1. Elliott D. Pollack & Company Freudian Economics To: GFOAz Budget Forum October 21, 2011 By: Jim Rounds Senior V.P., Elliott D. Pollack & Company

2. Elliott D. Pollack & Company Freudian Economics The Stooges Go to Washington To: GFOAz Budget Forum October 21, 2011 By: Jim Rounds Senior V.P., Elliott D. Pollack & Company

3. Elliott D. Pollack & Company Freudian Economics D.C. Budget Balancing Tools: LOTS OF SEATS STILL AVAIL! To: GFOAz Budget Forum October 21, 2011 By: Jim Rounds Senior V.P., Elliott D. Pollack & Company

4. Elliott D. Pollack & Company Going from Economic to Psychological “Tell me about your mother”

5. Elliott D. Pollack & Company Going from Economic to Political… “Whoop whoop!”

6. Elliott D. Pollack & Company a) Slow growth, STALL, slow growth, but better 2012, 2013… b) Slow growth, fundamental change, longer term problems? Basic Question:

7. Elliott D. Pollack & Company U.S. Conditions

8. Elliott D. Pollack & Company Signs of a Double Dip – Look for Declines in these Main Economic Categories Real GDP Real Income Employment Industrial Production Wholesale – Retail Sales

9. Elliott D. Pollack & Company Real Gross Domestic Product Percent Change Quarter Ago, Annualized 1971 – 2011 * Source: Bureau of Economic Analysis * Data through 2nd quarter 2011 Recession Periods

10. Elliott D. Pollack & Company Real Disposable Personal Income Percent Change Year Ago 1971 – 2011 * Source: Bureau of Economic Analysis * Data through second quarter 2011 Recession Periods

11. Elliott D. Pollack & Company U.S. Y/Y Job Losses - Recent Recessions Duration in Months – BLS - August 1980/81 1974 2001 1991

12. Elliott D. Pollack & Company US New Job Data Change from Prior Month (S/A) June 2010 – September 2011 Source: Bureau Labor of Statistics (000’s)

13. Elliott D. Pollack & Company Industrial Production Percent Change Year Ago 1973 – 2011* Source: The Conference Board *Data through July 2011 Recession Periods

14. Elliott D. Pollack & Company Real Retail Sales U.S. Percent Change Year Ago 1973 – 2011* Source: Federal Reserve *Data through August 2011 **Three-month moving average Recession Periods

15. Elliott D. Pollack & Company Recession Indicators Summary: Still Moving Upward (Just VERY Slowly) Real GDP Real Income Employment (watch closely) Industrial Production Wholesale – Retail Sales

16. Elliott D. Pollack & Company Household Net Worth ($$$) 1970 – 2011* Source: Federal Reserve Data through second quarter 2011. Recession Periods ( $ in trillions) But still feel poor…

17. Elliott D. Pollack & Company Consumer Confidence 1978 – 2011* Source: The Dismal Scientist *Data through September 2011 Recession Periods 1985 Benchmark = 100

18. Elliott D. Pollack & Company Jobs are being created but not quickly enough. Those that have jobs are spending a little more but will remain cautious. Most of those that don’t have jobs probably won’t anytime soon. Wealth levels are improving but people still feel poor. Will the additional uncertainty translate into reduced consumer spending? Consumer Summary:

19. Elliott D. Pollack & Company Business Depends on the sector…

20. Elliott D. Pollack & Company Corporate Profit (Billions of Dollars, SA) 1975-2011* Source: BEA * Data through second quarter 2011 Recession Periods

21. Elliott D. Pollack & Company Corporate Profit By Industry ($Billions) 2011 q2 Source: BEA ?

22. Elliott D. Pollack & Company U.S. Real Exports as a Percent of Real GDP 1971 – 2011* Source: Bureau of Economic Analysis Recession Periods *Data through second quarter 2011

23. Elliott D. Pollack & Company Hours Worked Percent Change from Year Ago 1976 – 2011* Source: Bureau of Labor Statistics Recession Periods *Data through second quarter 2011 This is when hiring occurs.

24. Elliott D. Pollack & Company Capacity Utilization Rate 1970 – 2011* Source: The Conference Board *Data through August 2011 Recession Periods This is where investment occurs.

25. Elliott D. Pollack & Company Profits are high, but… Business spending on plant will be slow for now, but getting closer to seeing some limited investment. Delayed? Hiring will still be relatively slow, but more pressure to hire soon. Delayed? Lots of money sitting on the sidelines. Business Summary:

26. Elliott D. Pollack & Company U.S. Summary: Recovering but not recovered. Lots of small shocks thus far but none have been game changers (Europe could possibly be one though; anything unexpected possible?). Stimulus package doesn’t address the real problem. Feds need to balance their checkbook.

