STATE OF ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2003 Janet Napolitano GOVERNOR PREPARED BY ARIZONA DEPARTMENT OF ADMINISTRATION FINANCIAL SERVICES DIVISION GENERAL ACCOUNTING OFFICE STATE OF ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS INTRODUCTORY SECTION (Not Covered by the Independent Auditors’ Report) Letter of Transmittal ........................................................................................................................................................... Arizona State Government Organization ............................................................................................................................ Principal State Officials ...................................................................................................................................................... Page 1 8 9 FINANCIAL SECTION INDEPENDENT AUDITORS' REPORT ....................................................................................................................... 15 MANAGEMENT’S DISCUSSION AND ANALYSIS ................................................................................................... 21 BASIC FINANCIAL STATEMENTS Government-wide Financial Statements: Statement of Net Assets............................................................................................................................................ Component Units – State Compensation Fund - Statement of Admitted Assets, Liabilities and Policyholders’ Surplus (Reported on Statutory Basis of Accounting)............................................................................................ Statement of Activities ............................................................................................................................................. Component Units – State Compensation Fund - Statement of Operations and Changes in Policyholders’ Surplus (Reported on Statutory Basis of Accounting)............................................................................................ Governmental Fund Financial Statements: Balance Sheet ........................................................................................................................................................... Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets ...................................... Statement of Revenues, Expenditures and Changes in Fund Balances..................................................................... Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities ............................................................................................... 36 38 40 42 43 44 45 46 Proprietary Fund Financial Statements: Statement of Net Assets............................................................................................................................................ Statement of Revenues, Expenses and Changes in Fund Net Assets ........................................................................ Statement of Cash Flows .......................................................................................................................................... 48 52 54 Fiduciary Fund Financial Statements: Statement of Fiduciary Net Assets............................................................................................................................ Statement of Changes in Fiduciary Net Assets ......................................................................................................... 58 59 Component Unit Financial Statements: Combining Statement of Net Assets ......................................................................................................................... Combining Statement of Activities........................................................................................................................... 61 62 Notes to the Financial Statements .............................................................................................................................. 64 REQUIRED SUPPLEMENTARY INFORMATION Budgetary Comparison Schedule, Expenditures – General Fund .................................................................................. Budgetary Comparison Schedule, Expenditures – Transportation and Aviation Planning, Highway Maintenance and Safety Fund...................................................................................................................................... Notes to Required Supplementary Information – Budgetary Comparison Schedules.................................................... Infrastructure Assets ...................................................................................................................................................... Retirement Plans Funding Progress ............................................................................................................................... i 115 133 135 138 142 STATE OF ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS (CONTINUED) FINANCIAL SECTION - CONCLUDED COMBINING FINANCIAL STATEMENTS AND SCHEDULES Page Governmental Funds: Combining Balance Sheet ........................................................................................................................................ Combining Statement of Revenue, Expenditures and Changes in Fund Balances.................................................... 146 147 Special Revenue Funds: Combining Balance Sheet ................................................................................................................................. Combining Statement of Revenues, Expenditures and Changes in Fund Balances ........................................... 150 152 Debt Service Funds: Combining Balance Sheet ................................................................................................................................. Combining Statement of Revenues, Expenditures and Changes in Fund Balances ........................................... 156 158 Capital Projects Funds: Combining Balance Sheet ................................................................................................................................. Combining Statement of Revenues, Expenditures and Changes in Fund Balances ........................................... 162 163 Proprietary Funds: Enterprise Funds: Combining Statement of Net Assets.................................................................................................................. Combining Statement of Revenues, Expenses and Changes in Fund Net Assets .............................................. Combining Statement of Cash Flows ................................................................................................................ 166 168 170 Internal Service Funds: Combining Statement of Net Assets.................................................................................................................. Combining Statement of Revenues, Expenses and Changes in Fund Net Assets .............................................. Combining Statement of Cash Flows ................................................................................................................ 174 176 178 Fiduciary Funds: Pension Trust Funds: Combining Statement of Fiduciary Net Assets.................................................................................................. Combining Statement of Changes in Fiduciary Net Assets ............................................................................... 182 183 Investment Trust Funds: Combining Statement of Fiduciary Net Assets.................................................................................................. Combining Statement of Changes in Fiduciary Net Assets ............................................................................... 186 187 Agency Funds: Combining Statement of Assets and Liabilities................................................................................................. Combining Statement of Changes in Assets and Liabilities .............................................................................. 191 192 Budgetary Comparison Schedule, Expenditures - Other Governmental Funds.............................................................. 197 ii STATE OF ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS (CONCLUDED) STATISTICAL SECTION (Not Covered by the Independent Auditors' Report) Revenues by Source – All Governmental Fund Types for the Last Ten Fiscal Years......................................................... Expenditures by Function – All Governmental Fund Types for the Last Ten Fiscal Years ................................................ Property Tax Levies, Collections, Taxable Property Assessed and Estimated Actual Value, and Property Tax Rates for the Last Ten Fiscal Years .................................................................................................................................................. Highway Construction Revenue Bond Coverage for the Last Ten Fiscal Years ................................................................. Maricopa County Road Construction Revenue Bond Coverage for the Last Ten Fiscal Years .......................................... Arizona State University Revenue Bond Coverage for the Last Ten Fiscal Years.............................................................. Northern Arizona University Revenue Bond Coverage for the Last Ten Fiscal Years ....................................................... University of Arizona Revenue Bond Coverage for the Last Ten Fiscal Years .................................................................. Economic Indicators for the Last Ten Calendar Years........................................................................................................ Major Private Employers for the Fiscal Year Ended June 30, 2003 ................................................................................... Population by County for the Last Ten Years ..................................................................................................................... Schedule of Bank and Savings and Loan Deposits for the Last Ten Fiscal Years .............................................................. Assessed Value of New Commercial and Residential Construction for the Last Ten Years ............................................... Public School Enrollment - Grades K-12 for the Last Ten Academic Years ...................................................................... Average State Prison Adult Inmate Population for the Last Ten Fiscal Years.................................................................... Public Higher Education Institutions’ Full-Time Equivalent Fall Enrollment for the Last Ten Years................................ iii Page 211 211 212 212 213 213 214 214 215 215 216 216 217 217 218 218 INTRODUCTORY SECTION INTRODUCTORY SECTION JANET NAPOLITANO BETSEY BAYLESS GOVERNOR DIRECTOR ARIZONA DEPARTMENT OF ADMINISTRATION OFFICE OF THE DIRECTOR 100 NORTH 15th AVENUE · SUITE 401 PHOENIX, ARIZONA 85007 Phone: (602) 542-1500 January 16, 2004 The Honorable Janet Napolitano Governor of the State of Arizona, Members of the Legislature, Chief Justice of the Supreme Court and Citizens and Taxpayers of the State of Arizona Ladies and Gentlemen: I t is our pleasure to transmit to you the Comprehensive Annual Financial Report (CAFR) of the State of Arizona for the fiscal year ended June 30, 2003. The CAFR has been presented in conformance with the Governmental Accounting Standards Board (GASB) statements 34 and 35. The objective of this new reporting model is to provide a clear picture of the government as a single, unified entity as well as providing traditional fund-based financial statements. Responsibility for the accuracy of data, completeness and fairness of presentation, including all disclosures, rests with the State's management. The data presented in this report, to the best of our knowledge and belief, is accurate in all material respects and is reported in a manner which fairly presents the financial position and results of operations of the major and non-major funds of the State. All disclosures needed for the reader to gain a reasonable understanding of the State's financial activities have been included. The report is presented in three sections: Introductory, Financial and Statistical. The Introductory Section includes this Letter of Transmittal, the State's organizational chart and a list of principal State officials. The Financial Section includes the State Auditor General's independent auditors’ report, Management’s Discussion and Analysis (MD&A) and the basic financial statements (which include the government-wide financial statements, the fund financial statements and the notes to the financial statements). The financial section also includes Required Supplementary Information (RSI), which includes budgetary comparison schedules, infrastructure condition and maintenance data, and retirement plans funding progress. In addition, the financial section includes other supplemental financial data, which includes combining financial statements. The Statistical Section includes selected financial, economic, and demographic data. U.S. generally accepted accounting principles require that management provides a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of the MD&A. This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The State’s MD&A can be found immediately following the independent auditors’ report. FINANCIAL REPORTING ENTITY The accompanying CAFR includes all funds of the State of Arizona (primary government), as well as its component units. Component units are legally separate entities for which the primary government is financially accountable. -1- Discretely presented component units are reported in a separate column in the government-wide financial statements to emphasize that they are legally separate from the primary government and to differentiate their financial position and results of operations from those of the primary government. The criteria for inclusion in the reporting entity and its presentation are defined by the Codification of Governmental Accounting and Financial Reporting Standards, issued by the Governmental Accounting Standards Board, (Section 2100). Note 1.A of the Notes to the Financial Statements explains which units are included in the Financial Reporting Entity of the State. ECONOMIC CONDITION AND OUTLOOK The following economic summary, is excerpted from the Arizona Department of Economic Security’s Arizona’s Workforce, August 28, 2003. Arizona’s economy continues to add jobs in 2003. In fact, throughout most of 2003, Arizona was ranked in the top 10 fastest job growing states in the nation. However, in the most recent report for July, Arizona slipped to 13th. Notably, some states are gradually improving, while others are struggling with job losses. Global Insight forecasts the nation will show an average loss of jobs in 2003 and recover with modest job growth in 2004. Arizona’s Department of Economic Security, Research Administration (RA) expects Arizona’s economy will continue growing, though at a slower pace in 2003 than earlier forecasted. This forecast update shows that Arizona’s economy will add more than 82,000 jobs during the forecast period of 2003-04. While jobs grew at a slower than expected rate during the second quarter and most of the third quarter, momentum is expected to pick up for the remainder of 2003 and into 2004. Most of this stems from improving consumer optimism and business confidence and the expected gradual recovery extending through other geographic regions. Improving economic conditions, for example, are expected in Canada, Mexico, Japan, Europe, and especially Asia over this period. Arizona’s goods-producing industries are forecast to grow by 800 jobs over the two-year period. This group of industries shows a surprising endurance in job creation in the case of construction, while manufacturing shows a loss of industry share in its return to 1993-94 levels. These two mostly cyclical industries have shown sharply different experiences over the recent couple of years. Construction is an industry serving mostly “home-grown” demand. Population growth in Arizona, among the fastest in the Mountain states region, helps to supply the demand for job growth, while the continued low interest rates add to the affordability and attraction of housing and other related products. Manufacturing, on the other hand, is an industry largely serving demand external to our State. With demand levels sharply curtailed in the recent couple of years from other regions, manufacturing firms have struggled to adjust by shedding plant, equipment, and jobs—a process generally referred to as consolidation. Increasingly, however, manufacturing and mining firms have also opted to close, relocate or prioritize their expansion efforts abroad. During the forecast period, construction is forecast to add more than 11,000 jobs. Continued strong demand for housing has developers building new homes, homeowners expanding and remodeling, and cities and counties grappling with a great deal of infrastructure development such as the improvements of roads and highways. Additionally, continued attraction to rural regions from retirees and locals is forecast to incite economic planning and development groups to work hard in an effort to stay ahead of demand pressures. Meanwhile, projected gains for construction are largely offset by the forecasted losses of nearly 10,000 jobs in manufacturing and loss of roughly 700 in mining. Computer and electronic manufacturing firms experienced the largest blow in the most recent downturn, and these related sectors are projected to show a prolonged struggle toward recovery. Service-providing industries are forecast to add more than 81,000 jobs during 2003-04. This group of varied and diverse providers has been growing faster than the goods-producing industries, due to large sectors of the economy catering Arizona’s fast growing population and industries serving tourists. Health and education sectors are projected to show growth of more that 26,000 jobs. Forecasted annual growth rates are expected to average roughly 5.5 percent during 2003-04. Notably, health service jobs are forecast to outpace most all others during the next few years. Professional and business services sectors are forecast to show increasing demand for labor over the next two years, growing by 1.7 percent in 2003 to more than 4 percent in 2004. This industry is forecast to add 18,600 jobs, accounting for more than 22% of the increase of jobs during the 2003-04 period. Projected to be one of the fastest growing sectors of this super sector, the employment services sector is already leading this group as it serves the growth in many other industries. -2- The combined trade, transportation, warehousing, and public utilities group is forecast to add almost 15,000 jobs during 2003-04. This represents nearly 18 percent of all jobs added during this two-year period. Trade is projected to be the fastest growing of this group, but losses in wholesale trade are expected to drag down improving retail sectors benefiting from rising and sustained levels of consumer optimism. Wholesale trade is expected to show losses in 2003 and contribute to growth in 2004. Warehousing and transportation job gains are expected to improve as economic activity stimulates commercial flows. The information services sector is forecast to experience a difficult period toward recovery. Publishing and other information services are forecast to pare more than 3,000 jobs during 2003-04. This industry has been one of the hardest hit in the serviceproviding industries following the post-2000 economic downturn. Arizona’s leisure and hospitality industry is forecast to add 7,600 jobs during 2003-04, averaging roughly 1.5 percent over the twoyear period. More than 9 percent of the total increase of jobs will come from this mostly tourism and entertainment group of sectors. Financial services forecasts show a slight loss of jobs in 2003 with modest gains returning in 2004. Real estate is projected to be the source of continued growth, whereas the securities and commodities related sectors, along with the insurance sectors are forecast to experience some slight consolidations to cut costs and match lower demand. Other services, a mix of service providing industries not elsewhere categorized, is forecast to add nearly 5,000 jobs. Growth rates of 2.3 percent and 3.3 percent are forecasted for 2003 and 2004, respectively. Providing services to Arizona’s growing population, government is forecast to add almost 11,000 jobs during the two-year period. Annual growth rates are expected to be modest and average less than 1.5 percent during the two-year period. Local education is projected to generate most of the jobs in government. Growth in federal government jobs stems from the demand for greater security and other services across the state. Fiscal pressures are expected to restrain job growth in state and local government to levels sharply lower than historical trend. In conclusion, Arizona’s economy continues to add jobs and the 2003-04 forecast calls for continued job growth with increasing momentum, which thus far has been absent from this growth phase. Sustained business confidence and higher levels of consumer optimism are expected to further invigorate Arizona’s economy, especially as economies of other regions show improvement. While manufacturing job losses remain a concern, even these are expected to gradually slow. Continued job losses in this industry are anticipated to dampen an otherwise full economic recovery beyond the forecast 2003-04 period. MAJOR INITIATIVES When Governor Napolitano took office in January 2003, the State was facing an unprecedented fiscal crisis. The current year deficit was approximately $300 million with 6 months left in the fiscal year, and the fiscal year 2004 deficit was projected to be $1 billion, or 14% of projected expenditures. Arizona, like most other states, was experiencing dramatic revenue shortfalls, and projected 2.3% negative revenue growth in fiscal year 2003 after experiencing an 11.1% decline from fiscal year 2001 to fiscal year 2002. Of further concern was that there was no unified voice among economists on a future fiscal recovery. Under these circumstances, Governor Napolitano immediately began the task of resolving current year shortfalls and developing a plan to address the projected deficit. The Governor’s approach was a multi-faceted one that examined all the key drivers of the State’s budget. In addition, she established key principles that she deemed essential to the State’s most vulnerable citizens and necessary for the State’s prosperity when the inevitable economic recovery began. Outlined below are the actions taken and the principles specified by the Governor as the solution to the Fiscal year 2003 deficit was developed: · Examine the State’s tax structure Development of any solution to the State’s deficit required an examination of the drivers behind that deficit, including revenues. In January 2003, the Governor formed the Citizens’ Finance Review Commission with the purpose of developing a series of recommendations to advise the Governor on a course to stimulate Arizona’s economy for the long term. In particular, the Commission is to develop recommendations that address fiscal and tax policies that are simple, low and fair and support Arizona’s growing economy. · Examine ways to reduce and avoid costs through improved government operations and efficiencies Upon taking office in January, the Governor instituted an Efficiency Review (ER) program designed to improve the performance and efficiency of State government. The ER’s mission is to find practical and sensible ways for State agencies and State government, as a whole, to reduce costs, cut bureaucracy, eliminate duplication and improve customer service. -3- · Protect funding for education The importance of excellence in education has ceased to be a viable option for debate. Virtually all responsible citizens who recognize their stake in the health of our society readily acknowledge the correlation between a well educated public and the critical goals of economic vitality, public safety, and a high quality of life. Throughput the resolution of the State’s deficit, the Governor’s actions reaffirmed the vital role of government in providing educational excellence for current and future Arizonans at all grade levels, starting with K-12 education. · Provide for Arizona’s neediest citizens Economic downturns hit all sectors of society, however the greatest pain is most often inflicted on citizens who live “on the bubble” - survival in good times, desperation in bad. A fiscal crisis raises far more than a fiscal dilemma, it also carries with it great issues of principle and priority. In resolving the fiscal year 2003 deficit, the Governor insisted that the critical support of Arizona’s children and families be maintained. Based on these actions and principles, Governor Napolitano worked with the Legislature to resolve the fiscal year 2003 deficit. The success of her strategy is evidenced by the speedy resolution of the fiscal year 2003 shortfall and the sound fiscal position in which the State ended the fiscal year. SERVICES PROVIDED BY THE STATE The services provided by the State are administered through various agencies, departments, boards, commissions and institutions of higher learning. These services include: (1) General Government, (2) Health and Welfare, (3) Inspection and Regulation, (4) Education, (5) Protection and Safety, (6) Transportation and (7) Natural Resources. GENERAL FUND BALANCE G raph 1 details the General Fund Revenues and Expenditures for the last five fiscal years. This graph does not include transfer amounts relating to other fund types and other financing sources (uses), which affect the ending fund balance. Graph 1 General Fund Revenues and Expenditures for last 5 fiscal years (Dollars in billions) $14 $12 $10 $8 $6 $4 $2 $0 1999 2000 2001 Revenues -4- 2002 Expenditures 2003 The General Fund ended the June 30, 2003, fiscal year with $343.0 million in unreserved fund balance and a $203.4 million reserved fund balance for a total fund balance of $546.4 million. This compares to the previous year’s restated total fund balance of $748.3 million. Included in the $203.4 million reserved fund balance is $13.7 million for the Budget Stabilization Fund. The Budget Stabilization Fund is a form of "Rainy Day Fund" established by the Legislature in 1991. Graph 2 details the General Fund Balance for the last five fiscal years: Graph 2 General Fund Balance for last 5 fiscal years (Dollars in millions) $1,500 $1,000 $500 $0 1999 2000 2001 2002 2003 BUDGETARY CONTROLS B udgetary control is maintained through legislative appropriation and the executive branch allotment process. The Governor is required to submit an annual budget to the Legislature. The budget is legally required to be adopted through passage of appropriation bills by the Legislature and approval by the Governor. The appropriated funds are controlled by the executive branch through an allotment process. This process allocates the appropriation into quarterly allotments by legal appropriation level. The State also maintains an encumbrance accounting system to further enhance budgetary control. Encumbered amounts generally lapse as of the end of the fiscal year, with the exception of capital outlay items. Capital outlay appropriations and their encumbrances continue from year to year. The State's budgetary policies are explained in detail in the Required Supplementary Information (RSI). INTERNAL CONTROLS The State is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the State are protected from loss, theft or misuse and to ensure that adequate accounting data are compiled to allow for the preparation of financial statements in conformity with U.S. generally accepted accounting principles. Internal accounting controls are designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that: (1) the cost of a control should not exceed the benefits likely to be derived and (2) the valuation of costs and benefits requires estimates and judgments by management. In the opinion of management, the State's internal controls are adequate to provide reasonable assurance that these objectives are met. CASH MANAGEMENT The responsibility for cash management of the State is shared by the Office of the Treasurer (Treasurer) and the General Accounting Office of the Department of Administration, Financial Services Division (GAO). The Treasurer is responsible for the depository, custodial and investment functions of cash. The GAO is responsible for drawing down monies available for State functions and the expenditure or disbursement of those monies. The State requires that Treasurer's deposits and investments with financial institutions be entirely covered by Federal depository insurance or alternatively collateralized with surety equal to 102% of the deposit or investment. Component units may have collateralization policies that differ from those of the Treasurer. The Legislature has passed statutes authorizing State investments. Note 2.A. in the Notes to the Financial Statements describes these investments. -5- (This page intentionally left blank) ARIZONA STATE GOVERNMENT ORGANIZATION ELECTORATE LEGISLATIVE BRANCH STATE HOUSE OF REPRESENTATIVES* STATE SENATE* LEGISLATIVE COUNCIL AUDITOR GENERAL JOINT LEGISLATIVE BUDGET COMM. BD. OF LIBRARY, ARCHIVES AND PUBLIC RECORDS SECRETARY OF STATE* JUDICIAL BRANCH EXECUTIVE BRANCH ATTORNEY GENERAL* GOVERNOR* SUPREME COURT COURT OF APPEALS SUPERIOR COURT MUNICIPAL COURTS JUSTICE OF THE PEACE COURTS* SUPERINTENDENT OF PUBLIC INSTRUCTION* STATE TREASURER* DEPARTMENT OF LAW CORPORATION COMMISSION* STATE MINE INSPECTOR* DEPARTMENT OF EDUCATION DEPARTMENT OF ADMINISTRATION DEPARTMENT OF CORRECTIONS DEPARTMENT OF TRANSPORTATION DEPARTMENT OF REVENUE DEPARTMENT OF PUBLIC SAFETY DEPARTMENT OF HEALTH SERVICES ARIZONA STATE UNIVERSITY NORTHERN ARIZONA UNIVERSITY DEPARTMENT OF ECONOMIC SECURITY OTHER BOARDS, COMMISSIONS, AND AGENCIES BOARD OF REGENTS COMMUNITY COLLEGE BOARD AHCCCS UNIVERSITY OF ARIZONA * ELECTED OFFICIALS -8- STATE OF ARIZONA PRINCIPAL STATE OFFICIALS JUNE 30, 2003 ELECTED OFFICIALS Janet Napolitano, Governor Tom Horne, Superintendent of Public Instruction Senator Ken Bennett, President of the Senate Marc L. Spitzer, Chairman - Corporation Commission Representative Jake Flake, Speaker of the House William A. Mundell, Commissioner - Corporation Commission Janice K. Brewer, Secretary of State Kristin K Mayes, Commissioner - Corporation Commission Terry Goddard, Attorney General Mike Gleason, Commissioner - Corporation Commission Douglas K. Martin, State Mine Inspector Jeff Hatch-Miller, Commissioner - Corporation Commission David A. Petersen, State Treasurer APPOINTED OFFICIALS Executive Officials Legislative Officials Betsey Bayless, Director - Department of Administration Michael E. Braun, Executive Director - Legislative Council Dora B. Schriro, Director - Department of Corrections Richard Stavneak, Director - Joint Legislative Budget Committee David A. Berns, Director - Department of Economic Security Debra K. Davenport, CPA, Auditor General J. Elliot Hibbs, Director - Department of Revenue Gladys Ann Wells, Director - Board of Library, Archives and Public Records Dennis A. Garrett, Director - Department of Public Safety University Officials Catherine R. Eden, Ph.D., Director - Department of Health Services Michael Crow, President - Arizona State University Phyllis Biedess, Director - Arizona Health Care Cost Containment System Dr. John Denis Haeger, President - Northern Arizona University Victor Mendez, Director - Department of Transportation Peter Likins, President - University of Arizona Judicial Officials Charles E. Jones, Chief Justice -9- FINANCIAL SECTION FINANCIAL SECTION INDEPENDENT AUDITORS’ REPORT INDEPENDENT AUDITORS’ REPORT STATE OF ARIZONA OFFICE OF THE DEBRA K. DAVENPORT, CPA AUDITOR GENERAL WILLIAM THOMSON DEPUTY AUDITOR GENERAL AUDITOR GENERAL Independent Auditors’ Report The Honorable Janet Napolitano, Governor State of Arizona The Honorable Ken Bennett, President Arizona State Senate The Honorable Franklin L. “Jake” Flake, Speaker Arizona House of Representatives The Honorable Charles E. Jones, Chief Justice Arizona Supreme Court We have audited the accompanying financial statements of the governmental activities, business-type activities, aggregate discretely presented component units, each major fund, and aggregate remaining fund information of the State of Arizona as of and for the year ended June 30, 2003, as listed in the table of contents, which collectively comprise the State’s basic financial statements. These financial statements are the responsibility of the State’s management. Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of certain departments and the component units, which account for the following percentages of the assets and revenues of the opinion units affected. Opinion Unit/Department Government-Wide Statements Governmental activities: Arizona Health Care Cost Containment System Department of Transportation Business-type activities: Lottery Department Arizona Health Care Cost Containment System Department of Transportation Aggregate discretely presented component units: Arizona Power Authority State Compensation Fund University Medical Center Water Infrastructure Finance Authority 2910 NORTH 44 th STREET • SUITE 410 • PHOENIX, ARIZONA Assets Revenues .84% 71.19% 17.08% 19.51% 1.18% 11.29% .24% 5.36% 1.17% .57% 2.12% 77.35% 6.36% 14.17% 3.43% 55.25% 37.77% 3.55% 85018 • (602) 553-0333 • FAX (602) 553-0051 Opinion Unit/Department Fund Statements General Fund: Arizona Health Care Cost Containment System Transportation and Aviation Planning, Highway Maintenance and Safety Fund: Department of Transportation Lottery Fund: Lottery Department Aggregate Remaining Fund Information: Arizona Health Care Cost Containment System Department of Transportation Arizona State Retirement System Public Safety Personnel Retirement System Corrections Officer Retirement Plan Elected Officials' Retirement Plan Assets Revenues 9.87% 19.67% 100.00% 100.00% 100.00% 100.00% 0.08% 1.33% 61.22% 13.51% 2.28% 0.98% 5.65% 19.48% 19.20% 8.32% 1.80% .62% Those financial statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for those entities, is based solely on the reports of the other auditors. We conducted our audit in accordance with U.S. generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The financial statements of the Arizona Power Authority, State Compensation Fund, and University Medical Center, included in the discretely presented Component Units statements; and the Public Safety Personnel Retirement System, Corrections Officer Retirement Plan, and Elected Officials’ Retirement Plan included in the Fiduciary statements; were not audited by the other auditors in accordance with Government Auditing Standards. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of the other auditors provide a reasonable basis for our opinions. The financial statements of the State Compensation Fund are presented on a statutory basis of accounting in conformity with the accounting practices prescribed or permitted by the State of Arizona, Department of Insurance, which is a comprehensive basis of accounting other than U.S. generally accepted accounting principles. The State Compensation Fund’s financial statements are included in the State’s basic financial statements as a discretely presented component unit and represent 77.35 percent and 55.25 percent of the assets and revenues, respectively, of the State’s aggregate discretely presented component units. In our opinion, because of the effects of the matter discussed in the preceding paragraph, the financial statements referred to above do not present fairly, in conformity with U.S. generally accepted accounting principles, the financial position of the aggregate discretely presented component units of the State of Arizona, as of June 30, 2003, and the changes in financial position thereof for the year then ended. In addition, in our opinion, based on our audit and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, business-type activities, each major fund, and aggregate remaining fund information of the State of Arizona as of June 30, 2003, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with U.S. generally accepted accounting principles. As described in Note 8, the State reclassified certain activities from one category of fund to another, which constitutes a change in reporting entity. Also as described in Note 8, the State’s University of Arizona increased the capitalization threshold for equipment, which represents a change in the application of an accounting principle. Finally, as described in Note 8, the State Compensation Fund changed its basis for reporting financial statements from U.S. generally accepted accounting principles to a statutory basis of accounting permitted by the State of Arizona, Department of Insurance. Management’s Discussion and Analysis on pages 21 through 31, the Budgetary Comparison Schedules on pages 115 through 137, the Infrastructure Assets information on pages 138 through 141, and the Schedule of Agent Retirement Plans’ Funding Progress on page 142, are not a required part of the basic financial statements but are supplementary information required by the Governmental Accounting Standards Board. We and the other auditors have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we and the other auditors, did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements of the activities, component units, and funds that collectively comprise the State’s basic financial statements. The combining and individual fund statements and schedules listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied by us and the other auditors in the audit of the basic financial statements and, in our opinion, based on our audit and the reports of the other auditors, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. The information included in the introductory and statistical sections listed in the table of contents has not been subjected to the auditing procedures applied in our audit of the basic financial statements and, accordingly, we express no opinion on such information. In accordance with Government Auditing Standards, we will also issue our report on our consideration of the State’s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grants at a future date. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Debbie Davenport Auditor General January 16, 2004 MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS The following is a discussion and analysis of the State of Arizona’s (the State’s) financial performance, providing an overview of the activities for the fiscal year ended June 30, 2003. Please read it in conjunction with the transmittal letter at the front of this report and with the State’s financial statements, which follow this section. The completeness and fairness of the following information is the responsibility of the State’s officials and management. FINANCIAL HIGHLIGHTS Government-Wide: · The assets of the State exceeded liabilities at the close of the fiscal year by $14.7 billion (reported as net assets). Of this amount, a $476 million deficit for (unrestricted net assets) exists at fiscal year end, $3.3 billion is restricted for specific purposes (restricted net assets), and $11.9 billion is invested in capital assets, net of related debt. · The State’s total net assets decreased in fiscal year 2003 by $808 million. Net assets of governmental activities decreased by $611 million, while net assets of the business-type activities decreased by $198 million. Fund Level: · As of the close of the fiscal year, the State’s governmental funds reported combined ending fund balances of $2.7 billion, a decrease of $614 million from the beginning of the year. Approximately 29 percent of the combined fund balances, $787 million is available to meet the State’s current and future needs (unreserved fund balance). · As of the close of the fiscal year, unreserved fund balance for the General Fund was $343 million, or 2.6 percent, of total General Fund expenditures. · The enterprise funds reported net assets at year-end of $2.7 billion, a decrease of $195 million during the year. · The Land Endowments Fund reported fund balance at year-end of $1.1 billion, an increase of $41 million during the year. The Land Endowments Fund is used to help finance public education within the State as required by the federal government and the State’s Constitution. Long-term Debt: · The State’s total long-term primary government debt rose during the fiscal year to $4.2 billion, an increase of $868 million (or 21%). During the year, the State issued revenue bonds and certificates of participation of $823 million and $489 million, respectively. More detailed information regarding the government-wide financial statements, fund level financial statements and long term debt activity can be found beginning on page 23. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is an introduction to the State’s basic financial statements, which are comprised of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. Required Supplementary Information and other supplementary information are included in addition to the basic financial statements. Government-Wide Statements (Reporting the State as a Whole) The government-wide financial statements provide a broad overview of the State of Arizona’s finances in a manner similar to private sector business. The financial statements report information about the State, as a whole, and about its activities that should help answer this question: Is the State, as a whole, better or worse off as a result of this year’s activities? These statements include all non-fiduciary assets and liabilities using the accrual basis of accounting. The current year’s revenues and expenses are taken into account regardless of when cash is received or paid. The government-wide financial statements include the following two statements: The Statement of Net Assets (pages 36 and 37) presents all of the State’s assets and liabilities, with the difference between the two reported as “net assets”. Over time, increases and decreases in net assets measure whether the State’s financial position is improving or deteriorating. The Statement of Activities (pages 40 and 41) presents information showing how the State’s net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying events giving rise to - 21 - the change occur, regardless of the timing of related cash flows. Therefore, revenues and expenses are reported in these statements for some items that will only result in cash flows in future fiscal periods (e.g. uncollected taxes and earned but unused vacation leave). Both government-wide statements report three activities: · Governmental Activities – Most of the State’s basic services are reported under this category. Taxes and intergovernmental revenues generally fund these services. The Legislature, the Judiciary and the general operations of the Executive departments fall within the governmental activities. · Business-type Activities – The State charges fees to customers to help it cover all or most of the cost of certain services it provides. Lottery tickets, the State’s unemployment compensation services, Industrial Commission rehabilitation services, and the State’s three universities are examples of business-type activities. · Discretely Presented Component Units – Component units are legally separate organizations for which the elected officials of the State are financially accountable. The State Compensation Fund, the University Medical Center, the Arizona Power Authority, and the Water Infrastructure Finance Authority are the State’s four organizations reported as discretely presented component units. See page 65 for more information on discretely presented component units. Fund Financial Statements (Reporting the State’s Major Funds) The fund financial statements begin on page 43 and provide detailed information about the major individual funds. A fund is a fiscal and accounting entity with a self-balancing set of accounts that the State uses to keep track of specific sources of funding and spending for a particular purpose. In addition to the major funds, page 146 begins the individual fund data for the non-major funds. The State’s funds are divided into three categories – governmental, proprietary, and fiduciary – each category uses different accounting approaches. · Governmental funds – Most of the State’s basic services are reported in the governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for future spending. The governmental fund financial statements provide a detailed short-term view of the State’s general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the State’s programs. These funds are reported using modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. Governmental funds include the general, special revenue, capital projects, debt service, and permanent funds. Because the focus of governmental funds is narrower than that of the governmentwide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. This report includes two schedules (pages 44 and 46) that reconcile the amounts reported on the governmental fund financial statements (modified accrual accounting) with governmental activities (accrual accounting) of the appropriate government-wide statement. Governmental fund financial statements can be found on pages 43 and 45 of this report. · Proprietary funds – When the State charges customers for the services it provides, whether to outside customers or to other agencies within the State, these services are generally reported in proprietary funds. Proprietary funds (enterprise and internal service) utilize accrual accounting; the same method used by private sector businesses. Enterprise funds report activities that provide supplies and services to the general public – such as the State Lottery Fund and Universities. Internal service funds report activities that provide supplies and services for the State’s other programs and activities – such as the State’s Risk Management Fund. Internal service fund operations primarily benefit governmental funds and are reported as governmental activities on the government-wide statements. The reconciliation between the government-wide financial statement business-type activities and the proprietary fund financial statements is presented on pages 48-53. Proprietary fund financial statements can be found on pages 48-57 of this report. - 22 - · Fiduciary funds – The State acts as a trustee or fiduciary, for its employee pension plans. It is also responsible for other assets that, because of a trust arrangement, can be used only for the trust beneficiaries. The State’s fiduciary activities are reported in separate Statements of Fiduciary Net Assets and Changes in Fiduciary Net Assets beginning on page 58. These funds, which include pension, investment trust and agency funds are reported using accrual accounting. The government-wide statements exclude fiduciary fund activities and balances because these assets are restricted in purpose and do not represent discretionary assets of the State to finance its operations. Fiduciary fund financial statements can be found on pages 58-59 of this report. Notes to the Financial Statements The Notes to the Basic Financial Statements provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes can be found beginning on page 64 of this report. Required Supplementary Information Following the basic financial statements is additional Required Supplementary Information that further explains and supports the information in the financial statements. The Required Supplementary Information includes budgetary comparison schedules for the general fund and each major special revenue fund and a reconciliation of the schedules of statutory and U.S. generally accepted accounting principles (GAAP) expenditures for the fiscal year. This section also includes schedules of condition and maintenance data regarding certain portions of the State’s infrastructure and retirement plan funding progress schedules. Required supplementary information begins on page 115 of this report. Other Supplementary Information Other supplementary information includes combining financial statements for non-major governmental, non-major enterprise, all internal service funds, and all fiduciary funds. These funds are added together, by fund type, and presented in single columns in the basic financial statements, but are not reported individually, as with major funds on the governmental funds and proprietary funds financial statements. Budgetary expenditure comparison schedules for the non-major governmental funds are also included. Other supplementary information begins on page 146 of this report. GOVERNMENT-WIDE FINANCIAL ANALYSIS The State’s overall financial position and operation for the past year for the primary government are summarized as follows based on the information included in the government-wide financial statements. The 2002 governmental activities net assets amount has been restated for fund reclassifications and prior year error corrections. The 2002 business-type activities net assets amount has been restated due to increasing the capitalization threshold for capital assets of one of the Universities. These changes have not been audited and are provided to the reader for comparative purposes. See footnote 4, capital assets, on page 82 and footnote 8, accounting changes and restatements, beginning on page 102 for additional restatement information. - 23 - State of Arizona-Primary Government Net Assets as of June 30, 2003 (expressed in thousands) Current assets Long-term assets Capital assets Total assets Current liabilities Long-term liabilities Total liabilities Net assets: Invested in capital assets, net of related debt Restricted net assets Unrestricted net assets Total net assets Governmental Activities 2002, as restated 2003 $ 2,482,215 $ 3,184,940 2,017,052 1,746,159 12,771,929 11,942,142 17,271,196 16,873,241 1,899,039 3,404,396 5,303,435 Business-type Activities 2002, as restated 2003 $ 1,372,783 $ 1,722,769 948,245 1,059,024 2,183,534 2,058,219 4,504,562 4,840,012 1,523,221 2,771,665 4,294,886 10,690,782 10,043,985 2,025,501 2,124,499 (748,522) 409,871 $ 11,967,761 $ 12,578,355 398,035 1,372,754 1,770,789 461,077 1,447,291 1,908,368 1,169,864 1,159,647 1,291,003 1,473,311 272,906 298,686 $ 2,733,773 $ 2,931,644 Primary Government Total 2002, as restated 2003 $ 3,854,998 $ 4,907,709 2,965,297 2,805,183 14,955,463 14,000,361 21,775,758 21,713,253 2,297,074 4,777,150 7,074,224 1,984,298 4,218,956 6,203,254 11,860,646 11,203,632 3,316,504 3,597,810 (475,616) 708,557 $ 14,701,534 $ 15,509,999 The largest portion of the State’s net assets (81 percent) represents capital assets, net of related debt of $11.9 billion. The State uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the State’s investment in its capital assets is reported net of accumulated depreciation and related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. Another significant portion of the State’s net assets of $3.3 billion (22 percent) represents resources that are subject to external restrictions on how they may be used. The largest restrictions are by the federal government and State constitution for basic education funded by the Land Endowment Earnings of the Permanent Funds and Unemployment Insurance Premiums from employers for funding the Unemployment Compensation Fund. Another major restriction is unspent debt instrument proceeds for the construction of additional capital assets. The remaining negative balance of the State’s net assets of $476 million (3 percent) represents unrestricted net assets, including restatements of beginning net assets. The State’s net assets decreased by $808 million during the current fiscal year. This decrease is primarily attributable to Medicaid income eligibility level increases, highway preservation expense increases, a reduction in unemployment grants, and statewide kindergarten through twelfth grade (K through 12) school building repairs and construction. The completion of roads and bridges increased capital assets approximately $710 million. Medicaid income eligibility level increases, highway preservation expense increases and a reduction in unemployment grants reduced current assets by approximately $488 million. Statewide K through 12 school building repairs and construction increased long-term liabilities approximately $705 million. The fiscal year 2003 K through 12 basic State aid to education increased education expense approximately $190 million. - 24 - State of Arizona-Primary Government Changes in Net Assets for Fiscal Year Ended June 30, 2003 (expressed in thousands) Governmental Activities 2002, as 2003 restated Revenues: Program revenues: Charges for services Operating grants and contributions Capital grants and contributions General revenues: Sales taxes Income taxes Property taxes Motor vehicle and fuel taxes Other taxes Unrestricted investment earnings Unrestricted grants and contributions Miscellaneous revenue Gain on sale of trust land Total revenues Expenses: General government Health and welfare Inspection and regulation Education Protection and safety Transportation Natural resources Intergovernmental revenue sharing Interest expense Universities Unemployment compensation Industrial Commission Lottery Other business-type activities Total expenses Excess (deficiency) before contributions and transfers Contributions to permanent endowments Transfers Change in net assets Net assets - July 1, as restated Net assets - June 30 $ 531,719 $ Business-type Activities 2002, as 2003 restated Primary Government Total 2002, as 2003 restated 581,254 $ 1,257,032 $ 1,188,882 $ 1,788,751 $ 1,770,136 5,894,195 4,996,539 810,549 737,170 6,704,744 5,733,709 460,364 471,020 23,090 48,180 483,454 519,200 4,551,804 2,371,005 37,470 1,563,876 632,896 4,450,691 2,442,320 49,611 1,493,259 544,514 43,450 - 41,367 - 4,595,254 2,371,005 37,470 1,563,876 632,896 4,492,058 2,442,320 49,611 1,493,259 544,514 77,914 116,614 32,527 29,327 110,441 145,941 7,222 319,873 137,563 16,585,901 8,518 186,917 137,565 15,478,822 3 26,985 2,193,636 83,108 12,447 2,140,481 7,225 346,858 137,563 18,779,537 91,626 199,364 137,565 17,619,303 694,173 6,848,087 141,673 4,795,566 982,839 598,375 175,312 852,417 5,960,399 135,784 4,277,635 931,292 411,108 152,772 - 694,173 6,848,087 141,673 4,795,566 982,839 598,375 175,312 852,417 5,960,399 135,784 4,277,635 931,292 411,108 152,772 2,159,691 135,775 16,531,491 2,190,160 131,206 15,042,773 2,159,216 455,685 73,586 263,321 107,740 3,059,548 2,039,832 406,406 57,503 239,648 95,164 2,838,553 2,159,691 135,775 2,159,216 455,685 73,586 263,321 107,740 19,591,039 2,190,160 131,206 2,039,832 406,406 57,503 239,648 95,164 17,881,326 54,410 436,049 (865,912) (698,072) (811,502) (262,023) (665,004) (709,916) (610,594) (273,867) 12,578,355 12,852,222 $ 11,967,761 $ 12,578,355 3,037 665,004 (197,871) 2,931,644 $ 2,733,773 2,723 709,916 14,567 2,917,077 $ 2,931,644 3,037 (808,465) 15,509,999 $ 14,701,534 2,723 (259,300) 15,769,299 $ 15,509,999 - 25 - - Change in Net Assets Governmental activities – Net assets decreased by $611 million, or 5%. The School Facilities Board issued revenue bonds in the amount of $332 million and certificates of participation in the approximate amount of $373 million. The debt instruments are being issued to construct or repair K through 12 schools throughout the State. Although the debt instruments are obligations of the State, the constructed and improved schools are the capital assets of the school districts, which are separate and sovereign governmental entities. For each dollar of debt proceeds expended on construction and repair of schools, the State’s governmental activities net assets are reduced by one dollar. A comparison of the cost of services by function, net of program revenues, for the State’s governmental activities is shown below for fiscal years 2002 and 2003. 2003 Governmental Activities (expressed in thousands) Expenses, Net of Program Revenues: General government Health and welfare Inspection and regulation Education Protection and safety Transportation Natural resources Intergovernmental revenue sharing Interest expense Total Governmental Activities Expenses, Net of Program Revenues 2002, as restated, Governmental Activities (expressed in thousands) $ (452,184) (1,892,128) (16,142) (4,058,176) (830,114) 6,548 (107,551) (2,159,691) (135,775) $ (710,810) (1,620,216) (9,362) (3,737,181) (744,198) 228,870 (79,697) (2,190,160) (131,206) $ (9,645,213) $ (8,993,960) Expenses and Program Revenues Governmental Activities (in millions of dollars) 8,000 7,000 6,000 5,000 Expenses 4,000 3,000 Program Revenues 2,000 1,000 0 - 26 - Business-type activities – The net assets decreased by $198 million, or 7%. The decrease in net assets is primarily caused by a one-time lump sum distribution by the U.S. Department of Labor during fiscal year 2002 of Reed Act funding for the unemployment compensation fund in the approximate amount of $145 million. During fiscal year 2003, the unemployment compensation fund received additional federal grant funding of approximately $44 million due to significant increases of unemployment claims from government entities, non-profit organizations and the airline industry. These funding changes for the State’s unemployment program primarily reduced operating grant revenue and current assets. The Industrial Commission’s net assets decreased $54 million primarily due to medical insurance carriers becoming insolvent during the year. The increase in insolvent medical insurers primarily increased the Industrial Commission’s expenses and long-term liabilities. A comparison of the cost of services by business-type, net of program revenues, for the State’s business-type activities is shown below for fiscal years 2002 and 2003. 