POLLACK PRESENTATION.PDF

Second Half of 2016:
Same Anemia, More Craziness.
Maricopa County Board of Supervisors
August 15th, 2016
Presented By:
Elliott D. Pollack
CEO, Elliott D. Pollack & Company
Elliott D. Pollack & Company

RISKS
• Higher now that we are deeper
into the expansion.
• The Election - Assume both
major-parties will not live up to
their platform if elected.
Elliott D. Pollack & Company 2

So, it’s time to be cautious.
Elliott D. Pollack & Company 3

Overall, expansions don't
die of old age.
Elliott D. Pollack & Company 4

They die from things that
make an economy vulnerable
to exogenous shocks or asset
bubbles or a tightening in
Fed policy.
Elliott D. Pollack & Company 5

As recoveries get older, they
become more vulnerable to
shocks...
…Just as people get older
they become more vulnerable
to diseases.
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So, it is time to be more
cautious and at least consider
alternatives.
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“The time to repair the roof is
when the sun is shining.”
[State of the Union Address January 11, 1962]
― John F. Kennedy
Elliott D. Pollack & Company 8

Maricopa County is entering a
period of unknowns.
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Over the last two decades,
Elliott D. Pollack & company’s
job has been to
help the County stay out of
financial trouble.
Elliott D. Pollack & Company 10

This has been a successful
endeavor because…
1. Reasonable forecasts
2. An excellent County staff
3. A realistic and thoughtful Board of Supervisors
Elliott D. Pollack & Company 11

The County now faces…
1. A potential slowdown in economic activity.
2. A potentially diminishing contingency fund,
at a time when you don’t want it to be
diminished.
3. The last few months of sales tax growth
have been very slow. FY17 forecasts will be
impacted.
Elliott D. Pollack & Company 12

Maricopa County Retail Sales
Percent Change Year Ago*
1999 – 2016**
Source: Arizona Department of Revenue
Recession Periods
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
*Data through May 2016
**3-month moving average 13
Elliott D. Pollack & Company Note: January 2010 and March 2010 retail sales are estimates.

When you add this to how late
we are in the economic cycle,
it is time to play things closer
to the vest.
Elliott D. Pollack & Company 14

Therefore…
It is recommended the forecast be
brought down to the
“Pessimistic” scenario.
Elliott D. Pollack & Company 15

Where We Stand–
• The expansion is starting to show signs
of middle age. YOU ARE
SOMEWHERE
AROUND HERE
Elliott D. Pollack & Company 16

Inventories to Sales Ratio is out of Line
U.S. Inventories to Sales Ratio
1992 – 2016* Recession Periods
Source: U.S. Census Bureau
1.60
1.55
1.50
1.45
1.40
1.35
1.30
1.25
1.20
Elliott D. Pollack & Company Ratio: Total Business Inventories/Total Business Sales *Data through May 2016 17

Excess inventory, mainly in autos.
Elliott D. Pollack & Company 18

Average Age of Auto Fleet
(all light vehicles)
• 2015 – 11.5 years
• 2014 – 11.4 years
• 2013 – 11.3 years
• 2010 – 10.6 years
• 2005 – 9.5 years
• 2000 – 8.9 years
• 1995 – 8.4 years
Source: R.L. Polk Company, IHS
Elliott D. Pollack & Company 19

Treasury Spread:
10 year bond rate less 3 month bill rate
1959 – 2016* Recession Periods
Source: Federal Reserve Band of New York
5
4
3
2
1
0
-1
-2
-3
-4
Elliott D. Pollack & Company *Data through June 2016 20

Conclusion
• The possibility of a recession today is
higher than it was earlier in the cycle.
Elliott D. Pollack & Company 21

Consumers
• Debt burden low
Elliott D. Pollack & Company 22

Financial Obligation Ratio*
1980 – 2016**
Source: Federal Reserve
Recession Periods
19.0%
18.0%
17.0%
16.0%
15.0%
14.0%
Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
*Ratio of mortgage and consumer debt (including auto, rent and tax payments) to disposable income. 23
Elliott D. Pollack & Company **Data through the first quarter 2016

U.S. Consumer Credit
1980 – 2016*
Source: Federal Reserve
(Trillions)
Recession Periods
$3.0
$2.5
$2.0
$1.5
$1.0
$0.5
$0.0
Non-Revolving Credit Revolving Credit *Data through June 2016
Elliott D. Pollack & Company Revolving credit remains more than $61.0 billion below its 2008 peak. 24

