State of Arizona
Office
of the
Auditor General
PERFORMANCE AUDIT
Report to the Arizona Legislature
By Douglas R. Norton
Auditor General
PINAL COUNTY
TRANSPORTATION
EXCISE TAX
March 1998
Report Number 98-8
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051
DOUGLAS R. NORTON, CPA
AUDITOR GENERAL
DEBRA K. DAVENPORT, CPA
DEPUTY AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
March 30, 1998
Members of the Arizona Legislature
The Honorable Jane Dee Hull, 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 a May 27, 1997, resolution of the Joint Legislative Audit
Committee and was conducted under the authority vested in the Auditor General by A.R.S. §41-1279.03
The report addresses the extent to which the transportation excise tax has helped solve Pinal County’s
transportation problems. Pinal County voters approved the tax in 1996 to “provide additional funding for the
construction, reconstruction, maintenance, repair and roadside development of County, city and town roads,
streets, and bridges.” To date, the excise tax has had varying levels of impact in solving Pinal County’s
transportation problems. First, while the tax was estimated to generate between $125 million to $200 million
before it expires in the year 2006, actual revenues have fallen short of projected revenue by at least $1 million each
year since 1988 and over $2 million each year since 1993. Despite the shortfall in tax revenues we found that the
Pinal County Department of Civil Works has effectively used its portion of transportation excise tax revenues
expending 90 percent of these monies on new road construction and reconstruction projects. It is more difficult
to assess the impact the excise tax has had on the ability of Pinal County’s cities and towns to address their road
needs. An analysis of road fund revenues and expenditures for these municipalities reveals that many are not
using all the “additional monies” the excise tax was intended to provide. In fact, our analysis suggest that most
of the cities and towns have spent 60 percent or less of their excise tax revenue.
Although Arizona statutes restrict use of these monies for highway, street and transportation purposes, our
review also discovered that three municipalities have inappropriately loaned transportation excise tax and other
road money to other funds. While one entity has since repaid the monies, the second municipality had an
outstanding balance of $419,150, and the third municipality had an outstanding balance of $24,429.
Pinal County and the eight incorporated cities and towns were provided an opportunity to submit
responses to this report. Only the City of Eloy, and the towns of Mammoth and Florence chose to do so.
As outlined in their responses, these entities agree with the report recommendations.
My staff and I will be pleased to discuss or clarify items in the report.
This report will be released to the public on March 31, 1998.
Sincerely,
Douglas R. Norton
Auditor General
Enclosure
i
SUMMARY
The Office of the Auditor General has conducted a performance audit of the Pinal County
Transportation Excise Tax. This audit was conducted under the authority vested in the
Auditor General by Arizona Revised Statutes (A.R.S.) §41-1279.03 and pursuant to a May 27,
1997, resolution of the Joint Legislative Audit Committee.
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 the first 10 years of the excise tax’s existence, it
has generated nearly $40 million in revenues for roads and highways in Pinal County. This
revenue is shared between 8 incorporated cities and towns and the County, which is respon-sible
for unincorporated roads. The tax is distributed to each entity according to a popula-tion-
based formula. Currently, cities and towns receive 57 percent of the tax revenue while
the County receives the remaining 43 percent.
Tax Has Provided Differing
Levels of Impact
(See pages 5 through 10)
The transportation excise tax has had varying levels of impact in solving Pinal County’s
transportation problems. First, the tax has not generated as much additional revenue as an-ticipated.
While the tax was estimated to generate between $125 million to $200 million be-fore
it expires in 2006, actual revenues have fallen short of projected revenue by at least $1
million each year since 1988 and over $2 million each year since 1993. Consequently, to date,
the tax has yielded only 65 percent of original projections.
Despite the shortfall in tax revenues, the Pinal County Department of Civil Works has effec-tively
used its portion of transportation excise tax revenues to build new roads and recon-struct
existing roads. A review of road projects completed between fiscal years 1995 and 1997
confirmed that the County spent over $10 million on road projects using excise tax monies,
with 90 percent of these monies expended on new road construction and reconstruction proj-ects.
However, even with the excise tax revenues, the County’s estimated road needs are still
expected to exceed revenues. According to a 1995 transportation needs assessment, County
road needs total over $98 million for fiscal years 1996 through 2000, yet the County can ex-pect
to receive only approximately $51 million during that same time period in primary sta-ble
funding (i.e., road revenue that has been consistently received over fiscal years 1992-
1996).
ii
Although the cities and towns, like the County, also have substantial road needs, it is more
difficult to assess the impact the excise tax has had on their ability to address these needs. The
cities and towns have used excise tax revenues for various road projects, including new road
construction and reconstruction, pavement preservation, and maintenance. However, an
analysis of road fund revenues and expenditures since the inception of the tax reveals that
many of the cities and towns are not using all the “additional monies” the excise tax was in-tended
to provide. Specifically, the cities and towns received nearly $18 million in excise tax
revenues from fiscal years 1987 through 1996 while during that same period increasing road
fund balances of approximately $7 million. The difference between total excise tax revenues
received and the increase in fund balances for each municipality suggests that most have, in
effect, spent 60 percent or less of their excise tax revenue. Despite the high fund balances,
most of the cities and towns within Pinal County have road needs that exceed available reve-nue.
