Performance audit, Pinal County transportation excise tax, a report to the Arizona Legislature

              Performance Audit
Pinal County
Transportation
Excise Tax
Performance Audit Division
Debra K. Davenport
Auditor General
JUNE • 2006
REPORT NO. 06 – 03
A REPORT
TO THE
ARIZONA LEGISLATURE
The Auditor General is appointed by the Joint Legislative Audit Committee, a bipartisan committee composed of five senators
and five representatives. Her mission is to provide independent and impartial information and specific recommendations to
improve the operations of state and local government entities. To this end, she provides financial audits and accounting services
to the State and political subdivisions, investigates possible misuse of public monies, and conducts performance audits of
school districts, state agencies, and the programs they administer.
The Joint Legislative Audit Committee
Representative Laura Knaperek, Chair Senator Robert Blendu, Vice Chair
Representative Tom Boone Senator Ed Ableser
Representative Ted Downing Senator Carolyn Allen
Representative Pete Rios Senator John Huppenthal
Representative Steve Yarbrough Senator Richard Miranda
Representative Jim Weiers (ex-officio) Senator Ken Bennett (ex-officio)
Audit Staff
Melanie Chesney, Director
Dale Chapman, Manager and Contact Person
Anne Hunter, Team Leader
Bruce Coleman
Copies of the Auditor General’s reports are free.
You may request them by contacting us at:
Office of the Auditor General
2910 N. 44th Street, Suite 410 • Phoenix, AZ 85018 • (602) 553-0333
Additionally, many of our reports can be found in electronic format at:
www.azauditor.gov
DEBRA K. DAVENPORT, CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
WILLIAM THOMSON
DEPUTY AUDITOR GENERAL
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051
June 8, 2006
Members of the Arizona Legislature
The Honorable Janet Napolitano, Governor
Transmitted herewith is a report of the Auditor General, A Performance Audit of the Pinal
County Transportation Excise Tax. This report is in response to and was conducted under
the authority vested in the Auditor General by Arizona Revised Statutes §41-1279.03. I am also
transmitting with this report a copy of the Report Highlights for this audit to provide a quick
summary for your convenience.
As outlined in their responses, the incorporated cities and towns within Pinal County agree
with the findings and plan to implement the recommendations specific to them.
My staff and I will be pleased to discuss or clarify items in the report.
This report will be released to the public on June 9, 2006.
Sincerely,
Debbie Davenport
Auditor General
Enclosure
The Office of the Auditor General has conducted a performance audit of the Pinal
County Transportation Excise Tax (excise tax) in accordance with and under the
authority vested in the Auditor General by Arizona Revised Statutes (A.R.S.) §41-
1279.03. A.R.S. §41-1279.03 requires the Auditor General to conduct a performance
audit in the tenth year that a county transportation excise tax has been in effect and
then every fifth year thereafter. This is the third performance audit of the tax since its
establishment in 1987.
In 1986, the residents of Pinal County voted to pass a half-cent sales tax to “provide
additional funding for the construction, reconstruction, maintenance, repair and
roadside development of County, city and town roads, streets and bridges.” The
excise tax became effective January 1, 1987, and is to remain in effect for a period
of 20 years. In a November 2005 special election, the voters in Pinal County
reauthorized the excise tax for an additional 20 years, beginning in January 2007 and
continuing through 2026. In the first 19 years of its existence, the excise tax has
generated $107.7 million in revenues for streets and roads in Pinal County. This
revenue is shared between ten incorporated cities and towns and the County
according to a population-based formula. In the 19 years the tax has been in effect,
approximately 43 percent of excise tax revenue has been distributed to the County,
while the incorporated cities and towns have received the remaining 57 percent of
excise tax revenues.
County and cities and towns can demonstrate tax impact
(see pages 9 through 13)
The excise tax has allowed Pinal County and the cities and towns within the County
that receive excise tax monies to address a variety of transportation needs. These
include constructing new roads, repaving or reconstructing deteriorating roads, and
performing needed street and road maintenance. Specifically:
􀁺􇩐 Pinal County—The County has used the excise tax for new construction and
major reconstruction projects, which officials report have had a significant
Office of the Auditor General
SUMMARY
page i
impact on solving transportation problems such as unpaved and deteriorating
roads. For example, major work included the construction or replacement of
roads to address safety, drainage, and air pollution concerns. To help identify
transportation areas with the most need, the County created three
Transportation Advisory Committees, one for each of the County’s three districts,
to identify, plan, and prioritize road projects using these monies.
􀁺􇩉 Incorporated cities and towns—The incorporated cities and towns within the
County that receive excise tax monies have used them for several purposes. For
example, according to officials in Apache Junction, from 1995 to 2005, the tax
has allowed the City to reduce the number of dirt roads by half, thereby
improving road safety. Coolidge officials report that the tax has allowed the City
to complete street and road maintenance that otherwise would not be done.
Other incorporated cities and towns have used the excise tax to purchase
equipment or pay for street bonds. The incorporated cities and towns employ a
variety of ways to help identify transportation and road needs. Two cities use a
computerized pavement management system to evaluate pavement quality and
prioritize street maintenance needs. Additionally, six of the ten cities and towns
have completed small area transportation studies or have drafted capital
improvement plans that assist in identifying and prioritizing transportation
projects that can be addressed using excise tax revenues.
However, two cities can improve their planning efforts to ensure that excise tax
monies address the most important transportation and road needs. The City of
Coolidge should apply the results of two recent planning and study efforts to help
prioritize its transportation needs and identify projects that will be funded with excise
tax monies. The Town of Mammoth should take steps to formalize its planning
process and should improve its tracking of projects funded with excise tax monies.
Improved policies and procedures needed to ensure
excise tax used appropriately (see pages 15 through 22)
The incorporated cities and towns that receive transportation excise tax revenues
need to implement policies and procedures to help ensure that they comply with the
excise tax’s statutory requirements and appropriately spend the revenues. As
prescribed by statute, transportation excise tax monies are restricted for specific
purposes, including the construction, reconstruction, maintenance, repair, and
roadside development of county, city, and town roads, streets, and bridges. Auditors’
review of a sample of Pinal County’s transportation excise tax expenditures
determined that these expenditures complied with the tax’s statutory restrictions.
However, as in audits conducted in 1998 and 2001, auditors determined that some
cities and towns are still experiencing some difficulties in this regard. Reviews of a
State of Arizona
page ii
sample of expenditures in three cities and towns showed that while many of these
expenditures were for authorized purposes, there were exceptions in all three
locations. Specifically:
􀁺􇩃 City of Apache Junction—Two small, inappropriate expenditures were made.
One paid for a gift to a public works employee and the other paid for various
items to recognize public works employees. The gift is prohibited by the State’s
Constitution, while the expenditure for items to recognize employees is not an
appropriate expenditure of excise tax monies. In addition, the City did not
correctly allocate the cost of an inspection fee to its Highway User Revenue
Fund, which contains Highway User Revenue Fund (HURF) and transportation
excise tax monies.
􀁺􇩔 Town of Mammoth—Monies from the Town’s Highway Users’ Fund, which
includes HURF and excise tax monies, were used to help provide small
Christmas bonuses to 28 town employees and to provide a breakfast to several
town employees. The State’s Constitution prohibits these types of expenditures.
Several other expenditures lacked supporting documentation for determining
whether they were appropriate, and the Town does not employ an appropriate
mechanism or basis for allocating personnel costs and other shared costs, such
as gasoline and utility costs, against its Highway Users’ Fund. Finally, Mammoth
mistakenly charged its Highway Users’ Fund for wastewater services, which
should have been charged to another fund.
