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ARIZONA DEPARTMENT OF REVENUE ECONOMIC TRENDS

Georganna Meyer Chief Economist Office of Economic Research & Analysis Arizona Department of Revenue

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Office of Economic Research & Analysis

 Elaine Smith  Karen Jacobs  Darlene Teller  Karshannon Gene  Oxana Gandolph  Nick Buta

Ways We Reach Out and Touch You

 Economic Estimates Commission – expenditure limitations (Karshannon)  Property Tax Oversight Commission – property tax levy limits, truth in taxation (Darlene)  Bonded Indebtedness – annual reporting (Darlene, Elaine)

Ways We Reach Out and Touch You

 City payment journals/County payment journals (Elaine)  Transaction privilege tax and urban revenue sharing – distribution and forecast of distribution (Elaine, Karshannon)  Statistics – related to transaction privilege tax and individual income tax (Elaine, Karen)

The following slides are courtesy of Elliott D. Pollack & Company

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United States Real Gross Domestic Product* Annual Growth 1970 - 2014** Source: U.S. Bureau of Economic Analysis & Blue Chip Economic Indicators 8% 6% 4%

5.3% 5.8% 3.4% 7.2% 5.4% 5.6% 4.6% 3.1% 2.5% 4.5% 4.1% 3.5% 4.1% 3.2% 3.6% 1.9% 4.1% 3.4% 2.9% 3.7% 2.5%

2% 0%

0.2% -0.6% -0.2% -0.3% -1.9% -0.2%

-2%

4.8% 4.1% 1.8% 1.1% 3.5% 3.1% 2.5% 2.7% 1.9% 3.0% 2.2% 1.8% 2.7% 2.0% -0.3% -3.5%

-4%

1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 * Based on chained 2005 dollars. ** 2013 and 2014 are a forecast from the Blue Chip Economic Indicators, March 2013

Recession Periods

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Real Disposable Personal Income Percent Change Year Ago 2000 – 2013* Source: The Federal Reserve Bank of St. Louis Recession Periods

US Non-Farm Employment Change from Prior Month (S/A) June 2010 – April 2013 Source: Bureau Labor of Statistics 400 350 300 250 200 150 100 50 0 1 (50) (100) -86 (150) -130 -37-43 (200) (250) 228 144 95 69 196205 304 115 209 78 225 230 311 271 205 166174 132 332 87 153165 160 138 247 219 148 199 195 195 142

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Consumer Summary:

Jobs are being created at a slow rate.

Those that have jobs are spending a little more will remain cautious.

but

Unemployment to remain high, but should trend lower.

Wealth levels are improving.

Will the additional uncertainty translate into reduced consumer spending?

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Business Summary:

Businesses are in better shape.

Spending on equipment to continue to grow.

Spending on plant will lag until capacity utilization goes higher…getting close.

Employment to continue to grow.

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NATIONAL SUMMARY

   

Consumers still restructuring Confidence low, but spending will continue to grow Business in good shape but not confident because of:

Low capacity utilization

Cost of Obama Care

Fiscal Cliff Federal government, no leadership whatsoever.

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Arizona & US Move Together (Non-farm Emp. Percent Change 1980 – June 2013) 11% 9% 7% 5% 3% 1% -1% -3% -5% -7% -9%

Ja n 81 Ja n 82 Ja n 83 Ja n 84 Ja n 85 Ja n 86 Ja n 87 Ja n 88 Ja n 89 Ja n 90 Ja n 91 Ja n 92 Ja n 93 Ja n 94 Ja n 95 Ja n 96 Ja n 97 Ja n 98 Ja n 99 Ja n 00 Ja n 01 Ja n 02 Ja n 03 Ja n 04 Ja n 05 Ja n 06 Ja n 07 Ja n 08 Ja n 09 Ja n 10 Ja n 11 Ja n 12 Ja n 13

U.S.

