Revenue Sharing By Elaine Smith Arizona Department of Revenue Office of Economic Research and Analysis August 5, 2015

Revenue Sharing to Cities and Counties Components of the Revenue Sharing Bases Trends for Revenue Sharing Special Census

Revenue Sharing to Cities and Counties For FY16, the official Estimate of Revenue Sharing to cities is: TPT:$ 480 million ($121 per capita) URS:$ 605 million ($96 per capita) Note: The population used is the 2010 Decennial Census. The URS is subject to a minimum population of 1,500.

Revenue Sharing to Cities and Counties For FY16, the official Estimate of Revenue Sharing to counties is: TPT:$780 million ($155 per capita) Note: The population used is the 2010 Decennial Census.

Components of Revenue Sharing What makes up the pool of money that is shared with the counties and the cities?

Components of TPT Revenue Sharing Using the Retail category as an example, the current state tax rate for retail is 5.6%. Of that: 2% goes to the Distribution Base pool 3% is Non-shared 0.6% goes to Education Tax

Components of TPT Revenue Sharing Of the Distribution Base, 25% goes to the Cities 40.51% goes to the Counties 34.49% goes to the state general fund

Components of TPT Revenue Sharing The percentage each category contributes to the Distribution Base differs. For the larger contributors: Utilities, Communications and Contracting contribute 1% to the Distribution Base. Restaurants & Bars, Amusements, Retail, Personal Property Rentals contribute 2% to the Distribution Base.

Components of TPT Revenue Sharing Mining Severance contributes 2% of it’s 2.5% rate to the Distribution Base. Hotel/Motel contributes 2.75% to the Distribution Base.

Components of TPT Revenue Sharing Of course, the volume of activity in each category factored by the percentage contributing to the Distribution Base is ultimately what dictates the pool of money available for revenue sharing to cities, towns and counties

Components of TPT Revenue Sharing In FY15, the Retail category component comprised 63.7% of the Distribution Base pool. In FY05 it was 61.6%; in FY10 it was 60.1%. It is safe to say that the Retail category is, and will continue to be the largest contributor to the Distribution Base Pool.

Components of TPT Revenue Sharing In FY15, the Contracting category component comprised 5.8% of the Distribution Base pool. In FY05 it was 10.6% and in FY10 it was 6.5%. It is safe to say that the Contracting category has diminished it’s role as a strong contributor to the Distribution Base pool.

Components of TPT Revenue Sharing The other strong contributors to the Distribution Base during FY15: Utilities 5.37% Restaurant & Bars 13.3% Rental of Personal Property 3.76% Hotel/Motel 4.01%

Components of Urban Revenue Sharing Urban Revenue Sharing (URS) is comprised of 15% of the Net* Income Tax collections from two years prior. So, for FY16, the URS base is the net income tax collections from FY14. The income tax collections from FY16 will be distributed in FY18. *after refunds

Components of Urban Revenue Sharing Components of Net Income Tax Revenue SourceFY05FY10FY15 Withholding 73.9%106%83.5% Individual* 6.2%(20.6%)1.4% Net Individual 80.2%85.4%84.9% Corporate 19.8%14.6%15.1% * final payments minus refunds

Components of Urban Revenue Sharing What to watch to in order to anticipate Urban Revenue Sharing? Withholding Corporate Credits

Components of Urban Revenue Sharing The impact of credits on Urban Revenue Sharing: Tax YearCorp Credit IndividualTotalReduction in URS 2006$109 m$286 m$373 m$56 m 2007$108 m$265 m$356 m$53 m 2008$73 m$247 m$328 m$49 m 2009$55 m$244 m$299 m$45 m 2010$88 m$253 m$341 m$51 m 2011$116 m$263 m$379 m$57 m 2012$115 m$285 m$400 m$60 m Data from all tax years is subject to change.

Forecasts for Revenue Sharing TPT for FY17 Cities $515 m Counties $835 m URS for FY17

Impact of Special Census on Revenue Sharing By statute we use the decennial census counts starting July 1 in years ending in , 2001, 2011 for example. Permanently in statute is the option for a jurisdiction to conduct a Special Census with the new counts to be used starting July 1 in years ending in , 2006 and 2016 for example.

Impact of Special Census on Revenue Sharing In prior mid decade periods, (1995 and 2005 at least) temporary statutes were enacted to allow the use of counts determined using other methods in place of a full blown Special Census. Those alternative methods were either free or at least less expensive than a full blown Special Census. For 2015, no such legislation is currently in place.

Impact of Special Census on Revenue Sharing We understand that the following cities have contracted for a 2015 Special Census: Gilbert Peoria Chandler Buckeye Maricopa Queen Creek Goodyear

Questions?

Contact Information Elaine Smith – Senior Economist Arizona Department of Revenue Office of Economic Research & Analysis Phone:

Additional Contact Information Department of Revenue website: County and city revenue sharing: Elaine Smith Karen Jacobs Program Cities: Cities Unit TPT Licenses: DOR License and Registration

Additional Contact Information Tax base estimates: Elaine Smith ; Levy Limits: Darlene Teller Expenditure Limits: Karen Jacobs

Additional Contact Information Bonded Indebtedness This has been taken over by the State Treasurer’s Office

Additional Contact Information License Compliance Services: Peggy Creamer Property tax services:Property Tax Division