2003 Business-type Activities (expressed in thousands) Expenses, Net of Program Revenues: Universities Unemployment Compensation Industrial Commission Lottery Other Total Business-Type Activities Expenses, Net of Program Revenues 2002, as restated, Business-type Activities (expressed in thousands) $ (787,776) (156,906) (73,586) 58,946 (9,555) $ (864,113) 5,368 (52,233) 55,200 (8,543) $ (968,877) $ (864,321) FINANCIAL ANALYSIS OF THE STATE’S FUNDS The State uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds – The general government functions are contained in the General, Special Revenue, Debt Service, Capital Projects and Permanent Funds. The focus of the State’s governmental funds is to provide information on nearterm inflows, outflows, and balances of spendable resources. Such information is useful in assessing the State’s financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. General Fund The general fund is the chief operating fund of the State. At June 30, 2003, unreserved fund balance of the general fund was $343 million, while total fund balance closed the year at $546 million. As a measure of the general fund’s liquidity, it may be useful to compare both unreserved fund balance and total fund balance to total fund expenditures and other financing uses. Unreserved fund balance represents 2 percent of total expenditures and other financing uses, while total fund balance represents 4 percent of the same amount. The fund balance of the State’s general fund decreased by $202 million during the fiscal year. Most of the decline in fund balance is due to an increase in the Medicaid income eligibility limit approved by a voter initiative in the November 2000 general election. The initiative increased the indigent health care maximum income eligibility limit to 100% of the Federal Poverty Level. The increase of the State’s Medicaid population, due to passage of the November 2000 initiative, increased indigent health care entitlement matching by approximately $129 million. General tax revenues of $858 million were appropriated and $109 million came from Tobacco Litigation Settlement receipts. Voters identified the Tobacco Litigation Settlement receipts as the funding source for expanded Medicaid coverage authorized by the initiative passed in the November 2000 general election. If litigation receipts do not cover the State’s share of the expanded coverage, the initiative requires general tax dollars to provide the remaining resources. The State’s Medicaid program provides healthcare services to 17 percent of Arizona’s population. - 27 - The education expenditure line item increase of approximately $212 million results primarily from a $191 million increase in basic State aid to education for K through 12 grades. The annual basic State aid to education funding requirements of K through 12 is determined by formula prescribed within Arizona law. The average daily attendance for K through 12 schools increased approximately 55 thousand students during 2003. The “student growth” component of the basic State aid formula for fiscal year 2003 was approximately $248 million above fiscal year 2001 estimated growth amounts. Transportation and Aviation Planning, Highway Maintenance and Safety Fund The transportation and aviation planning, highway maintenance and safety fund is responsible for repair and maintenance of existing roads, paying the debt service for roads that are built from the issuing of revenue bonds, and providing technical assistance with road construction provided by contractors hired by the Arizona Department of Transportation. Total fund balance declined approximately $88 million during fiscal year 2003. The fund balance decrease was primarily caused by two non-operating categories of transactions. Debt service funding of long-term obligations, secured by revenue collections, increased approximately $30 million during fiscal year 2003, from approximately $292 million in fiscal year 2002 to approximately $322 million in fiscal year 2003. Payments to other State agencies increased approximately $110 million in fiscal year 2003, from approximately $80 million in fiscal year 2002 to approximately $190 million in fiscal year 2003. These two transaction categories are reported as “transfers out” on the Statement of Revenues, Expenditures, and Changes in Fund Balances on page 45. Land Endowments Fund The fund was established when the federal government granted Statehood. Both the State constitution and the federal government require that the land grants given to the State be maintained indefinitely, and the earnings from the land grants should be used for public education, primarily K through 12 grades. The land endowments fund total fund balance increased $41 million during fiscal year 2003. Unrealized valuation increase for investments at fiscal year end, compared to the initial investment purchase price, is approximately $9 million. Proceeds from the sale of trust land by the Land Department increased by approximately $37 million, from $51 million during fiscal year 2002 to $88 million during fiscal year 2003. Proprietary funds The business-type activities discussion for the fund level financial statements of the State’s enterprise funds provide the same type of information found in the government-wide financial statements analysis on page 27. GENERAL FUND BUDGETARY HIGHLIGHTS During the fiscal year, the original budget was amended by various supplemental appropriations and appropriation revisions. Budget to Actual Schedules for the major governmental funds are in the Required Supplementary Information section beginning on page 115. Differences between the original budget and the final amended budget resulted in a $245 million increase in appropriations for the General Fund. The following comments summarize current year budgetary results: · The General Fund appropriations increase of $245 million is comprised primarily of 1) $114 million of prior year obligations that are expended in the current year as allowed by ARS §35-191; 2) $161 million of intra fund cash transfers mandated by the legislature; and 3) a net original budget reduction of $30 million for all general fund agencies. The original General Fund appropriation total was $9.6 billion. The final General Fund appropriation total was $9.8 billion. No State agency’s budget was either increased or decreased a significant amount. · The difference between the final budget and actual expenditures was approximately $327 million. Of this amount, approximately $87 million will continue as legislative multiple fiscal year spending authority for fiscal year 2004 and beyond depending upon the budgetary guidelines of the legislature. The remaining $240 million represents the unused portion of the State’s legislatively authorized annual operating budget. Agencies not spending significant amounts of their annual operating legislative budgets were the State’s Indigent Health Care Agency (AHCCCS) (approximately $143 million), the Department of Economic Security (approximately $44 million) and the Department of Environmental Quality (approximately $10 million). Additional budgetary information can be found on pages 136-137 of this report. - 28 - CAPITAL ASSETS AND DEBT ADMINISTRATION Capital assets: The State’s investment in capital assets for its governmental and business-type activities as of June 30, 2003 totaled $15.0 billion, net of accumulated depreciation. The total primary government increase in capital assets for the current period was 7 percent, with a 7 percent increase in capital assets used for governmental activities and a 6 percent increase for business-type activities. Depreciation charges of the governmental and business-type activities for the fiscal year totaled $248 million. Major capital assets activity during the current fiscal year included the following: · · The universities’ additions to capital assets totaled approximately $279 million. The department of transportation started or completed roads and bridges totaling $835 million during the fiscal year. For government-wide financial statement presentation, all depreciable assets, except infrastructure using the modified approach, were depreciated from acquisition date to the end of the current fiscal year. Governmental fund financial statements record capital asset purchases as expenditures. Capital assets for the governmental and business-type activities as of June 30, 2003 are presented below (amounts in thousands): Land Buildings Improvements Other than Buildings Equipment Collections (non-depreciable) Infrastructure Construction in Progress Less Accumulated Depreciation Total Governmental Activities 2002, as 2003 restated $ 1,938,169 $ 1,814,708 1,196,997 1,063,937 Business-type Activities 2002, as 2003 restated $ 135,095 $ 133,523 2,232,616 2,100,782 Total 2003 $ 2,073,264 3,429,613 2002, as restated $ 1,948,231 3,164,719 129,035 585,903 115,837 587,084 2,478 1,041,291 36,920 1,004,226 131,513 1,627,194 152,757 1,591,310 7,571,377 2,184,798 7,468,539 1,676,519 33,144 279,494 133,986 32,528 213,301 98,572 33,144 7,850,871 2,318,784 32,528 7,681,840 1,775,091 (834,350) $ 12,771,929 (784,482) $ 11,942,142 (1,674,570) $ 2,183,534 (1,561,633) $ 2,058,219 (2,508,920) $ 14,955,463 (2,346,115) $ 14,000,361 See footnote 4, capital assets, beginning on page 82 for additional capital asset data and footnote 8, accounting changes and restatements, beginning on page 102 for information concerning the University of Arizona’s raising it’s capitalization threshold to $5,000. As provided by GASB 34, the State has elected to record its infrastructure assets using the modified approach. Assets accounted for under the modified approach include approximately 6,801 centerline miles (18,129 travel lane miles) and 4,463 bridges that the State is responsible for maintaining. The State manages its roads using the Present Serviceability Rating (PSR), which measures the condition of the pavement and its ability to serve the traveling public. The PSR uses a five-point scale (5 excellent, 0 poor) to characterize the condition of the roadway. The State’s serviceability rating goal is 3.23 for the overall system. The most recent assessment indicated that an overall rating of 3.6 was achieved for fiscal year end 2003. The State manages its bridges using the Arizona Bridge Information and Storage System (ABISS). The State determines the condition rating based on standards developed by the Federal Highway Administration and additional internal criteria. It is the policy of the State to maintain a Condition Rating Index (CRI) of 92.5 percent or better. In fiscal year 2003 a CRI of 93.9 percent was obtained. - 29 - In addition to many smaller projects, the following major highway construction projects in excess of $20 million, were started during fiscal year 2003 (amounts in thousands): Project Description Construction on State Route 260 in the vicinity of Camp Verde Construction of a four lane divided highway on the Kohl’s Ranch section of State Route 260 Construction of two overpasses on Grand Avenue (US 60); one at 43rd Avenue and Camelback Road and another at 51st Avenue and Bethany Home Road Construction of the Santan Freeway (Loop 202) from Dobson Road to Arizona Avenue Construction of HOV lanes, roadway and drainage improvements on SR 51, from Interstate 10 to Shea Boulevard Contract Start Date 10/24/2002 Contract Amount $ 23,376 5/13/2003 $ 22,785 12/24/2002 $ 20,180 6/25/2003 $ 31,919 1/22/2003 $ 84,925 Capital assets financed by debt instruments do not generate funds to repay the debt instruments. More detailed information regarding capital assets are on pages 82 and 83. Long-term debt: The State issues no general obligation debt instruments. The Arizona Constitution, under Article 9 Section 5, provides that the State may contract debts not to exceed $350 thousand. This provision has been interpreted to restrict the State from pledging its credit as a sole payment for debts incurred for the operation of the State government. As a result, the State pledges either dedicated revenue streams or the constructed building or equipment acquired as security for the repayment of long-term debt instruments. Major long-term debt activity during the current fiscal year included the following: · The Department of Transportation issued revenue bonds for $422 million to acquire land for future construction of controlled access roads, statewide road construction and early redemption of revenue bonds prior to maturity in the amount of approximately $102 million. The School Facilities Board issued $332 million of revenue bonds to do school repairs at K through 12 public schools throughout the State. · The School Facilities Board issued $373 million of certificates of participation to acquire and construct leasehold interests in new schools. The schools will be subleased to county school districts. At no time during the construction and sublease of the schools will the lease hold improvements be reported as assets of the State government. State of Arizona-Primary Government Outstanding Bonded Long Term Debt as of June 30, 2003 (expressed in thousands) Revenue Bonds Grant Anticipation Notes Certificates of Participation Total Governmental Activities 2003 2002 $ 2,173,055 $ 1,782,510 169,145 182,295 582,511 231,904 $ 2,924,711 $ 2,196,709 Business-type Activities 2003 2002 $ 597,238 $ 596,403 429,144 422,010 $ 1,026,382 $ 1,018,413 Total 2003 2002 $ 2,770,293 $ 2,378,913 169,145 182,295 1,011,655 653,914 $ 3,951,093 $ 3,215,122 See footnote 6, long-term obligations, beginning on page 88 for both narrative and numeric detail information of the State’s long-term debt transactions for fiscal year 2003. More detailed information regarding long-term debt begins on page 88. - 30 - ECONOMIC CONDITION AND OUTLOOK Arizona’s economy continues to add jobs in 2003. In fact, throughout most of 2003, Arizona was ranked in the top 10 fastest job growing states in the nation. However, in the most recent report for July, Arizona slipped to 13th. Notably, some states are gradually improving, while others are struggling with job losses. Global Insight forecasts the nation will show an average loss of jobs in 2003 and recover with modest job growth in 2004. Arizona’s Department of Economic Security, Research Administration (RA) expects Arizona’s economy will continue growing, though at a slower pace in 2003 than earlier forecasted. This forecast update shows that Arizona’s economy will add more than 82,000 jobs during the forecast period of 2003-04. While jobs grew at a slower than expected rate during the second quarter, and most of the third quarter, momentum is expected to pick up for the remainder of 2003 and into 2004. Most of this stems from improving consumer optimism and business confidence and the expected gradual recovery extending through other geographic regions. Improving economic conditions, for example, are expected in Canada, Mexico, Japan, Europe, and especially Asia over this period. These two mostly cyclical industries have shown sharply different experiences over the recent couple of years. Construction is an industry serving mostly “home-grown” demand. Population growth in Arizona, among the fastest in the Mountain states region, helps to supply the demand for job growth, while the continued low interest rates add to the affordability and attraction of housing and other related products. Manufacturing, on the other hand, is an industry largely serving demand external to our State. With demand levels sharply curtailed in the recent couple of years from other regions, manufacturing firms have struggled to adjust by shedding plant, equipment, and jobs—a process generally referred to as consolidation. Increasingly, however, manufacturing and mining firms have also opted to close, relocate or prioritize their expansion efforts abroad. Arizona’s economy continues to add jobs and the 2003-04 forecast calls for continued job growth with increasing momentum, which thus far has been absent from this growth phase. Sustained business confidence and higher levels of consumer optimism are expected to further invigorate Arizona’s economy, especially as economies of other regions show improvement. While manufacturing job losses remain a concern, even these are expected to gradually slow. Continued job losses in this industry are anticipated to dampen an otherwise full economic recovery beyond the forecast 2003-04 period. CONTACTING THE STATE COMPTROLLER’S OFFICE This financial report is designed to provide citizens, taxpayers, customers, investors, and creditors with a general overview of the State’s finances and to demonstrate the State’s accountability for the money it receives. If you have any questions about this report or need additional financial information, contact the Department of Administration, General Accounting Office, Financial Reporting Section at (602) 542-5405. You may also access and print this report at http://www.gao.state.az.us/financials/. The State’s component units issue their own separately issued audited financial statements. These statements may be obtained by directly contacting the component unit. Contact information regarding the component units begins on page 65. - 31 - BASIC FINANCIAL STATEMENTS BASIC FINANCIAL STATEMENTS (This page intentionally left blank) STATE OF ARIZONA STATEMENT OF NET ASSETS JUNE 30, 2003 (Expressed in Thousands) PRIMARY GOVERNMENT TOTAL PRIMARY GOVERNMENT GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES ASSETS Current Assets: Cash Cash with U.S. Treasury Cash and pooled investments with State Treasurer Cash held by trustee Collateral investment pool Short-term investments Receivables, net of allowances: Taxes Interest Loans and notes Other Internal balances Due from U.S. Government Due from local governments Due from others Inventory of food stamps Inventories, at cost Other current assets Total Current Assets $ Noncurrent Assets: Restricted assets: Cash Cash and pooled investments with State Treasurer Cash held by trustee Investments held by trustee Loans and notes receivable, net of allowances Investments Endowment investments Other noncurrent assets Capital assets: Infrastructure, land and other non-depreciable Depreciable buildings, property and equipment Less: accumulated depreciation Total Noncurrent Assets Total Assets 2,132 1,537,024 - $ $ 95,332 860,872 1,706,842 69,525 50,385 $ 13,341 53,497 24,489 22,318 363,384 21,188 6,945 80,994 70,672 371,860 1,618 9 86 20,983 5,320 2,482,215 39,659 2,946 8,677 63,178 (70,672) 53,292 381 26,513 5,009 1,372,783 403,043 24,134 15,622 144,172 425,152 1,999 9 86 47,496 10,329 3,854,998 1,309 12,165 44,976 8,259 1,345 181,699 523,845 120,454 253,284 1,119,469 - 92,446 102,398 25,809 106,561 52,094 342,725 208,783 17,429 92,446 626,243 146,263 106,561 305,378 342,725 1,328,252 17,429 22,082 320,439 81,276 56,069 11,989,965 5,474,418 (2,508,920) 17,920,760 10,125 289,567 (195,040) 584,518 11,687,740 1,918,539 (834,350) 14,788,981 $ 93,200 860,872 169,818 69,525 50,385 COMPONENT UNITS 17,271,196 302,225 3,555,879 (1,674,570) 3,131,779 $ The Notes to the Financial Statements are an integral part of this statement. 4,504,562 $ 21,775,758 $ 766,217 (Continued) - 36 - STATE OF ARIZONA STATEMENT OF NET ASSETS JUNE 30, 2003 (Expressed in Thousands) PRIMARY GOVERNMENT TOTAL PRIMARY GOVERNMENT GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES LIABILITIES Current Liabilities: Accounts payable and other current liabilities Accrued liabilities Obligation under securities loan agreements Tax refunds payable Due to U.S. Government Due to local governments Due to others Unearned deferred revenue Current portion of accrued insurance losses Current portion of long-term debt Current portion of other long-term liabilities Total Current Liabilities $ 582,910 297,465 155 12,172 365,473 104,031 51,344 346,354 139,135 1,899,039 $ 74,430 38,269 69,525 164 5,152 50,833 91,224 16,320 43,763 8,355 398,035 $ 657,340 335,734 69,525 155 12,336 370,625 154,864 142,568 16,320 390,117 147,490 2,297,074 COMPONENT UNITS $ 26,178 10,560 491 2,671 15,695 3,482 59,077 Noncurrent Liabilities: Unearned deferred revenue Accrued insurance losses Funds held for others Long-term debt Other long-term liabilities Total Noncurrent Liabilities 6,878 233,080 2,808,222 356,216 3,404,396 49,470 223,418 31,758 1,028,875 39,233 1,372,754 56,348 456,498 31,758 3,837,097 395,449 4,777,150 1,202 9,738 353,444 9,359 373,743 Total Liabilities 5,303,435 1,770,789 7,074,224 432,820 10,690,782 1,169,864 11,860,646 34,930 62,456 495,663 30,470 21,842 893,470 24,715 62,456 517,505 893,470 55,185 8,610 20,082 1,395,750 21,080 (748,522) 143,683 141,281 63,249 2,763 272,906 163,765 1,537,031 63,249 23,843 (475,616) NET ASSETS Invested in capital assets, net of related debt Restricted for: Federal grants Capital projects Unemployment compensation Debt service Permanent funds / University funds: Expendable Nonexpendable Loans and other financial assistance Other purposes Unrestricted Total Net Assets $ 11,967,761 $ The Notes to the Financial Statements are an integral part of this statement. - 37 - 2,733,773 $ 14,701,534 199,180 90,677 $ 333,397 STATE OF ARIZONA STATEMENT OF ADMITTED ASSETS, LIABILITIES AND POLICYHOLDERS' SURPLUS COMPONENT UNITS STATE COMPENSATION FUND FOR THE YEAR ENDED DECEMBER 31, 2002 (Reported on Statutory Basis of Accounting) (Expressed in Thousands) STATUTORY BASIS ADMITTED ASSETS Investments: Bonds and certificates Equity securities Mortgages Properties occupied by the Fund Cash and short-term investments $ Total Cash and Invested Assets 2,549,206 Other Assets: Premiums receivable Electronic data processing equipment Accrued interest and dividends receivable Other assets Total Admitted Assets 1,935,272 156,885 156,293 26,436 274,320 39,825 916 22,163 4,365 $ 2,616,475 LIABILITIES AND POLICYHOLDERS' SURPLUS Liabilities: $ Liability for incurred but unpaid losses and loss adjustment expenses Policyholders' advance premiums Obligation for return of collateral Taxes, licenses, fees and other accrued expenses NCCI assigned risk pool liability Policyholders' dividends 1,797,913 55,210 212,718 10,111 21,386 7,296 Total Liabilities 2,104,634 Policyholders' Surplus: Special surplus Unassigned surplus 30,000 481,841 Total Policyholders' Surplus Total Liabilities and Policyholders' Surplus 511,841 $ 2,616,475 The Notes to the Financial Statements are an integral part of this statement. - 38 - (This page intentionally left blank) STATE OF ARIZONA STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2003 (Expressed in Thousands) PROGRAM REVENUES EXPENSES FUNCTIONS/PROGRAMS PRIMARY GOVERNMENT: Governmental Activities: General government Health and welfare Inspection and regulation Education Protection and safety Transportation Natural resources Intergovernmental revenue sharing Interest on long-term debt Total Governmental Activities $ Business-type Activities: Universities Unemployment compensation Industrial Commission Lottery Other Total Business-type Activities Total Primary Government COMPONENT UNITS: Water Infrastructure Finance Authority University Medical Center Arizona Power Authority Total Component Units 694,173 6,848,087 141,673 4,795,566 982,839 598,375 175,312 2,159,691 135,775 16,531,491 OPERATING GRANTS AND CONTRIBUTIONS CHARGES FOR SERVICES $ 106,876 66,117 120,045 12,897 77,877 112,466 35,441 531,719 2,159,216 455,685 73,586 263,321 107,740 3,059,548 $ 675,089 162,561 322,267 97,115 1,257,032 135,113 4,889,842 5,486 724,493 74,398 32,998 31,865 5,894,195 CAPITAL GRANTS AND CONTRIBUTIONS $ 673,261 136,218 1,070 810,549 450 459,459 455 460,364 23,090 23,090 $ 19,591,039 $ 1,788,751 $ 6,704,744 $ 483,454 $ 14,533 280,471 25,833 $ 12,513 281,048 25,013 $ 7,557 - $ - $ 320,837 $ 318,574 $ 7,557 $ - General Revenues: Taxes: Sales Income Property Motor vehicle and fuel Other Unrestricted investment earnings Unrestricted grants and contributions Miscellaneous Contributions to permanent endowments Gain on sale of trust land Transfers Total General Revenues, Contributions, Gains and Transfers Change in Net Assets Net Assets - Beginning, as restated Net Assets - Ending The Notes to the Financial Statements are an integral part of this statement. - 40 - NET (EXPENSE) REVENUE AND CHANGES IN NET ASSETS PRIMARY GOVERNMENT TOTAL GOVERNMENTAL BUSINESS - TYPE PRIMARY COMPONENT ACTIVITIES ACTIVITIES GOVERNMENT UNITS $ (452,184) (1,892,128) (16,142) (4,058,176) (830,114) 6,548 (107,551) (2,159,691) (135,775) (9,645,213) $ $ (9,645,213) (452,184) (1,892,128) (16,142) (4,058,176) (830,114) 6,548 (107,551) (2,159,691) (135,775) (9,645,213) (787,776) (156,906) (73,586) 58,946 (9,555) (968,877) (787,776) (156,906) (73,586) 58,946 (9,555) (968,877) (968,877) (10,614,090) $ 5,537 577 (820) 5,294 4,551,804 2,371,005 37,470 1,563,876 632,896 77,914 7,222 319,873 137,563 (665,004) 9,034,619 (610,594) 12,578,355 $ 11,967,761 43,450 32,527 3 26,985 3,037 665,004 771,006 (197,871) 2,931,644 $ 2,733,773 4,595,254 2,371,005 37,470 1,563,876 632,896 110,441 7,225 346,858 3,037 137,563 9,805,625 (808,465) 15,509,999 $ 14,701,534 8,006 8,006 13,300 320,097 $ 333,397 - 41 - STATE OF ARIZONA STATEMENTS OF OPERATIONS AND CHANGES IN POLICYHOLDERS' SURPLUS COMPONENT UNITS STATE COMPENSATION FUND FOR THE YEAR ENDED DECEMBER 31, 2002 (Reported on Statutory Basis of Accounting) (Expressed in Thousands) STATUTORY Net premiums earned $ BASIS 276,167 Compensation and medical benefits incurred Loss expenses incurred Underwriting and administrative expenses Taxes and fees 244,636 22,330 18,972 5,061 Total Operating Expenses 290,999 Net Underwriting Loss (14,832) Net investment income, net of expenses of $6,588 Net realized capital loss 134,914 (14,471) Net Investment Gain 120,443 Other income NCCI assigned risk pool loss 1,415 (1,381) Net Income before Policyholders' Dividends Provision for policyholders' dividends Net Income 105,645 (50,000) $ 55,645 $ 470,190 55,645 (2,530) 9,084 (20,548) $ 511,841 STATEMENT OF CHANGES IN POLICYHOLDERS' SURPLUS Balance, Beginning of Year Net income Change in non-admitted assets Adjustment to policyholders' dividend liability Net unrealized capital losses Balance, End of Year The Notes to the Financial Statements are an integral part of this statement. - 42 - STATE OF ARIZONA BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2003 (Expressed in Thousands) GENERAL FUND ASSETS Cash Cash and pooled investments with State Treasurer Receivables, net of allowances: Taxes Interest Loans and notes Other Due from U.S. Government Due from local governments Due from others Due from other Funds Inventory of food stamps Inventories, at cost Restricted assets: Cash and pooled investments with State Treasurer Cash held by trustee Endowment investments Other Total Assets LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and other current liabilities Accrued liabilities Tax refunds payable Due to U.S. Government Due to local governments Due to others Due to other Funds Unavailable deferred revenue Unearned deferred revenue Notes payable Total Liabilities $ $ - LAND ENDOWMENTS FUND $ 28 OTHER GOVERNMENTAL FUNDS $ 1,385 TOTAL $ 2,132 564,659 151,425 60,203 691,158 1,467,445 286,869 15,697 26,718 148,021 1,577 276,216 86 11,300 68,683 861 18,366 69,929 41 20,264 4,693 2,143 260,229 548 291 - 7,832 2,476 22,801 153 9 57,607 2,607 363,384 21,177 260,229 68,433 218,103 1,618 9 354,378 86 18,600 18,259 86,843 344 312,889 - 1,119,469 - 192,697 33,611 27 523,845 120,454 1,119,469 371 $ 1,437,308 $ 647,151 $ 1,442,911 $ 1,012,363 $ 4,539,733 $ 249,550 92,790 155 12,172 267,808 103,805 36,992 95,039 32,575 890,886 $ 78,110 7,025 96,473 178,250 9,854 8,031 377,743 $ 7,371 16 24,853 262,807 23,681 318,728 $ 211,183 9,374 1,192 226 50,101 1,938 1,966 275,980 $ 546,214 109,205 155 12,172 365,473 104,031 290,196 369,638 58,222 8,031 1,863,337 Fund Balances: Reserved for: Budget stabilization fund Highway construction Other construction School facilities improvements Permanent funds Continuing appropriations Debt service Other fund balance reservations Unreserved Unreserved reported in: Nonmajor special revenue funds Total Fund Balances Total Liabilities and Fund Balances 719 TRANSPORTATION & AVIATION PLANNING, HIGHWAY MAINTENANCE & SAFETY FUND $ 13,737 101,944 87,131 598 343,012 182,637 62,792 2,241 24,693 (2,955) 1,123,523 660 - 159,687 33,477 33,893 26,786 21,032 14,252 - 13,737 342,324 33,477 135,837 1,123,523 177,369 23,273 39,543 340,057 546,422 269,408 1,124,183 447,256 736,383 447,256 2,676,396 1,437,308 $ 647,151 The Notes to the Financial Statements are an integral part of this statement. - 43 - $ 1,442,911 $ 1,012,363 $ 4,539,733 STATE OF ARIZONA RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2003 (Expressed in Thousands) Total fund balances - governmental funds $ 2,676,396 Amounts reported for governmental activities in the Statement of Net Assets are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds. 12,710,537 Long-term receivables are not available to pay for current period expenditures and, therefore, are deferred in the funds. 369,638 Internal service funds are used by management to charge the costs of certain activities to individual funds. The assets and liabilities of the internal service funds are included in governmental activities in the Statement of Net Assets. (131,296) The allocation of internal service fund net loss results in an amount due from business-type activities, which is not reported in the funds. 42 Deferred issue costs are reported as current expenditures in the funds. However, deferred issue costs are amortized over the life of the bonds and are included in the governmental activities in the Statement of Net Assets. 3,049 Long-term debt is not due and payable from current financial resources and, therefore, is not reported in the funds. These amounts consist of: Revenue bonds Premium on revenue bonds Grant anticipation notes Certificates of participation Premium on certificates of participation Capital leases Installment purchase contracts (2,173,055) (70,222) (169,145) (582,511) (38,510) (104,644) (5,707) (3,143,794) Accrued liabilities for AHCCCS programmatic costs are not due and payable from current financial resources and, therefore, are not reported in the funds. (189,648) Other long-term liabilities are not due and payable from current financial resources and, therefore, are not reported in the funds. Those liabilities consist of: Compensated absences Claims and judgements (134,136) (350,814) (484,950) 151,723 6,064 157,787 Other long-term assets are not available to pay for current-period expenditures and, therefore, are not reported in the funds. Those assets consist of: AHCCCS programmatic cost reimbursements Other long-term assets Net assets of governmental activities $ The Notes to the Financial Statements are an integral part of this statement. - 44 - 11,967,761 STATE OF ARIZONA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2003 (Expressed in Thousands) TRANSPORTATION & AVIATION PLANNING, GENERAL REVENUES Taxes: Sales Income Property Motor vehicle and fuel Other Intergovernmental Licenses, fees and permits Earnings on investments Sales and charges for services Fines, forfeitures and penalties Other Total Revenues $ EXPENDITURES Current: General government Health and welfare Inspection and regulation Education Protection and safety Transportation Natural resources Intergovernmental revenue sharing Debt service: Principal Interest and other fiscal charges Capital outlay Total Expenditures Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers in Transfers out Proceeds from sale of trust land Capital lease and installment purchase contracts Refunding bonds issued Payment to refunded bond escrow agent Bonds issued Premium on bonds issued Refunding certificates of participation issued Payment to refunded certificates of participation escrow agent Certificates of participation issued Premium on certificates of participation issued Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning, as restated Fund Balances - Ending $ 3,831,421 2,387,340 29,407 7,723 423,939 5,551,059 81,041 21,641 68,064 10,700 247,293 12,659,628 $ HIGHWAY LAND OTHER MAINTENANCE & ENDOWMENTS GOVERNMENTAL SAFETY FUND FUND FUNDS 268,721 6,026 1,523,361 492,457 107,530 2,281 717 17,166 2,418,259 $ 25 33,959 9,333 8,917 52,234 $ 455,247 29 2,037 32,792 208,957 97,677 131,993 53,890 33,324 85,492 64,554 1,165,992 TOTAL $ 4,555,389 2,387,369 37,470 1,563,876 632,896 6,141,218 320,564 111,771 111,438 96,192 337,930 16,296,113 595,951 6,312,800 49,390 3,811,254 829,850 62 45,182 1,202,634 455,301 957,057 454 5,300 70,267 2,571 1,387 - 93,198 334,561 90,473 1,000,995 93,246 8,393 117,377 - 689,603 6,652,661 139,863 4,882,516 925,667 463,756 163,946 2,159,691 8,079 3,958 172,440 13,031,600 2,780 602,435 2,017,573 166 80,145 289,263 133,875 266,163 2,427,544 297,508 140,613 1,041,038 17,556,862 (371,972) 400,686 (27,911) (1,261,552) (1,260,749) 464,338 (796,436) 100,721 - 22,785 (511,110) - 400 (19,123) 88,066 - 566,339 (363,774) 752 90,530 (107,735) 662,975 46,377 75,295 1,053,862 (1,690,443) 88,066 101,473 90,530 (107,735) 662,975 46,377 75,295 372,730 28,768 170,121 (201,851) 748,273 (488,325) (87,639) 357,047 69,343 41,432 1,082,751 (80,713) 5,418 895,464 (366,088) 1,102,471 (80,713) 372,730 34,186 646,603 (614,146) 3,290,542 546,422 $ 269,408 The Notes to the Financial Statements are an integral part of this statement. - 45 - $ 1,124,183 $ 736,383 $ 2,676,396 STATE OF ARIZONA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2003 (Expressed in Thousands) Net change in fund balances - total governmental funds $ (614,146) Amounts reported for governmental activities in the Statement of Activities are different because: Capital outlays are reported as expenditures in governmental funds. However, in the Statement of Activities, the cost of assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays exceeded depreciation in the current period. Capital outlay 1,041,038 Depreciation expense (85,087) 955,951 The net loss of internal service funds that is included with governmental activities in the Statement of Activities. (28,628) Some revenues reported in the Statement of Activities are not currently available at yearend and are not reported as revenue in the governmental funds. Operating grants 163,355 Gain on sale of trust land 49,497 Gain on sale of capital assets 3,723 Fees and licenses 4,219 Other revenue 877 221,671 Tax revenues that were reported as resources in the funds but were earned in prior fiscal years are not reported in the Statement of Activities. Sales and use taxes (3,585) Income taxes (16,364) (19,949) Some expenses reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in the governmental funds. AHCCCS accrued programmatic costs (189,648) Litigation (814) Accrued infrastructure asset preservation (122,215) Compensated absences (4,847) Other noncurrent expenses (295) (317,819) The Roosevelt School District settlement, which was accrued at the government-wide level in fiscal year 2002, has been reversed, in the State's favor, by the Arizona State Court of Appeals. This accrual was not financed from current financial resources in fiscal year 2002 and, therefore, was not reported in the fund statements in fiscal year 2002. 88,000 The Notes to the Financial Statements are an integral part of this statement. (Continued) - 46 - STATE OF ARIZONA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2003 (Expressed in Thousands) Bond proceeds provide current financial resources to the governmental funds; however, issuing debt increases long term liabilities in the Statement of Net Assets. In the current period, proceeds were received from: New bonds issued (662,975) Refunding bonds issued (90,530) Premium on bonds issued (46,377) Bond premium amortization 3,852 New certificates of participation issued (372,730) Premium on COPs issued (34,186) COP premium amortization 350 Refunding certificates of participation issued (75,295) (1,277,891) Repayment of long-term debt is reported as an expenditure in governmental funds, but the repayment reduces noncurrent liabilities in the Statement of Net Assets. In the current year, these amounts consist of: Debt service principal 297,508 Payment to refunded bond escrow agent 103,045 Payment to refunded certificates of participation escrow agent 80,713 Bond issuance costs 2,424 483,690 Some capital asset additions were financed through capital leases and installment purchase contracts. Such financing arrangements are reported as an other financing source in the governmental funds, however, these amounts are reported as liabilities in the Statement of Net Assets. (101,473) Change in net assets of governmental activities $ The Notes to the Financial Statements are an integral part of this statement. - 47 - (610,594) STATE OF ARIZONA STATEMENT OF NET ASSETS PROPRIETARY FUNDS JUNE 30, 2003 (Expressed in Thousands) BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS UNIVERSITIES ASSETS Current Assets: Cash $ Cash with U.S. Treasury Cash and pooled investments with State Treasurer Collateral investment pool Short-term investments Receivables, net of allowances: Taxes Interest Loans and notes Other Due from U.S. Government Due from local governments Due from other Funds Inventories, at cost Other current assets Total Current Assets Noncurrent Assets: Restricted assets: Cash Cash and pooled investments with State Treasurer Cash held by trustee Investments held by trustee Loans and notes receivable, net of allowances Investments Endowment investments Other long-term assets Capital assets: Infrastructure, land and other non-depreciable Depreciable buildings, property and equipment Less: accumulated depreciation Total Noncurrent Assets Total Assets LIABILITIES Current Liabilities: Accounts payable and other current liabilities Accrued liabilities Obligation under securities loan agreements Due to U.S. Government Due to local governments Due to others Due to other Funds Unearned deferred revenue Current portion of accrued insurance losses Current portion of long-term debt Current portion of other long-term liabilities Total Current Liabilities Noncurrent Liabilities: Unearned deferred revenue Accrued insurance losses Funds held for others Long-term debt Other long-term liabilities Total Noncurrent Liabilities Total Liabilities 86,749 115,978 34,251 50,325 UNEMPLOYMENT COMPENSATION $ 29 860,872 - INDUSTRIAL COMMISSION $ LOTTERY 6,087 308 35,274 - $ OTHER 3 34,936 - $ 332 18,596 60 582 4,320 40,274 53,234 17,326 4,442 407,481 39,659 11,692 912,252 2,054 17 43,740 6,429 1,248 42,616 310 4,357 4,766 58 381 109,632 7,939 567 146,998 92,446 - - - - 25,809 103,174 27,838 157,321 208,783 10,227 - 3,387 185,404 - 7,023 102,398 24,256 179 296,227 3,465,743 (1,628,342) 2,759,226 3,166,707 912,252 2,997 27,303 (5,584) 213,507 257,247 938 7,246 (4,747) 10,460 53,076 2,063 55,587 (35,897) 148,586 295,584 67,773 23,697 34,251 16,973 83,103 42,314 7,201 275,312 11,319 164 6,998 301 18,782 1,272 35,274 16,320 1,400 54,266 3,591 5,152 26,776 7,130 397 43,046 1,794 3,253 86 172,831 8,121 49 757 186,891 49,470 31,758 1,024,195 39,165 1,144,588 1,419,900 18,782 223,418 4,600 228,018 282,284 43,046 80 68 148 187,039 The Notes to the Financial Statements are an integral part of this statement. - 48 - TOTAL ENTERPRISE FUNDS $ 93,200 860,872 169,818 69,525 50,385 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE $ 69,579 - 39,659 2,946 8,677 63,178 53,292 381 109,632 26,513 5,009 1,553,087 11 10,527 6,465 2,383 1,900 90,865 92,446 - 102,398 25,809 106,561 52,094 342,725 208,783 17,429 - 302,225 3,555,879 (1,674,570) 3,131,779 4,684,866 21 193,880 (132,509) 61,392 152,257 74,430 38,269 69,525 164 5,152 50,833 180,262 91,224 16,320 43,763 8,355 578,297 36,697 607 17 182 7,047 44,550 49,470 223,418 31,758 1,028,875 39,233 1,372,754 1,951,051 233,080 2,569 3,354 239,003 283,553 (Continued) - 49 - STATE OF ARIZONA STATEMENT OF NET ASSETS PROPRIETARY FUNDS JUNE 30, 2003 (Expressed in Thousands) BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS NET ASSETS Invested in capital assets, net of related debt Restricted for: Capital projects Unemployment compensation Debt service Loans and other financial assistance University funds: Expendable Nonexpendable Other purposes Unrestricted Total Net Assets $ UNIVERSITIES UNEMPLOYMENT COMPENSATION 1,137,137 - 18,715 3,437 10,575 21,842 21,328 - 893,470 - 3,387 - - 63,249 143,683 141,281 281,536 - 21 (47,160) 6,593 2,742 31,979 1,746,807 $ 893,470 Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds. Net assets of business-type activities The Notes to the Financial Statements are an integral part of this statement. - 50 - INDUSTRIAL COMMISSION $ (25,037) $ LOTTERY OTHER 10,030 $ 108,545 TOTAL ENTERPRISE FUNDS GOVERNMENTAL ACTIVITIES INTERNAL SERVICE 1,169,864 58,641 21,842 893,470 24,715 63,249 - 143,683 141,281 2,763 272,948 (189,937) $ 2,733,815 $ 2,733,773 $ (131,296) (42) - 51 - STATE OF ARIZONA STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2003 (Expressed in Thousands) BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS UNIVERSITIES OPERATING REVENUES Sales and charges for services: Pledged student tuition and fees, net of scholarship allowances of $98,081 Pledged auxiliary enterprises, net of scholarship allowances of $5,938 Pledged educational department Lottery Other Unemployment assessments Intergovernmental (revenues for Universities are pledged) Pledged nongovernmental grants and contracts Licenses, fees and permits Earnings on investments Fines, forfeitures and penalties Other (revenues for Universities are pledged) Total Operating Revenues $ OPERATING EXPENSES Cost of sales and benefits Interest on notes payable Scholarships and fellowships Personal services Contractual services Depreciation and amortization Insurance Other Total Operating Expenses Operating Income (Loss) 409,048 UNEMPLOYMENT COMPENSATION $ - INDUSTRIAL COMMISSION $ LOTTERY - $ OTHER - $ - 226,102 39,939 - 160,963 - 322,267 - 92,454 - 509,925 88,420 15,553 1,288,987 78,823 1,598 22 241,406 950 950 305 322,572 1,070 780 3,881 1,974 100,159 506,100 84,157 1,365,638 144,274 2,100,169 (811,182) 455,685 455,685 (214,279) 69,355 1,082 4 70,441 (69,491) 209,657 5,259 9,225 269 35 2,232 226,677 95,895 67,594 6,009 21,783 4,954 2,807 566 4,026 107,739 (7,580) 43,450 (519) - - - (8) NON-OPERATING REVENUES (EXPENSES) Share of State sales tax revenues Gain (loss) on sale of capital assets Investment income (revenues for Universities are pledged) Endowment earnings on investments Other non-operating revenue Distributions to local governments Interest expense Other non-operating expense Total Non-Operating Revenues (Expenses) Income (Loss) Before Contributions and Transfers 13,277 7,704 6,450 (46,306) (10,219) 13,837 57,395 57,395 16,486 1,874 (150) (2,995) 15,215 384 (36,644) (36,260) 2,764 (1) 2,755 (797,345) (156,884) (54,276) 59,635 (4,825) CONTRIBUTIONS AND TRANSFERS Gifts and donations Capital grants and contributions Contributions to permanent endowments Transfers in Transfers out Total Contributions and Transfers 67,212 23,090 3,037 746,908 840,247 (5,189) (5,189) - (59,066) (59,066) 3 7,281 (24,930) (17,646) 42,902 1,703,905 (162,073) 1,055,543 (54,276) 29,239 569 9,461 (22,471) 131,016 Change in Net Assets Total Net Assets - Beginning, as restated Total Net Assets - Ending $ 1,746,807 $ 893,470 Change in net assets of enterprise funds Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds. Change in net assets of business-type activities The Notes to the Financial Statements are an integral part of this statement. - 52 - $ (25,037) $ 10,030 $ 108,545 TOTAL ENTERPRISE FUNDS $ $ 409,048 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE $ - 226,102 39,939 322,267 92,454 160,963 572,009 - 589,818 88,420 780 3,881 1,598 18,804 1,954,074 687 572,696 1,308,391 6,009 84,157 1,392,680 14,179 148,432 601 6,262 2,960,711 (1,006,637) 454,239 25,321 27,902 14,959 45,796 7,414 575,631 (2,935) 43,450 (527) 238 89,922 7,704 8,708 (36,644) (46,457) (13,214) 52,942 101 (253) 86 (953,695) (2,849) 67,215 23,090 3,037 754,189 (89,185) 758,346 122 41 (28,464) (28,301) (195,349) 2,929,164 (31,150) (100,146) 2,733,815 $ (195,349) (2,522) $ (197,871) $ (131,296) - 53 - STATE OF ARIZONA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2003 (Expressed in Thousands) BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS UNIVERSITIES CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Receipts from assessments Receipts from student loans collected Receipts from sales and services of auxiliary enterprises Receipts from sales and services of educational departments Receipts from interfund services / premiums Receipts from student tuition and fees Receipts from federal and local governments Receipts from uninsured claims Transfers from other Funds Payments to suppliers, prize winners, claimants, insurance companies or beneficiaries Payments to employees Payments to retirees Payments for scholarships and fellowships Payments for student loans issued Transfers to other Funds Other receipts Net Cash Provided (Used) by Operating Activities CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Custodial funds received Office rental receipts Share of State sales tax receipts Grants and contributions received Transfers from other Funds Interest paid Custodial funds disbursed Grants and contributions disbursed Distributions to local governments Transfers to other Funds Other receipts (payments) Net Cash Provided (Used) by Non-capital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from sale of capital assets Proceeds from capital debt Capital grants and contributions received Acquisition and construction of capital assets Interest paid on capital debt, installment purchase contracts and capital leases Principal paid on capital debt, installment purchase contracts and capital leases Other (payments) Net Cash (Used) by Capital and Related Financing Activities $ 9,481 INDUSTRIAL COMMISSION UNEMPLOYMENT COMPENSATION $ 160,749 - $ LOTTERY - $ OTHER 318,772 - $ 97,997 - 226,231 - - - - 38,743 412,583 591,074 - 78,823 - 949 - - 85,455 (503,871) (1,361,163) (80,699) (9,704) 20,771 (656,554) (465,884) 1,620 (224,692) (17,020) (16,071) (219,416) (5,253) 305 94,408 (74,160) (21,611) (116,306) 1,973 (26,652) 115,213 38,029 367,623 746,853 (99,138) (299,509) - (5,114) - 1,872 (1,594) (26,831) (61,413) 384 9,110 (26,753) - 869,071 (5,114) (87,860) (17,643) 278 3,577 53,128 15,288 (265,823) - (2,236) (1) 3 (723) (47,101) - (166) - - (50,883) - - (1,400) (23) - - (291,814) - (3,825) (1) (720) The Notes to the Financial Statements are an integral part of this statement. - 54 - TOTAL ENTERPRISE FUNDS $ 416,769 160,749 9,481 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE $ - 226,231 - 38,743 412,583 669,897 949 85,455 569,775 - (1,280,351) (1,388,027) (80,699) (9,704) (116,306) 24,669 (829,561) (526,890) (25,350) (10,195) 718 8,058 115,213 1,872 38,029 367,623 755,963 (99,138) (299,509) (26,831) (93,280) (1,210) 41 (253) (28,464) - 758,732 (28,676) 3,577 53,128 15,291 (268,783) (3,492) (47,267) - (52,283) (23) (4,430) - (296,360) (7,922) (Continued) - 55 - STATE OF ARIZONA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2003 (Expressed in Thousands) BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS UNIVERSITIES UNEMPLOYMENT COMPENSATION INDUSTRIAL COMMISSION LOTTERY OTHER CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of investments Interest and dividends from investments Change in cash collateral received from securities lending transactions Purchase of investments Other (payments) Net Cash Provided by Investing Activities 684,606 19,291 57,395 146,172 2,505 - 3,216 (664,452) 39,445 57,395 2,057 (130,422) (1,295) 19,017 - (60) 3,156 Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning, as restated (39,852) 360,834 (172,411) 1,033,312 (601) 42,270 6,547 28,392 (41,859) 163,185 Cash and Cash Equivalents - Ending RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation and amortization Miscellaneous nonoperating revenues Net changes in assets and liabilities: (Increase) in receivables, net of allowances (Increase) in due from U.S. Government (Increase) decrease in due from local governments (Increase) in due from other Funds (Increase) decrease in inventories, at cost (Increase) decrease in other assets Increase (decrease) in accounts payable Increase in accrued liabilities Increase (decrease) in due to U.S. Government Increase (decrease) in due to others Increase (decrease) in due to other Funds Increase (decrease) in deferred revenue Increase (decrease) in accrued insurance losses Increase (decrease) in other liabilities Net Cash Provided (Used) by Operating Activities SCHEDULE OF NONCASH INVESTING, CAPITAL AND FINANCING ACTIVITIES Donated equipment Gifts and conveyances of capital assets Assets acquired under capital leases Change in fair value of investments Amortization of bond discount and issuance costs Amortization of loss on refunding and bond premium (Loss) on disposal of capital assets, net Amortization of deferred rent Refinancing of long-term debt Total Noncash Investing, Capital and Financing Activities $ 320,982 $ $ (811,182) $ 860,901 $ (214,279) $ 41,669 $ 34,939 $ (69,491) $ 95,895 $ 121,326 (7,580) 144,274 - - 1,082 - 269 - 2,807 - (10,667) (1,129) 1,121 18,980 4,300 47 (2,298) - (6,257) 1,376 158 (5,690) - 265 52,073 - (3,495) 604 (313) 1,442 6 (30,893) (8) (203) (717) 1,249 112 (560) 2,048 (79) 6,109 869 194 (16,071) $ 94,408 $ (26,652) $ (656,554) $ (224,692) $ $ - $ 4,362 597 5,131 (960) 829 (1,686) 4,900 60,845 - $ 7,000 - $ - $ 3 (3) - $ 74,018 - $ 7,000 $ - $ - $ The Notes to the Financial Statements are an integral part of this statement. - 56 - TOTAL ENTERPRISE FUNDS GOVERNMENTAL ACTIVITIES INTERNAL SERVICE 830,778 82,407 113 2,057 (794,934) (1,295) 119,013 113 (248,176) 1,627,993 (28,427) 98,006 $ 1,379,817 $ 69,579 $ (1,006,637) $ (2,935) 148,432 - 14,959 2,983 (51,312) (8) (203) (717) 724 920 20,127 7,724 158 (5,722) 6,109 (1,429) 52,073 200 (4) 38 (4,413) (54) 1,040 (503) 96 (838) (242) (1,251) (818) $ (829,561) $ 8,058 $ 3 $ 4,362 597 12,131 (960) 829 (1,689) 4,900 60,845 556 - $ 81,018 556 $ - 57 - STATE OF ARIZONA STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2003 (Expressed in Thousands) ASSETS Cash Cash and pooled investments with State Treasurer Short-term investments $ Receivables, net of allowances: Accrued interest and dividends Securities sold Forward contract receivable Contributions Court fees Miscellaneous receivables Total receivables Due from others Investments, at fair value: Temporary investments Temporary investments from securities lending United States Government securities Corporate bonds Corporate notes Corporate stocks Real estate mortgages and contracts Collateral investment pool Other investments Money market fund Total investments Custodial securities in safekeeping Other assets Property and equipment, net of accumulated depreciation Total Assets LIABILITIES Accounts payable and other current liabilities Payable for securities purchased Accrued liabilities Obligation under securities loan agreements Due to local governments Due to others Total Liabilities NET ASSETS Held in trust for: Pension benefits Pool participants Total Net Assets $ PENSION INVESTMENT AGENCY TRUSTS TRUSTS FUNDS 15,099 $ - $ TOTAL 28,948 $ 44,047 - - 160,742 2,978 160,742 2,978 95,942 336,946 6,818 15,687 310 1,805 457,508 5,636 5,636 140 764 904 101,718 336,946 6,818 15,687 310 2,569 464,048 - - 89,170 89,170 1,081,982 - - 1,081,982 2,248,014 3,724,917 2,341,338 296,229 16,265,708 30,212 1,305,921 266,236 2,955 27,563,512 2,187,195 1,006,405 3,193,600 - 2,248,014 5,912,112 3,347,743 296,229 16,265,708 30,212 1,305,921 266,236 2,955 30,757,112 - - 2,966,075 2,295 2,966,075 2,295 445 - - 445 28,036,564 3,199,236 3,251,112 34,486,912 10,399 1,017,264 - - 111,715 6,123 122,114 1,017,264 6,123 3,553,925 - 6,692 - 3,273 3,130,001 3,553,925 9,965 3,130,001 4,581,588 6,692 3,251,112 7,839,392 23,454,976 - 3,192,544 - 23,454,976 3,192,544 23,454,976 $ 3,192,544 The Notes to the Financial Statements are an integral part of this statement. - 58 - $ - $ 26,647,520 STATE OF ARIZONA STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS FOR THE YEAR ENDED JUNE 30, 2003 (Expressed in Thousands) ADDITIONS: Member contributions Employer contributions Member purchase of service credit Court fees $ PENSION INVESTMENT TRUSTS TRUSTS 279,781 235,543 91,568 3,568 $ TOTAL - $ 279,781 235,543 91,568 3,568 Investment income: Net increase in fair value of investments Interest income Dividends Real estate Other investment income Securities lending income Total investment income 93,400 385,796 180,004 7,774 2,840 32,445 702,259 1,789 64,011 65,800 95,189 449,807 180,004 7,774 2,840 32,445 768,059 Less investment expenses: Investment activity expenses Security lending expenses Net investment income 23,341 24,786 654,132 2,734 63,066 26,075 24,786 717,198 Capital share and individual account transactions: Shares sold Reinvested interest income Shares redeemed Net capital share and individual account transactions Other additions 5,837,339 64,418 (6,283,033) 5,837,339 64,418 (6,283,033) - (381,276) (381,276) 8,447 Total Additions - 1,273,039 DEDUCTIONS: Retirement and disability benefits Death benefits Refunds to withdrawing members, including interest Administrative expense Dividends to investors Other deductions Total Deductions Change in net assets held in trust for: Pension benefits Pool participants Net Assets - Beginning Net Assets - Ending - (318,210) 954,829 1,460,855 15,861 - 1,460,855 15,861 58,537 25,494 15,338 63,066 - 58,537 25,494 63,066 15,338 1,576,085 63,066 1,639,151 (303,046) 23,758,022 $ 8,447 23,454,976 (381,276) 3,573,820 $ 3,192,544 The Notes to the Financial Statements are an integral part of this statement. - 59 - (303,046) (381,276) 27,331,842 $ 26,647,520 (This page intentionally left blank) STATE OF ARIZONA COMBINING STATEMENT OF NET ASSETS COMPONENT UNITS JUNE 30, 2003 (Expressed in Thousands) WATER INFRASTRUCTURE FINANCE AUTHORITY ASSETS Current Assets: Cash $ Cash and pooled investments with State Treasurer Cash held by trustee Short-term investments Receivables, net of allowances: Interest Loans and notes Other Inventories, at cost Other current assets Total Current Assets 47,504 21,794 - UNIVERSITY MEDICAL CENTER $ 13,341 22,318 ARIZONA POWER AUTHORITY $ 5,993 2,695 - TOTAL $ 13,341 53,497 24,489 22,318 1,168 12,165 82,631 42,790 8,259 86,708 141 2,186 1,345 12,360 1,309 12,165 44,976 8,259 1,345 181,699 320,439 73,458 2,655 12,343 7,818 3,895 9,739 49,519 22,082 320,439 81,276 56,069 82 (57) 396,577 10,125 288,306 (193,965) 128,522 1,179 (1,018) 59,419 10,125 289,567 (195,040) 584,518 479,208 215,230 71,779 766,217 13 3,823 491 10,515 59 14,901 24,525 5,843 2,671 2,860 3,423 39,322 1,640 894 2,320 4,854 26,178 10,560 491 2,671 15,695 3,482 59,077 Noncurrent Liabilities: Unearned deferred revenue Accrued insurance losses Long-term debt Other long-term liabilities Total Noncurrent Liabilities 1,202 224,438 225,640 9,738 65,012 9,359 84,109 63,994 63,994 1,202 9,738 353,444 9,359 373,743 Total Liabilities 240,541 123,431 68,848 432,820 25 34,744 161 34,930 199,180 39,462 8,610 48,445 2,770 8,610 199,180 90,677 Noncurrent Assets: Restricted assets: Investments held by trustee Loans and notes receivable, net of allowances Investments Other noncurrent assets Capital assets: Land and other nondepreciable Depreciable buildings, property and equipment Less: accumulated depreciation Total Noncurrent Assets Total Assets LIABILITIES Current Liabilities: Accounts payable and other current liabilities Accrued liabilities Unearned deferred revenue Current portion of accrued insurance losses Current portion of long-term debt Current portion of other long-term liabilities Total Current Liabilities NET ASSETS Invested in capital assets, net of related debt Restricted for: Debt service Loans and other financial assistance Unrestricted Total Net Assets $ 238,667 $ The Notes to the Financial Statements are an integral part of this statement. - 61 - 91,799 $ 2,931 $ 333,397 STATE OF ARIZONA COMBINING STATEMENT OF ACTIVITIES COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2003 (Expressed in Thousands) GENERAL PROGRAM REVENUES EXPENSES FUNCTIONS/PROGRAMS Water Infrastructure Finance Authority University Medical Center (charges for services are net of provision for bad debts of $17,757) Arizona Power Authority Total $ 14,533 OPERATING NET UNRESTRICTED CHARGES FOR GRANTS AND (EXPENSE) INVESTMENT SERVICES CONTRIBUTIONS REVENUE EARNINGS $ 12,513 280,471 25,833 $ 320,837 REVENUES $ 281,048 25,013 $ 318,574 The Notes to the Financial Statements are an integral part of this statement. - 62 - 7,557 $ $ 7,557 5,537 $ 577 (820) $ 5,294 6,419 960 627 $ 8,006 TOTAL $ NET ASSETS TOTAL CHANGE IN - BEGINNING, NET ASSETS NET ASSETS AS RESTATED - ENDING 11,956 $ 1,537 (193) $ 13,300 226,711 $ 90,262 3,124 $ 320,097 238,667 91,799 2,931 $ 333,397 - 63 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS INDEX Page Page Note 1. Summary of Significant Accounting Policies-----------65 A. Reporting Entity------------------------------------------65 B. Basis of Presentation------------------------------------67 C. Measurement Focus and Basis of Accounting ---------------------------------------------69 D. Cash and Investments-----------------------------------70 E. Taxes Receivable-----------------------------------------70 F. Inventories -------------------------------------------------70 G. Property Tax Calendar----------------------------------70 H. Capital Assets ---------------------------------------------71 I. Investment Income---------------------------------------71 J. Scholarship Allowances--------------------------------71 K. Deferred Revenue----------------------------------------72 L. Compensated Absences --------------------------------72 M. Long-Term Obligations --------------------------------72 N. State Compensation Fund -----------------------------72 Note 2. Cash and Investments -----------------------------------------73 A. Cash and Investment Policies-------------------------73 B. Unemployment Compensation-----------------------74 C. Collateral and Insurance -------------------------------75 D. Deposits Collateralization-----------------------------75 E. Investments Custodial Risk ---------------------------75 F. Securities Lending---------------------------------------77 G. Derivatives ------------------------------------------------79 H. Custodial Securities -------------------------------------80 I. State Treasurer’s Separately Issued Financial Statements ---------------------------------------------80 Note 3. Receivables/Deferred Revenue-----------------------------80 A. Taxes Receivable ----------------------------------------80 B. Deferred Revenue ---------------------------------------81 Note 4. Capital Assets ---------------------------------------------------82 Note 5. Retirement Plans -----------------------------------------------84 A. Plan Descriptions ----------------------------------------84 B. Summary of Significant Accounting Policies ----85 C. Investment Restrictions --------------------------------85 D. Funding Policy--------------------------------------------85 E. Annual Pension Cost -----------------------------------86 F. Trend Information ---------------------------------------86 G. Universities’ Retirement Plans-----------------------87 H. University Medical Center Defined Contribution Plan------------------------------------ 87 - 64 - I. Postemployment Benefits -------------------------87 Note 6. Long-Term Obligations ---------------------------------88 A. Revenue Bonds--------------------------------------88 B. Grant Anticipation Notes -------------------------93 C. Certificates of Participation ----------------------93 D. Leases and Installment Purchases --------------97 E. Notes Payable ----------------------------------------99 F. Litigation ----------------------------------------------99 G. Compensated Absences ---------------------------99 H. Changes in Long-Term Obligations --------- 100 Note 7. Interfund Transactions --------------------------------- 101 Note 8. Accounting Changes and Restatements ----------- 102 A. Fund Financial Statements ---------------------- 102 B. Government-wide Statement-------------------- 102 Note 9. Fund Deficit ----------------------------------------------- 103 Note 10. Related Party Transactions -------------------------- 104 A. Arizona State University ------------------------ 104 B. Northern Arizona University------------------- 105 C. University of Arizona ---------------------------- 