27. Elliott D. Pollack & Company a) Slow growth, STALL, slow growth, but better 2012, 2013… b) Slow growth, fundamental change, longer term problems? Basic Question:

28. Elliott D. Pollack & Company Arizona

29. Elliott D. Pollack & Company 9 4 1 5 2 10 3 7 Job Growth 2006 11 15 6 22 8 Source: US BLS 13 Jobs growing Jobs declining Top 10 Hawaii Alaska

30. Elliott D. Pollack & Company 5 49 23 35 45 4 32 8 24 47 50 44 1 16 3 Alaska 2 13 18 30 Job Growth 2009 Source: US BLS 46 Jobs growing Jobs declining Top 10 Hawaii

31. Elliott D. Pollack & Company 19 9 August 2011 v August 2010 32 2 24 30 3 39 16 Job Growth Update: Arizona Ranked 32 nd 45 29 1 5 20 Alaska 6 50 8 15 35 Jobs growing Jobs declining Top 10 Hawaii 18 10 25 11 21 4 7

32. Elliott D. Pollack & Company AZ New Job Data Change from Prior Month (S/A) May 2010 – August 2011 Source: Bureau Labor of Statistics (000’s) ?

33. Elliott D. Pollack & Company In 2008, 2009, and 2010 no one showed up! Or, at least very few.

34. Elliott D. Pollack & Company Greater Phoenix Population Annual Percent Change 1976–2012* Source: Arizona State University & Department of Commerce, Research Administration 2008 and 2009 are estimates put out by ADES and may be subject to substantial revision. * 2011 & 2012 forecast is from Elliott D. Pollack & Co. Recession Periods *2000-2010 estimates based on 2010 Census release ?

35. Elliott D. Pollack & Company Greater Phoenix Y/Y Job Losses - Recent Recessions Duration in Months – BLS - August 1980/81 1974 2001 1991 = Job Growth

36. Elliott D. Pollack & Company Greater Phoenix Employment* Source: Bureau of Labor Statistics Sectors in Decline Net Change Federal Government-1,000 Prof. & Bus. Services-4,200 *August 2011/August 2010 Sectors Improving Net Change Education & Health Services14,700 Leisure & Hospitality7,100 Transp, Trade, & Utilities4,900 Construction2,300 Financial Activities2,300 Manufacturing1,900 Other services1,800 State Government600 Local Government400 Mining300 Information200

37. Elliott D. Pollack & Company Greater Phoenix Employment* Annual Percent Change 1975–2012** Source: Department of Commerce, Research Administration *Non-agricultural wage & salary employment. Changed from SIC to NAICS reporting in 1990. ** 2011& 2012 forecast is from Elliott D. Pollack & Co. Recession Periods

38. Elliott D. Pollack & Company This is NOT a multi decade recovery… Think 2015 – 2016 for full recovery, but growth before then.

39. Elliott D. Pollack & Company Employment Levels: Greater Phoenix/AZ* Back to Peak by 2015? 2016? Source: ADOA Recession Periods Peak *As of August 2011

40. Elliott D. Pollack & Company For individual communities: similar issues, just different scale of impact.

41. Elliott D. Pollack & Company Greater Tucson MSA Employment* Annual Percent Change 1975–2012** Source: Department of Commerce, Research Administration *Non-agricultural wage & salary employment. Changed from SIC to NAICS reporting in 1990. **2011 & 2012 are forecasts from the University of Arizona Recession Periods

42. Elliott D. Pollack & Company Balance of State Employment* Annual Percent Change 1977–2011** Source: Department of Commerce, Research Administration *Non-agricultural wage & salary employment. Changed from SIC to NAICS reporting in 1990. ** Data through August 2011 Recession Periods

43. Elliott D. Pollack & Company Single Family Housing

44. Elliott D. Pollack & Company U.S. Single-Family Starts 1978–2011 1/ Source: Census Bureau (Millions) 1/ Through June 2011 Recession Periods Over- supply Under- supply LTA: 1.2

45. Elliott D. Pollack & Company Single-Family Permits vs. Population Demand Greater Phoenix 1975–2015 Source: PMHS / RL Brown # Permits Recession Periods * 2011 - 2015 forecast is from Elliott D. Pollack & Co. ?

46. Elliott D. Pollack & Company Single-Family Vacant Units Maricopa County 1993–2010 Source: PMHS

47. Elliott D. Pollack & Company Home Prices Indices 2000 – 2011 (June) Source: Macro Markets, LLC; AMLS Recession Periods Weak Pop/Emp Investors ?

48. Elliott D. Pollack & Company Negative Equity in Homes Affects Ability to Sell or Buy Source: First American Core Logic 50% of homes with mortgages in Arizona have negative equity.

49. Elliott D. Pollack & Company Commercial

50. Elliott D. Pollack & Company Commercial Markets (Not making things worse anymore)

51. Elliott D. Pollack & Company Revenue Question: How long will commercial values be depressed?

52. Elliott D. Pollack & Company Commercial Summary: Flat or only slightly improving indicators but declining prices? Maybe. Will vary by location though. When do investors come in?