􀁺􇩔 Town of Superior—The Town charged its Special Revenue Fund, which contains
excise tax monies, for food at a utilities committee meeting. Additionally, it
mistakenly charged this fund for insecticide.
Apache Junction, Mammoth, and Superior need to take action on these matters.
Additionally, all ten incorporated cities and towns that receive excise tax monies
should establish written policies and procedures that specifically address the
appropriate uses of these monies. All of the cities and towns report that they rely on
a variety of mechanisms, such as general policies and procedures regarding
expenditures, separate accounts for restricted funds, information from the League of
Arizona Cities and Towns’ Municipal Budget and Finance Manual, and statute
regarding the use of restricted funds, and/or training to help ensure the appropriate
expenditure of transportation excise tax monies. However, the cities and towns have
not established specific, written policies and procedures, and this may have
contributed to the inappropriate, unsupported, and incorrectly recorded expenditures
auditors identified. Establishing excise tax policies and procedures could be
completed using minimal resources, and would help ensure that the excise tax is
used appropriately during the next 20 years.
Office of the Auditor General
page iii
State of Arizona
page iv
Office of the Auditor General
TABLE OF CONTENTS
continued
1
9
9
12
13
15
15
16
16
21
25
Introduction & Background
Finding 1: County and cities and towns can
demonstrate tax impact
Impact of excise tax
Two cities can more effectively demonstrate impact
Recommendations
Finding 2: Improved policies and procedures needed
to ensure excise tax used appropriately
Excise tax monies restricted to specific purposes
County excise tax expenditures appropriate
Some small, inappropriate expenditures continue
Recommendations
Agency Response
page v
State of Arizona
TABLE OF CONTENTS
Agency Response
Figures:
1 Pinal County
Districts and Incorporated Cities and Towns
2 Transportation Excise Tax Distributions
of $107.7 Million
Calendar Years 1987 through 2005 (in Millions)
(Unaudited)
Tables:
1 Pinal County Transportation Excise Tax Recipients
Year Ended June 30, 2005
(Unaudited)
2 Examples of Planned Road Projects To Be
Funded with Excise Tax
(Unaudited)
3 Examples of Pinal County Road Projects
Funded with Excise Tax Monies
Years Ended June 30, 2002 through 2005
(Unaudited)
4 Selected Projects Funded with Excise Tax and Other Road Monies
Between August 2000 and September 2005
(Unaudited)
1
2
4
4
10
11
concluded
page vi
The Office of the Auditor General has conducted a performance audit of the Pinal
County Transportation Excise Tax (excise tax) in accordance with and under the
authority vested in the Auditor General by Arizona Revised Statutes (A.R.S.) §41-
1279.03. A.R.S. §41-1279.03 requires the Auditor General to conduct a performance
audit in the tenth year that a county transportation excise tax has been in effect and
then every fifth year thereafter. This is the third performance audit of the tax since its
establishment in 1987.
Excise tax history and distribution
In 1986, the residents of Pinal County voted to
pass a half-cent sales tax to provide additional
funding for the “construction, reconstruction,
maintenance, repair and roadside
development of County, city and town roads,
streets and bridges.” The excise tax became
effective January 1, 1987. As determined by
the County Board of Supervisors prior to the
1986 election and as described in the
election’s publicity pamphlet, the Pinal County
Treasurer distributes excise tax revenue to the
County and the incorporated cities and towns
within the County according to a population-based
formula. Figure 1 illustrates the location
of Pinal County, the three districts it is divided
into, and the locations of the incorporated
cities and towns within the County that receive
these tax revenues. The formula is adjusted
when cities or towns in the County become
incorporated and thus become eligible to
receive tax revenues. For example, the City of Maricopa was incorporated in 2003
and became eligible to receive excise tax revenues in fiscal year 2005. In addition,
although the Town of Queen Creek is located primarily in Maricopa County, it became
eligible to receive excise tax revenue after it annexed land in Pinal County in 1998 and
again in 2002.
Office of the Auditor General
INTRODUCTION
& BACKGROUND
page 1
Figure 1: Districts and Incorporated Cities and Towns
Source: Pinal County Public Works Department.
Figure 1: Pinal County
and Incorporated Cities and Towns
At the time the excise tax was established, it was projected to generate between $125
and $200 million in revenue over its 20-year life. As of December 31, 2005, with 1 year
of the 20-year life of the tax remaining, the County Treasurer reports that the tax had
generated a total of $107.7 million in revenue. Figure 2 shows the distribution of these
revenues to Pinal County and the ten incorporated cities and towns within the County
that share the tax. In the 19 years the tax has been in effect, approximately 43 percent
of excise tax revenue has been distributed to the County, while the incorporated cities
and towns in the County have received the remaining 57 percent of tax revenues.
A.R.S. §28-6392 restricts the use of excise tax revenues to street and highway
purposes or transportation projects specified in the County’s regional transportation
plan. Additionally, the 1986 publicity pamphlet specified that the funding was to be
State of Arizona
page 2
Figure 2: Transportation Excise Tax Distributions of $107.7 Million1
Calendar Years 1987 through 2005 (In Millions)
(Unaudited)
Maricopa—$0.5
Mammoth—$1.5
Kearny—$1.9
Superior—$2.9
Coolidge—$5.8
Eloy—$6.4
Florence—$8.1
Casa Grande—$16.5
Unincorporated areas of
Pinal County—$46.7
Apache Junction—$17.4
1 The Town of Queen Creek also received $30,128 in excise tax distributions between calendar
years 2001 and 2005. The Town is located primarily in Maricopa County; however, it annexed
land in Pinal County in 1998 and 2002, and was therefore eligible to receive excise tax monies
for the portion of the Town's population residing in Pinal County.
Source: Auditor General staff analysis of excise tax data from the Pinal County Treasurer's
Office.
Figure 2: Transportation Excise Tax Distributions of $107.7 Million 1
Calendar Years 1987 through 2005 (in Millions)
(Unaudited)
used solely for highway and street purposes, including costs for rights-of-way
acquisitions and related expenses, construction, reconstruction, maintenance, repair,
and roadside development of county, city, and town roads, streets, and bridges, and
payment of principal and interest on highway and street bonds.
Road funding in Pinal County
The excise tax is one of several sources of funding for
county road projects. In addition to excise tax revenues,
Pinal County and the ten incorporated cities and towns
within the County consistently receive Highway User
Revenue Funds (HURF), while the incorporated cities and
towns also receive Local Transportation Assistance Funds
(LTAF). These funding sources, including the excise tax, are
intended to help address local transportation needs, such
as paving dirt roads and repairing local streets. These funds
are not intended to support or assist with larger state
highways, such as major transportation corridors between
Pinal and Maricopa Counties. These types of transportation
projects are typically funded through a combination of state
and federal monies. Some of the incorporated cities and
towns combine HURF, LTAF, and excise tax revenues into
one road fund because the revenues have similar statutory
restrictions. However, the County, as well as some of the
incorporated cities and towns, records and tracks the
excise tax revenues and expenditures in a separate fund.
Table 1 (see page 4) illustrates the fiscal year 2005 excise tax distributions and total
road funding, as well as the 2000 population figures and road miles maintained for
the County and the ten incorporated cities and towns.
Excise tax renewed by voters
In a November 2005 special election, Pinal County voters reauthorized the excise tax
for an additional 20 years, beginning in January 2007 and continuing through 2026.