105 D. University Medical Center---------------------- 106 Note 11. Joint Ventures ------------------------------------------- 106 A. University of Arizona ---------------------------- 106 B. University Medical Center---------------------- 107 Note 12. Commitments, Contingencies and Compliance 107 A. Risk Management Insurance Losses --------- 107 B. Litigation -------------------------------------------- 108 C. Accumulated Sick Leave------------------------ 109 D. Unclaimed Property ------------------------------ 109 E. Construction Commitments -------------------- 110 F. Arizona State Lottery----------------------------- 110 Note 13. Tobacco Settlement------------------------------------ 110 Note 14. Public-Private Partnership --------------------------- 110 Note 15. Conduit Debt -------------------------------------------- 110 Note 16. Subsequent Events------------------------------------- 111 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies of the State of Arizona (the State) conform to U.S. generally accepted accounting principles applicable to governmental units adopted by the Governmental Accounting Standards Board (GASB). A. REPORTING ENTITY The State of Arizona is a general purpose government. The accompanying financial statements present the activities of the State (the primary government) and its component units. Component units are legally separate entities for which the State is considered to be financially accountable. Blended component units, although legally separate entities, are in substance part of a government’s operations. Therefore, data from these units is combined with data of the primary government. The State has no blended component units. Discretely presented component units, however, are reported in a separate column in the government-wide statements to emphasize they are legally separate from the State. Additionally, the State Compensation Fund is presented as a separate statement from the other discretely presented component units because it is reported on a statutory basis of accounting. Each discretely presented component unit discussed below has a June 30 year-end, with the exception of the State Compensation Fund. The State Compensation Fund’s financial information is for the calendar year ended December 31, 2002. The GASB has set forth criteria to be considered in determining financial accountability. These criteria include appointing a voting majority of an organization’s governing body and (1) the ability of the State to impose its will on that organization or (2) the potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the State. Discretely Presented Component Units State Compensation Fund – The State Compensation Fund provides insurance to employers for workers’ compensation, occupational disease compensation, and medical, surgical and hospital benefits. The Fund is governed by a board of directors that consists of five members appointed by the Governor for staggered terms of five years. Annually, the Governor appoints a chairman from among the board members. The State is required by statute to review and approve the operating and capital outlay budget of the Fund. Complete financial statements may be obtained from the State Compensation Fund’s administrative offices. State Compensation Fund 3031 North 2nd Street Phoenix, Arizona 85012 (602) 631-2000 University Medical Center (UMC) – The UMC is the primary teaching hospital for the College of Medicine, College of Nursing and the College of Pharmacy of the University of Arizona. The UMC was created in 1984 when the State Legislature passed a bill that allowed the Arizona Board of Regents (ABOR) to convey the UMC to a not-for-profit corporation. Although an autonomous entity was created, the teaching missions and research alliances with the University of Arizona and the State of Arizona remained. The ABOR confirms all members of the UMC’s Board of Directors, and must approve all amendments to the UMC’s articles of incorporation and bylaws. Complete financial statements may be obtained from the University Medical Center’s administrative offices. The University Medical Center 655 East River Road Tucson, Arizona 85704 (520) 694-2700 Arizona Power Authority (APA) – The APA purchases the State’s allocation of power produced at the federally owned Boulder Canyon Project hydroelectric power plant and resells it to Arizona entities that are eligible purchasers under federal and state laws. The APA is governed by a commission of five electors appointed by the Governor and approved by the Senate. The term of office of each member is six years and the members select a chairman and vice-chairman from among their membership for a term of two years. All revenue bonds issued by the APA must be approved by the State Certification Board. Complete financial statements may be obtained from the Arizona Power Authority’s administrative offices. - 65 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 The Arizona Power Authority 1810 West Adams Street Phoenix, Arizona 85007-2697 (602) 542-4263 Water Infrastructure Finance Authority (WIFA) – The WIFA is authorized to administer the Clean Water Revolving Fund. The Clean Water Revolving Fund was created pursuant to the Federal Water Pollution Control Act, which required the State to establish the Clean Water Revolving Fund to accept federal capitalization grants for publicly owned wastewater treatment projects. The WIFA has also entered into an agreement with the Environmental Protection Agency to administer the Drinking Water Revolving Fund pursuant to the Safe Drinking Water Act. The WIFA is governed by a twelve-member board of directors appointed by the Governor. Directors serve staggered terms of five years and serve at the pleasure of the Governor. Complete financial statements may be obtained from the Water Infrastructure Finance Authority’s administrative offices. The Water Infrastructure Finance Authority 1100 West Washington, Suite 290 Phoenix, Arizona 85007 (602) 364-1310 Related Organizations Related organizations are legally separate entities for which the State is not considered to be financially accountable. The State’s accountability for these organizations does not extend beyond making the appointments. As a result, financial activity for the organizations described below is not included in the State’s financial statements. Arizona Health Facilities Authority (the Authority) – The Authority issues tax-exempt bonds and loans for the purpose of reducing health care costs and improving health care for Arizona residents by providing less expensive financing for health care institutions. Proceeds from bond issues are loaned to various qualifying nonprofit health care institutions. The health care institutions reimburse the Authority for expenses for issuance of the bonds, pay fees of the Authority, and make payments under the loans for the benefit of the holders of the bonds. The Authority is governed by a seven-member board of directors that is appointed by the Governor and approved by the Senate. The directors serve staggered terms of seven years, and can be removed only for cause. Arizona International Development Authority (the Authority) – The Authority was established to facilitate the development of international trade or commerce between Arizona and other countries. The Authority is governed by a seven-member board of directors appointed by the Governor for five-year terms, and can be removed only for cause. Arizona Tourism and Sports Authority (the Authority) – Arizona Revised Statues §5-802 established the Authority to construct, finance, maintain, improve, operate, market and promote the use of a multipurpose facility and do all things necessary to accomplish those purposes. The Authority may issue revenue bonds in such principal amounts to accomplish the above stated purposes. The Authority is governed by a five-member board of directors that is appointed by the Governor and approved by the Senate. The directors serve terms of five years, and may be re-appointed for one full subsequent term, and can be removed only for cause. Arizona Housing Finance Authority (the Authority) – Arizona Revised Statutes §41-3902 established the Authority to issue bonds for residential dwelling units and multifamily residential rental projects in rural areas. The Authority may also establish mortgage credit certificate programs to finance residential dwelling units in rural areas. The Authority is required to notify and obtain written consent from the governing bodies of any city, town, county, tribal government or existing corporation for any multifamily residential rental projects planned for their jurisdiction. The Authority is governed by a seven-member board of directors that is appointed by the Governor and approved by the Senate. The directors serve terms of seven years, and can be removed only for cause. Beginning with the year ended June 30, 2004, the Universities will be required to prepare their financial statements following GASB Statement No. 39 – Determining Whether Certain Organizations are Component Units. The implementation of GASB Statement No. 39 will result in additional component units being reported upon by the State in future Comprehensive Annual Financial Reports (CAFRs). - 66 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 Joint Ventures As described in Note 11, the University of Arizona and the University Medical Center both participate in joint ventures. In accordance with U.S. generally accepted accounting principles, the financial activities of these joint ventures are not included in the State’s financial statements. B. BASIS OF PRESENTATION The basic financial statements include both government-wide statements and fund financial statements. The government-wide statements focus on the State as a whole, while the fund financial statements focus on major funds. Each presentation provides valuable information that can be analyzed and compared between years and between governments to enhance the usefulness of the information. Government-wide statements - provide information about the primary government (the State) and its component units. The statements include a statement of net assets and a statement of activities. These statements report the financial activities of the overall government, except for fiduciary activities. They also distinguish between the governmental and business-type activities of the State and between the State and its discretely presented component units. Governmental activities generally are financed through taxes and intergovernmental revenues. Business-type activities are financed in whole or in part by fees charged to external parties. The Statement of Net Assets presents the State’s non-fiduciary assets and liabilities, with the difference reported as net assets. Net assets are reported in three categories: Invested in capital assets, net of related debt consist of capital assets, net of accumulated depreciation and reduced by outstanding balances for bonds, notes and other debt that are attributed to the acquisition, construction, or improvement of those assets. Restricted net assets result when constraints placed on net asset use are either externally imposed by creditors, grantors, contributors, and the like, or imposed by law through constitutional provisions, enabling legislation, or voter initiative. Unrestricted net assets consist of net assets which do not meet the definition of the two preceding categories. Unrestricted net assets often have constraints on resources, which are imposed by management, but can be removed or modified. The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the State’s governmental activities, and its different business-type activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular program or function. The State does not allocate indirect expenses to programs or functions. Program revenue includes: • • • charges to customers or applicants for goods, services, privileges provided, and fines or forfeitures, operating grants and contributions, and capital grants and contributions, including special assessments. Revenues that are not classified as program revenues, including internally dedicated resources and all taxes, are reported as general revenues. Interfund balances have been eliminated from the government-wide financial statements to the extent that they occur within either the governmental or business-type activities. Balances between governmental or business-type activities are presented as internal balances and are eliminated in the total column. Revenues and expenses associated with reciprocal transactions within governmental or within business-type activities have not been eliminated. Fund financial statements - provide information about the State’s funds, including fiduciary funds. Separate statements are presented for the governmental, proprietary, and fiduciary fund categories. The emphasis of fund financial statements is on major governmental and enterprise funds, each displayed in a separate column. All remaining governmental and enterprise funds are aggregated and reported as nonmajor funds. Fiduciary funds are aggregated and reported by fund type. - 67 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 Proprietary fund operating revenues, such as charges for services, result from exchange transactions associated with the principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal values. Operating expenses include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. The State reports the following major governmental funds: The General Fund - is the State’s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The Transportation and Aviation Planning, Highway Maintenance and Safety Fund - accounts for all financial transactions applicable to the general operations of the Arizona Department of Transportation. The Department builds and maintains the State’s highway system and the Grand Canyon Airport. The Land Endowments Fund - holds lands granted to the State by the Federal government for the benefit of public schools and other public institutions. Principal is maintained intact and investment earnings and lease revenues are distributed to beneficiaries in accordance with State statute. The State reports the following major enterprise funds: The Universities - account for transactions of the State’s three universities, which comprise the State’s university system. The Unemployment Compensation Fund - pays claims for unemployment to eligible recipients from employer contributions and reimbursements. The Industrial Commission Fund – accounts for deposits not to exceed 1½% of all premiums received by the State Compensation Fund and private insurance carriers during the preceding calendar year. These monies are used to provide additional awards as necessary to enable injured employees to accept the benefits of any law for promotion of vocational rehabilitation of persons disabled in industry. In addition, benefits may be paid for workers’ compensation claims filed by employees of non-insured employers. The Industrial Commission then pursues against the non-insured employer for reimbursement of all benefits paid, including assessed penalties. The Lottery Fund - accounts for the activities of the Arizona State Lottery. Additionally, the State reports the following fund types: Internal Service Funds - account for insurance coverage, automotive maintenance and operation, highway equipment rentals, and data processing and telecommunication services provided to State agencies on a cost-reimbursement basis. During the fiscal year some funds previously classified as Internal Service Funds were reclassified to the General Fund. It is the policy of the State to reclassify immaterial proprietary fund activities to related governmental funds. This policy helps to reduce the number of funds reported in the financial statements to the minimum amount needed. The reclassified funds allocate a fixed rate payroll processing charge among all agencies, allocate postage and mailing costs among all agencies, and arrange for the sale of the State’s office equipment and motorized vehicles at public auctions. Pension Trust Funds - account for the activities of the Arizona State Retirement System, the Public Safety Personnel Retirement System, the Elected Officials’ Retirement Plan, and the Corrections Officer Retirement Plan, for which the State acts as a trustee. These retirement plans accumulate resources to pay pension benefits of State employees and employees of other governmental entities participating in the plans. Investment Trust Funds - account for transactions by local governments and political subdivisions that elect to participate in the State Treasurer’s investment pools. The Treasurer acts as trustee for the original deposits made into the investment pools. Agency Funds - account for the receipt and disbursement of various taxes, deposits, deductions, and property collected by the State, where the State acts as an agent for distribution to other governments and organizations. - 68 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 C. MEASUREMENT FOCUS AND BASIS OF ACCOUNTING The government-wide, proprietary fund, fiduciary fund and component units financial statements are presented using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Grants and donations are recognized as revenues as soon as all eligibility requirements the provider imposed have been met. The financial statements of the State Compensation Fund (a discretely presented component unit), are prepared using the statutory basis of accounting. The statutory basis of accounting is not in conformity with U.S. generally accepted accounting principles (GAAP). Governmental funds in the fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The State considers all revenues reported in the governmental funds to be available if the revenues are collected within 31 days after yearend. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on long-term debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they are due and payable. General capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term debt and acquisitions under capital leases are reported as other financing sources. Under the terms of grant agreements, the State funds certain programs through a combination of grants and general revenues. Therefore, when program expenses are incurred, there are both restricted and unrestricted net assets available to finance the program. The State’s policy regarding whether to first apply restricted or unrestricted resources is made on a case-by-case basis. The State’s business-type activities and enterprise funds follow FASB Statements and Interpretations issued on or before November 30, 1989; Accounting Principles Board Opinions; and Accounting Research Bulletins, unless those pronouncements conflict with GASB pronouncements. The State Compensation Fund (SCF) prepares its statutory financial statements in conformity with accounting practices prescribed or permitted by the Arizona Department of Insurance (the Department). Effective January 1, 2001, the Department required insurance companies domiciled in the State of Arizona to prepare their statutory financial statements in accordance with the National Association of Insurance Commissioners’ (NAIC) Accounting Practices and Procedures Manual – Effective January 1, 2001 (the Manual). Accordingly, the admitted assets, liabilities and policyholders’ surplus of the SCF as of December 31, 2002 and the results of its operations and changes in policyholders’ surplus for the year then ended have been reported in accordance with these accounting principles. The major variances from accounting principles generally accepted in the United States of America (GAAP) pursuant to such statutory accounting practices are as follows: • Investments in common stocks are carried at current market values determined by the NAIC; • Investments in debt securities are carried at amortized cost instead of separated into trading, available-for-sale or held-tomaturity portfolios, and then accounted for dependent on that classification; • Land and buildings used in operations are classified as investments; • Policy acquisition costs are charged to current operations rather than deferred and amortized with premium income over the periods covered by the policies; • Certain assets designated as “nonadmitted assets” (principally fixed assets, prepaid expenses and miscellaneous accounts receivable) are charged directly against policyholders’ surplus; • Dividends to policyholders, which represent return of premiums, are charged against income; • Imputed rental income for office space occupied by the SCF is computed and recognized as investment income, offset by imputed rental expense of the same amount, which is recognized as administrative expense; • Comprehensive income and its components are not presented in the statutory financial statements; and - 69 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 • The presentation and disclosure of admitted assets, liabilities and policyholders’ surplus, and the related statements of operations and changes in policyholders’ surplus differ from the presentation under GAAP. D. CASH AND INVESTMENTS Cash and Cash Equivalents – on the Statement of Cash Flows, the amount reported as “Cash and Cash Equivalents” is equal to the total of the amounts on the Statement of Net Assets “Cash”, “Cash with U.S. Treasury”, “Cash and Pooled Investments with State Treasurer”, “Cash Held by Trustee” and “Collateral Investment Pool” (for the Industrial Commission). For purposes of the Statement of Cash Flows, the State considers only those highly liquid debt instruments with an original maturity of ninety days or less to be cash equivalents. • Cash (not with State Treasurer) – cash includes undeposited receipts, petty cash, bank accounts, non-negotiable certificates of deposit, and demand deposits with banking institutions other than the State Treasurer. • Cash with U.S. Treasury – consists of unemployment compensation contributions from Arizona employers that are deposited in a trust fund maintained by the United States Treasury. • Cash and Pooled Investments with State Treasurer – the State Treasurer maintains a centralized management of most State cash resources. From the perspective of the various State funds, the pool functions as both a cash management pool and a demand deposit account. The operations and investments of the State Treasurer’s Pooled Investments are described in Note 2. • Collateral Investment Pool – consists of cash received as collateral on securities lending transactions and investments made with that cash. The State records the collateral received as an asset. A corresponding liability is also recorded for such securities lending transactions. See Note 2.F for a description of securities lending. Investments (not with State Treasurer) – investments are stated at fair value or amortized cost which approximates fair value, except for mortgages held by the State Compensation Fund, which are stated at amortized cost, and Treasurer’s Custodial Securities of the Agency Funds, which are reported at par value. E. TAXES RECEIVABLE Taxes receivable represent amounts owed by taxpayers for the 2002 and prior calendar years including assessments for underpayments, penalties and interest. In the government-wide financial statements, a corresponding amount is recorded as revenue using the accrual basis of accounting. In the governmental fund financial statements, revenue is recorded using the modified accrual basis of accounting. The remainder is recorded as deferred revenues. The income tax receivable is composed of individual and corporate estimated payments, withholding payments, and payments with final returns and assessments that relate to income earned through June 30, 2003. Sales and motor vehicle and fuel tax receivable represent amounts that are earned by the State in the fiscal period ended June 30, 2003, but not collected until the following month. F. INVENTORIES Inventories consist of expendable supplies held for consumption in all funds and merchandise intended for sale to customers in the Proprietary Funds and Universities. Inventories are stated at cost using the first-in, first-out method. In the Governmental Funds, inventories are accounted for using the consumption method. Under this method, inventories are recorded as expenditures as they are used. G. PROPERTY TAX CALENDAR Real property taxes are levied on or before the third Monday in August and become due and payable in two equal installments. The first installment is due on the first day of October and becomes delinquent after the first business day of November. The second installment is due on the first day of March of the next year and becomes delinquent after the first business day of May. A lien attaches on the first day of January preceding assessment and levy. - 70 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 H. CAPITAL ASSETS Capital assets are stated at cost at the date of acquisition or, if donated, at the estimated fair market value at the date received. Interest incurred during the construction of capital assets is only capitalized in the proprietary funds. Infrastructure, such as roads and bridges, was capitalized for the first time in fiscal year 2001-02. Most capital assets are depreciated over their useful lives using the straight-line depreciation method. However, infrastructure assets constructed and maintained by the Arizona Department of Transportation will utilize an alternative accounting treatment in which costs to maintain and preserve these assets are expensed and no depreciation expense is recorded. This approach is discussed further in the Required Supplementary Information portion of this report. Depreciable capital assets are depreciated on a straight-line basis. Capitalization thresholds (the dollar values above which asset acquisitions are added to the capital asset accounts) and estimated useful lives of capital assets being depreciated in the government-wide financial statements and the proprietary funds are as follows: Asset Category Land Buildings Improvements other than buildings Equipment Infrastructure General State Policy Capitalization Estimated Useful Threshold Life (yrs) All capitalized Not depreciated All capitalized 25-40 $5,000 15 $5,000 3-15 All capitalized Not depreciated Other Authorized Agency Policies Capitalization Estimated Useful Threshold Life (yrs) All capitalized Not depreciated $300-$100,000 5-50 $300-$5,000 1-40 $0-$5,000 3-25 $5,000-$100,000 10-100 The State is trustee for approximately 9.2 million acres of land acquired through U.S. Government land grants in the early 1900’s. The State acquired a substantial portion of this land at no cost and its fair market value has not been reliably estimated. Accordingly, this land is not reported in the accompanying financial statements. A portion of the land that the State is trustee for has been sold and the buyers of the land have defaulted on the loans. The value of this land has been recorded at the sales price and properly included in the financial statements. The State has interest in, and maintains significant special collections, works of art, and historical treasures. All special collections, works of art, and historical treasures which are held for financial gain are capitalized at fair market value at the date of acquisition or donation. Those special collections, works of art, and historical treasures which are held for educational, research, or public exhibition purposes are not capitalized, as they are not subject to disposal for financial gain or encumbrance. Such items are inventoried for property control purposes. Additional disclosures related to capital assets and assets acquired through capital leases are provided in Notes 4 and 6, respectively. I. INVESTMENT INCOME Investment income is composed of interest, dividends, and net changes in fair value of applicable investments. J. SCHOLARSHIP ALLOWANCES Student tuition and fee revenues, and certain other revenues earned by the three State Universities are reported net of scholarship discounts and allowances in the Statement of Revenues, Expenses, and Changes in Fund Net Assets. A scholarship discount and allowance is the difference between the stated charge for goods and services provided and the amount that is paid by the student or third party making payment on behalf of the student. Accordingly, some types of student financial aid such as Pell grants and scholarships awarded by the Universities are considered to be scholarship allowances. These allowances are netted against applicable revenues in the Statement of Revenues, Expenses, and Changes in Fund Net Assets. - 71 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 K. DEFERRED REVENUE Deferred revenue consists of payments to the State for goods and services, not yet rendered, or taxes, grants, and other nonexchange transactions for which related resources are not available to pay current liabilities. In the government-wide and proprietary fund financial statements, revenue is deferred when cash, receivables, or other assets are received prior to their being earned. In the governmental fund financial statements, revenue is deferred when that revenue is unearned or unavailable. L. COMPENSATED ABSENCES In the government-wide and proprietary fund financial statements, the State accrues liabilities for compensated absences as required by GASB. In the governmental fund financial statements, liabilities for compensated absences are not accrued, because they are not considered “due and payable”. In general, State employees accrue vested annual leave at a variable rate based on years of service. Except for University employees, an employee forfeits accumulated annual leave in excess of 240 hours at the end of a calendar year, unless the Director of the Department of Administration authorizes an exception. University employees may accumulate up to 264 hours of vacation, and any vacation hours in excess of the maximum amount that are unused at December 31 are forfeited. Except for University employees, an employee who separates from State service is paid for all unused and unforfeited annual leave at the employee’s rate of pay at the time of separation. University employees, upon termination of employment, are paid all unused vacation benefits not exceeding 176 hours (annual accrual amount), depending on years of service and full-time equivalent employment status. Some employees accumulate compensatory leave for time worked over 40 hours per week. An employee may accumulate up to 240 hours of compensatory leave (480 if working in a public safety activity or an emergency response activity). An employee who separates from State service is paid for all unused compensatory leave at either the employee’s average base salary during the last three years of employment or final base salary, whichever is higher. Sick leave includes any approved period of paid absence granted an employee due to illness, injury or disability. Most State employees accrue sick leave at the rate of eight hours per month without an accumulation limit. Because sick leave benefits do not vest with employees, a liability for sick leave is not accrued in the financial statements. However, State employees are eligible to receive payment for an accumulated sick leave balance of 500 hours or more, with a maximum of 1500 hours, upon retirement directly from State service (See Note 12.C). M. LONG-TERM OBLIGATIONS In the government-wide and proprietary fund financial statements, long-term debt and long-term liabilities are reported as liabilities. Amounts due within one year are reported as current liabilities, and amounts due thereafter are reported as non-current liabilities. Premiums and discounts on revenue bonds and certificates of participation are deferred and amortized over the life of the debt instrument using the straight-line method. Bonds and certificates of participation are reported net of the applicable premium or discount. Except for the Arizona Department of Transportation, bond issuance costs are immaterial and are charged to expense in the period incurred. In the fund financial statements, governmental fund types recognize proceeds from revenue bonds, certificates of participation, and premiums and discounts on revenue bonds and certificates of participation as other financing sources and uses in the current period. Long-term liabilities are more fully described in Note 6. N. STATE COMPENSATION FUND Significant accounting policies relating to the State Compensation Fund include: 1. Policyholders’ Dividends The Board of Directors of the State Compensation Fund makes provisions for dividends to policyholders based on the Fund’s overall experience. Dividends are paid to policyholders that meet premium volume and loss experience criteria established by the Board. Dividends of $50 million were declared as of December 31, 2002. - 72 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 2. Reinsurance The State Compensation Fund is assigned certain policyholders that participate in the National Council on Compensation Insurance (NCCI) assigned risk pool. All premiums collected on such policies are ceded to NCCI. All losses incurred by the Fund on such policies are recoverable from NCCI. In addition, the Fund is assigned a pro rata allocation of the liability for loss and loss expenses incurred by all NCCI policyholders in the State. Losses of other policyholders in excess of specified amounts are recoverable from other reinsurers. Contracts with these reinsurers do not relieve the Fund of its obligation to policyholders. NOTE 2. CASH AND INVESTMENTS A. CASH AND INVESTMENT POLICIES Cash and cash equivalents are under the control of the State Treasurer, the retirement systems or other administrative bodies. Arizona Revised Statutes §35-312, §35-313 and §35-314 authorize the Treasurer to invest operating, trust and permanent endowment fund monies. Therefore, surplus cash deposited with the State Treasurer by State agencies with a statutory authorization to invest and all General Fund monies are invested by the Treasurer in a pooled fund. Any interest earned is allocated monthly into each respective fund based on average daily cash balances. There is no income from investments associated with one fund that is assigned to another fund. The State Treasurer invests in short-term securities and other investments. Provisions of Arizona law restrict these investments to obligations of the U.S. Government and its agencies, obligations of the State and certain local government subdivisions, interest-bearing savings accounts and certificates of deposit, collateralized repurchase agreements, certain obligations of U.S. corporations, and certain other securities. The State Treasurer also invests in various mortgage-backed securities for nineteen of the twenty-five investment pools it manages. These securities are reported at fair value on the Statement of Fiduciary Net Assets. In addition, they are reported in aggregate as U.S. Government securities. The securities are purchased to diversify the State’s exposure to maturity and credit risks while providing for enhanced yields. The credit risk associated with holding these securities is reduced since all securities are rated AAA by Standard and Poor’s and/or Moody’s rating service. The market risk associated with holding these securities is linked to maturity risk in that as interest rates rise, the fair value of these securities will fall and prepayment of principal balances will decelerate. When interest rates fall, the fair value of these securities will rise and prepayment of principal balances will accelerate. The mortgage-backed securities are authorized under ARS §35-313. Statutes enacted by the Legislature authorize the retirement systems to make investments in accordance with the “Prudent Person” rule. This rule imposes the responsibility of making investments with the judgment and care that persons of ordinary prudence would exercise in the management of their own affairs when considering both the probable safety of their capital and the probable income from that capital. Within this broad framework, the retirement systems have chosen to invest in short-term securities and repurchase agreements, obligations of the U.S. Government and its agencies, corporate bonds, common and preferred stocks and mortgages. The Statutes also place certain restrictions on the investment fund portfolios of the retirement systems. Investments maintained by the State Treasurer are reported at fair value based upon an independent outside pricing service. Investments with a maturity of 91 days or more and all investments with a maturity of 90 days or less that were held at the beginning of the current fiscal year end, not valued by the pricing service, are valued using a market price solicited from the selling broker or a second outside pricing service. All investments with a remaining maturity of 90 days or less, that have no available market price, and were not held at the beginning of the current fiscal year, are valued using amortized cost. If different amortized cost values exist, the weighted average amortized cost is given to like investments. The State Treasurer also maintains external investment pools [the Local Government Investment Pool (LGIP) and Local Government Investment Pool-Government] with no regulatory oversight. The pools are not required to register (and are not registered) with the Securities and Exchange Commission under the 1940 Investment Advisors Act. The activity and performance of the pools are reviewed monthly by the State Board of Investment in accordance with ARS §35-311. The fair value of investments is measured on a monthly basis. Participant shares are purchased and sold based on the Net Asset Value (NAV) of the shares. The NAV is determined by dividing the fair value of the portfolio by the total shares outstanding. The State Treasurer does not contract with an outside insurer in order to guarantee the value of the portfolio or the price of shares redeemed. During the year, the LGIP’s share of National Century Financial Enterprises (NCFE) NPF-XII bonds, valued at $131 - 73 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 million at July 1, 2002, was transferred to a new pool (Local Government Investment NPF) pending an investigation of possible fraud and violations of federal and state laws by the NCFE. The transfer was made to provide for the decline in fair value of the NPF-XII securities held by the LGIP. The likelihood that these LGIP participant monies will be recovered is not known. The State Treasurer makes investments only in external investment pools that are registered with the Securities and Exchange Commission. The State Treasurer is not an involuntary participant in another entity’s external investment pool. The State Treasurer is not aware of any involuntary participation of local governments in the State’s external investment pools. Participants meeting the criteria established under ARS §35-316 are eligible to participate in the pools and are not required to disclose the reason for requesting the account. The investments of the State Treasurer’s Custodial Securities, an Agency Fund, are recorded at par value. The investments are held by the State Treasurer for State agencies that perform a business compliance function. The investments of the Industrial Commission and the Arizona Coliseum and Exposition Center are reported at the fair value. The Arizona State Retirement System investments are reported at fair value and cost. Investments, other than real estate and commercial mortgages, are reported at fair values determined by the custodial agents. The agent’s determination of fair values includes, among other things, using pricing services or prices quoted by independent brokers at current exchange rates. Commercial mortgages have been valued on an amortized cost basis, which approximates fair value. Short-term investments are reported at cost plus accrued interest, which approximates fair value. For investments where no readily ascertainable fair value exists, management, in consultation with its investment advisors, has determined the fair values for the individual investments based on anticipated maturity dates and current interest rates commensurate with the investment’s degree of risk. The Public Safety Personnel, Elected Officials’ and Corrections Officer Retirement Systems investments are reported at fair value and cost. Fair values are determined as follows: Short-term investments are reported at fair value, which approximates cost. Equity securities are valued at the last reported sales price. Fixed-income securities are valued using the last reported sales price or the estimated fair market value as determined by an outside pricing service. Investments that do not have an established market are reported at estimated fair value. The investments of the Universities are reported at fair value determined by quoted market prices, except non-participating interest bearing contracts and joint ventures, which are reported at cost. Donated land is reported at fair market value at time of donation. The University Medical Center’s short-term investments are reported at cost, which approximates fair value. investments are reported at fair value as determined by quoted market prices. Long-term The investments of the Arizona Power Authority are reported at amortized cost, which approximates fair value. The investments of the Water Infrastructure Finance Authority in Guaranteed Investment Contracts are stated at cost, since they are non-participating contracts. The other investments are stated at fair value, which approximates cost. The investments of the State Compensation Fund (statutory basis) are primarily valued at amortized cost. Bonds and participation certificates are reported at cost plus or minus amortization of premium or discount. Investments in mortgages are reported at amortized cost. Equity securities are stated at market value as determined by the National Association of Insurance Commissioners. Short-term investments are reported at cost, which approximates fair value. B. UNEMPLOYMENT COMPENSATION ARS §23-703 requires that unemployment compensation contributions from Arizona employers be deposited in an unemployment trust fund account with the Secretary of the Treasury of the United States that is established and maintained pursuant to Section 1104 of the Social Security Act. The cash on deposit in the trust fund account is pooled and invested. Interest earned from investments purchased with such pooled monies is deposited in the trust fund account. The Unemployment Compensation Fund, reported as a major proprietary fund, has been established for this purpose. - 74 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 C. COLLATERAL AND INSURANCE The State requires that deposits and investments with financial institutions be entirely covered by Federal depository insurance or, alternatively, collateralized with surety equal to at least 100% (102% for the Treasurer) of the deposits so collateralized. Cash deposited with banks is collateralized based on bank balances. Surety collateralized includes U.S. Government obligations, State obligations, obligations of counties and municipalities within the State, and certain other securities. D. DEPOSITS COLLATERALIZATION At June 30, 2003, the carrying amount of the State’s deposits for the Primary Government was a deficit of $15.298 million, $60.226 million for Fiduciary funds and a deficit of $44 thousand for the Component Units. The cash deficit results from the State Treasurer not reducing investments until the servicing bank presents warrants for payment. At June 30, 2003, the bank balance was $197.132 million for the Primary Government, $79.224 million for Fiduciary funds and $0.00 for the Component Units. For the Primary Government bank balances, $1.915 million was collateralized by Federal depository insurance. The remaining $195.217 million was collateralized by securities held by the bank’s trust division or agent in the State’s name in book-entry form. For the Fiduciary funds, $1.552 million was collateralized by Federal depository insurance. The remaining $77.672 million was collateralized by securities held by the bank’s trust division or agent in the State’s name in book-entry form. E. INVESTMENTS CUSTODIAL RISK The following tables summarize the credit risk of the State’s investments (expressed in thousands). Category A includes investments that are insured or registered, or for which securities are held by the State or the State’s agent in the State’s name. Category B includes uninsured and unregistered investments for which securities are held by the counterparty’s agent or trust department in the State’s name. Category C includes uninsured and unregistered investments for which securities are held by the counterparty, or by its agent or trust department but not in the State’s name. Primary Government Type of Deposit or Investment U.S. Government securities U.S. Government securities on securities loan Corporate stocks Corporate debt Corporate debt on securities loan Repurchase agreements Other investments Subtotal Investments Not Subject to Custodial Risk: Guaranteed Investment Contracts Money market mutual funds U.S.Treasury mutual funds Mutual Funds-Benchmark Portfolio Exchange traded mutual funds Equity mutual funds Bond mutual funds Donated land Mortgages Joint venture Collateral Investment Pool Investments held by brokers/dealers under Security Loan Program: U.S. Government securities Corporate stocks Corporate debt United States Treasury Pooled Investment Total Investments Deposits Total Cash and Investments $ $ A 1,730,993 9,206 590,801 1,442,876 304 185,367 8,015 3,967,562 Category B $ $ - $ $ C 158,663 137,949 296,612 Reported Amount $ 1,889,656 9,206 590,801 1,442,876 304 185,367 145,964 4,264,174 1,948 98,872 23,348 5,837 30,735 210 2,494 420 834 14,000 69,525 $ - 75 - 49,189 8,630 9,656 860,872 5,440,744 (15,298) 5,425,446 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 Fiduciary Funds Type of Deposit or Investment US Government securities Corporate stocks Corporate debt State and local government securities Repurchase agreements Other investments Subtotal Investments Not Subject to Custodial Risk: Other investment-not categorized Short-Term Investment Fund Real estate Collateral Investment Pool Investments held by brokers/dealers under Security Loan Program: U.S. Government securities Corporate stocks Corporate debt Total Investments Deposits Total Cash and Investments $ $ A 5,610,230 12,661,917 3,712,931 603,152 381,142 113,108 23,082,480 Category B $ $ 2,327,623 20,768 2,348,391 C $ 471 471 $ Reported Amount $ 5,610,230 14,989,540 3,712,931 603,152 381,142 134,347 25,431,342 266,236 3,309,228 30,212 1,305,921 $ 1,828,530 1,277,246 422,013 33,870,728 60,226 33,930,954 Component Units Type of Deposit or Investment U.S. Government securities Corporate stocks Corporate debt State and local government securities Repurchase agreements Other investments Subtotal Investments Not Subject to Custodial Risk: Guaranteed Investment Contracts Total Investments Deposits Total Cash and Investments Category B A $ $ 31,192 18,796 13,189 103 63,280 $ $ 5,036 5,272 9,327 57,979 77,614 C $ $ 2,695 2,695 $ As reported on the Statement of Net Assets and Statement of Fiduciary Net Assets Cash Cash with U.S. Treasury Cash and pooled investments with State Treasurer Cash held by trustee Collateral investment pool Short-term investments Investments held by trustee Investments Endowment investments Custodial securities in safekeeping Total Reported Amount $ 33,887 5,036 24,068 9,327 13,189 58,082 143,589 Primary Government $ 187,778 860,872 2,333,085 146,263 69,525 50,385 106,561 342,725 1,328,252 $ 5,425,446 $ $ Fiduciary 44,047 160,742 2,978 30,757,112 2,966,075 33,930,954 Component Units $ 13,341 53,497 24,489 22,318 22,082 81,276 $ 217,003 At June 30, 2003, the State had no commitments to resell securities under yield maintenance agreements. - 76 - 73,458 217,047 (44) 217,003 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 During the year ended June 30, 2003, the State did not make significant investments in types of investments beyond those enumerated in the preceding tables. State Compensation Fund (Statutory Basis) The following table (expressed in thousands) summarizes the types of investments of the State Compensation Fund. The State Compensation Fund provided no information as to collateralization or custodial credit risk of its deposits and investments. U.S. Government securities Corporate stocks Corporate debt State and local government securities Mortgages Properties occupied by the Fund Other investments Total Cash and Investments F. $ $ 818,674 156,885 907,220 209,378 156,293 26,436 274,320 2,549,206 SECURITIES LENDING Cash received as collateral on securities lending transactions and investments made with that cash are reported as assets. A corresponding liability is also recorded for such securities lending transactions. 1. State Treasurer The State Treasurer (Treasurer) is permitted by Title 35, Chapter 2, Article 2 of the Arizona Revised Statutes to enter into securities lending transactions. During the fiscal year ended June 30, 2003, there were no violations of legal or contractual provisions, and there were no borrower or lending agent default losses to the securities lending agent. At June 30, 2003, the State Treasurer had no securities on loan. 2. Industrial Commission State statutes and Industrial Commission (the Commission) policies permit the Commission to enter into securities lending transactions with its custodial bank. There were no significant violations of legal or contractual provisions, and there were no borrower or lending agent default losses to the securities lending agent. The custodial bank, Northern Trust, manages the securities lending operations through a contractual agreement with the Commission and splits the fees received with the Commission. There was no credit risk (i.e., lender’s exposure to the borrowers of its securities) related to the securities lending transactions at June 30, 2003. Northern Trust’s indemnification responsibilities include performing appropriate borrower and collateral investment credit analysis, demanding adequate types and levels of collateral, and complying with applicable Department of Labor and Federal Financial Institutions Examinations Council regulations concerning securities lending. Securities are loaned for collateral that may include cash, U.S. Government securities and irrevocable letters of credit. Domestic securities are loaned for collateral valued at 102% of the market value of securities loaned plus accrued interest. International securities are loaned for collateral valued at 105% of the market value of securities loaned plus accrued interest. The market value at June 30, 2003 for loaned securities collateralized by cash and non-cash collateral was $34.317 million and $9.510 million, respectively. As part of the securities lending transactions, Northern Trust received cash and non-cash collateral valued at $35.274 million and $9.779 million, respectively at June 30, 2003. Non-cash collateral cannot be pledged or sold unless the borrower defaults. Securities lent at year-end for cash collateral are presented as unclassified in the preceding schedule of custodial credit risk; securities lent for securities collateral are classified according to the category for the collateral received on the securities lent. All securities loans can be terminated on demand by either the lender or the borrower. The average term of the loans is 58 days and cash open collateral is invested in a short-term investment pool, the Core USA Collateral Section, which had an average weighted maturity of 38 days as of June 30, 2003. Cash collateral may also be invested separately in “term loans”, in which case the investments match the loan term. Cash open loans can be terminated on demand by either lender or borrower and there were no dividends or coupon payments owing on securities lent. Securities lending earnings are credited to participating clients on approximately the fifteenth day of the following month. Investments made with cash collateral received are classified as an asset on the Statement of Net Assets. A corresponding liability is recorded as the Commission must return the cash collateral to the - 77 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 borrower upon expiration of the loan. At June 30, 2003, the Commission had $35.274 million outstanding as payable for securities lending. 3. Arizona State Retirement System The Arizona State Retirement System (ASRS) is permitted by Arizona Revised Statutes §38-715(D)(3), to enter into securities lending transactions. The ASRS enters into agreements with brokers to loan securities and have the same securities redelivered at a later date. All securities are eligible for loan (U.S. fixed income securities, U.S. equities, international equities) with a higher percentage of U.S. Treasuries on loan than most other security types. It is the policy of the ASRS to receive as collateral at least 102% of the market value of the loaned securities and maintain collateral at no less than 100% for the duration of the loan. At year-end, the ASRS has no credit risk exposure to borrowers because the amount the ASRS owes the borrowers exceeds the amount the borrowers owe the ASRS. During fiscal year 1998, statutes were amended to allow for other than cash collateral. The ASRS records the collateral received as an asset and the same amount as an obligation for securities on loan. Any cash collateral received is invested in short-term investments. The ASRS receives a spread for its lending activities. Investments made with cash collateral received are classified as an asset on the Statement of Fiduciary Net Assets. A corresponding liability is recorded as the ASRS must return the cash collateral to the borrower upon expiration of the loan. At June 30, 2003, the ASRS had $2.248 billion outstanding as payable for securities on loan. Due to the flow of securities to and from transfer agents and the security loan program, securities occasionally cannot be delivered for a sale or received for a purchase, resulting in a “failed” transaction. Securities with trade dates in June and settlement dates in July result in “outstanding” transactions. Since these securities have contractually changed ownership, receivables and payables result from these transactions. Such transactions resulted in a receivable for securities sold of $336.946 million and a payable for securities purchased of $1.017 billion at June 30, 2003. 4. Public Safety Personnel Retirement System, Elected Officials’ Retirement Plan and Corrections Officer Retirement Plan The Public Safety Personnel Retirement System (PSPRS), the Elected Officials’ Retirement Plan (EORP) and the Corrections Officer Retirement Plan (CORP) are permitted by Title 38, Chapter 5, Articles 3, 4, and 6 of the Arizona Revised Statutes to enter into securities lending transactions. The PSPRS, EORP and CORP are parties to securities lending agreements with a bank. The bank, on behalf of the PSPRS, EORP and CORP, enters into agreements with brokers to loan securities and have the same securities returned at a later date. The loans are fully collateralized, primarily by cash. Collateral is marked-to-market on a daily basis. Non-cash collateral can be sold only upon borrower default. The PSPRS, EORP and CORP require collateral of at least 102% of the fair value of the loaned U.S. Government or corporate security. Securities on loan are carried at fair value. As of June 30, 2003, the fair value of securities on loan were (expressed in millions): PSPRS EORP CORP $ 1,009.390 80.942 189.454 The PSPRS, EORP and CORP receive a negotiated fee for their loan activities and are indemnified for broker default by the securities lending agent. The PSPRS, EORP and CORP participate in a collateral investment pool. All security loans can be terminated on demand by either the pool participants or the borrower. The total cash collateral investments received for unmatched loans (any loan for which the cash collateral has not been invested for a specific maturity) will have a maximum effective duration of 233 days. And, at least 20% of total collateral investments shall be invested on an overnight basis. All matched loans shall have matched collateral investments. At June 30, 2003, the weighted average maturity was three days for all investments purchased with cash collateral from unmatched loans. The PSPRS, EORP, and CORP have no credit risk because the amounts owed to borrowers exceed the amounts borrowers owe to them. Under this program, they have not experienced any defaults or losses on these loans. 5. University of Arizona During the fiscal year, the University engaged in securities lending transactions. The University entered into an agreement with Wells Fargo, the University’s custodian, to carry out these transactions. The custodian enters into agreements with brokers to loan securities and have the same securities returned at a later date. It is the policy of the University to receive as collateral at least 102% of the market value of the loaned securities and accrued interest, and maintain collateral at no less than 100% for the - 78 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 duration of the loan. At year-end, the University had no credit risk to borrowers because the University was holding more collateral than the amount of loaned securities outstanding. The University records the collateral received as an asset, which is offset by an obligation recorded under securities lending. During the fiscal year ended June 30, 2003, there were no violations of legal or contractual provisions, and there were no borrower or lending agent default losses. Wells Fargo does not indemnify the University to the extent of borrower defaults. Collateral can be received in the form of U.S. Government securities, letters of credit, or cash. As of June 30, 2003, the custodian has received only cash collateral. Cash collateral received from the borrowers is invested in a short-term cash collateral investment pool, which, on average, has a weighted maturity of 14 days. The relationship between the maturities of the cash collateral investment pool and the University’s loans is affected by the maturities of the securities loans made by other entities that use the custodian’s pool, which the University cannot determine. This pool consists of investments in domestic and foreign bank obligations, commercial paper and participations, mortgage-backed and pass-through securities, corporate notes, bond debentures, and tri-party repurchase agreements. At June 30, 2003, cash collateral investments totaled $34.251 million with a corresponding market value of securities on loan of $33.158 million. Securities lent for cash collateral included corporate stocks, corporate bonds, government notes, and government bonds. The University or the borrower can terminate all securities loans on demand. The University cannot sell or pledge securities received as collateral unless the borrower defaults. The University earns a negotiated fee for participating in loan activities. 