Specifically, cited road needs for Pinal County’s cities and towns total over $79 million for
fiscal years 1996 through 2000, yet primary stable road monies for that same time period are
estimated to be only $59.4 million. Although projected revenue will not likely address all
transportation problems, some cities and towns appear to have large enough fund balances
to address at least some existing road needs.
Some Municipalities Have
Inappropriately Used
Road Monies
(See pages 11 through 13)
While Arizona statutes explicitly limit expenditure of road revenues for highway, street, and
transportation purposes, three of Pinal County’s cities and towns have inappropriately bor-rowed
transportation excise tax and other road money from their road funds and loaned it to
other funds. Specifically, over the past several years, the municipalities of Eloy, Mammoth,
and Florence have inappropriately loaned road monies to other funds primarily to pay for
general and enterprise fund expenditures and expenses. For example, since at least 1987, the
City of Eloy has loaned road monies primarily to its enterprise funds to cover an excess of
expenses over revenues for its utility services and golf course enterprises. Until recently, the
amount of road monies loaned had increased and as of June 30, 1997, the outstanding balance
totaled approximately $419,150.
The municipalities mentioned above should take two actions to comply with statutes gov-erning
the use of road monies.
n First—They should immediately cease using road monies for non-road purposes. While
Florence ceased this practice and repaid its outstanding loan in 1995, Eloy and Mammoth
are still inappropriately loaning road monies.
iii
n Second—Eloy and Mammoth should promptly repay to their road funds all outstanding
amounts of monies inappropriately borrowed. As of fiscal year 1997, Eloy still owed
$419,150 and Mammoth owed $24,429.
iv
(This Page Intentionally Left Blank)
v
TABLE OF CONTENTS
Page
Introduction and Background ......................................................... 1
Finding I: Tax Has Provided Differing
Levels of Impact ........................................................................... 5
Excise Tax Revenues
Fall Short of Projections ......................................................................................... 5
County Uses Excise Tax
for New Road Construction
and Reconstruction................................................................................................. 6
Impact of Tax Revenues on
Cities and Towns Less Clear ................................................................................. 7
Recommendation................................................................................................... 10
Finding II: Some Municipalities Have
Inappropriately Used Road Monies ........................................... 11
Statutes Restrict
Use of Road Monies............................................................................................... 11
Municipalities Using Road
Revenue for Non-road Purposes.......................................................................... 12
Municipalities Should Comply
with Statutory Restrictions
Governing Road Monies ....................................................................................... 13
Recommendation................................................................................................... 13
Agency Response
vi
TABLE OF CONTENTS (concl’d)
Page
Tables
Table 1Pinal County Transportation Excise Tax Recipients
Year Ended June 30, 1997
(Unaudited).......................................................................................... 2
Table 2Examples of Pinal County Road Projects
Funded with Excise Tax Monies
Years Ended June 30, 1995 through 1997
(Unaudited).......................................................................................... 7
Table 3Pinal County Municipalities
Major Use of Primary Stable Road Monies
Years Ended June 30, 1995 through 1997
(Unaudited).......................................................................................... 8
Table 4Pinal County Municipalities
Percentage of Additional Monies Expended
Years Ended June 30, 1987 through 1996
(Unaudited).......................................................................................... 9
1
INTRODUCTION AND BACKGROUND
The Office of the Auditor General has conducted a performance audit of the Pinal County
Transportation Excise Tax. This audit was conducted under the authority vested in the
Auditor General by A.R.S §41.1279.03 and pursuant to a May 27, 1997, resolution of the Joint
Legislative Audit Committee.
Background
on the Excise Tax
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.” As of fiscal year 1997, the tax generated a total of
$39,690,732 in revenues for roads and highways in Pinal County, which is one of only three
counties to pass such a tax. The excise tax comprises approximately 29 percent of primary
stable funding for roads in the cities and towns and 25 percent of primary stable road fund-ing
for the County.1
Revenue from the transportation excise tax (excise tax) is shared between eight incorporated
cities and towns and the County, which is responsible for unincorporated roads. While the
monies are collected by the Department of Revenue and passed through the State Treasurer,
the Pinal County Treasurer actually distributes excise tax revenue to the County, cities, and
towns according to a population-based formula. Currently, cities and towns receive 57 per-cent
of the tax revenue while the County receives the remaining 43 percent.
Road Funding
in Pinal County
All eight cities and towns rely on revenue from the excise tax, the Highway User Revenue
Fund (HURF), and the Local Transportation Assistance Fund (LTAF) as their primary, stable
sources of road funding.2 Although the municipalities may also receive road monies through
federal and state sources, such as the Community Development Block Grant Program, Fed-eral-
Aid Highway Construction Program, and Economic Strengths Project Fund, these mon-ies
are typically competitive and, therefore, not reliable from year to year.
