billion. (Total
General Fund revenues including one-time 1-cent sales
collections, urban revenue sharing and all other
adjustments were estimated at $8.33 billion.) With the
higher than expected FY 2011 base, revenues would
now need to grow by 1.8% to meet the budgeted level.
Based on FY 2011 and first quarter FY 2012 estimates, the
revenue projection will probably be raised when the
consensus forecast is updated as part of the Finance
Advisory Committee (FAC) meeting in early October.
The magnitude of the FY 2012 ending balance,
however, will also depend on several significant issues
that could result in unbudgeted FY 2012 costs:

•

•

•
•

The impact of federal budget negotiations on
assistance to states, specifically the federal
government’s share of the Medicaid program. One
recent federal deficit reduction proposal would
have increased the states’ collective share of
Medicaid costs by $100 billion over 10 years.
While they have permitted the freeze on the
Medicaid childless adult coverage, the federal
government has yet to approve all $480 million in
budgeted AHCCCS waiver savings.
The state is subject to numerous “budget” lawsuits,
including attempts to eliminate AHCCCS' childless
adult coverage freeze.
Early payoff of the state’s $1.5 billion state building
sale/leaseback and lottery bond issuances due to
IRS requirements.

In terms of this last issue, the state generated $1.5 billion
in proceeds from 20-year tax-exempt issuances involving
the sale and leaseback of state buildings and lottery
bonds to finance ongoing state operations in FY 2010.
The IRS does not normally permit tax-exempt issuances
to be used for operating funds. The state was able to
proceed, however, by agreeing to use any operating
surplus above 5% to begin to pay back the issuances
early. Since the issuances were structured to guarantee
at least 10 years of payments to investors before being
paid off or “called”, the potential payback in FY 2012
would be deposited into a reserve fund.
The payback calculation has a number of steps and is
calculated each December by the Department of
Administration. As a rough approximation, the General
Fund ending balance would need to exceed $400
million before the payback mechanism was triggered
(5% of an $8.3 billion budget). At that level, the balance
above $400 million would be dedicated to the
payback. Due to the uncertainty regarding FY 2012
revenues and potential unbudgeted costs, it is uncertain
whether the state's FY 2012 ending balance will exceed
the $400 million level.

Long Term Budget Implications
As of last April’s Finance Advisory Committee meeting,
the FY 2014 budget was projected to have a $(600)
million shortfall after accounting for the long term
revenue forecast, active funding formula spending
requirements and expiration of the 1-cent sales tax.
While the higher than expected FY 2011 revenues would
bring the state closer to a balanced budget in FY 2014,
it does not create a structural budget surplus.
In addition, the April estimates assumed the
continuation of the existing funding formula suspensions,
which would otherwise add $800 million in new
spending. The 2 primary suspensions are approximately
$300 million in annual K-12 operating funds and $400
million in annual School Facilities Board capital
expenditures.

5

JLBC – MONTHLY FISCAL HIGHLIGHTS – JULY 2011

June Revenues
Table 2

General Fund Revenues ($ in Millions)

June
Year-to-Date

“Total FY 2011
[Individual
Income Tax]
revenues grew
18.5% to $2.86

$304.8 million
above the
enacted
budget
forecast.”

Difference From
April Forecast
$ 59.6
$ 334.7

Sales Tax collections were $392.3 million in
June. Excluding the $108.7 million from the
temporary 1-cent increase, collections were
$283.6 million, or 16.8% above June 2010. The
unusually large increase is mainly due to
estimated payments (see below). Total fiscal
year collections were $3.46 billion, or 2.5%
above FY 2010 collections, making FY 2011 the
first positive year since FY 2007. In addition, the
1-cent sales tax collections were $872.7 million.
Table 3 displays the June growth rates
(excluding the 1-cent tax) for the largest
categories.
Table 3

Sales Tax Growth Rates
Compared to Prior Year

billion. This
amount was

FY 2011
Collections
$ 955.5
$ 8,342.5

Retail
Contracting
Utilities
Use
Restaurant & Bar

June
12.7%
5.8%
3.0%
(99.3)%
0.6%

YTD
7.0%
(4.7)%
0.9%
(15.6)%
3.2%

Retail and Contracting together account for
about 60% of all sales tax revenues. While
Contracting has traditionally been the second
largest category, for the second year in a row,
the steep decline in Contracting revenues
have left the category in the number 3
position, behind Utilities, which generated
$408.6 million, or 6.7% more than Contracting.
Of the increase in June Retail, about 9% of the
12.7% growth, along with the abnormal decline
in Use Tax revenue, is due to a one-time shift of
prior month collections from the Use Tax
category to Retail.
While economic activity explains a portion of
the June growth, estimated payments also
played a role. In all months but June, Retail
sales taxes are due the month after the
purchase. In June, however, most large
retailers are required to make an estimated
payment based on actual collections in May
or June. This payment is then credited against

