1. Elliott D. Pollack & Company To: GFOAZ By: Jim Rounds Senior Vice President Elliott D. Pollack & Company February 21, 2014 Economic Outlook 2014-2015

2. Elliott D. Pollack & Company Economic Crisis Du Jour European Debt; U.S. Debt Ceiling; Rating Downgrade; ObamaCare; Fiscal Cliff; Sequestration; Govt. Shutdown; Debt Ceiling…Again; And Again… No growth for you!

3. Elliott D. Pollack & Company What is real?

4. Elliott D. Pollack & Company United States Real Gross Domestic Product* Annual Growth 1970 - 2015** Source: U.S. Bureau of Economic Analysis & Blue Chip Economic Indicators * Based on chained 2009 dollars. ** 2014 and 2015 are a forecast from the Blue Chip Economic Indicators, January 2014. Recession Periods 3.8% = 40-year avg during expansion 3.2% = 20-year avg during expansion

5. Elliott D. Pollack & Company US Non-Farm Employment Change from Prior Month (S/A) June 2010 – January 2014 Source: Bureau Labor of Statistics Feel Better When >200k

6. Elliott D. Pollack & Company U.S. Unemployment Rate 1970 – 2014* Source: Bureau of Labor Statistics Recession Periods *Seasonally adjusted data through January 2014 Underemployment = 12.7%

7. Elliott D. Pollack & Company U.S. Leading Indicators 1971 – 2013* Source: The Conference Board Recession Periods *Data through December 2013

8. Elliott D. Pollack & Company 10 Components of U.S. Leading Indicators – December 2013 Interest rate spread Manuf. new orders index Leading Credit Index (inverted) Stock prices Manuf. new orders – consumer goods Manuf. hours Consumer expectations Manuf. new orders – capital goods Building permits Claims for unemployment (inverted) + -

9. Elliott D. Pollack & Company Consumer Confidence 1978 – 2013* Source: The Dismal Scientist *Data through December 2013. Recession Periods Weary Worried Disenfranchised P.O.’d

10. Elliott D. Pollack & Company WEALTH EFFECT Housing prices are up. Stock market is up.

11. Elliott D. Pollack & Company Financial Obligation Ratio** 1980 – 2013 * Source: Federal Reserve *Data through third quarter 2013 **Ratio of mortgage and consumer debt (including auto, rent and tax payments) to disposable income. Recession Periods

12. Elliott D. Pollack & Company Household Debt Composition Percent Change Year Ago 2004 – 2013* Source: The Federal Reserve Bank of New York Recession Periods * Data through third quarter 2013.

13. Elliott D. Pollack & Company Interest RateMonthly Payment 3.0%$449.22 4.0%$460.00 5.0%$471.78 6.0%$483.32 7.0%$495.03 8.0%$506.91 9.0%$518.96 10.0%$531.18 How Rate Sensitive? $25,000 Car Loan Payments 5-Year Term

14. Elliott D. Pollack & Company Interest Rate $150,000 Loan $200,000 Loan $250,000 Loan 3.0%$632.41$843.21$1,054.01 4.0%$716.12$954.83$1,193.54 5.0%$805.23$1,073.64$1,342.05 6.0%$899.33$1,199.10$1,498.88 7.0%$997.95$1,330.60$1,663.26 8.0%$1,100.65$1,467.53$1,834.41 For Comparison: Mortgage Payments 30-Year Term Interest Rate $150,000 Loan $200,000 Loan $250,000 Loan 3.0%$632.41$843.21$1,054.01 4.0%$716.12$954.83$1,193.54 5.0%$805.23$1,073.64$1,342.05 6.0%$899.33$1,199.10$1,498.88 7.0%$997.95$1,330.60$1,663.26 8.0%$1,100.65$1,467.53$1,834.41

15. Elliott D. Pollack & Company Business

16. Elliott D. Pollack & Company Business Spending on Equipment Percent Change from Prior Quarter 2005 – 2013* Source: Bureau of Economic Analysis Recession Periods *Data through third quarter 2013

