ARIZONA DEPARTMENT OF REVENUE ECONOMIC TRENDS Georganna Meyer Chief Economist Office of Economic Research & Analysis Arizona Department of Revenue

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

United States Real Gross Domestic Product. Annual Growth 1970 - 2014 United States Real Gross Domestic Product* Annual Growth 1970 - 2014** Source: U.S. Bureau of Economic Analysis & Blue Chip Economic Indicators * Based on chained 2005 dollars. ** 2013 and 2014 are a forecast from the Blue Chip Economic Indicators, March 2013 Recession Periods 8 8 8

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

US Non-Farm Employment Change from Prior Month (S/A) June 2010 – April 2013 Source: Bureau Labor of Statistics 10

Consumer Summary: Jobs are being created at a slow rate. Those that have jobs are spending a little more but will remain cautious. Unemployment to remain high, but should trend lower. Wealth levels are improving. Will the additional uncertainty translate into reduced consumer spending? 11 11

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. 12 12

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.

Arizona & US Move Together (Non-farm Emp Arizona & US Move Together (Non-farm Emp. Percent Change 1980 – June 2013) Recession Periods 24 14

Job Growth 2013 YTD April 2013 vs YTD April 2012 Source: US BLS 16

Why are population flows slow? Slow job growth High unemployment Delayed retirement Difficulty in selling home Difficulty in qualifying for a loan

Phoenix-Mesa Employment Growth (Ranking among all metro areas greater than 1,000,000) Source: Arizona State University, U.S. Bureau of Labor Statistics Year Rank # MSA’s 1991 4 19 1992 1993 2 1994 1 1995 20 1996 21 1997 22 1998 23 1999 3 24 2000 9 25 Year Rank # MSA’s 2001 7 26 2002 5 25 2003 3 2004 2005 1 2006 27 2007 9 28 2008 24 2009 2010 2011 14 2012 6 2013* *Year-to-date, April 2013 18 18 18 18

Maricopa County Population Source: U. S Maricopa County Population Source: U.S. Bureau of Census; Arizona Department of Economic Security; University of Arizona Forecasting Project Annual Year Population Rate 1950 331,770 1960 663,510 7.2% 1970 971,228 3.9% 1980 1,509,175 4.5% 1990 2,122,101 3.5% 2000 3,072,149 3.8% 2010 3,817,117 2.2% 2020(forecast) 4,569,572 1.8% ??? 24 19

It’s hard not to be optimistic about HOUSING

Total Pending Foreclosures Greater Phoenix Source: Information Market

Greater Phoenix Median Sales Price New and Resale Single Family Source: Cromford Report

Greater Phoenix Single Family Permits Source: RL Brown Year Permits % chg 2004 60,872 27.6% 2005 63,570 4.4% 2006 42,423 -33.3% 2007 31,172 -26.5% 2008 12,582 -59.6% 2009 8,027 -36.2% 2010 6,822 -15.0% 2011 6,794 -0.4% 2012 11,615 71.0% 2013* 4,449 20.9% *Data through YTD Apr. 2013 v. Apr. 2012

Phoenix New Homes: 30.8% Resale Homes: 26.8% Growth in Single Family Home Median Prices March 2013 / March 2012 Source: Cromford Report Phoenix New Homes: 30.8% Resale Homes: 26.8% NOTE: Resale includes normal and distressed single family home prices (MLS)

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

Retail Space Vacancy Rates Maricopa County 1985–2014* Source: CBRE** Recession Periods * 2013-2014 are forecasts from GPBC ** Data prior to 1992 is from Grubb & Ellis 24 26 26

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

June 2006

June 2007

June 2008

June 2009

June 2010

June 2011

Transaction Privilege Tax Collections with % Change

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 FY00 FY01 FY05 FY07 FY08 FY09 FY10 FY13 utilities 7.8 7.3 7.6 7.5 8.2 9.6 10.7 10.1 Communications 2.8 3.4 3.8 3.1 3.0 3.3 4.1 Restaurants & bars 8.0 8.3 8.5 8.6 9.4 10.3 Amusements 1.0 1.1 0.9 1.2 Personal prop rental 4.3 4.7 4.8 3.5 3.6 3.7 Contracting 13.0 14.9 14.8 17.2 19.4 17.9 15.4 10.6 Retail 47.4 50.1 50.3 49.7 47.6 46.8 47.9 49.0 52.1 Mining/timber sev 1.8 .7 .2 1.5 1.6 0.8 1.3 Hotel/motel 2.6 2.5 2.2 2.1 2.3 Use 4.0 5.1 5.6 5.3 6.1 6.2 All other 7.2 1.7 0.7 0.6

Utilities

Communications

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

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)

