Report on recent agency submissions / Joint Legislative Budget Committee

              STATE OF ARIZONA
Joint Legislative Budget Committee

STATE SENATE ROBERT "BOB" BURNS CHAIRMAN 2004 MARK ANDERSON MARSHA ARZBERGER TIMOTHY S. BEE ROBERT CANNELL, M.D. JACK W. HARPER DEAN MARTIN PETE RIOS



1716 WEST ADAMS PHOENIX, ARIZONA 85007

PHONE (602) 542-5491 FAX (602) 542-1616 http://www.azleg.state.az.us/jlbc.htm



HOUSE OF REPRESENTATIVES RUSSELL K. PEARCE CHAIRMAN 2003 ANDY BIGGS MEG BURTON CAHILL EDDIE FARNSWORTH LINDA GRAY STEVE HUFFMAN JOHN HUPPENTHAL LINDA J. LOPEZ



DATE: TO: FROM: SUBJECT:



September 19, 2003 Representative Russell Pearce, Chairman Members, Joint Legislative Budget Committee Richard Stavneak, Director REPORT ON RECENT AGENCY SUBMISSIONS



The JLBC has received a number of statutorily required reports during the past month. Following the list of reports, there is a brief description of each report. A. B. C. D. E. F. G. H. I. J. K. L. M. N. JLBC Staff - Quarterly Reports on Credit Card Transactions. Department of Corrections - Report on Inmate Utility Fees. Department of Economic Security - Report of Independent Evaluator on Arizona Works Program. Department of Economic Security - Report on Arizona Works Pilot Program. Department of Economic Security - Report on the Transitional Independent Living Program. Department of Emergency and Military Affairs - Report on Camp Navajo Fund. Department of Environmental Quality - Report on Water Quality Assurance Revolving Fund for 4th Quarter FY 2003. Arizona Historical Society - Report on Non-Appropriated Expenditures. Department of Juvenile Corrections - Report on Restitution Fund. Department of Liquor Licenses and Control - Report on Penalty Increases. Arizona State Parks Board - Report on Park Operating Expenditures. Department of Revenue - Report on Business Re-engineering/Integrated Tax System (BRITS). Supreme Court - Report on Criminal Case Processing and Enforcement Improvement Fund and the State Aid to the Courts Fund. Arizona Department of Transportation - Report on Highway Maintenance Levels of Service.



Summary of Individual Reports A. JLBC Staff - Quarterly Reports on Credit Card Transactions. A.R.S. � 35-142 (N) requires agencies that accept credit card transactions to report on the total dollar amount of transactions processed, the total dollar amount of the discount fee, and the total dollar amount of any convenience fees charged for the transaction. In FY 2003, JLBC Staff received reports from the Structural Pest Control Commission, the Supreme Court, the Arizona Department of Transportation (ADOT), and the Department of Water Resources. The volumes of transactions vary significantly among