Difference
From FY 2010
$ (759.5)
$ 23.4

July tax liabilities. At this time each year, the
Department of Revenue (DOR) calculates the
impact of this payment shift as part of June
revenue collections. This calculation typically
helps the bottom line, as sales traditionally
grow from one summer to the next.
Last year, estimated payments, excluding tax
law changes, reduced collections by $(19)
million. For FY 2011, estimated payments
actually increased total collections by $36.9
million, most of which is attributable to the 1¢
tax increase. The lack of a negative estimated
payment accounts for half of the increase in
collections this year.
Including the 1-cent increase, year-to-date
collections were $35.0 million, or 0.8%, above
the enacted April budget forecast.
Individual Income Tax net revenues were
$312.5 million in June, or 15.5% above the prior
year. Collections were $36.1 million above the
forecast. Total FY 2011 revenues grew 18.5% to
$2.86 billion. This amount was $304.8 million
above the enacted budget forecast. As with
the Sales Tax, this was the first positive year for
the individual income tax since FY 2007.
As indicated in Table 4 below, withholding
grew by 7.0% in June for a FY 2011 increase of
7.3%. This was the first year that the state had
positive withholding growth since FY 2008
when collections increased by 1.5%.
Table 4

Individual Income Tax Growth Rates
Compared to Prior Year
Withholding
Estimated +
Final Payments
Refunds

June
7.0%
13.2%
(42.6)%

YTD
7.3%
13.4%
(9.5)%

Corporate Income Tax net collections were
$109.4 million in June, or 20.8% above the prior
year. Collections were $(4.8) million below the
forecast. Total FY 2011 revenues were up 35.6%
to $560.2 million, the first positive year since

6

JLBC – MONTHLY FISCAL HIGHLIGHTS – JULY 2011

June Revenues

(Continued)

FY 2007, but are $(21.7) million below the
enacted budget forecast. While Corporate
collections were not expected to maintain
their 115.5% growth of the first half of the year,
they have not grown as quickly as expected
since January.
“Total
[Insurance
Premium Tax]
collections
[were] $413.7
million, or 2.1%
above the
prior year.”

Insurance Premium Tax collections were $400.2
million through June, or (1.2)% below the prior
year. Collections were $(12.4) million below
forecast. According to the Department of
Insurance, an additional $13.4 million will be
credited to the General Fund during the “13th
month,” which would put total collections at
$413.7 million, or 2.1% above the prior year and
$1.1 million above forecast.
The Lottery Commission reports that June
ticket sales were $46.2 million, which is $1.9
million, or 4.4%, above sales in the prior year.
Year-to-date, ticket sales are $583.5 million,
which is 5.8% above last year’s sales. These
amounts are not the final FY 2011 revenues, as
they exclude some “13th month” distributions.
The General Fund share of sales has increased
significantly more than overall sales, however,
due to changes in the distribution formula.
Non-General Fund
Highway User Revenue Fund (HURF) revenues
consist of gasoline and use fuel (diesel) tax,
motor carrier fees (commercial carriers),
vehicle license tax and registration fees, and
various other fees. HURF collections of $102.2
million in June were down $(0.4) million, or
(0.4)%, compared to June of last year. Total
FY 2011 revenues have grown 0.9%.

7

JLBC – MONTHLY FISCAL HIGHLIGHTS – JULY 2011
Table 5

General Fund Revenue:
Change from Previous Year and Enacted April Budget Forecast
June 2011
Current Month

FY 2011 YTD (Twelve Months)

Change From
Actual

June 2010

June 2011

Amount

Change from
Actual

Forecast
Percent

Amount

Percent

June 2010

June 2011

Amount

Forecast
Percent

Amount

Percent

Taxes
Sales and Use w/o 1¢ *
Income - Individual
- Corporate

$283,571,773

$40,822,188

312,510,464

41,965,002

16.8 %

13.1

(4,799,458)

109,404,169

18,848,679

20.8

4,180,971

638,032

18.0

Luxury - Tobacco

2,414,738

- Liquor
Insurance Premium
Estate
Other Taxes
Sub-Total Taxes

(1.1) %

36,113,030

Property

(1,251,353)

($3,293,967)

15.5

(34.1)

$3,463,327,544

$85,764,446

2,863,657,979

447,361,674

18.5

2.5 %

($12,984,756)
304,804,079

11.9

(0.4) %

(21,717,749)

(3.7)

(4.2)