Arizona Recession Periods

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Utah Texas Idaho Colorado Nevada Washington California North Carolina Montana

Arizona

Georgia Tennessee Florida Minnesota Delaware Hawaii Indiana South Carolina Mississippi New Jersey Vermont Massachusetts Oregon Louisiana New Jersey

Job Growth 2013

YTD April 2013 vs YTD April 2012 Source: US BLS

3.60% 3.13% 2.78% 2.72% 2.25% 2.17% 2.10% 2.09% 1.94%

1.92%

1.91% 1.80% 1.76% 1.72% 1.68% 1.63% 1.56% 1.51% 1.45% 1.44% 1.40% 1.40% 1.39% 1.27% 1.33% 15 16 17 18 19 20 21 22 23 24 25 26 10

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12 2 3 4 5 6 7 8 9 13 14 Iowa Maryland Kentucky South Dakota Oklahoma New York Kansas New Hampshire Michigan Virginia Illinois Missouri New Mexico Wisconsin Alabama Nebraska Arkansas Alaska Connecticut Rhode Island West Virginia Pennsylvania Ohio Maine Wyoming 1.27% 1.24% 1.23% 1.19% 1.18% 1.07% 1.06% 1.05% 1.03% 0.99% 0.95% 0.85% 0.66% 0.55% 0.50% 0.48% 0.47% 0.46% 0.44% 0.42% 0.41% 0.39% 0.35% 0.07% -0.42% 16

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42 43 44 45 46 47 48 49 50 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41

Why are population flows slow?

Slow job growth

High unemployment

Delayed retirement

Difficulty in selling home

Difficulty in qualifying for a loan

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Year

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Phoenix-Mesa Employment Growth (Ranking among all metro areas greater than 1,000,000) Source: Arizona State University, U.S. Bureau of Labor Statistics Rank

4 4 2 1 1 1 1 1 3 9 *Year-to-date, April 2013

# MSA’s

19 19 19 19 20 21 22 23 24 25

Year

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013*

Rank

7 5 3 3 1 1 9 24 24 24 14 6

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# MSA’s

26 25 25 25 26 27 28 28 25 24 25 27 26

Maricopa County Population

Source: U.S. Bureau of Census; Arizona Department of Economic Security; University of Arizona Forecasting Project Year 1950 1960 1970 1980 1990 2000 2010 2020(forecast) Population 331,770 Annual Rate 663,510 7.2% 971,228 3.9% 1,509,175 4.5% 2,122,101 3.5% 3,072,149 3.8% 3,817,117 2.2% 4,569,572 1.8%

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It’s hard not to be optimistic about HOUSING

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Total Pending Foreclosures Greater Phoenix Source: Information Market

43,171 46,834

50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0

8,065 5,340 5,465 3,891 2,243 5,385 20,407 32,203 18,637 9,059

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Greater Phoenix Median Sales Price New and Resale Single Family Source: Cromford Report $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0

$137,500 $146,000 $157,000 $223,500 $259,900 $253,000 $214,500

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$110,000 $172,000 $137,000

Greater Phoenix Single Family Permits

Source: RL Brown

Year Permits % chg

2004 2005 2006 2007 60,872 63,570 42,423 31,172 27.6% 4.4% -33.3% -26.5% 2008 2009 2010 2011 2012

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2013* 12,582 8,027 6,822 6,794 11,615 4,449 -59.6% -36.2% -15.0% -0.4% 71.0% 20.9% *Data through YTD Apr. 2013 v. Apr. 2012

Growth in Single Family Home Median Prices March 2013 / March 2012

Source: Cromford Report

New Homes: Phoenix 30.8% Resale Homes: 26.8%

NOTE: Resale includes normal and distressed single family home prices (MLS)

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Percent of 25-34 Year Olds Living With Parents vs. Homeownership Rate, Under 35 Years Old U.S.: 1983 – 2012

Source: US Census Bureau 15.0% 44% 14.5% 43% 14.0% 42% 13.5% 13.0% 41% 12.5% 12.0% 11.5% 11.0% 10.5% 10.0% 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 % Living w/ parents Homeownership Rate 25