-2the various departments. ADOT processes over 200,000 transactions per quarter. The Supreme Court, the Structural Pest Control Commission and the Department of Water Resources process fewer than 500 transactions per month. Generally, the discount fee / convenience fees paid are in the range of 2% - 2.5% of the total transaction amount. During the 3rd quarter of FY 2003, the state paid a total of $695,500 in discount and convenience fees on transactions totaling $39,206,400. These amounts are for the agencies that have complied with the reporting requirement. It is uncertain if all agencies accepting credit cards are aware of the reporting requirement. JLBC Staff will work with GITA to identify and inform those agencies subject to the reporting requirement. A.R.S. � 35-142 (M) also requires agencies to report when the total dollar value of credit card transactions exceeds 30% of all agency transactions. No agency reports reaching this threshold. B. Department of Corrections - Report on Inmate Utility Fees. Pursuant to A.R.S. � 31-239, the Department of Corrections shall annually report on monies collected from inmates who use electrical appliances. The report shall also include information on the expenditure of any monies collected. Statute requires the department to charge a fee, not to exceed $2.00 per month, to inmates possessing at least one electrical appliance. For FY 2003, the department assessed a monthly utility fee of $1.00 and collected $146,837, which represents a (4.0)% decrease below FY 2002 ($152,930 collected). The department reports that the monies collected were utilized to reduce electrical expenditures at the institutions from which deductions were collected. C. Department of Economic Security - Report of Independent Evaluator on Arizona Works Program. The Arizona Works pilot program was established by Laws 1997, Chapter 300 and privatized a portion of the state's welfare program in eastern Maricopa County and later Greenlee County. MAXIMUS, the Arizona Works contractor, determined eligibility for the Temporary Assistance for Needy Families (TANF) program and other state-administered welfare programs and placed TANF clients into work placements, paid and unpaid. Laws 2002, Chapter 331 ended the pilot program on September 30, 2002, though it continued a privatized job placement portion of the program in eastern Maricopa County. Pursuant to A.R.S. � 46-345B, DES has submitted the report of the independent evaluator on the full Arizona Works pilot program. Although the report was required by statute to be submitted by December 31, 2002, the evaluator submitted the report two months late and DES did not submit the report until May 6. The report had several components: � Process Study: Described development, planning, and implementation � Impact Study: Compared outcome measures in Arizona Works to the DES EMPOWER Redesign welfare program � Cost-Benefit Analysis: Assessed whether the pilot made Arizona state government and families "better off" � Client Survey: Discussed client satisfaction The process study concluded that private companies can successfully implement large TANF programs that administer intake and benefit determination and welfare-to-work programs. The study also noted complexities, including the federal requirement that public sector staff administer intake and benefit determinations for some programs and the costs of monitoring contracts. The impact study concluded that relative to the EMPOWER program, Arizona Works did not increase the percentage of adults who were employed and did not increase the average earnings of adults. Less-comprehensive client measures of total employment, full-time employment, and earnings reported by Arizona Works local office staff did increase. The cost-benefit analysis concluded that the total costs of Arizona Works most likely exceeded the projected costs had EMPOWER operated all programs in Maricopa County. The increased cost of the



-3pilot was due in part to the federal government requirement that public sector staff administer intake and benefit determinations, which increased costs pursuant to a contract written before the federal government imposed the requirement, as well as contract monitoring and evaluation costs. The analysis concluded that the impact on total family income was statistically insignificant. The client survey revealed that most respondents of both programs were "very" or "somewhat" satisfied with local office procedures for handling applications, assessing needs, and providing services. D. Department of Economic Security - Report on Arizona Works Pilot Program. Pursuant to a General Appropriation Act footnote, DES has provided data for the Arizona Works pilot program along with reports submitted by MAXIMUS, the program contractor for the Arizona Works program, for February through June 2003. The Arizona Works pilot program in Greenlee County ended on October 1, 2002, but the pilot (job placement services only) continues in District I-E, which generally covers the eastern part of Maricopa County. In June 2003 MAXIMUS placed a total of 129 Arizona Works clients in full-time paid employment in District I-E, an increase of 93% from the January 2003 figure of 67. (Over the same time period, the total number of clients placed in all new employment placements, including unpaid work experience and community service positions, increased 57%.) In June 2003, the number of DES JOBS clients placed in full-time paid employment in the rest of Maricopa County decreased by 24% from the January 2003 figure, from 324 to 247 clients. (Over the same time period, total DES JOBS clients placed in all new employment placements in the rest of Maricopa County, including unpaid work experience and community service positions, increased by 14%.) As we have noted previously, because of potential differences in the demographic and economic makeup of both regions, one cannot necessarily draw conclusions about the relative effectiveness of both programs from this data. E. Department of Economic Security - Report on the Transitional Independent Living Program. Pursuant to A.R.S. � 46-134C, DES has submitted its annual report on the distribution of federal monies received pursuant to A.R.S. � 8-521.01, the Transitional Independent Living Program. This program provides services to foster care children transitioning into living on their own. The table below provides detail on actual Federal Fiscal Year (FFY) 2001 and FFY 2002 expenditures through December 2002 along with projections for FFY 2003 and FFY 2004.