17. Elliott D. Pollack & Company Business Spending on Plant Percent Change from Prior Quarter 2005 – 2013* Source: Bureau of Economic Analysis Recession Periods *Data through third quarter 2013 Note: Data smoothed in Q1 of 2011

18. Elliott D. Pollack & Company Hours Worked Percent Change from Year Ago 1976 – 2013* Source: Bureau of Labor Statistics Recession Periods *Data through third quarter 2013

19. Elliott D. Pollack & Company US Non-Farm Employment Percent of Persons Working Full Time (S/A) 1970 – 2013* Source: Bureau Labor of Statistics Recession Periods *Data through December 2013. LT Average

20. Elliott D. Pollack & Company Top Sources of New Jobs U.S. Source: Bureau of Labor Statistics Job GrowthWage Total2,238,000$49,200 1Administrative Services435,900$34,870 2Food Services347,900$16,242 3Retail Trade316,700$27,729 4Health Care277,900$45,407 5Professional services220,200$83,357 6Construction180,000$52,294 7Wholesale Trade98,500$68,226 *Job growth January 2014/ January 2013

21. Elliott D. Pollack & Company Jobs are being created at a slow rate. Those that have jobs are spending a little more but will remain cautious. Unemployment should trend lower. Wealth levels are improving. Consumer Summary:

22. Elliott D. Pollack & Company Businesses are in better shape. Spending on equipment to continue to grow. Spending on plant will lag until capacity utilization goes higher…getting close. Employment to continue to grow. Business Summary:

23. Elliott D. Pollack & Company Federal Government

24. Elliott D. Pollack & Company Arizona At Risk For Spending Cuts Federal Spending as Percent of State GDP Pew Center for the States National Average = 5.3%

25. Elliott D. Pollack & Company What will they bring us this spring? Impact of the shutdown was overstated. We don’t want to go through this again though. Federal Government Summary:

26. Elliott D. Pollack & Company Arizona Jobs?

27. Elliott D. Pollack & Company 2 1 3 23 15 11 9 4 5 Alaska 24 7 10 Job Growth 2006 Source: US BLS Jobs growing Jobs declining Top 10 Hawaii 6 8 50 14

28. Elliott D. Pollack & Company 49 46 23 41 40 3 43 27 50 Hawaii 39 1 Alaska 2 18 48 4 10 5 Jobs growing Jobs declining Top 10 8 6 9 7 Job Growth 2010 Source: US BLS 32

29. Elliott D. Pollack & Company 9 49 14 5 3 43 17 11 4 1 2 Alaska 50 Jobs growing Jobs declining Top 10 Hawaii 26 8 21 Job Growth 2013* Source: US BLS 6 7 10 *Pre-revisions

30. Elliott D. Pollack & Company Arizona Rank Employment Growth 1990-2013 Source: Bureau of Labor Statistics *Pre-revisions

31. Elliott D. Pollack & Company Arizona Employment* Source: ADOA Sectors in Decline Net Change % Change Government-4,400-1.0% Manufacturing-2,500-1.6% Other Services-100-0.1% *December 2013/ December 2012 Sectors Improving Net Change % Change Trade, Transp. & Utilities15,1003.1% Education & Health Services12,8003.4% Financial Activities10,4005.8% Professional & Bus. Services6,6001.8% Leisure & Hospitality6,4002.4% Construction4,9004.2% Information3000.8% Natural Resources & Mining1000.8%

32. Elliott D. Pollack & Company Top Sources of New Jobs Arizona Source: Bureau of Labor Statistics, ADOA *Job growth December 2013/ December 2012 Job GrowthWage Total49,600$45,237 1Financial Activities10,400$59,564 2Health Care9,500$47,847 3Retail Trade8,200$29,843 4Professional Services6,600$49,866 5Wholesale Trade5,400$69,918 6Food Services5,000$16,452 7Construction4,900$47,020