6. State Compensation Fund (Statutory Basis) The State Compensation Fund (the Fund) participates in a securities lending program in which securities are loaned to approved brokers/dealers for specified periods of time. All securities on loan are collateralized by cash or cash equivalents of at least 102% of their fair market value. The collateral is maintained by the Fund’s investment trustee who is not a party to the security lending agreement. The Fund had invested securities on loan with a market value of approximately $203.641 million and a book value of $194.558 million at December 31, 2002. G. DERIVATIVES A derivative instrument is a financial instrument or other contract with all three of the following characteristics: • It has (1) one or more underlyings and (2) one or more notional amounts or payment provisions or both. Those terms determine the amount of the settlement or settlements, and in some cases whether or not a settlement is required. • It requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors. • Its terms require or permit net settlement, it can readily be settled net by means outside the contract, or it provides for delivery of an asset that puts the recipient in a position not substantially different from net settlement. The principal categories of derivatives employed and their uses during the year were as follows: Category Foreign exchange forward contracts Futures Purpose Hedge currency risk of investments denominated in foreign currencies. Reduce transaction costs; obtain market exposure; enhance returns. Generally, derivatives are subject to both market risk and counterparty risk. The derivatives utilized by ASRS internal investment managers typically have no greater market risk than their physical counterparts, and in many cases are offset by exposure elsewhere in the portfolio. All derivatives are reported at fair value. The ASRS believes that it is unlikely that any of the derivatives used by its internal investment managers could have a material adverse effect on the financial conditions of the System. - 79 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 H. CUSTODIAL SECURITIES In accordance with Arizona Revised Statutes, various State agencies deposit securities with the Treasurer for safekeeping. The State agencies have securities in safekeeping with the Treasurer in the form of U.S. Government and agency securities, certificates of deposit, municipal and corporate bonds, and surety bonds at June 30, 2003. These securities are reported in the Fiduciary Agency Fund. I. STATE TREASURER’S SEPARATELY ISSUED FINANCIAL STATEMENTS The State Treasurer issues a separately published Annual Financial Report. The report provides additional information relating to the State Treasurer’s total investing activities and the internal and external participants of the Investment Trust Funds. The Investment Trust Funds report on the activities of the Local Government Investment Pools and Central Arizona Water Conservation District Investment Accounts. A copy of the State Treasurer’s Office Annual Financial Report can be obtained from his office at: State Treasurer’s Office 1700 W. Washington Phoenix, Arizona 85007-2812 The Treasurer’s financial statements are audited by the Office of the Auditor General. NOTE 3. RECEIVABLES/DEFERRED REVENUE A. TAXES RECEIVABLE The following table summarizes taxes receivable at June 30, 2003 (expressed in thousands). million for underpayments, penalties, and interest: General Fund Type of Tax Sales Income – individual and corporate Insurance premium Motor vehicle and fuel Luxury Unemployment Gross taxes receivable Allowance for uncollectible taxes Net Taxes Receivable $ $ 262,819 101,012 25,231 2,698 391,760 (104,891) 286,869 Transportation & Aviation Planning, Highway Maintenance & Safety Fund $ $ 68,683 68,683 68,683 - 80 - Unemployment Compensation Fund $ $ 39,659 39,659 39,659 These amounts include $83.365 Non-Major Governmental Funds GovernmentWide Total $ $ $ 2,812 5,020 7,832 7,832 $ 265,631 101,012 25,231 68,683 7,718 39,659 507,934 (104,891) 403,043 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 B. DEFERRED REVENUE At June 30, 2003, the components of deferred revenue, in terms of revenue unavailable and unearned, were as follows (expressed in thousands): Unavailable Current Deferred Revenue for Governmental Funds: General Fund: Delinquent sales tax Delinquent income tax Advance insurance premiums Advance land lease payments Public assistance overpayments Food stamps Vaccine & commodity food supplement Member premiums Federal grants Tribal reimbursements Transportation & Aviation Planning, Highway Maintenance & Safety Fund: Notes receivable for real estate mortgage loans Land Endowments Fund: Land sales receivable Land leases receivable Advance land lease payments Non-Major Funds: Public assistance overpayments Advance payments for Hawaii/Arizona PMMIS Alliance Other Total current deferred revenue for governmental funds $ Non-current Deferred Revenue for Governmental Funds: General Fund: Advance land lease payments Total non-current deferred revenue for governmental funds Total current and non-current deferred revenue for governmental funds $ Total Deferred Revenue Unearned 42,165 42,827 2,340 6,984 723 $ 273 291 86 9,301 15,061 685 - 9,854 261,094 1,713 - 23,681 261,094 1,713 23,681 1,938 369,638 1,951 15 51,344 1,938 1,951 15 420,982 - 6,878 6,878 6,878 6,878 369,638 $ $ 58,222 32,574 4,816 4,900 38,000 1,163 1,650 $ 3,878 4,243 91,224 Non-current Deferred Revenue for Proprietary Funds: Universities: IBM lease related to acquisition of research park Total non-current deferred revenue for proprietary funds $ $ 49,470 49,470 Current Deferred Revenue for Component Units: Water Infrastructure Finance Authority: Administrative fees Total current deferred revenue for component units $ $ 491 491 Non-current Deferred Revenue for Component Units: Water Infrastructure Finance Authority: Unearned loan revenue Total non-current deferred revenue for component units $ $ 1,202 1,202 Current Deferred Revenue for Component Units (Statutory basis); State Compensation Fund: Policyholders’ advance premiums Total current deferred revenue for component units (Statutory basis) $ $ 55,210 55,210 - 81 - 42,165 42,827 273 291 2,340 86 9,301 15,061 7,669 723 9,854 Unearned Current Deferred Revenue for Proprietary Funds: Universities: Unexpended cash advances received for sponsored programs Auxiliary sales and services IBM lease related to acquisition of research park Student tuition and fees Other deferred revenue Deposits Non-Major Funds: Member premiums Magazine subscriptions Total current deferred revenue for proprietary funds $ $ 427,860 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 NOTE 4. CAPITAL ASSETS Capital asset activities for the fiscal year ended June 30, 2003 were as follows (expressed in thousands): Primary Government Beginning Balance, as restated Governmental activities: Capital assets, not being depreciated: Land Construction in progress Infrastructure Total capital assets, not being depreciated $ 1,814,708 1,676,519 7,463,896 10,955,123 Increases $ 129,459 631,203 120,750 881,412 Decreases $ Adjustments & Reclassifications (3,897) (121,014) (304) (125,215) $ Ending Balance (2,101) (1,910) (19,569) (23,580) $ 1,938,169 2,184,798 7,564,773 11,687,740 Capital assets, being depreciated: Buildings Improvements other than buildings Equipment Infrastructure Total capital assets, being depreciated 1,063,937 115,837 587,084 4,643 1,771,501 96,892 1,465 35,998 134,355 (993) (53) (45,520) (46,566) 37,161 11,786 8,341 1,961 59,249 1,196,997 129,035 585,903 6,604 1,918,539 Less accumulated depreciation for: Buildings Improvements other than buildings Equipment Infrastructure Total accumulated depreciation (327,115) (51,506) (404,345) (1,516) (784,482) (29,170) (4,631) (62,284) (3,961) (100,046) 120 21 42,218 42,359 (274) 4,240 2,337 1,516 7,819 (356,439) (51,876) (422,074) (3,961) (834,350) Total capital assets, being depreciated, net 987,019 34,309 (4,207) 67,068 1,084,189 Governmental activities capital assets, net $ 11,942,142 915,721 $ (129,422) 43,488 $ 12,771,929 $ Beginning Balance, as restated Business-type activities: Capital assets, not being depreciated: Land Construction in progress Collections Total capital assets, not being depreciated $ 133,523 98,572 32,528 264,623 Increases $ 2,156 151,718 1,052 154,926 Decreases $ (222) (116,146) (436) (116,804) $ Adjustments & Reclassifications $ (362) (158) (520) Ending Balance $ 135,095 133,986 33,144 302,225 Capital assets, being depreciated: Buildings Improvements other than buildings Equipment Infrastructure Total capital assets, being depreciated 2,100,782 36,920 1,004,226 213,301 3,355,229 135,388 75,286 31,371 242,045 (3,583) (1) (38,006) (41,590) 29 (34,441) (215) 34,822 195 2,232,616 2,478 1,041,291 279,494 3,555,879 Less accumulated depreciation for: Buildings Improvements other than buildings Equipment Infrastructure Total accumulated depreciation (804,675) (18,073) (665,585) (73,300) (1,561,633) (64,056) (1,344) (72,441) (10,591) (148,432) 1,285 33,783 35,068 565 (579) 464 (23) 427 (866,881) (19,996) (703,779) (83,914) (1,674,570) Total capital assets, being depreciated, net 1,793,596 93,613 (6,522) 622 1,881,309 Business-type activities capital assets, net $ 2,058,219 248,539 $ (123,326) 102 $ 2,183,534 $ - 82 - $ STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 Depreciation expense was charged to governmental functions as follows (expressed in thousands): General government Health and welfare Inspection and regulation Education Protection and safety Transportation Natural resources Total governmental activities $ 22,860 14,218 1,960 911 34,719 13,849 11,529 100,046 $ Depreciation expense was charged to business-type activities as follows (expressed in thousands): Lottery Industrial Commission Universities Other Total business-type activities $ 269 1,082 144,274 2,807 148,432 $ Discretely presented component units capital asset activities for the fiscal year ended June 30, 2003 were as follows (expressed in thousands): Component Units Beginning Balance, as restated Component Units: Capital assets, not being depreciated: Land Construction in progress Total capital assets, not being depreciated $ 5,734 5,144 10,878 Increases $ 9,753 9,753 Decreases Adjustments & Reclassifications $ $ (10,572) (10,572) 88 (22) 66 Ending Balance $ 5,822 4,303 10,125 Capital assets, being depreciated: Buildings Improvements other than buildings Equipment Total capital assets, being depreciated 143,383 1,422 130,644 275,449 2,518 1 20,262 22,781 (487) (8,197) (8,684) 2 (2) 21 21 145,416 1,421 142,730 289,567 Less accumulated depreciation for: Buildings Improvements other than buildings Equipment Total accumulated depreciation (73,339) (261) (111,536) (185,136) (5,398) (126) (12,698) (18,222) 18 157 8,179 8,354 1,850 (1,594) (292) (36) (76,869) (1,824) (116,347) (195,040) 90,313 4,559 (330) (15) 94,527 Total capital assets, being depreciated, net Component Units capital assets, net $ 101,191 $ 14,312 $ (10,902) Depreciation expense was charged to component units as follows (expressed in thousands): University Medical Center Arizona Power Authority Water Infrastructure Finance Authority Total Component Units $ $ - 83 - 18,164 31 27 18,222 $ 51 $ 104,652 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 State Compensation Fund (Statutory Basis) capital asset activities for the calendar year ended December 31, 2002 were as follows (expressed in thousands): Land Buildings Improvements other than buildings Equipment Total Capital Assets Less: accumulated depreciation State Compensation Fund capital assets, net $ $ Balance 3,136 32,517 4,561 5,254 45,468 (18,116) 27,352 Depreciation expense totaled $1,940 (expressed in thousands). NOTE 5. RETIREMENT PLANS The State contributes to the four plans described below. The four plans are considered part of the State’s financial reporting entity and are included in the State’s financial statements as Pension Trust Funds. A. PLAN DESCRIPTIONS The State participates in the Arizona State Retirement System (ASRS), the Public Safety Personnel Retirement System (PSPRS), the Elected Officials’ Retirement Plan (EORP) and the Corrections Officer Retirement Plan (CORP). Benefits are established by State statutes and provide retirement, death, long-term disability, survivor and health insurance premium benefits to State employees, public school employees and employees of counties, municipalities and certain other State political subdivisions. The ASRS is a cost-sharing, multiple-employer defined benefit pension plan that benefits employees of the State, its political subdivisions and public schools. The ASRS is governed by the Arizona State Retirement System Board according to the provisions of ARS Title 38, Chapter 5, Article 2. The PSPRS is an agent, multiple-employer defined benefit pension plan that benefits fire fighters and police officers employed by the State or certain local governments. The PSPRS, acting as a common investment and administrative agent, is governed by a five-member board, known as the Fund Manager, and 186 local boards according to the provisions of ARS Title 38, Chapter 5, Article 4. The EORP is a cost-sharing, multiple-employer defined benefit pension plan that benefits all elected State and county officials and judges and certain elected city officials. The EORP is governed by the Fund Manager of the PSPRS according to the provisions of ARS Title 38, Chapter 5, Article 3. The CORP is an agent, multiple-employer defined benefit pension plan that benefits town, city and county detention officers and certain employees of the Arizona Department of Corrections and the Arizona Department of Juvenile Corrections. The CORP is governed by the Fund Manager of the PSPRS and 15 local boards according to the provisions of ARS Title 38, Chapter 5, Article 6. Each plan issues a publicly available financial report that includes its financial statements and required supplementary information. A report may be obtained by writing or calling the applicable plan. Arizona State Retirement System P.O. Box 33910 Phoenix, Arizona 85067-3910 (602) 240-2000 or (800) 621-3778 Public Safety Personnel Retirement System, Elected Officials’ Retirement Plan or the Corrections Officer Retirement Plan 1020 East Missouri Avenue Phoenix, Arizona 85014 (602) 255-5575 - 84 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 The number of participating government employers as of June 30, 2003, are shown below: Employer Cities and towns Counties and county agencies State Special districts School districts Charter schools Community college districts Dispatchers ASRS PSPRS EORP CORP 68 14 1 62 232 150 10 - 118 21 1 46 - 17 15 1 - 11 1 3 B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES As part of the Pension Trust Funds, the financial statements are prepared using the accrual basis of accounting under which expenses are recorded when the liability is incurred and revenues are recorded in the accounting period in which they are earned and become measurable. Employee contributions are recognized in the period in which contributions are due. Employer contributions are recognized when due and the employer has made a formal commitment to provide the contributions. Contributions from employees and employers for service through June 30 are accrued. These contributions are considered to be fully collectible and, accordingly, no allowance for uncollectible receivables is reflected in the financial statements. For the ASRS, investments are reported at fair value and at cost. Security transactions and any resulting gains or losses are accounted for on a trade-date basis. Investments, other than real estate and commercial mortgages, are reported at fair values determined by the custodial agents. The agent’s determination of fair values includes, among other things, using pricing services or prices quoted by independent brokers at current exchange rates. Commercial mortgages have been valued on an amortized cost basis, which approximates fair value. No allowance for loan loss has been provided as all loans and bonds are considered by management to be fully collectible. Short-term investments are reported at cost plus accrued interest, which approximates fair value. For investments where no readily ascertainable fair value exists, management, in consultation with its investment advisors, has determined the fair values for the individual investments based on anticipated maturity dates and current interest rates commensurate with the investment’s degree of risk. Net investment income includes net increase in fair value of investments, interest income, dividend income and total investment expense, which includes investment management and custodial fees and all other significant investment related costs. For the PSPRS, EORP and the CORP, investments are reported at fair value and at cost. Fair values are determined as follows: Short-term investments are reported at fair value, which approximates cost. Equity securities are valued at the last reported sales price. Fixed-income securities are valued using the last reported sales price or the estimated fair market value as determined by one of the world’s largest and most prominent fixed-income broker/dealers. Investments that do not have an established market are reported at estimated fair value. Investment income is recognized as earned. C. INVESTMENT RESTRICTIONS Statutes enacted by the Arizona State Legislature restrict the four retirement plans from investing more than five percent of each plan’s total assets in securities issued by any one institution, agency or corporation, other than securities issued as direct obligations of or fully guaranteed by the U.S. Government. As of June 30, 2003, the four retirement plans are in compliance with the State statutes. D. FUNDING POLICY The contribution requirements of plan members and the State are established by Title 38, Chapter 5 of the Arizona Revised Statutes. These contribution requirements may be amended by the Arizona State Legislature. Cost-sharing plans – For the year ended June 30, 2003, active ASRS members and the State were each required by statute to contribute at the actuarially determined rate of 2.49 percent (2.0 percent retirement and 0.49 percent long-term disability) of the - 85 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 members’ annual payroll. The State’s contributions to ASRS for the years ended June 30, 2003, 2002 and 2001 were $37.777, $36.605 and $36.832 million, respectively, for the primary government and $520, $565 and $298 thousand, respectively, for the component units, which were equal to the required contributions for the year. In addition, active EORP members were required by statute to contribute 7.00 percent of the members’ annual covered payroll. The State was required to contribute a designated portion of certain fees collected by the Supreme Court plus additional contributions of 6.97 percent of the members’ annual covered payroll, as determined by actuarial valuation. The State’s contributions to EORP for the years ended June 30, 2003, 2002 and 2001 were $81, $77 and $183 thousand, respectively, which were equal to the required contributions for the year. Agent plans – For the year ended June 30, 2003, active PSPRS members were required by statute to contribute 7.65 percent of the members’ annual covered payroll and the participating State agencies were required to contribute at actuarially determined rates of 5.71 – 20.03 percent. Active CORP members were required by statute to contribute 8.50 percent of the members’ annual covered payroll and the participating State agencies were required to contribute at actuarially determined rates of 4.08 - 5.26 percent. E. ANNUAL PENSION COST The State’s annual pension cost and related actuarial data for each of the agent, multiple-employer defined benefit pension plans for the year ended June 30, 2003, is as follows (expressed in thousands): Contribution rates: State Plan members Annual pension cost Contributions made Actuarial valuation date Actuarial cost method Actuarial assumptions: Investment rate of return Projected salary increases includes inflation at Cost-of-living adjustments Amortization method Remaining amortization Asset valuation method PSPRS CORP 5.71% - 20.03% 7.65% $3,951 $3,951 6/30/01 entry age 4.08% - 5.26% 8.50% $5,789 $5,789 6/30/01 entry age 9% 6.5% - 9.5% 5.5% none level percent open 20 years 4 year smoothed market value 9% 6.5% - 9.5% 5.5% none level percent open 20 years 4 year smoothed market value F. TREND INFORMATION Information for each of the agent, multiple-employer defined benefit plans as of the most recent actuarial valuations is as follows (expressed in thousands): Contributions Required and Contributions Made PSPRS CORP Fiscal Year Ended 6/30/03 6/30/02 6/30/01 Annual Pension Cost (APC) $3,951 4,834 4,510 Percentage of APC Contributed 100% 100% 100% 6/30/03 6/30/02 6/30/01 5,789 5,775 14,209 100% 100% 100% - 86 - Net Pension Obligation $ 0 0 0 0 0 0 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 G. UNIVERSITIES’ RETIREMENT PLANS Faculty, academic professional and administrative officers at the three universities (Arizona State University, Northern Arizona University, and University of Arizona) may select one of six retirement plans: the Teachers Insurance Annuity Association/College Retirement Equities Fund (TIAA/CREF), Variable Annuity Life Insurance Company (VALIC), Fidelity Investments Tax-Exempt Services Company (Fidelity), Aetna Life Insurance and Annuity Company (Aetna), The Vanguard Group (Vanguard) or the Arizona State Retirement System (ASRS). The ASRS is a defined benefit plan (described above) and the other five plans are defined contribution plans. The five defined contribution plans are administered by independent insurance and annuity companies approved by the Arizona Board of Regents. In addition, University of Arizona employees hired before July 1, 1972, have the option to participate in the defined contribution plan administered by the ASRS. Eligible classified staff belong to the Arizona State Retirement System. In a defined contribution plan, benefits depend solely on amounts contributed to the plan plus investment earnings. The Arizona State Legislature establishes and may amend active plan members’ and the Universities’ contribution rates. For the year ended June 30, 2003, plan members and the three Universities were each required by statute to contribute an amount equal to seven percent of an employee’s compensation, except for a 7.06 percent contribution for the ASRS defined contribution plan. Contributions to these plans for the year ended June 30, 2003, were as follows (expressed in thousands): Plan TIAA/CREF VALIC Fidelity Aetna Vanguard ASRS University Contributions $ 23,678 2,942 4,365 988 1,184 132 Employee Contributions $ 23,678 2,942 4,365 988 1,184 131 Total Contributions $ 47,356 5,884 8,730 1,976 2,368 263 H. UNIVERSITY MEDICAL CENTER DEFINED CONTRIBUTION PLAN The University Medical Center (UMC) has an Employee Pension Plan (the Plan) for its employees. The Plan is a defined contribution plan covering all UMC employees who are subject to minimum employment requirements, as defined in the Plan Agreement. The UMC makes contributions to the Plan in amounts equal to (a) 5.5 percent of total compensation plus (b) 5.4 percent of compensation in excess of 80 percent of the FICA wage base. Such contributions are allocated to each participant as defined in the Plan Agreement. Retirement plan expense, net of participant forfeitures, was approximately $5.193 million for the year ended June 30, 2003. I. POSTEMPLOYMENT BENEFITS In addition to the pension benefits described, the ASRS offers the Retiree Group Insurance Program and the Health Insurance Premium Benefit Program to eligible retired and disabled members. A retired member is defined as a member actively receiving an annuity benefit and a disabled member is defined as a member receiving a Long-Term Disability (LTD) benefit through the LTD program administered by the ASRS or through their former member employer’s group LTD plan. Pursuant to ARS §38-782, the Retiree Group Insurance Program makes available group health insurance coverage to eligible retired and disabled members and their dependents. Retired and disabled members of the ASRS, the Public Safety Personnel Retirement System, the Elected Officials’ Retirement Plan, and the Corrections Officer Retirement Plan may participate if they are no longer eligible for health insurance benefits through their former employer. More than 38,000 coverage agreements currently exist for retired and disabled members and their dependents. Pursuant to ARS §38-783, retired and disabled members with at least five years of credited service are eligible to participate in the Health Insurance Premium Benefit (subsidy) Program. This assistance is provided to those members that elect group coverage through either the Retiree Group Insurance Program or their former member employer. The ASRS offers a monthly “subsidy” to decrease the cost of group healthcare insurance offered to all retired and disabled persons of the ASRS, PSPRS, CORP and EORP that is provided by the primary government of the State. The amount of the - 87 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 subsidy provided retired or disabled participants is dependent upon the number of years of credited service; whether the participant is eligible for Medicare coverage; if the participant elects group insurance coverage for spouse or dependents; and if the participant lives in an isolated or rural location of the State. The amount of the monthly subsidy paid on a member’s and their dependents’ behalf toward the cost of group health insurance by the ASRS ranges from $50 to $600. The ASRS reimbursed approximately $84.5 million and $76.0 million towards the cost of group health insurance coverage for the years ended June 30, 2003 and June 30, 2002, respectively. Employment functions of the retired and disabled members eligible for the “subsidy” are teachers, State employees, and political subdivision employees. The “subsidy” was enacted by the State Legislature as part of the enabling and operating laws of the ASRS (ARS §§38-782 and 38-783). The actuarial calculation of the ASRS plan liabilities used to assess Annual Required Contribution Rate to all participating employers includes an actuarial dollar amount of approximately $846 million for fiscal year 2003 (0.37% of the total actuarial liabilities) to fund the health insurance “subsidy” program. The Total Annual Required Contribution Rate for both employers and employees during fiscal year 2003 was 0.74%. The participating ASRS employers and employees make no other contributions for funding the health insurance “subsidy” benefit enacted by the State Legislature. Total actuarial liabilities of the ASRS, including funding for the healthcare insurance “subsidy”, are determined on a projected unit-credit basis. As the ASRS is a cost-sharing plan, the number of “subsidy” participants and amount contributed for the “subsidy” by each participating employer is not available. Total Net Assets available to pay the “subsidy” for all participants at June 30, 2003, is $698 million. The State Legislature in ARS §38-783 has made the payment of the healthcare “subsidy” to retired and disabled participants subordinate to the payment of normal retirement benefits. During the November 1998 general election, voters added Article XXIX to the State of Arizona Constitution. Article XXIX is titled “Public Retirement Systems.” Article XXIX provided for the following actions: 1. Public retirement systems shall be funded with contributions and investment earnings using actuarial methods and assumptions that are consistent with generally accepted actuarial standards. 2. The assets of the State’s public retirement systems, including investment earnings and contributions, are separate and independent trust funds and shall be invested, administered, and distributed as determined by law solely in the interests of the members and beneficiaries of the public retirement systems. 3. Membership in a public retirement system is a contractual relationship that is subject to Article II, Section 25 of the State’s constitution, and public retirement system benefits shall not be diminished or impaired. Article II, Section 25 of the State’s constitution indicates that no law impairing the obligation of a contract shall ever be enacted. NOTE 6. LONG-TERM OBLIGATIONS A. REVENUE BONDS Governmental Activities 1. Arizona Department of Transportation The Arizona Department of Transportation (ADOT) issued Senior and Subordinated Highway Revenue Bonds to provide funds for acquisition of right-of-way and construction of federal, state and local highways. The original amount of Highway Revenue Bonds issued in prior years and outstanding at the start of the fiscal year was $734.155 million. During the year, Highway Revenue Bonds totaling $341.530 million were issued to (i) finance portions of the Transportation Board’s Five Year Transportation Facilities Construction Program, (ii) pay costs of issuing the Bonds, and (iii) refund in advance of maturity portions of ADOT’s outstanding Senior and Subordinated Bonds in the aggregate principal amount of $98.495 million. The Highway Revenue Bonds are secured by a prior lien on and a pledge of motor vehicle and related fuel fees and taxes. Arizona Revised Statutes prohibit the total principal amount of Arizona Highway Revenue Bonds, excluding refunded bonds, from exceeding $1.3 billion. - 88 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 The Maricopa County Regional Area Road Bond Fund is used to record all payments of principal and interest for Transportation Excise Tax Revenue Bonds issued by ADOT. The Bonds are secured by transportation excise taxes collected by the Arizona Department of Revenue on behalf of Maricopa County. The original amount of Transportation Excise Tax Revenue Bonds issued in prior years and outstanding at the start of the fiscal year was $407.925 million. During the year, Transportation Excise Tax Revenue Bonds totaling $80.475 million were issued to (i) finance the acquisition of land and the design and construction of certain controlled access highways within Maricopa County, Arizona, (ii) pay costs of issuing the Bonds, and (iii) refund in advance of maturity portions of the Board’s outstanding Senior 1998 Series A Revenue Bonds in the aggregate principal amount of $4.550 million. The Bond Resolution adopted by the Transportation Board on July 25, 1986 established a debt service reserve requirement equal to the maximum annual interest due in the current year or future years on any series of outstanding Transportation Excise Tax Revenue Bonds. The Second Supplemental Transaction Excise Revenue Bond Resolution adopted by the Board on September 22, 1988, gives the Board the option, which it has elected, of acquiring debt service reserve insurance policies in lieu of the debt service reserve requirement. Accordingly, no debt service reserve is reported in the accompanying financial statements. The policies (aggregating $70.064 million at June 30, 2003) were issued by Financial Guaranty Insurance Company, except for the 1993 Series Subordinated Bonds policies, which were issued by MBIA Insurance Corporation, and the 1995 Series A and Series B Subordinated Bonds policies, which were issued by AMBAC Assurance Corporation. These policies are noncancelable and insure payment, up to the policy amount, of the bond interest on their respective payment dates. The policies shall terminate on the earlier of July 1, 2005, or the date when no respective bonds are outstanding under the bond resolution. The premiums on these insurance policies are recorded as expenditures in the year of payment. The carrying basis of the 1988 Series A Capital Appreciation Bonds increases as a result of accretion of the original issuance discount. At June 30, 2003, the carrying basis was $ 27.329 million. At June 30, 2003, the outstanding balance was $30.0 million. In prior years ($132.346 million) and fiscal year 2003 ($103.045 million), the ADOT refinanced various bond issues through advance refunding arrangements. Under the terms of the refunding bond issues, sufficient assets to pay all principal and interest on the refunded bond issues have been placed in irrevocable trust accounts at commercial banks and invested in U.S. Government securities which, together with interest earned thereon, will provide amounts sufficient for future payment of principal and interest of the issues refunded. The assets, liabilities, and financial transactions of these trust accounts and the liability for the defeased bonds are not reflected in the accompanying financial statements. Refunded bonds for the ADOT at June 30, 2003 totaled $235.391 million. During the year ended June 30, 2003, the ADOT advance refunded the Highway Refunding Senior Series 1993 bonds ($98.495 million) and the Transportation Excise Tax Senior 1998 Series A Revenue bonds ($4.550 million) to reduce its total debt service payments by $7.455 million and to obtain an economic gain (difference between the present values of the debt service payments on the old and new debt) of $6.269 million. 2. School Facilities Board On July 10, 2002, the Arizona School Facilities Board issued $278.635 million in State School Improvement Revenue Bonds, Series 2002, with interest rates ranging from 2% to 5.5%, and maturity dates ranging from 2003 to 2020. Series 2002 Bonds maturing after July 1, 2012, are subject to redemption prior to their stated maturity date, at the sole option of the Board. Net proceeds from the Series 2002 Bonds totaled $293.548 million (after receipt of a net original issue premium of $15.483 million, and payment of $570 thousand in underwriter discounts). The bond proceeds are being used to pay the costs of correcting existing deficiencies in school facilities throughout the State of Arizona and certain bond related expenses. On May 9, 2003, the Arizona School Facilities Board issued $32.865 million of State School Improvement Revenue Bonds, Series 2003, with interest rates ranging from 2% to 5%, and maturity dates ranging from 2004 to 2021. Series 2003 Bonds maturing after July 1, 2013, are subject to redemption prior to their stated maturity date, at the sole option of the Board. Net proceeds totaled $35.535 million (after receipt of $2.746 million of original issue premium and payment of $76 thousand of underwriter fees). The bond proceeds are being used to pay the costs of correcting existing deficiencies in school facilities throughout the State of Arizona and certain bond related expenses. On June 30, 2003, the Arizona School Facilities Board issued $20 million of State School Improvement Revenue Bonds (Qualified Zone Academy Bonds), Series 2003B. The bonds were issued at a supplemental interest rate of 0.35%, and a maturity date of June 30, 2018. The Series 2003B Bonds are not subject to redemption prior to their stated maturity date. In addition to - 89 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 the supplemental interest, eligible taxpayers owning the Series 2003B Bonds on the “credit allowance date” will be entitled to a credit against their Federal income tax equal to the product of the outstanding principal amount of the Series 2003B Bonds multiplied by the credit rate as of the date of issuance of the Series 2003B Bonds. The proceeds of $20 million will be allocated to eligible schools systems within the State of Arizona for eligible school projects. It is estimated that 95% of the funds will be used for the purpose of renovating, rehabilitating, and equipping school facilities within the Federal Empowerment Zones, Enterprise Zones, or schools where 35% or more of the students are eligible for free or reduced price meals. Business-Type Activities 3. Universities a. University of Arizona The University’s bonded debt consists of various issues of system revenue bonds that are generally callable with interest payable semi-annually. Bond proceeds are used to pay for acquiring or constructing capital facilities and infrastructure. Bond proceeds are also used for refunding obligations from previously issued bonds. Principal and interest on bonds are secured by a pledge of tuition, fees, rentals, and other charges. On April 28, 2003, the University sold System Revenue Refunding Bonds Series 2003 (2003 Bonds) for $30.805 million dated May 1, 2003. The 2003 Bonds include $25.110 million of serial bonds with interest rates ranging from 3.5% to 5.0% and maturity dates ranging from 2013 to 2022. The 2003 Bonds also include $5.695 million of term bonds with an interest rate of 4.5% due June 1, 2024. The 2003 Bonds with maturity on or after June 1, 2014, are subject to optional redemption without premium. The 2003 Bonds with maturity on June 1, 2024, are subject to mandatory sinking fund redemption without premium pursuant to the debt documents. The 2003 Bonds were sold at a premium of $1.373 million. The University realized net proceeds of $31.783 million after payment of $395 thousand for issuance costs, underwriter discounts and bond insurance. The net proceeds were used to advance-refund System Revenue Bond Series 1993 and Series 1994 with a total outstanding principal balance of $23.265 million. The net proceeds were also used to advance-refund a portion, $6.590 million, of the System Revenue Bonds Series 2000A with an outstanding principal balance of $20.8 million. The advance refunding reduced the University’s debt service by an average of $4.021 million per year in the first five years. However, the total debt service on the refinancing debt is greater than the total debt service on the refunded debt by $16.792 million. Thus, the net present value of the difference between the old debt and the new debt (i.e. economic gain) is an additional cost of $1.164 million to the University. The refunded System Revenue Bonds will be paid by investments held in an irrevocable trust with a combined carrying value of $32.436 million. The refunded debt is considered defeased and is not included in the accompanying financial statements. Restricted cash and investments are held in trust for capital projects by various commercial banks. $1.502 million is held for debt requirements, $47.965 million is available for future construction costs, and $5.094 million is from bond proceed earnings for unrestricted purposes. Trust funds are invested by the trustee in accordance with the Board’s authorizing resolutions. In fiscal year 1998, the University refunded, in advance of maturity, a portion of outstanding System Revenue Bonds Series 1994. At June 30, 2003, the outstanding principal balance of the refunded bonds was $15.740 million, which will be paid by investments held in trust with a carrying value of $17.035 million. These amounts are not included in the accompanying financial statements. b. Northern Arizona University The University’s bonded debt consists of various issues of student housing and System Revenue Bonds that are generally callable with interest payable semiannually. Bond proceeds primarily pay for acquiring, constructing or renovating capital facilities. System revenue bonds are repaid from pledged gross revenues that primarily consist of student tuition and fees, and certain auxiliary revenues. In prior years, the University defeased certain revenue bonds by either placing the proceeds of new bonds, or cash and investments accumulated in the sinking fund, in an irrevocable trust to provide for all future debt service payments on the refunded bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the accompanying financial statements. At June 30, 2003, $315 thousand of such bonds outstanding are considered defeased. - 90 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 c. Arizona State University The Housing Revenue Bonds are payable from housing revenues as defined in the bond indentures. The Series 1992A, 1993, 2002 and 2003 System Revenue Refunding Bonds, and the outstanding Series 1989, 1991, 2000 and 2002 System Revenue Bonds are payable from Main Campus tuition, fees, certain auxiliary enterprises revenue, and certain other revenues as defined in the bond indentures. The University has pledged portions of its gross revenues towards the payment of debt related to various system revenue bonds outstanding at June 30, 2003. These pledged revenues include student tuition and fees, auxiliary enterprises revenue, investment income, and indirect cost recovery revenue. Pledged revenues do not include State appropriations, gifts, endowment income, or other restricted revenues. In prior years, certain system revenue bonds of the University were defeased through advance refunding by depositing sufficient U.S. Government securities to pay all future debt service in an irrevocable trust. Accordingly, liabilities for these defeased bonds are not included in the accompanying financial statements. The principal amount of all such bonds outstanding at June 30, 2003, was $11.1 million. Securities and cash restricted for bond retirement funds and maintenance and replacement reserves held by trustees at June 30, 2003 totaled $7.7 million. Component Units 4. Arizona Power Authority In prior years, Arizona Power Authority (APA) defeased various issues of bonds by purchasing United States government securities which were deposited in an irrevocable trust with an escrow agent to provide future debt service until the call dates. As a result, those bonds are considered to be defeased and the liability has been removed from the Hoover Uprating Fund. Accordingly, these trust account assets and related liabilities are not included in the accompanying financial statements. The remaining bonds, totaling $67.495 million, bear interest rates from 4.9% to 5.4% and are due from 2003 through 2017. These bonds are secured by the pledged property, as defined by the resolution, which includes the proceeds from the sale of the bonds, rights and interests in various contracts and revenues of the APA. 5. University Medical Center In March 1992, the University Medical Center (UMC) issued $28.405 million of Hospital Revenue Bonds (the Series 1992 Bonds) and in May 1993, the UMC issued $54.750 million of Hospital Revenue Refunding Bonds (the Series 1993 Bonds). The proceeds of the Series 1992 Bonds and the Series 1993 Bonds were used to advance refund a portion of prior bonds. The UMC is subject to certain financial covenants under the Master Trust Indenture (the Indenture), with which the Center is in compliance as of and for the year ended June 30, 2003. In addition, the Indenture places certain restrictions on the incurrence of additional indebtedness and the sale or acquisition of property. The UMC has established and maintains separate funds for borrowings not yet expended for construction. These funds are held by the trustee and are reflected in investments held by trustee in the accompanying financial statements, and consist principally of guaranteed investment contracts. The bonds or other obligations of the UMC do not constitute general obligations of the Arizona Board of Regents, the University of Arizona, the State of Arizona or any political subdivision thereof. 6. Water Infrastructure Finance Authority The Water Infrastructure Finance Authority (WIFA) issued Financial Assistance Revenue Bonds in 1992, 1995, 1996, 1997 and 1998. The WIFA also issued Capitalization Revenue Bonds in 1992, 1995, 1996, and 1997. WIFA also issued Water Quality Refunding Bonds in 1999 and 2001. The bonds are callable and interest is payable semiannually. The bonds are special obligations of the WIFA payable solely from and secured by the WIFA’s assets. The bonds are not obligations, general, specific or otherwise, of the State or any other political subdivision thereof other than the WIFA. - 91 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 The $1.688 million deferred loss on retirement of bonds is being amortized over the lives of the defeased bonds on the straightline basis. The amortization for the year ended June 30, 2003, is $142 thousand and has been included in interest expense. Bond premiums are being amortized over the life of the bonds. The amortization for the year ended June 30, 2003, is $292 thousand and is offset against interest expense. On September 8, 1999, the WIFA issued $64.000 million of Water Quality Refunding Bonds to advance refund all of the 1991A bonds, and part of the 1992A, 1995A, and 1996A bonds. Under the terms of the refunding issue, sufficient assets to pay all of the principal and interest on the refunded bonds have been placed in irrevocable trust accounts at commercial banks and invested in U.S. Government securities which, together with the interest earned thereon, will provide amounts sufficient for future debt service requirements of the refunded bonds. The amount outstanding on the refunded bonds as of June 30, 2003 is $21.155 million. These bonds have been defeased through advanced refunding and, therefore, the corresponding liability has been removed from the accompanying financial statements. 7. Summary of Revenue Bonds The following schedule summarizes revenue bonds outstanding at June 30, 2003 (expressed in thousands): Revenue Bonds Outstanding Governmental Activities: Department of Transportation School Facilities Board Business-Type Activities: University Revenue Bonds Component Units: Arizona Power Authority University Medical Center Water Infrastructure Finance Authority Interest Rates Amount Authorized Amount Issued Outstanding Balance at June 30, 2003 Dates Issued Maturity Dates 1989-2003 2001-2003 2004-2022 2002-2021 2.0-8.8% .14-5.5% $2,815,540 820,000 $2,815,540 820,000 $1,421,100 751,955 1963-2003 2003-2034 2.9-7.13% 1,030,616 957,516 597,238 1993 1992-1993 2003-2017 2003-2021 4.9-5.4% 5.53-6.11% 68,945 83,155 68,945 83,155 67,495 70,900 1992-2002 2006-2022 3.7-6.10% 253,715 253,715 230,280 Principal and interest debt service payments on revenue bonds outstanding at June 30, 2003 for the Primary Government are as follows (expressed in thousands): Annual Debt Service Governmental Activities Total Total Principal Interest Fiscal Year 2004 2005 2006 2007 2008 2009-2013 2014-2018 2019-2023 2024-2028 2029-2033 2034 Total $ 276,280 288,755 165,050 89,010 94,455 481,105 502,410 275,990 $ 2,173,055 $ 111,450 96,314 79,559 73,701 69,499 270,257 149,105 27,544 $ 877,429 Total Principal Total $ $ 387,730 385,069 244,609 162,711 163,954 751,362 651,515 303,534 3,050,484 - 92 - $ $ 21,172 32,386 36,545 39,660 41,625 181,925 144,990 50,290 40,015 7,010 1,620 597,238 Business-Type Activities Total Interest $ $ 30,063 28,576 26,981 25,342 23,446 87,138 41,559 19,258 6,478 1,492 81 290,414 $ $ Total 51,235 60,962 63,526 65,002 65,071 269,063 186,549 69,548 46,493 8,502 1,701 887,652 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 Principal and interest debt service payments on revenue bonds outstanding at June 30, 2003 for the Component Units are as follows (expressed in thousands): Component Units Total Interest Total Principal Fiscal Year 2004 2005 2006 2007 2008 2009-2013 2014-2018 2019-2023 Total $ $ 15,695 17,165 19,000 20,365 19,945 117,840 117,940 40,725 368,675 $ $ Total 19,021 18,243 17,371 16,369 15,345 59,514 27,191 4,204 177,258 $ $ 34,716 35,408 36,371 36,734 35,290 177,354 145,131 44,929 545,933 B. GRANT ANTICIPATION NOTES Grant Anticipation Notes are issued by the Transportation Board and secured by revenues received from the Federal Highway Administration under a grant agreement and certain other federal-aid revenues. The original amount of grant anticipation notes issued was $182.295 million. The following schedule summarizes grant anticipation notes outstanding at June 30, 2003 (expressed in thousands): Grant Anticipation Notes Outstanding Governmental Activities: Department of Transportation Dates Issued Maturity Dates Interest Rates Amount Authorized Amount Issued 2000-2001 2004-2008 4.0-5.3% $ 182,295 $ 182,295 Outstanding Balance at June 30, 2003 $ 169,145 Future debt service principal and interest payments on grant anticipation notes issues for fiscal years ended June 30 are summarized below (expressed in thousands): Fiscal Year 2004 2005 2006 2007 2008 Total Annual Debt Service Governmental Activities Total Total Principal Interest $ 36,755 $ 7,488 49,000 5,401 38,540 3,209 37,000 1,308 7,850 196 $ 169,145 $ 17,602 $ $ Total 44,243 54,401 41,749 38,308 8,046 186,747 C. CERTIFICATES OF PARTICIPATION 1. Department of Administration The State has issued Certificates of Participation (COPs) to finance construction or improvements of office buildings that are primarily leased to State agencies. The State’s obligation to make lease payments and any other obligations of the State under the lease are subject to, and dependent upon, annual appropriations made by the State Legislature and annual allocations of such appropriations being made by the Department of Administration for such purpose. The Department of Administration agrees to use its best efforts to budget, obtain, allocate and maintain sufficient appropriated monies to make lease payments. In the event any such appropriation and allocation is not made, the lease will terminate and there can be no assurance that the proceeds for the re-leasing or sale of the project will be sufficient to pay principal and interest with respect to the then outstanding Certificates. The scheduled payments of principal and interest with respect to the Certificates of Participation are guaranteed under certificate insurance policies. The State’s obligation to make lease payments does not constitute a debt or liability of the State within the meaning of any constitutional or statutory limitation. Neither the full faith and credit nor the general taxing power of the State is pledged to make payments of principal or interest due with respect to the Certificates of Participation. Such payments will be - 93 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 made solely from amounts derived under the terms of the lease, including lease payments, and amounts from time to time on deposit under the terms of the declaration of trust. Capitalized interest costs include interest incurred during the construction of an asset. On July 1, 2002, the Department of Administration issued Series 2002B Certificates of Participation for $75.295 million, with interest rates ranging from 2.0% to 5.5%, and maturity dates ranging from 2004 to 2010. The Certificates are being issued to refund all outstanding Certificates of Participation, Series 1992B, dated as of June 1, 1992, originally executed and delivered in an aggregate amount of $129.640 million and currently outstanding of $88.645 million, and to pay the costs of issuing the Series 2002B Certificates. The 2002B Certificates are subject to optional redemption and payment prior to maturity. Net proceeds from the Series 2002B Certificates totaled $80.164 million, after receipt of a net original issue premium of $5.418 million, and payment of $549 thousand in underwriter discounts. In addition, $12.690 million of funds held in reserve for the Series 1992B Certificates were used to complete the refunding. The above refunding reduced the State’s debt service requirements by $8.739 million, which resulted in an economic gain (difference between the present values of the old and new debt service payments) of $5.354 million. 2. School Facilities Board On January 1, 2003, the Arizona School Facilities Board issued Series 2003A Certificates of Participation for $372.730 million, with interest rates ranging from 1.6% to 5.25%, and maturity dates ranging from 2004 to 2017. Series 2003A Certificates maturing on or after September 1, 2014 are subject to optional redemption and payment prior to maturity, at the sole option of the Board. Net proceeds from the Series 2003A Certificates totaled $401.291 million, after receipt of a net reoffering premium of $28.768 million, and payment of $206.8 thousand in issuance costs. The Certificates are being issued to finance the costs of acquiring leasehold interests in school sites and constructing and equipping thereon certain school facilities, which will be subleased to various school districts within the State participating in the Board’s Lease-to-Own program, and to pay the cost of issuing the 2003A Certificates. 3. Industrial Commission The exempt adjustable mode refunding Certificates of Participation (COPs), Series 1985 were issued to refund the 1984 certificates which were used to finance the cost of acquiring and constructing the building at 800 W. Washington Street, Phoenix, Arizona. The COPs mature serially at six-month intervals and lease payments are made to the trustee, Bank One, Arizona, NA. The sale-leaseback agreement provides that title will pass to the Commission at the end of the lease term, once the COPs are completely redeemed. The refunded amount was $17.5 million. This amount has been paid and is not included in the outstanding amounts. The Trust Indenture for COPS specifies that the rates of specific types of financial instruments must be considered by the Remarketing Agent in setting the variable interest rates for the COP certificates. These instruments include the following: other issues of bonds marketed under the TEAMS program or similar programs; variable rate demand bonds; variable rate notes; and fixed rate notes that, in the judgement of the Remarketing Agent are otherwise comparable to TEAM certificates in credit quality and length of time prior to which such instruments mature or become subject to purchase at par on the demand of the owner. The interest rate ranged from 1.33% to 2.50% during the fiscal year ended 2003. 