According to this election’s publicity pamphlet, the tax is estimated to generate
$951.8 million in revenue during its 20-year life. This estimate is significantly higher
than the estimate for the excise tax’s initial 20-year period, partly because Pinal
County has experienced and expects to continue experiencing tremendous
population growth. As a result, the excise tax should play an important role in
addressing current and future transportation issues. For example, the City of
Maricopa, which is currently experiencing rapid population growth, plans to use
Office of the Auditor General
page 3
Definitions:
Highway User Revenue Fund (HURF)—Consists
of revenue from a state-wide gasoline tax,
licenses, penalties, interest, and fees. These
monies are distributed by the State Treasurer, and
the amount distributed is based, in part, on
population.
Local Transportation Assistance Fund (LTAF)—
Most of the revenue deposited in this fund is
generated from state lottery revenue and
distributed by the State Treasurer. The amount
distributed is based on population.
Source: Auditor General staff summary of A.R.S. §§28-6501, 6532,
6533, 6534, 6537, 6538, 6540, 8101(C), and 8102(A)(B).
excise tax revenues for a technical study
and to complete a major arterial connection
between the two highways that pass
through the city limits. This connection will
help alleviate congestion in Maricopa’s
downtown area. The Town of Mammoth
plans to use excise tax monies to install
additional sidewalks to improve its
appearance and provide greater security for
pedestrians. Table 2 illustrates several
projects that Pinal County and its
incorporated cities and towns plan to help
complete with the excise tax monies.
State of Arizona
page 4
Table 1: Pinal County Transportation Excise Tax Recipients
Year Ended June 30, 2005
(Unaudited)
Excise Tax
Recipient
2000
Population
Road Miles
Maintained
Excise Tax
Distribution
Total Road
Revenues1
Pinal County 179,727 2,230 $5,002,856 $20,585,151
Apache Junction2 31,541 170 2,077,756 5,189,936
Casa Grande 25,224 270 1,661,622 4,146,255
Florence 17,054 76 1,085,213 2,696,836
Eloy 10,375 140 683,445 1,697,865
Coolidge 7,786 66 512,898 1,274,850
Superior 3,254 26 214,365 531,802
Kearny 2,249 17 148,159 367,021
Mammoth 1,762 15 116,074 288,311
Maricopa 1,040 67 329,244 818,662
Queen Creek2 119 8 7,838 356,572
1 Total road revenues consist of excise tax, HURF, and LTAF monies for the cities and towns, or excise tax, vehicle
license tax, and HURF monies for the County.
2 The city or town occupies both Maricopa County and Pinal County. Numbers in this table represent the population and
road miles maintained in Pinal County only.
Source: Auditor General staff summary of 2000 U.S. Census Bureau population data; road miles provided by each city or
town and Pinal County as of June 30, 2005; fiscal year 2005 excise tax distribution data from the Pinal County
Treasurer; and fiscal year 2005 HURF, LTAF, and vehicle license tax revenue distributions lists from the Office of
the Arizona State Treasurer.
Table 2: Examples of Planned Road Projects To Be
Funded with Excise Tax
(Unaudited)
City or Town
Receiving Monies
Planned
Project
Estimated
Cost
Pinal County—District 3 Construction of turn lanes on
McCartney Road at Cox Road $ 150,000
Town of Florence Construction of roundabout inter-section
at SH 79B and SH 287 2,000,000
Town of Casa Grande Reconstruction of Main
Street/Sacaton Street 2,300,000
Town of Superior Reconstruction of Main Street 350,000
Source: Auditor General staff summary of information received from the Pinal County
Public Works Department and each city or town regarding projects they plan to
undertake in 2006 or 2007.
Scope and methodology
Consistent with the requirements of A.R.S. §41-1279.03, this audit focused on the
impact of the excise tax in solving transportation problems within the County and for
the incorporated cities and towns within the County that receive excise tax revenues,
and whether excise tax revenues are used only for street and highway purposes or
transportation projects. This report presents findings and recommendations in the
following areas:
􀁺􇩔 The impact of the excise tax on the County’s and incorporated cities’ and towns’
transportation problems and the need for two cities to improve their
transportation planning processes; and
􀁺􇩔 The need for improved policies and procedures to help ensure that the
incorporated cities and towns that receive excise tax revenues comply with the
tax’s statutory restrictions.
A.R.S. §41-1279.03 also requires a review of the distribution of highway user
revenues to ensure compliance with A.R.S. Title 28, chapter 18, article 2 (A.R.S. §28-
6531 et seq.). Because the auditors reviewed this information in the 2005 Maricopa
County Regional Freeway System performance audit report (Auditor General Report
No. 05-CR1), it was not addressed in this audit.
Auditors used a number of methods to obtain information about the Pinal County
Transportation Excise Tax and to answer the questions specified in statute. General
methods included reviewing statutes and United States Census Bureau population
reports; interviewing the County’s and incorporated cities’ and towns’ management
and staff; and reviewing policies and procedures pertaining to expenditures and
transportation projects. Auditors also used the following methods to address specific
areas of focus:
􀁺􇩔 To evaluate the impact that the tax has had on solving transportation problems
within the County and its incorporated cities and towns, auditors reviewed
information regarding completed transportation projects for six of the ten
incorporated cities and towns, including invoices, purchase orders, and copies
of checks for some of the projects reviewed; the County’s 2001 Comprehensive
Plan, 5-year transportation plans from fiscal years 1998 through 2010, the
Public Works expenditure report for fiscal years 1998 through 2005, the
November 2004 Transportation Excise Tax Report, 2005 meeting minutes for all
three County Transportation Advisory Committees, and the 1986 transportation
excise tax publicity brochure; the City of Maricopa’s 2003 Small Area
Transportation Study; the Town of Mammoth’s General Plan and council meeting
minutes for November and December 2004 and July through December 2005;
the capital improvement plans for the Towns of Florence and Queen Creek,
intergovernmental agreements between the City of Eloy and Pinal County and
Office of the Auditor General
page 5
between the City of Coolidge and the Arizona Department of Transportation; the
City of Coolidge’s contracts with two separate companies for the development
of a capital improvement plan and small area transportation study; and research
on asset management software for government entities. Auditors also
interviewed members of the County’s three Transportation Advisory
Committees, Town of Mammoth council members, the manager of a company
that provides asset management software to government entities, and a senior
transportation planner at the Arizona Department of Transportation.
􀁺􇩔 To determine whether Pinal County and the incorporated cities and towns within
the County appropriately spent transportation excise tax monies, auditors
conducted a risk analysis of each entity receiving excise tax monies. This risk
analysis considered a variety of factors including entities’ purchasing policies
and procedures, internal controls, whether the entities have had previous audit
findings related to their use of transportation excise tax monies, and any
concerns that arose during preliminary interviews with city, town, or county
management. Based on these results, auditors selected the Towns of Mammoth
and Superior for analysis of their excise tax expenditures. Pinal County and the
City of Apache Junction were also selected for an expenditure analysis because
they receive the largest shares of the excise tax revenues. For these entities,
auditors performed:
􀁼􇱐 Pinal County—An exploratory analysis of all 1,501 of Pinal County’s
transportation excise tax expenditures and adjusting entries for fiscal years
2004 and 2005, and selected 13 of these expenditures and adjusting
entries for further review based on an assessment of the reasonableness of
the vendor and type of expenditure.1 Auditors also analyzed a random
sample of 30 fiscal year 2004 and 2005 excise tax expenditures.