53. Elliott D. Pollack & Company Back to Normal Vacancy? Office = 2014 - 2015 Industrial = 2014 - 2015 Retail = 2014 - 2015

54. Elliott D. Pollack & Company Tax Revenues

55. Elliott D. Pollack & Company ? Now State forecast revisions in our future?

56. Elliott D. Pollack & Company But, local revenues related to single family and commercial taxation will remain weak.

57. Elliott D. Pollack & Company Hey Jim, your speeches suck. How about some positive news? Enjoy the rock!!!

58. Elliott D. Pollack & Company Positives?

59. Elliott D. Pollack & Company Phoenix-Mesa Employment Growth (Ranking among all metro areas greater than 1,000,000; 2011 August/August) Source: Arizona State University, U.S. Bureau of Labor Statistics YEAR RANK # of MSAs 1991 4 20 1992 5 20 1993 2 20 1994 1 20 1995 1 21 1996 1 23 1997 2 23 1998 1 24 1999 3 26 2000 8 26 2001 6 28 2002 5 28 2003 329 2004 429 2005 130 2006 131 2007 1032 2008 2932 2009 31 32 2010 3132 2011 532

60. Elliott D. Pollack & Company Properties in the Foreclosure Process Maricopa County 2002 – 2011* Source: The Information Market *Data through August 2011. Recession Periods

61. Elliott D. Pollack & Company Housing Opportunity Index* Greater Phoenix vs. US 1992-2011** Source: NAHB *Data through Q2 2011. ** Years 2002 & 2003 only have one data figure

62. Elliott D. Pollack & Company Negative Equity in Homes Affects Ability to Sell or Buy Source: First American Core Logic 50% of homes with mortgages in Arizona have negative equity. (National average about 25%)

63. Elliott D. Pollack & Company 5 9 10 Benefits of the “SUNBELT” Alaska Hawaii Industrial Northwest

64. Elliott D. Pollack & Company What about the bad national press? Yes, SB1070

65. Elliott D. Pollack & Company Governor impeached Real estate depression Defense cutbacks AZ Scam Martin Luther King Holiday Crisis Keating Keating 5 Every S&L taken over by RTC Between 1987 and 1992

66. Elliott D. Pollack & Company One survey shows that over 80% of current single family RENTERS would like to soon own. Some of these homes are thus permanently absorbed.

67. Elliott D. Pollack & Company 9 4 1 5 2 10 3 7 Job Growth 2006 2013/2014? 11 15 6 22 8 Source: US BLS 13 Jobs growing Jobs declining Top 10 Hawaii Alaska

68. Elliott D. Pollack & Company Economic Competitiveness

69. Elliott D. Pollack & Company Old Competitiveness Map – AZ will be Moving Up!

70. Elliott D. Pollack & Company Being addressed now…

71. Elliott D. Pollack & Company

72. What about the rest?

73. Elliott D. Pollack & Company In 2012?

74. Elliott D. Pollack & Company Policymakers finally started to understand how our economy functions. We now have some economic development “tools.” But, we need to see if the state and locals, the “tool man,” can use the tools properly and with a common vision, or “blueprint.” Economic Development Summary:

75. Elliott D. Pollack & Company We will continue to grow faster than the rest of the country over the long run. If we do things right we might even grow in terms of quality. Coordination among all of the E.D. entities will be critical. Economic Development Summary:

76. Elliott D. Pollack & Company Something still needs to be done about statewide tourism promotion.

77. Elliott D. Pollack & Company

78. Arizona Summary

79. Elliott D. Pollack & Company Performance Measures? Falling far results in: - Strong rates of growth that seemingly don’t match the reported “levels” of activity. - Strong rankings that seemingly don’t match what we read in the paper. - Panic and opinions that the world is 100% different than before. Not necessarily true, we need to maintain some perspective.

80. Elliott D. Pollack & Company Full Recovery: STILL 2015 / 2016? Fully recovered in terms of: 1) Housing oversupply; 2) Commercial vacancy rates; 3) Retail sales activity; 4) Employment levels. 5) Tax revenues? Probably.

81. Elliott D. Pollack & Company There is even a BOOM for Arizona out there…somewhere.

82. Elliott D. Pollack & Company But, can we also grow in terms of quality?

83. Elliott D. Pollack & Company 83 ELLIOTT D. POLLACK & Company 7505 East Sixth Avenue, Suite 100 Scottsdale, Arizona 85251 480-423-9200 P / 480-423-5942 F / www.arizonaeconomy.com / info@edpco.com Economic and Fiscal Impact Analysis/Modeling Real Estate Market and Feasibility Studies Litigation Support Revenue Forecasting Keynote Speaking Public Finance and Policy Development Land Use Economics Economic Development