4. University of Arizona On October 31, 2002, the University of Arizona issued Certificates of Participation Series 2002B (2002B Certificates) for $29.845 million dated November 1, 2002. The 2002B Certificates include $16.665 million of serial certificates with interest rates ranging from 3.0% to 5.125% and maturity dates ranging from 2005 to 2021. The serial certificates maturing on or after June 1, 2013, are subject to optional redemption prior to maturity without premium. The 2002B Certificates also include several term certificates consisting of $3.725 million with an interest rate of 5.125% due June 1, 2016; $4.130 million with an interest rate of 5.125% due June 1, 2018; and $5.325 million with an interest rate of 4.75% due June 1, 2023. The term certificates maturing on June 1, 2016, June 1, 2018, and June 1, 2023, are subject to mandatory sinking fund redemption in part one year before maturity. There are also extraordinary redemption dates pursuant to the debt documents. The 2002B Certificates were issued at a premium of $1.154 million. The University of Arizona realized net proceeds of $30.044 million after payment of $555 thousand for issuance costs, underwriters discount and insurance. The net proceeds are being used to finance $16.2 million of the $17.2 million Meinel Optical Science Building project, and to refund in advance of maturity the Certificates of Participation Series - 94 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 1994B with an outstanding principal balance of $14.130 million. The advance-refunding generated a net present value benefit of $652 thousand (difference between the present values of old debt and new debt service payments) for the University. The advance-refunding reduced the University’s debt service by an average of $416 thousand per year in the first three years. The total debt service of the refinancing debt is $53 thousand less than the total debt service of the refunded debt. The refunded Certificates of Participation Series 1994B will be paid by investments held in an irrevocable trust with a carrying value of $15.426 million. As a result, the refunded debt is considered to be defeased and is not included in the University of Arizona financial statements. On May 6, 2003, the University of Arizona issued Refunding Certificates of Participation Series 2003A (2003A Certificates) in the amount of $10.615 million dated May 1, 2003. The 2003A Certificates include $6.575 million of serial certificates with interest rates ranging from 3.5% to 5.0% and maturity dates ranging from 2013 to 2022. The 2003A Certificates include $4.040 million of term certificates due June 1, 2018, with an interest rate of 4.0%. The certificates maturing on or after June 4, 2014, have an optional redemption prior to maturity without premium. The certificates maturing on June 1, 2018, are subject to mandatory sinking fund redemption without premium. All 2003A Certificates are subject to extraordinary redemption pursuant to the debt documents. The 2003A Certificates were issued at a premium of $2 thousand. The University realized net proceeds of $10.384 million after payment of $233 thousand for issuance costs, underwriters discount and insurance. The net proceeds from the sale of these certificates are being used to advance-refund the Certificates of Participation Series 1997 with an outstanding principal balance of $1.630 million and $8.040 million of the Certificates of Participation Series 2001B with an outstanding balance of $21.425 million. The advance-refunding reduced the University’s debt service by an average of $781 thousand per year in the first ten years. However, the total debt service on the refinancing debt is greater than the total debt service on the refunded debt by $5.514 million. Thus, the net present value of the difference between the old debt service and the new debt service payments is an additional cost of $675 thousand to the University. The refunded Certificates of Participation Series 1997 and 2001B will be paid by investments held in an irrevocable trust with a combined carrying value of $11.642 million. The refunded debt is considered to be defeased and is not included in the University of Arizona financial statements. The University of Arizona had outstanding at June 30, 2003, two Variable Rate Certificates of Participation Series 1999B and 2000A totaling $63.5 million. Both certificates bear interest at a weekly rate determined by Paine Webber, as remarketing agent, with final maturity dates of June 1, 2024 and June 1, 2025, respectively. These certificates are subject to conversion, at the option of the Arizona Board of Regents, to an adjustable rate, an annual rate, or a term rate pursuant to the debt documents. If not converted, the 1999B and 2000A certificates will bear interest at a weekly rate not to exceed 12 percent per annum determined under prevailing market conditions by the remarketing agent. - 95 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 A summary of the COPs issued as of June 30, 2003, is as follows (expressed in thousands): Project Governmental Activities: School for the Deaf and Blind/Game and Fish Refunding Certificates of 92A, 92C, & 1091 Health Lab/HRIS Refunding Certificates of 92B School Facilities Board AHCCCS Total Governmental Activities: Business-Type Activities: Industrial Commission Special Fund Arizona State University: Towers Project West Campus - Refunding Downtown Center – A Downtown Center – B 2002 Certificates of Participation University of Arizona: Residence Life Fixed Student Union A Student Union B Parking Garage/Residence Hall McKale/UAPD/Mt. Graham Park Student Union/Ln Svcs/6 th St Gar Gittings Bldg. Highland Infra. Life Sci. Student Housing, Health Bldg., UA North Meinel Bldg & Refund COPS 1994B Refund COPS 1997 & Portions and Series 2001B Total Business -Type Activities: Issue Date Final Maturity Date Amount Authorized and Issued 1993 2001 2002 2002 2003 1994 2011 2011 2022 2011 2018 2005 1985 2005 17,500 6,000 1991 1993 1999 1999 2002 2010 2009 2024 2024 2026 4,500 46,905 5,620 5,165 103,800 2,645 30,135 5,365 4,995 103,800 6.89 5.18 5.75 8.00 4.75 1994 1999 1999 1999 2000 2001 2001 2002 2002 2014 2024 2024 2024 2025 2025 2022 2022 2023 16,725 21,607 36,500 18,635 28,300 31,695 21,425 76,965 29,845 12,000 22,123 36,500 18,245 27,000 31,340 13,386 75,150 29,845 4.1 – 5.8 5.0 – 5.3 Variable 4.2 – 5.75 Variable 3.4 – 5.5 3.0 – 5.125 3.75 – 5.5 3.0 – 5.125 2003 2022 10,615 475,802 10,615 429,144 3.5 – 5.0 $ 1,088,919 $ 1,011,655 $ Total Certificates of Participation: 31,250 57,930 63,270 75,295 372,730 12,642 613,117 Outstanding Balance $ Interest Rates 18,265 55,225 57,680 75,295 372,730 3,316 582,511 2.75 – 5.0% 3.25 – 5.25 3.0 – 5.5 2.0 – 5.5 1.6 – 5.25 6.66 Variable Principal and interest debt service requirements on COPs outstanding at June 30, 2003, are as follows (expressed in thousands): Annual Debt Service Governmental Activities Fiscal Year 2004 2005 2006 2007 2008 2009-2013 2014-2018 2019-2023 2024-2026 Total $ Total Principal 10,522 $ 31,553 31,436 32,290 33,440 191,070 241,935 10,265 582,511 Business-Type Activities $ Total Interest 33,758 Total Amount Required $ 44,280 Total Principal $ 14,310 Total Interest $ 18,262 $ 27,474 26,151 24,848 23,507 91,006 35,412 1,350 263,506 59,027 57,587 57,138 56,947 282,076 277,347 11,615 846,017 14,330 16,590 14,050 15,110 83,850 108,488 127,616 34,800 429,144 17,733 17,122 16,516 15,866 69,645 49,389 20,853 2,032 227,418 $ - 96 - $ $ $ Total Amount Required 32,572 $ 32,063 33,712 30,566 30,976 153,495 157,877 148,469 36,832 656,562 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 D. LEASES AND INSTALLMENT PURCHASES 1. Leases The total operating lease expenses for the fiscal year ended June 30, 2003, were $38.839 million for governmental activities, $19.033 million for business-type activities, and $1.477 million for the Component Units. The future minimum lease payments for long-term operating leases as of June 30, 2003, are summarized below (expressed in thousands): Fiscal Year 2004 2005 2006 2007 2008 2009-2013 2014-2018 Total Minimum Lease Payments Primary Government Governmental Business-Type Activities Activities $ 29,421 $ 2,952 22,820 1,421 15,540 1,081 9,267 650 2,231 372 781 31 1 $ 80,061 $ 6,507 Component Units $ 637 491 466 110 113 156 $ 1,973 Total $ 33,010 24,732 17,087 10,027 2,716 968 1 $ 88,541 Many operating leases are for buildings and land leased by State agencies. Although these leases are considered to be long-term, they are cancelable under certain circumstances. * An agency must be able to cancel the lease if monies are not appropriated to cover the lease expenditures. * If an agency is ordered to move into State-owned property and a 60-day notice is given, the lease can be canceled without penalty. * In situations where the use of the leased property is dependent on the use of Federal monies, the lease must be cancelable in the event Federal monies are no longer available. The State has entered into capital lease agreements for the acquisition of buildings, telephone systems, copy machines and other equipment. A lease is reported as a capital lease if one or more of the following criteria is met: • Title to or ownership of the asset is transferred to the State at the end of the lease. • The lease contains a bargain purchase option. • The lease term is equal to 75% or more of the useful life of the leased asset. (This criteria does not apply if the beginning lease term falls within the last 25% of the total useful life of the asset.) • The present value of the minimum lease payments at the inception of the lease, excluding executory costs, equals at least 90% of the fair market value of the lease asset. (This criteria does not apply if the beginning lease term falls within the last 25% of the total useful life of the asset.) - 97 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 The future minimum lease payments for long-term capital leases (all primary government) as of June 30, 2003 are summarized below (expressed in thousands): Fiscal Year 2004 2005 2006 2007 2008 2009-2013 2014-2018 2019-2023 2023-2028 Total minimum lease payments Less: amount representing interest Less: amount representing executory costs Present value of net minimum lease payments 2. $ $ Annual Debt Service Governmental Business-Type Activities Activities 9,931 $ 8,772 10,181 6,659 10,135 5,568 10,149 4,047 10,294 2,784 51,957 8,665 56,490 156 63,981 58,686 281,804 36,651 (89,007) (4,728) (88,153) 104,644 $ 31,923 Installment Purchases The State has installment purchase contracts payable for acquisitions of computer and other equipment. Installment purchases assets and liabilities are reported in the government-wide Statement of Net Assets. The future minimum payments for long-term installment purchases (all primary government) as of June 30, 2003, are summarized below (expressed in thousands): Fiscal Year 2004 2005 2006 2007 2008 2009-2013 2014-2018 Total future minimum payments Less: amount representing interest Obligations under installment purchases Annual Debt Service Governmental Business-Type Activities Activities $ 4,092 $ 931 1,033 730 599 624 389 416 283 341 71 1,439 6,467 4,481 (279) (658) $ 6,188 $ 3,823 - 98 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 3. Capital Assets Financed through Capital Leases and Certificates of Participation The following table summarizes the historical costs of assets acquired under capital leases and certificates of participation: Land Construction in Progress Buildings Improvements other than Buildings Equipment Less: Accumulated Depreciation Carrying Value E. Governmental Activities $ 6,078 31,929 282,305 2,420 12,616 335,348 (83,441) $ 251,907 Business-Type Activities $ 319,164 319,164 (38,920) $ 280,244 NOTES PAYABLE The Arizona Department of Transportation (ADOT) governmental activities notes payable as of June 30, 2003 was $10.301 million. The notes payable represent the Maricopa Regional Area Road Construction Fund loan payable to the City of Mesa for $8.031 million and the Equipment Fund loan payable to creditors for $2.270 million. F. LITIGATION The amounts shown for the Ladewig vs. Arizona Department of Revenue settlement and the Schofield vs. State of Arizona settlement are further discussed in Note 12 – Commitments, Contingencies, and Compliance. The State has typically paid for litigation from the General Fund. G. COMPENSATED ABSENCES Compensated absences are paid from various funds in the same proportion that those funds pay payroll costs. The compensated absence liability attributable to governmental activities will be liquidated primarily by the General Fund. During fiscal year 2003, the State paid for compensated absences as follows: 80% from the General Fund, 11% from other major funds and 9% from other funds. - 99 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 H. CHANGES IN LONG-TERM OBLIGATIONS The following is a summary of changes in Long-Term Obligations (expressed in thousands): Restated Balance July 1, 2002 Governmental Activities: Long-term Debt: Revenue Bonds Grant Anticipation Notes Certificates of Participation Capital Leases Installment Purchase Contracts Notes Payable Revenue Bond Premium Certificates of Participation Premium Total Long-term Debt $ Other Long-term Liabilities: Compensated Absences Ladewig vs. Arizona Department of Revenue Settlement Roosevelt School District Settlement Schofield vs. State of Arizona Settlement Total Other Long-term Liabilities Total Long-term Obligations Business-Type Activities: Long-term Debt: Revenue Bonds Certificates of Participation Capital Leases Installment Purchase Contracts Notes Payable Revenue Bond Premium Deferred Amount on Refundings Certificates of Participation Premium Total Long-term Debt Component Units: Long-term Debt: Revenue Bonds Revenue Bond Discount Revenue Bond Premium Total Long-term Debt 753,505 448,025 100,276 2,222 6,783 46,377 34,186 1,391,374 $ (362,960) (13,150) (97,418) (4,149) (6,262) (35,341) (4,181) (350) (523,811) 138,214 162,335 (156,012) 350,000 88,000 576,214 11,400 173,735 (10,586) (88,000) (254,598) $ 2,173,055 169,145 582,511 104,644 6,188 10,301 70,222 38,510 3,154,576 Due Within One Year $ $ 1,896,775 132,390 571,989 102,719 2,263 2,270 64,251 35,565 2,808,222 144,537 139,135 5,402 339,414 11,400 495,351 139,135 339,414 11,400 356,216 $ 3,164,438 $ 1,565,109 $ (778,409) $ 3,649,927 $ 485,489 $ 596,403 422,010 37,758 3,832 18,114 (8,999) 2,680 1,071,798 $ 69,635 40,604 5,065 913 150 2,927 (5,340) 113,954 $ (68,800) (33,470) (10,900) (922) (21) (1,906) 3,034 (129) (113,114) $ 597,238 429,144 31,923 3,823 129 19,135 (11,305) 2,551 1,072,638 $ 21,172 14,310 7,649 770 49 760 (947) 43,763 46,315 46,315 52,381 52,381 (51,108) (51,108) Due Thereafter 276,280 36,755 10,522 1,925 3,925 8,031 5,971 2,945 346,354 2,863,227 47,588 47,588 $ 576,066 414,834 24,274 3,053 80 18,375 (10,358) 2,551 1,028,875 8,355 8,355 39,233 39,233 $ 1,118,113 $ 166,335 $ (164,222) $ 1,120,226 $ 52,118 $ 1,068,108 $ 384,415 (4,560) 4,964 384,819 $ - $ (15,740) 351 (291) (15,680) $ 368,675 (4,209) 4,673 369,139 $ 15,695 15,695 $ Other Long-term Liabilities: Compensated Absences Other Total Other Long-term Liabilities Total Long-term Obligations $ Balance June 30, 2003 Decreases $ Other Long-term Liabilities: Compensated Absences Total Other Long-term Liabilities Total Long-term Obligations 1,782,510 182,295 231,904 8,517 10,228 38,859 28,026 4,674 2,287,013 Increases 7,918 7,918 $ 392,737 9,320 4,948 14,268 $ 14,268 (9,345) (9,345) $ (25,025) 7,893 4,948 12,841 $ 381,980 3,482 3,482 $ 19,177 352,980 (4,209) 4,673 353,444 4,411 4,948 9,359 $ 362,803 Beginning balances for notes payable in the governmental activities and the business-type activities have been restated for the Department of Transportation. The Board Funding Obligations issued by the Transportation Board and outstanding at fiscal year end 2002 should have been reported as interfund receivables/payables in fiscal year 2002. These obligations are to be paid to the General Fund from the Transportation & Aviation Planning, Highway Maintenance & Safety (governmental activities) and the Highway Expansion & Extension Loan Program (H.E.L.P., business-type activities) for the outstanding amount of $60.010 - 100 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 million and $145.536 million, respectively. Additionally, the Transportation & Aviation Planning, Highway Maintenance & Safety notes payable to the H.E.L.P. in the outstanding amount of $93.980 million at fiscal year end 2002 should have been reported as an interfund receivable/payable in fiscal year 2002. The remaining notes payable for governmental activities and business-type activities represent amounts payable to third parties. The above long-term obligations relating to governmental activities include internal service funds. Amounts for installment contracts and compensated absences differ from those in the Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets because liabilities of $481 thousand of installment contracts and $10.401 million of compensated absences are attributable to internal service funds. These amounts are included in the reconciliation as part of internal service fund net assets. NOTE 7. INTERFUND TRANSACTIONS INTERFUND BALANCES AND TRANSFERS Interfund Receivables/Payables Interfund balances, as of June 30, 2003, are as follows (expressed in thousands): General Fund $ 62,554 15,159 46,832 15 151,645 11 $ 276,216 Due From General Fund Transportation & Aviation Planning, Highway Maintenance & Safety Fund Land Endowments Fund Non-Major Governmental Funds Unemployment Compensation Fund Lottery Fund Non-Major Enterprise Funds Internal Service Funds Total Due From Due To Transportation & Aviation Planning, Land Non-Major Non-Major Highway Maintenance Endowments Governmental Enterprise & Safety Fund Fund Funds Funds $ $ 291 $ 30,548 $ 92 $ 264 20,000 20,264 $ 291 $ 6,156 9,683 2,618 286 7,130 1,186 57,607 109,540 $ 109,632 Internal Service Funds $ 6,061 Total Due To $ 36,992 11 387 6 6,465 178,250 24,853 50,101 301 7,130 172,831 17 $ 470,475 $ Interfund balances represent (1) amounts due to and from the internal service funds for goods and services rendered, and (2) cash transferred between funds for various interfund activities subsequent to the balance sheet date. The cash is recorded in the fund which initiated the transfer, and a corresponding liability is recorded. The receiving fund records an interfund receivable. Interfund Transfers Transfers for the year ended June 30, 2003 are as follows (expressed in thousands): Transferred To Transportation & Transferred From General Fund General Fund $ Aviation Planning, Land Internal Non-Major Non-Major Highway Maintenance & Endowments Governmental Enterprise Service Total Safety Fund Fund Funds Universities Funds Funds Transfers Out - $ 1,228 $ 341 $ 47,919 $ 746,908 $ - $ 40 $ 796,436 Transportation & Aviation Planning, Highway Maintenance & Safety Fund 51,936 Land Endowments Fund 18,152 Non-Major Governmental Funds 304,028 Non-Major Enterprise Funds 23,744 Internal Service Funds 28,432 Unemployment Compensation Fund 3,591 Lottery Fund 34,455 Total Transfers In $ 464,338 $ 21,557 22,785 $ - 101 - 59 400 $ 459,174 971 30,848 1,186 32 1,598 24,611 566,339 $ 746,908 $ 7,281 7,281 $ 511,110 19,123 1 363,774 24,930 28,464 5,189 59,066 41 $ 1,808,092 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 Interfund transfers represent legally authorized non-exchange transfers of funds. These transfers include: (1) Legislative appropriations from the general fund, (2) other legislative transfers, (3) statutorily required transfers, (4) transfers related to the elimination of funds, and (5) transfers for debt service. NOTE 8. ACCOUNTING CHANGES AND RESTATEMENTS A. FUND FINANCIAL STATEMENTS Fund Balances and Net Assets have been restated as follows (expressed in thousands): Fund Balances, as previously reported Fund Reclassifications: Library and Archives Funds Defensive Driving Fund Arizona State Hospital Construction Fund Construction Insurance Fund Special Services Fund Surplus Property Fund Personnel Division Fund Information Technology Fund Registrar of Contractors Recovery Fund Other Funds Change in application of an accounting principle Prior year correction of errors Change in accounting basis Fund Balances/Net Assets, as restated Governmental Funds Other Non-Major Governmental General Fund Funds $ 712,816 $ 1,125,759 1,857 2,553 24,379 3,887 917 221 719 633 Proprietary Funds Universities $ 1,738,449 Internal Service Funds $ (95,961) Component Units $ 866,967 (1,857) (2,553) (24,379) (3,877) (1,098) (689) (847) (657) 5,792 (291) 291 (34,544) 2,983 $ 748,273 $ 1,102,471 $ 1,703,905 $ (100,146) 53 (546,923) $ 320,097 B. GOVERNMENT-WIDE STATEMENT Government-wide Net Assets have been restated as follows (expressed in thousands): Net Assets, as previously reported Fund Reclassifications: Registrar of Contractors Recovery Fund Change in application of an accounting principle Prior year correction of errors Change in accounting basis Net Assets, as restated 1. Governmental Activities of Primary Government $ 12,569,580 Business-Type Activities of Primary Government $ 2,966,188 Component Units $ 866,967 State Compensation Fund Statutory Basis $ 546,923 53 (546,923) 320,097 (76,733) 470,190 5,792 (34,544) 2,983 $ 12,578,355 $ 2,931,644 $ $ Fund Reclassifications Funds previously classified as Special Revenue for the State Library, Archives and Public Records facility and the Supreme Court Defensive Driving Fund have been reclassified to the General Fund based upon further review of their establishing statutes. The - 102 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 amount of fund equity moved from Special Revenue Funds (Other Non-Major Governmental Funds) to the General Fund was $4.410 million. The Arizona State Hospital Construction Fund was reclassified from a Capital Projects Fund (Other Non-Major Governmental Funds) to the General Fund. Capital projects not funded by the issuance of long-term debt may be accounted for in the fund that is paying for project construction costs. The construction of the Arizona State Hospital is being funded by unrestricted tax revenues. The amount of fund equity reclassified is $24.379 million. The Registrar of Contractors Recovery Fund has been reclassified from an Agency Fund to a Special Revenue Fund. The reclassification resulted in an increase in fund equity of $5.792 million. This reclassification affects both the fund level statements and the Government-wide Statement of Net Assets. All “Other Internal Service Funds” at fiscal year end 2002 have been reclassified to the General Fund for fiscal year 2003. The reclassified funds do not provide services to all agencies of the State or were being utilized as cost allocation plans for the benefit of the General Fund. Internal Service Funds are recorded on a full accrual basis. The General Fund is recorded on a modified accrual basis. For purposes of fund reclassifications, the General Fund will not record the 2002 fiscal year end $924 thousand of capital assets (net of accumulated depreciation) or $133 thousand of Compensated Absences reported by “Other Internal Service Funds”. Net assets deleted from the “Other Internal Service Funds” at July 1, 2002, is $7.168 million. Fund balance added to the General Fund at July 1, 2002 is $6.377 million. Several funds reclassified due to a change in fund type are included as “Other Funds”. The net amount of fund equity reclassified to the General Fund is $291 thousand. 2. Change in Application of an Accounting Principle In fiscal year 2003, the University of Arizona increased its capitalization threshold for equipment from $1,000 to $5,000 to enhance asset management and data integrity. The decrease in net assets was $34.544 million. 3. Prior Year Correction of Errors The Sick Leave Liability Fund overstated the future benefits liability (compensated absences) in fiscal year 2002 by $1.960 million. The Technologies & Telecommunications Fund omitted $1.023 million of capital contributions when the 2002 statements were prepared. The Water Infrastructure Finance Authority omitted capital assets, net of depreciation, of $53 thousand when the 2002 statements were prepared. 4. Change in Accounting Basis For fiscal year 2003, the State Compensation Fund prepared a Statutory-Basis Financial Statement for calendar year 2002. The fiscal year 2002 statement was prepared in accordance with GAAP. NOTE 9. FUND DEFICIT The major contributor to the Industrial Commission Fund deficit of $25.039 million is the $48.240 million increase in the actuarial liability for several insolvent insurance carriers and self-insured plans. The Industrial Commission Fund is responsible for paying all current and future Arizona workers’ compensation claims of these companies. Some of the claims expense will be recovered over a period of years as the Industrial Commission Fund receives liquidation distributions from the bankrupt companies. In addition, the deficit will also be recovered through the reinstatement of the Industrial Commission Fund assessments in fiscal year 2004 on all self-insured plans and insurance carriers doing workers’ compensation business in Arizona. This is the first time these assessments will have been levied since 1992. The Internal Service Funds deficit primarily results from the Risk Management Fund net losses in prior years. The Risk Management Fund deficit of $214.617 million is primarily due to the State’s policy of funding 50% of the actuarially determined - 103 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 liability. However, 100% of the liability is recorded for financial statement purposes. The Risk Management Fund accumulated deficit at June 30, 2003, should be recovered through annual adjustments to insurance billings. The entire liability is reflected in the Internal Service Funds. Current period losses are allocated to functions of government in the government-wide Statement of Activities. NOTE 10. RELATED PARTY TRANSACTIONS A. ARIZONA STATE UNIVERSITY Not included in the accompanying financial statements are six financially interrelated organizations that are nonprofit corporations controlled by separate Boards of Directors whose goals are to support Arizona State University. Financial statements of these organizations are audited by independent auditors. Four of these financially interrelated organizations (the Arizona State University Alumni Association, Arizona State University Foundation, Sun Angel Foundation and the Sun Angel Endowment) receive funds primarily through donations and dues, and contribute funds to the University for support of various programs. A fifth financially interrelated organization, Price-Elliott Research Park, Inc. (Park), is developing a research park to promote and support research activities, in coordination with the University. In developing the research park, the Park has issued bonds guaranteed by the University. As of June 30, 2003, the Park had $18.0 million of revenue bonds outstanding at an average interest rate of 5.26%. The debt service on the bonds is secured by a subordinated lien on University Main Campus revenues. Park revenues are not pledged in order to provide development flexibility to the Park. Annual debt service on the Park bonds will be $900 thousand in fiscal year 2004 and varies from a low of $900 thousand in fiscal year 2004 to a high of $1.7 million in fiscal year 2006. The University is obligated to pay the annual debt service, if not paid by the Park, under a debt service assurance agreement. Beginning in fiscal year 1990, the University provided operating cash advances to the Park repayable with interest to the University (1) upon the Park’s total gross receipts for a fiscal year exceeding its total disbursements for the fiscal year and (2) before any Park surpluses are transferred to the Arizona State University Foundation, for the benefit of Arizona State University. The last year for cash transfers to the Park was fiscal year 1998. Since the Park’s repayment to the University was dependent upon successful future operations and entering into additional land leases, the transfers to the Park were recorded by the University as current year expenditures when made and not as an asset on the University’s balance sheet. Total cash advances repayable to the University at June 30, 2003, including the accrued interest, totaled $5.4 million. During fiscal year 2003, the Park repaid $1.2 million to the University, with this amount being recorded as other revenues with the timetable for future repayments dependent upon the Park entering into additional land leases. A sixth financially interrelated organization, the Collegiate Golf Foundation, operates a University-owned golf course. Assets, net assets, and revenues for these organizations for the most recent fiscal year for which audits have been completed aggregated $356.1, $258.0 and $95.2 million, respectively, with substantially all of the net assets being donor restricted or endowment funds. The University has, or is in the process of entering into several privatized arrangements for on-campus student housing and campus energy management where an independent management company is responsible for providing services to the University and/or students served by the University. In conjunction with these privatized arrangements, the independent management companies, with the approval and assistance of the University have obtained, or are in the process of obtaining, tax-exempt financing in order to maximize the overall financial benefits to the University and its students. As of June 30, 2003, four taxexempt financings had been completed by an independent management company through separately incorporated nonprofit entities formed by the independent companies to do the tax-exempt financings. The University is not legally responsible for repayment of the tax-exempt debt, and there is no pledge or guarantee by the University for repayment of the debt. On June 30, 2003, there were $79.1 million of bonds outstanding for these four privatized arrangements with approximately $14.0 million of financings for another privatized arrangement effectively in process. Upon final principal repayment of the financings, title to the student housing and energy management equipment transfers to the University. In addition to the privatized and third party - 104 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 financings existing as of June 30, 2003 or in process as of this date, the possibility exists for several more third party financings to occur during fiscal 2004, totaling around $100 million. Subsequent to June 30, 2003, the University received approval from the Arizona Board of Regents to enter into a lease with ASUF, LLC, an Arizona limited liability company to be formed by the ASU Foundation. The University will lease a portion of the project, approximately 90,000 square feet of office space and the related parking structure. The lease payments will start during fiscal 2005, after construction is completed and will be approximately $2.4 million per year for approximately thirty years. B. NORTHERN ARIZONA UNIVERSITY The financial activities of the Northern Arizona University Foundation, Inc., (Foundation) and the Northern Arizona Capital Facilities Finance Corporation (NACFFC) are not included in the accompanying financial statements. The Foundation and the NACFFC are nonprofit corporations controlled by separate Boards of Directors. The goals of the Foundation are to promote the cause of education and the objectives of the University. The NACFFC was formed for the purpose of building on-campus student housing. The NACFFC, with the approval and assistance of the University, has obtained tax-exempt financing to construct a student housing facility. The University is not legally responsible for repayment of the tax-exempt debt, and there is no pledge or guarantee by the University for repayment. The housing facility was opened in the fall of 2002 and daily operations are managed by the University. On June 30, 2003, there were $15.4 million of bonds outstanding for this privatized arrangement. Upon final principal repayment of the financing, title to the student housing transfers to the University. This housing is built on University property that is leased to the NACFFC for the term of the bond issue. C. UNIVERSITY OF ARIZONA The accompanying financial statements do not include the operations of the University of Arizona Foundation, Inc., the University Physicians, Inc., the Southern Arizona Capital Facilities Finance Corporation, the Arizona Research Park Authority, and the Campus Research Corporation. The University of Arizona Foundation, Inc. (Foundation) is a nonprofit corporation controlled by a separate Board of Directors. The principal goals of the Foundation are to support the University of Arizona through various fund-raising activities, and to contribute funds to the University for support of various programs. According to the audited financial statements of the Foundation for the year ended June 30, 2002, assets, liabilities, revenues, and expenditures totaled $298, $28, $43 and $43 million, respectively. The University Physicians, Inc. (UPI) is a nonprofit corporation established to support the University of Arizona in achieving its teaching and research missions through the provision of patient care. The UPI is controlled by a Board of Directors comprised of the Dean, three faculty physicians, a representative of the twelve clinical department heads and three community members. According to the audited financial statements of the UPI for the year ended June 30, 2002, assets, liabilities, revenues and expenditures totaled $117, $57, $163 and $154 million, respectively. The Southern Arizona Capital Facilities Finance Corporation (SACFFC) is a nonprofit corporation formed in June 2002 and governed by a separate Board of Directors. SACFFC acquires, constructs, and operates student housing for the benefit of the University of Arizona. On July 3, 2002, SACFFC issued tax-exempt Certificates of Participation in the amount of $20.875 million for 30 years to construct a student housing facility on University property, under a ground lease agreement with the Arizona Board of Regents. The term of the agreement is 40 years or until the debt is retired. The University is not legally responsible for repayment of the tax-exempt debt, and there is no pledge or guarantee by the University for repayment of the debt. The student housing facility is expected to open in September 2003, operated by a private company under a Management Agreement with SACFFC. Audited financial statements are not available. The Arizona Research Park Authority (ARPA) is a nonprofit corporation created under the auspices of the Arizona Board of Regents (ABOR) and designated by Arizona law as a political subdivision of the State, governed by a separate Board of Directors, which by law may not include officers or employees of ABOR. The ARPA was established under the State’s industrial development authority statute to assist in the acquisition, improvement, and operation of university research parks and related properties. In August 1994, ARPA, with approval of ABOR, sold $98 million of nontransferable special revenue bonds to International Business Machines Corporation (IBM) to enable the University to acquire from IBM a 345-acre developed - 105 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 industrial site near Tucson, Arizona, together with 1,000 acres of adjacent unimproved land (collectively, the University of Arizona Science and Technology Park or the “Park”). The bonds are payable solely from lease rentals paid by IBM. If IBM defaults or cancels its lease, the bonds must be surrendered and discharged. Title to the entire Park resides in the University and neither the Park nor any payments by the University secures ARPA’s bonds. Since the original transaction, IBM has reduced its leasehold to 68% of the building space for periods up to the remaining term of 21 years. Audited financial statements are not available. The Campus Research Corporation (CRC) is a nonprofit corporation governed by a separate Board of Directors and was established to assist the University in the acquisition, improvement, and operation of the Park and related properties. The CRC currently leases from the University the remaining 32% of the building space of the Park that is not leased to ARPA (see preceding paragraph). The CRC is responsible for assisting in the development of the presently undeveloped portions of the Park and for subleasing unoccupied space, newly developed space, and space now occupied by IBM or its subtenants once the current subleases expire. The University is responsible for payment of operational expenses associated with the space occupied by the University departments, offices, and programs. All income received by the CRC from its activities, after payment of expenses and financial reserves, will be distributed to the University. During fiscal year 2003, $350 thousand was distributed to the University of Arizona. In February 2003, Arizona Center for Innovation, LLC (AzCI), a wholly owned subsidiary of CRC, was organized for the purpose of promoting the development of high technology companies in southern Arizona. AzCI’s financial statements have been consolidated with the CRC’s and all significant intercompany transactions have been eliminated. The CRC’s June 30, 2003, audited financial statements disclosed: • • • • • $20.199 million total assets, including $10.307 million in net property and equipment and $4.776 million of net intangible assets, the major components of which relate to leasehold interest and deferred leasing costs. $13.182 million total liabilities, including $10.493 million of long-term debt in the form of two collateralized notes payable to Wells Fargo, Arizona. $6.283 million total revenues, primarily consisting of rental income from the Park and related properties. $7.293 million total expenses, including $2.431 million of project operating costs, $729 thousand amortization of intangible assets and a $1.744 million loss on interest rate swap agreements. During fiscal year 2003 cash and cash equivalents increased by $450 thousand. The CRC’s audited financial statements may be obtained by writing to the Office of Economic Development, P.O. Box 210066, Tucson, Arizona 85721-0066. D. UNIVERSITY MEDICAL CENTER The University Medical Center (UMC) and the University of Arizona (the University) both provide and receive services from each other under various contracts. Payments to the University by the UMC include resident and intern salaries, utilities, ground maintenance, mailroom operations and various administrative functions. Amounts paid to the University for these services were $15.714 million for the year ended June 30, 2003. The UMC has entered into contractual agreements with the University to provide support for the academic mission of the University. Charges to the University for such services and facilities provided by the UMC were $9.90 million for the year ended June 30, 2003. These amounts are included in other operating revenue in the accompanying financial statements. University Physicians, Inc. (UPI) is a not-for-profit corporation whose members are physicians employed by the University and who practice at the UMC. The UMC has agreements with UPI whereby the UPI provides physician and other services to UMC. Additionally, the UMC provides healthcare services to the UPI. NOTE 11. JOINT VENTURES A. UNIVERSITY OF ARIZONA The University of Arizona (the University) is a participant in the Large Binocular Telescope Corporation (LBT). The LBT was formally incorporated as a nonprofit corporation in August 1992, pursuant to a Memorandum of Understanding, as amended, executed on February 24, 1989, between the University and the Arcetri Astrophysical Observatory in Florence, Italy (Arcetri). The purpose of the joint venture is to design, develop, construct, own, operate and maintain a binocular telescope currently being - 106 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 constructed in Arizona. The current members of the LBT are the University, Arcetri Research Corporation, Ohio State University and the LBT Beteiligungsgesellschaft. The University has committed resources equivalent to 25% of the project’s construction costs and the LBT’s annual operating costs. As of June 30, 2003, the University has made cash contributions of $14.0 million toward the project’s construction costs. The University’s financial interest represents its future viewing/observation rights. Upon completion of construction, viewing rights will be divided among the participants in proportion to their contributions. According to the audited financial statements of the LBT for the year ended December 31, 2002, assets, liabilities, revenues and expenses totaled $84.0 million, $1.0 million, $10.0 million and $3.0 million, respectively. The LBT’s separate audited financial statements can be obtained from LBT Project Office, Steward Observatory, University of Arizona, Tucson, AZ 85721-0065. B. UNIVERSITY MEDICAL CENTER The University Medical Center entered into a joint venture with Med-Forte Research Foundation, a Utah Corporation and an affiliate of the University of Utah, to form CardioWest Technologies, Inc. (CardioWest) in 1991. CardioWest was established to continue research and production of artificial heart technology and similar products. During 2002 the University Medical Center sold certain assets of CardioWest in exchange for a note receivable in the amount of $417 thousand and 15,000 shares of common stock of a newly formed company, Syncardia. There was no material gain or loss on the sale of the assets. The University Medical Center’s interest in CardioWest was approximately 73% and the results of operations have been included in the financial statements through the date of the asset sale. NOTE 12. COMMITMENTS, CONTINGENCIES AND COMPLIANCE A. RISK MANAGEMENT INSURANCE LOSSES The Department of Administration – Risk Management Section manages the State’s property, environmental, liability and workers’ compensation losses. The State has determined that the management of these losses can be performed effectively and efficiently through the Risk Management Section. Consequently, all agencies and the State’s three universities are required to participate in this program. The State’s Risk Management Section evaluates the proper mix of purchased commercial insurance and self-insurance annually. The Industrial Commission provides payment of workers’ compensation losses which are not covered by the State Compensation Fund, the Department of Administration – Risk Management Section, private insurance carriers, or self-insured employers. The workers’ compensation claims paid by the Industrial Commission encompass losses against uninsured or underinsured employers, insolvent insurance carriers’ payments for vocational rehabilitation, medical conditions incurred prior to 1973, apportionment claims for pre-existing industrial and non-industrial related physical impairments and compensation for loss of earnings associated with the disability. The Industrial Commission is totally self-insured. The management and payment of these losses is accomplished through the funding mechanism of the Risk Management Fund (Internal Service Fund) and the Industrial Commission Fund (Enterprise Fund). As discussed in the following paragraph, an independent annual actuarial analysis is performed to evaluate the needed funding. The Risk Management Section will assess each agency an annual portion of the necessary funding for the Risk Management Fund based on their exposures and prior loss experience. Interest and dividend earnings of investments currently fund the Industrial Commission Fund. To provide funding for workers’ compensation claims, the Industrial Commission could direct payment to the State Treasurer an amount not to exceed one and one-half percent of all premiums received by the State Compensation Fund, private carriers and self-insured plans during the immediately preceding calendar year. No such assessments have been made by the Commission since January 1992. The State records claims liability when the reported loss is probable and reasonably estimated. On an annual basis, independent actuarial firms are engaged to estimate the State’s total year-end outstanding claims liability, which takes into account recorded claims and related allocated claims adjustment expenditures, salvage, subrogation, loss development factors and an estimate for incurred but not reported claims. The Industrial Commission Fund discounts all benefit reserves at three and one-half percent, except for medical. Medical benefits are discounted at an assumed inflation rate equal to the investment rate of return earned by the Industrial Commission - 107 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 Fund. During fiscal year 2003, claims for six new insolvent medical insurance companies were assigned to the State Compensation Fund and were included in the Industrial Commission’s June 30, 2003 actuarial study. The State Compensation Fund, on behalf of the Industrial Commission, has filed proof of claim requests with ancillary receivers, liquidators holding deposits and surety bonds on these insolvent companies totaling $58 million. Since the actual amount that will ultimately be received cannot be determined, the Industrial Commission will continue to recognize receipt of insolvent carrier deposits (no insurance settlement income) as revenue at the time received rather than recording a receivable. Occasionally, the Risk Management Section agrees with claimants to purchase an annuity contract to settle these specific claims when it is determined that it is in the best interest of the State to do so. In these instances, the State requires the claimant to sign an agreement releasing the State from any further obligation. In addition, the State requires that a third party assignment company be named in the contract should the annuity company fail to perform its obligations under the annuity contract. As a result of these requirements, the likelihood that the State will be required to make future payments on these claims is remote. There have been no significant reductions in the current fiscal year insurance coverage. There have been no settlements that have exceeded insurance premium coverage in the last three years. The following table presents the changes in claims liabilities balances (short- and long-term combined) during fiscal years ended June 30, 2002 and June 30, 2003 (expressed in thousands): Fiscal Year Risk Management Fund: 2002 2003 Industrial Commission Fund: 2002 2003 Current Year Claims and Changes in Estimates Beginning Balance $ 233,677 234,331 $ 150,470 187,665 56,306 55,005 52,892 69,355 Claims Payments $ 55,652 56,256 15,697 17,282 Ending Balance $ 234,331 233,080 187,665 239,738 B. LITIGATION In Ladewig vs. Arizona Department of Revenue, Ladewig is a class action tax refund case. The class members are seeking refunds for Arizona income tax paid on dividends received from corporations doing less than 50% of their business in Arizona during the years 1986 through 1989. The trial court held that such taxes violated the Commerce clause of the U.S. Constitution and certified the class. The class certification was upheld by the Arizona Supreme Court in 2001. The Tax Court approved a settlement in December 2002. Accordingly, the State has recorded a long-term liability in its financial statements in the amount of $339.4 million. In Kerr vs. Killian, federal employees claimed an income tax refund on taxes paid on federal employee contributions. The Board of Tax Appeals granted these claims for the years before 1991, but has denied the claim for later years. The State did not appeal. The plaintiffs appealed for years after 1990. The Tax Court awarded attorneys fees from refunds the State is paying, and this ruling was upheld on appeal. The State has filed a petition for review. The attorneys’ fees will be paid from funds otherwise due to taxpayers, so there will be little monetary effect on the State if the fees are awarded. The Tax Court has denied class certification, and ruled for the Plaintiffs on the merits regarding entitlement to refunds for years after 1990. The State appealed the substantive law issue and the Plaintiffs have appealed the denial of class certification, and the Court of Appeals ruled against the State. The Supreme Court has granted review, and supplemental memoranda was filed November 28, 2003. The potential outcome is uncertain at this time. If this case were to have an unfavorable outcome, the State could incur losses ranging from $20 million to $100 million. In Roosevelt Elementary School District No. 66 vs. State of Arizona, the plaintiffs allege the State failed to fully fund the Building Renewal Fund established by the Students FIRST legislation. On October 13, 2000, the court held that the State did not violate the statutory provisions regarding funding of the Building Renewal Fund for fiscal year 1998-99. However, the court held that neither party was entitled to summary judgement regarding funding for fiscal year 1999-00, and that in order to prevail on that claim, the plaintiffs would have to demonstrate that they were injured by the alleged underfunding. On February 21, 2002, the court granted the plaintiffs’ motion to file an amended complaint, which included similar allegations regarding funding for fiscal - 108 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 year 2001-02. The parties both moved for summary judgment once again regarding the remaining claims in the case (fiscal years 1999-2000 and 2001-02), and on May 7, 2002, the trial court granted the plaintiffs’ motion for summary judgment as to both years. The State timely appealed the decision to the Arizona Court of Appeals. On August 14, 2003, the Court of Appeals reversed the decision of the trial court and remanded the matter back to the trial court. Plaintiffs have filed a petition for review in the Arizona Supreme Court. The matter has been briefed, but no date for decision by the court has been set. The potential outcome is uncertain at this time. If this case were to have an unfavorable outcome, it is possible that the State could incur losses of approximately $88 million. In the Somerton Elementary School District No. 66 vs. State of Arizona, the plaintiffs’ claim is identical to that alleged in the Roosevelt Elementary School District case discussed above, except that it involves the level of State funding for the Building Renewal Fund for the fiscal year 2002-03. Because the issues raised in this case are identical to those raised in the Roosevelt Elementary School District case, it was assigned to the same trial court judge. The potential outcome is uncertain at this time. If this case were to have an unfavorable outcome, it is possible that the State could incur losses of approximately $90 million. In Schofield vs. State of Arizona, a class action for on-call compensation was filed on behalf of all current and former State employees who were required to be on-call after normal working hours under State Personnel Rule R2-5-307. The parties entered a settlement agreement providing for the administration of individual claims by arbitrators. All State agencies, except the Department of Corrections (DOC), have completed the claims process. Accordingly, the State has recorded a long-term liability in its financial statements in the amount of $11.4 million to settle DOC claims. The State has a variety of claims pending against it that arose during the normal course of its activities. Management believes, based on advice of legal counsel, that losses, if any, resulting from settlement of these claims will not have a material effect on the financial position of the State. All losses for any unsettled litigation or contingencies involving workers’ compensation, medical malpractice, construction and design, highway operations, employment practices, criminal justice, fidelity and surety, environmental property damage, general liability, environmental liability, building and contracts, auto liability, or auto physical damage are determined on an actuarial basis and included in the Accrued Insurance Losses of the Internal Service Funds and the Industrial Commission Fund. C. ACCUMULATED SICK LEAVE State employees are eligible to receive payment for an accumulated sick leave balance of 500 hours or more with a maximum of 1500 hours upon retirement directly from State service. The benefit value is calculated by taking the State employee’s hourly rate of pay at the retirement date, multiplied by the number of sick hours at the retirement date times the eligibility percentage. The eligibility percentage varies based upon the number of accumulated sick hours from 25 percent for 500 hours to a maximum of 50 percent for 1500 hours. The maximum benefit value is $30,000. The benefit is paid out in annual installments over three years. The Retiree Accumulated Sick Leave Fund is accounted for on the financial statements as an Internal Service Fund and accounts for the retiree accumulated sick leave. Unused accumulated sick leave of employees of the State, excluding Universities, at June 30, 2003, totaled $298.324 million. D. UNCLAIMED PROPERTY The State of Arizona’s Uniform Unclaimed Property Act requires deposit of certain unclaimed assets into a managed Agency Fund. ARS §44-313 requires a separate trust fund of not less than $100 thousand to be retained for prompt payment of claims. The excess amount, above that which is required to be retained, is required to be deposited to the General Fund where it is included as other revenue. Under a statute that took effect July 1, 1990, up to $1.0 million in unclaimed utility deposits is deposited in the Utility Assistance Fund to help low income and elderly people make utility deposits and repairs. Fifty-five and twenty percent of the remaining net cash collected, after refunds, is transferred to the Department of Commerce Housing Fund to be used for low-cost housing and the State Treasurer for distribution as provided for in ARS §5-113, respectively. The balance is to be deposited in the General Fund. For fiscal year 2003, $1.119 million was deposited in the Utility Assistance Fund, $17.951 million was deposited in the Housing Fund, $6.528 million was deposited with the State Treasurer and $6.836 million was deposited in the General Fund. A total of approximately $258.681 million has been remitted since inception of the fund. In addition, the State is also holding stock valued at $22.0 million. The remittances to the General Fund and the holdings by the State represent contingencies, as claims for refunds can be made by the owners of the property. The Governmental Accounting Standards Board requires that a liability be reported to the extent that it is probable that escheat property will be reclaimed and paid to claimants. This liability is also reported as a reduction of revenue. This liability is reported in the General Fund because - 109 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 it is the fund to which the property ultimately escheats in Arizona. At June 30, 2003, this amount, reported as Due to Others in the General Fund, is $103.036 million. E. CONSTRUCTION COMMITMENTS The Arizona Department of Transportation had outstanding commitments under construction contracts of approximately $650.738 million at June 30, 2003. F. ARIZONA STATE LOTTERY Annuities are purchased for all prizes over $400 thousand for which winners will receive the jackpot in annual installments for the Pick on-line game. These annuities are purchased from qualifying insurance companies which have the highest ratings from among A.M. Best Company, Standard & Poor’s, Moody, Duff & Phelps or Weiss. The Lottery remains contingently liable on all annuities. Aggregate future payments to prize winners on existing annuities totaled approximately $271.821 million at June 30, 2003. Approximately $184.215 million of the total aggregate future payments at June 30, 2003 relate to annuities purchased from five separate insurance companies, of which approximately $81.431 million relates to a single insurance company. In 1994, an insurance company from which the Lottery purchased annuities during the period 1983 through 1989 was placed under State supervision. At June 30, 2003, remaining aggregate minimum future payments on such purchased annuities approximated $8.186 million. In 1997, an insurance company from which the Lottery purchased annuities in 1986 was placed under State supervision. At June 30, 2003, remaining aggregate minimum future payments on such purchased annuities approximated $1.566 million. As of December 10, 2003, both insurance companies were current in their required annuity payments. