STATE OF ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2004 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 ........................................................................................................................................... Universities - Affiliated Component Units – Statement of Financial Position ....................................................... Statement of Activities ............................................................................................................................................. Universities - Affiliated Component Units – Statement of Activities ..................................................................... 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............................................................................................... 38 40 42 44 45 46 47 48 Proprietary Fund Financial Statements: Statement of Net Assets ........................................................................................................................................... Statement of Revenues, Expenses and Changes in Fund Net Assets ....................................................................... Statement of Cash Flows.......................................................................................................................................... 50 54 56 Fiduciary Fund Financial Statements: Statement of Fiduciary Net Assets ........................................................................................................................... Statement of Changes in Fiduciary Net Assets ........................................................................................................ 60 61 Notes to the Financial Statements .............................................................................................................................. 62 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 ...................................................................................................................................................... Agent Retirement Plans’ Funding Progress................................................................................................................... i 125 140 142 145 150 STATE OF ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS (CONTINUED) FINANCIAL SECTION - CONCLUDED COMBINING FINANCIAL STATEMENTS AND SCHEDULES Page Non-major Governmental Funds: Combining Balance Sheet ........................................................................................................................................ Combining Statement of Revenues, Expenditures and Changes in Fund Balances ................................................. 154 155 Non-major Special Revenue Funds: Combining Balance Sheet ................................................................................................................................. Combining Statement of Revenues, Expenditures and Changes in Fund Balances.......................................... 158 160 Non-major Debt Service Funds: Combining Balance Sheet ................................................................................................................................. Combining Statement of Revenues, Expenditures and Changes in Fund Balances.......................................... 164 166 Non-major Capital Projects Funds: Combining Balance Sheet ................................................................................................................................. Combining Statement of Revenues, Expenditures and Changes in Fund Balances.......................................... 170 171 Non-major Proprietary Funds: Non-major Enterprise 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 Internal Service Funds: Combining Statement of Net Assets ................................................................................................................. Combining Statement of Revenues, Expenses and Changes in Fund Net Assets ............................................. Combining Statement of Cash Flows................................................................................................................ 182 184 186 Fiduciary Funds: Pension Trust Funds: Combining Statement of Fiduciary Net Assets ................................................................................................. Combining Statement of Changes in Fiduciary Net Assets .............................................................................. 190 191 Investment Trust Funds: Combining Statement of Fiduciary Net Assets ................................................................................................. Combining Statement of Changes in Fiduciary Net Assets .............................................................................. 194 195 Agency Funds: Combining Statement of Assets and Liabilities ................................................................................................ Combining Statement of Changes in Assets and Liabilities ............................................................................. 199 200 Budgetary Comparison Schedule, Expenditures - Other Governmental Funds ............................................................ 205 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 for the Last Ten Property Tax 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, 2004 ................................................................................... Population by County for the Last Ten Fiscal 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 Calendar 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 217 217 218 218 219 219 220 220 221 221 222 222 223 223 224 224 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 February 11, 2005 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: It 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, 2004. 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 agent 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. In fiscal year 2004, the State implemented the Governmental Accounting Standards Board (GASB) Statement No. 39, Determining Whether Certain Organizations Are Component Units, an amendment to GASB Statement No. 14, The Financial Reporting Entity. Statement No. 39 provides additional guidance in determining whether certain organizations for which the primary government is not financially accountable should be reported as component units, based on the nature and significance of their relationship with the primary government. Based on this guidance, the State has added component units affiliated with Universities (i.e., foundations and financing authorities) that prepare financial statements in conformity with U.S. generally accepted accounting principles as adopted by the Financial Accounting Standards Board (FASB). -1- Discretely presented component units are shown separately 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. Discretely presented component units prepared in accordance with GASB standards are reported in a separate column in the governmentwide financial statements. Discretely presented component units prepared in accordance with FASB standards are presented as separate financial statements immediately following the government-wide financial statements to emphasize that they are prepared in accordance with accounting standards other than those promulgated by GASB. The criteria for inclusion in the reporting entity and presentation are defined by the Codification of Governmental Accounting and Financial Reporting Standards, issued by the Governmental Accounting Standards Board, (Section 2100). Note 1 of the Notes to the Financial Statements explains which component 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, September 2, 2004. Arizona’s Department of Economic Security, Research Administration’s forecast update calls for Arizona’s economy to continue expanding through the forecast period of 2004-05. Essentially unchanged from the original forecast, Arizona’s non-farm jobs are forecast to grow by 2.4% in 2004 and 3.0% in 2005. Over the two-year period, non-farm job growth is forecast to total more than 125,000. Meanwhile, the national economy is forecast to show continued improvement during the 2004-05 period. According to Global Insight, non-farm jobs at the national level are forecast to grow at annual rates of 1.0% in 2004 and 1.7% in 2005. During the forecast period, some issues will continue to capture attention and restrain the growth of the economy. Slower expansion is the result of, first, higher-than-anticipated energy costs that have eroded consumer purchasing power and elevated business costs. Second, firms have been reluctant to hire new workers because of the continued upward spiral of health care costs and advances in productivity. Third, real growth in wages has been slow because of weak hiring that has maintained slack labor markets. While the overall economy in Arizona is expected to grow at essentially the same pace as forecasted in April, some industries are projected to expand at a more rapid rate. Construction has the largest upward revision with a projected increase of more than 28,000 jobs over the forecast period as compared to an original increase of 9,000 jobs. A rising population level, coupled with affordable housing and low interest rates, has provided a stronger-than-expected stimulus to construction job growth. Educational and health services are also forecast to have slightly larger job gains with a projected increase of more than 29,000 jobs over the forecast period. Growth in Arizona’s communities is driving the employment increases in this industry. Natural resources and mining is now projected to have fewer job reductions, a loss of only 100 jobs, with the revised forecast. Gradual improvements in global demand for industrial materials and rising energy costs have increased the need to use local sources of raw materials. However, the forecast update has decreased the rate of employment growth for most other industries in the State. Job losses deepened in manufacturing to a total decrease of 4,500 jobs over the two-year period while only 600 jobs were lost in the earlier forecast. Trade, transportation and utilities are projected to gain more than 19,000 jobs. Higher energy prices and stagnant wages have limited the ability of consumers to increase their spending. Rising consumer spending would have generated greater levels of demand required to have higher rates of job growth in this industry group. Projected losses in information technology have increased to a total of more than 3,300 jobs. The original forecast had a recovery beginning in 2005. However, revised projections have losses in both years. The factors of outsourcing, overcapacity and enhanced productivity are expected to continue limiting job growth in this industry. Financial activities is forecast to have fewer jobs created as a result of a slower pace of expansion in the overall economy. Some of the fast-growing sectors related to mortgage financing and real estate are expected to have more consolidation over this period. Professional and business services are projected to add more than 23,000 jobs. The attempt of firms to control rising costs with the outsourcing of many functions, especially labor, is expected to create new jobs in this industry group. -2- Job gains in leisure and hospitality are expected to number more than 10,000 according to the forecast update. Despite stretched budgets, consumers and businesses are still expected to spend on travel, dining-out and recreation. Improvement in this tourismrelated industry is anticipated in Arizona as the economies of other states continue to expand. Employment growth in other services is projected to increase by more than 3,600 jobs. Government is forecast to gain more than 13,000 jobs as a result of an increasing population creating greater demand for public services such as education, police and fire. In conclusion, Arizona’s economy has been adding jobs for nearly two years at a rate that ranks it among the top ten states in the nation, in terms of annual percentage growth. While the nation has shown six consecutive months of over-the-year increases, not all states have yet realized job creation. For those states now adding jobs, the pace of recovery has been slow. Research Administration is convinced that Arizona’s economy will continue on a path of modest growth that will accelerate well into 2005. MAJOR INITIATIVES When Governor Napolitano took office in January 2003, the State was facing an unprecedented fiscal crisis. The FY2004 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 FY2003, after experiencing an 11.1% decline from FY2001 to FY2002. 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 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 FY2004 deficit was developed: ¾ Preserve the core functions of State government and continue the commitment to excellence in the quality of essential services and the manner in which they are provided. ¾ Apply spending reductions with specificity, agency by agency, program by program. The FY2004 Executive Budget only considered specific operating budget reductions, not across-the-board cuts. ¾ Programs and services that directly benefit children – including, but not limited to K-12 education – are immune to spending reductions. A degradation of services to children would only give rise to future societal burdens that will confound future planning. ¾ Universities and community colleges are crucial to economic development – a key ingredient to fiscal health – and are protected from spending cuts. ¾ Make appropriate use of accepted cost-shifting methods to address immediate needs until the current fiscal crisis has passed. ¾ Take full advantage of federal funds available to the State. -3- 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 Graph 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) $16 $14 $12 $10 $8 $6 $4 $2 $0 2000 2001 2002 Revenues 2003 2004 Expenditures The General Fund ended the June 30, 2004, fiscal year with $561.0 million in unreserved fund balance and a $185.6 million reserved fund balance for a total fund balance of $746.6 million. This compares to the previous year’s total fund balance of $546.4 million. Included in the $185.6 million reserved fund balance is $13.5 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 2000 2001 2002 -4- 2003 2004 BUDGETARY CONTROLS Budgetary 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. The Treasurer deposits receipts in accordance with applicable statutes and invests excess cash of the General Fund and various other funds. All interest, not otherwise apportioned by law, is deposited in the General Fund. Investment earnings for the General Fund totaled $9.5 million for the fiscal year ended June 30, 2004. PROPRIETARY OPERATIONS The State’s Enterprise Funds are comprised of governmental and quasi-governmental agencies that provide goods and services to the public on a fee for service basis. One of the largest Enterprise Funds is the Lottery Fund. The Lottery Fund generated $366.7 million of operating revenues and $63.0 million of income before contributions and transfers for fiscal year 2004. The Enterprise Funds ended fiscal year 2004 with total ending net assets of $2.507 billion for the Primary Government. The State has Internal Service Funds, which provide a variety of services to State agencies. These include risk management, computer services, telecommunications, transportation services, and employee benefits. The operating revenues for the Internal Service Funds were $622.0 million for fiscal year 2004. FIDUCIARY FUNDS Fiduciary Funds are used to account for assets held by the State in a trustee capacity or as an agent for individuals, private organizations and other governments, including the four State Retirement Systems. See Note 5. in the Notes to the Financial Statements for more information on the four State Retirement Systems. The fiduciary activities are not included on the government-wide financial statements because the resources of these funds are not available to support the State’s own programs. -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 AHCCCS DEPARTMENT OF REVENUE DEPARTMENT OF PUBLIC SAFETY DEPARTMENT OF HEALTH SERVICES DEPARTMENT OF ECONOMIC SECURITY OTHER BOARDS, COMMISSIONS, AND AGENCIES BOARD OF REGENTS ARIZONA STATE UNIVERSITY NORTHERN ARIZONA UNIVERSITY * ELECTED OFFICIALS -8- UNIVERSITY OF ARIZONA STATE OF ARIZONA PRINCIPAL STATE OFFICIALS JUNE 30, 2004 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 - Office of the Auditor General J. Elliot Hibbs, Director - Department of Revenue Dennis A. Garrett, Director - Department of Public Safety Catherine R. Eden, Ph.D., Director - Department of Health Services Gladys Ann Wells, Director - Board of Library, Archives and Public Records University Officials Michael M. Crow, President - Arizona State University Anthony D. Rodgers, Director - Arizona Health Care Cost Containment System Dr. John Denis Haeger, President - Northern Arizona University Victor Mendez, Director - Department of Transportation Peter W. Likins, President - University of Arizona Judicial Officials Charles E. Jones, Chief Justice - Supreme Court -9- FINANCIAL SECTION FINANCIAL SECTION INDEPENDENT AUDITORS’ REPORT INDEPENDENT AUDITORS’ REPORT STATE OF ARIZONA DEBRA K. DAVENPORT, CPA AUDITOR GENERAL OFFICE OF THE AUDITOR GENERAL WILLIAM THOMSON DEPUTY AUDITOR GENERAL Independent Auditors’ Report The Honorable Janet Napolitano, Governor State of Arizona The Honorable Ken Bennett, President Arizona State Senate The Honorable James Weiers, 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, 2004, which collectively comprise the State’s basic financial statements as listed in the table of contents. 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: Component Units Universities— affiliated Component Units 2910 NORTH 44 th STREET • SUITE 410 • PHOENIX, ARIZONA Assets Revenues 2.02% 69.00% 16.75% 15.74% 1.16% 11.76% .17% 4.77% 1.08% .46% 100.00% 100.00% 100.00% 100.00% 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 10.33% 20.32% 100.00% 100.00% 100.00% 100.00% .09% 0.96% 66.45% 12.85% 2.16% .87% 2.44% 11.34% 52.06% 8.92% 1.73% .63% 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 discretely presented component units, except for the Water Infrastructure Finance Authority, and the fiduciary fund financial statements of the Public Safety Personnel Retirement System, Corrections Officer Retirement Plan, and Elected Officials’ Retirement Plan, 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. 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, aggregate discretely presented component units, each major fund, and aggregate remaining fund information of the State of Arizona as of June 30, 2004, 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’s Arizona State University increased its capitalization threshold for equipment, works of art, and historical treasurers, which represents a change in the application of an accounting principle. Also described in Notes 1 and 8, respectively, the State implemented the provisions of the Governmental Accounting Standards Board (GASB) Statement No. 39, Determining Whether Certain Organizations Are Component Units and GASB Technical Bulletin No. 2004-1, Tobacco Settlement Recognition and Financial Reporting Entity Issues for the year ended June 30, 2004. GASB Statement No. 39 requires reporting as a component unit those organizations that raise and hold economic resources for the direct benefit of the State or its constituents. GASB Technical Bulletin No. 2004-1 prescribes when to recognize revenues and related receivables for tobacco settlements. Also, as described in Note 16, beginning in fiscal year 2004, the State Compensation Fund, that was previously reported in the State’s basic financial statements as a discretely presented component unit is no longer financially accountable to the State, and therefore, is not reported in the State’s basic financial statements. This change constitutes a change in the State’s reporting entity. The Management’s Discussion and Analysis on pages 21 through 33, the Budgetary Comparison Schedules on pages 125 through 144, the Infrastructure Assets information on pages 145 through 149, and the Agent Retirement Plans’ Funding Progress on page 150 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 that collectively comprise the State’s basic financial statements. The introductory section, combining and individual fund statements, and schedules, and statistical section listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual fund statements and schedules have 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, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in our audit of the basic financial statements and, accordingly, we express no opinion on them. 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 on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters at a future date. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Debbie Davenport Auditor General February 11, 2005 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, 2004. 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 $15.2 billion (reported as net assets). Of this amount, a $496 million deficit for (unrestricted net assets) exists at fiscal year end, $3.3 billion is restricted for specific purposes (restricted net assets), and $12.4 billion is invested in capital assets, net of related debt. • The State’s total net assets increased in fiscal year 2004 by $473 million. Net assets of governmental activities increased by $680 million, while net assets of the business-type activities decreased by $207 million. Fund Level: • As of the close of the fiscal year, the State’s governmental funds reported combined ending fund balances of $3.1 billion, an increase of $443 million from the beginning of the year. Approximately 33% of the combined fund balances, $1.0 billion 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 $561 million, or 4%, of total General Fund expenditures. • The enterprise funds reported net assets at year-end of $2.5 billion, a decrease of $205 million during the year. • The Land Endowments Fund reported fund balance at year-end of $1.4 billion, an increase of $238 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 $5.2 billion, an increase of $1.0 billion (or 23%). During the year, the State issued revenue bonds and certificates of participation of $689 million and $550 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 statements: The Statement of Net Assets and the Statement of Financial Position (pages 38-40) 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 42-44) 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 the change - 21 - 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 University Medical Center, the Arizona Power Authority, and the Water Infrastructure Finance Authority are discretely presented component units reported by the State. Additionally, in fiscal year 2004, the State implemented the GASB Statement No. 39, Determining Whether Certain Organizations Are Component Units, an amendment to GASB Statement No. 14, The Financial Reporting Entity. Statement 39 provides additional guidance in determining whether certain organizations for which the primary government is not financially accountable should be reported as component units based on the nature and significance of their relationship with the primary government. Based on this guidance, the State has added university foundations and financing authorities whose financial statements are prepared in conformity with U.S. generally accepted accounting principles as adopted by the Financial Accounting Standards Board. These organizations include the ASU Foundation, the U of A Foundation, and other non-major foundations and financing authorities. Financial statements for these organizations are presented immediately following the government-wide statements to emphasize that they are prepared in accordance with accounting standards other than those promulgated by GASB, and include a statement of financial position (page 40) and a statement of activities (page 44). See pages 63-65 and 107-121 for more information on discretely presented component units. Fund Financial Statements (Reporting the State’s Major Funds) The fund financial statements begin on page 45 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 154 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 46 and 48) that reconcile the amounts reported on the governmental fund financial statements (modified accrual accounting) with governmental activities (accrual accounting) reported on the appropriate government-wide statement. Governmental fund financial statements can be found on pages 45 and 47 of this report. - 22 - • 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 at the end of the financial statements on pages 52-55. Proprietary fund financial statements can be found on pages 50-59 of this report. • 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 60. 