Consumer Liquidity Improving
25
Elliott D. Pollack & Company

Consumer Confidence
1978 – 2016*
Source: The Conference Board
Recession Periods
150
140
130
120
110
100
90
80
70
60
50
40
30
20
Elliott D. Pollack & Company *Data through July 2016 26

• No irrational exuberance
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• Net worth improved
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• Real income growth
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Real Disposable Personal Income Per Capita
1970-2016*
Source: Bureau of Economic Analysis
Recession
$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
Elliott D. Pollack & Company *Data through the second quarter 2016 30

• Inflation low
31
Elliott D. Pollack & Company

Daily Crude Oil Prices:
West Texas Intermediate
1994 - 2016*
Source: U.S. Energy Information Administration
(Dollars per Barrel) Recession Periods
$150
$140
$130
$120
$110
$100
$90
$80
$70
$60
$50
$40
$30
$20
$10
$0
Elliott D. Pollack & Company *Data through August 8, 2016. 32

• Oil prices low
1) In 2005, about 60% of consumption was
imported.
2) In 2013, about 35% was imported.
3) In 2015, the Department of Energy estimates
about 21% will be imported.
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• No capacity issues
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Government
• Not a drag on economy
TOO BUSY
TO MESS
UP THE
COUNTRY
TODAY
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• Fed policy still expansive
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Housing
• Prices up, but modestly
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Average Annualized Quarterly Growth Rates
During Economic Expansions
1954 – 2016*
Source: Bureau of Economic Analysis, National Bureau of Economic Research
Expansion Period Avg. Growth Rate
May 1954 – August 1957 3.8%
April 1958 – April 1960 6.2%
February 1961 – December 1969 4.9%
November 1970 – November 1973 4.4%
March 1975 - January 1980 4.5%
July 1980 – July 1981 3.2%
November 1982 – July 1990 4.3%
March 1991 – March 2001 3.6%
November 2001 – December 2007 2.8%
June 2009 - Present 2.1%
Elliott D. Pollack & Company *Data through the second quarter 2016 38

Long term slower growth is
generally related to…
• Higher taxes
• Oppressive and unsteady regulation
• Barriers to trade
• Monetary
Elliott D. Pollack & Company 39

NATIONAL ECONOMY –
Continued subpar growth.
But, expansion should
continue.
Elliott D. Pollack & Company 40

Bottom Line
Slow Intermediate Term Growth
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Greater Phoenix
(73% total non-farm Employment
in the state)
Elliott D. Pollack & Company 42

Employment Growth
From Bottom of Recession to Now
Seasonally Adjusted
Source: BLS
Area % Change % of Arizona 2015 Annual
Growth Wages
United States 10.6% $52,874
Arizona 13.5% 100.0% $47,497
Greater Phoenix 16.3% 86.2% $49,909
Greater Tucson 7.6% 8.2% $41,675
Balance of State 5.3% 5.6% $35,743
Note: Start of Recession Sept. 2010 to June 2016
Wages for Private industries 43
Elliott D. Pollack & Company 2015 Wages are Preliminary Estimates

Arizona–
The State has had a significant recovery in
both absolute and relative terms.
It is only when we compare ourselves to
previous Arizona recoveries that we look so
bad.
Elliott D. Pollack & Company 44

The World has Changed for
Arizona and Maricopa County
Pre-2007
Post-2007
Elliott D. Pollack & Company 45

Arizona Employment Growth
Arizona’s Rank Out of 50 States
Source: Arizona State University, U.S. Bureau of Labor Statistics
Year Rank Year Rank
1993 5 2005 2
1994 2 2006 2
1995 2 2007 17
1996 2 2008 46
1997 2 2009 49
1998 1 2010 49
1999 2 2011 27
2000 5 2012 8
2001 9 2013 9
2002 10 2014 17
2003 4 2015 11
2004 2 2016* 7
Elliott D. Pollack & Company *YTD June 2016 vs. YTD June 2015 46