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the operations or financial position of the Lottery. NOTE 13. TOBACCO SETTLEMENT The State is one of many states participating in the settlement of litigation with the tobacco industry over the reimbursement of healthcare costs. The settlement money is intended to compensate the State for costs it has incurred in providing health and other services to its citizens that were necessitated by the use of tobacco products. The State expects to receive settlement payments through 2025. The State received $109.489 million in fiscal year 2003. Future settlement payments are subject to several adjustments, but the amounts are not presently determinable. These adjustments include a “volume adjustment,” which could reflect any decreasing cigarette production under a formula that also takes into account increased operating income from sales. Other factors that might affect the amounts of future payments include ongoing and future litigation against the tobacco industry and the future financial health of the tobacco manufacturers. Because the net realizable value of the future settlement payments is not measurable, the State did not record a receivable for the future payments at June 30, 2003. NOTE 14. PUBLIC-PRIVATE PARTNERSHIP The State of Arizona has entered into a partnership agreement with Accenture. The purpose of this partnership is to fund the Department of Revenue’s technology needs. This agreement stipulates that Accenture will be paid 90 percent of the new revenue generated from the system enhancements, even if this amount is insufficient to cover the total contract cost. Accordingly, Accenture has created a system that increases the State’s efficiency in collecting tax revenues. As of June 30, 2003, the State has paid Accenture $2.623 million towards the $140.330 million contract cost. Included in the contract cost, are application support charges of $32.986 million. NOTE 15. CONDUIT DEBT In December 2002, the Greater Arizona Development Authority (GADA) issued $7.64 million Infrastructure Revenue Bonds, Series 2002 for public infrastructure projects in the communities of Clarkdale, Coolidge and Guadalupe in the amounts of $400 thousand, $3.795 million and $3.445 million, respectively. GADA’s bond structure provides lower borrowing costs for Arizona’s communities by diversifying the risk to investors and by sharing financing costs among several borrowers. The GADA Fund is - 110 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 leveraged when GADA issues its bonds, which maximizes loan capacity for communities. An intercept mechanism for intercepting state-shared revenues for loans to political subdivisions enhances the security of the GADA bonds even further. During previous years, the State has appropriated a total of $20 million to GADA for the express purpose of securing bonds issued by GADA. As of June 30, 2003, the remaining balance in the appropriations account is $16.523 million. The Series 2002 bonds were issued by GADA to make loans to the participants listed above and constitute special and limited obligations of GADA. The principal of and interest on the bonds are payable solely from the funds which are held in Trust by the Trustee (the Trust Estate). The Trust Estate includes debt service payments required to be made by the participants in the Series 2002 bond issue. The principal of and interest premium, if any, on the Series 2002 bonds shall not constitute or give rise to a pecuniary liability on the part of the directors and officers of GADA. The Series 2002 bonds do not constitute a legal debt of the State of Arizona and are not enforceable against the State of Arizona. At June 30, 2003, the outstanding face value of the Series 2002 bonds was $7.64 million and the total outstanding face value of all bonds issued by GADA was $42.73 million. NOTE 16. SUBSEQUENT EVENTS On December 1, 2001, the State of Arizona entered into a lease-to-own agreement with Capitol Mall, L.L.C. for the purpose of construction, occupancy and ownership of an office building and related parking facilities located on the capital mall. The State began occupying the buildings on July 1, 2003. The State began making lease payments on September 1, 2003. The scheduled building lease payments for fiscal year 2004 will total $828 thousand. In addition, the State will pay to Capital Mall, L.L.C., on a monthly basis, all estimated operating costs as additional rent. The estimated operating costs for the 2004 fiscal year is $488 thousand. The lease is not a general obligation or indebtedness of the State. The State shall have the right to cancel and terminate the lease only at the end of its fiscal period in the event that funds are not appropriated by the Arizona State Legislature or the Department of Administration fails to allocate monies for any subsequent fiscal period with respect to this lease. The State shall have the right, during the lease term, to purchase the Capital Mall, L.L.C.’s right, title, and interest in this project. Effective July 1, 2003, the Arizona State University capitalization thresholds for equipment increased to $5 thousand and, the capital threshold for renovations to buildings, infrastructure, and land improvements that significantly increase the value or extend the useful life of structures increased to $100 thousand. On July 2, 2003, the court ordered the Freemont Insurance Company, a California corporation, to begin liquidation on July 1, 2003. At June 30, 2003, no Arizona claims had been assigned, and no deposits released to the Arizona State Compensation Fund (a discretely presented component unit of the State of Arizona). The Industrial Commission Special Fund is ultimately responsible for any claims paid by the Arizona State Compensation Fund that are in excess of the deposits received during the liquidation of the insurance company. On August 6, 2003, the Arizona Department of Transportation issued $148.955 million in Grant Anticipation Notes, Series 2003A to (i) finance a portion of the costs of various projects on the Maricopa County Regional Freeway System, (ii) refund all of the Board’s Outstanding Series 2000A Notes and (iii) pay a portion of the costs of issuing the Notes. The Series 2003A Notes are due January 1, 2004, through July 1, 2015. Net proceeds totaled $134.181 million (after receipt of $10.162 million reoffering premium and payment of $249.072 thousand in underwriting fees and costs of issuance). In August 2003, the Arizona Department of Transportation repaid in advance of scheduled maturity $100.0 million of the Board Funding Obligations (BFOs) deposited to the Highway Expansion and Loan Program (HELP) in fiscal year 2000, and $60.0 million of the BFOs deposited in fiscal year 2002. With interest, the total amount repaid was $172.694 million. Concurrent with these repayments, the Arizona Department of Transportation borrowed $160.0 million ($100.0 million deposited to HELP and $60.0 million deposited to the Transportation & Aviation Planning, Highway Maintenance & Safety Fund) under a new series of BFOs that are payable no later than August 2007. On September 1, 2003, the Arizona School Facilities Board issued $194.610 million of Certificates of Participation, Series 2003B, with interest rates ranging from 2.25 % to 6.0%, and maturity dates ranging from 2006 to 2019. Series 2003B Certificates maturing after September 1, 2014 are subject to redemption and payment prior to maturity at the option of the Board. The 2003B Certificates are being issued (i) to finance the costs of acquiring leasehold interests in certain school sites and constructing and equipping school facilities which will be subleased to various school districts within the State of Arizona, (ii) to pay capitalized interest on the 2003B Certificates, and (iii) to pay the costs of issuing the 2003B Certificates. Net proceeds totaled $200.000 million after receipt of $11.311 million of net reoffering premium, and payment of $4.616 million of capitalized interest, and payment of $1.305 million of issuance costs. - 111 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2003 On October 1, 2003, the Arizona School Facilities Board issued $247.125 million of State School Trust Revenue Bonds. The Series 2003A Bonds will be issued initially as Auction Rate Securities, and will initially bear interest at Auction Rates for generally successive 28-day Auction Periods. The Series 2003A Bonds may be converted, in whole, to Auction Rate Securities (ARS) bearing interest at Auction Rates determined on the basis of a 7-day Auction Period or, with the consent of the Insurer, to other interest rate modes. As long as there is no continuing Event of Default under the terms of the Indenture, the ARS shall be subject to redemption prior to stated maturity by the Board, at the written direction of the Board, on any ARS Interest Payment Date. The 2003A Bonds mature in 2019. The 2003A Bonds are being issued to (i) pay the costs of correcting existing deficiencies in school facilities within the State of Arizona, (ii) pay capitalized interest on the 2003A bonds, and (iii) pay issuance costs of the 2003A Bonds. Net proceeds are estimated to be $225.815 million, after payment of $8.954 million of bond issuance costs, and $12.356 million deposit to the bond reserve account. Subsequent to June 30, 2003, the Arizona State University issued $103 million of variable rate system revenue bonds with a final maturity of 2034 for various projects, including Arizona Biodesign Institute Phase I. On September 12, 2001 the Arizona Power Authority (a discretely presented component unit, hereinafter referred to as APA) issued $57.520 million of Special Obligation Crossover Refunding Bonds, bearing an interest rate of 5%, and maturing in 2017. Proceeds from the sale of the bonds along with a fund contribution by the APA will be held in an escrow trust account invested in government securities until October 1, 2003 (the “Crossover Date”) when, if certain conditions are met, the crossover refunding is scheduled to take place and $62.630 million of the 1993 Series Power Resource Revenue Refunding Bonds maturing on and after October 1, 2005 will be called. If these conditions are not met, the assets in the escrow trust account will be used to retire the Special Obligation Crossover Refunding Bonds on the Crossover Date. The Special Obligation Crossover Refunding Bonds are payable solely from the amounts in the escrow trust account and are not payable from any other source. Because they are not payable from revenues derived by the APA or secured by any assets held by the APA, neither the Special Obligation Crossover Refunding Bonds nor the assets held in the escrow trust account are reflected in the State’s Statement of Net Assets at June 30, 2003. If the crossover occurs on the Crossover Date, the outstanding Special Obligation Crossover Refunding Bonds will be exchanged for 2001 Series Power Resource Revenue Refunding Bonds of the same principal amount, maturity date, and interest rate as the crossover bonds. The proceeds in the escrow trust account will be used to call that portion of the 1993 Series Bonds maturing on and after October 1, 2005. On October 1, 2003, the APA met the conditions described above to effect the crossover refunding which resulted in $57.520 million of the Special Obligation Crossover Refunding Bonds being exchanged for 2001 Series Power Resource Revenue Refunding Bonds of the same principal amount, maturity date and interest rates as the crossover bonds. In addition, as part of the crossover, $62.630 million of the 1993 Series Power Resource Revenue Refunding Bonds maturing on and after October 1, 2005 were called. As a result of this transaction, the APA recognized an economic gain (difference between the present value of the old and new debt service payments) of $2.096 million. The cash flows required to service the new debt are $4.572 million less than the cash flows required to service the old debt. - 112 - REQUIRED SUPPLEMENTARY INFORMATION REQUIRED SUPPLEMENTARY INFORMATION STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2003 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) GENERAL FUND General Accounting Office General Relief Woolsey Flood District Operating State Aid - Cochise Operating State Aid - Coconino Operating State Aid - Graham Operating State Aid - Maricopa Operating State Aid - Mohave Operating State Aid - Navajo Operating State Aid - Pima Operating State Aid - Pinal Operating State Aid - Yavapai Operating State Aid - Yuma / La Paz Equalization Aid - Cochise Equalization Aid - Graham Equalization Aid - Navajo Equalization Aid - Yuma / La Paz Capital Outlay - Cochise Capital Outlay - Coconino Capital Outlay - Graham Capital Outlay - Maricopa Capital Outlay - Mohave Capital Outlay - Navajo Capital Outlay - Pima Capital Outlay - Pinal Capital Outlay - Yavapai Capital Outlay - Yuma / La Paz Relief Bill Military Airport Preservation Committee Military Airport Preservation Committee Boxing Commission Operating Lump Sum Appropriation Administrative Adjustments Department of Administration ASPC Perryville Security Improvements State Hospital Study and Design FY95 - 96 Capitol Mall Maintenance Compound FY98 - 99 DOC Reappropriation Prison Lock Replace FY97 - 98 Sexually Violent Persons Facility Health Lab COP Rent Building Renewal FY00 - 01 Building Renewal FY99 - 00 Building Renewal FY98 - 99 Building Renewal FY97 - 98 ASDB Phoenix Transportation Building Pioneers Home Plumbing Renovations Operating Lump Sum Appropriation Performance Based Incentives Consumer Loss Recovery Program Operating Costs Arizona Financial Information System Ensco Administrative Adjustments Operating Lump Sum Appropriation FY02 - 03 Administrative Adjustment $ 2,347,274 0 5,832,100 3,058,400 5,528,800 49,067,100 3,821,400 4,431,900 19,079,700 5,956,900 4,830,700 5,497,500 2,112,100 6,961,000 1,357,700 264,000 717,700 336,100 649,200 8,747,100 463,600 491,100 2,794,400 693,500 597,300 756,400 0 $ 142,271 56,513 5,540,500 2,905,500 5,252,400 46,613,700 3,630,300 4,210,300 18,125,700 5,659,100 4,589,200 5,222,600 2,006,500 6,612,900 1,289,800 250,800 681,800 319,300 616,700 8,309,800 440,400 466,500 2,654,800 658,800 567,400 718,600 142,271 ACTUAL EXPENDITURE AMOUNTS $ 142,271 56,513 5,540,500 2,905,500 5,252,400 46,613,700 3,630,300 4,210,300 18,125,700 5,659,100 4,589,100 5,222,600 2,006,500 6,612,900 1,289,800 250,800 681,800 319,300 616,700 8,309,800 440,400 466,500 2,654,800 658,800 567,400 718,600 142,271 107,500 0 0 80,400 0 80,400 289 12,243 289 6,683 94,373 8,169 42,617 111,372 0 2,090 13,995 2,930 1,114 37,645 300,000 18,827,300 199,995 743,423 1,934,500 4,586,100 0 4,734,300 0 0 62,962 0 0 558 1,507,231 0 0 52,771 1,114 37,645 300,000 16,798,700 199,995 0 1,934,500 4,586,100 1,103,326 4,734,300 75,383 0 34,746 0 0 558 1,507,231 0 0 10,577 1,114 36,950 115,770 16,513,369 124,981 0 1,779,296 4,585,100 1,103,326 4,234,593 75,383 The Notes to Required Supplementary Information are an integral part of this schedule. - 115 - FINAL BUDGET (Appropriations) (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2003 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Utilities FY02 - 03 Administrative Adjustment Relocation FY02 - 03 Relocation FY01 - 02 Relocation FY00 - 01 Relocation FY99 - 00 Relocation FY97 - 98 Building Renewal FY02 - 03 Building Renewal FY01 - 02 Building Renewal FY00 - 01 Building Renewal FY98 - 99 Executive Tower Renovations Sexually Violent Persons Facility Land Acquisition and Planning FY91 - 92 PLTO 1 Backfill Space Renovations FY02 - 03 PLTO 1 Backfill Space Renovations FY01 - 02 Arizona State Hospital Construction FY02 - 03 Arizona State Hospital Construction FY01 - 02 General Fund Transfer 1st Special Session General Fund Transfer 1st Special Session Chapter 1 General Fund Transfer 1st Special Session Chapter 1 Administrative Adjustments PLTO 1 Backfill Agency Relocations FY02 - 03 PLTO 1 Backfill Agency Relocations FY01 - 02 COP Operating Lump Sum PLTO 1 Backfill Space Renovations PLTO 1 Project Management FY02 - 03 PLTO 1 Project Management FY01 - 02 General Fund Transfer 1st Special Session Chapter 1 Operating Lump Sum Appropriation Classification Pilot Program HB1464 Personnel Reform HRMS Lapsing End of FY 2003 HRMS Lapsing End of FY 2004 Administrative Adjustments Operating Lump Sum Appropriation Operating Lump Sum Appropriation Administrative Adjustments Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Arizona State Hospital Construction FY00 - 01 Arizona State Hospital Construction FY99 - 00 Radiation Regulatory Agency Operating Lump Sum Appropriation Off-Site Nuclear Emergency Response Plan Administrative Adjustments Office of Equal Opportunity Governor's Office of Equal Opportunity Attorney General Capitol Center Expansion Operating Lump Sum Appropriation State Grand Jury Property Tax Supplemental Alternative Fuel Program Administrative Adjustments ACTUAL EXPENDITURE AMOUNTS 6,100,000 0 60,000 60,000 60,000 48,410 15 2,882,200 1,163,651 249,394 7,612 3,387 162,691 12,979 2,753,000 55,787 20,000,000 17,353,839 13,400,000 0 0 0 1,007,000 50,000 300,000 300,000 143,500 41,445 0 0 122,454 273,045 0 4,600,000 0 0 0 0 0 11,955 907,286 2,416,611 6,100,000 189,013 60,000 60,000 60,000 48,410 15 2,461,230 1,113,411 252,428 21,417 3,387 21,935 12,979 2,753,000 55,787 20,000,000 17,353,839 13,400,000 20,000 46,700 18,807 1,007,000 50,000 300,000 300,000 143,500 41,445 159,000 7,902,100 122,454 273,045 1,915,800 4,600,000 334,680 290,350 4,059,650 26,564 275,200 11,955 907,286 2,416,611 5,543,301 189,013 226 134 0 1,885 0 624,170 940,843 50,650 6,173 0 21,935 0 2,056,713 54,940 2,341,665 16,698,937 13,400,000 20,000 25,116 18,807 569,625 24,052 268,058 183,700 42,605 41,444 159,000 7,423,496 0 0 1,100,248 4,600,000 334,680 56,735 2,109,580 26,564 272,584 11,906 764,702 1,695,880 1,212,100 0 0 1,033,800 451,600 3,136 1,033,800 451,600 3,136 237,700 213,700 212,575 35 25,482,800 160,000 301 82,400 0 0 22,911,300 160,000 301 0 72,105 0 22,878,965 159,381 0 0 72,105 The Notes to Required Supplementary Information are an integral part of this schedule. - 116 - FINAL BUDGET (Appropriations) (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2003 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Department of Agriculture Operating Lump Sum Appropriation Agricultural Employment Relations Board Animal Damage Control Red Imported Fire Ant Administrative Adjustments Arizona State University Main Campus - Operating Lump Sum Appropriation East Campus - Operating Lump Sum Appropriation West Campus - Operating Lump Sum Appropriation Auditor General Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Operating Lump Sum Appropriation FY00 - 01 Operating Lump Sum Appropriation FY99 - 00 Operating Lump Sum Appropriation FY98 - 99 Banking Department Operating Lump Sum Appropriation Administrative Adjustments Board of Fingerprinting Board of Fingerprinting Board of Nursing Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Fingerprinting Nursing Assistants Board of Regents Operating Lump Sum Appropriation Student Financial Aid Trust Fund Western Interstate Commission Office WICHE Student Subsidies Arizona Transfer Articulation Support System Corporation Commission Operating Lump Sum Appropriation Railroad Warning Systems FY00 - 01 Railroad Warning Systems FY99 - 00 Administrative Adjustments Operating Lump Sum Appropriation Community College Board Operating Lump Sum Appropriation Administrative Adjustments Court of Appeals Division I Division I - Operating Lump Sum Appropriation Charter Schools Board Operating Lump Sum Appropriation Administrative Adjustments Court of Appeals Division II Division II - Operating Lump Sum Appropriation Department of Corrections ASPC-D - Mohave Improve Control Room FY97 - 98 ASPC-D - Mohave Door and Lock Replace FY98 - 99 ASPC-D - Papago Housing Renovation FY98 - 99 Operating Lump Sum Appropriation Administrative Adjustments General Fund Transfer 1st Special Session Chapter 1 ACTUAL EXPENDITURE AMOUNTS 11,522,100 23,300 65,000 23,200 0 10,192,800 23,300 65,000 23,200 59,181 10,138,460 10,000 65,000 23,200 59,181 278,574,700 13,131,000 38,190,200 263,293,700 12,425,600 36,116,500 263,293,700 12,425,600 36,116,500 14,685,200 551,845 400,071 362,777 6,014 11,076,600 551,845 400,071 362,777 6,014 10,778,774 317,901 12,379 81,776 6,014 2,716,100 0 2,716,100 2,859 2,707,150 2,859 197,400 197,400 88,355 130,900 7,965 90,198 130,900 7,965 90,198 130,701 7,964 0 2,203,500 2,251,200 99,000 2,912,100 217,100 2,085,900 2,251,200 103,000 2,908,100 213,700 2,085,888 2,251,200 103,000 2,770,800 213,700 5,273,200 192,000 119,186 0 43,500 5,007,300 192,000 18,815 3,812 43,500 4,831,743 0 18,815 3,812 43,461 239,500 0 225,800 5,938 159,342 5,938 7,227,300 7,075,500 7,073,256 556,200 0 498,100 12,791 432,951 12,791 3,373,800 3,296,300 3,286,640 2,103 29,598 679 579,765,400 0 0 2,103 1,844 0 579,765,400 7,290,542 500,000 0 1,844 0 574,475,218 7,290,542 500,000 The Notes to Required Supplementary Information are an integral part of this schedule. - 117 - FINAL BUDGET (Appropriations) (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2003 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Operating Lump Sum Appropriation Administrative Adjustments Department of Economic Security Statewide Building Renewal FY98 - 99 Statewide Building Renewal FY96 - 97 Statewide Building Renewal FY95 -96 Statewide Building Renewal FY92 - 93 Coolidge Environmental Impact Study DACS Navajo Senior Centers - Birdsprings DACS Navajo Senior Centers - Chilchenbento DACS Navajo Senior Centers - Chinle DACS Navajo Senior Centers - Dilcon DACS Navajo Senior Centers - Fort Defiance DACS Navajo Senior Centers - St Michael's DACS Navajo Senior Centers - White Cone ADM Operating Lump Sum Appropriation ADM Finger Imaging ADM Lease Purchase Equipment ADM Attorney General Legal Services DDD Operating Lump Sum Appropriation FY02 - 03 DDD Case Management FY02 - 03 DDD Home and Community Based Services DDD Institutional Services DDD Arizona Training Program at Coolidge FY02 - 03 State Funded LTC Services LTC Operating Lump Sum Appropriation LTC Case Management LTC Home and Community Based Services LTC Institutional Services LTC Medical Services LTC Arizona Training Program at Coolidge DBME Operating Lump Sum Appropriation DBME TANF Cash Benefits DBME General Assistance DBME Institutional Support Payments DBME Tuberculosis Control DBME Outreach and Naturalization DBME Tribal Pass-Through Funding DCSE Operating Lump Sum Appropriation DCSE Genetic Testing DCSE Central Payment Processing DCSE Attorney General Legal Services DACS Operating Lump Sum Appropriation DACS Coordinated Hunger Program DACS Information and Referral DACS Coordinated Homeless Program DACS Adult Services DACS Domestic Violence Prevention FY02 - 03 DACS Long Term Care Ombudsman DACS Domestic Violence Shelter Program FY01 - 02 DACS Domestic Violence Shelter Program FY00 - 01 DACS Domestic Violence Legal Assistance DCYF Operating Lump Sum Appropriation DCYF Children Services FY02 - 03 DCYF Intensive Family Services 2,113,500 0 0 1,770 211 20 4,948 65,000 45,000 10,000 30,000 65,000 1,961 30,000 28,881,200 575,700 1,747,100 355,200 4,866,500 3,224,300 27,555,400 294,900 5,809,100 2,204,300 6,072,400 7,468,100 102,320,700 4,017,500 19,280,300 3,937,700 24,401,800 51,410,700 2,130,400 266,400 32,200 85,000 4,212,800 5,063,900 72,400 444,700 59,300 5,445,100 1,286,600 115,400 1,155,400 11,545,300 2,507,900 359,500 9,419 73,791 24,504 27,790,200 19,375,200 1,985,600 The Notes to Required Supplementary Information are an integral part of this schedule. - 118 - FINAL BUDGET (Appropriations) 2,113,500 667 (23,346) 0 211 20 4,948 65,000 45,000 10,000 30,000 65,000 1,961 30,000 28,397,900 489,300 1,602,700 395,600 4,232,500 4,174,300 24,789,000 294,900 4,349,300 1,952,600 5,943,000 7,468,100 105,383,100 4,017,500 19,280,300 3,704,500 21,794,500 51,410,700 3,953,600 197,900 20,700 0 4,212,800 2,560,400 35,000 444,700 325,200 4,130,100 1,286,600 0 1,155,400 11,262,900 2,507,900 220,100 9,419 (11,863) 24,504 26,411,200 20,120,900 1,985,600 ACTUAL EXPENDITURE AMOUNTS 1,708,679 667 (23,346) 0 0 0 0 0 0 0 0 0 0 0 26,809,040 489,300 1,602,700 395,600 4,232,500 3,224,300 24,722,333 136,379 4,309,258 1,947,000 5,943,000 7,468,100 105,383,100 4,017,500 19,280,300 3,704,500 21,613,310 51,387,846 3,935,788 175,667 20,013 0 4,212,800 2,560,400 35,000 444,700 325,200 4,130,100 1,252,933 0 1,138,069 10,625,686 2,425,987 205,609 9,419 (12,458) 24,504 26,411,200 19,885,127 1,985,600 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2003 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) DCYF Adoption Services DCYF Family Builders Pilot DCYF Comprehensive Medical and Dental Program DCYF Attorney General Legal Services DCYF CPS Appeals DCYF CPS Substance Abuse Treatment DCYF Permanent Guardianship Subsidy DCYF IV-E Cost Allocation Contingency DERS Operating Lump Sum Appropriation DERS Job Search Stipends DERS Vocational Rehabilitation Services DERS Independent Living Rehabilitation Services DERS Employment Support Services DERS Project Intervention DERS Summer Youth Employment and Training DERS Daycare Subsidy DERS JOBS Relief Bill for AY99 Appropriation 07808 Relief Bill for AY99 Appropriation 08008 Relief Bill for AY99 Appropriation 08167 Relief Bill for AY99 Appropriation 08197 Relief Bill for AY99 Appropriation 08342 Administrative Adjustments DACS Hopi Senior Center - Kykotsmovi DACS Tribal Senior Centers - Hopi DACS Tribal Senior Centers - Navajo DACS Navajo Senior Center Services DERS Accreditation Rates FY00 - 01 DERS JTPA Welfare to Work Block Grant ADM Workforce Investment Act Operating Lump Sum DERS Workforce Investment Act Operating Lump Sum DERS Workforce Investment Act Programs DERS JOBS ADM Operating Lump Sum Appropriation ADM Operating Lump Sum Appropriation ADM Public Assistance Collections ADM Finger Imaging ADM Attorney General Legal Services ADM Attorney General Legal Services ADM High Performance Bonus ADM Perinatal Substance Abuse Treatment ADM Teen Pregnancy Prevention ADM Lease Purchase Equipment DBME Operating Lump Sum Appropriation DBME TANF Cash Benefits DBME TANF FLSA Supplemental DBME TANF Arizona Works Incentive DBME Food Stamp Outreach and Education FY00 - 01 DBME Hopi TANF Start-Up DACS TANF Operating Lump Sum Appropriation DACS Community and Emergency Services DACS Coordinated Homeless Program DACS Coordinated Hunger Program DACS Domestic Violence Prevention DACS Emergency Domestic Violence Shelter Services 21,434,800 30,842 2,207,000 4,404,000 618,800 224,500 124,000 8,224,200 4,804,500 30,000 3,285,100 902,300 6,093,600 22,828 1,000,000 17,481,900 1,885,100 0 0 0 0 0 0 22,097 259,190 714,300 50,000 154,680 1,637,492 0 1,906,900 44,070,600 2,000,000 5,301,700 1,043,600 175,800 289,500 139,500 14,500 1,125,658 142,857 16,997 645,000 10,457,900 103,605,900 1,008,900 434,300 943 398,000 245,600 5,996,000 1,583,200 500,000 5,115,900 35,211 The Notes to Required Supplementary Information are an integral part of this schedule. - 119 - FINAL BUDGET (Appropriations) 13,897,900 0 2,057,000 4,049,300 618,800 224,500 124,000 0 4,584,400 30,000 3,285,100 902,300 2,802,200 0 1,000,000 19,287,900 1,793,500 19 128,671 64 124 1,287 3,791,997 22,097 259,190 714,300 50,000 154,680 1,637,492 450,000 2,254,900 44,070,600 1,202,000 5,302,400 1,561,900 175,800 89,500 139,500 14,500 100,658 142,857 16,997 495,000 10,457,900 103,605,900 508,900 434,300 943 398,000 245,600 5,924,900 1,649,500 0 5,120,700 35,211 ACTUAL EXPENDITURE AMOUNTS 13,895,918 0 2,057,000 4,049,300 618,800 224,500 124,000 0 4,584,400 30,000 3,285,100 699,189 2,030,822 0 1,000,000 19,287,900 1,793,500 19 128,671 64 124 1,287 3,791,997 0 0 0 0 0 1,553,160 0 0 43,043,392 0 5,301,700 1,010,087 167,067 72,279 124,167 10,831 67,323 142,857 0 425,309 9,936,161 102,888,296 419,031 434,300 0 390,279 162,106 4,805,952 1,513,471 0 4,220,243 35,210 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2003 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) DACS Marriage and Communication Skills DACS Marriage Handbook DACS Marriage Skills Training DACS Short Term Crisis Services TANF FY00 - 01 DACS Short Term Crisis Services TANF FY99 - 00 DCYF Operating Lump Sum Appropriation DCYF Children Services DCYF Attorney General Legal Services DCYF TANF to SSBG DCYF Family Builders DCYF Homeless Youth Intervention FY02 - 03 DCYF Homeless Youth Intervention FY00 - 01 DCYF Permanent Guardianship Subsidy FY02 - 03 DCYF Permanent Guardianship Subsidy FY00 - 01 DCYF Substance Abuse Treatment FY02 - 03 DCYF Substance Abuse Treatment FY00 - 01 DCYF Adoption Services DERS Operating Lump Sum Appropriation DERS Operating Lump Sum Appropriation DERS TANF Day Care Subsidy DERS TANF Transitional Child Care DERS JOBS DERS Work Related Transportation DERS Wheels to Work Program FY98 - 99 DERS Employment Retention and Job Skills FY98 - 99 DERS Young Father Mentoring FY98 - 99 DERS TANF Accreditation Rates FY00 - 01 DERS Character Training DERS Parenting Training FY00 - 01 DERS Parenting Training FY99 - 00 DERS Post Shelter Training FY00 - 01 DERS Post Shelter Training FY99 - 00 DERS JOBS Work Participation TANF DERS JOBS Transportation Projects FY98 - 99 DERS Child Care Sliding Fee Scales DERS Vocational Education Grants DERS Out of School Program Administrative Adjustments DERS Transitional Child Care DERS Day Care Subsidy ADM Statewide Cost Allocation Plan Fund Administrative Adjustments LTC Operating Lump Sum Appropriation LTC Case Management LTC Home and Community Based Services LTC Institutional Services LTC Medical Services LTC Arizona Training Program at Coolidge DDD State Funded Long Term Care Services Administrative Adjustments Statewide Building Renewal FY02 - 03 Building Renewal FY98 - 99 DCSE Operating Lump Sum Appropriation FY02 - 03 DCSE Genetic Testing DCSE Central Payment Processing 857,884 41,598 74,850 48,153 2 14,808,800 10,174,300 47,600 36,398,200 6,200,000 400,000 20,900 859,300 6,742 333,300 5,542,746 5,186,100 6,349,400 7,524,200 12,471,300 26,419,500 20,316,600 3,302,200 1,120 731,909 361,056 154,680 26,526 10,327 41,206 912 216,399 9,112 36,117 3,159,554 396,449 4,000,000 0 2,044,300 84,267,500 1,000,000 0 18,320,200 22,511,300 305,557,100 12,156,700 60,361,500 11,814,800 18,030,500 0 0 0 32,913,400 723,600 3,275,700 The Notes to Required Supplementary Information are an integral part of this schedule. - 120 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 857,884 41,598 74,850 48,153 2 20,508,100 10,674,300 47,600 36,398,200 5,700,000 400,000 20,900 2,459,300 6,742 333,300 5,542,746 9,859,300 6,049,400 7,005,900 15,110,283 26,419,500 16,016,600 2,402,200 0 322,144 361,056 154,680 2,869 10,327 28,049 912 68,144 0 0 3,159,554 449 4,000,000 26,113,851 2,044,300 92,267,500 1,000,000 2,000,000 18,320,200 19,711,300 313,548,000 13,556,700 62,961,500 11,814,800 18,030,500 1,220,303 110,000 (13,805) 36,546,500 387,400 2,475,700 325,349 18,722 20,100 336 0 18,700,686 8,825,964 1,962 34,120,736 5,026,305 328,150 (9,639) 837,982 6,742 275,105 5,542,746 9,859,300 5,534,172 6,915,596 11,946,786 24,277,362 14,902,900 1,761,561 0 322,144 262,417 154,680 2,868 84 28,049 207 68,144 0 0 1,062,796 0 0 26,113,851 2,044,300 92,031,549 0 2,000,000 0 0 0 0 0 0 17,459,050 1,220,303 110,000 (13,805) 24,565,457 158,098 1,840,987 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2003 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) DCSE County Participation DCSE Attorney General Legal Services Relief Bill for AY99 Appropriation 08235 Relief Bill for AY99 Appropriation 08103 Administrative Adjustments Department of Juvenile Corrections Renovation Construction FY94 - 95 Building Renewal FY94 - 95 BCS Electrical Repair Operating Lump Sum Appropriation FY02 - 03 Administrative Adjustments Operating Lump Sum Appropriation Building Renewal FY91 - 92 Adobe Mountain Kitchen Building Renewal Adobe Mountain Freedom and Encanto Buildings Adobe Mountain Emergency Power Feeders Department of Transportation Operating Lump Sum Appropriation Department of Education Operating Lump Sum Appropriation Operating Lump Sum Appropriation Achievement Testing Charter Schools Administration Special Education Audit School Accountability Fund - Proposition 301 FY02 - 03 Teacher Certification Basic State Aid Entitlement Additional State Aid to Schools Assistance to School Districts for Children of State Employees Certificates of Educational Convenience Special Education Fund Accountability Measures Adult Education Assistance Arizona Teacher Evaluation Program Career Ladder Administration Certification Investigations Chemical Abuse Extended School Year Family Literacy Program FY02 - 03 Family Literacy Program FY98 - 99 Gifted Support Optional Performance Incentive Programs Residential Placement School Report Cards School Safety Program FY02 - 03 School Safety Program FY01 - 02 School Safety Program FY00 - 01 School Safety Program FY98 - 99 Small Pass-Through Programs State Block Grant for Early Childhood Education State Block Grant for Vocational Education Vocational Education Extended Year AIMS Intervention and Dropout Prevention Program English Learner FY02 - 03 English Learner FY01 - 02 ACTUAL EXPENDITURE AMOUNTS 10,598,900 5,491,800 1,891,781 183,055 0 7,131,400 6,462,400 1,891,781 183,055 6,397,384 4,947,714 5,127,406 1,891,781 183,055 6,397,384 97 3,794 1,200 63,943,500 0 3,892,100 39 18,000 0 0 0 3,794 1,200 63,743,700 1,375,856 3,892,100 39 18,000 16,000 10,535 0 0 1,200 63,219,333 1,375,856 3,668,628 0 17,919 16,000 10,535 63,500 63,500 62,451 270,300 6,652,824 3,396,500 346,757 291,900 33,900 1,061,900 2,258,877,391 249,844,500 35,200 859,700 26,351,600 50 4,438,228 383,480 81,435 451,400 796,338 500,000 1,002,100 1,373 1,301,600 120,000 10,000 443,698 6,703,105 44,048 5,842 34,178 581,600 19,408,575 11,160,300 600,000 550,000 0 130,847 270,300 7,094,016 3,396,500 346,757 291,900 33,900 1,061,900 2,257,787,123 254,066,510 60,000 859,700 27,600,901 50 4,438,228 191,740 0 225,700 796,338 500,000 1,002,100 1,373 1,301,600 120,000 10,000 443,698 6,703,105 44,048 5,842 34,178 581,600 19,408,575 11,160,300 400,000 550,000 316,095 0 The Notes to Required Supplementary Information are an integral part of this schedule. - 121 - FINAL BUDGET (Appropriations) 213,948 6,875,413 3,396,500 334,935 105,341 33,900 985,684 2,256,162,020 254,066,510 58,034 0 27,600,901 0 4,409,733 89,028 0 225,700 755,488 500,000 1,002,100 0 1,262,521 120,000 10,000 406,802 6,601,982 (193,306) 5,842 34,178 581,521 19,379,937 11,160,301 400,000 529,462 79,841 0 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2003 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) English Learner Instruction FY02 - 03 English Learner Instruction FY01 - 02 English Learner Materials and Supplies English Learner Pilot English Learner Teacher English Learner Classroom Bonus Fund Parental Choice For Reading Success General Fund Transfer 1st Special Session Chapter 1 General Fund Transfer 1st Special Session Chapter 1 General Fund Transfer 1st Special Session Chapter 1 Department of Commerce Operating Lump Sum Appropriation Motion Picture Development Apprenticeship Services Office High Technology Clusters NAFTA Agreement Projects NAFTA Projects - Initial Phase Agriculture Preservation District APNE FY02 - 03 APNE FY01 - 02 General Fund Transfer 1st Special Session Chapter 1 Operating Lump Sum Appropriation Administrative Adjustments Board of Tax Equalization Operating Lump Sum Appropriation Department of Environmental Quality Operating Lump Sum Appropriation Aquifer Protection Permit Program Banking/Trading Study Catalytic Converter Replacement Program Environmental Health Reserve FY96 - 97 Environmental Health Reserve FY95 - 96 Environmental Health Reserve FY94 - 95 Reappropriation (Laws 2003 Chpt 2 HB2002) Solid Waste Program Water Infrastructure Finance Authority Administrative Adjustments General Fund Transfer 1st Special Session Chapter 1 Lump Sum Appropriation Administrative Adjustments Geological Survey Operating Lump Sum Appropriation Administrative Adjustments Government Information Technology Agency Year 2000 - Agency Projects Operating Lump Sum Appropriation Administrative Adjustments Governor's Office Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Operating Lump Sum Appropriation FY00 - 01 Operating Lump Sum Appropriation FY99 - 00 Operating Lump Sum Appropriation FY96 - 97 Arizona - Sonora Study Implementation FY00 - 01 Border Volunteer Corps FY95 - 96 ACTUAL EXPENDITURE AMOUNTS 0 3,080,000 0 0 0 0 1,000,000 0 0 0 5,500,000 3,080,000 1,500,000 750,000 4,500,000 3,060,000 1,000,000 80,300 18,300 500,000 761,276 3,080,000 1,239,121 749,899 0 260,942 433,811 80,300 18,300 500,000 3,689,300 308,200 153,000 36 37,777 19,874 467,885 207,500 718,650 0 117,500 0 3,240,400 308,200 153,000 36 37,777 19,874 467,885 207,500 718,650 5,000,000 117,500 24 3,022,760 298,715 146,307 0 0 0 435,371 175,750 387,498 5,000,000 100,053 24 608,100 543,400 543,271 11,936,500 814,000 25,000 15,889 100,000 250,000 101,958 0 126,800 2,995,100 0 0 10,218,900 0 9,474,700 745,600 0 0 0 0 0 492,739 51,800 2,445,100 299,893 10,300,000 11,718,900 248,476 9,467,874 744,841 0 0 0 0 0 492,739 51,800 1,971,325 299,893 10,300,000 2,481,844 248,476 870,800 0 774,900 2,927 770,779 2,927 0 0 0 0 2,502,300 76,685 50,662 2,247,742 76,685 5,987,800 295,208 342,670 227,625 1 5,200 71,545 5,389,000 295,208 342,670 227,625 1 5,200 71,545 5,097,757 (207,987) 341,610 128,127 0 0 6,172 The Notes to Required Supplementary Information are an integral part of this schedule. - 122 - FINAL BUDGET (Appropriations) (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2003 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Border Volunteer Corps FY94 - 95 Governor's Telecommunication Office of Sonora Governor's Office for Excellence in Government Governor's Office of Strategic Planning and Budgeting Administrative Adjustments Office for Excellence in Government Arizona Health Care Cost Containment System Mental Health - Adults Operating Lump Sum Appropriation DOA Data Center Charges Indian Advisory Council DES Eligibility DES Title XIX Pass Through DHS Title XIX Pass Through Breast and Cervical Cancer Treatment Capitation Fee for Service Reinsurance Medicare Premiums Disproportionate Share Payments Graduate Medical Education Apache County Claims for Tribal Members Navajo County Claims for Tribal Members Budget Neutrality Compliance Deposit Breast and Cervical Cancer Treatment Program FY02 - 03 Breast and Cervical Cancer Treatment Program FY01 - 02 County Net Loss Offset Critical Access Hospitals Freedom to Work Program Expense General State Emergency Services SB1060 Operating Lump Sum Appropriation Administration Services Administrative Adjustments Operating Lump Sum Appropriation DOA Data Center Charges Indian Advisory Council DES Eligibility DES Title XIX Pass Through DHS Title XIX Pass Through Office of Administrative Hearings Capitation Fee for Service Reinsurance Medicare Premiums Disproportionate Share Payments Graduate Medical Education Mental Health - Adults FY91 - 92 Breast and Cervical Cancer Treatment Fed Administration Breast and Cervical Cancer Treatment Fed Program Breast and Cervical Cancer Treatment State Program Critical Access Hospitals Dialysis Chemotherapy Treatment Expense Freedom to Work Program Expense General 34,705 504 7,783 1,508,100 1,850,000 0 25,000 42,763 28,497,000 1,724,700 113,100 23,587,100 133,000 960,200 52,730 302,462,600 60,332,000 22,086,100 9,712,100 59,757,200 6,490,400 203,021 16,443 724,800 1,300,000 1,243,593 0 591,900 500,000 1,100,000 52,542,200 15,233,000 96,352,700 0 38,926,200 3,992,800 109,300 23,337,200 177,300 766,200 190,200 924,950,900 237,705,700 46,709,800 26,984,600 119,893,900 16,037,700 45,368 52,730 745,861 975,000 1,108,100 1,555,608 846,400 The Notes to Required Supplementary Information are an integral part of this schedule. - 123 - FINAL BUDGET (Appropriations) 34,705 504 7,783 1,350,400 1,664,000 239,568 25,000 0 25,734,300 1,724,700 101,800 17,898,400 80,500 960,200 0 270,831,800 58,130,100 18,483,900 11,208,200 53,911,600 6,490,400 (106) 35,206 724,800 900,000 32,523 4,825,600 310,900 155,000 1,100,000 52,542,200 20,965,600 67,340,600 22,689,182 38,926,200 3,992,800 109,300 18,204,000 177,300 766,200 290,200 930,329,800 276,253,500 59,197,100 26,984,600 105,893,900 13,327,700 45,368 52,730 745,861 975,000 1,108,100 1,555,608 846,400 ACTUAL EXPENDITURE AMOUNTS 0 0 0 1,348,938 1,638,497 239,568 0 0 24,995,754 1,724,555 95,206 17,898,374 62,820 524,034 0 270,831,800 50,631,002 12,323,721 11,172,741 53,911,601 6,490,395 (106) 35,206 724,800 755,306 32,450 4,825,600 310,852 120,222 1,100,000 52,542,200 16,950,704 64,778,005 22,689,182 32,712,078 3,992,800 90,237 17,376,574 72,712 521,138 252,012 923,629,254 251,551,964 44,265,742 26,616,230 103,136,775 13,327,605 0 0 0 261,964 638,315 1,422,822 253,202 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2003 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Administration Services Administrative Adjustments Program Lump Sum Appropriation Board of Nursing Administrative Adjustments General Fund Transfer 1st Special Session Chapter 1 Proposition 204 Services Office of Administrative Hearings Operating Lump Sum Appropriation Operating Lump Sum Appropriation Administrative Adjustments Historical Society ADA Survey FY94 - 95 Operating Lump Sum Appropriation Historical Society Grants Papago Park Museum House of Representatives Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Operating Lump Sum Appropriation FY00 - 01 Operating Lump Sum Appropriation FY99 - 00 Operating Lump Sum Appropriation FY98 - 99 Operating Lump Sum Appropriation FY97 - 98 Operating Lump Sum Appropriation FY96 - 97 Department of Health Services ADA Compliance Building Renewal FY96 - 97 Cholla - Sexual Predator ASH - JACHO Accreditation Phase II ASH - Granada Hall Windows ASH - Condensate Receiver ASH - Juniper/Wickenburg Windows ASH - Juniper/Wickenburg Fire Life Safety Improvements Provider Loan Repayment Program Obstetrics Malpractice Premium Environmental Assessment Phoenix 90/91 Environmental Assessment Phoenix Operating Lump Sum Appropriation Assurance and Licensure Operating Lump Sum Appropriation Tuberculosis Provider Care and Control Vaccines Sexually Transmitted Disease Control AIDS Reporting and Treatment Laboratory Services Kidney Program Direct Grants Reimbursement to Counties Loan Repayment Services Alzheimer's Disease Research Vital Records Operating Lump Sum Appropriation Children's Rehabilitative Services AHCCCS - Children's Rehabilitative Services ACTUAL EXPENDITURE AMOUNTS 15,233,000 502,711,200 0 682,188,900 209,700 0 0 58,847,000 27,095,800 539,837,100 31,789,991 682,188,900 209,700 48,955 400,000 58,847,000 21,164,073 501,894,193 31,789,991 663,259,376 209,700 48,955 400,000 58,847,000 1,190,300 13,900 0 1,069,600 13,900 1,546 1,069,600 13,800 1,546 5,000 2,238,400 80,000 2,201,100 0 13,055,800 429,734 856,239 360,375 120,282 33,238 183 0 2,018,691 80,000 2,093,609 0 2,018,691 80,000 2,093,609 11,149,300 429,734 856,239 360,375 120,282 33,238 0 10,305,454 2,912 485 0 0 0 0 986 30 11,655 77 325 4,700 8,794 517 10,747 2,900 2,369 8,849 11,163,400 6,579,500 5,630,400 1,082,000 2,821,900 52,500 125,000 3,140,100 101,000 460,300 135,900 100,000 910,000 94,461 3,168,500 3,587,000 11,310,800 0 30 11,655 0 0 4,700 0 0 0 0 0 8,849 11,771,400 6,547,900 5,953,800 1,082,000 2,504,700 26,300 125,000 2,963,900 50,500 460,300 67,900 100,000 0 94,461 3,455,500 3,587,000 11,310,800 0 0 0 0 0 0 0 0 0 0 0 0 11,598,977 6,089,835 5,725,217 818,313 2,127,345 26,203 113,330 2,857,373 50,500 460,300 67,900 83,962 0 (37,090) 3,376,336 3,587,000 11,310,800 The Notes to Required Supplementary Information are an integral part of this schedule. - 124 - FINAL BUDGET (Appropriations) (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2003 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Adult Cystic Fibrosis Adult Sickle Cell Anemia High Risk Perinatal Services Nutrition Services County Prenatal Services Grant Health Start Program FY00 - 01 Health Start Program FY99 - 00 Operating Lump Sum Appropriation Children's Behavioral Health Services Children's Behavioral Health State Match for Title XIX Seriously Emotionally Handicapped Children Seriously Mentally Ill State Match for Title XIX Seriously Mentally Ill Non-Title XIX Court Monitoring Psychiatric Review Board Arnold v. Sarn Mental Health Non-Title XIX Substance Abuse Non-Title XIX Mental Health and Substance Abuse State Match Suicide Prevention Program FY02 - 03 Suicide Prevention Program FY01 - 02 Proposition 204 State Match Operating Lump Sum Appropriation Sexually Violent Persons FY02 - 03 Male Restoration to Competency Program Self - Care Unit Community Placement Treatment Administrative Adjustments TANF Perinatal Services FY99 - 00 Operating Lump Sum Community Placement Treatment Building Renewal - Tucson FY02 - 03 Building Renewal - Tucson FY01 - 02 Building Renewal - Tucson FY00 - 01 Building Renewal - Tucson FY99 - 00 Building Renewal - Tucson FY98 - 99 General Fund Transfer 1st Special Session Chapter 1 Arizona State Hospital Accreditation General Fund Transfer 1st Special Session Chapter 1 Building Renewal FY91 - 92 ASH - Juniper/Wickenburg Windows ASH - Repair Cooling Towers #1-2 General Fund Transfer 1st Special Session Chapter 1 Children's Behavioral Health Services - Tobacco Settlement Account Indirect Cost Fund FY02 - 03 General Fund Transfer 1st Special Session Chapter 1 Relief Bill Administrative Adjustments Assurance and Licensure General Fund Transfer 1st Special Session Chapter 1 Administrative Adjustments General Fund Transfer 1st Special Session Chapter 1 210,400 65,900 3,180,600 367,000 1,208,500 51,976 14,058 7,094,200 9,351,800 40,344,600 138,400 34,041,500 51,326,700 197,500 86,400 19,500,000 947,300 12,135,400 12,532,300 120,000 140,000 0 36,179,200 9,809,900 65,549 110,187 5,574,100 0 47,257 5,475,000 1,130,700 78,900 75,256 6,110 42,762 2,221 0 3,140 0 3,548 29,950 27,000 0 11,457,912 6,590,800 0 341 0 401,300 0 0 0 The Notes to Required Supplementary Information are an integral part of this schedule. - 125 - FINAL BUDGET (Appropriations) 105,200 33,000 2,862,500 330,300 1,148,500 51,976 14,058 4,096,000 9,351,800 43,003,000 500,000 37,903,100 51,326,700 177,800 86,400 19,500,000 947,300 12,135,400 14,531,900 0 140,000 2,648,400 36,036,600 9,709,900 65,150 102,263 5,574,100 4,378,343 47,257 5,475,000 1,130,700 78,900 75,256 6,110 42,762 2,221 792,400 3,140 98,800 3,548 29,950 3,949 500,000 11,457,912 6,590,800 821,900 341 510,583 401,300 2,025,400 44,706 200,000 ACTUAL EXPENDITURE AMOUNTS 105,199 33,000 2,350,591 218,522 1,147,904 51,972 14,058 3,958,220 9,286,069 43,003,000 330,940 37,903,100 51,234,176 177,800 78,332 19,500,000 947,299 12,135,398 14,531,900 0 0 2,648,400 35,730,566 9,321,434 47,200 102,263 5,574,100 4,378,343 548 5,475,000 1,130,699 0 282 0 5,594 0 768,146 0 98,800 0 0 2,350 500,000 5,729,184 4,585,309 821,900 341 510,583 366,354 2,025,400 44,706 200,000 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2003 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Commission on the Arts Operating Lump Sum Appropriation Community Service Projects FY02 - 03 General Fund Transfer 1st Special Session Chapter 1 Indian Affairs Commission Operating Lump Sum Appropriation Indian Town Hall FY96 - 97 Administrative Adjustments Occupational Safety and Health Review Board Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Operating Lump Sum Appropriation FY00 - 01 Operating Lump Sum Appropriation FY99 - 00 Operating Lump Sum Appropriation FY98 - 99 Operating Lump Sum Appropriation FY97 - 98 Personal Services FY91 - 92 Employee Related Expenditures FY01 - 02 Insurance Department Operating Lump Sum Appropriation Managed Care Oversight FY02 - 03 Managed Care Oversight FY00 - 01 Managed Care: Health Care Appeals Captive Insurer Administrative Adjustments Arizona Criminal Justice Commission Operating Lump Sum Appropriation Obscenity Crimes Prosecution Rural State Aid to County Attorneys Rural State Aid to Indigent Defense Administrative Adjustments Joint Legislative Budget Committee Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Department of Library, Archives and Public Records Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Operating Lump Sum Appropriation FY00 - 01 Grants-In-Aid FY02 - 03 Grants-In-Aid FY01 - 02 Statewide Radio Reading Service for the Blind Museum Furnishings FY90 - 91 Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Operating Lump Sum Appropriation FY00 - 01 Operating Lump Sum Appropriation FY99 - 00 Legislative Council School Maintenance and Operations Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Operating Lump Sum Appropriation FY00 - 01 Operating Lump Sum Appropriation FY99 - 00 Juvenile Study Ombudsman FY94 - 95 Ombudsman FY93 - 94 The Notes to Required Supplementary Information are an integral part of this schedule. - 126 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 530,600 1,775,000 0 530,600 1,542,700 1,000,000 530,600 1,542,700 1,000,000 224,600 100 0 200,300 0 974 200,135 0 974 4,800 6,947 1,000 1,000 9,000 99 53 75 4,800 6,947 1,000 1,000 9,000 99 53 75 0 0 0 0 637 99 0 0 5,472,400 622,000 161,946 9,592 49,905 0 5,472,400 622,000 0 0 49,905 1,685 5,223,450 495,954 0 0 49,905 1,685 1,416,600 21,959 157,700 149,800 0 1,244,200 0 157,700 149,800 160,047 1,086,641 0 157,700 149,800 160,047 2,464,100 1,151,652 1,956,100 1,151,652 723,953 1,151,652 7,468,200 83,476 105,604 651,400 128,657 97,000 2,372 310,300 98,404 189,093 416,320 6,057,300 83,476 105,604 651,400 128,657 97,000 2,372 310,300 98,404 189,093 416,320 6,054,297 83,476 105,604 572,000 31,000 97,000 2,372 310,300 9,258 0 0 0 4,837,100 144,896 463,715 890,320 19,520 95,169 43,000 250,000 3,841,700 144,896 463,715 890,320 19,520 95,169 43,000 35,779 3,707,061 144,896 220,688 0 0 0 0 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2003 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Ombudsman Citizens Aid Office FY02 - 03 Ombudsman Citizens Aid Office FY01 - 02 Land Department Operating Lump Sum Appropriation Environmental Programs to Counties FY02 - 03 Environmental Programs to Counties FY01 - 02 Fire Suppression Administrative Adjustments Liquor Licensing Department Operating Lump Sum Appropriation Administrative Adjustments Law Enforcement Merit System Council Operating Lump Sum Appropriation Department of Emergency and Military Affairs Marana Tactical Equipment Park FY90 - 91 STARC Armory Addition FY91 - 92 Safford Armory Building Renewal FY94 - 95 Mesa Armory Re-roofing Flagstaff Furnace Replacement Silverlake Armory Fire Alarm Installation Project Challenge Construction FY01 - 02 Project Challenge Construction FY00 - 01 Fire Alarm Systems - 8 Armories Operating Lump Sum Appropriation Civil Air Patrol Nuclear Emergency Management Fund Nuclear Emergency Management Fund Maricopa 977-DR Buy-Out of Flooded Residences Tropical Winter Storm EUZHAZ - Hazard Material Contingency FY01 - 02 EUZHAZ - Hazard Material Contingency FY99 - 00 Cochise County Monsoon FY01 - 02 Cochise County Monsoon FY00 - 01 EUZ701 Search and Rescue Aspen Fire Emergency Forest Heath Emergency-Pine Bark Beetle Navajo, Gila & Coconino Cts Rodeo Fire Potable Water Emergency EUZ701 Search and Rescue September Terrorism Incident Emergency Navajo, Gila & Coconino Cts Rodeo Fire Yavapai Indian Fire Emergency La Paz/Maricopa Counties Storm Emergency EUZ701 Search and Rescue La Paz/Maricopa Counties Storm Emergency Santa Cruz County Monsoon FY00 - 01 Operating Lump Sum Appropriation Operating Lump Sum Appropriation - DEMA Service Contracts FY02 - 03 Service Contracts FY01 - 02 Project Challenge Program FY02 - 03 Project Challenge Program FY98 - 99 Project Challenge Program FY97 - 98 Administrative Adjustments STARC HVAC Replacement ACTUAL EXPENDITURE AMOUNTS 356,000 29,538 356,000 29,538 321,901 29,538 14,090,400 125,000 125,000 1,000,000 0 13,698,200 0 125,000 0 55,895 13,651,084 0 125,000 0 55,895 2,480,200 0 2,207,900 19,947 2,197,542 19,947 56,600 56,400 55,861 18,753 16 10,978 1,325 1,151 983 180,034 6,526 13,319 799,700 55,700 0 0 5 534,163 24,672 17,235 376,459 14,060 0 0 0 0 0 5,979 434,840 72,060 175,743 127,440 7 175,784 105,772 2,763,900 1,315,100 852,300 120,746 1,350,000 1,509 4,130 0 1,391 0 0 0 1,325 0 983 180,034 6,526 13,319 799,700 55,700 287,698 201,313 0 6,741 24,672 17,235 257,251 14,060 200,000 75,000 1,978,851 1,703,305 42,845 5,979 434,840 72,060 126,625 127,440 7 175,784 15,974 2,763,900 1,315,100 852,300 120,746 1,350,000 0 0 207,116 0 The Notes to Required Supplementary Information are an integral part of this schedule. - 127 - FINAL BUDGET (Appropriations) 0 0 0 0 0 983 (27,622) 0 13,319 799,699 55,700 287,698 201,313 0 6,741 9,401 17,235 257,251 14,060 189,667 11,852 1,023 1,305,990 42,845 5,979 293,234 70,848 126,625 (45,674) 7 42,391 15,974 2,703,919 1,310,210 847,416 120,746 1,345,927 0 0 207,116 0 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2003 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Nogales and 52nd Street Building Renewal Roosevelt Building Renewal Safford and Sunnyslope Building Renewal Prescott and Bellemont Armories Off-Site Nuclear Emergency 89-90 Mine Inspector Operating Lump Sum Appropriation Mined Land Reclamation Administrative Adjustments Department of Building and Fire Safety Operating Lump Sum Appropriation Administrative Adjustments Mines and Mineral Resources Operating Lump Sum Appropriation Administrative Adjustments Medical Student Loans Board Medical Student Loans Medical Student Loans Northern Arizona University Main Campus - Operating Lump Sum Appropriation NAU - Yuma Campus Temporary Assistance for Needy Families Administrative Adjustments Navigable Streams Adjudication Commission Operating Lump Sum Appropriation Administrative Adjustments Personnel Board Operating Lump Sum Appropriation Administrative Adjustments Commission for Postsecondary Education Leveraging Educational Assistance Partnership Private Postsecondary Education Student Financial Assistance General Fund Transfer 1st Special Session Chapter 1 Prescott Historical Society Operating Lump Sum Appropriation Administrative Adjustments Building Renewal - Sharlot Hall Re-roofing Pioneer's Home Building Renewal FY94 - 95 Prescription Drugs Food Board of Executive Clemency Operating Lump Sum Appropriation Administrative Adjustments Parks Board Spur Cross Ranch Acquisition FY01 - 02 Spur Cross Ranch Acquisition FY00 - 01 Operating Lump Sum Appropriation Growing Smarter - Land Conservation Fund Administration Administrative Adjustments Building Renewal - Yuma Prison Museum Roof Operating Lump Sum Appropriation Parks Development and Operations Kartchner Caverns State Park ACTUAL EXPENDITURE AMOUNTS 50,000 58,196 141 0 1,708 50,000 74,550 141 140,000 1,708 37,967 67,192 0 9,411 0 1,164,500 516 0 1,033,600 516 8,048 1,027,325 0 8,048 3,533,900 0 3,128,800 31,674 3,046,128 31,674 719,600 0 647,600 420 638,966 420 283,400 13,200 283,400 13,200 283,400 13,200 114,848,000 2,341,300 433,456 0 108,639,000 2,341,300 433,456 20,536 108,639,000 2,341,300 216,761 20,536 176,600 0 157,700 20,492 155,515 20,492 371,300 0 334,000 625 281,642 625 1,220,800 325,100 0 1,220,800 170,500 1,300 1,220,800 170,500 1,300 744,300 0 0 669,900 9,150 8,000 669,900 9,150 0 3,538 226,590 58,710 0 226,590 58,710 0 226,590 58,710 915,700 0 915,700 857 898,209 857 500 74,500 6,828,000 0 0 0 30,000 3,120,100 3,127,800 2,101,300 500 74,500 0 20,000,000 37,500 24,385 30,000 0 3,525,900 2,101,300 0 0 0 20,000,000 37,500 24,385 30,000 0 3,178,428 1,641,411 The Notes to Required Supplementary Information are an integral part of this schedule. - 128 - FINAL BUDGET (Appropriations) (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2003 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) State Parks Operating Hours General Fund Transfer 1st Special Session Chapter 1 Acquisition and Development Administrative Adjustments Department of Public Safety Building Renewal - Project 91-1018 Building Renewal - Project 91-9220 Operating Lump Sum Appropriation G.I.T.E.M. Board of Fingerprinting Sex Offender Web Site Sex Offenders Notification Employees Administrative Adjustments Building Renewal - Project 91-2057 Building Renewal - Project 91-2058 Building Renewal - Project 91-2060 Building Renewal - Project 91-2061 Building Renewal - Project 91-2074 Building Renewal - Project 91-3010 Building Renewal - Project 91-3011 Building Renewal - Project 91-3012 Building Renewal - Project 91-3013 Board of Fingerprinting Racing Department Operating Lump Sum Appropriation Administrative Adjustments Independent Redistricting Commission Operating Lump Sum Appropriation Real Estate Department Operating Lump Sum Appropriation Administrative Adjustments Ranger's Pension Operating Lump Sum Appropriation Retirement System James J. Burke V. ASRS, Attorney Fees and Costs FY01 - 02 Department of Revenue Operating Lump Sum Appropriation Property Class Consolidation Alternative Fuel Administrative Adjustments Operating Lump Sum Appropriation Administrative Adjustments Ladewig v. State of Arizona Operating Lump Sum Appropriation Ladewig v. State of Arizona - Administrative Costs Schools for the Deaf and the Blind ADTEC Remodel FY91 - 92 Telecommunication Cabling FY91 - 92 Temporary Facilities FY91 - 92 Security Fencing Building Renewal FY94 - 95 Master Plan FY95 - 96 Operating Lump Sum Appropriation Operating Lump Sum Appropriation - Tucson ACTUAL EXPENDITURE AMOUNTS 0 0 1,046,598 0 450,000 2,018,300 1,046,598 45,693 450,000 2,018,300 732,447 45,693 364 0 39,233,600 5,248,700 65,000 73,044 6,288 0 7,343 0 145 5,598 225 0 0 0 0 66,300 364 4,369 27,982,800 4,244,100 65,000 43,127 0 491 7,343 0 145 0 3,100 19,637 60,045 23,268 18,020 66,300 364 4,369 27,682,800 4,212,606 65,000 43,127 0 491 7,343 0 145 0 3,100 17,656 60,040 23,268 18,020 35,887 2,686,200 0 2,404,100 25,933 2,366,546 25,933 2,414,683 2,414,683 1,857,342 3,105,000 0 3,105,000 1,723 3,061,431 1,723 12,000 12,000 12,000 3,480,819 3,480,819 0 58,710,500 5,220 462,300 0 1,511,600 0 15,497,000 390,500 13,497,000 56,904,100 (1,426) 462,300 670,958 1,511,600 20,594 15,497,000 390,500 13,497,000 55,981,517 (1,426) 384,192 670,958 1,349,555 20,594 15,497,000 371,189 8,585,599 357 1,624 282 2,563 395 5,000 1,906,800 8,506,440 0 0 0 0 0 0 1,906,800 8,506,440 0 0 0 0 0 0 1,561,487 8,092,318 The Notes to Required Supplementary Information are an integral part of this schedule. - 129 - FINAL BUDGET (Appropriations) (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2003 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Operating Lump Sum Appropriation - Administration Administrative Adjustments School Facilities Board Operating Lump Sum Appropriation Administrative Adjustments Deficiencies Correction Appropriation General Fund Transfer 1st Special Session Chapter 1 Senate Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Operating Lump Sum Appropriation FY00 - 01 Operating Lump Sum Appropriation FY99 - 00 Operating Lump Sum Appropriation FY98 - 99 Operating Lump Sum Appropriation FY97 - 98 Operating Lump Sum Appropriation FY96 - 97 Operating Lump Sum Appropriation FY95 - 96 Operating Lump Sum Appropriation FY94 - 95 Operating Lump Sum Appropriation FY93 - 94 Supreme Court Commission on Judicial Conduct Case Processing - County Reimbursement Court Assistance Judicial Performance Review Elder Law Representation State Aid to the Courts Fund Administrative Supervision Case Processing - State Aid Justices and Support Administrative Adjustments Operating Lump Sum Appropriation Model Court Judges Compensation Juvenile Treatment Services Progressively Increasing Consequences Juvenile Intensive Probation Juvenile Probation State Aid Adult Intensive Probation Adult Probation Enhancement Interstate Compact Adult Probation Family Counseling Community Punishment Child Support Enforcement 4th Floor Chiller HVAC Ductwork Replacement FY02 - 03 HVAC Ductwork Replacement FY01 - 02 HVAC Storage Tank Replace Security Cameras - Courts Building Case Processing - Automation Regulatory Activities General Fund Transfer 1st Special Session Chapter 1 Court Assistance Case Processing - Automation ACTUAL EXPENDITURE AMOUNTS 5,709,060 0 5,709,060 847,400 5,519,193 847,400 1,672,300 0 15,000,000 0 1,571,400 6,325 15,000,000 123,000,000 1,543,669 6,325 0 123,000,000 7,071,500 10,766 17,267 810,835 525,743 422,916 422,031 420,125 484,773 8,671 6,105,000 10,766 17,267 810,835 525,743 422,916 422,031 420,125 484,773 8,671 5,954,302 10,766 17,267 0 0 23,932 422,031 420,125 484,773 8,671 346,000 330,000 226,600 345,500 795 418,500 7,721,100 84,700 3,506,600 0 2,171,000 514,300 12,647,600 23,307,800 9,268,100 13,233,100 7,456,089 20,194,900 24,345,611 1,346,600 660,400 3,448,200 980,100 8,124 0 16,553 23,560 3,034 4,601,400 615,400 0 2,751,200 9,882,600 346,000 246,000 226,600 345,500 0 418,500 7,615,600 25,000 3,388,700 570,501 2,102,400 465,100 12,647,600 23,307,800 9,268,100 12,641,100 6,956,089 18,764,666 23,651,045 1,318,000 660,400 1,725,300 662,600 8,124 50,000 24,053 23,560 0 4,601,400 615,400 400,000 2,751,200 9,882,600 345,167 237,654 219,127 326,782 0 418,500 7,398,588 12,000 2,952,804 570,501 2,094,091 465,100 12,633,820 23,301,414 9,268,100 12,494,186 6,883,684 18,538,884 23,564,223 1,315,357 606,295 1,708,528 636,647 0 49,611 3,808 13,301 0 3,748,820 380,014 400,000 2,162,366 6,516,335 The Notes to Required Supplementary Information are an integral part of this schedule. - 130 - FINAL BUDGET (Appropriations) (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2003 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Secretary of State Operating Lump Sum Appropriation Elections Administrative Adjustments Technical Registration Board Greenfields Pilot Program Appropriation Office of Tourism Transfer to Tourism Fund Operating Lump Sum - Tourism Fund International & Domestic Marketing Maricopa County Tourism Promotion Media Advertising Media Communications Research and Data Repository Travel Counseling and Direct Marketing Administrative Adjustments State Treasurer Operating Lump Sum Appropriation Justice of the Peace Salaries Community College Reimbursements Corporate Income Tax Transfer to WQARF Property Tax Refund Administrative Adjustments Tax Appeals Board Operating Lump Sum Appropriation Administrative Adjustments University of Arizona Operating Lump Sum Appropriation Agriculture Sierra Vista Campus Operating Lump Sum Appropriation Clinical Teaching Support Telemedicine Clinical Rural Rotation Liver Research Institute Uniform State Law Commission Operating Lump Sum Appropriation Veterans' Services Department Operating Lump Sum Appropriation Veterans' Organizations Contracts Nursing Home Project Nursing Home Project Nursing Home Project Southern Arizona Veterans' Cemetery Veterans' Conservatorship Veterans' Services Administrative Adjustments Southern Arizona Cemetery ASVJ - Air Conditioning Unit Repair Water Resources Department Cochise-Wilcox County Flood Control Operating Lump Sum Appropriation Rural Water Studies FY02 - 03 Rural Water Studies FY00 - 01 Riparian Bill ACTUAL EXPENDITURE AMOUNTS 2,134,100 3,717,700 0 1,977,450 3,561,050 58,997 1,926,832 3,462,883 58,997 37 0 0 10,018,400 1,946,400 922,700 2,000,000 5,597,900 402,000 35,700 1,113,700 0 9,001,100 1,809,500 850,000 2,000,000 4,949,100 402,000 35,700 954,800 229,851 9,001,100 1,809,307 848,724 2,000,000 4,949,077 401,933 32,641 954,617 229,851 2,281,300 2,775,500 0 0 120,095 0 2,253,700 2,775,500 2,788,320 10,000,000 120,095 450,983 2,248,736 2,426,048 2,788,320 10,000,000 120,095 450,983 298,500 0 268,500 84 240,337 84 235,826,500 40,504,700 2,326,100 44,130,800 9,434,500 1,212,100 478,500 506,800 222,376,900 39,090,600 2,220,400 41,312,184 9,434,500 1,167,203 458,313 486,200 222,376,900 39,090,600 2,220,400 41,312,184 9,434,500 1,167,203 458,313 486,200 38,800 36,603 36,603 881,694 29,200 3,605 18,934 13,284 104,900 433,640 883,266 0 214,200 0 881,694 29,200 3,605 18,934 13,284 104,900 433,640 883,266 13,666 214,200 17,625 879,408 29,200 0 0 0 103,398 433,640 882,877 13,666 43,601 17,625 400,000 14,652,400 0 113,414 191 0 13,418,000 500,000 108,414 0 0 13,116,861 475,321 108,414 0 The Notes to Required Supplementary Information are an integral part of this schedule. - 131 - FINAL BUDGET (Appropriations) (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2003 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Hydrology Study Administrative Adjustments Weights and Measures Department Operating Lump Sum Appropriation Administrative Adjustments Total General Fund Budgetary Expenditures before Adjustment Less: Economic Security Long-Term Care System Fund Appropriations that were duplicate expenditure authorizations Total General Fund Budgetary Expenditures after Adjustment FINAL BUDGET (Appropriations) 8 0 0 72,727 0 72,727 1,482,700 0 1,314,100 6,644 1,292,090 6,644 10,008,644,620 10,253,681,027 9,486,919,711 (430,721,600) $ 9,577,923,020 The Notes to Required Supplementary Information are an integral part of this schedule. - 132 - ACTUAL EXPENDITURE AMOUNTS (439,912,500) $ 9,813,768,527 0 $ 9,486,919,711 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES TRANSPORTATION AND AVIATION PLANNING, HIGHWAY MAINTENANCE AND SAFETY FUND FOR THE YEAR ENDED JUNE 30, 2003 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS TRANSPORTATION AND AVIATION PLANNING, HIGHWAY MAINTENANCE AND SAFETY FUND Department of Transportation Aeronautics Division - Operating Lump Sum Appropriation Airport Planning and Development FY02 - 03 Airport Planning and Development FY01 - 02 Building Renewal FY00 - 01 General Fund Transfer 1st Special Session Chapter 1 Law Suit Settlement Administrative Adjustments Operating Lump Sum Appropriation Administration - Operating Lump Sum Appropriation Highways - Operating Lump Sum Appropriation Highway Maintenance Lump Sum Appropriation FY02 - 03 Highway Maintenance Lump Sum Appropriation FY01 - 02 Motor Vehicle Division Lump Sum Appropriation FY02 - 03 Highway Construction FY02 - 03 Highway Construction FY01 - 02 Transfer to Department of Public Safety Building Renewal FY02 - 03 Building Renewal FY01 - 02 Building Renewal FY00 - 01 North Phoenix Maintenance Yard Cottonwood Motor Vehicle Division Service Center FY00 - 01 Cottonwood Motor Vehicle Division Service Center FY99 - 00 Glendale Motor Vehicle Division Service Center FY00 - 01 Glendale Motor Vehicle Division Service Center FY99 - 00 De-Icer Buildings FY02 - 03 De-Icer Buildings FY00 - 01 Douglas Motor Vehicle Division Service Center Payson Motor Vehicle Division Service Center FY01 - 02 Payson Motor Vehicle Division Service Center FY00 - 01 Fire System Upgrades Liquid De-Icer Storage Tanks Motor Vehicle Division Central Arizona Port New Trailers Plate To Owner Methane Extraction Unit Special Projects Douglas Maintenance Yard Admin Adjustment FY90 - 91 Holbrook Maintenance Yard Sewer System Motor Vehicle Division Electronic Certificate Of Title Sys FY02 - 03 Motor Vehicle Division Electronic Certificate Of Title Sys FY01 - 02 Motor Vehicle Division Fuel Dispenser Labels Motor Vehicle Division One-Time Trailer Fees Implementation Motor Vehicle Division Security Enhancement Issues FY02 - 03 Motor Vehicle Division Security Enhancement Issues FY01 - 02 West Phoenix Motor Vehicle Division Service Center Asbestos & Lead Inspections FY02 - 03 Asbestos & Lead Inspections FY01 - 02 East Valley Maintenance Yard Judicial Fee Programming Trailer Registration Vehicle Registration Enforcement $ The Notes to Required Supplementary Information are an integral part of this schedule. - 133 - 1,898,000 10,064,000 3,409,102 20,520 0 0 0 51,100 51,966,400 45,643,900 97,436,300 3,521,869 78,330,900 0 52,791,014 28,266,600 1,634,000 912,959 380,523 149,920 66,515 4,192 358,472 18,460 200,000 189,074 735,235 856,000 44,138 46,187 1,481 816 75,070 63,115 30,868 2,000 238,299 0 260,112 0 44,285 2,750,400 2,174,462 1,283,027 600,000 700,000 0 0 200,000 648,100 $ 1,898,000 10,064,000 3,409,102 20,520 4,500,000 1,500,000 1,342 51,100 50,806,100 44,521,200 93,153,900 3,521,314 75,686,300 298,728,000 52,791,014 28,266,600 1,634,000 912,959 380,523 149,920 66,515 4,192 358,472 18,460 200,000 189,074 735,235 856,000 44,138 46,187 1,481 816 74,987 63,115 30,868 2,000 238,299 60,000 260,112 5,000 44,285 2,687,700 2,174,462 1,283,027 600,000 700,000 1,184,000 250,000 72,700 48,100 $ 1,789,244 9,771,913 3,409,102 0 4,500,000 1,492,584 1,342 51,100 50,754,625 44,370,846 90,571,791 3,520,310 75,217,010 249,622,790 52,791,014 28,266,600 257,567 831,680 353,060 82,739 65,325 2,629 356,213 18,460 4,072 185,719 731,922 0 0 0 45 0 74,987 (2,321) 0 0 170,400 46,512 255,259 4,997 562 5,245 1,186,772 931,939 1,960 94,633 47 150,000 42,372 30,894 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES TRANSPORTATION AND AVIATION PLANNING, HIGHWAY MAINTENANCE AND SAFETY FUND FOR THE YEAR ENDED JUNE 30, 2003 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Administrative Adjustments Highway Maintenance Lump Sum Appropriation Motor Vehicle Division Lump Sum Appropriation Motor Vehicle Division Nogales Port Facility FY00 - 01 Motor Vehicle Division Nogales Port Facility FY99 - 00 Modular Trailer Operating Expenses Nogales Port of Entry Arizona - Mexico Border Points FY97 - 98 Safety Enforcement and Infrastructure Fund Transfer to DPS City Of Douglas Secure Parking Facility City Of Nogales Hazardous Materials Response Greater Yuma Port Authority Master Plan Naco Highway By-Pass Asphalt Overlay Southern Border Ports Administrative Office Annex Administrative Adjustments Motor Vehicle Division Lump Sum Appropriation Motor Vehicle Division Lump Sum Appropriation Administrative Adjustments Department of Public Safety Shift from HURF HURF Transfer to DPS for Personnel and Operating HURF Transfer to DPS for Overtime HURF Transfer to DPS for Highway Patrol Vehicles Vehicle Registration Enforcement Motor Vehicle Division Lump Sum Appropriation FY00 - 01 Governor's Office of Highway Safety Voluntary Motorcycle Education Awareness FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 0 525,700 1,810,300 992,297 1,399,728 22,535 17,632 569 1,128,700 0 0 0 0 0 0 1,044,400 1,030,200 0 28,974,600 0 0 0 648,200 699,822 1,420,150 525,700 1,810,300 992,297 1,399,728 22,535 17,632 569 1,128,700 78,000 475,000 300,000 227,000 50,000 542 1,044,400 1,030,200 3,472 38,974,600 7,598,000 1,700,200 6,255,400 648,200 699,822 1,420,150 525,700 1,419,657 968,027 473,875 3,653 17,630 0 1,128,700 78,000 475,000 300,000 227,000 0 542 1,008,097 1,010,995 3,472 38,974,600 7,486,000 1,700,200 6,255,400 648,200 273,205 0 80,000 10,127 Total Transportation and Aviation Planning, Highway Maintenance and Safety Fund Budgetary Expenditures $ The Notes to Required Supplementary Information are an integral part of this schedule. - 134 - 426,362,098 $ 750,777,566 $ 686,422,190 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION – BUDGETARY COMPARISON SCHEDULES JUNE 30, 2003 A. RECONCILIATION OF BUDGETARY TO GAAP EXPENDITURES The accompanying Budgetary Comparison Schedules for the General Fund and the Transportation and Aviation Planning, Highway Maintenance and Safety Fund present comparisons of the legally adopted budget with actual expenditure data on the budgetary basis. The original budget represents any appropriation bills passed by June 30, 2002 that affect available appropriations during fiscal year 2003. The final budget represents any appropriation bills passed during fiscal year 2003 for fiscal year 2003 plus the original budget. Appropriation bills passed after the end of fiscal year 2003 for fiscal year 2003 would also be included in the final budget. The Budgetary Comparison Schedules present actual amounts on the State’s budgetary basis for expenditures only. The Schedules include appropriations authorized in one fund and transferred, by legislation, to another fund. The State does not have a legally adopted budget for revenues; therefore, only expenditures are presented on the Budgetary Comparison Schedule, Expenditures for the General Fund and the Transportation and Aviation Planning, Highway Maintenance and Safety Fund. As the budgetary and GAAP presentations of actual data differ, a reconciliation of the two follows (amounts expressed in thousands): Transportation & Aviation Planning, Highway Maintenance & Safety Fund General Fund Uses/outflows of resources Actual expenditure amounts (budgetary basis) "total charges to appropriations" from the budgetary comparison schedule $ 9,486,920 $ 686,422 Differences - budget to GAAP: Increase in unpaid incurred expenditures from fiscal year end 2002 to fiscal year end 2003. 