Fund Source Federal Independent Living Federal Title IV-E Grant General Fund Total Numbers may not add due to rounding. FFY 2001 1,678,000 1,326,800 900 3,005,600 FFY 2002 1,741,500 450,000 836,200 3,027,800 FFY 2003 1,828,100 987,000 0 2,815,100 FFY 2004 1,554,100 1,023,500 500,000 3,077,600



The program served 1,065 clients in FFY 2002, up slightly from 1,019 in FFY 2001. Approximately 63% of the clients are 17 years or younger. Most participants (88%) are either in high school, getting a GED, or have already completed high school or the GED process. A total of 220 clients received an independent living subsidy, up from 185 in FFY 2001. Youth in the program may receive case management, independent living skills training, AHCCCS coverage, educational support, transportation, counseling, and out-of-home placement.



-4F. Department of Emergency and Military Affairs - Report on Camp Navajo Fund. Pursuant to A.R.S. � 26-152, the Department of Emergency and Military Affairs (DEMA) is required to submit an annual report describing the activity in the Camp Navajo Fund by August 31 of each year. The Camp Navajo Fund was established for the operation, maintenance, capital improvements and Personal Services necessary for the National Guard to operate a regional training site and storage facility at Bellemont. The fund's revenues consist of monies received from federal and other government sources for storage of government commodities and services provided by the camp. DEMA reports that the Camp Navajo Fund received revenues of $6,675,000 and had expenditures of $8,423,000 in FY 2003. This left a fund balance of $3,365,000 at the end of the fiscal year. In FY 2002, the Camp Navajo Fund received revenues of $8,313,000 and had expenditures of $9,956,000. G. Department of Environmental Quality - Report on Water Quality Assurance Revolving Fund for 4th Quarter FY 2003. Pursuant to a General Appropriation Act footnote, the Arizona Department of Environmental Quality (ADEQ) is required to report annually to the JLBC on progress of activities in the Water Quality Assurance Revolving Fund (WQARF) Program, including emergency response, priority site remediation, cost recovery, revenues and expenditures and other WQARF-funded program activity. The WQARF Program is similar to the federal Superfund program in that it is designed to monitor, contain, and remediate contaminated groundwater at specified sites. Program expenditures cover cleanups at contaminated sites, water monitoring, site investigations, emergency response activities, responsible party searches, litigation costs, and annual transfers to the Department of Water Resources, the Department of Health Services, and the ADEQ Voluntary Remediation Fund. WQARF is funded in part from an annual transfer of $15,000,000 from the Corporate Income Tax (CIT), as stipulated in A.R.S. � 49-282. In addition, WQARF generates other revenue from other license and registration fees. A.R.S. � 49-282 directs the State Treasurer to adjust the CIT transfer so that, when combined with certain other fee and license revenue, the WQARF program is guaranteed to receive $18,000,000 annually. Some types of revenue, including cost recovery collections and interest earnings, are not included in this calculation. Therefore, actual program revenues can exceed $18,000,000 in a year depending on how much is deposited from these other sources. According to the report, the FY 2003 revenues totaled $17,256,400. Revenues for the year did not reach the guaranteed level of $18,000,000 due to legislation passed in the 2nd Regular Session of the 45th Legislature which temporarily suspended the $15,000,000 transfer in favor of a $10,000,000 transfer for FY 2003. When added to the prior year fund balance the new revenue brought total resources available for expenditure to $31,112,800. Based on the report, actual expenditures for the year were $22,486,000. Unexpended funds at the end of FY 2003 totaled $8,626,800. The WQARF Program maintains a list of contaminated sites, called the Registry. According to the report, at the end of FY 2003 there were 33 sites on the WQARF Registry. No new sites have been added since FY 2000. There is no clear information on the expected duration or cost of cleanups of these sites. We are awaiting information from DEQ on the level of WQARF interaction with the Federal Superfund program. The report does include information about cost recovery and cleanup activities at both the site and program level of detail. The program posted the following cleanup results in FY 2003: � � � � 11.8 billion gallons of groundwater treated 23,657 pounds of volatile organic substances removed from the environment 7.6 million pounds of metal removed from the environment 83.8 tons of contaminated soil removed



