STATE SHARED REVENUES – FINAL FY 2025 BUDGET ESTIMATES – MAY 30, 2024
The final estimate of shared revenues for each city and town for FY 2025 is set forth in this report. We obtained the total dollar figures subject to distribution from the Arizona Department of Transportation (ADOT provides the numbers for VLT and HURF) and the Arizona Department of Revenue (ADOR provides the numbers for TPT and URS). Please recognize that most total distribution figures are estimates, so they are subject to change.
Population Figures for Shared Revenue Estimates
As directed by statute, the city and town population figures used for the distribution of state shared revenues are the official U.S. Census Bureau population estimates for each municipality as of July 1 of the prior year. The allocated amounts in this preliminary report were calculated using the Census Bureau’s July 2023 population estimate figures.
NOTE: The total population estimate for the state increased year-over-year at a rate that was less than expected and significantly below the trend for recent years. The overall incorporated population estimate increased by just under 1% for the year, from 5,898,735 to 5,955,436.
There are also more cities and towns than usual with population estimates that did not grow as much as anticipated or that declined compared to last year. A variety of causes may be involved, but the most frequently cited item is the Census Bureau placing added emphasis on Federal income tax filing data by locality versus reliance on the raw number of residential units available. This approach provides more accurate identification of resident housing units and related population figures, by removing housing units taken from inventory for short-term rentals and other uses. While other influences may also be involved, this change could be one of the key issues resulting in reduced population estimates for some cities and towns. Aside from the usual opportunity to correct boundaries for unrecognized annexations, there is no appeal or protest process available. We will continue to monitor this item and will provide updates if any added information becomes available.
| U.S. Census Bureau Population Figures | 2022 July 1 Estimate | 2023 July 1 Estimate |
|---|---|---|
| Designated Population for TPT / HURF / VLT: | 5,898,735 | 5,955,436 |
| Designated Population for URS (1,500 min.): | 5,905,169 | 5,961,877 |
Shared Revenue Estimates by Tax Type
The tables found in this report list the estimated distribution of revenue to each city and town during FY 2025 from the Vehicle License Tax (VLT), Highway User Revenue Fund (HURF), State Transaction Privilege Tax (TPT), and State Income Tax, formally designated as Urban Revenue Sharing (URS).
Vehicle License Tax (VLT), A.R.S. § 28-5808 – Adopted by statute in 1956, cities and towns receive 20.45% of the Vehicle License Tax revenues collected by ADOT primarily from the annual registration of motor vehicles. These monies are distributed semi-monthly based on collections since the last distribution and may be spent for any municipal public purpose. A city or town receives its share of VLT based on its population in relation to the total incorporated population of their county, coupled with a formula that considers the “county of origin” where vehicles are registered. The ADOT estimate of the total VLT distribution to cities and towns for FY 2025 is $326,637,000, approximately 0.18% more than last year’s estimate of $326,047,000.
Highway User Revenue Fund (HURF) , A.R.S. § 28-6540 – Adopted by statute in 1956, HURF is primarily funded by the 18 cents-per-gallon tax on gasoline, so it is often referred to as the “gas tax” but there are several other sources that also contribute to HURF, including portions of Use Fuel taxes, VLT revenues, motor carrier taxes, operator’s license fees, and the excise tax on recreational marijuana sales. Cities and towns receive 27.5% of the total collections deposited into HURF. HURF monies are distributed monthly based on collections since the previous distribution. HURF is restricted by statute: distributions can only be used for street and highway expenditures. A city or town receives one-half of its HURF allocation based on its population relative to the total population of all incorporated cities and towns. The remaining half is allocated based on a formula that considers the “county of origin” of all gasoline sales and the city’s population relative to the total incorporated city/town population in the same county. The ADOT estimate of the total HURF distribution to cities and towns for FY 2025 is $498,547,000, approximately (0.11%) lower than last year’s estimated figure of $499,094,000.