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40% 39% 38% 37% 36%

Retail Space Vacancy Rates Maricopa County 1985 –2014* Source: CBRE** Recession Periods

20% 15% 10% 8.9% 6.6% 13.1% 11.8% 14.2% 13.5% 12.7% 10.0% 11.1% 9.8% 8.7% 7.9%7.5% 6.3% 5.3% 5.5% 6.6%7.3% 7.4% 6.1% 5.3% 6.2% 5.1% 7.5% 12.2% 12.2% 11.4% 11.0%10.9% 10.2% 5% 0% 198519861987198819891990199119921993199419951996199719981999200020012002200320042005200620072008200920102011201220132014 * 2013-2014 are forecasts from GPBC ** Data prior to 1992 is from Grubb & Ellis

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The rest of the presentation is courtesy of the Office of Economic Research & Analysis at the Arizona Department of Revenue.

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June 2006 28

June 2007 29

June 2008 30

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June 2009 32

June 2010 33

June 2011 34

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BIG THREE TAX COLLECTIONS, FY87 FORWARD

$12 000 000 000 $10 000 000 000 $8 000 000 000 $6 000 000 000 $4 000 000 000 $2 000 000 000 Transaction Privilege Tax Net Individual Income Tax Net Corporate Receipts $0 FY 86/87FY 88/89FY 90/91FY 92/93FY 94/95FY 96/97FY 98/99FY 00/01FY 02/03FY 04/05FY 06/07FY 08/09FY 10/11FY12/13

Transaction Privilege Tax Collections with % Change

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Transaction Privilege Tax Taxable Sales

Transaction Privilege Tax Taxable Sales Mix

Transaction Privilege Tax Taxable Sales Mix

TPT - % of Total Taxable Sales by Type FY97

utilities Communications Restaurants & bars Amusements 1.0

Personal prop rental Contracting 4.3

13.0

Retail Mining/timber sev 47.4

1.8

Hotel/motel Use 2.8

8.0

2.6

4.0

All other 7.8

7.2

FY00

7.3

3.4

8.2

1.1

4.7

14.9

50.1

.7

2.5

4.8

2.3

FY01 FY05 FY07 FY08 FY09 FY10 FY13

7.6

3.8

8.3

1.0

4.8

14.8

50.3

.2

2.5

5.1

1.7

7.3

3.1

8.5

0.9

7.5

3.0

8.3

0.9

3.5

17.2

3.4

19.4

49.7

.7

47.6

1.5

2.2

5.6

1.2

2.1

5.3

0.9

8.2

3.3

8.6

1.0

9.6

3.0

9.4

1.1

3.6

3.7

17.9 15.4

46.8 47.9

1.6

0.8

2.1

6.1

0.9

2.2

6.1

0.8

10.7

4.1

10.3

1.2

10.1

3.1

10.7

1.1

3.6

10.6

3.3

10.3

49.0

1.3

52.1

1.2

2.2

6.2

0.7

2.3

5.3

0.6

Utilities

Communications

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Restaurants & Bars

Amusements

Personal Property Rentals

Contracting

Retail

Components of Retail Taxable Sales for FY13

Components of Retail Taxable Sales for FY05

Mining/Timber Severance

Hotel/Motel

Net Corporate Income Tax Collections with % Change

Net Individual Income Tax Collections with % Change

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Federal Adjusted Gross Income in Arizona from Resident Tax Returns (Billion$)

Resident FAGI plus Nonresident and Part-Year Resident FAGI (Billions$)

Personal Income Estimates Compared to FAGI on Tax Returns (Bill$)

Average Federal Adjusted Gross Income (Resident)

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Average Federal Adjusted Gross Income in Cochise County