Phoenix-Mesa-Scottsdale Employment Growth
(Ranking among all metro areas greater than 1,000,000)
Source: Arizona State University, U.S. Bureau of Labor Statistics
Year Rank # MSA’s Year Rank # MSA’s
1993 2 19 2005 1 26
1994 1 19 2006 1 27
1995 1 20 2007 10 29
1996 1 21 2008 25 29
1997 2 22 2009 23 24
1998 1 23 2010 23 23
1999 3 24 2011 14 25
2000 7 25 2012 10 28
2001 7 26 2013 7 29
2002 5 25 2014 15 31
2003 3 25 2015 11 32
2004 3 25 2016* 4 32
Elliott D. Pollack & Company *YTD June 2016 vs. YTD June 2015 47

Why has Arizona growth in
this cycle been subpar
relative to its
historical norm?
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(1) Sub normal national recovery
(2) Slowdown in
population flows
(3) Slow housing recovery
(4) Local factors
Elliott D. Pollack & Company 49

What has changed?
50
Elliott D. Pollack & Company

Growth itself is an economic
driver in Arizona–
People moving to the State creates demand for
goods and services that create more jobs.
When you grow at 1.8% instead of 3.2%, the
part of the economy that is based on servicing
new people shrinks.
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Fewer people mean fewer houses
& less commercial construction.
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Greater Phoenix Unemployment Rate
1990 – 2016*
Recession Periods
Source: Bureau of Labor Statistics
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
Elliott D. Pollack & Company *Data through June 2016 53

Employment Growth
From Bottom of Recession (Start of Recovery)
Greater Phoenix Employment, Seasonally Adjusted
Source: BLS
Emp. 69 mos.
Recession Trough Later % Growth
1974-1975 Dec-74 Sep-80
43.8%
1981-1982 Sep-82 Jun-88
43.0%
1991 Aug-91 May-97
37.3%
2001 Dec-01 Sep-07
21.9%
2007-2009 Sep-10 June-16
16.8%
Elliott D. Pollack & Company 54

Population Growth after Recessions
Greater Phoenix
Source: ADOA
Start of Population
Recovery Population 6 years later % Growth
1975 1,377,700 1,658,988 24.0%
1981 1,658,988 2,102,571 26.7%
1991 2,301,825 2,900,325 26.0%
2001 3,360,062 4,087,390 21.6%
2009 4,186,130 4,482,906 7.1%
Elliott D. Pollack & Company 55

Greater Phoenix Employment*
Annual Percent Change 1976–2017**
Source: Arizona Department of Administration
14% 13.3%
11.2%
12% 10.4%
10% 8.7% 9.3%
8% 5.9% 7.2%7.3%
6.6% 5.4%
6% 4.8% 4.9% 5.4% 4.6% 6.2%5.4% Pre-2008 Avg. 4.8%
4.9% 3.5% 3.9% 3.6%
3.7% 3.0% 5.8% 2.2% 3.5% 2.9% 3.3%3.4%
4% 2.5%
1.7% 2.5% 2.3%
2% 1.1% 1.3% 1.5% 1.5%
0.0%
0%
-0.1% -0.4%
-2%
-2.5% -1.9%
-4%
-6%
-7.8%
-8%
1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
*Non-agricultural wage & salary employment. Changed from SIC to NAICS reporting in 1990.
**2016 & 2017 forecasts from Elliott D. Pollack & Co. as of June 2016.
Recession Periods
56
Elliott D. Pollack & Company

Arizona Jobs Regained Since Bottom of Cycle–
Most Industries Yet to Regain Lost Jobs
Leisure & Hospitality 202.3%
Financial Activities 173.7%
Education & Health Services 156.8%
Information 156.6%
Prof. & Business Services 105.1%
Trade, Transp., and Utilities 81.4%
State Gov't 43.5%
Mining 33.3%
Manufacturing 29.4%
Construction 20.9%
Other Services 14.8%
Local Gov't 1.4%
Source: U.S. Bureau of Labor Statistics, Thousands of Jobs, Seasonally Adjusted, June 2016.
Elliott D. Pollack & Company 57