1 Primary stable funding is defined as revenue, excluding grants, that has been consistently received.
These revenues have comprised over 75 percent of total road funding over fiscal years 1992-1996.
2 HURF monies are primarily generated through a gas tax while LTAF monies are lottery proceeds
earmarked for transportation purposes.
2
The County relies on the excise tax and HURF for its primary stable road funding. In addi-tion,
a small percentage of road monies is generated through license fees, private contribu-tions,
map sales, etc. Finally, like the cities and towns, the County may also receive funding
through state grants and federal assistance programs. Again, because such funding is
competitive, it is not considered reliable from year to year.
Road operations in each of the nine entities (County and eight municipalities) receiving the
tax vary significantly depending on the number of road miles maintained, as well as the
amount of road revenue received each year. For example, as illustrated in Table 1, the County,
which maintains 1,851 miles of unincorporated roads, received approximately $9.8 million in
primary stable road funding in fiscal year 1997. In contrast, the most populated city in Pinal
County, Casa Grande, maintains 175 miles of road and received $2.7 million in primary stable
road funding in fiscal year 1997. Likewise, Mammoth, the smallest of the municipalities,
maintains 11 miles of road and received $257,321 in primary stable road monies in fiscal year
1997.
Table 1
Pinal County Transportation Excise Tax Recipients
Year Ended June 30, 1997
(Unaudited)
Excise Tax
Recipient
1990
Population
Miles
Maintained
Excise Tax
Distribution
Primary Stable
Road Funding1
Pinal County (unincorporated) 50,143 1,851 $2,150,674 $ 9,788,807
Casa Grande 19,082 175 818,734 2,710,783
Apache Junction 17,931 167 769,310 2,545,268
Florence 7,510 40 322,002 1,355,619
Eloy 7,211 311 309,521 1,118,042
Coolidge 6,927 32 297,041 936,527
Superior 3,468 20 148,770 464,950
Kearny 2,262 14 96,850 318,941
Mammoth 1,845 11 79,377 257,321
Total 116,379 2,621 $4,992,279 $19,496,258
1 Primary stable road funding consists of excise tax, HURF, and LTAF monies for the cities and towns, and
excise tax and HURF monies for the County.
Source: Population figures from the Pinal County Elections Department; road miles from the Arizona De-partment
of Transportation and each entity; and revenue amounts derived by Auditor General staff
analysis of County and State Treasurer data.
3
Audit Scope
and Methodology
This audit was conducted in response to A.R.S §41-1279.03, which requires a performance
audit in the tenth year and every third year thereafter in counties where a transportation ex-cise
tax is in effect. Specifically, the statute requires a review of past and future planned
expenditures and road projects to determine their impact on solving transportation prob-lems.
The law also requires a review of HURF distributions to ensure compliance with A.R.S.
§28-1598. Because this information was included in the July 1997 Maricopa County Regional
Freeway System performance audit report, it was not addressed in this audit.
This review of the excise tax was limited due to the practice of most cities and towns to
commingle their excise tax revenue with other road monies, such as the HURF and LTAF.
Because all three revenue sources are restricted in their use to road purposes only, most cities
and towns combine them into one fund to finance road projects. As such, isolating excise tax
expenditures and road projects from the other funding sources was not possible. As a result,
this report deals with primary stable “road monies,” which include the excise tax, HURF and
LTAF for the cities and towns, and the excise tax and HURF for the County.
In addition, some of the nine entities were unable to provide detailed expenditure and project
information since the inception of the tax. Consequently, auditors’ analysis of detailed ex-penditures
was limited primarily to fiscal years 1994 through 1997, the time period for which
data was obtained for all of the entities. Similarly, this analysis of project data was limited to
fiscal years 1995 through 1997 since some of the cities, towns, and the County could not pro-vide
this information prior to fiscal year 1995.
Several methods were used in this analysis of past and future planned expenditures and road
projects, including:
n Reviewing general purpose financial statements and reports on compliance and the in-ternal
control structure from fiscal years 1987 through 1996 to determine if road monies
were used appropriately (for road purposes);
n Reviewing project data, city council, and county board of supervisor meeting minutes
from 1995 through 1997 and interviewing public works personnel and city management
officials to determine the types of road projects completed by the nine entities;
n Accompanying personnel from the County and three municipalities to observe road proj-ects
financed by road monies and to view existing road needs; and
4
n Examining planning, capital improvement, and budget documents to identify road needs
and the efforts made to address such needs.
This report presents findings and recommendations in two areas:
n The impact of road monies on the County’s, cities’, and towns’ ability to address trans-portation
problems; and
n The need for some cities and towns to discontinue the practice of inappropriately loaning
road monies to other funds for non-road purposes.
This audit was conducted in accordance with government auditing standards.