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

Average FAGI by County, 1990 vs. 2010

Average FAGI by City/Town, 1990 vs. 2010 1990 Avg FAGI 1990 Rank 2010 Avg FAGI 2010 Rank Apache Junction $21,083 62 $44,704 31 Avondale $18,857 69 $43,651 36 Benson $24,249 $41,616 46 Bisbee $21,576 56 $37,819 63 Buckeye $25,698 30 $46,224 28 Bullhead City $26,543 22 $33,094 76 Camp Verde $20,811 64 $36,334 67 Carefree $72,938 1 $143,321 Casa Grande $23,214 41 $41,217 51 Cave Creek $37,005 4 $86,026 3 Chandler $32,830 7 $64,145

Average FAGI by City/Town, 1990 vs. 2010 1990 Avg FAGI 1990 Rank 2010 Avg FAGI 2010 Rank Chino Valley $20,980 63 $39,315 58 Clarkdale $22,547 45 $44,358 33 Clifton $22,440 47 $43,171 37 Colorado City $12,163 80 $24,024 85 Coolidge $21,469 $35,003 70 Cottonwood $22,240 51 $35,736 68 Dewey Humboldt $---------- --- $42,128 41 Douglas $17,827 73 $28,872 82 Duncan $22,849 43 $40,345 54 Eagar $26,331 27 $45,560 29 El Mirage $14,124 79 $35,485 69

Average FAGI by City/Town, 1990 vs. 2010 1990 Avg FAGI 1990 Rank 2010 Avg FAGI 2010 Rank Eloy $14,480 78 $30,832 80 Flagstaff $26,704 21 $51,246 17 Florence $21,540 57 $44,618 32 Fountain Hills $---------- --- $77,149 4 Fredonia $21,591 55 $32,303 Gila Bend $17,795 74 $31,645 79 Gilbert $36,957 5 $66,893 Glendale $30,228 10 $46,737 26 Globe $24,851 $41,679 44 Goodyear $28,098 15 $59,614 8 Hayden $22,379 49 $38,119 61

Average FAGI by City/Town, 1990 vs. 2010 1990 Avg FAGI 1990 Rank 2010 Avg FAGI 2010 Rank Holbrook $19,957 68 $36,912 65 Huachuca City $21,459 59 $42,542 38 Jerome $18,312 71 $34,176 Kearny $26,207 28 $44,053 34 Kingman $24,395 $39,855 56 Lake Havasu City $27,035 20 $41,558 47 Litchfield Park $45,157 3 $66,439 6 Mammoth $23,372 40 $32,922 77 Marana $20,555 66 $58,425 10 Maricopa $--------- --- $48,631 21 Mesa $27,781 17 $46,435 27

Average FAGI by City/Town, 1990 vs. 2010 1990 Avg FAGI 1990 Rank 2010 Avg FAGI 2010 Rank Miami $22,154 52 $38,999 59 Nogales $18,313 70 $33,688 75 Page $30,201 11 $44,044 35 Parker $22,437 48 $36,641 66 Patagonia $22,990 42 $40,008 55 Payson/Star Valley $22,718 44 $41,627 45 Peoria $31,870 8 $57,194 Phoenix $28,682 13 $48,585 22 Pima $17,503 76 $42,247 40 Pinetop-Lakeside $25,249 31 $47,529 25 Prescott $28,537 14 $54,925 15

Average FAGI by City/Town, 1990 vs. 2010 1990 Avg FAGI 1990 Rank 2010 Avg FAGI 2010 Rank Prescott Valley $20,566 65 $37,478 64 Quartzsite $18,288 72 $27,569 83 Queen Creek $23,522 38 $52,612 16 Safford $24,292 35 $41,402 49 Sahuarita $---------- --- $56,422 12 St. Johns $26,347 26 $41,302 50 San Luis $8,931 81 $19,594 86 Scottsdale/Paradise Valley $46,789 2 $101,466 Sedona $33,652 6 $54,990 14 Show Low $22,474 46 $41,540 48 Sierra Vista $29,621 $55,529 13

Average FAGI by City/Town, 1990 vs. 2010 1990 Avg FAGI 1990 Rank 2010 Avg FAGI 2010 Rank Snowflake $25,833 29 $40,475 53 Somerton $14,659 77 $28,874 81 Springerville $24,664 33 $41,738 43 Superior $21,683 54 $38,724 60 Surprise/Sun City $27,672 19 $48,360 23 Taylor $26,414 25 $42,005 42 Tempe/Guadalupe $31,090 9 $50,230 18 Thatcher $23,664 37 $50,029 Tolleson $21,940 $59,031 Tombstone $20,023 67 $33,911 73 Tucson/So. Tucson/ Oro Valley $27,888 16 $47,741 24

Average FAGI by City/Town, 1990 vs. 2010 1990 Avg FAGI 1990 Rank 2010 Avg FAGI 2010 Rank Tusayan $---------- --- $39,690 57 Wellton $26,541 23 $42,394 39 Wickenburg $27,731 18 $49,987 20 Willcox $21,093 61 $27,002 84 Williams $21,367 60 $37,886 62 Winkelman $23,465 $41,161 52 Winslow $22,241 50 $33,779 74 Youngtown $17,556 75 $34,073 72 Yuma $26,506 24 $44,981 30

DISTORTIONS

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

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

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.

Thank You!