Average Federal Adjusted Gross Income in Coconino County

Average Federal Adjusted Gross Income in Gila County

Average Federal Adjusted Gross Income in Greenlee County

Average Federal Adjusted Gross Income in La Paz County

Average Federal Adjusted Gross Income in Maricopa County

Average Federal Adjusted Gross Income in Mohave County

Average Federal Adjusted Gross Income in Navajo County

Average Federal Adjusted Gross Income in Pima County

Average Federal Adjusted Gross Income in Pinal County

Average Federal Adjusted Gross Income in Santa Cruz County

Average Federal Adjusted Gross Income in Yavapai County

Average Federal Adjusted Gross Income in Yuma County

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Average FAGI by County, 1990 vs. 2010

Average FAGI by City/Town, 1990 vs. 2010

Apache Junction Avondale Benson Bisbee Buckeye Bullhead City Camp Verde Carefree Casa Grande Cave Creek Chandler

1990 Avg FAGI

$21,083 $18,857 $24,249 $21,576 $25,698 $26,543 $20,811 $72,938 $23,214 $37,005 $32,830

1990 Rank 2010 Avg FAGI 2010 Rank

62 69 36 56 30 22 64 1 41 4 7 $44,704 $43,651 $41,616 $37,819 $46,224 $33,094 $36,334 $143,321 $41,217 $86,026 $64,145 31 36 46 1 51 3 7 63 28 76 67

Average FAGI by City/Town, 1990 vs. 2010

Chino Valley Clarkdale Clifton Colorado City Coolidge Cottonwood Dewey Humboldt Douglas Duncan Eagar El Mirage

1990 Avg FAGI

$20,980 $22,547 $22,440 $12,163 $21,469 $22,240 $--------- $17,827 $22,849 $26,331 $14,124

1990 Rank 2010 Avg FAGI 2010 Rank

63 45 47 80 58 51 -- 73 43 27 79 $39,315 $44,358 $43,171 $24,024 $35,003 $35,736 $42,128 $28,872 $40,345 $45,560 $35,485 58 33 37 82 54 29 69 85 70 68 41

Average FAGI by City/Town, 1990 vs. 2010

Eloy Flagstaff Florence Fountain Hills Fredonia Gila Bend Gilbert Glendale Globe Goodyear Hayden

1990 Avg FAGI

$14,480 $26,704 $21,540 $--------- $21,591 $17,795 $36,957 $30,228 $24,851 $28,098 $22,379

1990 Rank 2010 Avg FAGI 2010 Rank

78 21 57 -- 55 74 5 10 32 15 49 $30,832 $51,246 $44,618 $77,149 $32,303 $31,645 $66,893 $46,737 $41,679 $59,614 $38,119 80 17 32 26 44 8 61 4 78 79 5

Average FAGI by City/Town, 1990 vs. 2010

Holbrook Huachuca City Jerome Kearny Kingman Lake Havasu City Litchfield Park Mammoth Marana Maricopa Mesa

1990 Avg FAGI

$19,957 $21,459 $18,312 $26,207 $24,395 $27,035 $45,157 $23,372 $20,555 $-------- $27,781

1990 Rank 2010 Avg FAGI 2010 Rank

68 59 71 28 34 20 3 40 66 -- 17 $36,912 $42,542 $34,176 $44,053 $39,855 $41,558 $66,439 $32,922 $58,425 $48,631 $46,435 65 38 71 77 10 21 27 34 56 47 6

Average FAGI by City/Town, 1990 vs. 2010

Miami Nogales Page Parker Patagonia Payson/Star Valley Peoria Phoenix Pima Pinetop-Lakeside Prescott

1990 Avg FAGI

$22,154 $18,313 $30,201 $22,437 $22,990 $22,718 $31,870 $28,682 $17,503 $25,249 $28,537

1990 Rank 2010 Avg FAGI 2010 Rank

52 70 11 48 42 44 8 13 76 31 14 $38,999 $33,688 $44,044 $36,641 $40,008 $41,627 $57,194 $48,585 $42,247 $47,529 $54,925 59 75 35 22 40 25 15 66 55 45 11