The Auditor General and his staff express appreciation to the Director and staff of the Pinal
County Department of Civil Works; and the management and staff of the following munici-palities:
Apache Junction, Casa Grande, Coolidge, Eloy, Florence, Kearny, Mammoth, and
Superior for their cooperation and assistance throughout the audit.
5
FINDING I
TAX HAS PROVIDED DIFFERING
LEVELS OF IMPACT
The transportation excise tax has had varying levels of impact in solving Pinal County’s
transportation problems. Although the tax has not generated as much additional revenue as
anticipated, the County has effectively used excise tax revenues to build new roads and re-construct
existing roads. However, the impact of the excise tax on the eight cities and towns is
less clear, with many of them spending only a portion of their primary stable road funding
over the last ten years.
Excise Tax Revenues
Fall Short of Projections
Although the publicity pamphlet prepared for Pinal County voters in 1986 described the
road tax as “additional funding for the construction, reconstruction, maintenance, repair and roadside
development of County and town roads, streets and bridges,” the tax has not generated as much
“additional” funding as originally anticipated. While the excise tax was estimated to generate
between $125 to $200 million before it expires in 2006, actual revenues have fallen short of
projected revenue by at least $1 million each year since 1988, and over $2 million each year
since 1993. Consequently, excise tax revenue, which was projected to yield a total of $61 mil-lion
from fiscal year 1987 to fiscal year 1997 to assist the County, cities, and towns with their
road needs, has reached only $40 million, or about 65 percent of projections.
For the County, the excise tax has provided even less “additional funding” because it essen-tially
replaced a primary source of road funding soon after it was implemented. Prior to the
inception of the excise tax, the County’s Department of Civil Works relied primarily on
Highway User Revenue Fund (HURF) allotments and property taxes earmarked for roads as
its main funding sources. However, one year after the excise tax was implemented, County
supervisors began reducing property taxes dedicated for roads. By 1989, the property tax as a
source of road funding was eliminated altogether, leaving only HURF and the excise tax as
the County’s primary stable revenue sources for roads. The portion of property taxes ear-marked
for roads would have yielded an additional $12.7 million from fiscal years 1988 to
1997 for the County had it not been eliminated.1
1 This figure is based on a property tax rate of 25 cents per $100 valuation, which was in existence prior
to the reduction and eventual elimination of the tax.
6
County Uses Excise Tax
for New Road Construction
and Reconstruction
Despite the shortfall in tax revenues, the Pinal County Department of Civil Works has effec-tively
used its portion of transportation excise tax revenues to build new roads and recon-struct
existing ones. Although the County has used 90 percent of its primary stable road
monies to address transportation problems, road needs continue to exceed available revenue.
Excise tax helps County build new roads and reconstruct existing ones—The excise tax,
which comprises approximately 25 percent of the County’s primary stable road funding, has
helped the County address transportation problems by funding the construction of new
roads and the reconstruction of existing ones. The County earmarked these monies primarily
for new road construction and reconstruction soon after the tax was passed, leaving the
HURF monies to pay for maintenance and most pavement preservation projects. In 1989, the
Department of Civil Works created a Transportation Advisory Committee (TAC) for each of
the County’s three districts to oversee excise tax expenditures as well as to increase citizen
participation. These committees, composed of seven public members, are responsible for as-sisting
the Department of Civil Works in prioritizing road projects, with the County Board of
Supervisors giving final approval.
A review of road projects completed between fiscal years 1995 and 1997 confirmed that the
County did, in fact, spend most of its excise tax monies during this period on new road con-struction
and reconstruction projects.1 Overall, the County spent $10,088,604 on road projects
financed with excise tax monies with 90 percent of these monies being expended on new
road construction and reconstruction projects.2 Table 2 (see page 7) provides examples of
projects completed with the excise tax monies during this time period.
In addition to financing new road construction and reconstruction for the County, the excise
tax has also enabled the Department of Civil Works to generate additional revenue from ex-ternal
sources for road projects. For example, the County was able to provide almost $3.5
million of improvements to the Maricopa-Casa Grande Highway with only $450,000 of
County money because of external support from the Federal Highway Administration, the
City of Casa Grande, and private business. According to the director of the Pinal County De-partment
of Civil Works, the availability of the excise tax was critical to securing these exter-nal
monies.
1 The County was unable to provide road project records prior to fiscal year 1995.
2 This figure includes jointly funded projects.
7
Table 2
Examples of Pinal County Road Projects
Funded with Excise Tax Monies
Years Ended June 30, 1995 through 1997
(Unaudited)
Location
Length in
Miles Problem Solution
Cost of
Project
Russell Road 0.8 Deteriorated surface Reconstruct paved
surface
$138,036
McCartney Road
Phase 1 and 2
2.0 Access road to
Casa Grande’s new
high school
Construct new
road
$305,103
Val Vista Road
Apache Junction
0.9 Poor access and drainage Pave dirt road and
install box culverts
$265,240
Source: Pinal County Department of Civil Works’ project records.