􀁼􇱃 City of Apache Junction—An exploratory analysis of all 2,227 City of
Apache Junction Highway User Revenue Fund expenditures and adjusting
entries for fiscal year 2004 and selected 22 of these expenditures or
adjusting entries for further review based on an assessment of the
reasonableness of the vendor and type of expenditure.2,3 Auditors also
analyzed a random sample of 30 fiscal year 2004 Highway User Revenue
Fund expenditures and adjusting entries.
State of Arizona
page 6
1 Auditors limited their review to Pinal County’s transportation excise tax expenditures and adjusting entires since the
County separately records and tracks excise tax revenues and expenditures. This audit did not include a review of the
County’s use of Highway User Revenue Fund (HURF) and vehicle license tax monies.
2 Auditors reviewed expenditures from the City of Apache Junction’s Highway User Revenue Fund, which includes HURF
and transportation excise tax monies.
3 Adjusting entries reflect allocations of expenditures to the City’s Highway User Revenue Fund or the allocation of
expenditures from the Highway User Revenue Fund to other city funds.
􀁼􇱔 Town of Mammoth—An exploratory analysis of all 216 Town of Mammoth
Highway Users’ Fund expenditures for fiscal year 2005 and selected 31 of
these expenditures for further review based on an assessment of the
reasonableness of the vendor and type of expenditure.1
􀁼􇱔 Town of Superior—An exploratory analysis of all 272 Town of Superior
excise tax expenditures for fiscal year 2005 and selected 29 of these
expenditures for further review based on an assessment of the
reasonableness of the vendor and type of expenditure.
In addition, auditors reviewed independent financial audits for the City of Apache
Junction for fiscal year 2004 and the Towns of Superior and Mammoth for fiscal
year 2005; payroll expenditures and records for the County for fiscal year 2005,
the Town of Mammoth for fiscal year 2005, and the City of Apache Junction for
fiscal year 2004; and the City of Apache Junction’s basis for using excise tax
monies to repay a portion of the City’s Series 1998 Municipal Facilities Revenue
Bonds.
To gather information for the Introduction and Background, auditors reviewed Pinal
County Treasurer account inquiry reports for excise tax and other revenues for fiscal
years 2001 through 2005; Arizona State Treasurer revenue distribution lists for fiscal
year 2005; the publicity pamphlet for the 2005 Pinal County special election; and
Arizona Department of Commerce community profiles.
This audit was conducted in accordance with government auditing standards.
The Auditor General and staff express appreciation to the Pinal County manager and
staff, and the managers and staff of each of the incorporated cities and towns, for
their cooperation and assistance throughout the audit.
1 Auditors reviewed expenditures from the Town of Mammoth’s Highway Users’ Fund, which includes HURF and excise
tax monies.
Office of the Auditor General
page 7
State of Arizona
page 8
County and cities and towns can demonstrate tax
impact
The excise tax has allowed Pinal County and the cities and towns within the County
that receive excise tax monies to address a variety of transportation needs. These
include constructing new roads, repaving or reconstructing deteriorating roads, and
performing needed street and road maintenance. The County, as well as most of the
incorporated cities and towns, has established processes to help identify
transportation areas of most need. However, to more clearly demonstrate impact, the
City of Coolidge should continue to improve its planning processes, and the Town of
Mammoth should improve its transportation planning processes and recordkeeping
procedures.
Impact of excise tax
Pinal County and the incorporated cities and towns that receive excise tax revenue
have used the tax to help resolve transportation problems. Specifically, the County
has used excise tax monies primarily for new construction and major reconstruction
of roads in order to improve safety and reduce the dust from dirt roads. The
incorporated cities and towns have used excise tax monies in a variety of ways,
including paying for street and road maintenance and paving dirt roads.
County has benefited from tax—The excise tax has benefited the County by
allowing it to address transportation needs and problems. The County has
primarily used excise tax monies for new road construction and major road
reconstruction projects and, according to county officials, the tax has had a
significant impact on solving transportation problems such as unpaved and
deteriorating roads. For example, as indicated in Table 3 (see page 10), between
fiscal years 2002 and 2005, the County completed major transportation projects,
including constructing 2 miles of new roadway on Warren Road in district 3, and
replacing 1 mile of Gary Road in district 2. These types of projects have been a
Office of the Auditor General
page 9
The excise tax has
benefited the County by
improving safety and
reducing air pollution.
FINDING 1
particular focus of the County because unpaved roads
present safety problems for drivers as well as
contributing to air pollution in the County.
Through the use of Transportation Advisory
Committees (known as TACs), the County has
established a process to help identify transportation
areas of most need. Specifically, according to the
County, in 1987 the County created three TACs, one
for each of its three districts, to identify, plan, and
prioritize transportation or road projects funded with
excise tax monies. According to Pinal County’s
November 2004 Transportation Excise Tax Report, its
5-year transportation plan, 2005 meeting minutes for
all three TACs, county officials, and TAC members, the
TACs follow a prescribed process. First, each TAC
conducts a field review within the district to observe
county roads. The TACs then hold a series of meetings
in each district to obtain citizen input and concerns and also obtain input
from the County’s Public Works Department, including feasibility
analyses, cost estimates, and recommendations. The TACs then review
the citizen and public works staff input in the framework of the County’s
budget and draft recommendations, compile them into a 5-year
transportation plan, and present the plan to the County Board of
Supervisors for approval. These plans then serve as the basis for
selecting and completing transportation or road projects using excise tax
monies.
Cities and towns have also benefited from the tax—The
incorporated cities and towns that receive excise tax revenues have also
realized several benefits. For example, the City of Apache Junction has
used the tax to pay a street bond and to pave dirt roads. According to
Apache Junction officials, from 1995 to 2005, the City was able to reduce
the number of dirt roads by half, thereby impacting road safety.
Additionally, the City of Coolidge has used the tax to perform street and
road maintenance, which, according to city officials, would not have
otherwise been done. Table 4 (see page 11) provides additional
examples of how the cities and towns in the County have used the excise
tax, including purchasing equipment and making payments on a street
bond.
The incorporated cities and towns in the County use a variety of techniques to help
identify transportation and road needs. For example, the Towns of Eloy and Florence,
which use excise tax monies for street and road maintenance and improvements,
use a computerized pavement management system to evaluate pavement quality
and prioritize street maintenance needs. The program prioritizes maintenance needs
State of Arizona
page 10
The incorporated cities
and towns in Pinal
County have various
processes in place to
plan, monitor, and
account for road
projects, service, and
maintenance.
Transportation Advisory
Committee Facts
􀁺􇩅 Each TAC consists of seven members,
including citizens of the respective
county district and individuals from
county and city and town management.
􀁺􇩔 The TACs meet several times each year.
Five of the meetings are public
meetings designed to obtain county
citizens’ input and concerns.
􀁺􇩔 The transportation projects identified by
the TACs must be approved by the
County Board of Supervisors, and are
funded primarily with excise tax revenue.
Source: Auditor General staff summary of information provided by
Pinal County.
Table 3: Examples of Pinal County Road Projects
Funded with Excise Tax Monies
Years Ended June 30, 2002 through 2005
(Unaudited)
Location
Length
in Miles
Problem
Addressed
Project
Cost
San Manuel Air-port
Access Road
0.8 Access road needed to
San Manuel Airport
$ 98,356
Gary Road 1.0 Deteriorating roadway and
safety and drainage
concerns
434,956
Warren Road 2.0 Drainage concerns
613,835
Source: Auditor General staff summary of information provided by the Pinal
County Public Works Department.
Office of the Auditor General
page 11
by tracking the remaining life of roads or streets based on existing conditions, and
assists in planning by preparing estimated construction and maintenance costs. The
program also records actual costs, as well as the dates work was performed and the
types of work the roadways received, providing the cities with useful planning data.