Average FAGI by City/Town, 1990 vs. 2010

Prescott Valley Quartzsite Queen Creek Safford Sahuarita St. Johns San Luis Scottsdale/Paradise Valley Sedona Show Low Sierra Vista

1990 Avg FAGI

$20,566 $18,288 $23,522 $24,292 $--------- $26,347 $8,931 $46,789 $33,652 $22,474 $29,621

1990 Rank 2010 Avg FAGI 2010 Rank

65 72 38 35 -- 26 81 2 6 46 12 $37,478 $27,569 $52,612 $41,402 $56,422 $41,302 $19,594 $101,466 $54,990 $41,540 $55,529 64 83 16 2 14 48 13 49 12 50 86

Average FAGI by City/Town, 1990 vs. 2010 1990 Avg FAGI 1990 Rank 2010 Avg FAGI 2010 Rank

Snowflake Somerton Springerville Superior Surprise/Sun City Taylor Tempe/Guadalupe Thatcher Tolleson Tombstone Tucson/So. Tucson/ Oro Valley $25,833 $14,659 $24,664 $21,683 $27,672 $26,414 $31,090 $23,664 $21,940 $20,023 $27,888 29 77 33 54 19 25 9 37 53 67 16 $40,475 $28,874 $41,738 $38,724 $48,360 $42,005 $50,230 $50,029 $59,031 $33,911 $47,741 53 81 43 60 23 42 18 19 9 73 24

Tusayan Wellton Wickenburg Willcox Williams Winkelman Winslow Youngtown Yuma

Average FAGI by City/Town, 1990 vs. 2010 1990 Avg FAGI 1990 Rank 2010 Avg FAGI 2010 Rank

$--------- $26,541 $27,731 $21,093 $21,367 $23,465 $22,241 $17,556 $26,506 -- 23 18 61 60 39 50 75 24 $39,690 $42,394 $49,987 $27,002 $37,886 $41,161 $33,779 $34,073 $44,981 57 39 20 84 62 52 74 72 30

DISTORTIONS

BIG THREE TAX COLLECTIONS, FY87 FORWARD

$12 000 000 000 $10 000 000 000 $8 000 000 000 $6 000 000 000 $4 000 000 000 $2 000 000 000 Transaction Privilege Tax Net Individual Income Tax Net Corporate Receipts $0 FY 86/87FY 88/89FY 90/91FY 92/93FY 94/95FY 96/97FY 98/99FY 00/01FY 02/03FY 04/05FY 06/07FY 08/09FY 10/11FY12/13

Corporate Income Tax Changes Between 1986 and 2013

  Arizona Corporate Tax Rate    1986 – mostly 10.5% 2013 – 6.968% 2017 – 4.9% Apportionment Formula    1986 - 3 Factor (property, payroll, sales) evenly-weighted formula 2013 – choice between double-weighted sales factor and 80% weight on sales 2017 – choice between double-weighted sales factor and 100% weight on sales

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Individual Income Tax Changes Between 1986 and 2013

   Individual income tax rates   1986 – maximum rate of 8% at $10,000 taxable income 2012 – maximum rate of 4.54% at $150,000 taxable income Personal exemption  1986 - $2000/$4000  2012 - $2100/$4200/$6300 Standard Deduction  1986 - $3500/$7000  2012 - $4833/$9665

Number of Corporate and Individual Income Tax Credits

Net Individual Collections plus Liability Offset by Tax Credits

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Net Corporate Collections plus Liability Offset by Tax Credits

TPT Reform

  On June 25, 2013, Governor Brewer signed HB2111, the TPT Reform Bill. The bill includes changes to TPT taxation of contracting, audits and the collection of local taxes. It becomes effective on January 1, 2015. The Governor is holding a kick-off meeting with the stakeholders on Monday.  The Department’s  implementation is in progress. The process will include input from the existing non-program cities, taxpayers, special interest groups and practitioners.

Folks from the Department would be happy to come back in the future to provide a status report.

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Thank You!