Share of Total Non-farm Employment
Source: Bureau of Labor Statistics, U of A Forecasting Project
Industry Manufacturing Professional and Educational and
Business Services Health Services
Greater Greater Greater
Year U.S. Phoenix U.S. Phoenix U.S. Phoenix
1975 21.9% 17.4% 7.8% 9.5% 7.1% 7.1%
1980 20.7% 17.2% 8.3% 9.0% 7.8% 7.1%
1985 18.3% 15.0% 9.1% 10.4% 8.9% 7.6%
1990 16.2% 13.4% 9.9% 10.9% 10.1% 9.0%
1995 14.7% 12.1% 10.9% 13.7% 11.4% 9.2%
2000 13.1% 10.2% 12.6% 16.7% 11.6% 8.7%
2005 10.6% 7.6% 12.6% 16.5% 13.2% 10.4%
2010 8.8% 6.5% 12.8% 16.0% 15.3% 14.1%
2015 8.7% 6.3% 13.9% 16.9% 15.5% 14.7%
Elliott D. Pollack & Company 58

2015 Average Annual Wages
Source: U.S. Bureau of Labor Statistics
Industry U.S. Greater % of U.S.
Phoenix
All Industries $52,874 $49,909 95.3%
Natural resources and
mining $58,468 $48,377 82.7%
Construction $57,016 $52,225 91.6%
Manufacturing $64,305 $73,001 113.5%
Information $95,038 $67,054 70.6%
Financial activities $87,914 $67,235 76.5%
Professional and business
services $69,266 $54,955 79.3%
Education and health
services $47,384 $49,949 105.4%
Leisure and hospitality $21,804 $23,311 106.9%
Other services $35,118 $35,139 100.1%
Note: Wages for Private industries
Elliott D. Pollack & Company 2015 Wages are Preliminary Estimates 59

All Industries Percent of U.S.
Average Annual Wages
Source: U.S. Bureau of Labor Statistics
Year Greater % of U.S. Year Greater % of U.S.
Phoenix Phoenix
2002 $35,848 98.1% 2009 $44,368 98.3%
2003 $36,772 98.0% 2010 $45,061 97.0%
2004 $38,550 98.5% 2011 $46,459 97.2%
2005 $40,005 98.8% 2012 $47,682 96.9%
2006 $41,898 98.8% 2013 $47,801 96.2%
2007 $43,353 97.7% 2014 $48,867 95.3%
2008 $44,087 97.2% 2015 $49,909 94.4%
Note: Wages for Private industries
Elliott D. Pollack & Company 2015 Wages are Preliminary Estimates 60

Where are the Inflows of
Population?
Elliott D. Pollack & Company 61

For the U.S. as a Whole
• 2001 – 2005
• 2011 – 2015
Total Movers down 24%
• Movers from abroad (down 16.3%)
• Movers from other states (down 35%)
• Movers from other counties
in the state (down 14.7%)
Note: Does not include in-state movers 62
Elliott D. Pollack & Company

Arizona Capture Rate
(from abroad and between states)
• 2001 – 2005 = 8.1%
• 2011 – 2015 = 3.5%
Elliott D. Pollack & Company Note: Does not include in-state movers 63

Conclusion:
• Due to the lack of national, international,
and in state population flows:
1. Jobs that would have been created by the
domestic demand from people moving here
has also been reduced.
2. It has taken longer to absorb the excess
inventory of single family, office, etc.
Construction employment has suffered.
Thus, the economy would have been stronger.
Elliott D. Pollack & Company 64

Population Growth 2015
Alaska
Source: U.S. Census Bureau
39
7
15 1
9
11
32
3
16 6 2
19
Hawaii 8 44 10
Growing 5
Top 10 4
Declining
Elliott D. Pollack & Company 65

Greater Phoenix Population
Annual Percent Change 1975–2017*
Source: AZ Dept. of Administration, EDPCo Recession Periods
6%
5.1%
4.7% 4.4% 4.6%
4.2% 4.3% 4.2% 4.3% 4.2%4.2% 4.3% 4.3%
3.9% 3.8%
4% 3.7% 3.8% 3.7%
3.5% 3.6% Pre-2008 Avg. 3.5%
3.3% 3.1%
3.0% 2.9% 3.1% 3.0%
2.7% 2.8% 2.7%
2.5% 2.6%
2.4%
2.1% 2.1%
1.9% 2.0%
2% 1.8%
1.3% 1.5%1.5%
1.1%
0.5% 0.6%
0.3%
0%
1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
*2016 and 2017 forecasts from Elliott D. Pollack & Co. as of June 2016. 66
Elliott D. Pollack & Company

In terms of national migration, we
are doing O.K. But, there is less
migration overall
In terms of international migration,
we are doing poorly. And, there is
also less international migration.
Elliott D. Pollack & Company 67