Excise tax will not likely help the County address all transportation problems—While the
County has effectively used its road monies to address transportation problems, its esti-mated
road needs are still expected to exceed available revenues. The Arizona Department
of Transportation (ADOT) sends out a survey to all counties, cities, towns, tribes, and cer-tain
federal agencies in the State every five years to determine their road needs for the up-coming
decade. This survey serves as a method of identifying road needs and future
planned road projects. According to the 1995 transportation needs assessment, the County
cited road needs totaling $98,535,670 for fiscal years 1996 through 2000, many of which are
to correct deteriorated surfaces on existing roads. However, revenue projections indicate
the County can expect to receive only $50,890,370, or 52 percent of what is needed in pri-mary
stable funding during that same period to address these needs.
Impact of Tax Revenues on
Cities and Towns Less Clear
Although the cities and towns, like the County, also have substantial road needs, it is more
difficult to assess the impact the excise tax has had on their ability to address these needs. The
cities and towns have used road monies for multiple purposes; however, a review of road
revenues and expenditures revealed that many have not used all of their available road
monies, instead accumulating large fund balances. These fund balances exist in spite of sig-nificant
existing road needs.
8
Cities and towns use smaller portion of road monies—While the cities and towns within
Pinal County have used road monies to some degree to address road needs, many are not
using all the “additional monies” the excise tax was intended to provide. As illustrated in
Table 3, the cities and towns have used their road monies for a variety of purposes.
Table 3
Pinal County Municipalities
Major Use of Primary Stable Road Monies
Years Ended June 30, 1995 through 19971
(Unaudited)
Municipality Major Use2
Casa Grande New construction and reconstruction
Apache Junction New construction and pavement preservation
Florence Drainage and reconstruction
Eloy Road maintenance
Coolidge Reconstruction and pavement preservation
Superior Pavement preservation
Kearny Road maintenance
Mammoth Road maintenance
1 Excludes operating expenditures.
2 Road project definitions obtained from the Manual of Highway Improvement and Maintenance Costs, Arizona
Department of Transportation, December 1993.
Source: Auditor General staff analysis of Pinal County city and town road project records, audited financial
reports, unaudited financial statement worksheets, and city and town council minutes.
However, an analysis of road fund revenues and expenditures since the inception of the tax
reveals that the cities and towns received $17,944,135 in excise tax revenues from fiscal years
1987 through 1996 while at the same time increasing fund balances by $7,045,309 for the same
time period.1 As illustrated in Table 4 (see page 9), the difference between total excise tax
revenues received and the increase in fund balances from fiscal years 1987-1996 for each mu-nicipality
suggests that most have, in effect, spent 60 percent or less of their excise tax reve-nue.
For example, the Town of Florence received $2,207,569 in excise tax revenue from fiscal
years 1987 through 1996. However, during the same time period, its fund balance increased
1 Fund balances are made up of unexpended revenues from HURF, LTAF, and excise tax. The revenues
received and fund balance amounts are based on only six of the eight cities and towns since auditors
were unable to obtain a full ten-year fund balance history for the Towns of Kearny and Superior.
9
by $1,270,097, suggesting it expended only 43 percent of the “additional monies” the excise
tax provided.
Table 4
Pinal County Municipalities
Percentage of Additional Monies Expended
Years Ended June 30, 1987 through 1996
(Unaudited)
Municipality
Excise Tax
Revenue Received
Percentage
Expended
Apache Junction $5,216,219 81%
Casa Grande $5,633,395 60
Mammoth $579,647 57
Coolidge $2,192,831 56
Florence $2,207,569 43
Eloy $2,114,474 38
Source: Auditor General staff analysis of municipalities’ audited annual financial reports and Pinal County
Treasurer’s excise tax distribution data.
Reasons for not spending more of the road monies vary from city to city. Some city and town
managers indicated that they save the road monies in order to pay for large projects in the
future. While auditors’ analysis of fund balances confirms this pattern to some degree, fund
balances are still significant even after high spending years. Other city managers indicated
they save the monies for emergencies, while others could provide no clear explanation as to
why they have not spent more of their available revenue.
Cities and towns also faced with numerous road needs—Despite the high fund balances
maintained by some of the cities and towns, most have road needs that exceed available
revenue. The 1995 ADOT transportation needs assessment cited road needs for Pinal
County’s cities and towns totaling $79,334,345 for fiscal years 1996 through 2000. Yet primary
stable road monies for that same time period are estimated to be only $59,402,223, or 75 per-cent
of anticipated needs.1
Although projected revenue will not likely address all transportation problems, some cities
and towns appear to have large enough fund balances to address at least some existing
road needs. For example, results from a 1995 citizen survey conducted in Mammoth by the
1 This figure also includes fund balances for seven of the eight municipalities as of June 30, 1995. The
Town of Kearny’s 1995 ending fund balance was unavailable.