560,235,651

147,036,605

35.6

215,038

5.4

20,333,503

63,872

0.3

333,503

1.7

0

0.0

25,308,849

(8.2)

(572,151)

(2.2)

2,550,225

(80,268)

(3.1)

0.0

30,021,762

1,166,802

4.0

1,026,862

3.5

58,539,673

(13,414,765)

(18.6)

(14,628,471)

(20.0)

400,218,867

(4,889,025)

(1.2)

(12,381,133)

(3.0)

0

0

(2,273,284)

(4,760)

(100.0)

(62,628)

(100.0)

437,372

73,617

20.2

(62,628)

(12.5)

41,173

10,663

34.9

(81,354)

(66.4)

2,136,331

690,024

47.7

636,331

42.4

$773,213,186

$87,533,418

$7,365,677,859

$674,994,731

12.8 %

$13,462,190

1.8 %

10.1 %

$259,082,359

3.6 %

Other Revenue
Lottery

8,409,900

License, Fees and Permits

2,828,382

Interest

1,421

(7,235,100)
134,275
(6,385)

(46.2)

(76.7)

59,459,889

12,814,889

27.5

(18,441,011)

5.0

(27,659,370)
387,526

15.9

27,798,332

1,144,235

4.3

2,798,332

(23.7)
11.2

(81.8)

(288,579)

(99.5)

1,894,793

1,422,025

300.8

(2,105,208)

(52.6)
49.2

Sales and Services

10,807,949

6,716,987

164.2

6,920,016

178.0

36,567,153

8,263,596

29.2

12,059,553

Other Miscellaneous

38,733,322

17,024,366

78.4

22,175,485

133.9

60,254,726

6,977,873

13.1

17,754,726

41.8

(18,700,000)

(100.0)

87,578,591

68,878,591

368.3

25,986,291

42.2

67.1

(10,295,001)

(15.2)

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

0

0

--

41,517,587

41,437,377

--

5,353,660

57,348,999

23,018,733

102,298,561

39,371,520

62.6 %

6,888,738

14.8
7.2 %

330,902,483

122,519,943

58.8 %

27,757,683

9.2 %

$875,511,747

$126,904,938

17.0 %

$20,350,928

2.4 %

$7,696,580,342

$797,514,674

11.6 %

$286,840,042

3.9 %

Other Adjustments
Urban Revenue Sharing

(39,500,543)

12,886,509

--

0

0.0

(474,006,517)

154,638,108

--

0

0.0

1¢ TPT Increase*

108,739,170

108,739,170

--

39,342,237

56.7

872,716,949

872,716,949

--

47,960,649

5.8

Budget Plan Transfers

10,744,520

(81,865,255)

(88.4)

(1.0)

247,181,105

(139,904,395)

(36.1)

Budget Legislation

0

(176,178,100)

(100.0)

0

--

0

(176,178,100)

(100.0)

0

Leaseback Proceeds

0

(750,000,000)

(100.0)

0

--

0

(1,485,419,300)

(100.0)

0

79,983,147

(886,417,676)

(91.7) %

39,231,542

96.3 %

645,891,537

(774,146,738)

$955,494,894

($759,512,738)

(44.3) %

$59,582,470

6.7 %

$8,342,471,879

$102,172,000

($405,000)

(0.4) %

(1.9) %

$1,205,074,000

Sub-Total Other Adjustments
TOTAL GENERAL FUND REVENUE

(110,695)

(110,695)

(0.0)
---

(54.5) %

47,849,954

8.0 %

$23,367,936

0.3 %

$334,689,996

4.2 %

$10,658,000

0.9 %

Non-General Funds
Highway User Revenue Fund

($1,943,959)

($7,258,794)

(0.6) %

__________
* Sales and Use line excludes revenue from the temporary 1¢ increase approved by the voters in May 2010. That revenue is shown under One-Time Revenues. Total June collections including the 1¢ increase were
$392.3 million. This amount is $149.6 million, or 61.6%, above June 2010 and $36.0 million, or 10.1%, above forecast. Year to date, total collections including the 1¢ increase were $4.37 billion. This amount is $958.5
million, or 28.4%, above June 2010 and $35.0 million above forecast.

8

JLBC – MONTHLY FISCAL HIGHLIGHTS – JULY 2011

Economic Indicators
NATIONAL

“…the state lost
(57,200) nonfarm
jobs in June over
May. Job losses
typically occur in
June as schools
begin their
summer recess.
The job loss this
June, however,
was significantly
larger than the
average June
workforce
reduction of
(36,400) in the
prior 10 years.”