How quickly are population
flows going to recover?
Elliott D. Pollack & Company 68

SLOWLY!
Still buffering, seriously?
Elliott D. Pollack & Company 69

Greater Phoenix Population
Source: U.S. Census Bureau; AZ Dept. of Administration; University of Arizona Forecasting Project; EDPCo
Greater Phoenix Population Estimates and Projections
Population 2015 2016 2017
EDPCo
Forecast as of June 2016 4,482,906 4,572,564 4,668,588
Net Change 78,018 89,658 96,024
% Change 1.8% 2.0% 2.1%
U of A Forecasting Project
Forecast as of 2016 Q2 4,482,906 4,569,590 4,666,992
Net Change 78,018 86,684 97,402
% Change 1.8% 1.9% 2.1%
Arizona Dept. of Administration
Forecast as of 2015 Q4 4,482,906 4,569,800 4,661,600
Net Change 78,018 86,894 91,800
% Change 1.8% 1.9% 2.0%
70
Elliott D. Pollack & Company

Greater Phoenix Population
Source: U.S. Bureau of Census; Arizona Department of Administration; University of Arizona Forecasting Project
YEAR POPULATION APR
1960 726,183 6.9%
1970 1,039,807 3.7%
1980 1,600,093 4.4%
1990 2,238,498 3.4%
2000 3,251,876 3.8%
2010 4,192,887 2.6%
2015 4,482,906 1.3%
2020* 4,975,050 2.1%
2025* 5,486,091 2.0%
Elliott D. Pollack & Company *Forecasts as of 2016 Q2 71

If you believe that
population forecast,
it implies an average of
about 20,000 single family units will
be built each year
from 2015 through 2020.
Elliott D. Pollack & Company 72

How quickly will housing
recover?
Elliott D. Pollack & Company 73

Parade of Horribles
Housing
Elliott D. Pollack & Company 74

What is keeping potential buyers out of the
housing market?
Parade of horribles:
(1) Negative Equity
(2) FHA Loan Limit
(3) Foreclosures
(4) Short Sales
(5) Millennials
(6) Student Loans
(7) Tougher Loan Standards
Elliott D. Pollack & Company 75

U.S. and Arizona
Negative Equity Share
Plus Near Negative Equity Share
2010–2016
Source: CoreLogic
70.0%
60.0% 58.5% 56.5%
50.0% 48.4%
40.0%
35.8%
30.6%
30.0% 27.7% 28.6%
24.7% 23.7%
20.2%
20.0% 16.2% 15.5%
13.0% 10.2%
10.0%
0.0%
2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1
U.S. Arizona
Elliott D. Pollack & Company Near Negative Equity: Loan-to-value ratio equals 95 to less than 100 76

Maricopa County Foreclosure Lag
2002–2023
Source: Information Market
Recession Periods
5,500
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
July 2016
0
Completed 7-Year Lag (Fannie/Freddie)
Foreclosures
77
Elliott D. Pollack & Company

Mortgage Credit Availability Index
2012 – 2016*
March 2012 = 100
Recession Periods
Source: Mortgage Bankers Association
135
125
115
105
95
2012 2013 2014 2015 2016
*A decline in the MCAI indicates that lending standards are tightening,
while increases in the index are indicative of loosening of credit.
Elliott D. Pollack & Company *Data through May 2016 78

Mortgage Credit Availability Index
2004 – 2016*
March 2012 = 100
Recession Periods
Source: Mortgage Bankers Association
1,000
750
500
250
0
2004 2006 2008 2010 2012 2014
*A decline in the MCAI indicates that lending standards are tightening,
while increases in the index are indicative of loosening of credit.
Elliott D. Pollack & Company *Data through May 2016 79

FICO Score Distribution
Percent of Population
April 2015
Source: Fair Isaac Corporation
25.0%
39% under FHA 677 average 19.9%
20.0%
18.2%
16.6%
19% under FHA 580 minimum
15.0%
13.0%
10.3%
10.0% 9.4%
7.6%
4.9%
5.0%
0.0%
300-499 500-549 550-599 600-649 650-699 700-749 750-799 800-850
25% under Fannie/Freddie 620 minimum
60% under Fannie/Freddie 744 average 80
Elliott D. Pollack & Company