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 60-61 of this report. Notes to the Financial Statements The Notes to the 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 62 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 agent retirement plans’ funding progress schedules. Required supplementary information begins on page 125 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 154 of this report. GOVERNMENT-WIDE FINANCIAL ANALYSIS The State’s overall financial position and operations for the past year for the primary government are summarized as follows based on the information included in the government-wide financial statements. The fiscal year 2003 governmental activities net assets amount has been restated for the GASB Technical Bulletin No. 2004-1, Tobacco Settlement Recognition and Financial Reporting Entity Issues. The fiscal year 2003 business-type activities net assets amount has been restated due to increasing the capitalization threshold for capital assets of one of the Universities. - 23 - These changes have not been audited and are provided to the reader for comparative purposes. See Note 4, capital assets, on page 81 and Note 8, accounting changes and restatements, on page 100 for additional restatement information. State of Arizona-Primary Government Net Assets as of June 30, 2004 and 2003 (expressed in thousands) Current assets Capital assets Other noncurrent assets Total assets Current liabilities Noncurrent liabilities Total liabilities Net assets: Invested in capital assets, net of related debt Restricted net assets Unrestricted net assets Total net assets Governmental Business-type Activities Activities 2003, as 2003, as 2004 restated 2004 restated $ 2,802,208 $ 2,528,027 $ 1,428,582 $ 1,372,783 13,389,970 12,771,929 2,379,915 2,161,439 2,441,674 2,017,052 1,052,549 948,245 18,633,852 17,317,008 4,861,046 4,482,467 2,212,000 3,728,379 5,940,379 11,226,325 2,100,575 (633,427) $ 12,693,473 1,899,039 3,404,396 5,303,435 Primary Government Total 2003, as 2004 restated $ 4,230,790 $ 3,900,810 15,769,885 14,933,368 3,494,223 2,965,297 23,494,898 21,799,475 423,720 1,932,727 2,356,447 398,035 1,372,754 1,770,789 2,635,720 5,661,106 8,296,826 2,297,074 4,777,150 7,074,224 10,690,782 1,176,872 2,071,313 1,190,250 (748,522) 137,477 $ 12,013,573 $ 2,504,599 1,147,769 1,291,003 272,906 $ 2,711,678 12,403,197 3,290,825 (495,950) $ 15,198,072 11,838,551 3,362,316 (475,616) $ 14,725,251 The largest portion of the State’s net assets (82%) represents capital assets, net of related debt of $12.4 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. The State’s net assets also include $3.3 billion (22%) of 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 $496 million (approximately 4%) represents unrestricted net assets, including restatements of beginning net assets. The State’s net assets increased by $473 million during the current fiscal year. This increase is primarily caused by governmental activities increases for sales taxes, income taxes, capital assets, earnings on investments and trust land sales. Governmental Activities net asset increases were reduced by Business-type Activities reductions for the Unemployment Compensation Fund and the Industrial Commission Special Fund. - 24 - State of Arizona-Primary Government Changes in Net Assets for Fiscal Years Ended June 30, 2004 and 2003 (expressed in thousands) Governmental Activities 2003, as 2004 restated Revenues: Program revenues: Charges for services Operating grants and contributions Capital grants and contributions General revenues: Sales taxes Income taxes Tobacco 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 on long-term debt Universities Unemployment compensation Industrial Commission special fund Lottery Other business-type activities Total expenses $ 636,844 $ Business-type Activities 2003, as 2004 restated 531,719 $ 1,449,850 Primary Government Total 2003, as 2004 restated $ 1,257,032 $ 2,086,694 $ 1,788,751 6,981,748 5,940,007 836,076 810,549 7,817,824 6,750,556 421,251 460,364 18,513 23,090 439,764 483,454 5,016,585 2,800,461 223,804 50,455 1,613,952 539,218 4,551,804 2,371,005 37,470 1,563,876 632,896 50,050 - 43,450 - 5,066,635 2,800,461 223,804 50,455 1,613,952 539,218 4,595,254 2,371,005 37,470 1,563,876 632,896 24,227 77,914 38,753 32,527 62,980 110,441 8,502 281,109 319,517 18,917,673 7,222 319,873 137,563 16,631,713 46,615 2,439,857 3 26,985 2,193,636 8,502 327,724 319,517 21,357,530 7,225 346,858 137,563 18,825,349 726,525 7,717,148 138,281 4,703,685 1,059,047 731,522 162,366 694,173 6,848,087 141,673 4,795,566 982,839 598,375 175,312 - - 726,525 7,717,148 138,281 4,703,685 1,059,047 731,522 162,366 694,173 6,848,087 141,673 4,795,566 982,839 598,375 175,312 2,144,438 176,035 - 2,159,691 135,775 - 2,342,085 397,657 2,181,311 455,685 2,144,438 176,035 2,342,085 397,657 2,159,691 135,775 2,181,311 455,685 17,559,047 16,531,491 167,331 303,996 109,944 3,321,013 73,586 263,321 107,740 3,081,643 167,331 303,996 109,944 20,880,060 73,586 263,321 107,740 19,613,134 100,222 (881,156) (888,007) 477,470 (787,785) - 2,231 3,037 2,231 3,037 (6,880) (665,004) 678,726 (564,782) (207,079) 12,578,355 2,711,678 $ 12,013,573 $ 2,504,599 665,004 (219,966) 2,931,644 $ 2,711,678 (6,880) 472,821 14,725,251 $ 15,198,072 (784,748) 15,509,999 $ 14,725,251 Excess (deficiency) before contributions, special items and transfers 1,358,626 Contributions to permanent endowments Special item – voluntary retirement program for faculty Transfers (678,726) Change in net assets 679,900 Net assets - July 1, as restated 12,013,573 Net assets - June 30 $ 12,693,473 - 25 - Change in Net Assets Governmental Activities – Net assets increased by $680 million, or 6%. This increase is primarily attributed to the increases in earned general tax revenues. Reported sales tax and income tax revenue increased by $465 million, or 10%, and $429 million, or 18%, as compared to fiscal year 2003, respectively. Several key elements have led to this increase. The State has ranked in the top ten nationally in terms of annual percentage job growth for nearly two years as reported by Arizona’s Department of Economic Security, Research Administration. As a result, personal income growth has improved and consumer spending confidence is up. Furthermore, population inflows have continued to outpace outflows, fueling the expanding economy. Additionally, the State has improved its efforts in tax enforcement and exceeded its fiscal year 2003 collections by $137 million. Another significant contributor to the net asset increase was record auction sales of $320 million in State trust land, a $182 million increase as compared to fiscal year 2003. Intense and competitive bidding in these auctions raised total sales prices approximately $167 million above the appraised value of the land. Net asset increases were reduced by increases in long-term debt. The School Facilities Board issued revenue bonds in the amount of $247 million and certificates of participation in the approximate amount of $242 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 2004 and 2003. 2004 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 on long-term debt Total Governmental Activities Expenses, Net of Program Revenues - 26 - 2003, as restated, Governmental Activities (expressed in thousands) $ (415,740) (1,871,192) 11,977 (3,820,842) (870,240) (152,047) (80,647) (2,144,438) (176,035) $ (452,184) (1,846,316) (16,142) (4,058,176) (830,114) 6,548 (107,551) (2,159,691) (135,775) $ (9,519,204) $ (9,599,401) Expenses and Program Revenues Governmental Activities for Fiscal Year 2004 (in millions of dollars) Expenses D eb t g ue to n In te re s R ev en vt . In te rg o Lo ng -te rm Sh ar in ce s n tio al R es ou r sp or ta Tr an N at ur Sa fe ty & ec tio n Ed uc at io n Program Revenues Pr ot G en er al G ov er nm en H ea t lth & In W sp el ec fa tio re n & R eg ul at io n $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Business-type Activities – The net assets decreased by $207 million, or 8%. The net assets reduction is primarily caused by the net losses of the Unemployment Compensation Fund and the Industrial Commission Special Fund of $97 million and $138 million, respectively. The Unemployment Compensation Fund’s fiscal year 2003 net loss amount was $162 million. The declining rate of loss for the Unemployment Compensation Fund was primarily caused by an increase in employer assessments of $34 million and a decrease in unemployment claims of $58 million. The Industrial Commission’s net assets decreased $138 million primarily due to workers’ compensation insurance carriers becoming insolvent during the year. The increase in insolvent insurers primarily increased the Industrial Commission’s expenses and long-term liabilities. As allowed by Title 23 of the Arizona Revised Statutes, the Industrial Commission has assessed the State Compensation Fund, privately owned insurance companies, and all self-insured plans that provide workers’ compensation insurance a two and one-half percent premium assessment for calendar year 2005, the largest amount currently authorized in Arizona law. The Industrial Commission had imposed no premium revenue assessments since calendar year 1992. For fiscal years 2005, 2006 and 2007 the Industrial Commission is projecting receipt of $57 million from liquidated assets of insolvent carriers. 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 2003 and 2004. 2004 Business-type Activities (expressed in thousands) Expenses, Net of Program Revenues: Universities Unemployment Compensation Industrial Commission Special Fund Lottery Other Total Business-Type Activities Expenses, Net of Program Revenues - 27 - 2003, as restated, Business-type Activities (expressed in thousands) $ (815,629) (95,724) (162,189) 62,586 (5,618) $ (809,871) (156,906) (73,586) 58,946 (9,555) $ (1,016,574) $ (990,972) 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, 2004, unreserved fund balance of the General Fund was $561 million, while total fund balance closed the year at $747 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 4% of total expenditures and other financing uses, while total fund balance represents 5% of the same amount. The fund balance of the State’s General Fund increased by $200 million during the fiscal year. The primary source of the increase in fund balance is from the increase of sales tax and income tax revenues. Sales tax revenues increased approximately $370 million from fiscal year 2003, an increase of approximately 10%. Sales taxes paid by retail stores, construction contractors, restaurants and bars and utility companies increased approximately $150 million, $80 million, $27 million and $24 million, respectively, when compared to fiscal year 2003 sales tax receipts. Receipts for the sales tax “amnesty” program not collected in fiscal year 2003 totaled approximately $14 million. Income tax revenues increased approximately $431 million, an increase of approximately 18%. Income taxes paid by individuals increased by approximately $212 million when compared to fiscal year 2003 individual income tax receipts. Income taxes paid by businesses increased approximately $136 million. Receipts for individual and business income tax “amnesty” programs not collected in fiscal year 2003 totaled approximately $57 million. Intergovernmental revenue and health and welfare expenditures increased by $1.1 billion, or 20%, and $1.1 billion, or 18%, as compared to fiscal year 2003, respectively. These increases are primarily due to the rising cost of health care programs for the State’s indigent population, including Title XIX Medicaid and the Title XXI State Children’s Health Insurance Program. Inflationary trends for health care costs are incorporated in the rate development process for the managed care organization capitation rates. Due to substantial increases in utilization and costs for pharmacy, outpatient/ER and inpatient, the capitation rates were increased by an average of 13% for the contract period of October 2003 to September 2004. The inflation rate is indicative of medical inflation including the rising cost of pharmaceuticals. The State received additional federal grants and county funding to cover a portion of these increased costs. 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 increased approximately $52 million during fiscal year 2004. The fund balance increase was primarily caused by a $20 million increase in sales taxes, a $90 million increase in motor vehicle and fuel taxes and a $27 million decrease in intergovernmental revenues. The fiscal year 2004 collections for both sales taxes and motor vehicle and fuel taxes recorded the highest year-over-year growth since fiscal year 1999 due mainly to the improved state and national economies and population growth. The sales tax growth was primarily attributable to a significant increase in registered vehicles (236 thousand) over fiscal year 2003. The motor vehicle and fuel tax growth was primarily attributable to the increase in population, which tends to follow job growth. 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 - 28 - balance increased $238 million during fiscal year 2004. Unrealized valuation increases for investments at fiscal year end, compared to the initial investment purchase price, were approximately $102 million. This increase was primarily due to the rise in stock values of the S&P 500 and the S&P Mid Cap 400 Index Pools held by the State. Payments from the sale of trust land by the Land Department increased by approximately $61 million, from $88 million during fiscal year 2003 to $149 million during fiscal year 2004. This increase is primarily the result of land contract payoffs that occurred for sales in prior fiscal years. 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. Budgetary Comparison Schedules for the major governmental funds are in the Required Supplementary Information section beginning on page 125. Differences between the original budget and the final amended budget resulted in a $281 million increase in appropriations for the General Fund. The following comments summarize current year budgetary results: • The General Fund appropriations increase of $281 million is comprised primarily of 1) $119 million of prior year obligations that are expended in the current year as allowed by §ARS 35-191; 2) $69 million for the Department of Economic Security appropriations; 3) $43 million for the Department of Education appropriations; 4) $21 million for the Arizona Health Care Cost Containment System appropriations; 5) $7 million for the Department of Health Services appropriations; and 6) a net original budget increase of $22 million for all remaining general fund agencies. The original General Fund appropriation total was $10.8 billion. The final General Fund appropriation total was $11.1 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 $311 million. Of this amount, approximately $75 million will continue as legislative multiple fiscal year spending authority for fiscal year 2005 and beyond depending upon the budgetary guidelines of the Legislature. The remaining $236 million represents the unused portion of the State’s legislatively authorized annual operating budget. Additional budgetary information can be found on pages 143-144 of this report. 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, 2004 totaled $15.8 billion, net of accumulated depreciation. The total primary government increase in capital assets for the current period was 6%, with a 5% increase in capital assets used for governmental activities and a 10% increase for businesstype activities. Depreciation charges of the governmental and business-type activities for the fiscal year totaled $236 million. Major capital assets activity during the current fiscal year included the following: • • The universities’ additions to capital assets totaled approximately $378 million. The Department of Transportation started or completed roads and bridges totaling $2.0 billion 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. - 29 - Capital assets for the governmental and business-type activities as of June 30, 2004 are presented below (amounts in thousands): Governmental Activities Land Buildings Improvements other than buildings Equipment Collections (non-depreciable) Infrastructure Construction in progress Less accumulated depreciation Total Business-type Activities 2003, as 2004 restated $ 135,715 $ 135,095 2,488,685 2,232,616 Total 2004 $ 2,094,542 3,976,878 2003, as restated $ 2,073,264 3,429,613 2,478 985,669 142,522 1,699,582 131,513 1,571,572 31,054 246,791 160,275 30,591 279,494 133,986 31,054 8,844,766 1,616,988 30,591 7,850,871 2,318,784 (1,748,158) $ 2,379,915 (1,638,490) $ 2,161,439 (2,636,447) $ 15,769,885 (2,472,840) $ 14,933,368 2004 $ 1,958,827 1,488,193 2003 $ 1,938,169 1,196,997 140,029 636,522 129,035 585,903 2,493 1,063,060 8,597,975 1,456,713 7,571,377 2,184,798 (888,289) $ 13,389,970 (834,350) $ 12,771,929 See Note 4, capital assets, beginning on page 81 for additional capital asset data and Note 8, accounting changes and restatements, on page 100 for information concerning Arizona State University raising its capitalization threshold to $5,000 for equipment and collections. 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 6,912 centerline miles (18,391 travel lane miles) and 4,488 bridges (deck area of 41.2 million square feet) that the Department of Transportation (Department) is responsible for maintaining. The Department 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 Department’s serviceability rating goal is 3.23 for the overall system. The most recent assessment indicated that an overall rating of 3.8 was achieved for fiscal year end 2004. The Department manages its bridges using the Arizona Bridge Information and Storage System (ABISS). The Department 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% or better. In fiscal year 2004, a CRI of 93.8% was obtained. - 30 - In addition to many smaller projects, each of the following major highway construction projects in excess of $20 million were started during fiscal year 2004 (amounts in thousands): Project Description Construction of new roadway on State Route Loop 202, from Elliot Road to Power Road in Maricopa County. Widening US 60 and constructing part of the State Route Loop 202 urban interchange, starting at Sossaman Road and ending west of Ellsworth Road in Maricopa County. Construction of new roadway on State Route Loop 202, from Elliot Road to Baseline Road in Maricopa County. Reconstruction of roadway to a 4 lane divided highway on the Burro Creek Section of US 93 in Mohave County. Construction of new roadway on State Route 188, from Resort Road to Devore Wash in Gila County. Construction of new roadway on State Route Loop 202, west of Higley Road to Power Road in Maricopa County. Contract Start 03/23/2004 Contract Amount $ 54,114 Current Year Expenditures $ 7,445 10/20/2003 $ 40,952 $ 31,462 11/24/2003 $ 39,463 $ 18,703 12/23/2003 $ 25,934 $ 5,055 09/05/2003 $ 25,643 $ 11,219 01/20/2004 $ 22,855 $ 4,736 In addition to many smaller projects, the following major highway construction projects had expenditures in excess of $15 million in fiscal year 2004: Project Description Construction of HOV lanes, roadway and drainage improvements on State Route 51, from Interstate 10 to Shea Boulevard in Maricopa County. Construction of a bridge to by-pass the Hoover Dam on Interstate 93 in Mohave County. Construction of new roadway at the interchange of State Route Loop 202 and Interstate 60 in Maricopa County. Construction of new roadway on State Route Loop 202, from Gilbert Road to Higley Road in Maricopa County. Construction of the roadway at the interchange of Interstate 10 and Interstate 19 in Pima County. Construction of new roadway on State Route Loop 202, at Price Road in Maricopa County. Construction of new roadway on State Route Loop 202, from Elliot Road to Baseline Road in Maricopa County. Construction on Interstate 95 from McCulloch Boulevard to London Bridge Road in Mohave County. Construction of new roadway on State Route Loop 202, from Dobson Road to Arizona Avenue in Maricopa County. Construction of two overpasses on Grand Avenue (US 60): One at 43rd Ave. and Camelback Road and another at 51st Ave. and Bethany Home Rode in Maricopa County. Construction on State Route 260 in Camp Verde area in Yavapai County. Construction of new roadway on State Route Loop 202, from Price Road to Arizona Avenue in Maricopa County. - 31 - Project Expenditures $ 74,690 $ 50,041 $ 36,479 $ 30,619 $ 23,425 $ 22,086 $ 20,470 $ 19,194 $ 17,416 $ 16,076 $ 15,166 $ 15,138 Capital assets financed by debt instruments do not generate funds to repay the debt instruments. More detailed information regarding capital assets are on pages 81 and 82. 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 $251 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 $115 million. The School Facilities Board issued $247 million of revenue bonds to do school repairs at K through 12 public schools throughout the State. • The Universities issued revenue bonds for $191 million (including refunding bonds of $9.8 million) primarily to fund the acquisition, construction or renovation of capital facilities, and information technology and telecommunications upgrade projects. • The Department of Transportation issued $200 million of grant anticipation notes to (i) pay costs of the projects (as specified), (ii) pay costs of issuing the notes, (iii) pay interest on the notes, and (iv) refund the 2000A Series Notes in the aggregate principal amount of $26.255 million. • The School Facilities Board issued $242 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 leasehold improvements be reported as assets of the State government. • Universities issued $260 million of certificates of participation primarily for construction and building renewal projects and early redemption of certificates of participation prior to maturity. State of Arizona-Primary Government Outstanding Bonded Long-Term Debt as of June 30, 2004 (expressed in thousands) Revenue Bonds Grant Anticipation Notes Certificates of Participation Total Governmental Activities 2004 2003 $ 2,278,225 $ 2,173,055 308,585 169,145 845,804 582,511 $ 3,432,614 $ 2,924,711 Business-type Activities 2004 2003 $ 756,781 $ 597,238 641,315 429,144 $ 1,398,096 $ 1,026,382 Total 2004 2003 $ 3,035,006 $ 2,770,293 308,585 169,145 1,487,119 1,011,655 $ 4,830,710 $ 3,951,093 More detailed information regarding long-term debt begins on page 87. - 32 - ECONOMIC CONDITION AND OUTLOOK Research Administration’s forecast update calls for Arizona’s economy to continue expanding through the forecast period of 2004-05. Essentially unchanged from the original forecast, Arizona’s non-farm jobs are forecast to grow by 2.4% in 2004 and 3.0% in 2005. Over the two-year period, non-farm job growth is forecast to total more than 125,000. Meanwhile, the national economy is forecast to show continued improvement during the 2004-05 period. According to Global Insight, non-farm jobs at the national level are forecast to grow at annual rates of 1.0% in 2004 and 1.7% in 2005. During the forecast period, some issues will continue to capture attention and restrain the growth of the economy. Slower expansion is the result of, first, higher-than-anticipated energy costs that have eroded consumer purchasing power and elevated business costs. Second, firms have been reluctant to hire new workers because of the continued upward spiral of health care costs and advances in productivity. Third, real growth in wages has been slow because of weak hiring that has maintained slack labor markets. In conclusion, Arizona’s economy has been adding jobs for nearly two years at a rate that ranks it among the top ten states in the nation, in terms of annual percentage growth. While the nation has shown six consecutive months of overthe-year increases, not all states have yet realized job creation. For those states now adding jobs, the pace of recovery has been slow. Research Administration is convinced that Arizona’s economy will continue on a path of modest growth that will accelerate well into 2005. 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 63. - 33 - BASIC FINANCIAL STATEMENTS BASIC FINANCIAL STATEMENTS (This page intentionally left blank) STATE OF ARIZONA STATEMENT OF NET ASSETS JUNE 30, 2004 (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 Restricted cash and pooled investments with State Treasurer Cash held by trustee Collateral investment pool Short-term investments Restricted investments held by trustee Receivables, net of allowances: Taxes Interest Loans and notes Other Internal balances Due from U.S. Government Due from local governments Due from others Inventories, at cost Other current assets Total Current Assets $ $ - $ 52,443 759,016 213,155 $ 91,639 51,959 100,006 - 423,004 13,871 6,265 132,146 66,948 271,553 1,751 3 21,279 7,364 2,802,208 Noncurrent Assets: Restricted assets: Cash Cash and pooled investments with State Treasurer Cash held by trustee Investments held by trustee Receivables, net of allowances: Loans and notes Other Investments Endowment investments Other noncurrent assets Capital assets: Infrastructure, land and other non-depreciable Depreciable buildings, property and equipment, net of accumulated depreciation Total Noncurrent Assets Total Assets 2,685 1,855,339 51,217 2,676 13,258 75,491 (66,948) 53,338 386 27,304 3,642 1,428,582 55,128 759,016 2,068,494 COMPONENT UNITS $ 11,228 223,171 91,639 51,959 100,006 - 15,064 38,660 2,653 474,221 16,547 19,523 207,637 324,891 2,137 3 48,583 11,006 4,230,790 3,562 8,931 54,359 8,296 1,520 367,444 2,825 555,811 104,363 - 132,097 3,439 37,813 233,624 134,922 559,250 142,176 233,624 42,049 423,212 43,283 1,312,180 - 47,467 3,394 343,307 233,133 18,275 470,679 3,394 386,590 1,545,313 18,275 400,239 75,877 53,397 12,006,911 327,044 12,333,955 10,640 1,383,059 15,831,644 2,052,871 3,432,464 3,435,930 19,264,108 96,882 679,084 18,633,852 $ The Notes to the Financial Statements are an integral part of this statement. 