The Conference Board’s U.S. Consumer
Confidence Index fell by (5.2)% in June to 58.5,
the lowest reading since November 2010. The
mostly negative economic and financial news
over the last few months have taken a toll on
consumer confidence. The index has declined
in each of the last 3 months. Consumers are
feeling less confident about their job prospects
and earning potential and are therefore more
likely to cut back on their discretionary
spending in the near term.
The Conference Board’s U.S. Index of Leading
Economic Indicators rose by 0.3% in June, to
115.3. This increase came on top of May’s
0.8% advance. Five of the 10 components
that make up the index made positive
contributions in June. The largest positive
contributions came from the financial
components - interest rate spread and money
supply. May’s improvement was muted
primarily due to the negative contributions
from lower stock prices and weaker consumer
expectations.
Consumer prices, as measured by the U.S.
Consumer Price Index (CPI), decreased by
(0.2)% in June, the first decline in a year. The
CPI decline was primarily due to falling energy
prices, especially the price of gasoline, which
fell by (6.8)% in June. Core inflation, which
excludes energy and food prices, edged up
by 0.3% for the second month in a row. In spite
of the recent increase in core inflation, most
analysts believe that the likelihood of a wageprice spiral developing is low due to the
considerable slack in labor markets.
ARIZONA
The Federal Reserve Bank of Philadelphia’s
coincident index gauges current economic
activity in each state. The index combines 4
indicators: employment, average hours
worked in manufacturing, unemployment rate,
and inflation-adjusted wages.
Arizona was 1 of 20 states for which the
coincident index declined in June. From May
to June, Arizona’s index decreased by (0.1)%
compared to an increase of 0.1% for the
nation as a whole. June’s Arizona index was
0.6% above last year.
While Arizona's index has improved compared
to the same time period last year, the index
remains (13.7)% below its peak reading in

August 2007. In contrast, the national
coincident index has declined (4.9)% since its
historical peak in January 2008. See Tracking
Arizona’s Recovery for additional historical
information.
Employment
According to the Employment and
Population Statistics Unit of the Department of
Administration, the state lost (57,200) nonfarm
jobs in June over May. Job losses typically
occur in June as schools begin their summer
recess. The job loss this June, however, was
significantly larger than the average June
workforce reduction of (36,400) in the prior 10
years.
In June, the state had 7,300, or 0.3%, more
persons on the payrolls than 1 year ago. This
net gain is unevenly distributed between the
private sector and government, however, as
the former has gained 21,300 jobs while the
latter has shed (14,000) jobs since June 2010.
Even within the private sector, there is a
considerable difference in terms of job
creation, as 5 out of 10 industry sectors
(mining, construction, information,
professional and business services, and other
services) have yet to increase their payrolls
relative to last year.
The data above suggests that job gains in the
state are concentrated to relatively few
sectors of the economy. One of the sectors
that have performed well is the
manufacturing industry, which has added
jobs in each of the last 5 months. Compared
to June 2010, manufacturing employment has
grown by 2.0%, or 3,000 jobs. With a
workforce of 151,200 employees, the
manufacturing sector is now employing more
persons than at any time since August 2009.
Two-thirds of the job gain in the
manufacturing sector has occurred in the
durable goods industry, which generally pay
higher wages than most other industries.
Another silver lining in an otherwise less than
encouraging work report is that year-overyear job losses in the construction sector
appear to be coming to an end soon. The
year-over-year job loss of (0.3)% in June was
the smallest such decline since January 2007.
With a total of 112,500 individuals on their
payrolls, the construction industry now
employs 55% fewer workers than during the
height of the housing boom 5 years ago.

9

JLBC – MONTHLY FISCAL HIGHLIGHTS – JULY 2011

Economic Indicators

“While
foreclosure
notices and
pending
foreclosures
continue their
decline from
recent highs,
they continue to
be a major
influence on
existing home
sales and the
respective
prices.”