30,176 235,187 Increase in unpaid payroll expenditures from fiscal year end 2002 to fiscal year end 2003. For budgetary reporting, final June 2003 payroll expenditures were charged to fiscal year 2004 budget. 4,979 - By legislative action, the distributions to school districts for the June 15, 2003, Basic State Aid payment were deferred until July 1, 2003 (fiscal year 2004). The deferred payment is recorded as a modified accrual expenditure and liability in fiscal year 2003. 191,000 - Distributions to counties and cities of sales taxes are recognized as expenditures on the modified accrual basis, but have no effect on budgetary expenditures. 703,700 - Distribution to counties and cities for Urban Revenue Sharing, derived from the State's income tax collections, is recognized as an expenditure on the modified accrual basis, but has no effect on budgetary expenditures. 430,559 - Capital leases and installment purchase contracts initiated during the fiscal year, which are not reported in budgetary expenditures. 99,405 - Programs which are not controlled by legislative appropriations but have disbursed cash or incurred obligations during fiscal year 2003. 2,881,297 1,607,074 Transfers to other funds are outflows of budgetary resources but are not expenditures for financial reporting purposes. Total expenditures, as reported on the Statement of Revenues, Expenditures and Changes in Fund Balances (511,110) (796,436) $ 13,031,600 $ There were no expenditures in excess of appropriations or allotments in the individual budget accounts for the year. - 135 - 2,017,573 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION – BUDGETARY COMPARISON SCHEDULES JUNE 30, 2003 B. BUDGETARY BASIS OF ACCOUNTING Formulation of the budget begins with the preparation of estimates of expenditure requirements by the head of each budgeted agency and institution. These estimates are submitted no later than September 1 of each year to the Governor’s Office of Strategic Planning and Budgeting. The budget is prepared by line item and/or program elements for each agency. The budget document, as finally developed by the Governor, must be submitted to the Legislature no later than five days after the regular session convenes. The Legislature must approve the budget by passing a general and a capital outlay appropriation bill. The Governor may veto any item in an appropriation bill. Such vetoes are subject to legislative overrides. The budget can be amended throughout the year by special legislative appropriations and/or budget transfers. The State’s Constitution prohibits budgeted expenditures from exceeding 7.41 percent of aggregate personal income as estimated by the Economic Estimates Commission. The State prepares its operating budget on the cash basis of accounting. Encumbrances as of June 30 can be liquidated during a three-week administrative period known as the 13th month. At the time of the appropriation bill’s passage, estimates prepared by legislative and executive branch professional staff assure the State Legislature that adequate revenues will be available to meet the level of appropriations approved. Anticipated revenue is estimated on the cash basis but is not part of the legally adopted budget. Consequently, the accompanying Budgetary Comparison Schedules only present budget to actual expenditure comparisons. The Budgetary Comparison Schedules present all appropriation line items as passed by the State Legislature in order to demonstrate compliance with the legal level of budgetary control. The State budgets on both an annual and biennial basis. Laws 2001, Chapter 236 appropriated biennial budgets for all state agencies. In biennial budgets, an agency receives a separate appropriation for each of two fiscal years. For “small” regulatory agencies, comprised of five to ten people, whose budgets were merely amended for technical adjustments in Laws 2002, Chapter 327, the first year (FY 2002) appropriations do not lapse until the end of the second year (FY 2003). Except where specifically noted by the appropriation bills, the appropriations for all other agencies lapse at the end of each fiscal year. For the “large” fifteen state agencies, Laws 2002, Chapter 210 returned their budgets to a “one” year cycle beginning with the 2003 Legislative Session (fiscal year 2004 budget request). In prior years the “large” agencies have accounted for approximately ninety percent or more of the appropriations for the General Fund. The budget format used by the State Legislature determines how an agency’s appropriation appears in the General Appropriations Act. A less detailed format provides an agency with more discretion in implementing the budget. Conversely, a more detailed format may require an agency to use formal processes for redirecting appropriated funding. Among the possible format choices are the following: Lump Sum – The appropriation of an agency for each fiscal year consists of a single dollar amount, thereby allowing the agency to shift funds among line items, programs and subprograms without further Legislative or Executive Branch review. Within this format, any programs or Special Line Items may be listed separately. Modified Lump Sum – The appropriation of an agency for each fiscal year consists of at least three lines: Personal Services, Employee Related Expenditures and All Other Operating Expenditures. Any Special Line Items would be listed separately. Under this format, pursuant to ARS §35-173, an agency must seek approval of the Joint Legislative Budget Committee before moving any funding into or out of the Personal Services and Employee Related Expenditures line items. Any other funding transfers would require approval by the Department of Administration (ADOA), but not the Joint Legislative Budget Committee. Detailed Line Item – The agency appropriation for each fiscal year consists of each line item listed in the Appropriation Report including Professional and Outside Services, Travel, Other Operating Expenditures, Equipment, Food and any Special Line Items. The same rules govern Personal Services and Employee Related Expenditures funding transfers as noted in the Modified Lump Sum description. This appropriation format requires an agency to seek ADOA approval before initiating funding transfers between all line items. - 136 - STATE OF ARIZONA REQUIRED SEPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION – BUDGETARY COMPARISON SCHEDULES JUNE 30, 2003 During the fiscal year, $579.452 million in supplemental appropriations net of increases and reversions were provided to enhance various programs. The General Fund and the Transportation and Aviation Planning, Highway Maintenance and Safety Fund received $245.036 and $324.416 million, respectively, and those amounts are included in the Budgetary Comparison Schedules. State agencies are responsible for exercising budgetary control and ensuring that expenditures do not exceed appropriations. The State Department of Administration – Financial Services Division exercises oversight and does not disburse funds in excess of appropriations. The governor shall have in continuous process of preparation and revision a tentative budget report for the next two ensuing years for which a budget report is required to be prepared. Whenever the expenses of any fiscal year shall exceed the income, the Legislature may provide for levying a tax for the ensuing fiscal year sufficient, with other sources of income, to pay the deficiency, as well as the estimated expenses of the ensuing fiscal year. All expenditure of the State’s money must be authorized by law. Authorization can be granted directly by law or contingent upon appropriation from the State Legislature. Periodically, the State Legislature may appropriate monies for program expenditures already authorized by law, resulting in duplicate spending authority. In appropriating monies, the State Legislature has, in some cases, included external funding sources as a portion of an agency’s total program expenditure authorization (budget) and has identified the external funding sources as an offset against the program appropriations total in order to reflect the State funding amount. An example of this is found in the Department of Economic Security’s Long Term Care appropriation line items at the bottom of page 120. Accordingly, sometimes program expenditures may not exhaust specific legislative appropriations. To properly present the total budget (appropriation) information, in relationship to “actual” expenditure amounts, duplicate expenditure authorizations have been eliminated from general fund budget (appropriation) totals on page 132. - 137 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2003 Information About Infrastructure Assets Reported Using the Modified Approach As allowed by Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments (GASB 34), the State of Arizona reports it’s roads and bridges using the modified approach. Assets accounted for under the modified approach include approximately 6,801 centerline miles (18,129 travel lane miles) of roads and 4,463 bridges that the State is responsible to maintain. In order to utilize the modified approach, the State is required to: · Maintain an asset management system that includes an up to date inventory of eligible infrastructure assets. · Perform condition assessments of eligible assets and summarize the results using a measurement scale. · Estimate each year the annual amount to maintain and preserve the assets at the condition level established and disclosed by the State. · Document that the assets are being preserved approximately at, or above, the established condition level. As adopted by the State Transportation Board on an annual basis, the Five-Year Transportation Facilities Construction Program contains estimated expenditures for highway system improvements and the preservation of existing roadways and bridges. Both of these factors impact the condition assessment of the roads and bridges as described in the following sections. The Five-Year Transportation Facilities Construction Program, in effect for fiscal year 2003 and beyond, was adopted by the Transportation Board on June 25, 2002. The following information pertains to the condition assessment and maintenance of infrastructure assets. Roads The mission of the ADOT Pavement Management Section (PMS) is to develop and provide a cost effective pavement rehabilitation construction program that preserves the State’s investment in its highway system and enhances public transportation and safety. The requirements of GASB 34 and the ADOT PMS both work toward the same basic goal: the efficient, effective management of the State’s assets to produce long term benefits, while minimizing expenditures. The PMS has developed performance goals for the condition level of the pavement in the State’s highway system. These goals require periodic assessment of pavement conditions and the budget level needed to meet that goal. The goal is expressed as a measure called “Serviceability”, which can be defined as the ability of a pavement to serve the travelling public (as documented in 1961 after AASHTO Road Test, 1956-1961). Serviceability is based on detailed measurements of objective features of the pavement and many surveys since the original road test have shown that these measurements closely track the subjective opinion of the travelling public. Most commonly, this number is called “Present Serviceability Rating” (PSR). PSR is a five-point scale (5 excellent, 0 impassable), similar to the Weaver/AASHTO Scale shown as follows: Numerical Rating 5 4 3 2 1 0 PSR Excellent Good Fair Poor Very Poor Impassable - 138 - Weaver/AASHTO Scale Perfect Very Good Good Fair Poor Very Poor STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2003 The goal of the State is to maintain a condition level (PSR) rating of 3.23 or better for all roads in the State’s highway system. Annually, Transportation Material Technicians drive over the system with inertial profiling equipment and measure the roughness of the pavement. This process is continuous throughout the year in order to assess the condition level of all pavements on an annual basis. As of the end of fiscal year 2003, an overall rating of 3.6 was achieved, as shown in the following graph: Condition Level - Roads 5.00 PSR 4.00 3.00 Actual Level 2.00 Desired Level 1.00 0.00 2002 2003 2004 2005 2006 Fiscal Year Figure 1 Preservation of the roads is accomplished through programs managed by the ADOT PMS, as well as other units within the Department. The estimated and actual expenditures for fiscal years 2002 and 2003 were as follows: Fiscal Year 2002 2003 Estimated Expenditures (in millions) $227.4 $243.5 Actual Expenditures (in millions) $234.8 $220.8 Bridges Bridges constitute a significant portion of all infrastructure assets in Arizona. As of June 30, 2003, the State owns and maintains 4,463 bridges with an approximate total deck area of 40,841,425 square feet. Bridges, for purposes of this report, include all structures erected over an opening or depression with a centerline of 20 feet or more. Information related to these bridges is stored and updated in the Arizona Bridge Information and Storage System (ABISS). This system is used to efficiently manage the bridge inventory through storing all bridge-related data and assist bridge engineers in arriving at appropriate bridge preservation decisions. Also, ABISS is used for reporting bridge inventory and condition, on a biennial basis, to the Federal Highway Administration (FHWA). A Condition Rating Index (CRI) is used to track the condition of the bridge network. The CRI is based on four selected bridge inspection condition ratings which, in turn, are based on standards established in the FHWA’s “Recording and Coding Guide for the Structural Inventory of the Nation’s Bridges”. The four selected condition ratings that are included in the CRI computation are: the bridge joints condition, the deck condition, the superstructure condition, and the substructure condition. The bridge joints condition rating is an Arizona specific rating item not included in the FHWA condition rating guidelines, whereas the three other condition ratings are federally mandated condition ratings. The CRI is computed by subtracting, from one, the ratio of the sum of the deck - 139 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2003 areas of all bridges with a condition rating of four or less (which indicates that the rated element is at best in a poor condition) to the total sum of the deck areas. The rating system in this guide is as follows: Numerical Rating 9 8 7 6 5 4 3 2 1 Condition Rating Excellent Very Good Good Satisfactory Fair Poor Serious Critical Imminent Failure Management of the bridge inventory is a major function of ADOT’s Bridge Group, and regularly scheduled biennial inspections are made of all bridges. A civil or structural engineer, licensed to practice in Arizona, performs these inspections. It is the policy of the State to maintain State highway bridges so that the CRI exceeds 92.5%. In fiscal year 2003, the CRI was computed at 93.9%. Condition Levels - Bridges 95% CRI 94% 93% Actual Level 92% Desired Level 91% 90% 2002 2003 2004 2005 2006 Fiscal Year Figure 2 Bridges represent a major public investment and their inspection and maintenance is an essential function of the State in its mission of products and services for a safe, efficient, and cost effective transportation system. Figure 3, shown on the next page, indicates that approximately 65% of the bridges in the State were constructed prior to the 1970’s, while only 22% have been constructed in the last two decades. - 140 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2003 Age of ADOT's Bridge Population 35 % of bridges built in corresponding decade 30 25 20 15 10 5 0 < 1930 30s 40s 50s 60s 70s 80s 90s 2000s Figure 3 Preservation of the bridges is accomplished through programs managed by the Bridge Group. The estimated and actual expenditures for fiscal years 2002 and 2003 were as follows: Fiscal Year 2002 2003 Estimated Expenditures (in millions) $14.4 $13.6 - 141 - Actual Expenditures (in millions) $18.2 $15.8 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION RETIREMENT PLANS FUNDING PROGRESS JUNE 30, 2003 Analysis of the funding progress for each of the agent, multiple-employer defined benefit plans, as of the most recent actuarial valuations, is as follows (expressed in thousands): Plan PSPRS CORP Actuarial Valuation Date 6/30/03 6/30/02 6/30/01 6/30/03 6/30/02 6/30/01 Actuarial Value of Plan Assets $ 612,183 618,490 625,933 Actuarial Accrued Liability $ 594,058 534,873 464,891 Funding Excess $ 18,125 83,617 161,042 Funded Ratio 103.1% 115.6% 134.6% Annual Covered Payroll $ 71,364 69,923 70,439 632,635 613,427 608,165 552,740 495,124 434,945 79,895 118,303 173,220 114.5% 123.9% 139.8% 286,197 266,189 277,591 - 142 - Funding Excess as Percentage of Covered Payroll 25.4% 119.6% 228.6% 27.9% 44.4% 62.4% COMBINING FINANCIAL STATEMENTS AND SCHEDULES COMBINING FINANCIAL STATEMENTS AND SCHEDULES NON-MAJOR GOVERNMENTAL FUNDS Special Revenue Funds Special Revenue Funds account for the proceeds of specific revenue sources (other than major capital projects) that are legally restricted to expenditures for specified purposes. Debt Service Funds The Debt Service Funds account for the accumulation of resources for, and the payment of, general long-term debt principal, interest and related costs. Capital Projects Funds Capital Projects Funds account for financial resources used to acquire or construct major capital facilities (other than those financed by Proprietary Funds, Pension Trust Funds or Component Units). STATE OF ARIZONA COMBINING BALANCE SHEET NON-MAJOR GOVERNMENTAL FUNDS JUNE 30, 2003 (Expressed in Thousands) SPECIAL REVENUE FUNDS ASSETS Cash Cash and pooled investments with State Treasurer Receivables, net of allowances: Taxes Interest Other Due from U.S. Government Due from others Due from other Funds Inventories, at cost Restricted assets: Cash and pooled investments with State Treasurer Cash held by trustee Other Total Assets LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and other current liabilities Accrued liabilities Due to local governments Due to others Due to other Funds Unavailable deferred revenue Unearned deferred revenue Total Liabilities $ $ CAPITAL PROJECTS FUNDS - $ TOTAL - $ 1,385 654,227 36,536 395 691,158 7,832 1,051 22,801 153 9 57,607 2,607 955 - 470 - 7,832 2,476 22,801 153 9 57,607 2,607 1,951 27 17,593 179 - 173,153 33,432 - 192,697 33,611 27 $ 749,650 $ 55,263 $ 207,450 $ 1,012,363 $ 196,897 7,658 1,192 226 17,586 1,938 1,966 227,463 $ 1,716 32,515 34,231 $ 14,286 14,286 $ 211,183 9,374 1,192 226 50,101 1,938 1,966 275,980 Fund Balances: Reserved for: Highway construction Other construction School facilities improvements Continuing appropriations Debt service Other fund balance reservations Unreserved Total Fund Balances Total Liabilities and Fund Balances 1,385 DEBT SERVICE FUNDS 33,893 26,786 14,252 447,256 522,187 $ 749,650 21,032 21,032 $ 55,263 - 146 - 159,687 33,477 193,164 $ 207,450 159,687 33,477 33,893 26,786 21,032 14,252 447,256 736,383 $ 1,012,363 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2003 (Expressed in Thousands) SPECIAL DEBT SERVICE FUNDS REVENUE FUNDS REVENUES Taxes: Sales Income Property Motor vehicle and fuel Other Intergovernmental Licenses, fees and permits Earnings on investments Sales and charges for services Fines, forfeitures and penalties Other Total Revenues $ EXPENDITURES Current: General government Health and welfare Inspection and regulation Education Protection and safety Transportation Natural resources Debt service: Principal Interest and other fiscal charges Capital outlay Total Expenditures (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers in Transfers out Capital lease and installment purchase contracts Refunding bonds issued Payment to refunded bond escrow agent Bonds issued Premium on bonds issued Refunding certificates of participation issued Payment to refunded certificate of participation escrow agent Premium on certificates of participation issued Total Other Financing Sources Net Change in Fund Balances Fund Balances - Beginning, as restated Fund Balances - Ending $ 397,957 29 2,037 32,792 208,957 97,677 131,993 41,600 33,324 85,492 64,554 1,096,412 $ CAPITAL PROJECTS FUNDS 57,290 8,595 65,885 $ 3,695 3,695 TOTAL $ 455,247 29 2,037 32,792 208,957 97,677 131,993 53,890 33,324 85,492 64,554 1,165,992 93,198 334,561 90,473 1,000,995 93,246 117,377 - 8,393 - 93,198 334,561 90,473 1,000,995 93,246 8,393 117,377 871 1,012 14,986 1,746,719 288,392 130,258 418,650 2,605 251,177 262,175 289,263 133,875 266,163 2,427,544 (650,307) (352,765) (258,480) (1,261,552) 217,381 (308,269) 752 331,500 18,229 - 348,340 (33,642) 90,530 (107,735) 17,219 75,295 618 (21,863) 331,475 10,929 - 566,339 (363,774) 752 90,530 (107,735) 662,975 46,377 75,295 259,593 (390,714) 912,901 (80,713) 5,418 314,712 (38,053) 59,085 321,159 62,679 130,485 (80,713) 5,418 895,464 (366,088) 1,102,471 522,187 $ - 147 - 21,032 $ 193,164 $ 736,383 NON-MAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS The School Facilities Revenue Bond Proceeds Fund accounts for the receipt of the Education Transaction Privilege Revenue Bond proceeds. Funds are restricted to be expended to (1) pay the costs of correcting existing deficiencies in public school facilities for grades K-12, (2) pay bond related expenses, and (3) fully or partially fund any reserves or sinking fund accounts established by the bond resolution. The Public Safety and Correctional Programs Fund accounts for law enforcement, military, custody, and related services provided to the general public. The Environmental Protection Fund accounts for the protection of the State’s public health by administering the State’s environmental quality laws and delegating federal programs to prevent, control, and abate pollution of our air, water, and land resources. The Healthcare and Social Services Fund accounts for health and welfare services provided to the general public. The Tobacco Tax and Healthcare Fund accounts for the receipt of monies levied on tobacco products. The monies are used for health education programs; research, prevention and treatment of tobacco related diseases; and medically needy healthcare programs. The Children’s Health Insurance Program Fund accounts for receipt of monies from Federal grants, Tobacco Tax appropriations, donations, and other sources. Monies are used for administration and operation of the Children’s Health Insurance Program, which provides health insurance coverage to eligible children according to Federal and State requirements. The Judicial and Legal Services Fund accounts for the anti-racketeering, consumer protection, consumer fraud, anti-trust, and collections enforcement programs of the Attorney General’s Office and statewide court improvement functions supervised by the Arizona Supreme Court. The Regulating and Licensing Fund accounts for inspection and regulatory services provided to the general public. The Game and Fish Fund accounts for the receipt of monies collected by the Department of Game and Fish for various hunting and fishing licenses, for the purpose of conserving, enhancing, and restoring Arizona’s diverse wildlife resources and habitats, as well as providing safe watercraft and off-highway vehicle recreation. The State Parks Development Fund accounts for the receipt of monies collected by the State Parks Fund for the purpose of acquiring and developing State park land, sites and facilities. The Business Development Fund accounts for the promotion of statewide economic and community development, which supports a globally competitive Arizona. The Educational Programs Fund accounts for supplemental building needs and instructional improvement programs specifically identified in a voter initiative that enacted a six-tenth of one percent statewide sales tax dedicated to education functions. The Educational Programs Fund supports programs from the kindergarten through university educational levels. The Groundwater Protection and Conservation Fund accounts for statewide water protection planning; storage of Colorado River water; statewide water and groundwater conservation; county and metropolitan areas water use and dam repairs. All of these programs are the responsibility of the Department of Water Resources. The Clean Elections System Fund accounts for fines and fees collected to pay for campaign expenses of statewide candidates and state legislative candidates who choose not to accept private source campaign funds. The fund was established as a result of a voter initiative. STATE OF ARIZONA COMBINING BALANCE SHEET NON-MAJOR SPECIAL REVENUE FUNDS JUNE 30, 2003 (Expressed in Thousands) PUBLIC SCHOOL SAFETY & CORRECTIONAL ENVIRONMENTAL PROTECTION PROGRAMS FACILITIES PROCEEDS ASSETS Cash Cash and pooled investments with State Treasurer Receivables, net of allowances: Taxes Interest Other Due from U.S. Government Due from others Due from other Funds Inventories, at cost Restricted assets: Cash and pooled investments with State Treasurer Other Total Assets $ - $ 1,307 $ 13 HEALTHCARE & SOCIAL TOBACCO TAX & SERVICES HEALTHCARE $ - $ CHILDREN'S - HEALTH INSURANCE $ - 48,861 82,963 77,825 42,149 12,553 984 64 - 3,761 95 130 9 6,162 2,607 198 11,576 8,952 - 695 21 2,903 5,735 - 3,376 15 1,186 - 153 46 - - - - 1,951 - - 26 $ 48,925 $ 97,034 $ 98,564 $ 53,454 $ 17,130 $ 1,209 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and other current liabilities $ Accrued liabilities Due to local governments Due to others Due to other Funds Unavailable deferred revenue Unearned deferred revenue Total Liabilities 15,032 15,032 $ 9,324 337 16 267 11 9,955 $ 47,062 30 710 47,802 $ 1,623 4,616 1,398 1,938 1,951 11,526 $ 3,228 22 6,162 9,412 $ 1,036 198 4 1,238 Fund Balances: Reserved for: School facilities improvements Continuing appropriations Other fund balance reservations Unreserved Total Fund Balances Total Liabilities and Fund Balances 33,893 33,893 $ 48,925 6,991 81 80,007 87,079 $ 97,034 1,941 6,001 42,820 50,762 $ - 150 - 98,564 2,693 39,235 41,928 $ 53,454 7,718 7,718 $ 17,130 (29) (29) $ 1,209 JUDICIAL GROUNDWATER & LEGAL REGULATING GAME & SERVICES & LICENSING FISH $ 2 $ 28 $ STATE PARKS BUSINESS EDUCATIONAL PROTECTION & DEVELOPMENT DEVELOPMENT PROGRAMS CONSERVATION 30 $ 5 $ - $ - $ - CLEAN ELECTIONS TOTAL SYSTEM $ - $ 1,385 24,670 76,490 28,348 54,064 54,938 79,197 59,437 11,748 654,227 33 992 - 64 57 713 - 92 7 3,397 - 171 3,318 - 139 8,128 17,342 - 2 9,613 - 157 - 151 - 7,832 1,051 22,801 153 9 57,607 2,607 - - - - 1 - - - 1,951 27 $ 25,697 $ 77,352 $ 31,874 $ 57,558 $ 80,548 $ 88,812 $ 59,594 $ 11,899 $ 749,650 $ 1,183 158 384 1,725 $ 2,291 1,289 207 474 4,261 $ 1,081 751 3 176 2,011 $ 1,191 56 8 1,255 $ 460 92 8,002 4 8,558 $ 113,269 28 1,192 114,489 $ 117 70 1 188 $ 11 11 $ 196,897 7,658 1,192 226 17,586 1,938 1,966 227,463 487 23,485 23,972 $ 25,697 1,211 28 71,852 73,091 $ 77,352 3,849 30 25,984 29,863 $ 31,874 2,435 5 53,863 56,303 $ 57,558 4,015 8,107 59,868 71,990 $ 80,548 - 151 - 3,164 (28,841) (25,677) $ 88,812 59,406 59,406 $ 59,594 11,888 11,888 $ 11,899 33,893 26,786 14,252 447,256 522,187 $ 749,650 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2003 (Expressed in Thousands) PUBLIC SCHOOL FACILITIES PROCEEDS REVENUES Taxes: Sales Income Property Motor vehicle and fuel Other Intergovernmental Licenses, fees and permits Earnings on investments Sales and charges for services Fines, forfeitures and penalties Other Total Revenues $ EXPENDITURES Current: General government Health and welfare Inspection and regulation Education Protection and safety Natural resources Debt service: Principal Interest and other fiscal charges Capital outlay Total Expenditures Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers in Transfers out Capital lease and installment purchase contracts Bonds issued Premium on bonds issued Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning, as restated Fund Balances - Ending $ 4,311 4,311 SAFETY & CORRECTIONAL ENVIRONMENTAL PROTECTION PROGRAMS HEALTHCARE & SOCIAL TOBACCO TAX & SERVICES HEALTHCARE $ $ 24,952 50,534 6,264 10,992 767 24,745 41,076 9,240 168,570 $ 20,032 2,151 179 12,479 1,386 63 3,531 562 40,383 8,665 22,815 8,955 5,865 2,168 1,898 8,966 5,253 64,585 $ 113,464 638 28 114,130 CHILDREN'S HEALTH INSURANCE $ 58,922 61 3,313 45 62,341 582,058 - 24,856 93,246 15,549 1,080 132,594 1,115 859 3,023 65,388 182 - 6,134 57,079 - 79,500 - 646 582,704 763 359 3,676 138,449 236 135,884 176 68,769 26 63,239 79,500 (578,393) 30,121 (95,501) (4,184) 50,891 (17,159) - 94,293 (117,385) 67,562 (15,660) 18,014 (20,641) 1,186 (105,764) 11,361 - 331,500 18,229 349,729 (228,664) 262,557 146 (22,946) 7,175 79,904 51,902 (43,599) 94,361 (2,627) (6,811) 48,739 (104,578) (53,687) 61,405 11,361 (5,798) 5,769 33,893 $ 87,079 $ - 152 - 50,762 $ 41,928 $ 7,718 $ (29) JUDICIAL GROUNDWATER & LEGAL REGULATING GAME & SERVICES & LICENSING FISH $ $ 3,746 878 240 164 23,846 630 29,504 $ 19,993 1,456 62,472 490 574 1,480 3,731 90,196 $ 758 822 15,037 20,225 731 310 135 2,270 40,288 STATE PARKS BUSINESS EDUCATIONAL PROTECTION & DEVELOPMENT DEVELOPMENT PROGRAMS CONSERVATION $ 1,279 11,938 219 1,214 418 15,068 $ 1,529 2,485 1,123 199 18,732 24,068 $ 364,340 29 1,589 118 27,264 1,992 10,763 406,095 $ 16,260 1,207 66 8,633 26,166 CLEAN ELECTIONS TOTAL SYSTEM $ 6,458 4,249 10,707 $ 397,957 29 2,037 32,792 208,957 97,677 131,993 41,600 33,324 85,492 64,554 1,096,412 22,687 - 1,183 89,358 - 52,601 14,110 21,144 142 418,755 - 34,116 13,091 - 93,198 334,561 90,473 1,000,995 93,246 117,377 5 6 103 22,801 62 1,887 92,490 29 1 2,990 55,621 5,659 19,769 12 21,298 204 418,959 17 34,133 12 13,103 871 1,012 14,986 1,746,719 6,703 (2,294) (15,333) (4,701) 2,770 (12,864) (7,967) (2,396) (650,307) 1,458 (5,100) 77 (8,511) 9,307 (5,233) 10,306 (14,539) 3,231 (12,595) 86 (885) 500 (181) (1,775) 217,381 (308,269) (3,642) 3,061 20,911 606 (7,828) (10,122) 83,213 4,074 (11,259) 41,122 (4,233) (8,934) 65,237 (9,364) (6,594) 78,584 (799) (13,663) (12,014) 319 (7,648) 67,054 (1,775) (4,171) 16,059 752 331,500 18,229 259,593 (390,714) 912,901 (25,677) $ 59,406 23,972 $ 73,091 $ 29,863 $ 56,303 $ 71,990 - 153 - $ $ 11,888 $ 522,187 NON-MAJOR GOVERNMENTAL FUNDS DEBT SERVICE FUNDS The Department of Transportation Fund administers the payment of principal and interest on the 1991 Series A and 1992 Series B State of Arizona Subordinated Highway Revenue Bond issues, the 1993 Series State of Arizona Highway Revenue Refunding Bond issue, the 1993 Series A and 1993 Series B State of Arizona Subordinated Highway Revenue Refunding Bond issues, and the Series 1999 and 2001 State of Arizona Highway Revenue Bond issues. The Maricopa Regional Area Road Fund administers the payment of principal and interest on the 1988 Series A, 1992 Series A Refunding, 1992 Series B, 1998 Series A and 2000 Series Transportation Board of the State of Arizona Transportation Excise Tax Revenue Bond issues, the 1995 Series A and 1999 Series Transportation Board of the State of Arizona Subordinated Transportation Excise Tax Revenue Bond issues, and the 1993 Series and 1995 Series B Transportation Board of the State of Arizona Subordinated Transportation Excise Tax Revenue Refunding Bond issues. The Certificates of Participation Fund administers the payment of principal and interest on the State of Arizona Certificates of Participation series 92B, 93B, 2001A & B, 2002A and AHCCCS Certificates. The School Facilities Debt Instrument Fund administers the payment of principal and interest on the State of Arizona School Facilities Board Education Transaction Privilege Series 2001 Revenue Bonds. The Grant Anticipation Notes Fund administers the payment of principal and interest on Series 2000A and Series 2001A Arizona Transportation Board Grant Anticipation Notes. STATE OF ARIZONA COMBINING BALANCE SHEET NON-MAJOR DEBT SERVICE FUNDS JUNE 30, 2003 (Expressed in Thousands) DEPARTMENT OF TRANSPORTATION ASSETS Cash and pooled investments with State Treasurer Interest receivable Restricted assets: Cash and pooled investments with State Treasurer Cash held by trustee Total Assets LIABILITIES AND FUND BALANCES Liabilities: Accrued liabilities Due to other Funds Total Liabilities $ $ 2,148 - CERTIFICATES OF PARTICIPATION 734 $ 15,445 - 18,228 - $ 179 GRANT ANTICIPATION NOTES 18,308 3 $ - - - $ 2,366 $ 16,179 $ 18,407 $ 18,311 $ - $ - $ - $ 173 17,515 17,688 $ 1,543 15,000 16,543 $ - Fund Balances: Reserved for: Debt service Total Fund Balances Total Liabilities and Fund Balances 218 MARICOPA RARF SCHOOL FACILITIES DEBT INSTRUMENT 2,366 2,366 $ 2,366 16,179 16,179 $ 16,179 - 156 - 719 719 $ 18,407 1,768 1,768 $ 18,311 $ - TOTAL $ 36,536 955 17,593 179 $ 55,263 $ 1,716 32,515 34,231 21,032 21,032 $ 55,263 - 157 - STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR DEBT SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2003 (Expressed in Thousands) REVENUES Taxes: Sales Earnings on investments Total Revenues DEPARTMENT OF MARICOPA CERTIFICATES OF TRANSPORTATION RARF PARTICIPATION INSTRUMENT $ EXPENDITURES Debt service: Principal Interest and other fiscal charges Total Expenditures (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers in Transfers out Refunding bonds issued Payment to refunded bond escrow agent Premium on bonds issued Refunding certificates of participation issued Payment to refunded certificate of participation escrow agent Premium on certificates of participation issued Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending SCHOOL FACILITIES DEBT $ 2,636 2,636 $ 2,117 2,117 $ 414 414 $ 57,290 3,428 60,718 GRANT ANTICIPATION NOTES $ - 44,490 41,963 86,453 190,415 31,637 222,052 15,327 11,070 26,397 25,010 36,905 61,915 13,150 8,683 21,833 (83,817) (219,935) (25,983) (1,197) (21,833) 83,157 90,055 (102,951) 12,897 - 216,336 475 (4,784) 4,322 - 27,014 (18,642) 75,295 (15,000) - 21,833 - 83,158 (659) 3,025 216,349 (3,586) 19,765 (80,713) 5,418 8,372 (17,611) 18,330 (15,000) (16,197) 17,965 21,833 - 2,366 $ 16,179 - 158 - $ 719 $ 1,768 $ - TOTAL $ 57,290 8,595 65,885 288,392 130,258 418,650 (352,765) 348,340 (33,642) 90,530 (107,735) 17,219 75,295 (80,713) 5,418 314,712 (38,053) 59,085 $ 21,032 - 159 - NON-MAJOR GOVERNMENTAL FUNDS CAPITAL PROJECTS FUNDS The Department of Transportation Financed Fund administers the bond proceeds from the State of Arizona Highway Revenue Bond Series 2001 and 2002. These monies are expended for the construction of Federal, State and local highways. The Maricopa Regional Area Road Financed Fund administers the bond proceeds from the Transportation Board of the State of Arizona Transportation Excise Tax Revenue Bond Series 2000 and 2001. These monies are spent on the construction of State highways within Maricopa County. The Grant Anticipation Notes Financed Fund administers proceeds from the Series 2000A and Series 2001A Arizona Transportation Board Grant Anticipation Notes. These monies are expended for the acquisition of right-of-way purchase, or construction of certain controlled access highways within Maricopa County. Certificates of Participation Financed Fund administers the proceeds for the State’s Certificates of Participation series 2002A. These monies are expended on various projects including new building construction, development of the Human Resource Information System, and the retiring of former Certificates of Participation. STATE OF ARIZONA COMBINING BALANCE SHEET NON-MAJOR CAPITAL PROJECTS FUNDS JUNE 30, 2003 (Expressed in Thousands) ASSETS Cash and pooled investments with State Treasurer Receivables, net of allowances: Interest Restricted assets: Cash and pooled investments with State Treasurer Cash held by trustee Total Assets LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and other current liabilities Total Liabilities DEPARTMENT OF MARICOPA GRANT ANTICIPATION TRANSPORTATION RARF NOTES CERTIFICATES OF PARTICIPATION FINANCED FINANCED FINANCED FINANCED $ $ - $ - $ 395 $ 395 470 - - - 470 173,143 - - 10 - 33,432 173,153 33,432 $ 173,613 $ - $ 10 $ 33,827 $ 207,450 $ 13,936 13,936 $ - $ - $ 350 350 $ 14,286 14,286 Fund Balances: Reserved for: Highway construction Other construction Total Fund Balances Total Liabilities and Fund Balances - TOTAL 159,677 159,677 $ 173,613 $ - - 162 - 10 10 $ 10 33,477 33,477 $ 33,827 159,687 33,477 193,164 $ 207,450 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR CAPITAL PROJECTS FUNDS FOR THE YEAR ENDED JUNE 30, 2003 (Expressed in Thousands) DEPARTMENT OF TRANSPORTATION FINANCED REVENUES Earnings on investments Total Revenues $ EXPENDITURES Current: Transportation Debt service: Interest and other fiscal charges Capital outlay Total Expenditures (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers in Transfers out Bonds issued Premium on bonds issued Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning, as restated Fund Balances - Ending $ 2,843 2,843 MARICOPA RARF FINANCED $ 500 500 GRANT ANTICIPATION NOTES FINANCED CERTIFICATES OF PARTICIPATION FINANCED $ $ 144 144 208 208 TOTAL $ 3,695 3,695 7,792 597 4 - 8,393 1,925 132,499 142,216 485 80,863 81,945 17,935 17,939 195 19,880 20,075 2,605 251,177 262,175 (139,373) (81,445) (17,795) (19,867) (258,480) (20,882) 251,475 10,470 241,063 101,690 57,987 (469) 80,000 459 79,990 (1,455) 1,455 (150) (150) (17,945) 17,955 618 (362) 256 (19,611) 53,088 618 (21,863) 331,475 10,929 321,159 62,679 130,485 159,677 $ - - 163 - $ 10 $ 33,477 $ 193,164 NON-MAJOR ENTERPRISE FUNDS Enterprise Funds account for operations (a) financed and operated in a manner similar to private business enterprises, where the State intends that the cost of providing goods or services to the general public be financed or recovered primarily through service charges, or (b) where the State decides that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. The Arizona Industries for the Blind Fund accounts for the manufacturing, sale, distribution and marketing of products manufactured by employees at training centers, workshops, business enterprises and home industries programs for the training and employment of adaptable visually impaired persons. The Arizona Correctional Industries Fund employs prison inmates in its manufacturing, service and agricultural operations for the sale of goods and services primarily to other State agencies (including the Arizona Department of Corrections) and political subdivisions. The Arizona Highways Magazine Fund publishes and markets the Arizona Highways Magazine and various other products that promote the State of Arizona. The Coliseum & Exposition Center Fund provides rental space to a variety of entertainment and promotional lessees, and sponsors the annual State Fair. Highway Expansion & Extension Loan Program provides the state and communities in Arizona a new financing mechanism to stretch limited transportation dollars and bridge the gap between needs and available revenues. The Healthcare Group of Arizona administers prepaid medical coverage primarily to small, uninsured businesses with 2 to 50 employees and employees of political subdivisions. The HCGA processes premium billing, collections and fund disbursement, and data analysis and is responsible for the regulatory oversight of the health plans. The Other Enterprise Funds consist of the Arizona Historical Society Revolving Fund, State Hospital Revolving Fund, and the State Home for Veterans Trust Fund. STATE OF ARIZONA COMBINING STATEMENT OF NET ASSETS NON-MAJOR ENTERPRISE FUNDS JUNE 30, 2003 (Expressed in Thousands) ASSETS Current Assets: Cash Cash and pooled investments with State Treasurer Short-term investments Receivables, net of allowances: Interest Loan and note Other Due from U.S. Government Due from local governments Due from other Funds Inventories, at cost Other current assets Total Current Assets ARIZONA ARIZONA COLISEUM & EXPANSION INDUSTRIES CORRECTIONAL HIGHWAYS EXPOSITION & EXTENSION FOR THE BLIND INDUSTRIES MAGAZINE CENTER LOAN PROGRAM $ Noncurrent Assets: Restricted assets: Cash and pooled investments with State Treasurer Loan and note receivables, net of allowances Other long-term assets Capital assets: Land, construction in progress and collections Depreciable buildings, property and equipment Less: accumulated depreciation Total Noncurrent Assets Total Assets LIABILITIES Current Liabilities: Accounts payable and other current liabilities Accrued liabilities Due to others Due to other Funds Unearned deferred revenue Current portion of long-term debt Current portion of other long-term liabilities Total Current Liabilities Noncurrent Liabilities: Long-term debt Other long-term liabilities Total Noncurrent Liabilities Total Liabilities NET ASSETS Invested in capital assets, net of related debt Restricted for: Loans and other financial assistance Other purposes Unrestricted Total Net Assets HIGHWAY ARIZONA $ 12 $ 50 $ - $ 21 $ - 723 - 4,422 - 1,559 - 2,875 - 24 - 999 58 92 2,503 7 4,394 18 2,276 2,676 52 9,494 7 484 2,659 505 5,214 31 125 3 3,055 250 4,357 381 109,540 114,552 - - 179 3,056 - 96,010 24,256 - 182 6,713 (4,915) 1,980 6,374 728 8,244 (6,280) 2,692 12,186 8 3,360 (2,242) 1,305 6,519 165 24,426 (19,827) 7,820 10,875 120,266 234,818 412 128 100 49 156 845 997 135 248 1,380 123 113 4,243 133 4,612 85 66 179 330 5 171,545 19 171,569 80 68 148 993 1,380 4,612 330 171,569 1,980 2,693 1,126 4,764 - 3,401 8,113 781 5,781 63,249 - 5,381 $ 10,806 - 166 - $ 1,907 $ 10,545 $ 63,249 HEALTHCARE GROUP OF ARIZONA $ $ OTHER - $ TOTAL 249 $ 332 7,310 - 1,683 60 18,596 60 5 7,315 4 877 101 2,974 310 4,357 4,766 58 381 109,632 7,939 567 146,998 3,332 - - 102,398 24,256 179 76 (69) 3,339 10,654 980 12,768 (2,564) 11,184 14,158 13 2,806 1,186 3,878 22 7,905 164 86 250 1,794 3,253 86 172,831 8,121 49 757 186,891 7,905 250 80 68 148 187,039 7 5 10,575 2,742 - 13,903 63,249 2,742 31,979 2,749 $ 13,908 2,063 55,587 (35,897) 148,586 295,584 $ 108,545 - 167 - STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS NON-MAJOR ENTERPRISE FUNDS FOR THE YEAR ENDED JUNE 30, 2003 (Expressed in Thousands) HIGHWAY OPERATING REVENUES Sales and charges for services Intergovernmental Licenses, fees and permits Earnings on investments Other Total Operating Revenues ARIZONA ARIZONA ARIZONA COLISEUM & EXPANSION INDUSTRIES CORRECTIONAL HIGHWAYS EXPOSITION & EXTENSION FOR THE BLIND INDUSTRIES MAGAZINE CENTER LOAN PROGRAM $ OPERATING EXPENSES Cost of sales and benefits Interest on notes payable Personal services Contractual services Depreciation and amortization Insurance Other Total Operating Expenses Operating Income (Loss) $ 11,619 3,708 1,129 341 761 17,558 56 NON-OPERATING REVENUES (EXPENSES) Investment income (Loss) on sale of capital assets Interest expense Total Non-Operating Revenues (Expenses) Income (Loss) Before Contributions and Transfers Change in Net Assets Total Net Assets - Beginning $ 18,808 18,808 $ 9,596 427 10,023 $ 10,527 1,472 11,999 $ 3,881 3,881 16,832 1,140 25 643 466 19,106 (298) 6,523 2,983 374 320 413 10,613 (590) 1,614 4,384 2,332 1,159 396 1,186 11,071 928 87 (3) 84 41 (5) 36 78 78 58 (214) (554) 1,006 150 150 3 (1,000) (997) (500) (500) (2,000) (2,000) (20,000) (20,000) 208 5,173 (1,211) 12,017 (1,054) 2,961 (994) 11,539 (20,044) 83,293 3 (1) 2 CONTRIBUTIONS AND TRANSFERS Gifts and donations Transfers in Transfers out Total Contributions and Transfers Total Net Assets - Ending 16,496 1,070 48 17,614 5,381 $ - 168 - 10,806 $ 1,907 $ 10,545 1 6,009 217 118 3 6,348 (2,467) 2,423 2,423 (44) $ 63,249 HEALTHCARE GROUP OF ARIZONA $ 26,283 26,283 OTHER $ 30,592 662 234 6 296 31,790 (5,507) 10,744 780 27 11,551 $ 92,454 1,070 780 3,881 1,974 100,159 413 8,689 742 338 170 901 11,253 298 67,594 6,009 21,783 4,954 2,807 566 4,026 107,739 (7,580) 26 26 2,764 (8) (1) 2,755 (5,401) 324 (4,825) 7,131 (1,186) 5,945 (244) (244) 3 7,281 (24,930) (17,646) 106 106 544 2,205 $ TOTAL 2,749 80 13,828 $ 13,908 (22,471) 131,016 $ 108,545 - 169 - STATE OF ARIZONA COMBINING STATEMENT OF CASH FLOWS NON-MAJOR ENTERPRISE FUNDS FOR THE YEAR ENDED JUNE 30, 2003 (Expressed in Thousands) ARIZONA INDUSTRIES FOR THE BLIND CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Transfers from other Funds Payments to suppliers Payments to employees Transfers to other Funds Other receipts (payments) Net Cash Provided (Used) by Operating Activities $ CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Transfers from other Funds Transfers to other Funds Net Cash Provided (Used) by Non-capital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital contributions received Acquisition and construction of capital assets Net Cash (Used) by Capital and Related Financing Activities CASH FLOWS FROM INVESTING ACTIVITIES Interest and dividends from investments Purchase of investments Net Cash Provided (Used) by Investing Activities Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning Cash and Cash Equivalents - Ending Reconciliation of operating income (loss) to net cash provided (used) by operating activities: Operating income (loss) Adjustments to reconcile operating income to net cash provided (used) by operating activities: Depreciation and amortization Net changes in assets and liabilities: (Increase) decrease in receivables, net of allowances (Increase) in due from U.S. Government (Increase) in due from local governments (Increase) in due from other Funds (Increase) decrease in inventories, at cost (Increase) decrease in other assets Increase (decrease) in accounts payable Increase in accrued liabilities (Decrease) in due to others Increase in due to other Funds Increase (decrease) in deferred revenue Increase (decrease) in other liabilities Net Cash Provided (Used) by Operating Activities ARIZONA CORRECTIONAL INDUSTRIES 17,373 $ (13,162) (3,631) 48 628 ARIZONA HIGHWAYS MAGAZINE 18,792 $ (16,808) (1,115) 869 HIGHWAY EXPANSION & EXTENSION LOAN PROGRAM COLISEUM & EXPOSITION CENTER 9,448 $ (7,233) (2,914) 427 (272) 10,539 $ (5,506) (4,369) 1,472 2,136 2,961 85,455 (33) (216) (116,306) (1) (28,140) 65 - (1,000) (500) (2,000) (20,000) 65 (1,000) (500) (2,000) (20,000) (262) 3 (299) (12) (64) - (262) (296) (12) (64) - 2 2 98 98 42 42 105 105 2,839 2,839 433 302 (329) 4,801 (742) 2,301 177 5,775 (45,301) 141,335 $ 735 $ $ 56 $ 341 (185) (8) 1,136 (7) (1,011) 32 100 174 $ 628 $ SCHEDULE OF NONCASH INVESTING, CAPITAL AND FINANCING ACTIVITIES Donated equipment $ (Loss) on disposal of capital assets, net Total Noncash Investing, Capital and Financing Activities $ - $ - $ - 170 - 4,472 $ 5,952 $ 96,034 (298) $ (590) $ 928 $ (2,467) 643 320 (16) (44) 559 9 16 20 151 89 (163) 53 (168) 16 869 $ $ 3 $ (3) - $ 1,559 1,159 - 12 30 (8) 13 2 (272) $ (30,764) (203) (717) 1 6,009 1 2,136 $ (28,140) - $ - $ - - $ - $ - HEALTHCARE GROUP OF ARIZONA $ OTHER 27,336 $ (29,199) (677) (2,540) TOTAL 11,548 $ (2,219) (8,689) 27 667 97,997 85,455 (74,160) (21,611) (116,306) 1,973 (26,652) 9,045 (3,009) (244) 9,110 (26,753) 6,036 (244) (17,643) - (86) 3 (723) - (86) (720) 106 106 24 (60) (36) 3,216 (60) 3,156 3,602 7,040 301 1,631 (41,859) 163,185 $ 10,642 $ 1,932 $ $ (5,507) $ 298 $ 6 338 2,807 16 (17) 1,940 1,037 (15) 24 6 80 (79) - (30,893) (8) (203) (717) 1,249 112 (560) 2,048 (79) 6,109 869 194 (2,540) $ 667 $ (26,652) $ 121,326 (7,580) $ - $ - $ 3 (3) $ - $ - $ - - 171 - INTERNAL SERVICE FUNDS Internal Service Funds account for the financing of goods and services provided by one State department or agency to other State departments or agencies on a cost-reimbursement basis. The Risk Management Fund provides insurance coverage to all State agencies using an optimal combination of self-insurance and private excess insurance. It includes the Workers' Compensation section that receives monies from State agencies and uses these monies to pay for insurance and risk management services including loss control services and self-insured liability losses. The Transportation Equipment Fund administers the purchase, storage and distribution of supplies, equipment and furniture for other Department of Transportation Funds. The Employee Benefits Fund (HITF) administers the State’s benefits program available to State employees and retirees. The Technologies and Telecommunications Fund receives monies from State agencies for services related to the operation of the data processing and telecommunications programs. The Sick Leave Liability Fund (RASL) accounts for monies paid out to retirees for their accumulated sick leave. The Motor Pool Fund receives monies from State agencies for use of State vehicles and uses these monies for operation of the State Motor Pool. STATE OF ARIZONA COMBINING STATEMENT OF NET ASSETS INTERNAL SERVICE FUNDS JUNE 30, 2003 (Expressed in Thousands) TECHNOLOGIES ASSETS Current Assets: Cash and pooled investments with State Treasurer Receivables, net of allowances: Interest Other Due from other Funds Inventories, at cost Other current assets Total Current Assets RISK TRANSPORTATION EMPLOYEE & TELE- SICK LEAVE MANAGEMENT EQUIPMENT BENEFITS COMMUNICATIONS LIABILITY $ Noncurrent Assets: Capital assets: Land, construction in progress and collections Depreciable buildings, property and equipment Less: accumulated depreciation Total Noncurrent Assets Total Assets LIABILITIES Current Liabilities: Accounts payable and other current liabilities Accrued liabilities Due to other Funds Current portion of long-term debt Current portion of other long-term liabilities Total Current Liabilities Noncurrent Liabilities: Accrued insurance losses Long-term debt Other long-term liabilities Total Noncurrent Liabilities Total Liabilities NET ASSETS Invested in capital assets, net of related debt Unrestricted Total Net Assets $ 18,400 $ 2,905 $ 31,278 $ 6,571 $ 2,742 58 1,499 19,957 11 2,372 5,288 7,405 4,342 43,025 1,929 1,651 401 10,552 2,742 462 (252) 210 20,167 115,690 (76,997) 38,693 43,981 43,025 21 38,139 (30,137) 8,023 18,575 2,742 1,347 102 7 248 1,704 151 250 485 886 34,177 34,177 545 243 8 182 667 1,645 5,628 5,628 233,080 233,080 234,784 2,270 93 2,363 3,249 34,177 299 299 1,944 3,261 3,261 8,889 210 (214,827) 36,423 4,309 8,848 7,542 9,089 (6,147) (214,617) $ 40,732 - 174 - $ 8,848 $ 16,631 $ (6,147) MOTOR POOL $ TOTAL 7,683 $ 1,135 472 11 9,301 11 10,527 6,465 2,383 1,900 90,865 39,589 (25,123) 14,466 23,767 21 193,880 (132,509) 61,392 152,257 477 12 2 19 510 36,697 607 17 182 7,047 44,550 510 233,080 2,569 3,354 239,003 283,553 14,466 8,791 $ 69,579 23,257 58,641 (189,937) $ (131,296) - 175 - STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS INTERNAL SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2003 (Expressed in Thousands) TECHNOLOGIES OPERATING REVENUES Sales and charges for services Other Total Operating Revenues RISK TRANSPORTATION EMPLOYEE & TELE- SICK LEAVE MANAGEMENT EQUIPMENT BENEFITS COMMUNICATIONS LIABILITY $ OPERATING EXPENSES Cost of sales and benefits Personal services Contractual services Depreciation and amortization Insurance Other Total Operating Expenses Operating Income (Loss) $ 4,384 25,985 76 43,982 1,809 76,236 4,337 NON-OPERATING REVENUES (EXPENSES) Gain on sale of capital assets Investment income Interest expense Total Non-Operating Revenues (Expenses) Income (Loss) Before Contributions and Transfers 31,266 651 31,917 101 (253) (152) 4,337 Change in Net Assets Total Net Assets - Beginning, as restated $ $ 11,037 10,774 601 6,653 605 1,152 30,822 1,095 - CONTRIBUTIONS AND TRANSFERS Gifts and donations Transfers in Transfers out Total Contributions and Transfers Total Net Assets - Ending 80,573 80,573 943 404,131 404,131 $ 33,748 1 33,749 $ 10,167 10,167 417,411 417,411 (13,280) 12,522 9,594 1,175 3,413 217 3,262 30,183 3,566 9,729 9,729 438 - - - (13,280) 3,566 438 1 (11,916) (11,915) (2,753) (2,753) - 40 (6,072) (6,032) (1,687) (1,687) (7,578) (207,039) (1,810) 42,542 (13,280) 22,128 (2,466) 19,097 (1,249) (4,898) (214,617) $ 40,732 - 176 - $ 8,848 $ 16,631 $ (6,147) MOTOR POOL $ $ TOTAL 12,124 35 12,159 $ 572,009 687 572,696 3,540 569 141 4,817 992 1,191 11,250 909 454,239 25,321 27,902 14,959 45,796 7,414 575,631 (2,935) 238 238 238 101 (253) 86 1,147 (2,849) 122 (6,036) (5,914) 122 41 (28,464) (28,301) (4,767) 28,024 (31,150) (100,146) 23,257 $ (131,296) - 177 - STATE OF ARIZONA COMBINING STATEMENT OF CASH FLOWS INTERNAL SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2003 (Expressed in Thousands) CASH FLOWS FROM OPERATING ACTIVITIES Receipts from interfund services / premiums Payments to suppliers and insurance companies Payments to employees Payments to retirees Other receipts RISK TRANSPORTATION EMPLOYEE TECHNOLOGIES & TELE- MANAGEMENT EQUIPMENT BENEFITS COMMUNICATIONS $ Net Cash Provided (Used) by Operating Activities CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Transfers from other Funds Interest Paid Transfers to other Funds Net Cash (Used) by Non-capital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition and construction of capital assets Principal paid on capital debt, installment purchase contracts and capital leases Net Cash (Used) by Capital and Related Financing Activities 80,572 $ (74,943) (4,366) - 31,472 $ (13,587) (10,790) 651 398,724 $ (412,891) (14,167) 35,178 (19,599) (9,619) 32 1,263 7,746 5,992 1 (11,916) (253) (2,753) - 40 (6,072) (11,915) (3,006) - (6,032) (30) (2,236) - (1,000) - (3,423) - (1,007) (30) (5,659) - (2,007) CASH FLOWS FROM INVESTING ACTIVITIES Interest and dividends from investments - 113 - - Net Cash Provided by Investing Activities - 113 - - (14,167) 45,445 (2,047) 8,618 Net (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning, as restated Cash and Cash Equivalents - Ending Reconciliation of operating income (loss) to net cash provided (used) by operating activities: Operating income (loss) Adjustments to reconcile operating income to net cash provided (used) by operating activities: Depreciation and amortization Miscellaneous nonoperating revenues Net changes in assets and liabilities: (Increase) decrease in receivables, net of allowances Decrease in due from local governments (Increase) decrease in due from other Funds (Increase) decrease in inventories, at cost (Increase) decrease in other assets Increase (decrease) in accounts payable Increase in accrued liabilities (Decrease) in due to U.S. Government Increase (decrease) in due to other Funds (Decrease) in accrued insurance losses (Decrease) in other liabilities Net Cash Provided (Used) by