4,861,046 $ 23,494,898 $ 1,046,528 (Continued) - 38 - STATE OF ARIZONA STATEMENT OF NET ASSETS JUNE 30, 2004 (Expressed in Thousands) PRIMARY GOVERNMENT TOTAL PRIMARY GOVERNMENT GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES LIABILITIES Current Liabilities: Accounts payable and other current liabilities Accrued liabilities Obligations 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 $ 694,249 275,540 74 8,836 382,744 77,225 53,373 49,432 391,760 278,767 2,212,000 $ 79,735 54,874 51,959 26 4,765 59,493 88,231 34,708 41,070 8,859 423,720 $ 773,984 330,414 51,959 74 8,862 387,509 136,718 141,604 84,140 432,830 287,626 2,635,720 COMPONENT UNITS $ 27,997 17,114 17,105 4,533 66,749 Noncurrent Liabilities: Unearned deferred revenue Contracts Payable Accrued insurance losses Funds held for others Long-term debt Other long-term liabilities Total Noncurrent Liabilities 6,587 39,550 193,696 3,316,751 171,795 3,728,379 44,570 350,228 36,076 1,459,696 42,157 1,932,727 51,157 39,550 543,924 36,076 4,776,447 213,952 5,661,106 1,568 13,110 580,829 4,984 600,491 Total Liabilities 5,940,379 2,356,447 8,296,826 667,240 11,226,325 1,176,872 12,403,197 34,630 73,466 414,113 31,302 3,023 796,119 16,940 73,466 417,136 796,119 48,242 13,765 1,550,247 31,447 (633,427) 157,595 153,073 63,500 137,477 157,595 1,703,320 63,500 31,447 (495,950) 232,603 98,290 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 $ 12,693,473 $ The Notes to the Financial Statements are an integral part of this statement. - 39 - 2,504,599 $ 15,198,072 $ 379,288 STATE OF ARIZONA STATEMENT OF FINANCIAL POSITION UNIVERSITIES - AFFILIATED COMPONENT UNITS JUNE 30, 2004 (Expressed in Thousands) ASSETS Cash and cash equivalent investments $ 31,543 Receivables: Pledges receivable Other receivables Total receivables 113,845 13,896 127,741 Investments: Investments in securities Investments held in trust for Universities Other investments Total investments 583,867 51,070 16,793 651,730 Net direct financing leases Property and equipment, net of accumulated depreciation Other assets 35,100 141,207 70,006 Total Assets 1,057,327 LIABILITIES Liability under Universities' endowment trust agreements Bonds payable Unearned revenue Other liabilities 74,161 238,041 18,802 37,690 Total Liabilities 368,694 NET ASSETS Permanently restricted Temporarily restricted Unrestricted Total Net Assets 423,895 230,925 33,813 $ 688,633 The Notes to the Financial Statements are an integral part of this statement. - 40 - (This page intentionally left blank) STATE OF ARIZONA STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2004 (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 special fund Lottery Other Total Business-type Activities Total Primary Government COMPONENT UNITS: Water Infrastructure Finance Authority University Medical Center Arizona Power Authority Total Component Units 726,525 7,717,148 138,281 4,703,685 1,059,047 731,522 162,366 2,144,438 176,035 17,559,047 OPERATING GRANTS AND CONTRIBUTIONS CHARGES FOR SERVICES $ 2,342,085 397,657 167,331 303,996 109,944 3,321,013 140,791 84,739 133,510 32,882 85,917 114,097 44,908 636,844 $ 778,047 196,531 5,142 366,582 103,548 1,449,850 169,994 5,761,217 16,748 849,961 102,890 44,158 36,780 6,981,748 CAPITAL GRANTS AND CONTRIBUTIONS $ 729,896 105,402 778 836,076 421,220 31 421,251 18,513 18,513 $ 20,880,060 $ 2,086,694 $ 7,817,824 $ 439,764 $ 16,128 326,592 25,389 $ 9,308 337,386 25,446 $ 35,120 - $ - $ 368,109 $ 372,140 $ 35,120 $ - General Revenues: Taxes: Sales Income Tobacco Property Motor vehicle and fuel Other Unrestricted investment earnings Unrestricted grants and contributions Miscellaneous Contributions to permanent endowments Gain on sale of trust land Special item - voluntary retirement program for faculty Transfers Total General Revenues, Contributions, Gains, Special Items 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. - 42 - NET (EXPENSE) REVENUE AND CHANGES IN NET ASSETS PRIMARY GOVERNMENT TOTAL GOVERNMENTAL BUSINESS-TYPE PRIMARY COMPONENT ACTIVITIES ACTIVITIES GOVERNMENT UNITS $ (415,740) (1,871,192) 11,977 (3,820,842) (870,240) (152,047) (80,647) (2,144,438) (176,035) (9,519,204) $ $ (9,519,204) (415,740) (1,871,192) 11,977 (3,820,842) (870,240) (152,047) (80,647) (2,144,438) (176,035) (9,519,204) (815,629) (95,724) (162,189) 62,586 (5,618) (1,016,574) (815,629) (95,724) (162,189) 62,586 (5,618) (1,016,574) (1,016,574) (10,535,778) $ 28,300 10,794 57 39,151 5,016,585 2,800,461 223,804 50,455 1,613,952 539,218 24,227 8,502 281,109 319,517 (678,726) 50,050 38,753 46,615 2,231 (6,880) 678,726 10,199,104 679,900 12,013,573 $ 12,693,473 5,066,635 2,800,461 223,804 50,455 1,613,952 539,218 62,980 8,502 327,724 2,231 319,517 (6,880) - 809,495 (207,079) 2,711,678 $ 2,504,599 7,024 - 11,008,599 472,821 14,725,251 $ 15,198,072 7,024 46,175 333,113 $ 379,288 - 43 - STATE OF ARIZONA STATEMENT OF ACTIVITIES UNIVERSITIES - AFFILIATED COMPONENT UNITS JUNE 30, 2004 (Expressed in Thousands) UNRESTRICTED REVENUES Contributions Rental revenue Sales and services Net investment income Net assets released from restrictions Other revenues $ Total Revenues 8,296 21,514 6,781 7,673 76,717 21,246 TEMPORARILY PERMANENTLY RESTRICTED RESTRICTED $ 56,339 $ 9,001 (68,794) 13,128 TOTAL 29,471 $ 32,914 (7,923) 121 94,106 21,514 6,781 49,588 34,495 142,227 9,674 54,583 206,484 49,005 5,876 21,635 16,095 23,209 8,418 3,904 8,025 - - 49,005 5,876 21,635 16,095 23,209 8,418 3,904 8,025 Total Expenses 136,167 - - 136,167 Increase in Net Assets Net Assets - Beginning Transfers 6,060 27,304 449 54,583 368,916 396 70,317 618,316 - EXPENSES Program services: Payments to Universities Leasing related expenses Payments on behalf of Universities Other program services Personal services, operations, and administrative expenses Fundraising expenses Interest Other expenses Net Assets - Ending $ 33,813 9,674 222,096 (845) $ 230,925 The Notes to the Financial Statements are an integral part of this statement. - 44 - $ 423,895 $ 688,633 STATE OF ARIZONA BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2004 (Expressed in Thousands) TRANSPORTATION & 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 Inventories, at cost Restricted assets: Cash Cash and pooled investments with State Treasurer Cash held by trustee Endowment investments 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 Total Liabilities $ OTHER GOVERNMENTAL FUNDS $ $ - $ 28 1,674 TOTAL $ 2,685 843,614 156,686 124,152 645,503 1,769,955 345,328 6,904 72,625 112,067 1,710 235,892 11,200 60,209 804 26,709 47,343 41 20,000 4,994 4,569 429,477 2,679 214 - 17,467 1,593 20,230 1 49,612 2,542 423,004 13,870 429,477 122,243 159,410 1,751 1 305,718 18,736 2,825 - - - 2,825 26,215 81,606 43,283 353 390,281 - 1,312,180 - 139,315 22,757 1 555,811 104,363 1,312,180 43,283 354 $ 1,784,605 $ 707,067 $ 1,873,299 $ 900,695 $ 5,265,666 $ 344,719 100,195 74 8,563 278,085 76,962 36,051 157,062 36,256 1,037,967 $ 92,713 8,451 103,371 174,553 6,859 385,947 $ 44,104 41 1 6,816 436,611 23,553 511,126 $ 167,812 14,602 1,288 262 25,104 1,512 151 210,731 $ 649,348 123,289 74 8,563 382,744 77,225 242,524 602,044 59,960 2,145,771 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: Non-major special revenue funds Total Fund Balances Total Liabilities and Fund Balances 983 AVIATION PLANNING, HIGHWAY LAND MAINTENANCE & ENDOWMENTS SAFETY FUND FUND $ 13,545 96,714 74,973 377 561,029 233,650 85,843 24,994 (23,367) 1,361,366 807 - 87,751 41,165 17,808 28,298 27,693 144 - 13,545 321,401 41,165 114,522 1,361,366 189,921 27,693 25,515 537,662 746,638 321,120 1,362,173 487,105 689,964 487,105 3,119,895 1,784,605 $ 707,067 $ 1,873,299 The Notes to the Financial Statements are an integral part of this statement. - 45 - $ 900,695 $ 5,265,666 STATE OF ARIZONA RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2004 (Expressed in Thousands) Total fund balances - governmental funds $ 3,119,895 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. 13,331,214 Long-term receivables are not available to pay for current period expenditures and, therefore, are deferred in the funds. 602,044 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. (140,808) The allocation of internal service fund net loss results in an amount due from business-type activities, which is not reported in the funds. 2,614 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. 5,078 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 Premium on grant anticipation notes Certificates of participation Premium on certificates of participation Capital leases Installment purchase contracts (2,278,225) (83,686) (308,585) (9,623) (845,804) (51,450) (125,974) (4,602) (3,707,949) Accrued liabilities for AHCCCS programmatic costs are not due and payable from current financial resources and, therefore, are not reported in the funds. (153,304) Accrued long-term contract payable to Accenture is not due and payable from current financial resources and, therefore, is not reported in the funds. (39,550) 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 judgments (135,064) (304,446) (439,510) 110,760 2,989 113,749 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. - 46 - 12,693,473 STATE OF ARIZONA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2004 (Expressed in Thousands) GENERAL FUND REVENUES Taxes: Sales Income Tobacco Property Motor vehicle and fuel Other Intergovernmental Licenses, fees and permits Earnings on investments Sales and charges for services Fines, forfeitures and penalties Gaming Tobacco settlement 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 grant anticipation notes issued Grant anticipation notes issued Premium on grant anticipation notes 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 Fund Balances - Ending $ TRANSPORTATION & AVIATION PLANNING, HIGHWAY LAND MAINTENANCE & ENDOWMENTS SAFETY FUND FUND OTHER GOVERNMENTAL FUNDS $ $ 4,201,649 2,818,733 58,471 42,892 801 431,101 6,655,803 87,817 9,462 100,419 32,748 3,612 92,550 220,136 14,756,194 288,600 6,321 1,613,063 465,378 108,347 3,203 902 26,381 2,512,195 $ 6 107,509 27,996 22,537 158,048 495,175 45 165,333 1,242 88 108,117 38,789 153,774 11,541 31,853 87,284 53,905 44,166 1,191,312 TOTAL $ 4,985,424 2,818,778 223,804 50,455 1,613,952 539,218 7,159,976 349,938 131,715 161,170 120,032 57,517 92,550 313,220 18,617,749 627,051 7,448,239 44,822 4,027,898 924,069 68 48,789 1,121,670 75 679,903 1,022,768 340 2,142 59,968 675 652 - 90,838 283,135 91,367 614,743 103,315 37,492 104,092 - 718,229 7,733,516 136,189 4,702,609 1,028,134 717,463 153,533 2,144,438 5,998 33,387 55,399 14,337,390 2,834 281,416 1,986,996 28 183 63,988 321,569 152,026 358,291 2,156,868 327,595 188,247 695,289 18,545,242 418,804 525,199 94,060 (965,556) 288,617 (788,382) 24,154 - 54,503 (527,990) - (5,071) 149,001 - 596,930 (294,662) 195 107,940 (145,965) 389,746 22,024 22,633 177,322 9,623 16,725 940,050 (1,616,105) 149,001 24,349 107,940 (145,965) 389,746 22,024 22,633 177,322 9,623 16,725 241,770 15,253 (218,588) 200,216 546,422 (473,487) 51,712 269,408 (17,273) 31,965 1,934 919,137 (46,419) 736,383 (17,273) 273,735 17,187 370,992 443,499 2,676,396 746,638 $ 321,120 143,930 237,990 1,124,183 $ The Notes to the Financial Statements are an integral part of this statement. - 47 - 1,362,173 $ 689,964 72,507 $ 3,119,895 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, 2004 (Expressed in Thousands) Net change in fund balances - total governmental funds $ 443,499 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 695,289 Depreciation expense (76,670) 618,619 The net loss of internal service funds that is included with governmental activities in the Statement of Activities. (6,940) Some revenues reported in the Statement of Activities are not currently available at yearend and are not reported as revenue in the governmental funds. Licenses, fees and permits 4,848 Sales taxes 31,161 Other revenue 5,736 41,745 Certain revenues that are reported as resources in the funds, but were earned in prior fiscal years, are not reported in the Statement of Activities. Operating grants (42,685) Income taxes (18,317) (61,002) In the Statement of Activities, only the gain/loss on the sale of capital assets is reported, whereas in the governmental funds, the proceeds from the sale increased financial resources. Thus, the change in net assets differs from the change in fund balance by the book value of the capital assets sold. (1,872) In the Statement of Activities, the gain on the sale of trust land is reported, whereas in the governmental funds, the proceeds from the sale increased financial resources. 170,516 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. Accrued contract payable (39,550) Litigation (1,300) Compensated absences (2,452) Other noncurrent expenses (4,160) The Notes to the Financial Statements are an integral part of this statement. (47,462) (Continued) - 48 - 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, 2004 (Expressed in Thousands) Certain expenditures that are reported in the funds in the current year, but were incurred in prior fiscal years, are not reported in the Statement of Activities. AHCCCS accrued programmatic costs 36,344 Ladewig vs. State of Arizona lawsuit 5,761 42,105 The estimated liability for the Ladewig vs. State of Arizona lawsuit, which was accrued at the government-wide level in fiscal year 2003, has been revised, in the State's favor, in fiscal year 2004. This accrual was not financed from current financial resources in fiscal year 2003 and, therefore, was not reported in the fund statements in fiscal year 2003. 41,907 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 (389,746) Refunding bonds issued (107,940) Premium on bonds issued (22,024) Bond premium/discount amortization 8,043 New certificates of participation issued (273,735) Premium on COPs issued (17,187) COP premium amortization 4,247 Refunding certificates of participation issued (16,725) Grant anticipation notes issued (177,322) Refunding grant anticipation notes issued (22,633) Premium on grant anticipation notes issued (9,623) (1,024,645) 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 327,595 Payment to refunded bond escrow agent 141,000 Payment to refunded certificates of participation escrow agent 16,645 Bond issuance costs 2,539 487,779 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. (24,349) Change in net assets of governmental activities $ The Notes to the Financial Statements are an integral part of this statement. - 49 - 679,900 STATE OF ARIZONA STATEMENT OF NET ASSETS PROPRIETARY FUNDS JUNE 30, 2004 (Expressed in Thousands) UNIVERSITIES ASSETS Current Assets: Cash $ Cash with U.S. Treasury Cash and pooled investments with State Treasurer Restricted 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 others 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 Receivables, net of allowances: Loans and notes Other Investments Endowment investments Other long-term assets Capital assets: Infrastructure, land and other non-depreciable Depreciable buildings, property and equipment, net of accumulated depreciation Total Noncurrent Assets Total Assets 46,846 155,063 BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS INDUSTRIAL UNEMPLOYMENT COMMISSION COMPENSATION SPECIAL FUND LOTTERY $ 39 759,016 - $ 5,190 980 $ OTHER 39,001 $ 368 18,111 17,963 99,945 - 33,996 - - 91,639 61 630 4,039 52,757 53,215 17,086 2,734 450,278 47,570 10,036 816,661 3,647 1,887 2,252 47,952 5,224 1,555 45,780 159 9,219 5,222 123 386 106,566 8,663 908 241,425 132,097 - - - - 37,813 230,287 - 3,337 - 3,439 - 29,138 3,394 155,274 233,133 10,888 - 188,033 - 7,208 18,329 179 320,777 - 2,996 1,032 2,239 2,012,152 3,164,953 3,615,231 816,661 20,558 214,924 262,876 2,449 10,689 56,469 17,712 41,898 283,323 The Notes to the Financial Statements are an integral part of this statement. - 50 - TOTAL ENTERPRISE FUNDS $ 52,443 759,016 213,155 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS $ 85,384 91,639 51,959 100,006 - 51,217 2,676 13,258 75,491 53,338 386 106,566 27,304 3,642 1,602,096 1 9,903 2 2,829 2,542 1,932 102,593 132,097 - 3,439 37,813 233,624 - 47,467 3,394 343,307 233,133 18,275 - 327,044 - 2,052,871 3,432,464 5,034,560 58,756 58,756 161,349 (Continued) - 51 - STATE OF ARIZONA STATEMENT OF NET ASSETS PROPRIETARY FUNDS JUNE 30, 2004 (Expressed in Thousands) UNIVERSITIES LIABILITIES Current Liabilities: Accounts payable and other current liabilities Accrued liabilities Obligations 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 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 Unrestricted Total Net Assets $ BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS INDUSTRIAL UNEMPLOYMENT COMMISSION COMPENSATION SPECIAL FUND LOTTERY OTHER 72,259 38,594 17,963 24,257 80,081 39,503 7,691 280,348 14,646 26 5,689 181 20,542 1,954 33,996 34,708 1,500 72,158 3,100 4,765 29,378 8,303 381 45,927 2,422 1,634 169 162,416 8,150 67 787 175,645 44,570 36,076 1,456,508 42,084 1,579,238 1,859,586 20,542 350,228 3,100 353,328 425,486 45,927 88 73 161 175,806 1,134,485 - 18,955 3,481 19,951 3,023 13,603 - 796,119 - 3,337 - - 63,500 157,595 153,073 293,866 - 7,061 24,066 1,755,645 $ 796,119 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. - 52 - (184,902) $ (162,610) $ 10,542 $ 107,517 TOTAL ENTERPRISE FUNDS GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS 79,735 54,874 51,959 26 4,765 59,493 170,900 88,231 34,708 41,070 8,859 594,620 44,900 826 1,689 49,432 562 7,631 105,040 44,570 350,228 36,076 1,459,696 42,157 1,932,727 2,527,347 193,696 3,421 197,117 302,157 1,176,872 58,195 3,023 796,119 16,940 63,500 - 157,595 153,073 140,091 $ 2,507,213 $ 2,504,599 (199,003) $ (140,808) (2,614) - 53 - STATE OF ARIZONA STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2004 (Expressed in Thousands) UNIVERSITIES OPERATING REVENUES Sales and charges for services: Pledged student tuition and fees, net of scholarship allowances of $136,263 Pledged auxiliary enterprises, net of scholarship allowances of $5,895 Pledged educational department Lottery Other Unemployment assessments Workers' compensation assessments Intergovernmental 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) 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, Special Items and Transfers $ Change in Net Assets Total Net Assets - Beginning, as restated 194,894 59,408 1,637 27 255,966 558,523 100,181 1,463,961 142,038 2,264,703 (826,151) 397,657 397,657 (141,691) $ - $ - $ 99,430 778 589 3,529 1,308 105,634 163,108 1,133 164,241 (155,929) 241,443 5,227 10,017 176 67 2,888 259,818 106,899 69,708 4,097 23,447 5,342 2,605 605 4,138 109,942 (4,308) - (96) - 17,784 19,179 8,141 (48,747) (26,063) 29,675 45,994 45,994 19,495 2,047 (76) (3,014) 18,356 (796,476) (95,697) 72,058 18,513 2,231 (6,880) 741,487 - (1,654) 1,755,645 5,142 3,170 8,312 OTHER 366,582 135 366,717 30,933 1,724,712 $ - 240,112 41,283 552,350 86,309 21,846 1,438,552 50,050 9,331 Gifts and donations Capital grants and contributions Contributions to permanent endowments Special item - voluntary retirement program for faculty Transfers in Transfers out Total Net Assets - Ending 496,652 BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS INDUSTRIAL UNEMPLOYMENT COMMISSION COMPENSATION SPECIAL FUND LOTTERY (137,573) - (97,351) 893,470 $ 796,119 $ 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. - 54 - 16 292 (44,178) (43,886) 1,474 398 (2) 1,886 63,013 (2,422) (62,501) 3,394 (2,000) (137,573) (25,037) 512 10,030 (162,610) $ 10,542 (1,028) 108,545 $ 107,517 TOTAL ENTERPRISE FUNDS $ $ 496,652 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS $ - 240,112 41,283 366,582 99,430 194,894 5,142 612,536 86,309 589 3,529 1,637 26,486 2,175,181 621,031 995 622,026 1,430,439 4,097 100,181 1,492,635 15,359 145,952 672 7,026 3,196,361 (1,021,180) 497,318 26,130 26,618 13,310 59,720 6,242 629,338 (7,312) 50,050 9,251 173 84,747 19,179 10,878 (44,178) (48,825) (29,077) 52,025 19 6 (180) 18 (969,155) (7,294) 72,058 18,513 2,231 (6,880) 744,881 (66,155) 453 (2,671) (204,507) 2,711,720 (9,512) (131,296) 2,507,213 $ (204,507) (2,572) $ (207,079) $ (140,808) - 55 - STATE OF ARIZONA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2004 (Expressed in Thousands) 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 Receipts 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 Payments to other Funds Other receipts (payments) 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 receipts (payments) Net Cash Provided (Used) by Capital and Related Financing Activities $ 9,892 BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS INDUSTRIAL UNEMPLOYMENT COMMISSION SPECIAL FUND LOTTERY COMPENSATION $ 190,311 - $ 1,495 - $ OTHER 214,566 - $ 102,452 - 236,392 - - - - 41,274 481,586 639,221 - 59,408 - 2,450 - - 713 71,934 (562,205) (1,446,026) (100,181) (11,121) 19,014 (692,154) (397,459) 1,663 (146,077) (18,176) (14,231) (109,781) (5,202) 10,401 109,984 (80,950) (22,904) (79,238) (570) (8,563) 147,462 49,602 410,241 741,741 (135,333) (351,139) - (1,763) - 2,047 (1,536) (44,178) (61,716) - 1,504 (2,000) 5 862,574 (1,763) (105,894) (491) (153) (821) 511 18,768 420,104 10,917 (310,855) - (328) (48,789) - (76) - (44,165) - - (1,400) (102) - 45,980 - (1,906) The Notes to the Financial Statements are an integral part of this statement. - 56 - (153) 473 (348) TOTAL ENTERPRISE FUNDS $ 317,018 191,806 9,892 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS $ - 236,392 - 41,274 481,586 699,342 2,450 71,934 625,289 - (1,168,571) (1,474,132) (100,181) (11,121) (79,238) 30,508 (751,041) (560,296) (26,001) (9,128) 1,005 30,869 147,462 2,047 49,602 410,241 743,245 (135,333) (351,139) (44,178) (65,479) (1,531) (180) (2,671) 6 754,937 (2,845) 18,768 420,104 10,917 (312,157) 1,004 (11,053) (48,865) - (45,565) 371 (2,189) - 43,573 (12,238) (Continued) - 57 - STATE OF ARIZONA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2004 (Expressed in Thousands) UNIVERSITIES 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 (Used) by Investing Activities (1,026,419) (266,789) Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning, as restated (50,389) 422,208 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 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 others Decrease in due from other Funds (Increase) decrease in inventories, at cost (Increase) decrease in other assets Increase (decrease) in accounts payable Increase (decrease) in accrued liabilities (Decrease) in due to U.S. Government Increase in due to others Increase (decrease) in due to other Funds Increase (decrease) in deferred revenue Increase in accrued insurance losses Increase (decrease) in other liabilities Net Cash Provided (Used) by Operating Activities BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS INDUSTRIAL UNEMPLOYMENT COMMISSION COMPENSATION SPECIAL FUND LOTTERY 737,945 21,685 $ $ 371,819 (826,151) $ 142,038 140,241 9,154 125 2,900 1,623 45,994 (1,279) (131,284) (1,351) 15,481 125 (2,905) 1,618 (145) 40,311 4,062 34,939 (7,784) 121,326 759,055 $ (141,691) $ - (14,612) 220 2,010 (5,462) 10,880 1,341 (2,418) (692,154) $ SCHEDULE OF NONCASH INVESTING, CAPITAL AND NON-CAPITAL FINANCING ACTIVITIES 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 Non-capital Financing Activities $ 3,521 $ 48,830 7,773 (1,292) 955 (6,434) 4,900 43,545 $ 40,166 $ 39,001 $ (155,929) $ 106,899 $ 1,133 (6,254) 2,018 (150) - $ 101,798 45,994 (101,846) 860,901 $ OTHER (3,926) (707) 145,198 - (146,077) $ (14,231) $ 113,542 (4,308) 176 2,605 1,373 (307) (185) (575) 2,603 - (150) (65) (6) 4,557 (823) (331) 734 (1,733) 169 (9,229) 29 (12) 109,984 $ (8,563) - $ 10,498 - $ - $ (42) - 89 (397) - - $ 10,498 $ (42) $ (308) The beginning cash and cash equivalents balance at July 1, 2003 was restated for 1) the Universities due to the reclassification of investments with bond trustee to cash equivalents based on a new assessment of those investments and 2) the Industrial Commission special fund due to the reclassification of pending investment transactions from cash to a receivable or payable. The Notes to the Financial Statements are an integral part of this statement. - 58 - TOTAL ENTERPRISE FUNDS GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS 881,086 78,581 $ $ 19 (1,279) (1,160,608) (1,351) (203,571) 19 (156,102) 1,479,685 15,805 69,579 1,323,583 $ 85,384 (1,021,180) $ (7,312) 145,952 13,310 (23,569) (65) (6) 4,557 (910) 1,494 (6,010) 13,768 (150) 1,510 (9,229) (2,389) 145,198 (12) 634 (2) 3,636 (160) (32) 8,203 220 1,672 10,048 652 $ (751,041) $ 30,869 $ 3,521 $ 48,919 17,832 (1,292) 955 (6,434) 4,900 43,545 - $ 111,946 $ - - 59 - STATE OF ARIZONA STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2004 (Expressed in Thousands) PENSION INVESTMENT AGENCY TRUSTS FUNDS TRUSTS 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 U.S. Government securities Corporate bonds Corporate notes Corporate stocks Real estate mortgages and contracts Collateral investment pool Repurchase agreements 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 $ 19,145 $ - $ TOTAL 35,661 $ 54,806 - - 182,184 2,127 182,184 2,127 97,386 309,235 1,817,679 28,180 298 1,719 2,254,497 3,952 3,952 113 1,064 1,177 101,451 309,235 1,817,679 28,180 298 2,783 2,259,626 - - 89,446 89,446 1,993,462 - - 1,993,462 2,289,996 3,365,114 2,934,757 206,406 18,493,360 26,775 1,023,204 292,480 15,107 30,640,661 967,430 1,059,669 801,024 20,077 2,848,200 - 2,289,996 4,332,544 3,994,426 206,406 18,493,360 26,775 1,023,204 801,024 292,480 35,184 33,488,861 - - 2,557,950 2,089 2,557,950 2,089 4,629 - - 4,629 32,918,932 2,852,152 2,870,634 38,641,718 1,828,025 1,021,706 - - 122,417 7,412 1,950,442 1,021,706 7,412 3,313,200 - 4,853 - 12,243 2,728,562 3,313,200 17,096 2,728,562 6,162,931 4,853 2,870,634 9,038,418 26,756,001 - 2,847,299 - 26,756,001 2,847,299 26,756,001 $ 2,847,299 $ - The Notes to the Financial Statements are an integral part of this statement. - 60 - $ 29,603,300 STATE OF ARIZONA STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS FOR THE YEAR ENDED JUNE 30, 2004 (Expressed in Thousands) ADDITIONS: Member contributions Employer contributions Member purchase of service credit Court fees $ PENSION INVESTMENT TRUSTS TRUSTS 521,489 510,376 112,038 3,614 $ TOTAL - $ 521,489 510,376 112,038 3,614 Investment income: Net increase (decrease) in fair value of investments Interest income Dividends Real estate Other investment income Securities lending income Total investment income 3,373,969 332,824 226,485 6,996 3,826 30,492 3,974,592 (11,056) 41,034 29,978 3,362,913 373,858 226,485 6,996 3,826 30,492 4,004,570 Less investment expenses: Investment activity expenses Security lending expenses Net investment income 30,564 22,051 3,921,977 2,388 27,590 32,952 22,051 3,949,567 Capital share and individual account transactions: Shares sold Reinvested interest income Shares redeemed Net capital share and individual account transactions Other additions 4,307,071 40,871 (4,740,939) 4,307,071 40,871 (4,740,939) - (392,997) (392,997) 3,983 Total Additions - 5,073,477 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, as restated Net Assets - Ending - (365,407) 4,708,070 1,661,885 14,859 - 1,661,885 14,859 56,774 28,564 10,370 27,590 - 56,774 28,564 27,590 10,370 1,772,452 27,590 1,800,042 3,301,025 23,454,976 $ 3,983 26,756,001 (392,997) 3,240,296 $ 2,847,299 3,301,025 (392,997) 26,695,272 $ The Notes to the Financial Statements are an integral part of this statement. - 61 - 29,603,300 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS INDEX Page Page Note 1. Summary of Significant Accounting Policies--------- 63 A. Reporting Entity------------------------------------- 63 B. Basis of Presentation-------------------------------- 66 C. Measurement Focus and Basis of Accounting ---------------------------------------- 68 D. Cash and Investments------------------------------- 68 E. Taxes Receivable------------------------------------ 69 F. Inventories ------------------------------------------- 69 G. Property Tax Calendar------------------------------ 69 H. Capital Assets---------------------------------------- 69 I. Investment Income ---------------------------------- 70 J. Scholarship Allowances ---------------------------- 70 K. Deferred Revenue ----------------------------------- 70 L. Compensated Absences ---------------------------- 70 M. Long-Term Obligations ---------------------------- 71 Note 2. Cash and Investments ------------------------------------ 71 A. Cash and Investment Policies --------------------- 71 B. Unemployment Compensation -------------------- 72 C. Collateral and Insurance --------------------------- 73 D. Deposits Collateralization ------------------------- 73 E. Investments Custodial Risk------------------------ 74 F. Securities Lending ---------------------------------- 75 G. Derivatives------------------------------------------- 77 H. Custodial Securities -------------------------------- 78 I. State Treasurer’s Separately Issued Financial Statements ------------------------------------------- 78 D. E. F. G. Leases and Installment Purchases ------------ 95 Litigation ---------------------------------------- 97 Compensated Absences------------------------ 97 Changes in Long-Term Obligations --------- 98 Note 7. Interfund Transactions------------------------------- 99 Note 8. Accounting Changes and Restatements ----------100 A. Fund Financial Statements--------------------100 B. Government-Wide Statement-----------------100 Note 9. Fund Deficit------------------------------------------100 Note 10. Joint Venture ---------------------------------------101 Note 11. Commitments, Contingencies and Compliance 101 A. Risk Management Insurance Losses --------101 B. Litigation ---------------------------------------103 C. Accumulated Sick Leave ---------------------104 D. Unclaimed Property ---------------------------104 E. Construction Commitments ------------------104 F. Arizona State Lottery -------------------------105 Note 12. Tobacco Settlement--------------------------------105 Note 13. Public-Private Partnership------------------------105 Note 14. Conduit Debt ---------------------------------------105 Note 3. Receivables/Deferred Revenue ------------------------- 79 A. Taxes Receivable ----------------------------------- 79 B. Deferred Revenue----------------------------------- 80 Note 4. Capital Assets --------------------------------------------- 81 Note 5. Retirement Plans------------------------------------------ 82 A. Plan Descriptions ----------------------------------- 82 B. Summary of Significant Accounting Policies --- 83 C. Investment Restrictions ---------------------------- 83 D. Funding Policy -------------------------------------- 84 E. Annual Pension Cost ------------------------------- 84 F. Trend Information ---------------------------------- 85 G. Universities’ Retirement Plans -------------------- 85 H. Postemployment Benefits-------------------------- 85 Note 6. Long-Term Obligations --------------------------------- 87 A. Revenue Bonds ------------------------------------- 87 B. Grant Anticipation Notes ------------------------- 90 C. Certificates of Participation ----------------------- 91 - 62 - Note 15. Subsequent Events---------------------------------106 Note 16. Summary of Significant Accounting PoliciesComponent Units ----------------------------------107 A. Measurement Focus and Basis of Accounting -------------------------------------107 B. Cash and Investments -------------------------109 C. Program Loans---------------------------------110 D. Direct Financing Lease Agreement ---------111 E. Pledges Receivable----------------------------111 F. Capital Assets ----------------------------------112 G. Long-Term Obligations-----------------------113 H. Accounting Changes and Restatements ----118 I. Related Party Transactions -------------------118 J. Joint Venture -----------------------------------119 K. Subsequent Events ----------------------------119 L. Condensed Financial Statement Information ------------------------------------120 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 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’ footnote disclosures are presented in Note 16. – Summary of Significant Accounting Policies – Component Units. Component Units Component units are legally separate entities for which the State is considered to be financially accountable, or organizations that raise and hold economic resources for the direct benefit of the State. 