Good news for housing.
(1) Economic growth is good in Greater Phoenix
(2) Mortgage rates are low & lending is loosening up a bit
(3) Affordability is still good
Elliott D. Pollack & Company 81

Millennials
82
Elliott D. Pollack & Company

U.S. Birth Index
1909-2015
Source: U.S. Census Bureau; Harvard Joint Center for Housing Studies
4,500,000
4,000,000
3,500,000
3,000,000
Baby Boomers Gen X Millennials
1945-1964 1965-1984 1985-2004
(Ages 50-69) (Ages 30-49) (Ages 10-29)
2,500,000 78.7 M 69.5 M 79.4 M
2,000,000
83
Elliott D. Pollack & Company

U.S. Median Age at First Marriage
1890-2015
Source: U.S. Census Bureau
30
28
26
24
22
20
Baby Boomers Gen X Millennials
18
Men Women
Elliott D. Pollack & Company 84

Percent of 18-33 Year Olds Married
Source: Pew Research
• In 1960 - 64% were married (Silent Generation)
• In 1980 - 49% were married (Baby Boomers)
• In 1997 - 38% were married (Gen X)
• In 2014 - 28% were married (Millennials)
Elliott D. Pollack & Company 85

When you delay marriage you
delay children. That delays
housing. That delays demand for
housing “stuff”.
Elliott D. Pollack & Company 86

Total Student Loan Debt Has
Quadrupled!
Elliott D. Pollack & Company 87

Total Student Loan Balances
Billions of Dollars
Source: Federal Reserve Bank of New York Consumer Credit Panel / Equifax
Year TOTAL
2004 Q1 $259.8
2005 Q1 $363.6
2006 Q1 $434.5
2007 Q1 $506.4
2008 Q1 $579.2
2009 Q1 $662.8
2010 Q1 $757.8
2011 Q1 $839.2
2012 Q1 $903.7
2013 Q1 $986.0
2014 Q1 $1,111.0
2015 Q1 $1,189.0
Elliott D. Pollack & Company 2016 Q1 $1,261.0 88

Expenses that Delayed Saving for a Down Payment or
Home Purchase - 2015
By Age
Source: National Association of Realtors 2015
All Buyers 35 and 35 to 50 51 to 60 61 to 69 70 to 90
younger
Student Loans 51% 53% 31% 9% 5% 3%
Credit Card Debt 47% 35% 44% 36% 23% 19%
Car Loan 35% 31% 20% 17% 7% 6%
Child Care 18% 14% 18% 6% 2% *
Expenses
Health Care Costs 13% 10% 9% 13% 13% 11%
Other 17% 17% 24% 46% 62% 71%
Median Years 3 3 4 5 6 5
Delayed
Elliott D. Pollack & Company 89

Student Loan Impact on Economy
If people are paying student loan debt, they are
not buying houses, furniture, beers, etc. Unless
incomes are higher because of their degree.
Elliott D. Pollack & Company 90

The housing recovery is likely to
continue.
Elliott D. Pollack & Company 91

Single Family Permits
Greater Phoenix 1975–2017*
Source: RL Brown & Elliott D. Pollack & company
# Permits
(000)
70
63.6
60.9
60
50 47.7
42.4
38.9
40 31.736.035.3 34.7 36.2
29.6 31.2
30 28.9 23.2 27.4 28.5
22.3 22.6 22.7 22.0
20 18.8 19.4 18.1 17.9 18.4 19.5
15.1 15.9
11.5 11.6 12.0 13.7 12.6 12.8
11.1 10.6 10.6 11.6 10.8
10 8.7 8.0
6.86.8
0
1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
*2016 and 2017 forecast is from Elliott D. Pollack & Company
as of second quarter 2016. 92
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Multi-Family
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Apartments
Births 26 year lag
1955-2038
Source: U.S. Census Bureau
4,500,000
2016
4,000,000
3,500,000
3,000,000
2,500,000
Baby Boomers Gen X Millennials
2,000,000
94
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Retirement Home Cycle
Births  65 year lag
1994-2076
Source: U.S. Census Bureau
4,500,000
4,000,000
3,500,000
2016
3,000,000
2,500,000
Baby Boomers Gen X Millennials
2,000,000
95
Elliott D. Pollack & Company