33. Elliott D. Pollack & Company Top Sources of New Jobs U.S. Source: Bureau of Labor Statistics Job GrowthWage Total2,193,000$49,200 1Administrative Services411,300$34,870 2Retail Trade406,900$27,729 3Food services294,000$16,242 4Health Care281,400$45,407 5Professional services175,800$83,357 6Construction123,000$52,294 7Wholesale Trade97,500$68,226 *Job growth December 2013/ December 2012

34. Elliott D. Pollack & Company Arizona Job Losses Exceeded U.S. Source: Bureau of Labor Statistics, Seasonally Adjusted Data Slide stolen from Lee McPheters…

35. Elliott D. Pollack & Company Arizona Jobs Regained Since Bottom of Cycle Most Industries Yet To Regain Lost Jobs Source: U.S. Bureau of Labor Statistics, Thousands of Jobs, Seasonally Adjusted, As of December 2013

36. Elliott D. Pollack & Company Greater Phoenix Employment* Source: ADOA Sectors in Decline Net Change % Change Manufacturing-2,100-1.8% Government-2,100-0.9% Natural Resources and Mining -300-7.7% *December 2013/ December 2012 Sectors Improving Net Change % Change Trade, Transp. & Utilities12,8003.4% Education & Health Services10,9004.2% Financial Activities8,3005.5% Professional & Bus. Services6,3002.2% Leisure and Hospitality5,2002.8% Construction5,0005.6% Other Services1,0001.6% Information4001.3%

37. Elliott D. Pollack & Company Employment Levels: Greater Phoenix back to Peak in 2016? Source: ADOA Recession Periods Peak *Based on seasonally unadjusted monthly data

38. Elliott D. Pollack & Company Tucson

39. Elliott D. Pollack & Company Tucson Total Nonfarm Employment NSA 1990 – 2013* Source: Bureau of Labor Statistics Recession Periods *Data through December 2013.

40. Elliott D. Pollack & Company Tucson Employment* Source: ADOA Sectors in Decline Net Change % Change Construction-1,000-6.7% Government-800-1.0% Professional & Business Services -400-0.8% Information-300-7.0% Other Services-200-1.6% Manufacturing-100-0.4% *December 2013/ December 2012 Sectors Improving Net Change % Change Trade, Transp. & Utilities1,7002.8% Financial Activities8004.2% Leisure & Hospitality4001.0% Education & Health Services2000.3% Natural Resources & Mining1004.8%

41. Elliott D. Pollack & Company Remainder of State

42. Elliott D. Pollack & Company Balance of State Employment* Source: ADOA Sectors in Decline Net Change Government-1,500 Other Services-900 Manufacturing-300 *December 2013/ December 2012 Sectors Improving Net Change Education & Health Services1,700 Financial Activities1,300 Construction900 Leisure & Hospitality800 Professional & Business Services700 Trade, Transp. & Utilities600 Natural Resources & Mining300 Information200

43. Elliott D. Pollack & Company Population?

44. Elliott D. Pollack & Company Why did population flows slow? Slow job growth, High un(der)employment, Delayed retirement, Difficulty in selling home, Difficulty in qualifying for a loan, Etc.

45. Elliott D. Pollack & Company 2 4 8 1 10 Arizona Population Growth Was Slow But Still Top 10 in 2012 Percent Change 2012 7 U. S. Census Bureau 6 5 3 9

46. Elliott D. Pollack & Company Arizona Rank - Population Growth 1991-2012 Source: Census Bureau

47. Elliott D. Pollack & Company 1 9 4 2 7 10 6 5 8 31 States in Red Lost Domestic Population to 19 States in Green Texas, Florida, Arizona Attracted Most Domestic Migrants in 2012 3 Alaska Hawaii U.S. Census Bureau Slide stolen from Lee McPheters…