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 of the State, except for component units affiliated with the State's Universities, are reported in a separate column in the government-wide financial statements to emphasize they are legally separate from the State. Because the component units affiliated with the Universities follow Financial Accounting Standards Board (FASB) statements, these financial statements have been reported on separate pages following the respective counterpart financial statements of the State. For financial reporting purposes, only the statement of financial position and the statement of activities for component units affiliated with the Universities are included in the State's financial statements as required by GASB. During fiscal year 2004, the State of Arizona implemented GASB Statement No. 39 – Determining Whether Certain Organizations Are Component Units, an amendment to GASB Statement No. 14. GASB 39 provides additional guidance in determining whether certain organizations for which the primary government is not financially accountable should be reported as component units based on the nature and significance of their relationship with the primary government. 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. In addition, GASB 39 requires that legally separate, tax-exempt entities that meet all of the following criteria should be discretely presented as component units: (1) The economic resources received or held by the separate organization are entirely or almost entirely for the direct benefit of the primary government, its component units, or its constituents, (2) The primary government, or its component units, is entitled to, or has the ability to otherwise access, a majority of the economic resources received or held by the separate organization, and (3) The economic resources received or held by an individual organization that the specific primary government, or its component units, is entitled to, or has the ability to otherwise access, are significant to that primary government. The State reports the following component units: University Medical Center (UMC) – The UMC is the primary teaching hospital for the College of Medicine, College of Nursing, the College of Pharmacy, the College of Public Health, and the School of Health Related Professions 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 private, not-for-profit, tax-exempt 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 at 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 hydropower 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 members 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 - 63 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 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 at 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. The 10 Governor appointed 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 at 1100 West Washington, Suite 290, Phoenix, Arizona 85007, (602) 364-1310. Component units of the State affiliated with the Universities are legally separate, tax-exempt organizations controlled by separate Boards of Directors that meet the criteria established in GASB Statement No. 39, with the exception of the Collegiate Golf Foundation and Campus Research Corporation. The Collegiate Golf Foundation is included because it is a legally separate organization that the State believes would be misleading to exclude due to its financial relationship to the State. The Campus Research Corporation (CRC) is included because the University of Arizona (U of A) appoints a majority of the board of directors and approves the budget; the U of A can thus impose its will on CRC. The following component units affiliated with the Universities are reported as major component units of the State: ASU Foundation – The Arizona State University Foundation's (ASU Foundation) resources are disbursed at the discretion of the Foundation's independent board of trustees, in accordance with donor directions and Foundation policy. U of A Foundation - The U of A Foundation supports the U of A through various fund-raising activities and contributes funds to the U of A in support of various programs. The following component units affiliated with the Universities are reported as non-major component units of the State: ASU Alumni Association, Sun Angel Foundation, and Sun Angel Endowment - These three foundations receive funds primarily through donations and dues, and contribute funds to ASU for support of various programs. Price-Elliott Research Park, Inc. - Price Elliott Research Park, Inc., is developing a research park to promote and support research activities in coordination with ASU. Collegiate Golf Foundation - This foundation operates an ASU-owned golf course. Arizona Capital Facilities Finance Corporation (ACFFC) and Mesa Student Housing, LLC. - These two foundations are providing facilities for either the use by students of ASU or ASU itself. Southern Arizona Capital Facilities Finance Corporation (SACFFC) - SACFFC acquires, constructs, and operates student housing for the benefit of the U of A. U of A Alumni Association - The U of A Alumni Association was established to serve the U of A and its graduates, former students, and friends by attracting, organizing and encouraging them to advance the U of A's missions - teaching, research, and public service. Law College Association of the U of A (Law Association) - The Law Association was established to provide support and financial assistance to the College of Law at the U of A. The Law Association funds provide support to the College on many levels, from endowed student scholarships to named faculty professorships. Campus Research Corporation (CRC) - The CRC was established to assist the U of A in the acquisition, improvement, and operation of the UA Science and Technology Park (Park) and related properties. CRC currently leases from the U of A the remaining 32% of building space of the Park not leased to the Arizona Research Park Authority. CRC is responsible for assisting in the development of the presently undeveloped portions of the Park and for subleasing unoccupied space, newly developed - 64 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 space, and space now occupied by IBM or its subtenants once the current subleases expire. The U of A is responsible for payment of operational expenses associated with the space occupied by the U of A departments, offices, and programs. Northern Arizona University Foundation, Inc. (NAU Foundation) - The NAU Foundation receives gifts and bequests, administers and invests securities and property, and disburses payments to and on behalf of NAU for advancement of its mission. Northern Arizona Capital Facilities Finance Corporation (NACFFC) - The NACFFC was established for the purpose of acquiring, developing, constructing, maintaining and operating student housing and other capital facilities and equipment for the use and benefit of NAU's students. Complete financial statements for each of the aforementioned component units, except for the U of A Foundation, may be obtained at the following addresses: ASU Foundation, ASU Alumni Association, Sun Angel Foundation, Sun Angel Endowment, Price-Elliott Research Park, Inc., Collegiate Golf Foundation, Arizona Capital Facilities Finance Corporation (ACFFC), and Mesa Student Housing, LLC Arizona State University, Financial Services, P.O. Box 875812, Tempe, Arizona 85287-5812 or (480) 965-3601. SACFFC - U of A, Financial Services, P.O. Box 3310, Tucson, Arizona 85722-3310 The U of A Alumni Association - P.O. Box 210109, Tucson, Arizona 85721-0109 Law College Association of the U of A - P.O. Box 210176, Tucson, Arizona 85721-0176 Campus Research Corporation - University of Arizona Science and Technology Park, 9040 South Rita Road, Suite 1400. Tucson, Arizona 85747 NAU Foundation and NACFFC - Northern Arizona University, Comptroller's Office, P.O. Box 4069, Flagstaff, Arizona 86011 The financial statements of the U of A Foundation are not publicly available. For information regarding the U of A Foundation's financial statements, contact the University of Arizona Comptroller at the following address: University of Arizona, Financial Services, P.O. Box 3310, Tucson, Arizona 85722-3310. Related Organizations Related organizations are legally separate entities for which the State is not considered to be financially accountable, and that do not meet the criteria established by GASB Statement No. 39. The State’s accountability for these organizations does not extend beyond making the appointments, nor are the economic resources accessible to the State. 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) – Arizona Revised Statutes (ARS) §36-482 established the Authority to issue 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 for cause or at will by the Governor with the consent of the Senate. Arizona International Development Authority (the Authority) – ARS §41-1553 established the Authority to facilitate the development of international trade or commerce between Arizona and other countries. The Authority is governed by a sevenmember 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) – ARS §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 nine-member board of directors of which five are appointed by the Governor and approved by the - 65 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 Senate and two members each by the President of the Senate and the Speaker of the House. 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) – ARS §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. State Compensation Fund (the Fund) – ARS §23-981 established the Fund to provide 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, and can be removed only for cause. Annually, the Governor appoints a chairman from among the board members. Joint Ventures As described in Notes 10 and 16 respectively, 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 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 revenues include: • charges to customers or applicants for goods, services, privileges provided, and fines or forfeitures, - 66 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 • • 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 non-major funds. Fiduciary funds are aggregated and reported by fund type. 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. Unemployment Compensation - pays claims for unemployment to eligible recipients from employer contributions and reimbursements. The Industrial Commission Special 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 - accounts for the activities of the Arizona State Lottery. Additionally, the State reports the following fund types: Internal Service Funds - account for insurance coverage, employee benefits, automotive maintenance and operation, highway equipment rentals, and data processing and telecommunication services provided to State agencies on a cost-reimbursement basis. It is the policy of the State to classify immaterial proprietary fund activities in governmental funds. This policy helps to reduce the number of funds reported in the financial statements to the minimum amount needed. These funds allocate a fixed - 67 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 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. C. MEASUREMENT FOCUS AND BASIS OF ACCOUNTING The government-wide, proprietary fund, and fiduciary fund 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. 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 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 resources 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 has chosen the option not to follow FASB Statements and interpretations issued after November 30, 1989. 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 Special Fund). 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. - 68 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 • 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. Investments (not with State Treasurer) – investments are stated at fair value or amortized cost which approximates fair value, except for Treasurer’s Custodial Securities of the Agency Funds, which are reported at par value. E. TAXES RECEIVABLE Taxes receivable include amounts owed by taxpayers for the 2003 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, 2004. Sales and motor vehicle and fuel tax receivable represent amounts that are earned by the State in the fiscal period ended June 30, 2004, 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. 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. 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. Most capital assets are depreciated over their useful life. However, the State utilizes an alternative accounting treatment for most infrastructure assets 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. The State has adopted a general policy for capitalization thresholds, depreciation, and estimated useful lives of capital assets. In addition, the State has approved alternative policies for some State agencies. 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 - 69 - 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 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 The State is trustee for approximately 9.3 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 at acquisition 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. 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. - 70 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 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 11.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. 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 seventeen of the twenty-six 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, 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 - 71 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 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 (LGIP – GOV)] 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 United States Bankruptcy Court for the Southern District of Ohio entered an order confirming the NCFE’s Joint Plan of Liquidation. Approximately $9.5 million was received as an initial payout of funds being held by the Indenture Trustee for NPF-XII securities. As of June 30, 2004, the payout was recorded in the LGIP and the funds were subsequently distributed to the appropriate pool participants in August 2004. The likelihood of recovering the remaining amount is unknown. The State Treasurer only makes investments that are registered with the Securities and Exchange Commission or issued directly by the U.S. Treasury and federal agencies. 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 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 fair value of real estate investments is based on independent appraisals or estimated value. The Public Safety Personnel, Elected Officials’ and Corrections Officer Retirement Systems investments are reported at fair value. 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 the joint venture, which is reported at cost. Donated land is reported at fair market value at time of donation. 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. - 72 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 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, 2004, the carrying amount of the State’s deposits for the Primary Government was a deficit of $32.010 million and $89.786 million for Fiduciary funds. The cash deficit results from the State Treasurer not reducing investments until the servicing bank presents warrants for payment. At June 30, 2004, the bank balance was $142.419 million for the Primary Government and $112.229 million for Fiduciary funds. For the Primary Government bank balances, $2.200 million was collateralized by Federal depository insurance. The remaining $140.219 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, $1.603 million was collateralized by Federal depository insurance, $110.623 million was collateralized by securities held by the bank’s trust division or agent in the State’s name in book-entry form, and $3 thousand was not collateralized or the securities held in the bank’s custodial account with the Federal Reserve were in the bank’s name. - 73 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 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 stocks on securities loan 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 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 1,756,060 8,860 734,586 1,596 1,616,276 1,865 369,846 47,214 4,536,303 Category B $ 229,841 $ 229,841 C $ $ 78,048 187,643 265,691 Reported Amount $ 2,063,949 8,860 734,586 1,596 1,616,276 1,865 369,846 234,857 5,031,835 446 104,214 108,454 5,190 32,010 235 32 1,692 14,000 51,959 $ - 74 - 27,361 9,999 13,684 759,016 6,160,127 (32,010) 6,128,117 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 Fiduciary Funds 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: 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 5,945,058 14,252,742 4,514,786 496,042 722,880 147,713 26,079,221 Category B $ $ 3,492,465 23,175 3,515,640 C $ $ 481 481 Reported Amount $ 5,945,058 17,745,207 4,514,786 496,042 722,880 171,369 29,595,342 292,479 1,970,287 26,775 1,023,204 $ 1,480,580 1,580,845 226,630 36,196,142 89,786 36,285,928 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 Primary Government $ 190,050 759,016 2,719,383 142,176 51,959 100,006 233,624 386,590 1,545,313 $ 6,128,117 Fiduciary Funds $ 54,806 182,184 2,127 33,488,861 2,557,950 $ 36,285,928 At June 30, 2004, the State had no commitments to resell securities under yield maintenance agreements. During the year ended June 30, 2004, the State did not make significant investments in types of investments beyond those enumerated in the preceding tables. F. 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, 2004, 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, 2004, the State Treasurer had no securities on loan. - 75 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 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, 2004. 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, 2004 for loaned securities collateralized by cash and non-cash collateral was $33.409 million and $12.321 million, respectively. As part of the securities lending transactions, Northern Trust received cash and non-cash collateral valued at $33.996 million and $12.540 million, respectively at June 30, 2004. 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 88 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 24 days as of June 30, 2004. 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 borrower upon expiration of the loan. At June 30, 2004, the Commission had $33.996 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’ custodial bank enters into agreements with counterparts 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. 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 maturities of the investments are closely matched to those of the security loans to avoid interest rate exposure. The ASRS receives a spread for its lending activities. Investments made with cash collateral received are classified as an asset on the Statement of Plan 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, 2004, the ASRS had $2.3 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 $309.2 million and a payable for securities purchased of $1 billion at June 30, 2004. 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 - 76 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 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, 2004, the fair value of securities on loan were (expressed in millions): PSPRS EORP CORP $ 806.532 49.257 142.269 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, 2004, the weighted average maturity was eleven 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 U of A engaged in securities lending transactions. The U of A entered into an agreement with Bank of New York, the U of A’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 U of A 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 duration of the loan. At year-end, the U of A had no credit risk to borrowers because the U of A was holding more collateral than the amount of loaned securities outstanding. The U of A records the collateral received as an asset, which is offset by an obligation recorded under securities lending. During the fiscal year ended June 30, 2004, there were no violations of legal or contractual provisions, and there were no borrower or lending agent default losses. Bank of New York does indemnify the U of A against losses due to borrower defaults. Collateral can be received in the form of U.S. Government securities, letters of credit, or cash. As of June 30, 2004, the custodian has received only cash collateral. Cash collateral received from the borrower is invested in short term securities which, at June 30, 2004, had a weighted average of less than 30 days to either maturity or to the next coupon reset date, in the case of floating rate securities. In general, the average number of days outstanding for securities lent matched the weighted average maturity of collateral investments. Investments, consisting of asset-backed securities, bank notes, corporate floating rate notes, and collateralized repurchase agreements, are held in an account in the name of the U of A. At June 30, 2004, cash collateral investments totaled $17.963 million with a corresponding market value of securities on loan of $17.634 million. Securities lent for cash collateral included corporate stocks, corporate bonds, government notes, and government bonds. The U of A or the borrower can terminate all securities loans on demand. The U of A cannot sell or pledge securities received as collateral unless the borrower defaults. The U of A earns a negotiated fee for participating in securities lending activities. 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. - 77 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 The principal categories of derivatives employed and their uses during the year were as follows: Category Foreign exchange forward contracts Futures SWAPS Purpose Hedge currency risk of investments denominated in foreign currencies. Reduce transaction costs; obtain market exposure; enhance returns. Interest rate risk management; 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. 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, 2004. 