-5The department recoups cleanup expenses from responsible parties through cost recovery efforts termed "cost recovery packages." In FY 2003 more cost recovery packages were closed than were opened, resulting in a net decrease in the number of outstanding cost recovery packages as well as a decrease in the total dollar value of the outstanding cost recovery packages over the prior year.

FY 2002 Beginning Cost Recovery Packages Outstanding/Dollar Amount New Packages/Dollar Amount Payments Received and Adjustments/ Dollar Amount Packages Outstanding/ Dollar Amount 78/ $4,878,414 10/ $1,731,163 25/ $488,706 6/ $6,120,871 FY 2003 63/ $6,120,871 3/ $338,688 42/ $5,982,788 24/ $476,771



H. Arizona Historical Society - Report on Non-Appropriated Expenditures. Pursuant to A.R.S. � 41-821, the Arizona Historical Society is required to submit a written report detailing all expenditures of non-appropriated funds for the society at the beginning of each quarter. Nonappropriated expenditures for the fourth quarter of FY 2003 were $244,000. These expenditures are shown by fund source in the table below. In addition to the non-appropriated fund expenditures, the Arizona Historical Society had appropriated expenditures of $694,400 in the fourth quarter of FY 2003. Arizona Historical Society Non-Appropriated Expenditures for 4th Quarter FY 2003 Trust Fund Earnings Enterprise Fund Grants Special Revenue Private Funds $4,000 6,500 65,600 63,700 104,200 $244,000



TOTAL

I.



Department of Juvenile Corrections - Report on Restitution Fund.



Pursuant to A.R.S. � 41-2826(F), the Arizona Department of Juvenile Corrections (DJC) is required to submit an annual report detailing all revenues and expenditures made from the department's Restitution Fund. The DJC submitted its latest report on August 7, 2003. These monies are used to pay restitution and monetary assessments on behalf of youth working in the Committed Youth Work Program who were unable to make these court ordered payments when they were originally sentenced to DJC. Working DJC youth are compensated with monies received from the department's Work Incentive Pay Program. One-third of their earnings go into a Non-Restitution Account created for each youth. The other two-thirds of their earnings go towards Room and Board and a Restitution Fund Account created for each youth. Priority is given to the Restitution Fund Account, which is used to pay the county where the victim is domiciled. The county then distributes the funds to the victim. After restitution has been paid, the remaining money goes toward DJC Room and Board expenses. As of August 7, 2003, the DJC reports that Restitution Fund revenues and expenditures for FY 2003 totaled $57,100. This amount represents an 8% decrease from the FY 2002 Restitution Fund revenues and expenditures amount, which totaled $62,100. According to DJC, the decrease in revenue is due to a lower juvenile population held in DJC facilities.



-6J. Department of Liquor Licenses and Control - Report on Penalty Increases. Pursuant to a footnote in the FY 2004 General Appropriation Act, the Arizona Department of Liquor Licenses and Control is required to submit a report on their current plan to increase penalties for violations. In FY 2004, the agency was appropriated an additional $128,400, from the General Fund, to fund Personal Services and Employee Related Expenditures associated with 2 additional FTE Positions. The additional FTE's will be responsible for liquor enforcement, investigation and various departmental responsibilities. Additional penalty revenue will be used to offset the $128,400 appropriation. In FY 2003 the agency collected $446,700 in penalty revenue, which was deposited into the state General Fund. Additional fine revenues would need to increase by approximately 29% to generate $128,400, to offset the additional General Fund monies added in FY 2004. For the first 2 months of FY 2004, revenue collections are 77% higher than the same time period in FY 2003. On August 26, 2003, the agency submitted the following proposal to increase its penalties for violations, to the JLBC. Current Penalty Range 1st Offense 2nd Offense 3rd Offense Warning to $2,000 Fine Plus Suspension $250 to $3,000 Fine Plus Suspension $500 to $3,000 Fine Plus Suspension or Revocation Proposed Penalty Range Warning to $3,000 Fine Plus Suspension $250 to $3,000 Fine Plus Citation $500 to $3,000 Fine Plus Suspension