Similarly, the Town of Kearny, which uses the tax for such things as repairing roads
and installing new street lighting, has developed a maintenance evaluation system
that assists in planning and prioritizing transportation projects. Using the system,
public works staff can rate the conditions of the pavement on existing roads and
determine necessary repairs. Finally, since 1995, six of the ten incorporated cities and
towns have completed small area transportation studies or have drafted capital
improvement plans that include a section on transportation needs. These types of
studies and plans help the cities and towns by identifying and prioritizing problems
that can be addressed using excise tax revenues.
Table 4: Selected Projects Funded with Excise Tax and Other Road Monies
Between August 2000 and September 2005
(Unaudited)
City or Town Selected Projects
Apache Junction Repaving existing roads and paving dirt roads
Casa Grande Improving and expanding existing roadways
Coolidge Repairing and constructing streets, and purchasing equipment
Eloy Improving existing roadways
Florence Repairing streets and roads, maintaining streets, constructing sidewalks, and
storm drainage projects
Kearny Resurfacing and repairing streets, and installing new street lighting
Mammoth Installing sidewalks, railing, and curbing, and patching roads
Maricopa As a newly incorporated city (October 2003), Maricopa has not yet expended
any of the excise tax revenues received in fiscal year 2005
Queen Creek Paving dirt roads, and paying for equipment
Superior Making payments on street bonds
Source: Auditor General staff summary of information received from each of the cities or towns between August
31, 2005 and September 16, 2005, regarding selected projects funded with excise tax monies in the
previous 5 years.
Two cities can more effectively demonstrate impact
Two of the incorporated cities and towns within Pinal County can take steps to better
ensure that excise tax expenditures are focused on key transportation needs. The
City of Coolidge and the Town of Mammoth do not have formal procedures to identify
and prioritize projects that excise tax revenue should fund. In addition, Mammoth
does not keep records of its completed transportation or road maintenance projects.
Specifically:
􀁺􇩃 Coolidge should continue to improve its planning process—Coolidge has
recently begun two efforts that will help to formalize its planning process. These
efforts will help the City identify and prioritize transportation needs and ensure
limited excise tax revenues are used for the most critical projects. According to
city officials, the Coolidge City Council has historically relied on the City’s public
works director to identify and propose transportation projects for the council to
approve. However, in February 2006, the City contracted with a transportation
planning firm to complete a small area transportation study with the Town of
Florence, which is scheduled for completion in March 2007. The study’s
objective is to develop a comprehensive transportation plan that will guide
transportation planning and programming over a 20-year period. Additionally, by
completing the study together, Coolidge and Florence expect to realize some
cost savings, as well as to identify and examine some regional transportation
issues.
In addition, Coolidge contracted with a transportation consulting firm in
November 2005 to complete a capital improvement plan, which is scheduled for
completion in June 2006. This plan is a long-term financial plan that will assist
the Public Works Department in budgeting for large purchases and projects,
such as road-building equipment or major road construction projects.
According to the City, a committee consisting of city staff will review and adjust
the plan annually.
Once it has finalized its small area transportation study and completed its capital
improvement plan, Coolidge should use the study and the plan to help prioritize
its transportation needs and identify projects that excise tax monies will fund.
􀁺􇩍 Mammoth should improve its planning process and recordkeeping—Although
the Town of Mammoth reported that the excise tax has provided additional
monies for street and sidewalk improvements, it could more clearly demonstrate
the tax’s impact by improving its planning processes and recordkeeping
procedures. Mammoth received $116,000 in excise tax revenues in fiscal year
2005. According to town officials, the town council relies on its public works
director to plan projects funded with these monies, but also provides
opportunity for public input regarding transportation needs. While the town
State of Arizona
page 12
council must also approve some expenditures from the road fund, and therefore
participates to a certain extent in the planning process, Mammoth could
improve its planning process by implementing additional steps. For example,
the Town of Kearny, which received $148,000 in excise tax revenues in fiscal year
2005, has a process for inspecting and rating the condition of town roads, and
then categorizing or prioritizing roads based on the observed conditions. This
allows Kearny to effectively prioritize street and road projects and ensure that
limited excise tax revenues are used for the most important projects. The Town
of Mammoth should formalize its transportation planning process by identifying
and implementing steps such as developing a road evaluation system and
holding regular, documented transportation planning meetings to identify and
prioritize transportation projects. The meetings could include public works
employees who are familiar with local transportation needs, members of the
public, and town council members.
In addition, the Town of Mammoth should keep a record of any routine
maintenance and its completed transportation projects that are funded with
excise tax monies. Mammoth does not keep records of projects completed or
routine maintenance performed, making it difficult to demonstrate the tax’s
impact. Other towns, such as Kearny and Coolidge, report tracking completed
projects by maintaining paper records organized by project or type of
maintenance performed.
Recommendations:
1. Once they are finalized, the City of Coolidge should use its small area
transportation study and its capital improvement plan to identify and prioritize
transportation projects that excise tax monies will fund.
2. The Town of Mammoth should formalize its transportation planning process by
identifying and implementing steps such as developing a road evaluation
system and holding regular, documented transportation planning meetings to
identify and prioritize transportation projects. If Mammoth decides to hold
meetings, these meetings should include public works employees who are
familiar with local transportation needs, members of the public, and town council
members.
3. The Town of Mammoth should keep a record of routine maintenance and any
completed transportation projects that are funded with excise tax monies.
Office of the Auditor General
page 13
State of Arizona
page 14
Improved policies and procedures needed to
ensure excise tax used appropriately
The incorporated cities and towns that receive transportation excise tax revenues
need to implement improved policies and procedures to help ensure that they
comply with the tax’s statutory requirements and appropriately spend the revenues.
As prescribed by statute, transportation excise tax monies are restricted for specific
purposes. A review of excise tax expenditures made by the County did not reveal any
inappropriate uses of excise tax monies. However, similar to previous audits that
have identified some inappropriate expenditures, auditors’ review of excise tax
expenditures identified either inappropriate expenditures or improperly recorded
expenditures in some of the cities and towns. Therefore, these cities and towns
should reimburse their road funds for these inappropriate expenditures, and all of the
incorporated cities and towns that receive transportation excise tax monies should
establish policies and procedures to help ensure that these monies are used
appropriately.
Excise tax monies restricted to specific purposes
A.R.S. §28-6392 states that transportation excise tax revenues may be used only for
street and highway purposes or for transportation projects included in the County’s
regional transportation plan. Highway and street purposes include costs of rights-of-way
acquisitions as well as the construction, reconstruction, maintenance, repair, and
roadside development of county, city, and town roads, streets, and bridges. Excise
tax revenues may also be used to pay principal and interest on highway and street
bonds and personnel costs, including salaries and benefits, for employees working
directly or indirectly on transportation projects.
Restrictions placed on the use of transportation excise tax monies are similar to those
placed on the HURF, which receives its revenues from a state-wide gasoline tax and
the vehicle license tax. Article IX, Section 14, of the Arizona Constitution states that
Office of the Auditor General
page 15
Transportation excise
tax revenues are
statutorily restricted and
can be used only for
street and highway
purposes or for
transportation projects.
FINDING 2
HURF monies are distributed to counties and incorporated cities and towns to be
used “solely for highways and street purposes including costs of rights of way
acquisitions and expenses related thereto, construction, reconstruction,
maintenance, repair, roadside development, of county, city and town roads, streets,
and bridges and payment of principal and interest on highway and street bonds.”