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 their temporary office location until April 30, 2005, at: State Treasurer’s Office 3443 N. Central, 17th Floor Phoenix, Arizona 85012-2204 After April 30, 2005, a copy of the State Treasurer’s Office Annual Financial Report can be obtained from their 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. - 78 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 NOTE 3. RECEIVABLES/DEFERRED REVENUE A. TAXES RECEIVABLE The following table summarizes taxes receivable at June 30, 2004 (expressed in thousands): General Fund Type of Tax Sales Income – individual and corporate Insurance premium Motor vehicle and fuel Luxury Unemployment Other Gross taxes receivable Allowance for uncollectible taxes Net Taxes Receivable $ $ 316,080 79,799 34,577 8,044 438,500 (93,172) 345,328 Transportation & Aviation Planning, Highway Maintenance & Unemployment Industrial Safety Compensation Commission Fund Fund Special Fund Non-Major Governmental Funds GovernmentWide Total $ $ $ $ 60,209 60,209 60,209 $ $ - 79 - 47,570 47,570 47,570 $ $ 3,647 3,647 3,647 $ 2,770 14,697 17,467 17,467 $ 318,850 79,799 34,577 60,209 22,741 47,570 3,647 567,393 (93,172) 474,221 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 B. DEFERRED REVENUE At June 30, 2004, 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 Tobacco settlement Child support administrative reimbursements Advance insurance premiums Advance land lease payments Public assistance overpayments Vaccine & commodity food supplement Policyholders’ advance premiums Federal grants Tribal reimbursements Transportation & Aviation Planning, Highway Maintenance and 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 $ Noncurrent Deferred Revenue for Governmental Funds: General fund: Advance land lease payments Total noncurrent deferred revenue for governmental funds Total current and noncurrent deferred revenue for governmental funds $ 73,326 24,510 44,863 4,708 1,333 8,250 72 $ - 80 - $ 73,326 24,510 44,863 4,708 2,029 291 1,333 9,948 17,401 8,250 72 - 6,859 434,042 2,569 - 23,553 434,042 2,569 23,553 1,512 602,044 131 20 53,373 1,512 131 20 655,417 - 6,587 6,587 6,587 6,587 602,044 $ Noncurrent Deferred Revenue for Proprietary Funds: Universities: IBM lease related to acquisition of research park Total noncurrent deferred revenue for proprietary funds 2,029 291 9,948 17,401 - 6,859 $ Unearned Current Deferred Revenue for Proprietary Funds: Universities: Unexpended cash advances received Auxiliary sales and services IBM lease related to acquisition of research park Student tuition and fees Other deferred revenue Deposits Non-Major Funds: Policyholders’ advance premiums Magazine subscriptions Total current deferred revenue for proprietary funds Total Deferred Revenue Unearned 30,627 6,613 4,900 35,960 939 1,042 $ 4,247 3,903 88,231 $ $ 44,570 44,570 59,960 $ 662,004 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 NOTE 4. CAPITAL ASSETS Capital asset activities for the fiscal year ended June 30, 2004 were as follows (expressed in thousands): Primary Government Beginning Balance Governmental activities: Capital assets, not being depreciated: Land Construction in progress Infrastructure Total capital assets, not being depreciated Increases $ 1,938,169 2,184,798 7,564,773 11,687,740 $ 45,691 766,388 1,181,700 1,993,779 Decreases $ Adjustments & Reclassifications (25,044) (1,181,700) (155,102) (1,361,846) $ Ending Balance 11 (312,773) (312,762) $ 1,958,827 1,456,713 8,591,371 12,006,911 Capital assets, being depreciated: Buildings Improvements other than buildings Equipment Infrastructure Total capital assets, being depreciated 1,196,997 129,035 585,903 6,604 1,918,539 19,528 4,235 58,067 81,830 (2,031) (27) (35,282) (37,340) 273,699 6,786 27,834 308,319 1,488,193 140,029 636,522 6,604 2,271,348 Less accumulated depreciation for: Buildings Improvements other than buildings Equipment Infrastructure Total accumulated depreciation (356,439) (51,876) (422,074) (3,961) (834,350) (30,958) (3,844) (55,076) (102) (89,980) 1,061 32,334 33,395 55 99 2,492 2,646 (386,281) (55,621) (442,324) (4,063) (888,289) Total capital assets, being depreciated, net 1,084,189 (8,150) (3,945) Governmental activities capital assets, net $ 12,771,929 $ 1,985,629 $(1,365,791) Beginning Balance, as restated Increases Decreases Business-type activities: Capital assets, not being depreciated: Land Construction in progress Collections Total capital assets, not being depreciated $ 135,095 133,986 30,591 299,672 $ 3,951 110,249 778 114,978 $ (3,331) (79) (315) (3,725) $ 310,965 1,383,059 (1,797) $ 13,389,970 Adjustments & Reclassifications $ (83,881) (83,881) Ending Balance $ 135,715 160,275 31,054 327,044 Capital assets, being depreciated: Buildings Improvements other than buildings Equipment Infrastructure Total capital assets, being depreciated 2,232,616 2,478 985,669 279,494 3,500,257 178,945 14 76,127 9,469 264,555 (6,355) (41,302) (47,657) 83,479 1 42,566 (42,172) 83,874 2,488,685 2,493 1,063,060 246,791 3,801,029 Less accumulated depreciation for: Buildings Improvements other than buildings Equipment Infrastructure Total accumulated depreciation (866,881) (19,996) (667,699) (83,914) (1,638,490) (68,491) (1,347) (69,464) (6,650) (145,952) 1,776 1 34,543 36,320 (597) 349 (28,228) 28,440 (36) (934,193) (20,993) (730,848) (62,124) (1,748,158) Total capital assets, being depreciated, net 1,861,767 118,603 (11,337) 83,838 2,052,871 Business-type activities capital assets, net $ 2,161,439 233,581 $ (15,062) (43) $ 2,379,915 $ - 81 - $ STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 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 $ $ 20,916 15,307 1,963 759 28,224 14,199 8,612 89,980 Depreciation expense was charged to business-type activities as follows (expressed in thousands): Lottery Industrial Commission Universities Other Total business-type activities $ $ 176 1,133 142,038 2,605 145,952 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 190 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 18 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 - 82 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 Public Safety Personnel Retirement System, Elected Officials’ Retirement Plan or the Corrections Officer Retirement Plan 3010 East Camelback Road, Suite 200 Phoenix, Arizona 85016 (602) 255-5575 The number of participating government employers as of June 30, 2004 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 70 14 1 68 233 177 10 - 127 20 1 42 - 18 15 1 - 12 1 5 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. The fair value of real estate investments is based on independent appraisals or estimated value. 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. 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, 2004, the four retirement plans are in compliance with the State statutes. - 83 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 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, 2004, active ASRS members and the State were each required by statute to contribute at the actuarially determined rate of 5.7 percent (5.2 percent retirement and 0.50 percent long-term disability) of the members’ annual payroll. The State’s contributions to ASRS for the years ended June 30, 2004, 2003 and 2002 were $87.657, $37.777 and $36.605 million, respectively, for the primary government. 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 7.55 percent of the members’ annual covered payroll, as determined by actuarial valuation. The State’s contributions to EORP for the years ended June 30, 2004, 2003 and 2002 were $987, $81 and $77 thousand, respectively, which were equal to the required contributions for the year. Agent plans – For the year ended June 30, 2004, 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 7.52 – 28.99 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 5.51 - 5.56 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, 2004, 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 7.52% - 28.99% 7.65% $6,299 $6,299 6/30/02 entry age 5.51% - 5.56% 8.50% $11,900 $11,900 6/30/02 entry age 8.75% 6.25% - 9.25% 5.25% none level percent open 20 years smoothed market value 8.75% 6.25% - 9.25% 5.25% none level percent open 20 years smoothed market value - 84 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 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 6/30/04 6/30/03 6/30/02 Annual Pension Cost (APC) $6,299 3,951 4,834 Percentage of APC Contributed 100% 100% 100% 6/30/04 6/30/03 6/30/02 11,900 5,789 5,775 100% 100% 100% Net Pension Obligation $ 0 0 0 0 0 0 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, 2004, 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 an 8.10 percent contribution for the ASRS defined contribution plan. Contributions to these plans for the year ended June 30, 2004, were as follows (expressed in thousands): Plan TIAA/CREF VALIC Fidelity Aetna Vanguard ASRS University Contributions $ 24,249 2,904 4,852 760 1,684 126 Employee Contributions $ 24,249 2,904 4,852 760 1,684 109 Total Contributions $ 48,498 5,808 9,704 1,520 3,368 235 H. 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 - 85 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 are no longer eligible for health insurance benefits through their former employer. More than 44,000 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 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 $83.6 million and $84.5 million towards the cost of group health insurance coverage for the years ended June 30, 2004 and June 30, 2003, 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 $851 million for fiscal year 2004 (0.35% 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 2004 was 0.70%. 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, 2004, is $808 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. - 86 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 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 $932.700 million. During the year, Highway Revenue Bonds totaling $250.560 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, (iii) pay interest on any bonds issued for highway purposes, and (iv) refund portions of the ADOT's outstanding Senior 1993 A/B bonds in the aggregate principal amount of $114.745 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. 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 $488.400 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, 2004) 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, 2004, the carrying basis was $7.897 million. At June 30, 2004, the outstanding balance was $8.50 million. In fiscal year 2003 ($103.045 million) and fiscal year 2004 ($141.000 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, redemption premium, if any, 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, 2004 totaled $192.421 million. During the year ended June 30, 2004, the ADOT refunded a portion of the Highway Refunding Subordinated Series 1993A/B bonds ($114.745 million) and all of the 2000 Series A Grant Anticipation Notes ($26.255 million) to reduce its total debt service payments by $7.600 million and to obtain an economic gain (difference between the present values of the debt service payments on the old and new debt) of $6.838 million. - 87 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 2. School Facilities Board On October 3, 2003, the Arizona School Facilities Board issued $247.125 million of State School Trust Revenue Bonds. The Series 2003A Bonds were issued initially as Auction Rate Securities, and 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 were 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 totaled $226.465 million, after payment of $8.304 million of bond issuance costs, and $12.356 million deposit to the bond reserve account. 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 and fees, sales and services, auxiliary e nterprises, and other charges. On May 19, 2004, the University sold System Revenue Bonds Series 2004A (2004A Bonds) for $17.780 million dated June 1, 2004. The 2004A Bonds include $12.415 million of serial bonds with interest rates ranging from 3.0% to 5.0% and maturity dates ranging from 2005 to 2024. The 2004A Bonds also include $5.365 million of term bonds with an interest rate of 5.0% due June 1, 2029. The 2004A Bonds with maturity on or after June 1, 2015, are subject to optional redemption without premium. The 2004A Bonds with maturity on June 1, 2029, are subject to mandatory sinking fund redemption without premium pursuant to the debt documents. The 2004A Bonds were sold at a discount of $18 thousand. The University realized net proceeds of $17.500 million after payment of $262 thousand for issuance costs, underwriter discounts, and bond insurance. The net proceeds are being used to finance $17.500 million of the $30.000 million Arizona Health Sciences Center's Drachman Hall. The other $12.500 million will come from gift donations. Restricted cash and investments are held in trust for capital projects by various commercial banks. Of this amount, $235.832 million is available for future construction costs, and $3.057 million is from bond proceed earnings for unrestricted purposes. Trust funds are invested by the trustee in accordance with the Arizona Board of Regent's authorizing resolutions. In fiscal year 2003, the University refunded, in advance of maturity, a portion of outstanding System Revenue Bonds Series 2000A. At June 30, 2004, the outstanding principal balance of the refunded bonds was $5.515 million, which will be paid by investments held in trust with a fair value of $5.852 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 November 2003, the University issued System Revenue Bonds, Series 2003, totaling $31.0 million. The bonds were issued at interest rates ranging from 2.5% to 5.5%, maturing serially on June 1, 2005, through 2034, secured by a first lien on certain gross revenues, on parity with the Series 1997 System Revenue Bonds, the Series 2002 System Revenue Refunding Bonds, and the Series 2002 System Revenue Bonds. The Series 2003 System Revenue Bonds were issued to finance various capital projects and renovations on the main campus. - 88 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 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, 2004, $270 thousand of such bonds outstanding are considered defeased. At June 30, 2004, the bond trustee funds, of $37.293 million held for future construction projects and $520 thousand held to meet debt service requirements, were invested in money market mutual funds that primarily consist of U.S. government securities. The bond trustees are authorized to purchase and sell securities. c. Arizona State University In October 2003, the University issued two series of Variable Rate Demand System Revenue Bonds, Series 2003A and 2003B, totaling $103.000 million. Both series of bonds bear interest at a weekly rate determined by the respective remarketing agent. Both series of bonds have a final maturity date of July 1, 2034. The bonds are subject to conversion, at the option of the Arizona Board of Regents on behalf of the University, to a different or alternate adjustable rate mode, or a fixed rate pursuant to the debt instruments. If not converted, the Series 2003A and Series 2003B bonds will bear interest at a weekly rate not to exceed 12% per annum based upon prevailing market conditions as determined by the respective remarketing agents. The bonds were issued primarily to fund the construction Biodesign Institute A building, infrastructure improvements, and other Tempe campus projects. The interest rates in effect at June 30, 2004 were 1.04% for the Series 2003A bonds and 1.05% for the Series 2003B bonds. The remaining bonds of the University are fixed rate bonds. The variable rate bonds are subject to purchase on the demand of the holder at a price equal to principal plus accrued interest on seven days’ notice and delivery to the remarketing agents. If the remarketing agents are unable to resell the bonds, the University has a Standby Purchase Agreement with Bank of America, N.A. to extend credit through the purchase of the unremarketed bonds. Assuming all of the $51.500 million Series 2003A bonds and $51.500 million Series 2003B bonds are not resold within 90 days, the University would be responsible to make annual installment principal payments of $20.600 million over a five-year period, plus interest to be calculated as established in the Standby Purchase Agreement. The University has agreed to pay Bank of America, N.A. an annual commitment fee of 0.18% on the outstanding principal for the Standby Purchase Agreement. The Standby Purchase Agreement is valid through October 15, 2008. In June 2004, the University issued $39.300 million of system revenue ($29.500 million) and refunding ($9.800 million) bonds primarily for the financing of renovation and information technology/telecommunications upgrade projects at the Tempe campus. The University has pledged portions of its gross revenues towards the payment of debt related to various system revenue bonds outstanding at June 30, 2004. 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. The Housing Revenue Bonds are payable from housing revenues as defined in the bond indentures. The Series 1993, 2002, 2003 and 2004 System Revenue Refunding Bonds, and the outstanding Series 1989, 1991, 2000, 2002, 2003 and 2004 System Revenue Bonds are payable from tuition, fees, certain auxiliary enterprises revenues, and certain other revenues as defined in the bond indentures. The University's fixed rate bonded debt consists of various issues of system revenue bonds that are generally callable at a prescribed date with interest payable semi-annually. In prior years, certain system revenue bonds of the University were defeased through advance refundings 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, 2004, was $13.900 million. Securities and cash restricted for bond debt service funds and maintenance and replacement reserves held by trustees at June 30, 2004 totaled $17.8 million. - 89 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 Summary of Revenue Bonds The following schedule summarizes revenue bonds outstanding at June 30, 2004 (expressed in thousands): Revenue Bonds Outstanding Governmental Activities: Department of Transportation School Facilities Board Proprietary Funds: University Revenue Bonds Outstanding Balance at June 30, 2004 Dates Issued Maturity Dates Interest Rates 1989-2004 2001-2004 2005-2023 2005-2021 2.0-8.0% .14-5.5% $1,306,360 971,865 1969-2004 2005-2035 1.04-7.13% 756,781 Principal and interest debt service payments on revenue bonds outstanding at June 30, 2004 are as follows (expressed in thousands): Annual Debt Service Governmental Activities Total Total Principal Interest Fiscal Year 2005 2006 2007 2008 2009 2010-2014 2015-2019 2020-2024 2025-2029 2030-2034 2035 Total $ 293,975 178,120 102,780 109,055 114,935 587,480 668,830 223,050 $ 2,278,225 $ 115,739 98,675 92,120 87,187 81,491 316,294 158,445 20,561 $ 970,512 Total Principal Total $ $ 409,714 276,795 194,900 196,242 196,426 903,774 827,275 243,611 3,248,737 $ $ 22,731 37,490 40,820 45,125 42,110 208,890 151,035 84,875 67,535 48,700 7,470 756,781 Business-Type Activities Total Interest $ $ 34,009 32,249 30,583 28,585 26,445 99,896 52,078 28,688 12,499 4,066 349,098 Total $ $ 56,740 69,739 71,403 73,710 68,555 308,786 203,113 113,563 80,034 52,766 7,470 1,105,879 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 in prior years and outstanding at the start of the fiscal year was $169.145 million. During the year, Grant Anticipation Notes totaling $199.955 million were issued to (i) pay costs of the projects (as specified), (ii) pay costs of issuing the notes, (iii) pay interest on the notes, and (iv) refund the 2000A Series Notes in the aggregate principal amount of $26.255 million. The following schedule summarizes grant anticipation notes outstanding at June 30, 2004 (expressed in thousands): Grant Anticipation Notes Outstanding Governmental Activities: Department of Transportation Dates Issued Maturity Dates Interest Rates 2000-2004 2005-2015 2.5-6.0% - 90 - Outstanding Balance at June 30, 2004 $ 308,585 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 Future debt service principal and interest payments on Grant Anticipation Notes issues for fiscal years ended June 30 are summarized below (expressed in thousands): Annual Debt Service Fiscal Year 2005 2006 2007 2008 2009 2010-2014 2015-2019 Total Governmental Activities Total Total Principal Interest $ 49,000 $ 13,905 38,540 11,354 42,570 9,452 26,835 8,174 19,800 7,160 113,505 21,295 18,335 897 $ 308,585 $ 72,237 $ $ Total 62,905 49,894 52,022 35,009 26,960 134,800 19,232 380,822 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 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 May 1, 2004, the Department of Administration issued series 2004A Certificates of Participation for $16.725 million, with interest rates ranging from 2.00% to 5.00%, and maturity dates ranging from 2005 to 2012. The Certificates are being issued to refund all outstanding Certificates of Participation, Series 1993B, dated as of December 1, 1993, originally executed and delivered in the aggregate amount of $31.250 million and currently outstanding of $16.645 million, and to pay the costs of issuing the Series 2004A Certificates. The 2004A Certificates are subject to extraordinary redemption prior to maturity in whole at any time, or in part on any interest payment date, from the net proceeds of insurance or condemnation awards, at a redemption price equal to the principal amount represented thereby plus accrued interest to the redemption date, without premium. Net proceeds from the Series 2004A Certificates totaled $17.096 million, after receipt of a net original issue premium of $548 thousand and payment of $177 thousand in underwriter discounts. The above refunding reduced the State’s debt service requirements by $864 thousand, which resulted in an economic gain (difference between the present values of the old and new debt service payments) of $748 thousand. On May 15, 2004, the Department of Administration issued series 2004B Certificates of Participation for $31.965 million, with interest rates ranging from 2.50% to 5.25%, and maturity dates ranging from 2006 to 2019. The Certificates are being issued to finance the acquisition of real and personal property, and to fund interest on, and pay the costs of issuing the Series 2004B Certificates. The 2004B Certificates maturing on or after September 1, 2015 are subject to optional redemption prior to maturity, at the option of the Department of Administration. The Certificates are also subject to extraordinary redemption prior to maturity in whole at any time, or in part on any interest payment date, from the net proceeds of insurance or condemnation awards, at a redemption price of the principal amount represented thereby plus accrued interest to the redemption date, without premium. Net - 91 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 proceeds from the Series 2004B Certificates totaled $33.010 million, after receipt of a net original issue premium of $1.386 million and payment of $341 thousand in underwriter discounts. 2. School Facilities Board On September 1, 2003, the Arizona School Facilities Board issued 2003B Certificates of Participation for $194.610 million, with interest rates ranging from 2.25% to 6.00%, and maturity dates ranging from 2006 to 2019. Series 2003B 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 2003B Certificates totaled $199.811 million, after receipt of a net reoffering premium of $11.311 million, payment of $1.494 million in underwriter discounts, and payment of capitalized interest of $4.616 million. 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 participation in the Board’s Lease-to-Own program, to pay capitalized interest on, and pay the costs of, issuing the 2003B Certificates. On March 1, 2004, the Arizona School Facilities Board issued 2004A Certificates of Participation for $47.160 million, with interest rates ranging from 2.00% to 5.00%, and maturity dates ranging from 2006 to 2019. Series 2004A Certificates maturing on or after September 1, 2015 are subject to optional redemption and payment prior to maturity, at the sole option of the Board. Net proceeds from the Series 2004A Certificates totaled $50.000 million, after receipt of a net reoffering premium of $3.230 million, and payment of $390 thousand in underwriter discounts. 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 participation in the Board’s Lease-to-Own program, and to pay the cost of issuing the 2004A 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, J.P. Morgan Trust Co. 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 COPs. 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 judgment 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 1.20% to 1.70% during the fiscal year ended 2004. 4. University of Arizona On October 15, 2003, the University of Arizona (U of A) issued Certificates of Participation Series 2003B for $153.960 million dated October 1, 2003. The 2003B Certificates include $113.695 million of serial certificates with interest rates ranging from 2% to 5.25% and maturity dates ranging from 2005 to 2027. The serial certificates maturing on or after June 1, 2015, are subject to optional redemption prior to maturity without premium. The 2003B Certificates also include two sets of term certificates consisting of $14.455 million with an interest rate of 5% due June 1, 2028, and $25.810 million with an interest rate of 5% due June 1, 2031. The term certificates maturing on June 1, 2028 and June 1, 2031 are subject to mandatory sinking fund redemption in part on June 1 of the years 2027 through 2030 before maturity without premium. There are also extraordinary redemption dates pursuant to the debt documents. The 2003B Certificates were issued at a premium of $3.158 million. The U of A realized net proceeds of $154.742 million after payment of $2.376 million for issuance costs, underwriters discount and bond insurance. The net proceeds are being used to finance the Thomas W. Keating Bioresearch Building, the Medical Research Building, and the Technology Infrastructure Project to support the new facilities. On May 19, 2004 and June 4, 2004, the U of A issued Certificates of Participation Series 2004A and B for $42.020 million and $41.400 million respectively dated June 1, 2004 for both issues. The 2004A Certificates include $35.250 million of serial certificates with interest rates ranging from 2.5% to 5.25% and maturity dates ranging from 2005 to 2024. The 2004A serial Certificates maturing on or after June 1, 2015, are subject to optional redemption prior to maturity without premium. The 2004A Certificates also include $6.770 million of term certificates with an interest rate of 5.125% due June 1, 2029. The 2004A term - 92 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 certificates maturing on June 1, 2029 are subject to mandatory sinking fund redemption in part on June 1 of the years 2025 through 2028 before maturity without premium. There are also extraordinary redemption dates for the 2004A Certificates pursuant to the debt documents. The 2004A Certificates were issued at a premium of $1.274 million. The 2004B Certificates were issued bearing interest at a weekly rate determined by J.P. Morgan Securities Inc., as the remarketing agent, and were issued without a premium or a discount. The 2004B Certificates are also subject to mandatory sinking fund redemption without premium, by lot, on June 1, 2015 through 2031, the final maturity year. The U of A realized net proceeds for the 2004A and 2004B Certificates of $83.295 million after payment of $1.399 million for issuance costs, underwriters discount and bond insurance. The net proceeds are being used to finance the Chemistry Building Expansion, the Highland Avenue Parking Garage, the Residence Life Building Renewal Phase I, and to refund in advance of maturity the Certificates of Participation Series 1994A with an outstanding principal balance of $11.185 million at June 30, 2004. The advance-refunding generated an economic gain of $297 thousand (difference between the present values of old debt and new debt service payments) for the U of A. The advancerefunding reduced the U of A’s debt service by $801 thousand in year 1 and $502 thousand in year 2; however, annual debt service will increase by an average of $56 thousand in year 3 through year 9 and $1.5 million in the last year. The advance refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $765 thousand. This difference, reported in the accompanying financial statements as a deduction from long-term debt, is being charged to operations through the year 2013 using the straight-line method. The refunded Certificates of Participation Series 1994A will be paid by investments held in an irrevocable trust with a fair value of $11.684 million. As a result, the refunded debt is considered to be defeased and is not included in the accompanying financial statements. The U of A has outstanding at June 30, 2004, three variable rate Certificates of Participation: Series 1999B, 2000A, and 2004B, totaling $104.200 million. These certificates bear interest at a weekly rate, determined by UBS Financial Services for the 1999B and 2000A Certificates and by J.P. Morgan Securities for the 2004B Certificates, as remarketing agents, with final maturity dates of June 1, 2024, June 1, 2025, and June 1, 2031 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, 2000A, and 2004B certificates will bear interest at a weekly rate not to exceed 12% per year determined under prevailing market conditions by the remarketing agent. The variable rate Certificates of Participation are subject to purchase on demand of the holder at a price equal to principal plus accrued interest on seven days' notice and delivery to the remarketing agents. If the remarketing agents are unable to resell the demand certificates, the U of A has Standby Purchase Agreements with Bayerische Landesbank to extend credit through the purchase of the un-remarketed certificates. Assuming all of the $104.200 million COPs are not resold within 90 days, the U of A would be responsible to make annual installment principal payments of $20.840 million over a five-year period, plus interest to be calculated as established in the Standby Purchase Agreements. Bayerische Landesbank charges the U of A an annual commitment fee on the outstanding principal for each of the Standby Purchase Agreements. The fees are 0.17%, 0.18%, and 0.19% respectively, for the Series 1999B, 2000A, and 2004B Certificates of Participation. The Standby Purchase Agreements are valid through November 30, 2015. In fiscal year 2003, the U of A refunded, in advance of maturity, the Certificates of Participation Series 1994B and a portion of outstanding Certificates of Participation 2001B. At June 30, 2004, the outstanding principal balances for the Certificates of Participation Series 1994B was $12.100 million and $7.020 million for the Certificates of Participation Series 2001B, which will be paid by investments held in trust with a fair value of $12.568 million and $7.231 million respectively. These amounts are not included in the accompanying financial statements. 