K. Arizona State Parks Board - Report on Park Operating Expenditures. Pursuant to Laws 2002, 5th Special Session, Chapter 3 the Arizona State Parks Board is providing the park operating expenditure report for the final 2 quarters of FY 2003. Chapter 3 appropriated the Parks Board a $450,000 FY 2003 supplemental from the acquisition and development component of the State Parks Enhancement Fund and directed the Parks Board to submit a quarterly report to the JLBC on the operating expenditures of each state park. Operating expenditures for the 28 state parks totaled $4,697,000 for the second half of FY 2003, for a year-end total of $8,762,500. Of these totals, $3,562,300 in the second half (and $6,950,400 in all of FY 2003) was spent on Personal Services and Employee Related Expenditures. Kartchner Caverns State Park represented approximately 21% of the total operating expenditures. Laws 2003, 1st Special Session, Chapter 1 replaced General Fund monies in the State Parks budget with monies from the Game and Fish Department's allocation of the Arizona Heritage Fund, therefore, no General Fund monies were spent on park operating expenditures in FY 2003. All state parks are currently open. L. Department of Revenue - Report on Business Re-engineering/Integrated Tax System (BRITS). BRITS is the new computer system being implemented by the Department of Revenue (DOR) to integrate their separate tax systems, improve enforcement, and increase revenues to the State. Given the importance of this issue, in April 2003 the Appropriations Chairmen asked DOR to provide quarterly reports on the additional revenue received from implementing BRITS. The implementation of BRITS began in FY 2003 with the awarding of the contract to Accenture, LLP on August 20, 2002. BRITS is



-7expected to be completed in FY 2007, for a total cost of $133,304,200 including $9,000,000 in interest. Accenture will finance the cost of BRITS, and will be paid from the increased revenues generated by BRITS. The projected completion dates for major tax types include January 2004 for transaction privilege tax and withholding tax, September 2004 for corporate income tax, and September 2006 for individual income tax. DOR reports that all major milestones are on schedule as of August 31, 2003. The following tables summarize BRITS costs and additional revenues through August 31, 2003.

Summary of BRITS Costs Total Project Through 8/31/03 $24,905,900 $101,250,700 Consulting Services 5,797,200 23,053,500 Hardware/Software 589,100 9,000,000 Interest $31,292,200 $133,304,200 Total Summary of BRITS Additional Revenues Total FY 2003 7/03 and 8/03 $73,600 $312,600 $386,200 General Fund 26,200 38,100 64,300 County/City 9,800 10,700 20,500 Education 620,900 2,048,300 2,669,200 Accenture $730,500 $2,409,700 $3,140,200 Total