County excise tax expenditures appropriate
Auditors analyzed a sample of transportation excise tax expenditures and adjusting
entries made by the County and did not identify any inappropriate uses of the excise
tax monies.1 Specifically, auditors conducted an exploratory analysis of all 1,501 of
Pinal County’s transportation excise tax expenditures and adjusting entries for fiscal
years 2004 and 2005, and selected 13 of these expenditures and adjusting entries
for further review based on an assessment of the reasonableness of the vendor and
type of expenditure. Auditors also analyzed a random sample of 30 fiscal year 2004
and 2005 excise tax expenditures. Based on this analysis, auditors determined that
these expenditures complied with the tax’s statutory restrictions.
Some small, inappropriate expenditures continue
Some of the incorporated cities and towns in Pinal County continue to inappropriately
spend excise tax monies. Performance audits in 1998 and 2001 found that some of
the cities and towns had inappropriately used some of their road fund monies, and
auditors found this to be a continuing problem. Specifically, auditors analyzed excise
tax expenditures from the City of Apache Junction and the Towns of Mammoth and
Superior and determined that some expenditures were either inappropriate or
incorrectly recorded. While these cities and towns should take actions to address
these matters, all of the incorporated cities and towns that receive transportation
excise tax monies should establish policies and procedures to help ensure the
appropriate use of the excise tax monies.
Previous audits identified inappropriate expenditures—The Auditor
General’s 1998 and 2001 performance audits of the Pinal County Transportation
Excise Tax found that some of the incorporated cities and towns had
inappropriately used excise tax monies.2 Specifically:
􀁺􇨱 1998 performance audit—The audit found that three municipalities
inappropriately loaned road fund monies, which included excise tax monies, to
other funds. Specifically, the City of Eloy had loaned road monies primarily to
1 Pinal County was selected for review because it receives the largest share of the excise tax revenues, totaling
approximately 41 percent.
2 The 2001 performance audit was conducted by KPMG LLP under contract with the Arizona Office of the Auditor General.
State of Arizona
page 16
Performance audits in
1998 and 2001
identified inappropriate
expenditures of excise
tax monies.
Office of the Auditor General
page 17
its utility services and golf course enterprise funds, which at the time of the
audit both lacked the resources to repay the loans. The audit also found that
the Town of Mammoth had loaned road monies to its general fund, resulting in
an outstanding balance of $24,429 owed to the road fund in June 1997 that
had yet to be repaid. Finally, the audit found that the Town of Florence
inappropriately loaned road monies to other funds, but had repaid the loans by
1995. Follow-up work conducted by the Auditor General found that Eloy and
Mammoth had repaid the road monies as recommended in the audit report.
􀁺􇨲 2001 performance audit—The audit found that two municipalities
inappropriately used road fund monies. Specifically, the City of Apache
Junction allocated an excessive portion of its debt service payments to its road
fund, and mistakenly charged the road fund $2,000 for postage. The audit also
found that the Town of Kearny potentially allocated too much of its road fund
to pay for public works overhead costs and employees’ salaries and benefits,
and inappropriately used road fund monies to purchase a street plaque. In
response to the audit’s recommendations, Apache Junction recalculated the
amount of monies that should have been charged to its road fund for debt
service payments and repaid these monies, as well as the $2,000 for postage,
to its road fund. The Town of Kearny also implemented the audit’s
recommendations to develop and apply methodology to appropriately allocate
costs and repay inappropriately used road fund monies.
Some municipalities used excise tax monies inappropriately—Auditors
analyzed a sample of excise tax expenditures and adjusting entries made by the
City of Apache Junction and the Towns of Mammoth and Superior and found some
small, inappropriate expenditures, or expenditures that were incorrectly recorded.1
Specifically:
􀁺􇨠 City of Apache Junction—Most of the Apache Junction fiscal year 2004 Highway
User Revenue Fund expenditures that auditors analyzed were appropriate.2
Specifically, auditors analyzed a random sample of 30 of Apache Junction’s
2,227 fiscal year 2004 Highway User Revenue Fund expenditures and adjusting
entries, which include excise tax and HURF monies, and an additional 22
expenditures and adjusting entries selected through an exploratory review of the
2,227 expenditures and adjusting entries. Auditors also reviewed the City’s basis
for using Highway User Revenue Fund monies to repay a portion of its Series
1998 Municipal Facilities Revenue Bonds and its method for using these monies
to pay personnel costs. Based on this review, auditors identified two
inappropriate expenditures. The first involved a $23.23 expenditure for various
items to recognize employees within the City’s public works department.
Although the City can spend General Fund monies to recognize its employees,
Auditors identified two
inappropriate
expenditures in Apache
Junction.
1 Based on auditors’ risk analysis, the City of Apache Junction was selected for review because it receives the second
largest share of excise tax revenues, totaling approximately 17 percent. The Towns of Mammoth and Superior were
selected largely because of the increased risks associated with their staffing shortages and recent turnovers in town
management.
2 The City of Apache Junction’s Highway User Revenue Fund includes HURF and excise tax monies.
these are not appropriate expenditures of HURF or excise tax monies.
Additionally, Apache Junction purchased a plant from a flower shop at a cost of
$33.05 for a public works employee. This purchase represents both an
inappropriate use of road fund monies and a gift of public monies, which is
prohibited by the State’s Constitution. Therefore, Apache Junction should repay
its Highway User Revenue Fund for the amount of these expenditures.
Additionally, Apache Junction should seek direction from its legal counsel
regarding such expenditures and how it should repay these monies.
Auditors also found that Apache Junction may have incorrectly charged a $200
underground storage tank inspection fee to its Highway User Revenue Fund.
While other city departments obtain fuel from this storage tank and should have
been charged a portion of this cost, Apache Junction allocated the entire
inspection fee to its Highway User Revenue Fund. Therefore, Apache Junction
should ensure that it appropriately allocates these types of shared costs to its
Highway User Revenue Fund.
􀁺􇩔 Town of Mammoth—Auditors found several instances in which the Town either
inappropriately used restricted monies from its Highway Users’ Fund (Fund) or
lacked the documentation to show that the expenditure was appropriate.
Auditors analyzed 31 expenditures selected through an exploratory review of the
216 fiscal year 2005 HURF and excise tax expenditures from the Highway Users’
Fund and the Town’s basis for using the Fund’s monies to pay for personnel
costs, and identified several instances of inappropriate or unsupported
expenditures. Specifically, with the town council’s approval, Mammoth used
public monies to provide Christmas bonuses to 28 town employees, $33.36 of
which was taken from the Highway Users’ Fund. However, because these
bonuses were not part of the employees’ pay packages, they represent a gift of
public monies and are prohibited by the State’s Constitution. Additionally,
Mammoth provided breakfast at a total cost of $50.61 to several of its
employees who had worked overtime to repair a damaged water line. This also
represents a gift of public monies. Therefore, Mammoth should repay its
Highway Users’ Fund for any monies used for employees’ Christmas bonuses
and the breakfast. Auditors identified bonuses that were paid in fiscal years 2005
and 2006, and Mammoth should review previous fiscal years’ expenditures and
reimburse the fund for any additional year(s) in which Christmas bonuses were
paid. Additionally, Mammoth should seek further direction from its legal counsel
regarding the breakfast and bonuses that have been given to employees and
how it should repay these monies.
Auditors also identified seven credit card expenditures charged to the Highway
Users’ Fund totaling $459 in fiscal year 2005 that lacked any supporting
documentation. Thus, the appropriateness of these expenditures could not be
determined. As a result, Mammoth should research these expenditures and
determine their appropriateness. If it cannot determine that they were
State of Arizona
page 18
Some expenditures in
Mammoth were
inappropriate and others
do not have supporting
documentation.
appropriate, Mammoth should repay these monies to the Fund. Mammoth
should also ensure that it retains adequate documentation to support charging
these types of expenditures to the Fund.