10
Central Arizona Association of Governments (CAAG) cited street improvements as the
Town’s most important need. Likewise, a 1996 Economic Development Program report
produced by CAAG listed Mammoth’s transportation needs as urgent, requiring $900,000
in street improvements throughout the Town. With the Town’s fiscal year 1996 ending fund
balance of $317,083, one-third of its urgent needs could have been met. In addition, of the
projects cited in ADOT’s 1995 transportation needs assessment, five of the eight cities and
towns had at least three “backlogs” or projects that have been needed but not completed
since the last survey in 1990. One city with a fund balance of over $1 million in fiscal year
1996 had 45 backlogged projects, with many individually costing under $200,000. Another
city had 21 backlogged projects and a fund balance in fiscal year 1996 of $2.2 million.1
Recommendation
This chapter provides information only. Therefore, no recommendations are presented.
1 The County also has backlogged projects listed on the 1995 transportation needs assessment. How-ever,
because it has expended 90 percent of its primary stable road funding over the last three years
to address its road needs, large, unused balances do not appear to be a problem.
11
FINDING II
SOME MUNICIPALITIES HAVE
INAPPROPRIATELY USED ROAD MONIES
Three of Pinal County’s cities and towns inappropriately loaned transportation excise tax and
additional road monies to other funds. Specifically, the municipalities established interfund
loans to funds with non-road purposes despite statutory restrictions on the use of these
monies. To ensure compliance with the law, the municipalities should restrict the use of road
monies to statutorily allowed purposes and also repay their road funds any outstanding
amounts they had loaned to other funds for non-road purposes.
Statutes Restrict
Use of Road Monies
As noted earlier, the eight incorporated cities and towns within Pinal County have three pri-mary
stable sources of road revenue: the excise tax, the Arizona Highway User Revenue
Fund (HURF) allotment, and the Local Area Transportation Assistance Fund (LTAF) allot-ment.
Arizona statutes explicitly limit expenditure of these monies for highway, street, and
transportation purposes. Specifically, A.R.S. §28-6392 states that the excise tax monies may
only be used for “street and highway purposes or for transportation projects included in the regional
transportation plan of the county…” Similarly, A.R.S. §28-8102 restricts LTAF monies for trans-portation
purposes.1 Finally, A.R.S. §28-6533 stipulates that HURF monies may only be ex-pended
for highway and street purposes as prescribed in Article IX, §14 of the Constitution
of Arizona, which include “costs of rights-of-way acquisitions and expenses related thereto, con-struction,
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.”
As these revenue sources are restricted for similar purposes, several of the cities and towns
commingle them into one fund to pay for road projects. Consequently, road expenses paid
for out of the fund may be financed by more than one revenue source. Thus, it is not possible
to determine the extent to which the excise tax, specifically, was inappropriately used. Re-gardless,
all three sources of road monies are still similarly restricted for highway, street, and
transportation purposes.
1 A.R.S. §28-8103 allows a city or town to authorize by resolution the use of up to 10 percent of its LTAF
monies in any one fiscal year for cultural, educational, historical, recreational, or scientific facilities or
programs for nonresidential outpatient programs or services for developmentally disabled persons if
the monies are matched equally by nonpublic monies received by the city or town and expended for the
same purposes.
12
Municipalities Using Road
Revenue for Non-road Purposes
Over the past several years, the following three municipalities have inappropriately loaned
road monies to other funds, primarily to pay for general and enterprise fund expenditures
and expenses:
n Eloy—Since at least 1987, the City of Eloy has loaned road monies primarily to its enter-prise
funds to cover an excess of expenses over revenues. Specifically, the City loaned
road monies to the utility services and golf course enterprises. The revenues for these two
enterprises failed to meet operating expenses and the annual payment on a $3.8 million
bond for the golf course. Until recently, the amount of road monies loaned to these funds
had increased and reached a peak of $741,350 in fiscal year 1996. However, as of June 30,
1997, the outstanding balance had been reduced to $419,150. The City raised utility rates
in 1996 and is currently exploring options for selling the golf course in an attempt to alle-viate
this problem. However, over the last four fiscal years, the utility services and golf
course enterprise funds have lacked the resources to repay the loans and have ended each
fiscal year with deficit retained earnings.
n Mammoth—Since 1991, the Town of Mammoth has loaned road monies primarily to its
general fund to cover an excess of expenditures over revenues. In 1994, the Town insti-tuted
a 2 percent sales tax in an effort to alleviate this shortfall. Until recently, the amount
of road monies loaned to the general fund had typically increased each year, reaching a
peak of approximately $300,000 in fiscal year 1996. However, as of June 30, 1997, the out-standing
balance of road monies loaned for non-road purposes was reduced to $24,429.
n Florence—Although the Town of Florence has since repaid the monies borrowed from
its road fund, between 1987 and 1994 it also loaned road monies, primarily to its general
fund. Loans were made even though the general fund had the assets to cover annual ex-penditures
for every year except one. End-of-fiscal year balances for these loans ranged
from approximately $121,000 to $797,000. Current Town personnel could not provide a
specific reason for the loans, but indicated that the practice ended in 1995 with a change
in Town personnel.