48. Elliott D. Pollack & Company Arizona Domestic Migration Ranking Source: U.S. Census Bureau YearRank 20052 20063 20074 20083 200911 201112 20123 *No data available for 2010

49. Elliott D. Pollack & Company Arizona International Migration Ranking Source: U.S. Census Bureau YearRank 20058 20069 20078 20089 20098 20118 201218 *No data available for 2010

50. Elliott D. Pollack & Company Housing?

51. Elliott D. Pollack & Company Greater Phoenix Single Family Permits Source: RL Brown YearPermits% chg 200460,87227.6% 200563,5704.4% 200642,423-33.3% 200731,172-26.5% 200812,582-59.6% 20098,027-36.2% 20106,822-15.0% 20116,794-0.4% 201211,61571.0% 201312,78510.1%

52. Elliott D. Pollack & Company Single Family Permits Greater Phoenix 1975–2016* Source: RL Brown & Elliott D. Pollack & company # Permits (000) *2014 – 2016 forecast is from Elliott D. Pollack & Company

53. Elliott D. Pollack & Company Home Prices Indices Greater Phoenix 1989 – 2013* Source: Macro Markets, LLC; AMLS Recession Periods *Data through November 2013.

54. Elliott D. Pollack & Company Greater Tucson - Single Family Permits 1990–2013 Source: Bright Future Real Estate Research Recession Periods

55. Elliott D. Pollack & Company Tucson New Median Home Price 2000-2013* Source: Bright Future Real Estate Research *Data through December 2013. Recession Periods

56. Elliott D. Pollack & Company Tucson Resale Median Home Price 2000-2013* Source: Bright Future Real Estate Research *Data through December 2013. Recession Periods

57. Elliott D. Pollack & Company What Else Will/ Can Happen?

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

59. Elliott D. Pollack & Company Leads to… Retirement freedom, Ability to move, Comfort with additional spending, Etc.

60. Elliott D. Pollack & Company Source: CBRE Competitiveness Map – 2011, 2012 Source : CBRE

61. Elliott D. Pollack & Company Competitiveness Map – 2013 Source : CBRE Too far or just right?

62. Elliott D. Pollack & Company Perception/Marketing Issues - AZ Example: - Rankings (1-50 example, state and local). - Branding (state and local). - Consistent theme (“smart state/city”). - Strategic research of self and competitors (state and local). State: Any Areas of Need?

63. Elliott D. Pollack & Company Long term infrastructure support? How to fund? Limited resources. State: Any Areas of Need?

64. Elliott D. Pollack & Company Education: - Studies have become political statements rather than solid, fundamental analyses. - Remedy? What was done on economic development? State: Any Areas of Need?

65. Elliott D. Pollack & Company Others? State: Any Areas of Need?

66. Elliott D. Pollack & Company Forecasting and Budgeting

67. Elliott D. Pollack & Company Things to keep in mind:  Avg. expansion is just under 5 years,  The current expansion will hit 5 years this summer,  But, its not the age, it’s the mileage,  How many more years of growth? Forecasting & Budgeting

68. Elliott D. Pollack & Company Things to keep in mind:  Less time to plan for next downturn,  Less time to build infrastructure,  Etc.  What are you doing now in terms of longer term planning? Forecasting & Budgeting

69. Elliott D. Pollack & Company Forecasting & Budgeting Risk Revenues Most Likely Pessimistic

70. Elliott D. Pollack & Company Forecasting & Budgeting Risk Revenues Most Likely Pessimistic Recession Normal Expansion Now

71. Elliott D. Pollack & Company Forecasting & Budgeting Risk Revenues Most Likely Pessimistic Highest Risk ?

72. Elliott D. Pollack & Company The last dollar that is projected is the most risky. Marginal analysis. What to do?  True “most likely”?  Capital?  Reserves? Forecasting & Budgeting

73. Elliott D. Pollack & Company Forecasting & Budgeting Risk Revenues Most Likely Pessimistic Highest Risk ?

74. Elliott D. Pollack & Company Questions?

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