Additionally, auditors found that Mammoth may have inaccurately charged
personnel costs to the Highway Users’ Fund. Mammoth uses an informal
system to allocate public works employee payroll expenditures and benefits
costs to the Highway Users’ Fund and other public works funds. According to
town management, the portion of these employees’ personnel costs charged to
the Highway Users’ Fund is estimated at the beginning of each year based on
available funds, and adjusted according to any changes in staffing levels
throughout the year. The Fund is then charged based on these estimates. For
example, nearly $80,000 in personnel costs was charged to the Fund in fiscal
year 2005. However, Mammoth does not track the actual number of hours that
employees spend on various jobs or projects, including road-related projects.
Additionally, none of the public works employees are solely dedicated to road-related
projects. Since employee time is not tracked on a project or time code
basis, Mammoth cannot confirm the accuracy of its estimates and basis for
charging personnel costs to the Fund.
Therefore, Mammoth should implement a mechanism, such as a time
accounting system, that would more accurately capture the time that staff spend
on street-related activities. Such a mechanism would enable public works
employees to report the time they spend on each activity or project and allow
the Town to more accurately allocate salaries and related expenditures to the
Highway Users’ Fund. The Town of Superior uses an automated system to
record staff time, which then assists in accurately charging personnel costs to
its Special Revenue Fund. Prior to implementing the automated system, the
Public Works Department in Superior recorded employees’ time manually.
Similarly, Mammoth might consider developing a manual log or spreadsheet
where its public works employees can document how they spent their time on
various projects each day, and then use this record of employee time to
accurately charge personnel costs to the Fund.
Implementing such a mechanism could also assist Mammoth in appropriately
allocating other shared costs to its Highway Users’ Fund. Auditors identified 16
additional expenditures, including gasoline and utility, insurance, office supplies,
and cell phone costs, which Mammoth allocated to the Fund. While other town
departments shared in these costs and Mammoth distributed the total
expenditure for these costs across different funds, the allocations of these costs
were not based on actual use and thus may be inaccurate. For example:
􀁼􇱔 The Town spent $1,456.87 on gasoline in April 2005 and allocated $769.68
of this amount to its police department. It allocated the remainder evenly to
four different funds, including the Highway Users’ Fund. However, the total
Office of the Auditor General
page 19
State of Arizona
page 20
allocation of $687.19 to the four different funds was not based on the
gasoline actually used by the associated departments.
􀁼􇱔 The Town allocated $70,702 in fiscal year 2005 insurance premium costs to
eight different funds, including $8,000 to the Highway Users’ Fund.
However, the Town was unable to provide a basis for this allocation.
Additionally, absent a basis for these costs’ allocations, auditors could not
determine if the cost of any of the liability insurance coverage, which
represented approximately 80 percent of the fiscal year 2005 insurance
premium costs, was included in the expenditures allocated to the Fund.
According to an Arizona Attorney General opinion (No. I05-003), HURF
monies, and thus, similarly restricted monies, such as transportation excise
tax monies, cannot be used to pay for liability insurance premiums.
Mammoth should develop and implement a mechanism or basis, such as the
mechanism it develops to track its employees’ time, to appropriately allocate its
shared costs to its Highway Users’ Fund. For example, if 75 percent of public
works employees’ time is spent working on street-related activities, then 75
percent can be used as a basis for allocating other shared costs to the Highway
Users’ Fund. Additionally, it should ensure that its basis for allocating insurance
costs to the Fund does not include the costs for liability insurance coverage.
Finally, Mammoth mistakenly charged $350 to the Highway Users’ Fund for
wastewater services. Auditors’ review of documentation for this charge showed
that it was associated with an unrelated department and should have been
charged to another fund, but Mammoth incorrectly entered it into its accounting
system as a charge against the Fund. Mammoth should make appropriate
adjustments to its accounting system to correct the charge that was mistakenly
charged to the Fund.
􀁺􇩔 Town of Superior—Auditors’ review of transportation excise tax expenditures
from the Special Revenue Fund (Fund) determined that Superior inappropriately
used the Fund’s monies to pay for food and mistakenly charged the Fund for
insecticide supplies. Specifically, auditors analyzed 29 expenditures selected
through an exploratory review of the 272 fiscal year 2005 excise tax
expenditures. Based on this analysis, auditors determined that 27 of the
expenditures were appropriate. However, the Town provided food costing
$29.15 for a utilities committee meeting, which was charged to its Special
Revenue Fund. Similar to the breakfast provided by Mammoth, this represents
a gift of public monies, and Superior should reimburse the Fund for the cost of
the food. Superior should seek direction from its legal counsel regarding this
expenditure and how it should repay these monies. Additionally, the Town
mistakenly charged the Fund $322 for insecticide that was used by another
department and should have been charged to another fund. As a result,
Superior should correct the charge for insecticide that was mistakenly made to
the Fund.
Cities and towns should establish written policies and procedures—
The lack of policies and procedures that specifically address the expenditure of
statutorily restricted road monies, including excise tax monies, may have
contributed to the inappropriate, unsupported, and incorrectly recorded
expenditures auditors identified. All the cities and towns report that they rely on a
variety of mechanisms, such as general policies and procedures regarding
expenditures, separate accounts for restricted funds, information from the League
of Arizona Cities and Towns’ Municipal Budget and Finance Manual, statute
regarding the use of restricted funds, and/or training to help ensure the appropriate
expenditure of restricted road monies, including excise tax monies. However, the
cities and towns have not established specific, written policies and procedures
regarding the expenditure of these monies. Additionally, Pinal County voters have
reauthorized the excise tax for an additional 20 years, beginning in January 2007,
representing an opportunity to establish policies and procedures regarding the
appropriate expenditures of these monies. The cities and towns should therefore
develop and implement written policies and procedures that specifically address
restricted road monies, including the excise tax.
Although creating policies and procedures may require some time and resources,
it does not represent an extensive task, and a variety of resources exist to assist
the incorporated cities and towns in drafting appropriate policies and procedures.
These include A.R.S. §28-6392, which provides information on the excise tax’s
specific restrictions, and the 1986 and 2005 voter publicity pamphlets, which also
discuss the statutory restrictions on the tax, as well as its overall purpose. In
addition, the League of Arizona Cities and Towns’ Municipal Budget and Finance
Manual, which provides information on restricted monies, such as HURF, and
Arizona Attorney General opinion no. I05-003, which provides guidance on
appropriate HURF expenditures, might be useful in drafting policies and
procedures for other restricted road funds.
Upon drafting and formally adopting policies and procedures regarding the excise
tax, the cities and towns should provide them to public works officials and others
who are responsible for approving expenditures of restricted road monies.
Recommendations:
1. The City of Apache Junction should:
a. Repay its Highway User Revenue Fund for the amounts of the two
inappropriate expenditures, and not make such expenditures in the future.
Additionally, Apache Junction should seek direction from its legal counsel
regarding such expenditures and how it should repay these monies; and
Office of the Auditor General
page 21
b. Ensure that it appropriately allocates costs that are shared with other city
departments to its Highway User Revenue Fund.