The longest and deepest recession in postwar
era ended in June 2009. Two years later,
nonfarm employment in Arizona remains
(361,800) below the pre-recession peak of
2.72 million jobs. For the first 6 months of 2011,
the state has seen an average net gain of
4,900 jobs compared to the same period in
the prior year. At this pace, it would take
another 6 years before the state returned to
pre-recession levels. While job growth
typically accelerates as the business cycle
improves, the statistics suggest at a minimum
that Arizona is not months but years away
from regaining the jobs lost during the
recession. See Tracking Arizona’s Recovery for
additional historical information.
The state’s seasonally adjusted unemployment
rate rose from 9.1% to 9.3% in June. This
marked the first month-over-month increase of
the jobless rate since November 2009. By way
of comparison, the unemployment rate in June
2010 was 10.0%. The U.S. jobless rate is currently
at 9.2%. Arizona’s unemployment rate has
been above the national average in 35 of the
last 37 months.
The federal Bureau of Labor Statistics (BLS)
reported that 27,951 Arizona residents filed
initial claims for unemployment insurance in
June, a 4.3% increase from the prior month.
The 10-year average increase for June prior to
the onset of the recession in 2007 was 6.0%.
This suggests that June’s increase in first-time
jobless claims was primarily due to seasonal
factors. Initial claims in June were (9.8)% below
last year’s level. Claims peaked in April 2009
when more than 41,000 individuals filed for
initial jobless benefits. See Tracking Arizona’s
Recovery, for additional historical information.
Housing
In June, the number of new Maricopa County
foreclosure notices increased 1.1% from May
levels to 4,477. The number of Maricopa
County pending foreclosures decreased from
28,670 in May to 26,473 in June. The June
total is (48.6)% below the peak in December
2009 (51,466). See Tracking Arizona’s Recovery
for additional historical information.
While foreclosure notices and pending
foreclosures continue their decline from
recent highs, they continue to be a major
influence on existing home sales and the
respective prices. In the Metropolitan Phoenix
area in June, there were a total of 10,475
existing single-family home sales that resulted
in a median resale home price of $128,560.

(Continued)

Relative to the prior year, the number of sales
is down (2.3)%, while prices are (12.8)% lower.
Of the existing sales, 31.3%, or 3,280 were
foreclosures.
State Agency Data
In July, AHCCCS caseloads equaled 1.37
million members, a 0.6% increase over the prior
month. AHCCCS caseloads are currently 1.2%
above July 2010 levels. The FY 2012 budget
funded a projected July caseload decline of
(0.6)% for a total of 1.34 million members.
There were 41,136 TANF recipients in the state
in June, a monthly caseload decrease of
(1.3)%. Year-over-year, the number of TANF
recipients has declined by (42.0)%. This
decline is the result of changes to the
statutory lifetime limit a person may receive
cash assistance. The FY 2011 budget reduced
the lifetime limit to 36 months. The FY 2012
budget further reduces this limit to 24 months.
Previously, the maximum had been 60
months. The FY 2011 budget assumed
caseloads of approximately 70,000 in FY 2011.
The Supplemental Nutrition Assistance
Program (SNAP), formerly known as Food
Stamps, provides assistance to low-income
households to purchase food. In June, there
were a total 1.1 million food stamp recipients
in the state, a 1.9% increase over the prior
month. Compared to the same month last
year, food stamp participation was up by
4.4%. The number of food stamp recipients
began increasing steadily in July 2007, after
several years in the 550,000 to 575,000 range.
The 3-month average count of the Department
of Correction’s (ADC) inmate population
increased to 42,203 inmates between May
and July 2011. Relative to the prior 3-month
period, the population has increased by 103
inmates. Compared to a year ago, however,
the population has declined by (371) inmates.

10

JLBC – MONTHLY FISCAL HIGHLIGHTS – JULY 2011

Economic Indicators

(Continued)

Table 6

ECONOMIC INDICATORS
Indicator
Arizona
- Unemployment Rate (SA)
- Initial Unemployment Insurance Claims
- Unemployment Insurance Claimants
- Non-Farm Employment - Total
Manufacturing
Construction
- Average Weekly Hours, Manufacturing
- Contracting Tax Receipts (3-month average)
- Retail Sales Tax Receipts (3-month average)
- Residential Building Permits (3-month moving average)
Single-family
Multi-unit
- Greater Phoenix Existing Home Sales
Single-Family
Townhouse/Condominium
- Greater Phoenix Median Resale Home Price
Single-Family
Townhouse/Condominium
- Foreclosure Activity, Maricopa County
Foreclosure Notices (Notice of Trustee’s Sales Recorded)
Pending Foreclosures (Active Notices)
Greater Phoenix S&P/Case-Shiller Home Price Index
(Jan. 2000 = 100)
- Greater Phoenix Total Housing Inventory, (ARMLS)
- Phoenix Sky Harbor Air Passengers
- Arizona Average Natural Gas Price
($ per thousand cubic feet)
- Arizona Consumer Confidence Index (1985 = 100)
- Arizona Coincident Index (July 1992 = 100)
- Arizona Personal Income
- Arizona Population
- AHCCCS Recipients
- TANF Recipients
- SNAP (Food Stamps) Recipients
- ADC Inmate Growth (3-month average)
- Probation Caseload (Adult/Juvenile)
Non-Maricopa
Maricopa County
United States
- Gross Domestic Product
(Chained 2005 dollars, SAAR)
- Consumer Confidence Index (1985 = 100)
- Leading Indicators Index (2004 = 100)
- U.S. Semiconductor Billings (3-month moving average)
- Consumer Price Index, SA (1982-84 = 100)
*Adjusted for 1¢ sales tax