5. Arizona State University In April 2004, Arizona State University (ASU) issued $22.500 million of Refunding Certificates of Participation Series 2004, with an average rate of 2.40% to refund a portion of the outstanding 1993 ASU West refunding Certificates of Participation of $22.400 million with an average interest rate of 5.18%. The net proceeds of $23.300 million, after the net addition of $800 thousand for premium, underwriting fees, and other issuance costs, were used to purchase U.S. Government securities which were deposited into a depository trust fund in order to retire the 2004 and 2006 through 2009 maturities of the 1993 Certificates of Participation. The refunded debt is considered defeased and related liabilities are not included in the accompanying financial statements. The issuance of the refunding Certificates of Participation at a lower interest rate than the rate of the refunded debt resulted in a $900 thousand reduction in future debt service payments, with an economic gain of $1.200 million based on the present value savings. - 93 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 A summary of the COPs issued as of June 30, 2004, is as follows (expressed in thousands): Issue Date Final Maturity Date AHCCCS 1994 2005 Refunding Certificates of 92A, 92C, & 1091 2001 2011 Health Lab/HRIS 2002 2022 Refunding Certificates of 92B 2002 School Facilities Board 2003A 2003 Project Amount Authorized And Issued Outstanding Balance Interest Rates $ 1,844 6.66% 57,930 48,725 3.25 – 5.25 63,270 56,750 3.0 – 5.5 2011 75,295 75,295 2.0 – 5.5 2018 372,730 372,730 1.6 – 5.25 Governmental Activities: $ 12,642 School Facilities Board 2003B 2004 2019 194,610 194,610 2.25 - 6.0 School Facilities Board 2004A 2004 2019 47,160 47,160 2.0 - 5.0 Refunding ADOA Certificates of 93B 2004 2012 16,725 16,725 2.0 - 5.0 ADOA Series 2004B 2004 2019 31,965 31,965 2.5 - 5.25 Total Governmental Activities: $ 872,327 $ 845,804 $ 17,500 $ 4,600 Business-Type Activities: Industrial Commission Special Fund 1985 2006 Variable Towers Project 1991 2010 4,500 2,385 6.89 West Campus - Refunding 1993 2005 46,905 4,070 5.18 Downtown Center – A 1999 2024 5,620 5,230 5.75 Downtown Center – B 1999 2024 5,165 4,900 8.00 Arizona State University: 2002 Certificates of Participation 2002 2026 103,800 99,885 4.75 2004 West Campus – Refunding 2004 2009 22,495 22,495 2.36 University of Arizona: Fixed Student Union A 1999 2024 21,607 22,275 5.0 – 5.3 Student Union B 1999 2024 36,500 36,500 Variable not to exceed 12 Parking Garage/Res. Life Certificates 1999 2024 18,635 18,105 4.2 – 5.75 McKale/UAPD/Mt. Graham Park Std Union, Learning Svcs., 6th St Garage, TEP Bldg. 2000 2025 28,300 26,300 Variable not to exceed 12 2001 2025 31,695 31,115 3.4 – 5.5 Gittings Bldg., Highland Infra., Life Sci. 2001 2022 21,425 13,385 3.0 – 5.125 Student Housing, Health Bldg., UA North 2002 2022 76,965 72,230 3.75 – 5.5 Meinel Bldg & Refund COPS 1994B Refund COPS 1997 & Portion of Series 2001B 2002 2023 29,845 29,845 3.0 – 5.125 2003 2022 10,615 10,615 3.5 – 5.0 Med. Research Bldg./Biores Bldg./Tech. Infstr. 2004 2031 153,960 153,960 2.0 - 5.25 Chem.Bldg./Res.Life/Pkg.Garage/Rfnd.COPS 2004 2029 42,020 42,020 2.5 - 5.25 Chemical Building Expansion 2004 2031 41,400 41,400 Variable not to exceed 12 Total Business-type Activities: $ 718,952 $ 1,591,279 Total Certificates of Participation: - 94 - $ 641,315 $ 1,487,119 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 Principal and interest debt service requirements on COPs outstanding at June 30, 2004, are as follows (expressed in thousands): Annual Debt Service Governmental Activities Fiscal Year Total Principal 2005 $ Total Interest 30,957 $ Business-type Activities Total Amount Required 39,431 $ 70,388 Total Principal Total Interest Total Amount Required $ $ $ 10,570 27,440 38,010 2006 46,211 38,255 84,466 17,425 26,649 44,074 2007 47,710 36,307 84,017 16,735 26,097 42,832 2008 49,420 34,408 83,828 22,150 25,497 47,647 2009 51,395 32,239 83,634 23,025 24,695 47,720 2010-2014 293,480 122,122 415,602 124,663 109,733 234,396 2015-2019 318,210 39,938 358,148 157,566 78,114 235,680 2020-2024 8,421 880 9,301 169,146 39,351 208,497 2025-2029 0 0 0 75,955 13,493 89,448 2030-2031 Total 0 $ 845,804 $ 0 0 24,080 1,504 25,584 343,580 $ 1,189,384 $ 641,315 $ 372,573 $ 1,013,888 D. LEASES AND INSTALLMENT PURCHASES 1. Leases The total operating lease expenses for the fiscal year ended June 30, 2004, were $29.812 million for governmental activities and $18.528 million for business-type activities. The future minimum lease payments for long-term operating leases as of June 30, 2004, are summarized below (expressed in thousands): Fiscal Year 2005 2006 2007 2008 2009 2010-2014 Total Minimum Lease Payments Governmental Activities $ 26,621 19,657 13,319 5,867 2,492 531 Business-type Activities $ 2,698 2,393 1,956 1,667 313 - $ $ 68,487 9,027 $ $ Total 29,319 22,050 15,275 7,534 2,805 531 77,514 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. - 95 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 The State has entered into capital lease agreements for the acquisition of buildings, telephone systems, copy machines and other equipment. Capital leases' assets and liabilities are reported on the government-wide Statement of Net Assets. 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.) The future minimum lease payments for long-term capital leases as of June 30, 2004 are summarized below (expressed in thousands): Fiscal Year 2005 2006 2007 2008 2009 2010-2014 2015-2019 2020-2024 2025-2029 2030-2032 Total minimum lease payments Less: amount representing interest Less: amount representing executory costs Obligations under capital leases Annual Debt Service Governmental Business-type Activities Activities $ 11,996 $ 7,780 12,750 7,550 12,913 6,999 13,107 5,450 13,132 5,362 61,450 19,407 69,731 11,349 79,099 12,167 57,083 21,827 2,659 331,261 100,550 (100,446) (20,212) (104,841) $ 125,974 $ 80,338 - 96 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 2. 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 as of June 30, 2004, are summarized below (expressed in thousands): Annual Debt Service Governmental Business-type Activities Activities $ 2,115 $ 1,180 1,111 1,074 739 867 595 511 280 446 1,613 342 4,840 6,033 (238) (995) $ 4,602 $ 5,038 Fiscal Year 2005 2006 2007 2008 2009 2010-2014 2015-2019 Total future minimum payments Less: amount representing interest Obligations under installment purchases 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 Governmental Activities $ 6,078 26,463 280,986 3,653 45,768 362,948 (91,667) $ 271,281 Business-type Activities $ 428,714 428,714 (46,063) $ 382,651 E. 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 11 – Commitments, Contingencies, and Compliance. The State has typically paid for litigation from the General Fund. F. 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 2004, the State paid for compensated absences as follows: 78% from the General Fund, 12% from other major funds and 10% from other funds. - 97 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 G. CHANGES IN LONG-TERM OBLIGATIONS The following is a summary of changes in Long-Term Obligations (expressed in thousands): Balance July 1, 2003 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 Grant Anticipation Note Premium Total Long-term Debt $ Other Long-term Liabilities: Compensated Absences Ladewig vs. Arizona Department of Revenue 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 – Revenue Bonds Certificates of Participation Premium Deferred Amount on Refundings – COP’s Total Long-term Debt $ Balance June 30, 2004 Decreases 497,685 199,955 290,460 26,379 2,684 22,024 17,187 9,623 1,065,997 $ (392,515) (60,515) (27,167) (5,049) (4,270) (9,739) (8,560) (4,247) (512,062) 144,537 171,377 (169,798) 339,414 11,400 495,351 1,300 172,677 (47,668) (217,466) $ 2,278,225 308,585 845,804 125,974 4,602 562 83,686 51,450 9,623 3,708,511 Due Within One Year $ $ 1,984,250 259,585 814,847 123,668 2,603 74,731 47,444 9,623 3,316,751 146,116 142,487 3,629 291,746 12,700 450,562 134,280 2,000 278,767 157,466 10,700 171,795 $ 3,488,546 3,649,927 $ 1,238,674 $ (729,528) $ 4,159,073 $ 670,527 $ 597,238 429,144 31,923 3,823 129 19,135 $ 191,030 260,026 58,575 2,274 7,793 $ (31,487) (47,855) (10,160) (1,059) (49) (2,143) $ 756,781 641,315 80,338 5,038 80 24,785 $ 22,731 10,570 6,795 968 50 985 $ Due Thereafter 293,975 49,000 30,957 2,306 1,999 562 8,955 4,006 391,760 $ Other Long-term Liabilities: Compensated Absences Total Other Long-term Liabilities Total Long-term Obligations 2,173,055 169,145 582,511 104,644 6,188 10,301 70,222 38,510 3,154,576 Increases $ 734,050 630,745 73,543 4,070 30 23,800 (11,305) 2,551 1,072,638 (1,102) 1,045 (1,176) 518,465 2,569 (197) 44 (90,337) (9,838) 3,399 (1,132) 1,500,766 (1,029) 41,070 (8,809) 3,399 (1,132) 1,459,696 47,588 47,588 57,222 57,222 (53,794) (53,794) 51,016 51,016 8,859 8,859 42,157 42,157 49,929 $ 1,501,853 1,120,226 $ 575,687 $ (144,131) $ 1,551,782 $ The above long-term obligations relating to governmental activities include internal service funds. Amounts for notes payable and compensated absences differ from those in the Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets because liabilities of $562 thousand of notes payable and $11.052 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. - 98 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 NOTE 7. INTERFUND TRANSACTIONS INTERFUND BALANCES AND TRANSFERS Interfund Receivables/Payables Interfund balances, as of June 30, 2004, are as follows (expressed in thousands): Due To Due From General Fund General Fund $ - Transportation & Aviation Planning, Highway Maintenance & Safety Fund $ - 62,325 1,686 23,371 4 4,431 142,414 1,661 $ 235,892 20,000 20,000 Land Endowments Fund $ 214 Non-Major Governmental Funds $ 33,315 Non-Major Enterprise Funds $ 305 Internal Service Funds $ 2,217 Total Due To $ 36,051 106,261 $ 106,566 586 2 24 2,829 174,553 6,816 25,104 181 8,303 162,416 1,689 $ 415,113 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 $ $ 214 $ 5,967 5,130 1,147 177 3,872 4 49,612 $ 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. An interfund balance of $61.397 million between the General Fund and the Transportation & Aviation Planning, Highway Maintenance & Safety Fund is not due until fiscal year 2008. The entire interfund balance between the General Fund and NonMajor Enterprise Funds is not due until fiscal year 2008. The entire interfund receivable in the Transportation & Aviation Planning, Highway Maintenance & Safety Fund is not due until fiscal year 2009. An interfund balance of $103.346 million between the Transportation & Aviation Planning, Highway Maintenance & Safety Fund and Non-Major Enterprise Funds is not due until fiscal year 2008. Interfund Transfers Transfers for the year ended June 30, 2004 are as follows (expressed in thousands): Transferred 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 Transfers In Transferred To Transportation & Aviation Planning, Non-Major Non-Major Total Enterprise General Highway Maintenance & Governmental Transfers Out Funds Universities Funds Fund Safety Fund $ $ 731 $ 43,175 $ 741,487 $ 2,989 $ 788,382 18,938 228,076 17 37,929 2,000 1,657 $ 288,617 $ 53,772 54,503 $ 508,770 5,071 12,691 1,637 24,572 1,014 596,930 $ 741,487 $ 282 123 3,394 527,990 5,071 294,662 1,654 62,501 2,000 2,671 $ 1,684,931 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. - 99 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 NOTE 8. ACCOUNTING CHANGES AND RESTATEMENTS A. FUND FINANCIAL STATEMENTS Fund Balances and Net Assets have been restated as follows (expressed in thousands): Universities $ 1,746,807 Fund Balances, as previously reported Change in application of an accounting principle Prior year correction of errors Fund Balances/Net Assets, as restated Investment Trusts $ 3,192,544 (22,095) $ 1,724,712 47,752 $ 3,240,296 B. GOVERNMENT-WIDE STATEMENT Government-Wide Net Assets have been restated as follows (expressed in thousands): Net Assets, as previously reported Change in accounting principle Change in application of an accounting principle Net Assets, as restated 1. Governmental Activities of Primary Government $ 11,967,761 45,812 Business-type Activities of Primary Government $ 2,733,773 $ $ 12,013,573 (22,095) 2,711,678 Change in Accounting Principle The State implemented GASB Technical Bulletin No. 2004-1, Tobacco Settlement Recognition and Financial Reporting Entity Issues. The provision of the Technical Bulletin applicable to the State is the recognition of an accrual period for estimated tobacco settlement payments for the period January 1 through June 30, pursuant to the tobacco companies' Master Settlement Agreement. Accordingly, a receivable and deferred revenues have been accrued in the General Fund and revenues recognized at the government-wide statements for the governmental activities. In addition, the governmental activities Net Assets beginning balance was restated for the cumulative effect of applying this Technical Bulletin. This resulted in an increase of net assets of $45.812 million. Refer to Note 12 for further discussion on the tobacco settlement. 2. Change in Application of an Accounting Principle In fiscal year 2004, Arizona State University increased its capitalization threshold for equipment and works of art and historical treasures to $5,000 to enhance asset management and capital asset data integrity. The decrease in net assets was $22.095 million. 3. Prior Year Correction of Errors Permanent Funds’ investments in the Local Government Investment Pool were incorrectly excluded from fiscal year end 2003 Net Assets. The increase in net assets was $47.752 million. NOTE 9. FUND DEFICIT The major contributor to the Industrial Commission Special Fund deficit of $162.610 million is the $145.198 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 Special Fund receives liquidation distributions from the bankrupt companies. The deficit will also be recovered from the Industrial Commission reinstating assessments of gross - 100 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 premium revenues received by the State Compensation Fund and privately owned insurance companies that provide workers’ compensation insurance. The 2005 calendar year assessments percentage for the State Compensation Fund and privately owned insurance companies that provide workers’ compensation insurance will be two and one-half percent, the largest amount currently authorized in Arizona law. The Industrial Commission has imposed no premium revenue assessments since calendar year 1992. The Internal Service Funds deficit results from the following: • Risk Management Fund (the "RMF") net losses in prior years. The RMF deficit of $211.370 million is primarily due to the RMF receiving annual funding for “expected paid claims” (self-insured and excess insurance expenditures, legal and other claim related expenditures, and administrative expenditures). "Accrued insurance losses" of the RMF are not considered when determining funding for each fiscal year. • The Sick Leave Liability Fund pays retirees their accumulated sick leave upon retirement from State service when they meet certain criteria. When a retiree submits an application to receive their sick leave benefits, the entire liability is recorded in the fund. The retirees receiving benefits are paid in three equal annual installments, however, State agencies pay for only one year based on a .4% charge on gross payroll. The $5.228 million fund deficit is primarily due to the above funding mechanism. • The Employee Benefits Fund collects medical and dental health insurance premiums from State employees and State agencies and remits those amounts to health and dental insurance carriers. At the beginning of each year, the estimated amount of premiums due is transferred from the General Fund to the Employee Benefits Fund to cover premium payments for the year. The amount transferred during fiscal year 2004 was not sufficient to cover billed health and dental insurance premiums. Additionally, at fiscal year end, amounts owed to insurance carriers are accrued as a liability, however, revenue related to this liability is not earned until the next fiscal year. The above two factors are the major contributors to the Employee Benefits Fund fund deficit of $4.591 million at the end of fiscal year 2004. NOTE 10. JOINT VENTURE 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 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, 2004, 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, 2003, assets, liabilities, revenues and expenses totaled $92.0 million, $3.0 million, $8.0 million and $2.0 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. NOTE 11. 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. - 101 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 The Industrial Commission Special Fund 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 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 management and payment of these losses is accomplished through the funding mechanism of the Risk Management Fund (Internal Service Fund) and the Industrial Commission Special Fund (Enterprise Fund). As discussed in the above 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 and assessments on gross premium revenues currently fund the Industrial Commission Special Fund. To provide funding for workers’ compensation claims, the Industrial Commission may 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. Beginning in calendar 2004 a one and one-half percent assessment was levied under § 23-1065(A) because of a deficit net assets balance resulting from an increase in accrued insurance losses due to defunct insurance carriers. The majority of the liability increase from July 1, 2003 through June 30, 2004 was the result of $107.600 million Arizona workers' compensation claims from the defunct California domiciled Fremont Companies that were assigned to the State Compensation Fund (SCF) under § 23-966(A). Effective for 2005, the Industrial Commission approved an additional one-half percent Special Fund assessment under § 23-966(D), based on insolvent carrier losses, bringing the total to two percent before including the pending § 23-1065(F) one-half percent assessment based on the total apportionment liability. With the inclusion of the § 23-1065(F) assessment, the total of all three assessments for the Special Fund in 2005 would be two and one-half percent. Over the next three fiscal years of 2005, 2006, and 2007, a projected $57.000 million will be received by the Special Fund from liquidated assets of insolvent carriers. The Industrial Commission Special 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 Special Fund. The State Compensation Fund, on behalf of the Industrial Commission, has filed pending proof of claim requests with ancillary receivers, liquidators holding deposits and surety bonds of several insolvent companies. 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. 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. - 102 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 The following table presents the changes in claims liabilities balances (short- and long-term combined) during fiscal years ended June 30, 2003 and June 30, 2004 (expressed in thousands): Fiscal Year Risk Management Fund: 2003 2004 Industrial Commission Fund: 2003 2004 Current Year Claims and Changes in Estimates Beginning Balance $ 234,331 233,080 187,665 239,738 $ 55,005 68,430 69,355 163,108 Claims Payments $ 56,256 58,382 17,282 17,910 Ending Balance $ 233,080 243,128 239,738 384,936 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, however, three class members objected to the settlement and appealed to the Arizona Court of Appeals. The Court denied one appeal and dismissed the other two. A Petition for Review is pending at the Arizona Supreme Court. Accordingly, the State has recorded a long-term liability in its financial statements in the amount of $291.746 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 Arizona Supreme Court held that Arizona's tax statutes after 1990 did not discriminate against federal employees based on the source of the income. 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 $70 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 judgment 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 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 filed a petition for review in the Arizona Supreme Court, which was denied. The matter has been remanded to the superior court, and discovery is now ongoing. 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 - 103 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 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 $12.7 million to settle DOC claims. In Smith vs. Winkelman the plaintiffs have filed an action in Maricopa County Superior Court seeking an accounting, declaratory relief and damages for breach of trust. Damages are for the value of land disposed of by the State Land Department between 1929 and 1967 for approximately 600 rights of way that were issued without appraisal or auction, and without the payment of any compensation, plus interest or rent or lost revenues. The State has filed a motion to dismiss based on statute of limitations and other grounds. The plaintiffs have moved to reassign the case to a judge handling complex civil litigation. The State has opposed the motion to reassign. The potential outcome is uncertain at this time. If this case were to have an unfavorable outcome, it is possible that the State General Fund would have to pay the Land Endowments Fund between $100 and $500 million. 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 Special 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, 2004, totaled $309.559 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 ARS §46-731, unclaimed utility deposits are deposited in the Utility Assistance Fund to help low income and elderly people make utility deposits and repairs. Monies in the Utility Assistance Fund shall not exceed $1.0 million. Any amount in excess of $1.0 million shall be deposited General Fund. 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 2004, $1.308 million was deposited in the Utility Assistance Fund, $20.708 million was deposited in the Housing Fund, $7.530 million was deposited with the State Treasurer and $8.044 million was deposited in the General Fund. A total of approximately $298.240 million has been remitted since inception of the fund. In addition, the State is also holding securities valued at $37.0 million, and mutual funds of $6.283 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 it is the fund to which the property ultimately escheats in Arizona. At June 30, 2004, this amount, reported as Due to Others in the General Fund, is $76.580 million. E. CONSTRUCTION COMMITMENTS The Arizona Department of Transportation had outstanding commitments under construction contracts of approximately $624.464 million at June 30, 2004. - 104 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 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 $233.103 million at June 30, 2004. Approximately $162.730 million of the total aggregate future payments at June 30, 2004 relate to annuities purchased from five separate insurance companies, of which approximately $69.601 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, 2004, remaining aggregate minimum future payments on such purchased annuities approximated $5.407 million. In 1997, an insurance company from which the Lottery purchased annuities in 1986 was placed under State supervision. At June 30, 2004, remaining aggregate minimum future payments on such purchased annuities approximated $923 thousand. As of November 12, 2004, 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 12. 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. During fiscal year 2004, the State implemented the applicable provisions of the Governmental Accounting Standards Board Technical Bulletin No. 2004-1, Tobacco Settlement Recognition and Financial Reporting Entity Issues. Accordingly, tobacco settlement revenue of $92.550 million and $91.601 million is recognized in the fund statements and the government-wide statements in fiscal year 2004, respectively. Refer to Note 8 for further discussion on the Technical Bulletin. 