Multi-Family Year-End Vacancy Rates
Greater Phoenix County 1975–2017*
Source: ASU Realty Studies / Berkadia**
Recession Periods
18%
15% 14.1%
13.0% 13.4% 13.4%
12.5%
12% 10.6% 10.8%
10.1% 10.0% 10.2%
9.5% 9.4%9.6%
9% 7.7% 8.0% 8.2% 7.9% 7.8% 7.5%
6.2% 6.1% 6.1% 6.9% 5.1% 6.8% 6.8% 6.6%
5.9% 6.3% 5.9% 6.0%6.0%
6% 3.9% 4.4% 4.5% 4.5%4.8% 5.3%
4.1% 4.0%3.8%
3.3%
2.8%
3%
0%
1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
*2016 & 2017 are forecasts from Elliott D. Pollack & Co.
**Data prior to 2005 is from ASU
Elliott D. Pollack & Company 96

Multi-Family Housing Market
Source: PMHS, Kasten Long, and RealData
Absorption Completions
2007 (5,846) 4,637
2008 (4,466) 7,037
2009 (5,319) 6,737
2010 20,743 698
2011 2,154 910
2012 3,028 2,031
2013 4,822 4,452
2014 4,716 5,658
2015 3,728 6,720
Elliott D. Pollack & Company 97

OFFICE
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Office Space Year-End Vacancy Rates
Greater Phoenix 1986–2017*
Recession Periods
Source: CBRE
35%
30% 26.4%
26.7% 26.7% 25.4% 26.2%25.5%
24.0% 24.5% 23.9%
25% 22.8% 22.7%
22.4%
18.8% 19.1% 21.1%
20% 18.8% 18.3% 19.3%
14.8% 16.0% 16.4% 17.3%16.3%
15% 12.6% 13.9%
11.7% 11.1%
9.5% 10.0%9.9%
9.5% 9.2%
10%
5%
0%
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
*2016 & 2017 are forecasts from Greater Phoenix Blue Chip.
99
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Greater Phoenix Office Market*
Source: CBRE
Year Absorption (sf) Chg in Inventory (sf)
2005 3,119,293 7,987
2006 3,245,888 2,320,302
2007 1,500,704 4,905,374
2008 (603,112) 3,402,646
2009 (667,329) 1,798,415
2010 233,670 2,011,404
2011 1,857,433 3,144,910
2012 2,020,529 973,282
2013 1,721,366 (35,566)
2014 1,969,716 1,107,906
2015 3,779,039 3,763,828
2016** 2,003,933 451,206
*All Leased multi-tenant space greater than 10,000 SF.
** Data through the second quarter 2016 100
Elliott D. Pollack & Company

As of the second quarter 2016,
there were 1.8 million square
feet of total office space under
construction including 987,605
square feet of speculative office
space.
Source: CBRE
Elliott D. Pollack & Company 101

Under any reasonable
employment growth scenario,
we believe it will be at least
2017-2018 before any significant
office construction occurs
(although some sub-markets like
Tempe and downtown Scottsdale
will be sooner).
Elliott D. Pollack & Company 102

INDUSTRIAL
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Industrial Space Vacancy Rates
Greater Phoenix 1980 – 2017*
Source: CBRE
Recession Periods
20%
16.4% 16.1%
15.2% 14.8%
14.6% 14.7%
15% 13.2% 14.0% 13.6%
12.8% 12.5% 12.4%
12.8%
11.1% 10.8% 11.4%
10.3% 10.9% 11.0%
9.4% 9.7% 9.8% 9.7% 10.1% 10.0%
10% 8.4% 8.5% 8.4% 9.5%
7.4% 8.1%
6.6% 7.0% 7.1% 7.4% 6.7%
5.7% 5.6%
5%
0%
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Elliott D. Pollack & Company *2016 & 2017 are forecasts from the Greater Phoenix Blue Chip 104

Greater Phoenix Industrial Market
Source: CBRE
Year Absorption (sf) Chg in Inventory (sf)
2005 13,349,129 7,072,477
2006 6,032,175 7,829,959
2007 8,359,835 13,914,181
2008 629,838 13,467,215
2009 (4,649,352) 4,753,218
2010 4,455,097 2,451,202
2011 7,753,111 2,842,185
2012 7,405,168 3,358,724
2013 8,783,982 8,902,571
2014 6,214,680 6,791,313
2015 7,046,663 3,966,434
2016* 5,021,394 2,492,687
Elliott D. Pollack & Company *Data through the second quarter 2016 105