Time Period

Current Value

Change From
Prior Period

Change From
Prior Year

June
June
May
June
June
June
May
Apr-Jun
Apr-Jun

9.3%
27,951
67,641
2.36 million
151,200
112,500
40.4
$32.8 million
$154.0 million

0.2%
4.3%
3.4%
(2.4)%
0.5%
2.9%
(0.7)%
3.0%
3.1%

(0.7)%
(9.8)%
(19.6)%
0.3%
2.0%
(0.3)%
1.0%
6.3%*
19.3%*

Mar-May
Mar-May

981
83

7.2%
(55.6)%

(14.9)%
(26.4)%

June
June

10,475
1,475

(3.9)%
(6.1)%

(2.3)%
(14.5)%

June
June

$128,560
$80,500

(0.3)%
(1.7)%

(12.8)%
(19.4)%

June
June
April

4,477
26,473
100.36

1.1%
(7.7)%
0.1%

(27.4)%
(37.5)%
(8.8)%

June
May
February

29,203
3.48 million
$6.23

(7.8)%
1.3%
(3.3)%

(31.9)%
6.6%
(14.0)%

2nd Quarter 2011
June
1st Quarter 2011
April 1, 2010
July
June
June
May-July

51.9
176.48
$229.9 billion
6.39 million
1,369,731
41,136
1,108,977
42,203

(17.4)%
(0.1)%
1.8%
N/A
0.6%
(1.3)%
1.9%
103 inmates

4.6%
0.6%
4.3%
N/A
1.2%
(42.0)%
4.4%
(371) inmates

May
May

18,990
26,184

(37)
(73)

(936)
(1,645)

1st Quarter 2011
(Final Estimate)
June
June
Feb-Apr
June

$13.4 trillion

1.9%

2.3%

58.5
115.3
$4.50 billion
224.30

(5.2)%
0.3%
(3.7)%
(0.2)%

7.7%
6.0%
9.5%
3.4%

11

JLBC – MONTHLY FISCAL HIGHLIGHTS – JULY 2011

Summary of Recent Agency Reports
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. For FY 2011, a total of 60 eligible
offenders were referred to the program. Of
those referred to CAPP:
•
•

2 (3.3%) declined to participate,
23 (38.3%) remain enrolled in the
program,
•
19 (31.7%) successfully completed the
program, and
•
16 (26.7%) were terminated from the
program.
(Stefan Shepherd)
Department of Economic Security - Report on
Arizona Training Program at Coolidge (ATP-C)
Campus and Other Placements - A footnote
in the FY 2011 General Appropriation Act
requires the Department of Economic Security
(DES) to report on placements of
developmentally-disabled (DD) clients into
state-owned Intermediate Care Facilities for
the Mentally Retarded (ICF-MR), or at the ATPC campus in FY 2011. DES reports that there
were no new permanent placements at the
ATP-C campus or a state-owned ICF-MR in
FY 2011. (Aaron Galeener)
Public Programs Eligibility Report – As enacted
in the 2006 election, Proposition 300 limits
participation in certain state programs to
citizens, legal residents, and other persons
lawfully present in the United States and
requires semi-annual reports to the Joint
Legislative Budget Committee. Below is a
summary of the reports:
Community Colleges – Statewide for the
spring 2011 semester, the Community
Colleges reported a total of 254,874 students
classified as in-state. They reported 1,994

students who were not entitled to be
classified as in-state because of a lack of
lawful immigration status. Additionally,
100,252 students applied for financial aid. Of
those who applied, the community colleges
reported that 284 were not entitled to any aid
because they were not lawfully present in the
United States.
Universities – At the 3 universities, 125,196
students registered for the spring 2011
semester. Of the total students registered, the
universities were able to verify the legal
immigration status of 113,528 students.
Additionally, the universities reported that
8,475 of these students did not require
verification because they had either not
requested or received in-state tuition or state
supported financial aid. The universities
reported that a total of 94 students were
unverifiable due to their inability to provide
the requisite documentation.
Department of Economic Security – The
department reported that 6,896 applications
were received for child care assistance during
the reporting period of December 1, 2010 to
May 31, 2011. Of this number, 4 were denied
because criteria for citizenship or legal
residency were not met.
Department of Education – Previously, the
Department of Education reported the number
of applicants and applicants ineligible for
enrollment for the Family Literacy Program and
the Arizona Adult Education Program. Funding
for these programs was discontinued as of
December 1, 2009 and July 1, 2010, respectively,
resulting in no information to report.
(James Alcantar)

12

JLBC – MONTHLY FISCAL HIGHLIGHTS – JULY 2011

June Spending
•

FY 2011 Spending
“June 2011
spending of
$506.5 million
was $361.5
million higher
than June 2010.”