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 and there is no obligation for the tobacco companies to make settlement payments until cigarettes are shipped, the State did not record a receivable for the future payments related to cigarette sales after June 30, 2004. NOTE 13. 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 85 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, 2004, the State has paid Accenture $17.175 million and accrued $39.550 million towards the $120.138 million contract cost. Included in the $120.138 million contract cost, are application support charges of $24.729 million. NOTE 14. CONDUIT DEBT In October 2003, the Greater Arizona Development Authority (GADA) issued $11.230 million Infrastructure Revenue Bonds, Series 2003A for public infrastructure projects in the communities of the Town of Queen Creek, the City of Williams, and the Drexel Heights Fire District in the amounts of $5.530 million, $3.590 million and $2.110 million, respectively. In February 2004, GADA issued $12.955 million Infrastructure Revenue Bonds, Series 2004A for public infrastructure projects in the communities of the Town of Pinetop-Lakeside and the Cities of Apache Junction and El Mirage in the amounts of $1.435 million, $6.665 million, and $4.855 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 - 105 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 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. In certain previous years, the State appropriated a total of $20.0 million to GADA for the express purpose of securing bonds issued by GADA. As of June 30, 2004, the remaining balance in the appropriations account was $16.607 million. The Series 2003A and 2004A 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 respective participants in the Series 2003A and 2004A bond issues. The principal of and interest premium, if any, on the Series 2003A and 2004A bonds shall not constitute or give rise to a pecuniary liability on the part of the directors and officers of GADA. The Series 2003A and 2004A bonds do not constitute a legal debt of the State and are not enforceable against the State. At June 30, 2004, the outstanding face value of the Series 2003A and 2004A bonds was $11.230 million and $12.955 million, respectively, and the total outstanding face value of all bonds issued by GADA was $65.510 million. NOTE 15. SUBSEQUENT EVENTS In July 2004, Northern Arizona University issued approximately $38.0 million of Certificates of Participation (COPs) for various capital projects and renovations on the main campus. Northern Arizona University will be issuing approximately $39.7 million of system revenue and refunding bonds in December 2004. Northern Arizona University will use $15.0 million of the bonds for various capital projects and renovations on the main campus. The remaining $24.7 million will be used to refund the Series 1997 system revenue bonds. These bonds are secured by a first lien on certain gross revenues and are on parity with the Series 2002 System Revenue Bonds, the Series 2002 System Revenue Refunding Bonds, and the Series 2003 System Revenue Bonds. On July 16, 2004, the Arizona School Facilities Board issued $246.600 million of State School Trust Revenue Bonds, Series 2004A, with interest rates ranging from 3.25% to 6.00%, and maturity dates ranging from 2006 to 2019. Series 2004A Bonds maturing after July 1, 2015 are subject to redemption and payment prior to maturity at the option of the Board. The 2004A Bonds are being issued to (i) refund and redeem the Series 2003A State School Trust Revenue Bonds, (ii) pay the costs of correcting existing deficiencies in school facilities within the State of Arizona, (iii) pay costs of issuance of the 2004A Bonds. Net proceeds totaled $24.080 million after receipt of an original issue premium of $25.788 million, payment of $247.417 million to advance refund the Series 2003A Bonds, and payment of $891 thousand of bond issuance costs. On August 1, 2004, the Arizona School Facilities Board issued $190.040 million of Certificates of Participation, Series 2004B, with interest rates ranging from 3.5% to 6.0%, and maturity dates ranging from 2006 to 2020. Series 2004B Certificates maturing on or after September 1, 2015 are subject to redemption and payment prior to maturity at the option of the Board. The 2004B Certificates are being issued (i) to finance the costs of acquiring leasehold interests in certain school sites and constructing and equipping thereon certain school facilities which will be subleased to various school districts within the State of Arizona, (ii) pay capitalized interest on the 2004B Certificates, and (iii) pay the costs of executing and delivering the 2004B Certificates. Net proceeds totaled $200.000 million after receipt of $16.260 million of original issue premium, payment of $5.111 million of capitalized interest, and payment of $1.189 million of issuance costs. On September 8, 2004, the Arizona Department of Transportation issued $188.260 million in Subordinated Highway Revenue Bonds, Series 2004B to (i) finance a portion of the Arizona Department of Transportation’s Five-Year Construction Program, (ii) pay interest on any bonds issued for highway purposes, and (iii) pay costs of issuing the Series 2004B Subordinated Bonds. The 2004B Bonds are due July 1, 2012, through July 1, 2024. Net proceeds totaled $200.0 million (after receipt of $12.863 million reoffering premium and payment of $1.123 million in underwriting fees and costs of issuance). On October 27, 2004, the University of Arizona issued System Revenue Bonds Series 2004B in the amount of $50.265 million dated November 1, 2004, to purchase a student housing complex from Southern Arizona Capital Facilities Corporation (SACFFC), and to refund in advance of maturity a portion of the University’s System Revenue Bonds Series 1998 and System Revenue Bonds Series 2000A. The System Revenue Bonds Series 2004B bear interest rates ranging from 3% to 5% and mature in 2034. The complex consists of 150 units with 325 beds located on campus within the University of Arizona’s planning boundary. SACFFC is an Arizona non-profit corporation formed to finance capital facilities construction. On December 1, 2004, the Arizona School Facilities Board issued $47.585 million of Certificates of Participation, Series 2004C, with interest rates ranging from 3.0% to 5.0%, and maturity dates ranging from 2007 to 2020. Series 2004C Certificates payable as to principal on or after September 1, 2015 are subject to optional prepayment prior to the scheduled principal payment date at - 106 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 the option of the Board. The 2004C Certificates are being issued (i) to finance the costs of acquiring leasehold interests in certain school sites and constructing and equipping thereon certain school facilities which will be subleased to various school districts within the State of Arizona, (ii) pay capitalized interest on the 2004C Certificates, and (iii) pay the costs of executing and delivering the 2004C Certificates. Net proceeds totaled $50.000 million after receipt of $3.303 million of original issue premium, payment of $523 thousand of capitalized interest, and payment of $365 thousand of issuance costs. NOTE 16. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – COMPONENT UNITS The accounting policies of the State of Arizona’s component units conform to U.S. generally accepted accounting principles applicable to governmental units adopted by the Governmental Accounting Standards Board (GASB), except for those component units affiliated with the State's Universities. Because the component units affiliated with the Universities are not governmental entities, they follow Financial Accounting Standards Board (FASB) statements for not-for-profit organizations for financial reporting purposes. Each component unit has a June 30 year-end with the exception of the Law College Association, which has a May 31 year-end. A. MEASUREMENT FOCUS AND BASIS OF ACCOUNTING The State's component units and component units affiliated with the Universities are presented using the economic resources measurement focus and the accrual basis of accounting. The State’s component units 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 has chosen the option not to follow FASB Statements and interpretations issued after November 30, 1989, except for UMC, which has elected to apply the provisions of all relevant pronouncements of the FASB, including those issued after November 30, 1989, unless those pronouncements conflict or contradict GASB pronouncements. 1. Net Assets Component units affiliated with the Universities classify net assets, revenues, expenses, gains and losses based on the existence or absence of donor-imposed restrictions. Accordingly, the net assets of the component units affiliated with the Universities and changes therein are classified and reported as follows: 2. • Unrestricted net assets include assets and contributions that are not restricted by donors or for which such restrictions have expired. • Temporarily restricted net assets include contributions for which donor imposed restrictions have not been met (either by the passage of time or by actions of the Foundations), charitable remainder unitrusts, pooled income funds, gift annuities, and pledges receivable for which the ultimate purpose of the proceeds is not permanently restricted. Donorrestricted contributions are classified as temporarily restricted if the restrictions are satisfied in the same reporting period in which the contributions are received, except for the Foundations associated with ASU, which classify such contributions as unrestricted. • Permanently restricted net assets include contributions, charitable remainder unitrusts, pooled income funds, gift annuities, and pledges receivable which require by donor restriction that the corpus be invested in perpetuity and only the board-approved payout be made available for program operations in accordance with donor restrictions. Cash and Cash Equivalents Cash and cash equivalents includes monies held in certificates of deposit, overnight money market accounts, and money market funds. Cash and cash equivalents are stated at cost, which approximates fair value. 3. Investments Investments are recorded in accordance with SFAS No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations. Under SFAS No. 124, entities are required to report investments in equity securities that have readily determinable fair values, and all investments in debt securities at fair value. Equities, fixed income, and mutual funds are stated at fair market value based on quoted market prices. Investment securities, in general, are exposed to various risks, such as - 107 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 interest rate credit and overall market volatility. Investment income or loss (including realized and unrealized gains and losses on investments, interest and dividends) is included in the excess of revenues over expenses in the Statement of Activities. 4. Income Taxes The Foundations qualify as tax-exempt organizations under Section 501(c)(3) of the Internal Revenue Code and, accordingly, there is no provision for income taxes in the accompanying financial statements, except for the Collegiate Golf Foundation, and the ACFFC. In addition, they qualify for the charitable contribution deduction and have been classified as organizations that are not private foundations. Any income determined to be unrelated business taxable income would be taxable. The ACFFC and NACFFC are exempt from taxes under the provisions of Section 501(c)(4) of the Internal Revenue Code. The ACFFC does not qualify for the charitable contribution deduction. 5. Annuities Payable and Other Trust Liabilities Annuities payable and other trust liabilities for the U of A Foundation are stated at the actuarially computed present value of future payments to the annuitants. The excess of the fair values of assets received (classified according to their nature in the Statement of Financial Position) pursuant to annuity agreements over the actuarially computed annuities payable (using market rates in effect on the contribution date) is recorded as contributions in the year received. 6. Contributions Contributions are recorded in accordance with SFAS No. 116, Accounting for Contributions Received and Contributions Made. Contributions received are recorded as unrestricted, temporarily restricted or permanently restricted support depending on the existence and/or nature of any donor restrictions. All donor-restricted support is reported as an increase in temporarily or permanently restricted net assets depending on the nature of the restriction. 7. Net Assets Released from Restriction Expenses are not incurred in the temporarily restricted or permanently restricted net asset categories. As the restrictions on these net assets are met, the assets are reclassified to unrestricted net assets. The total assets reclassified are reported as net assets released from restriction in the accompanying statement of activities. 8. Use of Estimates The preparation of the Universities-affiliated component units' financial statements in conformity with U.S. generally accepted accounting principles required management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. - 108 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 B. CASH AND INVESTMENTS 1. Component Units A. Cash and Investment Policies The University Medical Center’s short-term investments are reported at cost, which approximates fair value. Long-term investments are reported at fair value as determined by quoted market prices. 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. B. Investments Custodial Risk The following tables summarize the credit risk of the investments (expressed in thousands). Category A includes investments that are insured or registered, or for which securities are held by the component unit or the component unit’s agent in the component unit's name. Category B includes uninsured and unregistered investments for which securities are held by the counterparty’s agent or trust department in the component unit'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 component unit’s name. Type of Deposit or Investment Other investments Subtotal Investments Not Subject to Custodial Risk: Guaranteed Investment Contracts Investments with State Treasurer Total Cash and Investments Water Infrastructure Finance Authority Category A B $ $ 15,064 $ $ 15,064 C $ $ - Reported Amount $ 15,064 15,064 $ 68,082 217,265 300,411 University Medical Center Type of Deposit or Investment Corporate stocks Corporate debt State and local government securities Other investments Subtotal Investments Not Subject to Custodial Risk: Guaranteed Investment Contracts Money Market Mutual Funds Total Cash and Investments A $ $ - Category B $ 20,749 3,912 11,320 31,927 $ 67,908 C $ $ - Reported Amount $ 20,749 3,912 11,320 31,927 67,908 $ - 109 - 23,964 1,313 93,185 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 2. Universities-Affiliated Component Units A. Investment Summary Investments of the Universities-affiliated component units are comprised of the following amounts at June 30, 2004. All investments are stated at fair value (expressed in thousands): Money market funds and cash equivalents U.S. Government/agency obligations and mutual funds Domestic/international equity securities and mutual funds Fixed income Corporate bonds REIT fund, real estate and timber partnerships Absolute return limited partnerships Other investments ASU Foundation $ 17,908 176,188 76,111 7,500 U of A Foundation $ 63,878 130,257 26,199 7,198 27,183 8,279 NAU Foundation $ 9,538 26,510 5,970 44 - Total Investments $ $ $ 277,707 262,994 42,062 B. Endowment Trust Agreement In March 2003, the ASU Foundation and Arizona State University entered into a trust agreement, appointing the ASU Foundation the trustee of selected University Endowments. In accordance with the trust agreement, the ASU Foundation receives a management fee for providing these services. Unrealized and realized gains and losses, and interest and dividends, if any, are added to or subtracted from the recorded value of the invested trust assets managed by the ASU Foundation. The invested trust assets are separate from ASU Foundation investments, and a corresponding liability is presented for the fair value of the invested trust assets managed for ASU. C. Securities Lending Program The U of A Foundation participates in a securities lending program established by Wells Fargo Bank, the custodian of the majority of the U of A Foundation's investment assets (the "Program"). Under the Program, the custodian makes the U of A Foundation's securities available for loan to selected brokerage firms and other borrowing organizations. Each loan is required to be collateralized in an amount equal to at least 102 percent of the market value of the loaned security and accrued interest thereon. Each loaned security is marked to market daily, and the custodian is required to ensure that collateralization remains at an amount of at least 102 percent on a daily basis. At June 30, 2004, $33.819, $34.305 and $2.159 million in U.S. government and agency obligations, equity securities and corporate bonds, respectively, were in use under the Program. C. PROGRAM LOANS WIFA has made loans to local governments and others in Arizona to finance various projects pursuant to the requirements of the Clean Water and Safe Drinking Water Acts. The loans are generally payable in semiannual installments due January 1 and July 1 of each year, including interest. However, several loans are payable monthly or quarterly. Changes in the program loans during fiscal year 2004 are as follows (expressed in thousands): Clean Water Fund Drinking Water Fund Total Beginning Balance $ 229,934 108,621 $ 338,555 Increases $ 85,453 15,486 $ 100,939 Decreases $ (22,912) (7,412) $ (30,324) Ending Balance $ 292,475 116,695 $ 409,170 Repayment of these loans will be made from pledged property taxes, net revenues from the systems, transaction privilege taxes or from special assessments. Most loans have a .3 to 4.0 percent annual administrative fee. Some program loans require a monthly or quarterly payment into a debt service reserve to assure payments of the loans. The debt service reserve is a liability of WIFA to the borrowers and interest on the reserve accrues to the borrowers. - 110 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 D. DIRECT FINANCING LEASE AGREEMENT - UNIVERSITIES-AFFILIATED COMPONENT UNITS For the ACFFC, there were, as of June 30, 2004, five projects that it owns. Four of the projects consist of three privatized, oncampus housing operations, and one on-campus privatized energy management arrangement, for which independent management companies are responsible for providing services to students served by ASU or for ASU itself. In conjunction with these privatized arrangements, the independent management companies, with the approval and assistance of ASU, have obtained taxexempt financing in order to maximize the overall financial benefits to ASU and its students. The fifth project is a flexible display multi-use clean room facility, located at the Price-Elliott Research Park. This facility was acquired by ACFFC, due primarily to the seller not desiring to sell the facility directly to ASU. This facility is leased to ASU, with up to one-half of the facility being available for sub-lease by ASU to industry partners. The lease has been recorded by ASU as a capital lease. For the ACFFC facilities, ASU is not legally responsible for repayment of the debt, and there is no pledge or guarantee by ASU for repayment of the debt. Upon final principal repayment by ACFFC of the outstanding debt for each project, and termination of the respective ground lease, title to the facilities effectively transfers to ASU. Pursuant to a Sublease Agreement, Nanotechnology Research, LLC, a wholly-owned subsidiary of ACFFC, leases its interest in the Research Park to ASU, which will pay rent at times and in amounts sufficient to pay all principal and interest (after utilization of amounts held in the Capitalized Interest Accounts) on the Series 2004 Bonds, as well as all fees and expenses related to the Series 2004 Bonds. The Sublease Agreement is a net lease, and Nanotechnology is entitled to receive the rents and all other sums payable pursuant to the Sublease Agreement free from all taxes, charges, fees, and expenses, all of which will be paid by ASU. The Sublease Agreement commenced on April 7, 2004, and continued until June 30, 2004, with successive automatic annual renewals for the period July 1 through June 30 of each year without action on the part of Nanotechnology or ASU, through the period ending March 31, 2034. The Sublease Agreement is subject to early termination by Nanotechnology or ASU upon payment in full of the Series 2004 Bonds. Upon termination or expiration of the Sublease Agreement, Nanotechnology's interest in the premises, including all buildings and improvements on the leased premises, transfers to ASU without further consideration. Therefore, the lease is classified as a direct financing capital lease. Lease payments are based on a variable interest rate currently determined on a weekly basis. The average interest rate approximates 1.22% at June 30, 2004. Lease payments commence once the Capitalized Interest Accounts are fully utilized, which at present interest rates is expected to be in 2007. ACFFC's net investment in this direct financing lease is $35.000 million. E. PLEDGES RECEIVABLE - UNIVERSITIES-AFFILIATED COMPONENT UNITS Unconditional promises to give are included in the accompanying financial statements as pledges receivable and revenue of the appropriate net asset category. Unconditional promises to give are recorded at their net realizable value using various yields as determined by the University Foundations. The following summarizes unconditional promises as of June 30, 2004, except for the Law Association, which is as of May 31, 2004 (expressed in thousands): ASU Foundation U of A Foundation Law Association Net Pledges Receivable $ 50,616 $ 30,932 $ 30,041 - 111 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 F. CAPITAL ASSETS Capital asset activity for the University Medical Center for the fiscal year ended June 30, 2004 was as follows (expressed in thousands): Beginning Balance Capital assets, not being depreciated: Land Construction in progress Total capital assets, not being depreciated $ 5,822 4,303 10,125 Increases $ University Medical Center Adjustments & Decreases Reclassifications 176 10,568 10,744 $ (175) (175) $ 175 (10,229) (10,054) Ending Balance $ 5,998 4,642 10,640 Capital assets, being depreciated: Buildings Improvements other than buildings Equipment Total capital assets, being depreciated 144,238 1,421 142,647 288,306 284 2 11,513 11,799 (6) (372) (3,582) (3,960) 4,446 (175) 5,696 9,967 148,962 876 156,274 306,112 Less accumulated depreciation for: Buildings Improvements other than buildings Equipment Total accumulated depreciation (75,851) (1,824) (116,290) (193,965) (6,641) (9,127) (15,768) 37 291 328 (1,824) 1,474 350 - (84,316) (313) (124,776) (209,405) 94,341 (3,969) (3,632) 9,967 96,707 Total capital assets, being depreciated, net Total capital assets, net $ 104,466 $ 6,775 $ (3,807) $ (87) $ 107,347 Capital asset summary for the Universities-affiliated component units for the fiscal year ended June 30, 2004 was as follows (expressed in thousands): Buildings and improvements Furniture, fixtures, and equipment Land leasehold improvements Construction in progress Other property and equipment Total cost or donated value Less: Accumulated depreciation ASU Foundation $ 309 15,695 16,004 (126) Property and Equipment, net $ 15,878 $ $ ACFFC 14,018 20,576 25,929 308 60,831 (2,399) 58,432 - 112 - Campus Research Corporation $ 11,093 599 11,692 (1,022) SACFFC $ 17,675 164 17,839 (372) NACFFC $ 12,514 864 13,378 (834) $ $ 17,467 $ 12,544 10,670 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 G. LONG-TERM OBLIGATIONS 1. Component Units A. Arizona Power Authority On September 12, 2001 the Arizona Power Authority (APA) issued $57.520 million of Special Obligation Crossover Refunding Bonds (Crossover Bonds). Proceeds from the sale of the bonds along with a fund contribution by the APA were held in an escrow trust account invested in government securities until October 1, 2003 (the “Crossover Date”) when a crossover refunding took place. The crossover refunding resulted in $57.520 million of Special Obligation Crossover Refunding Bonds being exchanged for 2001 Series Power Resource Revenue Refunding Bonds of the same principle amount, maturity date and interest rates as the crossover bonds. In addition, as part of the crossover and as required by regulation, the APA applied an additional $600 thousand of funds held in their Debt Service Reserve Account to effect the crossover transaction and called the $62.630 million of the 1993 Series Power Resource Revenue Refunding Bonds maturing on and after October 1, 2005. The proceeds in the government securities escrow trust account, together with the income realized from investment of trust assets, served as collateral for the Crossover Bonds and paid the debt service on those bonds until the Crossover Date. The Crossover Bonds were payable solely from the amounts in the escrow trust account and were not payable from any other source. Because they were not payable from revenues derived by the APA or secured by any assets held by the APA, neither the Crossover Bonds nor the assets held in the escrow trust account were reflected on the APA’s Statement of Net Assets at June 30, 2003. However, in conjunction with the issuance of the Crossover Bonds, the APA deposited $2.695 million with a crossover bond trustee which is reflected as “Cash with Trustee” in the APA’s Statement of Net Assets at June 30, 2003. As a result of the crossover refunding transaction on October 1, 2003, the 2001 Series Bonds are reflected as obligations of the APA at June 30, 2004 and the called portion of the 1993 Series Bonds are no longer outstanding and cease to be entitled to any lien on the revenues pledged to payment of those bonds. Instead, the revenue stream originally pledged to secure the called portion of the 1993 Series bonds “crossed over” to pay debt service on the 2001 Series Bonds on October 1, 2003. The 2001 Series Bonds bear interest at a rate of 5% and 5.25% payable on April 1 and October 1 of each year, commencing April 1, 2004 and maturing in 2017. In addition, the APA recognized an economic gain (difference between the present value of the old and new debt service payments) of $2.096 million. The crossover refunding also resulted in the recognition of a deferred amount of $2.412 million that has been reflected as a decrease in bonds payable and which will be amortized using the effective interest method as a component of interest expense over the life of the refunded bonds. The APA amortized $200 thousand for the year ended June 30, 2004 resulting in a net deferred amount of $2.212 million in the Statement of Net Assets. The APA also recognized a premium of $3.537 million on the crossover refunding which has been reflected as an increase in bonds payable and which will be amortized using the effective interest method. The APA amortized $293 thousand for the year ended June 30, 2004. The cash flows required to service the new debt are $4.572 million less than the cash flows required to service the old debt. In prior years, the APA defeased various issues of bonds by purchasing U.S. 