2. The Town of Mammoth should:
a. Repay its Highway Users’ Fund (Fund) for the cost of the breakfast that it
provided to employees and for any monies used for employees’ Christmas
bonuses in fiscal years 2005 and 2006, review previous fiscal years’
expenditures, and reimburse the Fund for any additional year(s) in which
Christmas bonuses were paid. Mammoth should also cease to make such
gifts of public monies and seek further direction from its legal counsel
regarding bonuses that have been given to employees and how the Fund
should be repaid;
b. Research the credit card expenditures charged to the Fund for fiscal year
2005 and determine if these expenditures were appropriate. If it cannot
determine that these expenditures were appropriate, Mammoth should
repay these monies to the Fund. Mammoth should also ensure that it
retains adequate documentation to support charging these types of
expenditures to the Fund;
c. Implement a mechanism, such as a time accounting system, to more
accurately capture the time that staff spend on street-related activities and
to more accurately allocate salaries and related expenditures to the Fund;
d. Implement a mechanism or basis, such as the mechanism it develops and
implements to track employee time, to appropriately allocate shared costs
to the Fund;
e. Ensure that its basis for allocating insurance costs to the Fund does not
include the costs for liability insurance coverage; and
f. Make appropriate adjustments to its accounting system to correct the
charge for wastewater services that was mistakenly charged to the Fund.
3. The Town of Superior should:
a. Repay its Special Revenue Fund (Fund) for the cost of the food that it
provided at a utilities committee meeting and cease to make such
expenditures in the future. Additionally, Superior should seek direction from
its legal counsel regarding such expenditures and how it should repay the
monies; and
b. Correct the charge for insecticide that was mistakenly made to the Fund.
State of Arizona
page 22
4. To help ensure that excise tax monies are used only for street and highway
purposes and transportation projects, the ten incorporated cities and towns
within Pinal County should:
a. Develop and implement written policies and procedures that specifically
address restricted road monies, including the excise tax; and
b. Provide the policy to the cities’ and towns’ public works department officials
and all others who are responsible for approving expenditures of restricted
road monies.
Office of the Auditor General
page 23
State of Arizona
page 24
Office of the Auditor General
AGENCY RESPONSE
State of Arizona
City of Coolidge
130 W. Central Avenue
Coolidge, Arizona 85228
(520) 723-5361
TDD: (520) 723-4653 / Fax: (520) 723-7910
Police Dept./City Court Library Public Works Parks & Recreation Growth Management Fire Department
110 W. Central Ave. 160 W. Central Av 411 W. S. 1st. St. 670 W. Pima Ave. 141 W. Main St. 103 W. Pinkley
(520) 723-3091 (520) 723-6030 (520) 723-4882 (520) 723-4551 (520) 723-6075 (520) 723-5361
May 31, 2006
Debra K. Davenport, CPA
State of Arizona
Office of the Auditor General
2910 N. 44th Street, Suite 410
Phoenix, AZ 85018
RE: Pinal County Transportation Excise Tax Audit
Dear Ms. Davenport:
This letter is in response to your letter dated May 25, 2006 requesting that the City of Coolidge review the revised
preliminary report draft of the performance audit of the Pinal County Transportation Excise Tax and provide
comments for each recommendation addressed to the City of Coolidge.
Finding #1: Coolidge should continue to improve its planning process.
The finding of the Auditor General is agreed to and the audit recommendation will be implemented.
The City of Coolidge contracted with a consulting firm in November, 2005 to generate a Capital Improvement Plan
that is scheduled for completion in June 2006, as well as joining with the Town of Florence in hiring a consulting
firm to generate a Small Area Transportation Study scheduled for completion in March 2007. Once the studies are
finalized, the City of Coolidge will use them to identify and prioritize transportation projects that excise tax monies
will fund.
Finding #2: Improved policies and procedures needed to ensure excise tax used appropriately.
The finding of the Auditor General is agreed to and the audit recommendation will be implemented.
The City of Coolidge has always utilized the Pinal County Transportation Excise Tax Resolution as the document
governing allowable expenses for that tax, realizing that any policy that the City might have would not override the
Resolution. We will, however, develop written policies and procedures by October 1, 2006 that specifically
address restricted road monies, including the excise tax and it will be provided to all officials who are responsible
for approving expenditures of those monies.
We look forward to receiving a copy of the full report. If you have questions, please feel free to contact me at
(520)723-5361.
Sincerely,
Robert F. Flatley, City Manager
cc: Lisa Pannella, Finance Director
Town of Florence
775 North Main Street
PO Box 2670
Florence, Arizona 85232
Phone (520) 868-7500
Fax (520) 868-7501
TDD (520) 868-7502
www.town.florence.az.us
TOWN SERVICES
Building Inspection
868-7556
Finance
868-7624
Fire
868-7609
Grants
868-7554
Library
868-9471
Municipal Court
868-7514
Personnel
868-7553
Parks & Recreation
868-4835
Planning and Zoning
868-7540
Police
868-7681
Public Works
868-7620
Senior Center
868-7622
Town Hall
868-7500
Town Manager’s Office
868-7558
Utility Building
868-7680
May 31, 2006
Debra Davenport
Auditor General
State of Arizona
2910 North 44th Street
Suite 410
Phoenix, AZ 85016
Dear Ms. Davenport:
The Town of Florence has reviewed the preliminary report of the
performance audit of the Pinal County Transportation Excise Tax and
agrees with the findings and will implement the recommendations.
The town will develop and implement written policies and procedures in
accordance with A.R.S. §28-6392 that specifically address the use of excise
tax funds and will provide these policies to all town officials responsible for
approving expenditures with these funds.
Should you have any questions, please feel free to contact me at 520-868-
7558.
Sincerely,
Himanshu Patel
Town Manager
cc: Rebecca Guilin, Finance Director
Wayne Costa, Public Works Director
04-04 Department of Emergency and
Military Affairs and
State Emergency Council
04-05 Department of Environmental
Quality—Water Quality Division
04-06 Department of Environmental
Quality—Waste Programs
Division
04-07 Department of Environmental
Quality—Air Quality Division
04-08 Department of Environmental
Quality—Sunset Factors
04-09 Arizona Department of
Transportation, Motor Vehicle
Division— State Revenue
Collection Functions
04-10 Arizona Department of
Transportation, Motor Vehicle
Division—Information Security
and E-government Services
04-11 Arizona Department of
Transportation, Motor Vehicle
Division—Sunset Factors
04-12 Board of Examiners of Nursing
Care Institution Administrators
and Assisted Living Facility
Managers
05-L1 Letter Report—Department
of Health Services—
Ultrasound Reviews
05-01 Department of Economic
Security—Division of
Employment and
Rehabilitation Services—
Unemployment Insurance
Program
05-02 Department of Administration—
Financial Services Division
05-03 Government Information
Technology Agency (GITA) &
Information Technology
Authorization Committee (ITAC)
05-04 Department of Economic
Security—Information Security
05-05 Department of Economic
Security—Service Integration
Initiative
05-06 Department of Revenue—Audit
Division
05-07 Department of Economic
Security—Division of
Developmental Disabilities
05-08 Department of Economic
Security—Sunset Factors
05-09 Arizona State Retirement
System
05-10 Foster Care Review Board
05-11 Department of Administration—
Information Services Division
and Telecommunications
Program Office
05-12 Department of Administration—
Human Resources Division
05-13 Department of Administration—
Sunset Factors
05-14 Department of Revenue—
Collections Division
05-15 Department of Revenue—
Business Reengineering/
Integrated Tax System
05-16 Department of Revenue
Sunset Factors
06-01 Governor’s Regulatory Review
Council
06-02 Arizona Health Care Cost
Containment System—
Healthcare Group Program
Performance Audit Division reports issued within the last 24 months
Future Performance Audit Division reports
Arizona Department of Education