As of the second quarter 2016,
there was 3.5 million square feet
of total industrial space under
construction including
2.1 million square feet
of speculative industrial space.
Source: CBRE
Elliott D. Pollack & Company 106

RETAIL
107
Elliott D. Pollack & Company

Retail Space Vacancy Rates
Greater Phoenix 1985–2017*
Source: CBRE** Recession Periods
20%
15% 14.2%
13.1% 13.5%
11.8% 12.7% 12.2%12.2%
11.1% 11.4% 11.0%
10.0% 10.2%
10% 8.9% 9.8% 8.7%
7.9%7.5% 9.6%9.1%8.9%8.3%
6.6% 5.3%6.6%7.3%7.4% 7.5%
6.3% 6.1%5.3% 6.2%
5.5% 5.1%
5%
0%
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
*2016 & 2017 are forecasts from the Greater Phoenix Blue Chip
** Data prior to 1992 is from Grubb & Ellis
Elliott D. Pollack & Company 108

Greater Phoenix Retail Market
Source: CBRE
Year Absorption (sf) Chg in Inventory (sf)
2005 6,708,155 6,248,789
2006 5,244,597 4,582,618
2007 9,424,362 11,104,865
2008 3,395,986 6,229,205
2009 (1,117,100) 4,405,985
2010 (75,352) 902,380
2011 (152,647) 24,543
2012 1,879,005 184,932
2013 1,579,202 (325,959)
2014 1,487,313 (49,225)
2015 1,150,192 164,859
2016* 521,159 421,077
Elliott D. Pollack & Company *Data through the second quarter 2016 109

As of the second quarter 2016,
there were 918,961 square feet
of total retail space
under construction and 0
square feet of speculative retail
construction.
Source: CBRE
Elliott D. Pollack & Company 110

CONCLUSIONS:
How will it all turn out?
Elliott D. Pollack & Company 111

Greater Phoenix–
No traditional boom in
Greater Phoenix until
population increases more
rapidly and housing makes a
more meaningful recovery.
Elliott D. Pollack & Company 112

This is the boom…
“It’s as good as it gets!”
Elliott D. Pollack & Company 113

Maricopa County
Risks
114
Elliott D. Pollack & Company

Reality
Again, you can’t tell well in
advance when a recession
will occur.
Elliott D. Pollack & Company 115

Time to be Cautious!
• If the FY17 revenues come in at
“Pessimistic” level, budget could be
off by $10.0 million.
(Estimate for state shared sales tax, state
shared VLT and Jail sales tax)
Elliott D. Pollack & Company 116

Time to be Cautious!
The damage of that type of shortfall
could be a problem given the risks to
the reserves.
Therefore, you must play things close
to the vest.
Elliott D. Pollack & Company 117

Maricopa County Forecasts
Most Likely (Trend)
Actuals Forecast
FY16 FY17 FY18 FY19 FY20 FY21
Population 1.8% 1.9% 2.0% 1.9% 2.1% 2.1%
Employment 3.5% 3.5% 2.8% 2.5% 3.0% 3.0%
Retail Sales 6.0% 4.5% 4.0% 4.0% 4.5% 4.5%
Total Permits 23.0% 18.0% 15.0% 10.0% 5.0% 3.2%
Elliott D. Pollack & Company 118

Maricopa County Forecasts
Recession Scenario
Actuals Forecast
FY16 FY17 FY18 FY19 FY20 FY21
Population 1.8% 1.3% 0.9% 0.7% 1.0% 1.5%
Employment 3.5% 2.2% 1.1% (1.0%) 2.4% 2.8%
Retail Sales 6.0% 4.2% 2.0% (1.0%) 3.5% 4.5%
Total Permits 23.0% 10.0% 2.0% (10.0%) (15.0%) (5.0%)
Elliott D. Pollack & Company 119

“The time to repair the roof is
when the sun is shining.”
[State of the Union Address January 11, 1962]
― John F. Kennedy
Elliott D. Pollack & Company 120

This is as “shining” as it’s
going to get!
Elliott D. Pollack & Company 121

122
Elliott D. Pollack & Company

For a quick analysis of
important economic data released
each week, subscribe to the
Monday Morning Quarterback
www.arizonaeconomy.com
(Click on Subscribe to MMQ)
Elliott D. Pollack & Company 123