13
Municipalities Should Comply
with Statutory Restrictions
Governing Road Monies
The municipalities should take two actions to comply with statutes governing the use of road
monies.
n First, they should immediately cease using road monies for non-road purposes. While
Florence ceased this practice and repaid its outstanding loan in 1995, Eloy and Mammoth
are still inappropriately loaning their road monies for non-road purposes.
n Second, Eloy and Mammoth should promptly repay to their road funds all outstanding
amounts of monies they have inappropriately borrowed. As of fiscal year 1997, Eloy still
owed $419,150 and Mammoth owed $24,429. If monies are not available to immediately
and completely repay the road monies, the municipalities should develop and implement
a repayment schedule.
Recommendation
To comply with statutory requirements, Eloy and Mammoth should promptly:
n Discontinue the practice of using road monies for non-road purposes; and
n Repay inappropriately borrowed road monies. If resources are not currently available to
completely repay loans, a repayment schedule should be developed and implemented.
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Agency Response
City of
Casa Grande
March 23, 1998
Mr. Douglas R. Norton
Auditor General
2910 North 44th Street
Suite 410
Phoenix, AZ 85018
Dear Mr. Norton:
The City of Casa Grande is in receipt of the preliminary report of the Pinal County Transportation
Excise Tax Report. This report is based on the compliance audit conducted under the authority
vested in the Auditor General by Arizona Revised Statutes to review cent excise tax monies. The
City of Casa Grande does not agree with the findings of the Auditor General, and there were no
recommendations to be implemented.
The City of Casa Grande receives HURF, LTAF, and excise tax funds which are accounted for in
a special revenue fund. Because of the purpose of the funds, all monies are accounted for in one
fund. The special revenue fund, however, is segregated to account for the revenues and
expenditures separately because of the specific purpose for each type of revenue source. The City
uses HURF funds to maintain the existing 175 miles of streets. LTAF is used in either
maintenance or reconstruction with ten percent going to cultural arts. Excise tax funds are used
for new construction and reconstruction only.
Road construction and reconstruction vary in cost ranging from hundred thousands to millions of
dollars. The City of Casa Grande has received an increasing amount of excise tax funds ranging
from $200,000 to $800,000 per year. The City’s most recent project was over $1.8 million in
which took over two years to accumulate enough funds for the project. Depending on what point
in time you look at the City’s fund balance, you may find an accumulation of funds. This practice
is necessary due to the expense of the projects.
The preliminary report suggests the scope of the audit to be through the recent fiscal year 1997
yet Table 4 “Pinal County Municipalities Percentage of Additional Monies Expended” is only
through 1996. Most of the numerical statements or statistics are also only through 1996. If taken
through 1997, you would find the City of Casa Grande spending over $1.8 million on construction
and reconstruction, thereby depleting any excess excise tax funds. The report incorrectly infers
the total increase in fund balance to belong to excise tax thereby obtaining a percentage of
unspent excise tax. Reiterating, the fund balance belongs to all revenue sources HURF, LTAF
and excise tax. The funds are for specific purposes and are segregated. HURF’s portion of the
fund balance needs to maintain the City’s 175 miles of streets. The report implies that all of the
fund balance is available for construction/reconstruction. Another erroneous assumption in the
report is that the City has backlogged projects costing $100,000 - $1,000,000 and that the fund
balance should be used on the less costly projects first. City staff and Council may have deemed a
multi-million dollar project more urgent and a more efficient use of resources.
I have attached a schedule for excise tax funds since 1986 showing excise tax revenues, interest
earnings and excise tax expenditures. Assuming we spend interest earnings first, the schedule
shows at the end of fiscal year 1997 that the City of Casa Grande had 2.94 percent of excise tax
monies available. Concluding the City has used over 97 percent of our allocated excise tax funds.
The preliminary report states the City of Casa Grande has spent 60 percent of allocated excise tax
funds.
The preliminary report is misleading in that part of the report covers through 1997 and yet some
of the numerical values or statistics are only through 1996. Some assumptions are not consistent
with how the excise tax is accounted for in that 1) the City can not segregate expenditures, 2) all
of fund balance is available for construction/reconstruction, and 3) lower cost projects should be
completed first. Your review of the preliminary report along with the attached spreadsheet and
financial statements would be greatly appreciated.
Sincerely,
Marilyn Mays
Supervising Accountant
Enclosure
xc: Ken Buchanan, City Manager
Frank N. Brown, Finance Director
Bob Jackson, Public Works Director
March 3, 1998
Mr. Douglas R. Norton
Auditor General
State of Arizona
2910 North 44th Street, Suite 410
Phoenix, Arizona 85018
Dear Mr. Norton:
The City of Eloy has received the preliminary report draft of the performance audit
conducted by the Office of the Auditor General. As requested, included herein is the
City’s preliminary written response to each recommendation contained in the
performance audit.