Note: The total figures above and the individual city amounts shown on the attached table do not include the additional distribution of 3% of HURF collections (estimated at $54,387,000) that is allocated per statute to cities with populations over 300,000 (Phoenix: ~$32,941,662; Tucson: ~$11,115,615; and Mesa: ~$10,329,723).
State Transaction Privilege Tax (TPT), A.R.S. § 42-5029 – Enacted by voters in 1958, cities and towns share in a portion of the total collections of TPT imposed at the State level. Each tax classification has a designated sharing percentage that goes into the distribution base and cities receive 25% of the base. Shared TPT is distributed semi-monthly based on collections since the previous distribution and may be spent for any municipal public purpose. A municipality receives its share of the state shared sales tax based solely on the relation of its population to the total population of all incorporated cities and towns. The FY 2025 ADOR estimate for state shared TPT is $900,000,000, approximately 2.57% higher than last year’s estimated figure of $877,470,000.
Urban Revenue Sharing (URS), A.R.S. § 43-206 – Enacted by voters in 1972 in exchange for cities and towns giving up the authority to assess local income taxes and local luxury taxes (liquor and tobacco), URS provided 15% of the net state income tax collected for distribution to cities and towns. In response to the State adopting a 2.5% flat income tax, in FY 2024 cities and towns began receiving 18% of the net state income tax collected. Note that the increased sharing percentage itself does not result in ongoing increased URS distributions. The State’s adoption of the 2.5% flat income tax rate results in reduced income tax collections and reduced shared revenues for cities and towns. The 18% sharing percentage was the result of negotiations intended to minimize the negative impact on cities and towns due to this income tax collection reduction, but it was never expected to fully replace or increase local revenues.
The amount of URS distributed is based on the total net income tax collections during the fiscal year two years prior to the distribution year. URS funds are distributed monthly based on 1/12 of the total available and may be spent for any municipal public purpose. This money is allocated to an individual city or town based solely on its population (or the 1,500 minimum for the nine smallest towns) in relation to the total population of all incorporated cities and towns. The FY 2025 ADOR estimate for URS is $1,268,200,000, approximately (18.96%) less than last year’s estimate of $1,564,819,794. (Note: This is the only revenue type that is likely to remain unchanged because it is based on collections from two years ago, subject to slight changes due to various adjustments such as late refunds, court decisions, etc.)
For long-term planning purposes, it should be noted that the State’s total income tax collections continue to be lower than the amounts projected when the flat tax was passed. In addition to the (19%) decline in URS from FY 2024 to FY 2025 identified in this report, our forecast of URS distributions shows an additional (10%) decline from FY 2025 to FY 2026, followed by little or no change from FY 2026 to FY 2027.
SUMMARY OF SHARED REVENUE ESTIMATES BY TYPE
In summary, the total estimated shared revenues for distribution to cities and towns in the upcoming fiscal year from each source based on the current state laws are as follows:
VLT – Vehicle License Tax
HURF – Highway User Revenue Fund
TPT – State Transaction Privilege Tax
URS – State Income Tax
$326,637,000
$498,547,000
$900,000,000
$1,268,200,000
Please recognize there is always the possibility of an unforeseen circumstance that could significantly alter these shared revenue forecasts, including changes enacted by the legislature in its current session.
We are aware of likely changes to both the VLT and HURF distribution estimates, but those figures will not be available until late June and the significance to any individual city or town may not be noteworthy. TPT may also change for FY 2025, but a revised figure was not available when this was published. If there are any noteworthy changes to any of these numbers, we will deliver revised estimates to you as quickly as possible.
If you have any questions, please give us a call.
STATE SHARED REVENUE
State Shared Revenue Is published annually by the League of Arizona Cities and Towns, 1820 W. Washington Street, Phoenix, AZ 85007
Phone: (602) 258-5786; Fax: (602) 253-3874; Email: league@azleague.org; Internet: www.azleague.org
Click here for past State Shared Revenue reports