M. Supreme Court - Report on Criminal Case Processing and Enforcement Improvement Fund and the State Aid to the Courts Fund. The Supreme Court is required to report on the Criminal Case Processing and Enforcement Improvement Fund and the State Aid to the Courts Fund yearly by January 8th. We received the report on September 5th. The report includes an evaluation of statewide court collection efforts for FY 2002, as well as the progress of criminal case processing projects in each Arizona county. The Administrative Office of the Courts (AOC) reports an increase of 4% in criminal felony case filings and a 5% increase in criminal case terminations. In addition, the AOC identifies numerous projects within each county, funded from the State Aid to the Courts Fund, designed to improve case processing. During the 2003 legislative session, the Legislature approved a plan to use increased court collections to offset state agencies' health and retirement costs in FY 2004. Laws 2003, Chapter 263 requires court collections above the FY 2003 level to be transmitted to the State Treasurer on a quarterly basis. If new revenues are received, the monies will be distributed to state agencies to pay for health and retirement costs. The report identifies several initiatives that may help increase collections. In FY 2002, statewide court revenue collections increased by 9.1% while case filings decreased by 0.7%. In the area of restitution, the courts reported an increase in collections of $10.4 million, or a 67% increase from FY 2001 to FY 2002. Lastly, the report identifies three statewide strategic projects to improve court collections: 1) administering the Penalty Enforcement Plan to improve collection of prior year debt as well as future court collections , 2) administering the Judicial Collection Enhancement Fund to fund court automation projects throughout the state, and 3) working with the Arizona Judicial Enforcement Network (AJEN) to identify "best practices" in court collections. AJEN is a workgroup composed of judicial collection officers from all levels of the Arizona court system. In prior meetings, the AOC has provided training to this group. In addition to identifying court collection projects coordinated by the AOC, the report describes specific court collection projects within each county.



-8N. Arizona Department of Transportation - Report on Highway Maintenance Levels of Service. The General Appropriation Act requires the Arizona Department of Transportation (ADOT) to report to the Committee on their current levels of service for 9 categories of highway maintenance by August 31, 2003. This is the last year that ADOT is required to make this report. Percent of highway maintenance level of service is now a performance measure, which the department will report annually along with their budget submittals. ADOT's original appropriation for FY 2003 included $2,500,000 to improve their highway maintenance level of service. However, ADOT reports that due to subsequent budget reductions they allocated their funding to highway maintenance in general in FY 2003, instead of targeting specific level of service areas. ADOT reports an overall statewide Highway Maintenance level of service of 81% for FY 2003, which means that 81% of roads statewide meet ADOT's minimum acceptable standards for Highway Maintenance. This was a decrease of (4) percentage points from the 85% level of service for FY 2002. The largest decreases were in 2 measures which ADOT redefined in FY 2003, making comparisons with last year inexact. 1) ADOT defined a new measure called safety, which they report at 88% for FY 2003. Safety includes most of last year's 2 measures called roadside (93% in FY 2002) and shoulders (95% in FY 2002). ADOT gave 2 reasons for the decrease in safety. First, they stopped measuring 2 of the components within safety, concrete barriers and glare screens, which were almost always 100%. Other components, such as guardrail, crash barrels and fencing, remained near last year's numbers. Second, the measure for shoulder drop-off decreased in 6 of 9 districts and statewide from 90% in FY 2002 to 82% in FY 2003. ADOT had no specific reason for this decrease in shoulders. 2) ADOT redefined the roadside measure, to now cover only statewide litter and sweeping in the Phoenix and Tucson metropolitan areas. ADOT reports that the statewide litter and sweeping component within roadside decreased from 75% in FY 2002 to 70% in FY 2003, due to cut backs in this area attributed to budget reductions. Two of the 7 remaining measures improved, including urban landscape which increased 3 percentage points, and signing and striping which increased 2 percentage points. Four measures decreased slightly, including pavement, drainage, and rural vegetation each of which decreased (1) percentage point, and rest areas which decreased (3) percentage points to 95% in FY 2003 all for no clearly discernable reasons. The overall average of 81% for FY 2003 includes an estimated 49% for snow and ice, which is the same figure that ADOT reported for each of the past 2 fiscal years for this category. ADOT did not report a percentage for snow and ice for FY 2003 due to data coding problems, which precluded their extracting a reliable percentage for this measurement. ADOT reports that they are currently working to fix this problem. ADOT reports that they have a $15,000 research project under way to try to develop a correlation between past years' highway maintenance expenditures and level of service. The results of ADOT's study, which is expected to last several months, could possibly help in the development of a method for tying future highway maintenance funding levels to their level of service.



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