Finding II: The City of Eloy has inappropriately loaned transportation excise tax and
additional road monies to other funds to cover an excess of expenses over revenues.
Recommendation #1: Discontinue the practice of using road monies for non-road
purposes.
Response: The finding of the Auditor General is agreed to and the audit
recommendation will be implemented.
Recommendation #2: Repay inappropriately borrowed road monies. If resources are
not currently available to completely repay loans, a repayment schedule should be
developed and implemented.
Response: The finding of the Auditor General is agreed to and the audit
recommendation will be implemented.
I would also like to add that the City was aware of these inappropriate practices and has
been addressing the problem. The utility and golf course funds were the primary funds
that were being loaned these road monies. In 1996 the City increased utility rates, and
are now performing annual reviews of the utility funds with its Utilities Advisory Board.
The function of this board is to review the funds and make recommendations to the City
Council that would allow these funds to be self-supporting.
Also, the City is currently negotiating a sale of its golf course. The sale of the course
would help tremendously toward discontinuing these inappropriate practices.
Because of measures already taken by the City in addressing this issue, the balance owed
to the road fund decreased from $741,350 as of June 30, 1996, to $419,150 as of June
30, 1997. The City is moving in the right direction.
I would like to thank you and your staff for their assistance, and the opportunity to
respond to the report.
Sincerely,
Robert Camareno
Finance Director
cc: Mark A. Higgins, City Attorney/Interim City Manager
March 12, 1998
Douglas R. Norton, Auditor General
State of Arizona
2910 N. 44th Street, Suite 410
Phoenix, Arizona 85018
SUBJECT: Response to Report - Pinal County Transportation Excise Tax
Dear Mr. Norton:
I am writing to acknowledge receipt of the report on the County Transportation Excise Tax and
would like to take this opportunity to offer a few observations.
First, with regard to the recommendations or findings contained in the report, it was noted that
some communities, including Florence in the past, have improperly used road monies by making
loans to other funds. It is of course noted that Florence has discontinued this practice and has
paid back all such monies loaned. I simply want to re-affirm our comments to your staff, that
the Town administration will not allow this to happen in the future.
Secondly, I would like to offer some observations about the conclusions drawn or inferred relative
to cities and towns not spending all of their road fund revenues received and instead allowing their
fund balances to build up.
As noted in the report, in most instances, the revenues from the excise tax, LTAF and HURF
were commingled and then utilized. As a result of this, it is difficult if not impossible to determine
whether the monies used for XYZ street project were in fact excise tax revenues, HURF or LTAF
funds. Likewise, in looking at "increasing fund balances”, it is difficult to determine what revenue
source was not spent on road projects and was kept in fund balance for future emergencies or
large projects.
In looking at the three sources of road revenues, I would submit that the excise tax revenues are
the most stable of the three sources in that they came about as a result of a vote of the people of
Pinal County. We are also well aware of the fact that the other two revenue sources are eyed
annually by the State Legislature as a potential source of funds that could be tapped. Because of
this, both the HURF and LTAF funds are viewed as the less stable sources of the three and
therefore would be the most likely funds to be carried forward for future emergencies. This
excise, taxes, however, would be those first spent, because the cities and towns are more certain
they will be receiving them again the following year. In summary, I do not think one can draw
conclusion that because not all of the commingled funds were spent, that the excise tax revenues
went into increasing fund balances.
I appreciate the opportunity to review and comment on the report and as I indicated to your staff,
I do not feel it necessary to have a meeting to discuss it further.
Should you have any questions regarding any of the above, please feel free to contact me at your
convenience.
Sincerely,
John C.F. Geib,
Town Manager
TOWN OF MAMMOTH
P.O. BOX 30
MAMMOTH, AZ 85618
(520) 487-2331 / FAX (520) 487-2152
March 5, 1998
Mr. Douglas Norton
Auditor General
2910 N. 44th Street, Suite 410
Phoenix, AZ 85018
Dear Mr. Norton:
The Town of Mammoth has received the report of the performance audit conducted by the Office
of the Auditor General. As a new staff member who began on December 17, 1998, I am grateful
for the identification of the areas in which the Town needs to improve. Following are the Town's
responses to the recommendations in the audit:
Finding I: The Town of Mammoth agrees that it has an urgent need to do street
improvements and will make efforts in the future to pursue this. The Town agrees
it must replace road funds and will set up a special line items in the General Ledger
whereby the funds can be identified and used.
Finding II: The Town of Mammoth agrees that it would be beneficial to set up separate areas
for excise, LTAF, and HURF tax monies to assure the proper use of such. The
Town will immediately cease using road monies for non-road purposes. The Town
will review it’s resources to begin implementing a repayment schedule. It should
be noted the passing of the May 19, 1998 Home Rule election would assist this
effort.
Thank you for the opportunity to respond to the report. If there is any other information you
require, please do not hesitate to contact me.
Sincerely,
T. Rae Zapata
Town Clerk / Finance Director
trz
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