June 2011 spending of $506.5 million was
$361.5 million higher than June 2010 (See
Table 7).
Year-to-date, preliminary FY 2011 spending
was $8.34 billion, or $523.4 million above FY
2010. This was largely due to a decline in the
use of funds from the American Recovery and
Reinvestment Act (ARRA) relating to
education and a reduced federal Medicaid
match rate.
The June expenditure amounts do not reflect
13th month expenditures. Agencies have until
July 29th to pay their FY 2011 obligations.

•

•

•

•

•

In June, the Arizona Department of
Education spending was $261.3 million
higher than the prior year. June
expenditures were higher compared to
the prior year due to differences in the
timing of the K-12 rollover.
Year-to-date expenditures for the
Department of Education were $3.50
billion, or $341.6 million higher than the
prior year due to a decline in the use of
funds from the ARRA fiscal stabilization
fund.
University spending was $56.9 million in
June, or $47.3 million higher than the prior
year. The increased expenditure amount
reflects the rollover being spread out over
the course of the fiscal year.

Year-to-date expenditures of $890.3
million for the Universities are $96.2 million
higher than the prior year due to onetime savings in FY 2010 from increasing
the system’s payment deferral.
AHCCCS, Department of Economic
Security (DES), and Department of Health
Services (DHS) spending were a
combined $70.2 million higher than June
of the prior year. This increase generally
reflects a phase-out of an increase to the
federal Medicaid assistance percentage
(FMAP) rate as part of the ARRA as well as
a change in the timing of the AHCCCS
rollover.
Year-to-date AHCCCS expenditures were
$136.9 million above FY 2010, while the
DES budget grew by $20.4 million. The
increased expenditure amount reflects a
phase-out of the enhanced FMAP rate as
part of the ARRA. DHS expenditures
declined by $(50.1) million primarily due
to FY 2011 reductions to non-Medicaid
Behavioral Health Services.

Table 7
General Fund Spending ($ in Millions)

Agency
AHCCCS
Corrections
Economic
Security
Education
Health Services
Public Safety
School Facilities
Board
Universities
Leaseback Debt
Service
Other
Total

June 11

Change
from
June 10

Year to
Date

89.6
71.3
5.5

51.2
(7.8)
10.7

1,365.8
880.0
542.7

136.9
21.1
20.4
341.6
(50.1)
(0.7)
(37.3)

248.3
8.9
2.7
-

261.3
8.3
0.1
-

3,498.7
427.6
41.9
67.4

56.9
-

47.3
-

890.3
52.1

23.3
506.5

(9.6)
361.5

578.2
8,344.7

YTD Change
from FY 10

96.2
52.1
(56.8)
523.4

13

JLBC – MONTHLY FISCAL HIGHLIGHTS – JULY 2011

Table 8

Agency
Department of Administration
Department of Admin Sale/Leaseback D/S
Office of Administrative Hearings
Department of Agriculture
AHCCCS
Arizona Commission on the Arts
Arizona Exposition and State Fair Board
Attorney General
AZ Capital Post Conviction Public
Defender
State Board of Charter Schools
Board of Chiropractic Examiners
Department of Commerce
Community Colleges
Corporation Commission
Department of Corrections
Board of Cosmetology
AZ Criminal Justice Commission
AZ State Schools for the Deaf & Blind
Department of Economic Security
Department of Education
DEMA
Department. of Environmental Quality
DEQ – WQARF
Office of Equal Opportunity
State Board of Equalization
Board of Executive Clemency
Department of Financial Institutions
Department of Fire, Life, Bldg Safety
Office of the State Forester
Board of Funeral Directors
Arizona Geological Survey
Government Information Tech.
Governor
Gov. - OSPB
Department of Health Services
Arizona Historical Society
Prescott Historical Society of AZ
Independent Redistricting Comm.
Commission on Indian Affairs
Department of Insurance
Judiciary
Supreme Court /Superior Court
Court of Appeals
Department of Juvenile Corrections

General Fund Spending
($ in Thousands)
Change from
June 11
June 10
1,304.5
328.0
49.8
(6.1)
604.2
20.2
89,636.6
51,279.2
32.5
36.2
1,325.8
(90.2)
(1.8)
(41.3)
28.1
330.4
68.8
71,331.8
71.0
5,519.7
248,321.1
971.0
32.6
50.1
60.7
324.2
103.0
1,969.8
179.2
67.1
135.8
113.7
8,948.9
159.5
37.1
66.4
9.3
317.4
2,257.1
1,020.8
3,658.5