Operating Activities SCHEDULE OF NONCASH INVESTING, CAPITAL AND FINANCING ACTIVITIES Assets acquired under capital leases Total Noncash Investing, Capital and Financing Activities (10,682) 29,082 (806) 3,711 $ 18,400 $ 2,905 $ 31,278 $ 6,571 $ 4,337 $ 1,095 $ (13,280) $ 3,566 76 - 6,653 - - (1) (112) (1,801) 20 (3) (1,251) (2) 38 168 (63) (127) 25 (2) (41) (1,065) (4,342) 4,764 (244) - 3,413 1,023 779 (372) (366) (2,032) 50 6 (75) $ 1,263 $ 7,746 $ $ - $ - $ - $ 556 $ - $ - $ - $ 556 - 178 - (14,167) $ 5,992 $ SICK LEAVE MOTOR LIABILITY POOL 11,291 $ (10,195) - TOTAL 12,538 $ (5,870) (575) 35 569,775 (526,890) (25,350) (10,195) 718 1,096 6,128 8,058 (1,687) (6,036) 41 (253) (28,464) (1,687) (6,036) (28,676) - (226) (3,492) - - (4,430) - (226) (7,922) - - 113 - - 113 (591) 3,333 (134) 7,817 (28,427) 98,006 $ 2,742 $ 7,683 $ 69,579 $ 438 $ 909 $ (2,935) 1,960 4,817 - 2 1,514 (1,287) (838) (693) 281 133 9 4 (20) 1 1 (7) 14,959 2,983 (4) 38 (4,413) (54) 1,040 (503) 96 (838) (242) (1,251) (818) $ 1,096 $ 6,128 $ 8,058 $ - $ - $ 556 $ - $ - $ 556 - 179 - PENSION TRUST FUNDS Pension Trust Funds account for transactions of the four public employee retirement systems for which the State acts as trustee. The Arizona State Retirement System is a cost-sharing, multiple-employer pension system that benefits employees of public schools, the State and its political subdivisions. The Public Safety Personnel Retirement System is an agent multiple-employer pension system that benefits fire fighters and police officers employed by the State and its political subdivisions. The Elected Officials' Retirement Plan is a cost-sharing, multiple-employer pension plan that benefits all elected State and county officials and judges and certain elected city officials. The Corrections Officer Retirement Plan is an agent multiple-employer pension plan that benefits town, city and county detention officers and certain employees of the State’s Department of Corrections and Department of Juvenile Corrections. STATE OF ARIZONA COMBINING STATEMENT OF FIDUCIARY NET ASSETS PENSION TRUST FUNDS JUNE 30, 2003 (Expressed in Thousands) ASSETS Cash $ Receivables, net of allowances: Accrued interest and dividends Securities sold Forward contract receivable Contributions Court fees Miscellaneous receivables Total receivables Investments, at fair value: Temporary investments Temporary investments from securities lending United States Government securities Corporate bonds Corporate notes Corporate stocks Real estate mortgages and contracts Collateral investment pool Other investments Money market fund Total investments Property and equipment, net of accumulated depreciation Total Assets LIABILITIES Accounts payable Payable for securities purchased Obligation under securities loan agreements Total Liabilities STATE PUBLIC ELECTED RETIREMENT SAFETY OFFICIALS' 15,099 $ - $ CORRECTIONS OFFICER - $ TOTAL - $ 15,099 63,945 336,946 6,818 7,232 1,805 25,944 8,275 - 1,690 59 310 - 4,363 121 - 95,942 336,946 6,818 15,687 310 1,805 416,746 34,219 2,059 4,484 457,508 1,081,982 - - - 1,081,982 2,248,014 3,352,902 1,454,699 13,405,901 30,212 - 297,345 718,008 244,601 2,323,385 1,025,566 213,449 1,086 23,672 50,427 10,995 168,928 83,623 13,202 328 50,998 118,204 40,633 367,494 196,732 39,585 1,541 2,248,014 3,724,917 2,341,338 296,229 16,265,708 30,212 1,305,921 266,236 2,955 21,573,710 4,823,440 351,175 815,187 27,563,512 - 445 - - 445 22,005,555 4,858,104 353,234 819,671 28,036,564 10,399 1,017,264 - - - 10,399 1,017,264 2,248,004 1,025,566 83,623 196,732 3,553,925 3,275,667 1,025,566 83,623 196,732 4,581,588 NET ASSETS Held in Trust for Pension Benefits $ 18,729,888 $ 3,832,538 - 182 - $ 269,611 $ 622,939 $ 23,454,976 STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS PENSION TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2003 (Expressed in Thousands) STATE RETIREMENT ADDITIONS: Member contributions $ Employer contributions Member purchase of service credit Court fees Investment income: Net increase (decrease) in fair value of investments Interest income Dividends Real estate $ (51,437) 269,664 156,929 7,774 Other investment income Securities lending income Total investment income Less investment expenses: Investment activity expenses Security lending expenses Net investment income Other additions Total Additions DEDUCTIONS: Retirement and disability benefits Death benefits Refunds to withdrawing members, including interest Administrative expense Other deductions Total Deductions Change in net assets held in trust for pension benefits Net Assets - Beginning Net Assets - Ending 177,157 177,156 91,568 - PUBLIC SAFETY 67,937 50,801 - $ CORRECTIONS OFFICER 4,356 188 3,568 $ 30,331 7,398 - TOTAL $ 279,781 235,543 91,568 3,568 120,304 93,189 18,761 - 7,987 6,936 1,364 - 16,546 16,007 2,950 - 93,400 385,796 180,004 7,774 2,840 - - - 2,840 30,449 416,219 1,608 233,862 121 16,408 267 35,770 32,445 702,259 22,801 24,786 368,632 438 233,424 31 16,377 71 35,699 23,341 24,786 654,132 1,984 1,394 1,880 3,189 8,447 816,497 353,556 26,369 76,617 1,273,039 1,206,703 15,861 209,715 - 21,930 - 22,507 - 1,460,855 15,861 35,976 24,182 13,696 6,423 812 386 115 73 207 16,023 427 1,049 58,537 25,494 15,338 1,296,418 217,336 22,325 40,006 1,576,085 136,220 3,696,318 4,044 265,567 36,611 586,328 (303,046) 23,758,022 (479,921) 19,209,809 $ ELECTED OFFICIALS' 18,729,888 $ 3,832,538 - 183 - $ 269,611 $ 622,939 $ 23,454,976 INVESTMENT TRUST FUNDS Investment Trust Funds account for assets held by the State in a trustee capacity for local governments and political subdivisions, of the State of Arizona, which have elected to invest idle cash with the State Treasurer’s Office. The Treasurer acts as trustee for the deposits made by participants. Central Arizona Water Conservation District was an Investment Trust Account composed of corporate debt and United States Government securities. The Central Arizona Water Conservation District is the only participant in the account. Local Government Investment Pool is an Investment Trust Account composed of corporate debt, negotiable certificates of deposit and United States Government securities. Local Government Investment Pool-Government is an Investment Trust Account composed of repurchase agreements and United States Government securities. All investments of the fund are backed by the full faith and credit of the United States Government. STATE OF ARIZONA COMBINING STATEMENT OF FIDUCIARY NET ASSETS INVESTMENT TRUST FUNDS JUNE 30, 2003 (Expressed in Thousands) LOCAL ASSETS Receivables, net of allowances: Accrued interest and dividends Total receivables CENTRAL ARIZONA LOCAL GOVERNMENT INVESTMENT GOVERNMENT INVESTMENT POOL- DISTRICT POOL GOVERNMENT $ WATER CONSERVATION Investments, at fair value: United States Government securities Corporate bonds Total investments Total Assets LIABILITIES Due to local governments Total Liabilities 932 932 $ 2,358 2,358 $ 2,346 2,346 TOTAL $ 5,636 5,636 142,560 14,854 157,414 435,053 991,551 1,426,604 1,609,582 1,609,582 2,187,195 1,006,405 3,193,600 158,346 1,428,962 1,611,928 3,199,236 1,552 2,147 2,993 6,692 1,552 2,147 2,993 6,692 NET ASSETS Held in trust for pool participants $ Net assets consist of: Participant shares outstanding Participants' net asset value (net assets/shares outstanding) 156,794 $ 156,794 $ 1.00 1,426,815 $ 1,426,815 $ - 186 - 1.00 1,608,935 1,608,935 $ 1.00 $ 3,192,544 3,192,544 STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS INVESTMENT TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2003 (Expressed in Thousands) LOCAL ADDITIONS: Investment income: Net increase (decrease) in fair value of investments Interest income Total investment income CENTRAL ARIZONA LOCAL GOVERNMENT WATER GOVERNMENT INVESTMENT CONSERVATION INVESTMENT POOL- DISTRICT POOL GOVERNMENT $ Less: Investment activity expenses Net investment income 111 3,254 Capital share and individual account transactions: Shares sold Reinvested interest income Shares redeemed Net capital share and individual account transactions Total Additions DEDUCTIONS: Dividends to investors Total Deductions Change in net assets held in trust for pool participants Net Assets - Beginning Net Assets - Ending (1,759) $ 5,124 3,365 $ 1,990 49,128 967 10,350 11,317 $ 633 10,684 1,789 64,011 65,800 2,734 63,066 156,127 3,729 (3,062) 3,410,971 54,286 (5,394,842) 2,270,241 6,403 (885,129) 156,794 (1,929,585) 1,391,515 (381,276) 160,048 (1,880,457) 1,402,199 (318,210) 5,837,339 64,418 (6,283,033) 3,254 49,128 10,684 63,066 3,254 49,128 10,684 63,066 156,794 $ 2,581 48,537 51,118 TOTAL 156,794 - 187 - (1,929,585) 3,356,400 $ 1,426,815 1,391,515 217,420 $ 1,608,935 (381,276) 3,573,820 $ 3,192,544 AGENCY FUNDS Agency Funds account for the receipt and disbursement of various taxes, deposits, deductions, and property collected by the State, where the State acts as an agent for distribution to other governmental units or organizations. The Treasurer Custodial Securities Fund consists of securities held by the State Treasurer for various State agencies as required by statute. The Other Treasurer Funds account for other various deposits made with the State Treasurer for investment purposes. The Other Funds consists of various funds where the State acts as an agent for distribution to other governmental units or organizations. STATE OF ARIZONA COMBINING STATEMENT OF ASSETS AND LIABILITIES AGENCY FUNDS JUNE 30, 2003 (Expressed in Thousands) TREASURER CUSTODIAL SECURITIES FUND ASSETS Cash Cash and pooled investments with State Treasurer Short-term investments Receivables, net of allowances: Interest Other Due from others Custodial securities in safekeeping Other assets Total Assets $ - OTHER TREASURER FUNDS $ - OTHER FUNDS $ 28,948 TOTAL $ 28,948 - 18,629 - 142,113 2,978 160,742 2,978 2,928,537 - 53 - 87 764 89,170 37,538 2,295 140 764 89,170 2,966,075 2,295 $ 2,928,537 $ 18,682 $ 303,893 $ 3,251,112 LIABILITIES Accounts payable and other current liabilities $ Accrued liabilities Due to local governments Due to others 2,928,537 $ 372 2,049 16,261 $ 111,343 6,123 1,224 185,203 $ 111,715 6,123 3,273 3,130,001 2,928,537 $ 18,682 $ 303,893 $ 3,251,112 Total Liabilities $ - 191 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUNDS FOR THE YEAR ENDED JUNE 30, 2003 (Expressed in Thousands) RESTATED BALANCE JULY 1, 2002 TREASURER CUSTODIAL SECURITIES FUND Assets: Custodial securities in safekeeping Total Assets Liabilities: Due to others Total Liabilities OTHER TREASURER FUNDS Assets: Cash and pooled investments with State Treasurer Interest receivable Total Assets Liabilities: Accounts payable and other current liabilities Due to local governments Due to others Total Liabilities ADDITIONS BALANCE JUNE 30, 2003 DELETIONS $ 3,013,547 $ 776,476 $ 861,486 $ 2,928,537 $ 3,013,547 $ 776,476 $ 861,486 $ 2,928,537 $ 3,013,547 $ 776,476 $ 861,486 $ 2,928,537 $ 3,013,547 $ 776,476 $ 861,486 $ 2,928,537 $ 13,591 39 $ 322,957 53 $ 317,919 39 $ 18,629 53 $ 13,630 $ 323,010 $ 317,958 $ 18,682 $ 338 1,369 11,923 $ 62,876 216,405 60,441 $ 62,842 215,725 56,103 $ 372 2,049 16,261 $ 13,630 $ 339,722 $ 334,670 $ 18,682 (Continued) - 192 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUNDS FOR THE YEAR ENDED JUNE 30, 2003 (Expressed in Thousands) RESTATED BALANCE JULY 1, 2002 OTHER FUNDS Assets: Cash Cash and pooled investments with State Treasurer Short-term investments Receivables, net of allowances: Interest Other Due from others Custodial securities in safekeeping Other assets Total Assets Liabilities: Accounts payable and other current liabilities Accrued liabilities Due to local governments Due to others Due to other Funds Total Liabilities COMBINED TOTAL ALL AGENCY FUNDS Assets: Cash Cash and pooled investments with State Treasurer Short-term investments Receivables, net of allowances: Interest Other Due from others Custodial securities in safekeeping Other assets Total Assets Liabilities: Accounts payable and other current liabilities Accrued liabilities Due to local governments Due to others Due to other Funds Total Liabilities $ 29,250 161,920 - ADDITIONS $ 130 876 41,676 2,215 28,948 3,775,690 2,978 BALANCE JUNE 30, 2003 DELETIONS $ 87 764 89,170 37,538 2,295 29,250 3,795,497 - $ 130 876 41,676 2,215 28,948 142,113 2,978 87 764 89,170 37,538 2,295 $ 236,067 $ 3,937,470 $ 3,869,644 $ 303,893 $ 132,071 31,995 1,363 70,638 - $ 5,349,074 6,123 1,849 183,712 3,675 $ 5,369,802 31,995 1,988 69,147 3,675 $ 111,343 6,123 1,224 185,203 - $ 236,067 $ 5,544,433 $ 5,476,607 $ 303,893 $ 29,250 175,511 - $ 28,948 4,098,647 2,978 $ 29,250 4,113,416 - $ 28,948 160,742 2,978 169 876 3,055,223 2,215 140 764 89,170 814,014 2,295 169 876 903,162 2,215 140 764 89,170 2,966,075 2,295 $ 3,263,244 $ 5,036,956 $ 5,049,088 $ 3,251,112 $ 132,409 31,995 2,732 3,096,108 - $ 5,411,950 6,123 218,254 1,020,629 3,675 $ 5,432,644 31,995 217,713 986,736 3,675 $ 111,715 6,123 3,273 3,130,001 - $ 3,263,244 $ 6,660,631 $ 6,672,763 $ 3,251,112 - 193 - BUDGETARY COMPARISON SCHEDULE OTHER GOVERNMENTAL FUNDS BUDGETARY COMPARISON SCHEDULE OTHER GOVERNMENTAL FUNDS STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2003 FINAL (Expressed in Dollars) BUDGET (Appropriations) OTHER GOVERNMENTAL FUNDS Certificates of Deposit Debt Service General Fund Transfer 1st Special Session Chapter 1 Accountancy Board Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Department of Administration Operating Lump Sum Appropriation New Prison Complex FY99 - 00 Prison Planning and Siting FY98 - 99 New Prison Complex Planing Site Acquisition FY95 - 96 Southwest Regional Prison Complex FY98 - 99 Southwest Regional Prison Complex FY97 - 98 Southwest Regional Prison Complex FY96 - 97 Florence - 400 Modular and Tent Beds FY96 - 97 Yuma Complex - 800 Male Beds FY96 - 97 Yuma Complex - 800 Male Beds FY95 - 96 ASPC at Douglas Wastewater Treatment ASPC Prison Beds - Globe ASPC Perryville Security Improvements Build-Out New DJC Secure Care Complex Department of Corrections Building Renewal Fort Grant Landfill Closure Department of Corrections Lock Replacement Department of Corrections Safety Improvements ADJC HVAC Replacements/Renovations Department of Juvenile Corrections Medical Unit FY01- 02 Department of Juvenile Corrections Building Renewal Administrative Adjustments General Fund Transfer 1st Special Session Chapter 1 Employee Bus Subsidy General Fund Transfer 1st Special Session Chapter 1 General Fund Transfer 1st Special Session Chapter 1 Sexually Violent Persons Facility Statewide Prison Maintenance FY93 - 94 Arizona Pioneers' Home Fire and Life Safety Building Renewal Pioneers' Home Arizona Pioneers' Home Plumbing Renovations Building Renewal Miners' Hospital Fund Health Lab COP Rent Pioneers' Home Plumbing Renovations Radiation Regulatory Agency Medical Radiological Technology Board Medical Radiological Technology Board Assistant Administrative Adjustments Attorney General Operating Lump Sum Appropriation Operating Lump Sum Appropriation Administrative Adjustments Victims' Rights Implementation Fund Victims' Rights/Non Revert - HB 2427 Operating Lump Sum Appropriation Operating Lump Sum Appropriation Administrative Adjustments General Fund Transfer 1st Special Session Chapter 1 General Fund Transfer 1st Special Session Chapter 1 $ 20,050,000 ACTUAL EXPENDITURE AMOUNTS $ 17,515,082 2,114,500 510,993 1,598,760 45,962 604,700 50,478 (1,866,330) 0 1,073,926 101,947 792 90 36,121 0 0 0 11,948 0 1,234,779 549,281 18,553 1,362,543 3,666 7,160 0 3,870 12,000,000 475,400 500,000 200,000 0 9,724 65,963 90,055 128,943 186,100 835,669 200,000 557,485 47,270 (1,866,330) 0 10,702 0 589 0 36,121 0 0 0 0 0 1,019,540 273,712 18,553 156,080 3,666 7,160 0 3,870 12,000,000 441,359 500,000 200,000 0 0 13,380 84,455 105,437 20,681 835,669 200,000 198,900 23,665 5,751 198,627 12,290 5,751 17,179,400 1,758,200 8,685 3,168,300 710,596 405,000 2,097,100 5,744 1,625,000 200,000 15,981,543 1,432,086 8,685 2,850,562 231,451 305,364 1,977,003 5,744 1,625,000 200,000 (Continued) - 197 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2003 FINAL (Expressed in Dollars) BUDGET (Appropriations) Department of Agriculture Operating Lump Sum Appropriation Operating Lump Sum Appropriation Administrative Adjustments Operating Lump Sum Appropriation Administrative Adjustments Operating Lump Sum Appropriation General Fund Transfer 1st Special Session Chapter 1 Administrative Adjustments Operating Lump Sum Appropriation Administrative Adjustments Operating Lump Sum Appropriation Administrative Adjustments Operating Lump Sum Appropriation General Fund Transfer 1st Special Session Chapter 1 Administrative Adjustments Operating Lump Sum Appropriation Operating Lump Sum Appropriation Administrative Adjustments Ratite General Fund FY98 - 99 General Fund Transfer 1st Special Session Chapter 1 Operating Lump Sum Appropriation General Fund Transfer 1st Special Session Chapter 1 Administrative Adjustments Operating Lump Sum Appropriation Wine Promotion Acupuncture Board of Examiners Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Appraisal Board Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Automobile Theft Authority Operating Lump Sum Appropriation Auto Theft Authority Grants Administrative Adjustments Barber Examiners Board Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Banking Department General Fund Transfer 1st Special Session Chapter 1 Board of Behavioral Health Examiners Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Board of Nursing Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Cosmetology Board Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Corporation Commission Operating Lump Sum Appropriation Utility Audits, Studies, Investigations and Rate Hearing FY00-01 Utility Audits, Studies, Investigations and Rate Hearing FY98-99 Utility Audits, Studies, Investigations and Rate Hearing FY97-98 Utility Audits, Studies, Investigations and Rate Hearing FY01-02 ACTUAL EXPENDITURE AMOUNTS 64,900 9,200 334 995,700 15,948 206,200 500,000 3,715 21,400 95 485,100 4,428 259,900 200,000 3,715 79,400 245,900 107 71,786 1,831 241,000 450,000 3,716 52,500 54,858 62,077 5,241 334 746,200 15,948 203,251 500,000 3,715 21,400 95 429,995 4,428 250,604 200,000 3,715 29,453 152,306 107 0 1,831 236,838 450,000 3,716 30,931 0 60,500 3,945 59,788 3,850 462,500 8 458,598 8 438,500 3,475,500 1,643 433,095 3,469,450 15 192,200 4,358 191,086 4,358 720,800 720,800 717,000 82,808 611,759 11,430 2,902,700 597 2,902,150 597 1,488,600 365,043 1,469,165 783 10,814,700 130,611 8,000 3,392 380,000 10,386,711 112,721 8,000 3,392 0 (Continued) - 198 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2003 FINAL (Expressed in Dollars) BUDGET (Appropriations) Supplemental - Utility Audits 44th Leg 2nd RS Supplemental - Utility Audits 45th Leg 2nd RS General Fund Transfer 1st Special Session Chapter 1 Administrative Adjustments Operating Lump Sum Appropriation Annual Reversion per ARS 44-3298 Operating Lump Sum Appropriation Administrative Adjustments Operating Lump Sum Appropriation Investigation and Prosecution of Security Fraud Administrative Adjustments Chiropractic Examiners Board Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Department of Corrections Operating Lump Sum Appropriation ASPC Yuma - Shingle Cocopah Dorms/Reseal Roof Reimbursement for Private Incarceration Administrative Adjustments Operating Lump Sum Appropriation General Fund Transfer 1st Special Session Chapter 1 Administrative Adjustments General Fund Transfer 1st Special Session Chapter 1 Operating Lump Sum Appropriation Administrative Adjustments Operating Lump Sum Appropriation State Charitable, Penal and Reformatory Land Earnings Administrative Adjustments Department of Economic Security ADM Public Assistance Collections ADM Attorney General Legal Services General Fund Transfer 1st Special Session Chapter 1 Administrative Adjustments DCYF Child Abuse Prevention DCYF Healthy Families Administrative Adjustments DCYF Operating Lump Sum Appropriation Administrative Adjustments DACS Domestic Violence Prevention DERS Operating Lump Sum Appropriation DERS Vocational Rehabilitation Services DERS Independent Living Rehabilitation Services ADM Operating Lump Sum Appropriation Administrative Adjustments ADM Operating Lump Sum Appropriation DERS Operating Lump Sum Appropriation DERS JOBS Administrative Adjustments Commission for the Deaf and Hard of Hearing Operating Lump Sum Appropriation General Fund Transfer 1st Special Session Chapter 1 Administrative Adjustments Department of Juvenile Corrections Black Canyon Institution - Electrical System Repairs Adobe Mountain - Repair Subfloor, Floor and Walls Adobe Mountain - Upgrade Fire Booster Pump ACTUAL EXPENDITURE AMOUNTS 1,254 380,270 750,000 48,837 761,200 766,482 1,789,700 16,204 3,381,100 165,599 3,730 1,254 130,895 750,000 48,837 749,334 766,482 1,743,992 16,204 3,090,367 0 3,730 345,700 41,304 340,704 41,254 29,978,100 54,000 664,125 822,398 449,300 1,000,000 22,307 1,000,000 1,375,000 7,267 570,000 89,972 110,169 16,784,086 31,276 374,888 822,398 424,459 1,000,000 22,307 1,000,000 1,203,508 7,267 397,678 45,230 110,169 228,200 85,600 1,150,000 49,436 814,800 250,000 607,625 209,600 5,981 1,700,000 490,100 304,700 1,572,100 103,100 268,440 541,900 85,000 1,500,000 1,230,806 66,480 22,899 1,150,000 49,436 778,699 250,000 607,625 132,699 5,981 1,500,000 370,446 165,600 1,479,565 0 268,440 240 8,794 1,226,092 1,230,806 5,434,200 2,000,000 311,053 4,697,161 2,000,000 311,053 74,090 21,040 19,000 74,090 21,040 18,537 (Continued) - 199 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2003 FINAL (Expressed in Dollars) BUDGET (Appropriations) Catalina Mountain Institution - Replace Kitchen Floor Operating Lump Sum Appropriation Operating Lump Sum Appropriation Dispensing Opticians Board Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Board of Dental Examiners Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Department of Education Achievement Testing School Accountability Fund - Proposition 301 FY02 - 03 School Accountability Fund - Proposition 301 FY01 - 02 School Accountability - School Safety Proposition 301 School Safety - Character Education Additional School Days Administrative Adjustments School Accountability Fund School Accountability Fund - Proposition 301 FY01 - 02 General Fund Transfer 1st Special Session Chapter 1 Basic State Aid Entitlement Department of Commerce Lottery 1989 Arizona Sonora Economic Development Study Williams Gateway Airport Authority Operating Lump Sum Appropriation Advertising and Promotion Economic Development Matching Funds International Trade Offices Main Street Minority and Women Owned Business National Law Center/Free Trade REDI Matching Grants Small Business Advocate Administrative Adjustments CEDC Commission Administrative Adjustments Deficiencies Correction Fund Transfer Oil Overcharge Administration General Fund Transfer 1st Special Session Chapter 1 Department of Environmental Quality UST Assurance Acct - Technical Appeals Panel FY01 -02 UST Assurance Acct - Policy Comm FY01 - 02 Department of Administration Bus Subsidy Department of Administration Travel Reduction Transfer Department of Transportation Administration Transfer Weights and Measurers Oxygenated Fuels Transfer Air Quality Program FY02 - 03 Air Quality Program - Continuing FY02 - 03 Air Quality Program - Continuing FY01 - 02 Emissions Cap and Trading Program FY02 - 03 Emissions Cap and Trading Program FY01 - 02 Pima County Air Quality Program Political Subdivisions Assistance Roadside Diesel Emissions Testing Program FY02 - 03 Roadside Diesel Emissions Testing Program FY01 - 02 ACTUAL EXPENDITURE AMOUNTS 68,960 747,100 360,000 32,875 426,344 360,000 98,700 11,107 98,689 5,401 774,700 12,416 765,294 11,417 2,088,400 4,586,800 (18,616,681) 7,800,000 200,000 31,530,100 2,448,927 38,274,100 20,336,920 500,000 70,263,000 1,919,362 3,022,688 (18,616,681) 4,635,724 200,000 28,892,592 2,448,927 38,274,100 20,336,920 500,000 70,263,000 5,001 10,000 4,000,000 630,500 659,200 104,000 976,000 130,000 109,900 200,000 45,000 109,000 115,757 254,400 138 8,000,000 147,500 2,500,000 0 0 0 538,337 295,911 50,838 830,959 91,489 109,882 200,000 13,461 108,891 113,132 212,548 138 8,000,000 120,411 2,500,000 10,000 972 475,400 400,000 51,100 1,172,300 4,211,600 250,000 225,000 300,000 280,121 165,000 65,555 200,000 200,000 972 475,400 400,000 51,100 1,172,300 3,343,498 53,011 0 7,023 170,111 165,000 25,029 0 0 (Continued) - 200 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2003 FINAL (Expressed in Dollars) BUDGET (Appropriations) Visibility Index Development FY02 - 03 Visibility Index Development FY01 - 02 Air Permits Administration Program General Fund Transfer 1st Special Session Chapter 1 Administrative Adjustments Solid Waste Program General Fund Transfer 1st Special Session Chapter 1 Administrative Adjustments Waste Tire Program Solid Waste Program Emissions Control Program Emissions Contractor Payments General Fund Transfer 1st Special Session Chapter 1 Administrative Adjustments Hazardous Waste Program Hazardous Waste Reserve FY95 - 96 Hazardous Waste Reserve FY94 - 95 Relief Bill Solid Waste Program Administrative Adjustments UST Assurance Acct - Technical Appeals Panel FY00 - 01 UST Assurance Acct - Policy Comm FY00 - 01 UST Assurance Acct - Policy Comm FY99 - 00 UST Program General Fund Transfer 1st Special Session Chapter 1 General Fund Transfer 1st Special Session Chapter 1 Administrative Adjustments Water Quality Program General Fund Transfer 1st Special Session Chapter 1 Relief Bill Administrative Adjustments Funeral Directors and Embalmers Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Game and Fish Department Operating Lump Sum Appropriation Pittman - Robertson/Dingell - Johnson Act Performance Based Incentives Program FY02 - 03 Building Renewal FY02 - 03 Building Renewal FY01 - 02 Building Renewal FY00 - 01 Facility Improvements FY02 - 03 Facility Improvements FY01 - 02 Facility Improvements FY99 - 00 Facility Improvements FY00 - 01 Shooting Range Development FY02 - 03 Shooting Range Development FY01 - 02 Shooting Range Development FY00 - 01 Shooting Range Development FY99 - 00 Shooting Range Development FY98 - 99 Shooting Range Development FY97 - 98 Flagstaff Shooting Range Development FY00 - 01 Flagstaff Shooting Range Development FY99 - 00 Lease Purchase Payoff FY98 - 99 Lease Purchase Payoff FY96 - 97 Administrative Adjustments ACTUAL EXPENDITURE AMOUNTS 300,000 447,763 5,294,000 2,000,000 540,050 2,073,200 1,500,000 67,156 195,700 1,071,900 3,914,100 31,739,600 2,000,000 7,576 768,100 29,273 64,000 447 129,800 8,005 7,500 6,531 347,021 22,000 2,400,000 3,600,000 972 3,610,600 2,600,000 3,840 33,072 27,437 367,174 5,091,790 2,000,000 540,050 1,537,365 1,500,000 34,699 36,412 559,859 2,512,194 25,182,262 2,000,000 7,576 467,817 0 0 447 90,145 8,005 0 6,257 328,164 605 2,400,000 3,600,000 972 1,601,109 2,600,000 3,840 33,072 263,400 24,066 254,039 23,539 18,083,000 2,708,000 300,000 331,000 251,835 104,128 170,000 169,342 25,433 6,748 100,000 47,122 30,938 4,505 5,930 2,048 74,000 15,340 0 0 65,629 16,601,601 2,708,000 300,000 98,683 240,026 90,328 23,400 33,642 18,744 4,294 0 5,000 0 2,447 1,660 2,048 0 0 0 0 65,629 (Continued) - 201 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2003 FINAL (Expressed in Dollars) BUDGET (Appropriations) Headquarters Expansion and Renovation FY02 - 03 Headquarters Expansion and Renovation FY01 - 02 Headquarters Expansion and Renovation FY00 - 01 Deer Valley North Office Renovation FY95 - 96 Flagstaff Shooting Range Planning FY02 - 03 Flagstaff Shooting Range Planning FY01 - 02 Operating Lump Sum Appropriation Migratory Waterfowl Development FY02 - 03 Migratory Waterfowl Development FY01 - 02 Migratory Waterfowl Development FY00 - 01 Migratory Waterfowl Development FY99 - 00 Migration Waterfowl Development FY98 - 99 Migratory Waterfowl Development FY97 - 98 Migration Waterfowl Habitat FY96 - 97 Migration Waterfowl Habitat FY95 - 96 Migration Waterfowl Habitat FY93 - 94 Administrative Adjustments Operating Lump Sum Appropriation Performance Based Incentives Program W.C. Performance Based Incentives Program General Fund Transfer 1st Special Session Chapter 1 Administrative Adjustments Operating Lump Sum Appropriation Administrative Adjustments Operating Lump Sum Appropriation Administrative Adjustments Performance Based Incentives Program FY00 - 01 Performance Based Incentives Program FY97 - 98 Department of Gaming Operating Lump Sum Appropriation Administrative Adjustments Operating Lump Sum Appropriation Arizona Health Care Cost Containment System Health Care Group Administration Administrative Adjustments Children's Health Insurance Program - Services Children's Health Insurance Program - Parents Children's Health Insurance Program - Administration Administrative Adjustments Department of Housing Operating Lump Sum Appropriation General Fund Transfer 1st Special Session Chapter 1 Administrative Adjustments Homeopathic Medical Examiners Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Department of Health Services Assurance and Licensure Public Health - EMS Operations Public Health - Trauma Advisory Board Family Health - High Risk Perinatal Services Administration - Operating Lump Sum Appropriation Rural Ambulance Services Rural Medical Services General Fund Transfer 1st Special Session Chapter 1 Administrative Adjustments ACTUAL EXPENDITURE AMOUNTS 800,000 500,000 212,333 219 500,000 494,306 43,500 100,000 100,000 100,000 100,000 89,312 89,700 94,700 1,214 1,302 5,125 2,502,900 46,800 2 1,500,000 8,970 16,000 15,190 294,200 11,862 13 6,571 0 0 0 219 0 33,214 23,728 0 0 0 0 0 30,095 94,697 1,214 0 5,125 2,384,603 46,478 0 1,500,000 8,970 8,317 15,190 232,040 11,862 0 0 3,966,000 9,903 1,111,100 3,964,907 9,903 1,083,867 1,717,700 31,134 60,247,900 26,345,200 9,360,100 1,258,198 1,196,585 31,134 57,956,987 14,857,291 6,670,388 1,087,425 438,800 2,000,000 4,462 438,800 2,000,000 4,462 78,000 19,776 57,928 2,078 38,000 2,908,300 250,000 450,000 17,100 200,000 581,929 1,600,000 300,051 0 2,570,608 127,837 318,341 0 200,000 508,838 1,600,000 297,803 (Continued) - 202 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2003 FINAL (Expressed in Dollars) BUDGET (Appropriations) Family Health - Child Fatality Review Team Administration - Indirect Costs Newborn Screening Program Relief Bill Administrative Adjustments Public Health - Poison Control Center University of Arizona Poison Control Administrative Adjustments Behavioral Health - Substance Abuse Non-Title XIX Alzheimer's Grants Mental Health Research Institute Grant General Fund Transfer 1st Special Session Chapter 1 Public Health - Laboratory Services Administrative Adjustments Public Health - Aids Reporting and Treatment Behavioral Health - Seriously Mentally Ill Non-Title XIX Seriously Mentally Ill State Match for Title XIX Hepatitis C Virus Surveillance Immunization Information System Local Health Departments Administrative Adjustments Operating Lump Sum Appropriation Industrial Commission Operating Lump Sum Appropriation General Fund Transfer 1st Special Session Chapter 1 Administrative Adjustments Criminal Justice Commission Operating Lump Sum Appropriation Crime Victim Compensation Crime Victim Compensation Special AG Transfer FY00 - 01 Administrative Adjustments Drug and Gang Prevention Resource Center General Fund Transfer 1st Special Session Chapter 1 Operating Lump Sum Appropriation Administrative Adjustments Operating Lump Sum Appropriation Rural State Aid to County Attorneys Operating Lump Sum Appropriation Rural State Aid to Indigent Defense Legislative Council Old Capitol Building Repairs FY00 - 01 Land Department In State Fire Costs Fire Suppression General Fund Transfer 1st Special Session Chapter 1 Natural Resource Conservation Districts Environmental Education Program General Fund Transfer 1st Special Session Chapter 1 Department of Emergency and Military Affairs Operating Lump Sum Appropriation Medical Examiners Board Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Document Imaging/Web Site Development/Maintenance Performance Based Incentive Program ACTUAL EXPENDITURE AMOUNTS 100,000 478,600 3,211,400 5,480 248,082 800,000 1,050,000 462,500 3,350,000 1,000,000 2,500,000 500,000 790,400 20,804 1,000,000 10,790,000 5,000,000 350,000 477,000 200,000 272,401 650,000 88,440 310,923 2,517,326 5,480 248,082 600,000 787,500 462,500 3,349,999 1,000,000 654,932 500,000 645,678 20,804 1,000,000 10,790,000 5,000,000 236,731 440,251 200,000 272,401 632,539 15,983,500 1,000,000 90,066 14,967,550 1,000,000 90,066 2,900,000 23,933 140,213 125 259,800 200,000 464,200 17,422 692,800 157,700 657,800 149,800 2,812,684 23,933 113,467 125 259,800 200,000 448,550 17,422 692,800 157,700 657,800 149,800 29,714 29,714 2,663,480 1,000,000 70,000 490,000 286,000 250,000 2,663,480 1,000,000 70,000 490,000 139,820 250,000 132,700 132,700 4,811,000 350,198 75,208 227,423 4,580,746 300,903 0 115,472 (Continued) - 203 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2003 FINAL (Expressed in Dollars) BUDGET (Appropriations) Naturopathic Board Personal Services Employee Related Expenditures All Other Operating Expenditures FY02 - 03 All Other Operating Expenditures FY01 - 02 Operating Lump Sum Appropriation FY01 - 02 Inspections Required FY02 - 03 Inspections Required FY01 - 02 Nursing Care Examiners Board Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Optometry Board Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Osteopathic Examiners Board Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Health Crisis Fund Repayment Occupational Therapy Examiners Board Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Commission for Postsecondary Education Personal Services Employee Related Expenditure All Other Operating Expenditures Family College Savings Plan Arizona College and Career Guide Arizona Minority Education Policy Analysis Center Twelve Plus Partnership Leveraging Educational Assistance Partnership Pioneer's Home Other Operating Expenditures Professional & Outside Services Food Prescription Drugs Building Renewal FY01 - 02 Prescription Drugs Employee Related Expenses Food Personal Services Professional & Outside Services Travel - In State Other Operating Expenditures Pharmacy Board Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Podiatry Board Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Parks Board Partnerships and Grants Parks Development and Operations Administration Operating Lump Sum Appropriation Partnerships and Grants Operating Lump Sum Appropriation ACTUAL EXPENDITURE AMOUNTS 97,400 12,100 53,300 18,168 19,231 51,300 183 96,755 11,859 52,927 18,158 0 51,274 0 339,500 83,996 335,911 43,853 145,900 8,682 143,778 8,561 412,100 700 25,000 317,800 700 25,000 208,800 50,918 158,436 9,888 180,500 36,100 56,900 38,300 21,200 74,500 231,200 2,143,700 180,500 36,100 47,054 36,400 14,802 24,666 165,316 1,618,054 443,800 32,163 103,337 135,600 8,543 34,210 1,059,500 29,753 3,104,600 120,537 24,200 80,000 443,095 32,163 103,337 133,825 5,633 22,995 1,059,500 16,168 2,917,038 97,042 21,795 72,872 1,227,600 232,451 1,153,628 95,822 102,400 9,610 89,281 3,041 180,700 4,505,100 1,450,100 0 1,116,940 0 176,689 4,474,823 1,421,457 0 1,116,940 0 (Continued) - 204 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2003 FINAL (Expressed in Dollars) BUDGET (Appropriations) Parks Development and Operations Administrative Adjustments FY 91 Pass Through Grants FY 90 Pass Through Grants FY 89 Pass Through Grants Land, Buildings and Improvement Control FY90 - 91 Land, Buildings and Improvement Control FY90 - 91 Land, Buildings and Improvement Control FY90 - 91 Land, Buildings and Improvement Control FY89 - 90 Land, Buildings and Improvement Control FY89 - 90 General Fund Transfer 1st Special Session Chapter 1 Parks Operations General Fund Transfer 1st Special Session Chapter 1 Department of Public Safety Board of Fingerprinting - Clearance Fund Operating Lump Sum Appropriation General Fund Transfer 1st Special Session Chapter 1 Administrative Adjustments Operating Lump Sum Appropriation Pioneer Park Transportation Svc Ctr - Prescott FY00 - 01 Pioneer Park Transportation Svc Ctr - Prescott FY99 - 00 Patrol Officers FY02 - 03 Patrol Officers FY01 - 02 Operating Lump Sum Appropriation General Fund Transfer 1st Special Session Chapter 1 Operating Lump Sum Appropriation DNA Testing Operating Lump Sum Appropriation Operating Lump Sum Appropriation General Fund Transfer 1st Special Session Chapter 1 Administrative Adjustments Operating Lump Sum Appropriation Operating Lump Sum Appropriation Physical Therapy Examiners Board Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Private Post-Secondary Education Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 General Fund Transfer 1st Special Session Chapter 1 Board of Respiratory Care Examiners Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Racing Department Operating Lump Sum Appropriation Operating Lump Sum Appropriation Registrar of Contractors Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Incentive Pay Office of Administrative Hearing Department of Revenue Operating Lump Sum Appropriation Administrative Adjustments ACTUAL EXPENDITURE AMOUNTS 289,700 18,741 2,067,639 40,191 10,436 1,500 19,258 32,684 4,388 258,697 10,000,000 692,100 4,000,000 181,025 18,741 0 0 0 0 0 0 0 0 10,000,000 351,726 4,000,000 33,300 2,121,500 400,000 277,378 38,862,600 11,092 5,595 15,553,600 643,431 3,732,300 200,000 429,100 2,000,000 2,197,000 13,454,000 1,000,000 350 1,128,700 28,266,600 24,401 1,798,997 400,000 277,378 38,862,600 11,092 5,595 12,979,385 640,129 3,732,300 200,000 429,100 562,913 2,197,000 13,389,961 1,000,000 350 1,128,700 28,266,600 232,200 17,493 232,056 17,477 254,600 12,805 100,000 243,146 12,710 100,000 177,400 17,484 156,036 1,363 67,300 339,600 36,132 278,982 8,152,700 1,211,727 113,500 862,200 8,071,812 1,210,033 113,500 862,200 414,800 8,701 401,774 8,701 (Continued) - 205 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2003 FINAL (Expressed in Dollars) BUDGET (Appropriations) Structural Pest Control Board Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Schools for the Deaf and the Blind Operating Lump Sum Appropriation - Phoenix Operating Lump Sum Appropriation - SW Admin Operating Lump Sum Appropriation - Tucson Administrative Adjustments School Facilities Board Transfer per Laws 2003, 2RS, Chpt 327, HB2706 Building Inspections Transfer per Laws 2001, 1RS, Chpt 232, HB2633 General Fund Transfer 1st Special Session Chapter 1 Supreme Court Confidential Intermediary FY 00 -01 Case Processing - State Aid Community Punishment Juvenile Crime Reduction Private Fiduciary FY01 - 02 Private Fiduciary FY00 - 01 Confidential Intermediary FY02 - 03 Confidential Intermediary FY01 - 02 Court Appointed Special Advocate Drug Study State Aid to the Courts Administrative Adjustments General Fund Transfer 1st Special Session Chapter 1 Psychologist Examiners Board Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Technical Registration Board All Other Operating Expenditures FY02 - 03 All Other Operating Expenditures FY01 - 02 Personal Services FY02 - 03 Personal Services FY01 - 02 Employee Related Expenditures FY02 - 03 Employee Related Expenditures FY01 - 02 Home Inspectors Rules and Standards Residential Utilities Consumer Office Operating Lump Sum Appropriation Professional Witnesses FY02 - 03 Professional Witnesses FY01 - 02 Professional Witnesses FY00 - 01 Professional Witnesses FY99 - 00 Professional Witnesses FY98 - 99 Professional Witnesses FY97 - 98 General Fund Transfer 1st Special Session Chapter 1 Administrative Adjustments Veterans' Services Department Operating Lump Sum Appropriation Administrative Adjustments Veterinary Medical Examining Board Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY01 - 02 Water Resources Department General Fund Transfer 1st Special Session Chapter 1 ACTUAL EXPENDITURE AMOUNTS 1,851,100 21,805 1,836,921 21,805 5,387,860 1,362,324 5,541,016 283,087 4,534,449 1,362,324 5,520,125 283,087 15,000,000 400,000 15,000,000 2,487,500 15,000,000 0 14,972,825 2,487,500 117,852 3,013,900 1,830,400 5,061,100 180,522 146,431 396,500 183,416 2,439,400 38,514 2,257,100 3,560,100 800,000 110,164 2,161,482 574,234 2,816,306 92,376 146,431 12,405 140 2,245,337 0 1,885,745 3,560,100 800,000 327,100 74,731 259,791 7,929 414,100 8,638 655,100 51,049 168,300 33,593 5,760 403,631 4,628 624,850 0 147,679 0 111 956,400 145,000 131,715 63,336 49,324 11,977 13,057 300,000 1,259 870,152 83,052 32,829 40,828 0 0 2,453 300,000 1,259 541,000 132 455,626 132 384,900 65,515 342,754 22,264 181,500 181,500 (Continued) - 206 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2003 FINAL (Expressed in Dollars) BUDGET (Appropriations) Weights and Measures Department Operating Lump Sum Appropriation Administrative Adjustments Total Other Governmental Funds Budgetary Expenditures ACTUAL EXPENDITURE AMOUNTS 1,172,300 9,551 $ 850,993,899 - 207 - 1,091,305 9,551 $ 749,715,659 STATISTICAL SECTION (Not Covered by the Independent Auditors’ Report) STATISTICAL SECTION STATE OF ARIZONA REVENUES BY SOURCE ALL GOVERNMENTAL FUND TYPES FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2003 (Expressed in Thousands) SOURCE 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 Taxes: Sales $4,555,389 $4,424,528 $4,019,574 $3,854,075 $3,508,327 $3,210,019 $3,060,258 $2,868,455 $2,681,756 $2,497,763 Income 2,387,369 2,410,342 2,879,011 2,820,067 2,648,271 2,460,630 2,289,563 1,933,554 1,904,250 1,728,225 Motor vehicle and fuel 1,563,876 1,493,259 1,332,917 1,360,117 1,412,052 1,332,059 1,287,636 1,196,683 972,276 912,337 37,470 49,611 47,987 50,490 52,785 55,354 51,185 198,035 193,625 201,011 200,742 Property Unemployment - - 175,733 177,607 191,327 223,517 225,102 239,481 235,800 632,896 543,055 508,499 491,379 493,760 443,999 487,921 445,526 390,564 337,480 6,141,218 5,182,770 4,421,940 3,987,414 3,758,126 3,362,720 3,444,011 3,211,114 3,087,353 2,629,549 Licenses, fees and permits 320,564 327,006 221,063 204,976 189,657 175,335 194,410 173,311 159,890 140,083 Earnings on investments 111,771 136,513 266,400 232,849 205,875 217,620 179,276 152,795 118,767 69,552 Sales and charges for services 111,438 140,568 78,684 58,203 47,910 56,662 28,111 24,096 13,105 15,082 Fines, forfeitures and penalties 96,192 98,349 87,620 80,466 80,210 63,425 57,000 56,702 59,271 38,782 Other Intergovernmental Other Total Revenues 337,930 320,870 397,017 323,888 191,446 169,685 215,337 205,691 165,231 159,500 $16,296,113 $15,126,871 $14,436,445 $13,641,531 $12,779,746 $11,771,025 $11,519,810 $10,705,443 $9,981,888 $8,930,106 STATE OF ARIZONA EXPENDITURES BY FUNCTION ALL GOVERNMENTAL FUND TYPES FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2003 (Expressed in Thousands) FUNCTION General government 2003 $689,603 2002 $486,154 2001 $1,970,048 2000 $1,762,922 1999 $1,605,452 1998 $1,445,878 1997 $1,336,854 1996 $1,277,101 1995 $1,189,562 1994 $1,096,909 Health and welfare 6,652,661 5,788,774 5,131,426 4,556,141 4,304,739 4,005,762 4,057,734 3,790,039 3,644,541 3,208,547 139,863 129,226 119,643 117,034 109,154 102,032 98,445 95,675 91,954 95,374 4,882,516 4,188,501 3,473,005 3,188,645 2,829,105 2,591,121 2,400,212 2,220,246 2,033,675 1,841,961 Protection and safety 925,667 892,986 855,421 845,645 777,636 687,696 627,322 571,325 533,166 476,346 Transportation 463,756 401,372 1,829,350 1,811,957 1,748,482 1,499,551 1,307,624 1,287,309 1,008,472 1,011,600 Natural resources 163,946 140,600 116,732 100,718 94,399 97,377 90,417 87,252 81,629 91,227 Inspection and regulation Education Intergovernmental revenue sharing Capital outlay 2,159,691 2,190,160 - - - - - - - 1,041,038 1,127,716 339,421 302,790 320,621 237,698 250,144 253,753 - 192,337 232,654 297,508 270,850 227,408 192,563 180,157 167,590 168,815 151,652 118,869 100,754 140,613 125,594 91,364 91,222 89,323 89,272 99,150 103,562 107,750 111,123 $17,556,862 $15,741,933 $14,153,818 $12,969,637 $12,059,068 $10,923,977 $10,436,717 $9,837,914 $9,001,955 $8,266,495 Debt service: Principal Interest and other fiscal charges Total Expenditures Note: The State implemented GASB Statement No. 34-Basic Financial Statements and Management Discussion and Analysis in fiscal year 2002. This statement required fund reclassifications in the governmental fund types for fiscal year 2002 and after. - 211 - STATE OF ARIZONA PROPERTY TAX LEVIES, COLLECTIONS, TAXABLE PROPERTY ASSESSED AND ESTIMATED ACTUAL VALUE, AND PROPERTY TAX RATES FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2003 (Expressed in Thousands) Collections Taxable Property Property Property Related to Taxable Property Estimated Property Tax Year Tax Levies Property Tax Year Assessed Value Actual Value Tax Rate 2003 2002 2001 2000 $ 13,629 13,802 17,905 22,532 $ 13,629 13,802 17,905 22,532 $ 38,294,937 34,854,286 32,528,311 29,944,135 $ 335,149,189 294,684,679 273,788,720 246,615,904 12 12 13 13 1999 1998 24,059 27,129 24,059 27,129 27,483,100 25,682,910 227,796,396 210,603,642 12 10 1997 28,650 28,650 24,277,784 198,555,996 12 1996 32,759 28,828 22,811,159 179,907,771 14 1995 1994 174,706 176,972 169,992 171,251 22,109,869 21,688,439 175,683,517 164,689,671 7.9 8.2 Source: Department of Revenue Annual Financial Report STATE OF ARIZONA HIGHWAY CONSTRUCTION REVENUE BOND COVERAGE FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2003 (Expressed in Thousands) (1) Pledged Fiscal Year 2003 2002 2001 2000 1999 1998 1997 Principal $ 44,490 45,365 52,055 46,270 43,805 43,405 40,970 Interest $ 41,932 38,534 36,581 33,994 31,090 33,266 36,148 Total $ 86,422 83,899 88,636 80,264 74,895 76,671 77,118 Revenue $ Coverage 540,540 523,326 513,890 528,721 509,935 468,240 468,542 6.3 6.2 5.8 6.6 6.8 6.1 6.1 1996 38,430 38,770 77,200 429,825 5.6 1995 1994 36,330 33,425 40,974 44,037 77,304 77,462 399,605 385,844 5.2 5.0 (1) For fiscal years 1994 through 1996, net of 7% distributed to cities with a population greater than 300,000 persons. For fiscal years 1997 and after, includes vehicle license tax revenues distributed directly to the State Highway Fund. Source: The Arizona Department of Transportation Comprehensive Annual Financial Report statistical section. - 212 - % STATE OF ARIZONA MARICOPA COUNTY ROAD CONSTRUCTION REVENUE BOND COVERAGE FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2003 (Expressed in Thousands) (1) Pledged Fiscal Year 2003 2002 2001 2000 1999 1998 1997 Principal $ 190,415 163,455 156,865 128,805 106,765 82,765 78,015 Interest $ 31,533 35,445 40,035 42,609 43,251 40,512 45,248 Total $ 221,948 198,900 196,900 171,414 150,016 123,277 123,263 Revenue $ Coverage 268,721 267,563 264,722 248,596 229,470 209,263 192,257 1.2 1.3 1.3 1.5 1.5 1.7 1.6 1996 76,955 46,209 123,164 178,413 1.4 1995 1994 57,930 54,710 47,320 49,347 105,250 104,057 160,319 142,846 1.5 1.4 (1) Bond coverage ratio is based upon total Transportation Excise Taxes collected within Maricopa County. Source: The Arizona Department of Transportation Comprehensive Annual Financial Report statistical section. Note: Presented for the first time in Fiscal Year 2003. STATE OF ARIZONA ARIZONA STATE UNIVERSITY REVENUE BOND COVERAGE FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2003 (Expressed in Thousands) (2) Debt Service Requirements (1), (2) Fiscal Gross Year Revenues 2003 297,691 $ 9,695 Interest $ 9,575 Total $ Coverage 19,270 15.45 2002 274,596 9,785 12,139 21,924 12.52 2001 261,328 8,995 11,766 20,761 12.59 2000 242,764 9,640 12,245 21,885 11.09 1999 233,404 9,205 12,685 21,890 10.66 1998 210,397 8,780 13,113 21,893 9.61 1997 196,143 8,330 13,563 21,893 8.96 1996 183,167 7,750 14,144 21,894 8.37 1995 165,736 7,085 14,807 21,892 7.57 1994 149,895 5,865 13,815 19,680 7.62 (1) $ (2) Principal "Gross Revenues" for the years 1999 through 2003 have been restated to include ASU West and ASU East campuses. (2) Gross Revenues, debt service requirements, and coverage ratios for all years have been restated, to align with financial statement presentation. In prior years, coverage information was presented on a budgetary year. Source: Arizona State University - 213 - STATE OF ARIZONA NORTHERN ARIZONA UNIVERSITY REVENUE BOND COVERAGE FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2003 (Expressed in Thousands) Debt Service Requirements (1) Fiscal Gross Year Revenues 2003 85,294 $ 9,426 Interest $ 5,066 Total $ Coverage 14,492 5.89 2002 82,839 6,932 3,949 10,881 7.61 2001 78,907 6,214 5,246 11,460 6.89 2000 75,852 6,119 5,488 11,607 6.54 1999 73,467 6,075 5,810 11,885 6.18 1998 71,743 5,743 6,145 11,888 6.03 1997 70,036 5,677 4,859 10,536 6.65 1996 68,336 5,372 5,207 10,579 6.46 1995 61,526 4,675 5,525 10,200 6.03 1994 56,313 3,905 5,802 9,707 5.80 (1) $ Principal "Gross Revenues" includes only revenues that are pledged for debt service payments under the System Revenue Bond Indenture. Source: Northern Arizona University STATE OF ARIZONA UNIVERSITY OF ARIZONA REVENUE BOND COVERAGE FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2003 (Expressed in Thousands) (1), (2) (1), (2) Direct Net Revenue Fiscal Gross Operating Available for Year Revenues Expenses Debt Service 2003 2002 2001 2000 1999 1998 $ 726,258 670,326 710,423 674,330 650,201 605,197 $ 667,627 625,664 663,284 625,318 580,292 555,733 1997 577,412 535,178 42,234 9,360 1996 563,623 513,444 50,179 9,491 1995 1994 537,891 511,315 486,926 467,291 50,965 44,024 8,147 6,450 $ 58,631 44,662 47,139 49,012 69,909 49,464 Debt Service Requirements Principal $ 12,625 9,946 12,415 11,700 10,714 9,830 Interest $ 12,156 15,500 16,359 13,081 14,869 14,463 Total $ 24,781 25,446 28,774 24,781 25,583 24,293 2.37 1.76 1.64 1.98 2.73 2.04 14,935 24,295 1.74 15,421 24,912 2.01 15,334 13,813 23,481 20,263 2.17 2.17 (1) "Gross Revenues" and "Direct Operating Expenses" include Current Operating Unrestricted Funds only since these are the Funds that are pledged for debt service payments under the System Revenue Bond Indentures. Also excluded from expenses is interest, depreciation, and amortization. (2) Fiscal Year 2002 "Gross Revenues" and "Direct Operating Expenses" include accounting changes applied to Scholarship and Allowance due to implementation of GASB 34/35. Source: University of Arizona - 214 - Coverage STATE OF ARIZONA ECONOMIC INDICATORS FOR THE LAST TEN CALENDAR YEARS Calendar (1), (2) Year Ended Unemployment Rate December 31 Arizona Per Capita Personal Income U.S. Arizona 2002 2001 2000 6.20 % 4.70 3.90 5.80 % 4.80 4.00 1999 4.40 4.20 23,939 27,880 1998 4.10 4.50 23,118 26,893 1997 4.60 5.00 21,892 25,412 1996 5.50 5.40 20,883 24,270 1995 5.10 5.60 20,050 23,255 1994 6.40 6.10 19,320 22,340 1993 6.30 6.80 18,424 21,539 (1) $ N/A 25,878 25,361 US $ N/A 30,413 29,760 Information for 2002 is not yet available, there is a two year lag for income. (2) Arizona & U.S. Income for 1999-2002 has been updated with June 30, 2003 revised data. Source: Arizona Department of Economic Security STATE OF ARIZONA MAJOR PRIVATE EMPLOYERS FOR THE FISCAL YEAR ENDED JUNE 30, 2003 Number of Employer Employees Wal-Mart Stores Inc 19,189 Honeywell International Inc. 13,303 Banner Health 12,408 Raytheon Company 10,100 Intel Corporation 9,575 Albertsons Inc 9,500 Bashas' Supermarkets 9,282 Wells Fargo & Company 9,100 Kroger Company 9,053 Target Corporation 8,778 Source: Phoenix Newspapers, Inc. - 215 - STATE OF ARIZONA POPULATION BY COUNTY FOR LAST TEN YEARS COUNTY MARICOPA 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 3,296,250 3,192,125 3,072,149 2,913,475 2,806,100 2,720,525 2,634,625 2,528,700 2,355,900 2,291,200 PIMA 890,545 870,610 843,746 845,775 823,900 789,650 780,750 758,575 728,425 712,600 PINAL 192,395 186,795 179,727 165,400 157,675 150,375 144,150 139,000 132,225 127,225 YAVAPAI 180,260 175,305 167,517 155,900 148,500 142,075 134,600 130,300 123,500 118,400 MOHAVE 166,465 161,580 155,032 142,925 138,625 133,550 127,700 125,150 120,325 114,000 YUMA 169,760 165,280 160,895 139,650 135,200 129,275 124,950 121,975 119,650 116,450 COCHISE 124,040 121,435 117,755 124,575 123,750 119,650 114,925 112,000 108,225 103,325 COCONINO 125,420 122,770 116,320 122,825 121,625 117,475 113,475 110,750 107,500 104,700 NAVAJO 101,615 99,780 97,470 93,400 92,500 89,225 84,300 82,875 81,750 80,675 APACHE 70,105 69,880 69,423 66,950 66,350 55,500 64,475 63,750 63,275 63,050 GILA 53,015 52,420 51,335 50,150 49,175 47,450 45,300 44,525 43,350 42,400 GRAHAM 34,070 34,065 33,489 35,750 34,700 32,575 31,150 30,050 30,625 29,400 8,605 8,590 8,547 9,225 9,125 8,875 8,650 8,525 8,425 8,375 LA PAZ 20,365 19,935 19,715 19,250 19,000 17,625 18,200 16,700 16,075 15,550 SANTA CRUZ 39,840 39,325 38,381 39,100 37,800 36,350 35,050 34,275 32,400 31,525 5,472,750 5,319,895 5,131,501 4,924,350 4,764,025 4,590,175 4,462,300 4,307,150 4,071,650 3,958,875 GREENLEE TOTAL Source: Arizona Department of Economic Security STATE OF ARIZONA SCHEDULE OF BANK AND SAVINGS AND LOAN DEPOSITS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2003 (Expressed in Millions) Banks Savings and Loans Fiscal Year 2003 2002 2001 2000 1999 1998 State $ 6,307 5,124 4,518 4,454 4,031 3,331 Federal $ 44,902 39,899 39,673 36,000 33,660 32,844 $ Total (1) Deposits State 51,209 45,023 44,191 40,454 37,691 36,175 $ Total Federal - $ - 4,757 3,793 3,129 2,768 2,480 2,138 Deposits $ 4,757 3,793 3,129 2,768 2,480 2,138 1997 2,724 31,611 34,335 - 1,738 1,738 1996 9,746 23,912 33,658 22 1,289 1,311 1995 1994 9,403 10,357 23,984 21,014 33,387 31,371 86 79 1,496 1,109 1,582 1,188 (1) Missing information is not available, as only Federal Savings and Loans are required to report to the Federal Deposit Insurance Corporation. Information on State Savings and Loans is no longer reported by the Arizona Banking Department. Source: Federal Deposit Insurance Corporation - 216 - STATE OF ARIZONA ASSESSED VALUE OF NEW COMMERCIAL AND RESIDENTIAL CONSTRUCTION FOR THE LAST TEN YEARS COMMERCIAL CONSTRUCTION Calendar Number of RESIDENTIAL CONSTRUCTION Value Number of Value Year Ended Permits Percent (Expressed Percent Permits Percent (Expressed Percent December 31 Issued Change in Thousands) Change Issued Change in Thousands) Change 2002 2001 2000 1999 56,100 54,785 53,877 48,536 1998 1997 43,303 39,717 1996 1995 3,946,678 5,038,963 4,784,452 4,107,783 (21.68) % 5.32 16.47 (9.49) 83,019 75,863 74,629 80,432 9.43 % 1.65 (7.21) 3.66 9.03 9.69 4,538,720 4,004,022 13.35 1.41 77,594 69,613 36,209 10.87 3,948,490 33.15 32,659 8.04 2,965,456 30.15 1994 30,228 6.30 2,278,460 1993 28,436 1.67 1,548,420 Source: 2.40 % 1.69 11.00 12.08 $ $ 8,583,036 7,508,550 6,863,290 7,263,997 14.31 % 9.40 (5.52) 8.83 11.46 5.17 6,674,574 5,460,787 22.23 11.19 66,194 3.93 4,911,269 22.77 63,688 (0.59) 4,000,436 (15.26) 47.15 64,065 21.08 4,720,754 30.09 3.57 52,910 6.31 3,628,710 15.71 College of Business, Arizona State University Center for Business Research STATE OF ARIZONA PUBLIC SCHOOL ENROLLMENT - GRADES K-12 FOR THE LAST TEN ACADEMIC YEARS (1) (2) Academic Grades Grades Grades Grades Total All High School Dropouts Year K-3 4-6 7-9 10-12 Grades Total (3) (4) Percent 2002-03 301,289 227,372 234,309 207,313 970,283 26,516 8.50 % 2001-02 292,229 223,130 217,671 182,626 915,656 28,375 9.50 2000-01 288,421 215,648 206,838 168,080 878,987 28,862 9.80 1999-00 283,378 207,899 206,639 168,710 866,626 26,097 11.10 1998-99 278,746 199,017 198,083 157,455 833,301 31,844 12.20 1997-98 238,769 192,714 187,959 146,710 766,152 27,999 11.50 1996-97 264,925 188,959 187,220 145,723 786,827 30,294 12.80 1995-96 248,295 179,154 179,021 137,975 744,445 26,401 12.20 1994-95 243,608 177,402 176,942 135,932 733,884 25,369 12.10 1993-94 236,519 172,891 167,598 129,089 706,097 25,450 13.83 (1) (2) (3) (4) Includes ungraded elementary enrollment, except for academic years 1997-98 and 1998-99. Includes ungraded secondary enrollment, except for academic years 1997-98 and 1998-99. The high school dropout totals for Academic Years (AY) 1993-94 is based on a nine month school year. Percent of total high school enrollment (Grades 9-12). Note: 2002 enrollments were provided at the school level and do not eliminate concurrent enrollments. Overstatement estimated at 100,000 over all grade levels. Source: Arizona Department of Education - 217 - STATE OF ARIZONA AVERAGE STATE PRISON ADULT INMATE POPULATION FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2003 Incarceration Institution Florence Complex Lewis Complex Perryville Complex Phoenix Complex Tucson Complex Douglas Complex Winslow Complex Safford Complex Yuma Complex Misc Prisons Private Prisons Total 2003 8,624 4,555 2,415 906 3,931 2,147 1,807 1,757 2,199 157 2,400 30,898 Repeat Offenders Admitted Source: 2002 2001 2000 1999 1998 1997 1996 1995 1994 8,176 3,656 1,885 957 3,607 2,130 1,791 1,624 2,048 154 1,423 7,723 2,151 1,564 1,325 3,898 2,190 1,768 1,839 2,241 292 1,411 7,794 978 2,653 1,256 4,016 2,183 1,635 1,778 2,226 240 1,410 8,145 0 2,403 1,804 4,071 2,214 1,671 1,804 1,328 0 444 7,693 0 2,581 1,275 3,966 1,944 1,736 1,979 764 0 445 7,205 0 2,432 1,407 3,677 2,214 1,741 1,749 303 0 0 6,988 0 2,375 1,331 3,483 2,053 1,522 1,493 297 0 0 6,083 0 2,342 1,267 2,888 2,064 1,353 1,476 264 0 0 27,451 26,402 26,169 23,884 22,383 20,728 19,542 17,737 2,271 2,090 8,468 4,058 2,165 940 3,874 2,154 1,824 1,797 2,159 170 1,664 29,273 N/A N/A N/A N/A N/A N/A 2,581 2,248 Arizona Department of Corrections STATE OF ARIZONA PUBLIC HIGHER EDUCATION INSTITUTIONS' FULL-TIME EQUIVALENT FALL ENROLLMENT FOR THE LAST TEN YEARS Institution Fall 2003 Universities: Arizona State University 52,265 Northern Arizona University 16,389 University of Arizona 33,807 Total 102,461 Fall 2002 Fall 2001 Fall 2000 Fall 1999 Fall 1998 Fall 1997 Fall 1996 Fall 1995 Fall 1994 49,980 17,189 33,089 100,258 47,086 17,057 32,460 96,603 44,637 17,107 30,981 92,725 43,910 17,293 31,008 92,211 42,946 17,484 30,733 91,163 43,105 17,183 30,403 90,691 40,910 17,193 29,724 87,827 39,552 17,592 31,042 88,186 39,147 16,875 31,314 87,336 2,267 1,485 2,279 37,064 1,805 1,744 12,526 2,071 2,254 2,759 66,254 2,270 1,387 2,235 35,903 1,731 1,723 13,080 2,138 2,382 2,708 65,557 2,529 1,295 2,094 35,762 1,708 1,741 13,128 2,042 2,258 2,691 65,248 153,743 152,584 Community Colleges: Cochise County Coconino County Graham County Maricopa County Mohave County Navajo County Pima County Pinal County Yavapai County Yuma County Total 2,273 1,433 2,213 51,098 1,765 2,122 15,199 2,533 2,559 3,209 84,404 2,303 1,459 2,064 48,678 1,922 2,119 14,832 2,407 2,503 3,179 81,466 2,387 1,378 2,869 44,693 1,856 2,095 13,469 2,436 2,403 3,120 76,706 2,141 1,449 2,828 42,320 1,763 1,875 12,656 2,220 2,272 2,922 72,446 2,173 1,454 2,762 41,104 1,876 1,444 13,281 2,213 2,343 2,889 71,539 2,453 1,308 2,623 39,435 1,788 1,624 13,061 2,011 2,322 2,773 69,398 2,419 1,364 2,300 37,265 1,671 1,711 12,898 2,032 2,348 2,762 66,770 Total All Institutions 186,865 181,724 173,309 165,171 163,750 160,561 157,461 Sources: Arizona Board of Regents State Board of Directors for Community Colleges - 218 - 154,081 ACKNOWLEDGMENTS The Comprehensive Annual Financial Report was prepared by the Department of Administration, Financial Services Division, Financial Reporting Section: Ron Santa Cruz Chris Freitag James Fagan, CPA Evan Chang Michael Kallaur Mary Kirchmann Jolynn Carlson Dale Stomberg Yesenia Delgado Jacqueline Barclay Special acknowledgment goes to: All fiscal and accounting personnel throughout the Arizona State government, whose dedicated efforts and cooperation contributed to the compilation of financial information that appears in the report.