Year-to-Date
19,232.9
52,066.9
905.1
8,265.4
1,365,774.8
650.0
16,797.7
634.4

YTD Change from
FY 10
409.5
52,066.9
(28.2)
(95.5)
136,936.7
(167.1)
(400.0)
(934.9)
(11.9)

(15.8)
119.2
8.1
(7,847.2)
(690.5)
10,654.6
261,273.6
(574.7)
(700.6)
23.0
8.7
19.7
147.6
7.6
1,969.8
77.6
35.9
(245.8)
(2.1)
8,348.6
(26.3)
(8.0)
66.4
(24.2)
11.7

667.4
3,438.9
132,426.3
616.5
879,966.3
20,732.4
542,748.5
3,498,714.3
10,903.3
0.6
7,000.0
189.1
557.4
846.2
2,754.8
1,960.7
5,670.4
789.0
511.3
5,885.2
1,816.9
427,573.9
5,264.5
686.0
102.9
62.3
5,409.5

(18.7)
(148.0)
6.3
-33.2
21,124.6
(252.0)
4.6
(238.1)
20,397.2
341,564.7
602.0
(5,769.6)
(1.1)
(87.9)
(28.7)
(202.5)
(158.9)
5,670.4
(100.0)
(11.9)
66.6
(1,016.1)
(96.4)
(50,124.5)
1,399.4
30.5
76.8
(54.1)
(129.1)

(1,107.2)
(46.3)
290.6

97,560.9
14,531.7
50,949.5

(5,940.3)
507.9
(10,529.0)

14

JLBC – MONTHLY FISCAL HIGHLIGHTS – JULY 2011

Agency
State Land Department
Law Enforcement Merit System
Legislature
Auditor General
House of Representatives
Joint Legislative Budget Comm.
Legislative Council
Senate
Department of Liquor Licenses
Board of Medical Student Loans
Mine Inspector
Department of Mines & Mineral Resources
Nav. Streams & Adjudication
OSHA
Arizona State Parks Board
Pioneers’ Home
Board of Psychologist Examiners
Comm. for Postsecondary Ed.
Department of Public Safety
Arizona Department of Racing
Radiation Regulatory Agency
Arizona Rangers Pension
Real Estate Department
Department of Revenue
School Facilities Board
Secretary of State
Tax Appeals Board
Office of Tourism
Department of Transportation
State Treasurer
Universities
Board of Regents
Arizona State University
Northern Arizona University
University of Arizona
Veterinary Medical Examiners Board
Department of Veteran Services
Department of Water Resources
Department of Weights & Measures
Other
Grand Total

June 11
150.7
2.8

Change from
June 10
(3,189.5)
1.9

Year-to-Date
3,276.0
68.0

YTD Change from
FY 10
(10,226.3)
(3.9)

(51.2)
818.2
116.3
367.0
373.9
122.2
(1.5)
5.0
5.7
2,725.3
386.9
14.9
192.3
4,395.4
25.0
583.6
16.5
(5.8)
-

(1,382.5)
117.6
(32.9)
98.6
(175.4)
65.3
(71.7)
(4.5)
(4.8)
5.7
(136.3)
578.2
191.3
(45.7)
(1.2)
20.2
(1,988.7)
(32.2)
(333.9)
1.3
(10.4)
(157.7)

15,635.0
11,730.0
1,956.6
4,585.0
8,104.2
3.3
360.7
1,086.7
814.3
122.5
20,000.0
1,566.0
25.0
1,220.8
41,851.9
4,181.1
1,392.6
8.3
2,667.9
42,970.3
67,430.7
14,980.3
248.2
44.7
-

687.4
(285.2)
(275.0)
(217.4)
(470.5)
(744.4)
(441.2)
7.1
(40.9)
(5.8)
(19.2)
(214.2)
1,566.0
(275.0)
(2,333.2)
(733.4)
(683.5)
(24.1)
(5.7)
(332.3)
4,073.1
(37,327.7)
1,631.7
(3.7)
(200.0)
(12.7)
(2,548.1)

171.8
25,400.9
8,551.9
22,135.0
(126.2)
690.0
183.2
174.3
506,529.4

(490.9)
20,528.5
8,059.4
19,214.2
200.2
(2,026.9)
97.2
(865.6)
361,528.8

17,251.2
395,388.3
133,116.7
344,549.5
11,579.8
6,643.3
1,170.1
3,981.1
8,344,674.0

(3,825.0)
45,281.2
15,251.3
39,467.4
(250.0)
3,117.0
(10,873.4)
(29.7)
(19,585.3)
523,448.2