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. B. 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. In March 2004, the UMC issued $52.000 million of Hospital Revenue Bonds (the "Series 2004 Bonds"). The Series 2004 Bonds were issued at a net premium to yield an effective interest rate of 4.82% and were used in part to advance refund the Series 1992 Bonds. The UMC is subject to certain financial covenants under the Master Trust Indenture (the Indenture), with which the UMC is in compliance as of and for the year ended June 30, 2004. In addition, the Indenture places certain restrictions on the incurrence of additional indebtedness and the sale or acquisition of property. - 113 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 The UMC has established and maintains separate funds as a bond reserve fund on outstanding bonds payable. These funds totaled $8.540 million at June 30, 2004 which are held by the trustee and are reflected as restricted investments held by trustee in the accompanying financial statements. 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. C. 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, 2001 and 2004. 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 of Arizona or any other political subdivision thereof other than the WIFA. Bond premiums are being amortized over the life of the bonds. The amortization for the year ended June 30, 2004, 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, 2004 is $19.230 million. These bonds have been defeased through advanced refunding and, therefore, the corresponding liability has been removed from the accompanying financial statements. 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, 2004, is $142 thousand and has been included in interest expense. On April 7, 2004, WIFA issued $97.100 million of Water Quality Refunding Bonds to do an advance refunding of part of the 1992, 1997A, 1998A and 2001 bonds. Under the terms of the refunding issue, 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 on the issues refunded. The amount outstanding on those bonds as of June 30, 2004 is $97.100 million. These bonds are fully defeased, and, therefore, the corresponding liability has been removed from the accompanying financial statements. The net present value cash flow savings on issuing the refunding bonds at 3.213% bond yield was $3.120 million. The $8.336 million deferred amount on retirement of bonds is being amortized over the lives of the defeased bonds on a straightline basis. No amortization for the year ended June 30, 2004 was taken on the deferred amount. During fiscal year 2004, WIFA issued $195.980 million of Water Quality Revenue Bonds, Series 2004, due in annual principal installments ranging from $5.500 million to $15.080 million, plus semi-annual interest ranging from 2.0% to 5.0% through October 1, 2024. - 114 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 Summary of Revenue Bonds The following schedule summarizes revenue bonds outstanding at June 30, 2004 (expressed in thousands): Revenue Bonds Outstanding Component Units: Arizona Power Authority University Medical Center Water Infrastructure Finance Authority Outstanding Balance at June 30, 2004 Dates Issued Maturity Dates 2001-2004 1992-2004 2005-2017 2005-2033 5.0-5.25% 4.82-6.11% $60,065 99,425 1992-2004 2005-2025 2.0-6.10% 417,400 Interest Rates Principal and interest debt service payments on revenue bonds outstanding at June 30, 2004 are as follows (expressed in thousands): Fiscal Year 2005 2006 2007 2008 2009 2010-2014 2015-2019 Total Annual Debt Service Arizona Power Authority Principal Interest $ 2,545 2,560 2,825 3,120 3,450 22,495 23,070 $ 60,065 $ 3,023 2,894 2,760 2,611 2,447 9,122 2,500 $ 25,357 Fiscal Year 2005 2006 2007 2008 2009 2010-2014 2015-2019 2020-2024 2025-2029 Total Annual Debt Service University Medical Center Principal Interest Fiscal Year Total $ $ 2005 2006 2007 2008 2009 2010-2014 2015-2019 2020-2024 2025-2029 2030-2034 Total 5,568 5,454 5,585 5,731 5,897 31,617 25,570 85,422 $ 2,835 3,625 3,835 4,040 4,145 22,460 24,755 15,230 9,275 9,225 $ 99,425 Annual Debt Service Water Infrastructure Finance Authority Principal Interest Total $ 11,725 28,515 25,110 23,025 23,670 117,635 103,045 79,175 5,500 $ 417,400 - 115 - $ 18,874 18,369 17,450 16,482 15,444 60,399 32,612 9,292 114 $ 189,036 $ $ 30,599 46,884 42,560 39,507 39,114 178,034 135,657 88,467 5,614 606,436 $ 5,022 4,876 4,689 4,491 4,289 18,229 12,100 6,357 3,743 1,181 $ 64,977 Total $ $ 7,857 8,501 8,524 8,531 8,434 40,689 36,855 21,587 13,018 10,406 164,402 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 D. Changes in Long-Term Obligations The following is a summary of changes in Long-Term Obligations for the component units (expressed in thousands): Balance July 1, 2003 Arizona Power Authority: Long-term Debt: Revenue Bonds Revenue Bond Premium (Discount) Deferred Amounts, Net Total Long-term Debt $ Other Long-term Liabilities: Compensated Absences Total Other Long-term Liabilities $ University Medical Center: Long-term Debt: Revenue Bonds Revenue Bond Premium Revenue Bond Discount Total Long-term Debt $ Other Long-term Liabilities: Compensated Absences Other Total Other Long-term Liabilities $ $ $ $ 61,156 $ 2,604 $ 58,552 (23,475) (102) 1,255 (22,322) $ 99,425 1,753 (2,438) 98,740 $ 2,835 2,835 $ 96,590 1,753 (2,438) 95,905 52,000 1,855 (665) 53,190 235,012 $ 2,499 2,499 $ $ 59 59 $ $ (64,062) $ 230,280 4,673 234,953 Other Long-term Liabilities: Compensated Absences Total Other Long-term Liabilities - 70,900 (3,028) 67,872 55,689 293,080 28,125 (9,190) 312,015 $ $ 46 46 $ 312,061 - 116 - $ 60,065 3,244 (2,212) 61,097 $ 59 59 2,545 2,545 Due Thereafter 59 59 58,904 $ Due Within One Year $ (64,950) 888 (64,062) $ 80,654 Balance June 30, 2004 Decreases 57,520 3,537 (2,212) 58,845 66,314 7,834 4,948 12,782 Total Long-term Obligations Total Long-term Obligations 67,495 (1,181) 66,314 - Total Long-term Obligations Water Infrastructure Finance Authority: Long-term Debt: Revenue Bonds Revenue Bond Premium Deferred Amounts, Net Total Long-term Debt Increases $ 59 59 (1,787) (4,089) (5,876) 8,546 859 9,405 (28,198) $ 108,145 $ (105,960) (2,911) (108,871) 57,520 3,244 (2,212) 58,552 - 4,421 4,421 4,125 859 4,984 7,256 $ 100,889 $ 417,400 29,887 (9,190) 438,097 $ 11,725 11,725 $ 405,675 29,887 (9,190) 426,372 (52) (52) 53 53 53 53 - (108,923) $ 438,150 $ 11,778 $ 426,372 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 2. Universities-Affiliated Component Units Bonds payable as of June 30, 2004 are summarized as follows (expressed in thousands): Final Maturity ASU Foundation: Series 2003 Lease Revenue Term Bonds Series 2003 Lease Revenue Term Bonds Series 2003 Lease Revenue Term Bonds ACFFC: Series 2004A Variable Rate Demand Lease Revenue Bonds Series 2004B Variable Rate Demand Lease Revenue Bonds Series 2003 Serial and Term Bonds Series 2002 Bonds Series 2002 Bonds Series 2000 Serial and Term Bonds Unamortized bond premium SACFFC: Tax Exempt Series 2002 Bonds NACFFC: Tax-exempt Series 2001 Serial Bonds Tax-exempt Series 2001 Term Bonds 2023 2028 2034 Amount $ 20,400 10,575 16,625 2034 2034 2035 2018 2034 2032 20,175 14,825 13,395 31,990 15,000 10,905 1,336 2034 20,755 2005 2034 154 15,572 Scheduled future maturities of Universities-affiliated component units' bonds payable are as follows (expressed in thousands): Fiscal Year 2005 2006 2007 2008 2009 Thereafter Total ASU Foundation $ 580 595 615 45,810 $ 47,600 $ ACFFC 1,055 1,420 1,960 2,175 3,085 97,931 $ 107,626 SACFFC $ 260 310 330 345 365 19,145 $ 20,755 $ NACFFC 150 100 130 160 195 14,991 $ - 117 - 15,726 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 H. ACCOUNTING CHANGES AND RESTATEMENTS 1. Prior Year Correction of Errors Net Assets have been restated as follows (expressed in thousands): Net assets, as previously reported Prior year correction of errors Net assets, as restated Component Units $ 333,397 (284) $ 333,113 The Water Infrastructure Finance Authority had a borrower refinance their loan in a prior period. In that process, part of the balance of the old loan was not removed from program loan receivables. The decrease in net assets was $790 thousand. Also, for a prior period, the Water Infrastructure Finance Authority recognized an administrative draw from grant funds as deferred revenue. It should have been recognized as revenue. The increase in net assets was $506 thousand. For both adjustments, the net decrease in net assets was $284 thousand. 2. Change in Accounting Principle As a result of implementing GASB Statement No. 39 – Determining Whether Certain Organizations Are Component Units, an amendment to GASB Statement No. 14 during fiscal year 2004, no restatements of beginning net assets will be reported in the year of implementation. 3. State Compensation Fund The State Compensation Fund (the Fund) was reported in the CAFR as a discretely presented component unit (shown as separate financial statements) presented on the statutory basis of accounting in prior years. Component unit determination was based on the criterion set forth in GASB Statement No. 14 - The Financial Reporting Entity, that the State had the ability to impose its will on the Fund. The Fund challenged State House Bill 2002 Section 21 that directed a transfer of monies from the Fund to the State’s General Fund with the argument it would violate Arizona Constitution. The court ordered granting the Fund’s Motion for Summary Judgment during fiscal year 2004, citing that the rights of the contributing employers are vested rights that the Arizona Constitution provides shall not be impaired by any law and this transfer would interfere with the contracted rights, responsibilities and expectations of the parties to the contract. As a result of this decision, the State is not considered to have imposition of will and the Fund is not presented as a component unit in fiscal year 2004. Instead, the Fund is defined and disclosed as a related organization (see Note 1). I. RELATED PARTY TRANSACTIONS University Medical Center The University Medical Center (UMC) and the U of A 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 approximately $16.313 million for the year ended June 30, 2004. 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 approximately $9.80 million for the year ended June 30, 2004. 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 the UMC. The UMC also has an agreement to provide healthcare services to members of a health plan owned by UPI. Effective July 1, 2003, the UMC became the region’s sole Level I Trauma Center and entered into an arrangement with UPI to pay trauma physician call pay. Funding for the physician call pay was derived primarily from funds designated by the State of - 118 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 Arizona to cover trauma readiness costs. During 2004, amounts incurred for these services totaled $3.118 million. As of June 30, 2004, accrued expenses include approximately $418 thousand payable to UPI for these services. These amounts were funded primarily by amounts the UMC received from the State of Arizona during fiscal year 2004 and in August 2004. J. JOINT VENTURE 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 original amount of $1.0 million and 15,000 shares of common stock of a newly formed company, Syncardia Systems, Inc. There was no material gain or loss on the sale of the assets. K. SUBSEQUENT EVENTS Subsequent to June 30, 2004, $22.4 million of Variable Rate Revenue Bonds, Tax Exempt Series A 2004, and $12.1 million Variable Rate Revenue Bonds, Taxable Series B, were sold by the Industrial Development Authority of the City of Tempe, Arizona. The net proceeds of these bonds, upon closing, were lent to ASUF Brickyard, LLC, a wholly-owned subsidiary of the Arizona State University Foundation, to acquire, improve, and equip a retail and office building located at Mill Avenue and Seventh Street in Tempe, Arizona. Also, subsequent to June 30, 2004, the ASUF Scottsdale, LLC, a wholly-owned subsidiary of the Arizona State University Foundation, signed a 99-year lease with the City of Scottsdale to develop the ASU/Scottsdale Center for New Technology and Innovation. Development plans include approximately 1.2 million square feet of space, with approximately 90% devoted to research and related office space, and 10% devoted to retail businesses. In September 2004, the University of Arizona sought approval from the Arizona Board of Regents to issue $21.9 million of bonds to purchase the La Aldea project from Southern Arizona Capital Facilities Finance Corporation and assume management responsibilities. As a result of significant operating losses on the La Aldea project, the related bonds are in technical default and the management agreement is subject to termination. Southern Arizona Capital Facilities Finance Corporation would use the net proceeds to redeem the bonds and pay outstanding construction costs. At a meeting held on September 28, 2004, the board of Northern Arizona Capital Facilities Finance Corporation (the "NACFFC") unanimously authorized the remarketing of the existing bonds to a fixed rate product as soon as possible, and authorized the sale of new bonds not to exceed $30.0 million for the purpose of constructing new student housing. The board also authorized the manager of the student housing facility to develop and negotiate capital lease agreements between the NACFFC and Northern Arizona University for both the current housing project, and the proposed new project for subsequent presentation to the board. - 119 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 L. CONDENSED FINANCIAL STATEMENT INFORMATION The following represents summary financial information for the State of Arizona's component units for the year ended June 30, 2004. Component units affiliated with the Universities are presented separately from other component units of the State (expressed in thousands): 1. Component Units Condensed Statement of Net Assets Component Units (Expressed in Thousands) Water Infrastructure Finance Authority ASSETS Cash and investments Loans & notes receivable Capital assets, net of accumulated depreciation Other assets Total Assets $ 300,411 409,170 16 6,896 716,493 University Medical Center $ 93,185 107,347 62,001 262,533 Arizona Power Authority $ Total 15,106 159 52,237 67,502 $ 408,702 409,170 107,522 121,134 1,046,528 LIABILITIES Long-term debt Other liabilities Total Liabilities 438,097 6,747 444,844 98,740 59,683 158,423 61,097 2,876 63,973 597,934 69,306 667,240 NET ASSETS Invested in capital assets, net of related debt Restricted Unrestricted Total Net Assets 16 232,603 39,030 271,649 34,455 13,765 55,890 $ 104,110 159 3,370 3,529 $ 34,630 246,368 98,290 379,288 $ Total 368,109 $ $ Condensed Statement of Activities Component Units (Expressed in Thousands) EXPENSES Water Infrastructure Finance Authority $ 16,128 University Medical Center $ 326,592 Arizona Power Authority $ 25,389 9,308 35,120 28,300 337,386 10,794 25,446 57 372,140 35,120 39,151 4,966 1,517 541 7,024 33,266 238,383 271,649 12,311 91,799 $ 104,110 598 2,931 3,529 46,175 333,113 379,288 PROGRAM REVENUES Charges for services Operating grants and contributions NET REVENUE GENERAL REVENUES Unrestricted investment earnings CHANGE IN NET ASSETS TOTAL NET ASSETS - BEGINNING, RESTATED TOTAL NET ASSETS - ENDING $ - 120 - $ $ STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 2. Universities-Affiliated Component Units Condensed Statement of Financial Position Universities-Affiliated Component Units (Expressed in Thousands) ASU Foundation ASSETS Cash and investments Property and equipment, net Other assets Total Assets $ University of Arizona Foundation Other Component Units Total 277,707 15,878 96,520 390,105 $ 279,326 1,332 52,445 333,103 $ 115,494 123,997 94,628 334,119 LIABILITIES Bonds payable Other liabilities Total Liabilities 47,600 59,494 107,094 160 20,379 20,539 190,281 50,780 241,061 238,041 130,653 368,694 NET ASSETS Permanently restricted Temporarily restricted Unrestricted Total Net Assets 195,947 80,364 6,700 283,011 200,133 104,558 7,873 $ 312,564 27,815 46,003 19,240 93,058 423,895 230,925 33,813 688,633 $ $ $ $ 672,527 141,207 243,593 1,057,327 Condensed Statement of Activities Universities-Affiliated Component Units (Expressed in Thousands) ASU Foundation REVENUES Contributions Rental revenue Other revenue Total Revenues $ EXPENSES Program services: Payments to Universities Other program services Personal services, operations, and administrative Other expenses Total Expenses Increase in Net Assets Net Assets at Beginning of Year Net Assets at End of Year $ University of Arizona Foundation Other Component Units 36,526 34,714 71,240 $ 42,679 952 34,110 77,741 20,888 11,996 3,250 4,910 41,044 22,086 16,979 3,965 3,444 46,474 6,031 14,631 15,994 11,993 48,649 49,005 43,606 23,209 20,347 136,167 30,196 252,815 283,011 31,267 281,297 $ 312,564 8,854 84,204 93,058 70,317 618,316 688,633 - 121 - $ $ 14,901 20,562 22,040 57,503 Total $ $ 94,106 21,514 90,864 206,484 REQUIRED SUPPLEMENTARY INFORMATION REQUIRED SUPPLEMENTARY INFORMATION STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2004 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) GENERAL FUND General Accounting Office 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 Equalization Aid - Cochise Equalization Aid - Graham Equalization Aid - Navajo Equalization Aid - Yuma/La Paz General Relief 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 Woolsey Flood District Department of Administration Administrative Adjustments Administrative Adjustments Administrative Adjustments Arizona Financial Information System Arizona State Hospital Construction FY00 - 01 Arizona State Hospital Construction FY01 - 02 Arizona State Hospital Construction FY02 - 03 Arizona State Hospital Construction FY99 - 00 ASDB Phoenix Transportation Building Building Renewal FY00 - 01 Building Renewal FY01 - 02 Building Renewal FY02 - 03 Building Renewal FY03 - 04 Building Renewal FY97 - 98 Building Renewal FY98 - 99 Building Renewal FY98 - 99 COP Operating Lump Sum Appropriation Ensco Executive Tower Renovations Land Acquisition and Planning FY86 - 87 Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY03 - 04 Performance Based Incentives Pioneers' Home Plumbing Renovations $ 681,800 319,300 616,700 8,309,800 440,400 466,500 2,654,800 658,800 567,400 718,600 2,208,300 7,273,300 1,441,300 202,400 0 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 0 0 0 0 927,500 142,584 654,902 17,658,335 720,731 694 201,778 172,567 1,837,060 3,500,000 0 42,193 15,243 282,600 5,421,100 3,387 12,979 17,428,600 499,707 5,018,400 75,014 184,230 The Notes to Required Supplementary Information are an integral part of this schedule. - 125 - FINAL BUDGET (Appropriations) $ 681,800 319,300 616,700 8,309,800 440,400 466,500 2,654,800 658,800 567,400 718,600 2,208,300 7,273,300 1,441,300 202,400 202,613 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 62,319 205,281 110,257 29,555 927,500 142,584 654,902 17,658,335 720,731 694 216,913 160,213 1,662,073 3,074,650 2,103 42,193 15,243 282,600 5,421,100 0 0 17,428,600 499,707 5,018,400 32,794 184,230 ACTUAL EXPENDITURE AMOUNTS $ 681,800 319,300 616,700 8,309,800 440,400 466,500 2,654,800 658,800 567,400 718,600 2,208,300 7,273,300 1,441,300 202,400 202,613 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 62,319 205,281 110,257 29,555 656,402 36,284 (353) 66,883 (32,999) 0 167,468 158,059 1,188,312 772,467 0 35,344 9,336 0 5,420,100 0 0 17,060,165 195,275 4,061,652 32,794 184,230 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2004 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) PLTO 1 Backfill Agency Relocations FY01 - 02 PLTO 1 Backfill Agency Relocations FY02 - 03 PLTO 1 Backfill Space Renovations PLTO 1 Backfill Space Renovations FY01 - 02 PLTO 1 Backfill Space Renovations FY02 - 03 PLTO 1 Project Management PLTO 1 Project Management FY01 - 02 PLTO 1 Project Management FY02 - 03 Relocation FY00 - 01 Relocation FY01 - 02 Relocation FY02 - 03 Relocation FY03 - 04 Relocation FY99 - 00 State Hospital Study and Design FY95 - 96 Utilities HB1464 Personnel Reform HRMS Lapsing End of FY04 Administrative Adjustments Classification Pilot Program Operating Lump Sum Appropriation State Boards Lump Sum Appropriation Administrative Adjustments Lump Sum State Surplus Material Administrative Adjustments Federal Surplus Property Fund Administrative Adjustments Radiation Regulatory Agency Off-Site Nuclear Emergency Response Plan Operating Lump Sum Appropriation Office of Equal Opportunity Governor's Office of Equal Opportunity Attorney General Administrative Adjustments Administrative Adjustments Crane Elementary School Case Operating Lump Sum Appropriation Operating Lump Sum Appropriation Property Tax Supplemental State Grand Jury Department of Agriculture Administrative Adjustments Agricultural Employment Relations Board Animal Damage Control Operating Lump Sum Appropriation Red Imported Fire Ant Arizona State University East Campus - Operating Lump Sum Appropriation Main Campus - Operating Lump Sum Appropriation West Campus - Operating Lump Sum Appropriation Auditor General Operating Lump Sum Appropriation FY 00 - 01 Operating Lump Sum Appropriation FY 01 - 02 Operating Lump Sum Appropriation FY 02 - 03 The Notes to Required Supplementary Information are an integral part of this schedule. - 126 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 25,948 437,375 116,300 847 696,287 580,100 1 100,895 60,000 59,866 59,775 60,000 46,526 28,217 6,100,000 273,045 1,504,700 0 122,454 13,536,000 280,900 0 4,074,692 0 343,108 0 25,948 437,375 116,300 847 696,287 580,100 1 100,895 60,000 59,866 59,775 60,000 46,526 0 6,100,000 273,045 1,504,700 129,354 122,454 13,536,000 280,900 702 4,074,692 208,566 343,108 0 25,944 112,192 (9,779) 0 359,585 433,344 0 45,237 0 0 0 5,431 0 0 5,508,800 0 1,504,700 129,354 0 11,673,966 255,998 702 3,436,088 208,566 48,377 0 0 1,069,800 451,600 1,069,800 451,600 1,044,822 214,800 214,800 212,429 0 0 0 22,763,000 35,212,784 301 160,100 24,131 26,288 500,000 22,763,000 17,880,300 301 160,100 24,131 12,144 430,393 22,751,433 16,997,472 0 160,042 0 23,300 65,000 9,894,100 23,200 49,350 23,300 65,000 9,894,100 23,200 49,350 10,000 65,000 9,881,178 23,200 12,460,000 263,943,900 36,190,400 12,460,000 263,943,900 36,190,400 12,460,000 263,943,900 36,190,400 387,692 233,944 297,825 387,692 233,944 297,825 0 0 4,015 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2004 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Operating Lump Sum Appropriation FY 03 - 04 Operating Lump Sum Appropriation FY 99 - 00 Banking Department Administrative Adjustments Operating Lump Sum Appropriation Board of Fingerprinting Administrative Adjustments Board of Nursing Fingerprinting Nursing Assistants Operating Lump Sum Appropriation Board of Regents Arizona Transfer Articulation Support System Operating Lump Sum Appropriation Student Financial Aid Trust Fund Western Interstate Commission Office WICHE Student Subsidies Corporation Commission Administrative Adjustments Operating Lump Sum Appropriation Operating Lump Sum Appropriation Railroad Warning Systems FY00 - 01 Railroad Warning Systems FY99 - 00 Community College Board Administrative Adjustments Court of Appeals Division I Division I - Operating Lump Sum Appropriation Division I - Administrative Adjustments Charter Schools Board Administrative Adjustments Operating Lump Sum Appropriation Court of Appeals Division II Division II - Operating Lump Sum Appropriation Department of Corrections Administrative Adjustments ASPC - Lewis Repair Shower FY00 - 01 ASPC-D -Mohave Control Room FY97 - 98 Operating Lump Sum Appropriation Operating Lump Sum Appropriation Department of Economic Security ADM Operating Lump Sum Appropriation ADM Operating Lump Sum Appropriation ADM Statewide Cost Allocation Plan Fund ADM Attorney General Legal Services ADM Attorney General Legal Services ADM Attorney General Legal Services ADM Finger Imaging ADM Finger Imaging ADM High Performance Bonus ADM Lease Purchase Equipment ADM Operating Lump Sum Appropriation ADM Public Assistance Collections ADM Teen Pregnancy Prevention ADM Workforce Investment Act Operating Lump Sum Administrative Adjustments The Notes to Required Supplementary Information are an integral part of this schedule. - 127 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 11,170,600 281,001 11,170,600 281,001 10,681,216 51,002 0 2,736,000 1,117 2,736,000 1,117 2,721,459 0 2,089 2,089 90,198 134,900 90,198 134,900 0 134,900 213,700 2,090,200 2,251,200 103,000 2,908,100 213,700 2,090,200 2,251,200 113,000 2,898,100 213,700 1,227,371 2,251,200 109,500 2,873,134 0 4,807,900 38,800 192,000 100,371 6,318 4,807,900 38,800 102,666 100,371 6,318 4,766,859 37,086 666 11,785 0 190 190 7,108,330 0 7,108,330 2,243 7,108,320 2,243 0 685,000 585 685,000 585 594,262 3,102,170 3,102,170 3,101,409 0 0 2,103 607,112,400 2,122,200 2,954,312 20,000 0 607,112,400 2,122,200 2,954,312 0 0 604,686,466 1,274,964 4,041,000 1,047,500 1,000,000 307,200 141,300 15,200 488,200 289,900 33,335 1,602,700 25,574,900 177,800 16,997 0 0 4,041,000 1,047,500 1,000,000 507,200 141,300 15,200 488,200 104,900 33,335 1,602,700 25,908,700 177,800 0 500,000 4,647,766 3,828,715 746,809 0 507,200 121,835 0 303,201 61,121 0 1,602,700 23,462,800 170,658 0 0 4,647,766 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2004 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Administrative Adjustments Administrative Adjustments Administrative Adjustments CCA Sliding Fee Scales TANF Coolidge Environmental Impact Study DACS Short-Term Crisis Services TANF FY00 - 01 DACS Short-Term Crisis Services TANF FY99 - 00 DACS Adult Services DACS Community and Emergency Services DACS Coordinated Homeless Program DACS Coordinated Homeless Program DACS Coordinated Hunger Program DACS Coordinated Hunger Program DACS Domestic Violence Prevention DACS Domestic Violence Prevention DACS Domestic Violence Shelter Program DACS Emergency Domestic Violence Shelter Services DACS Hopi Senior Centers - Kykotsmovi DACS Information and Referral DACS Marriage and Communication Skills DACS Marriage Handbook DACS Marriage Skills Training DACS Navajo Senior Center Services 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 DACS Operating Lump Sum Appropriation DACS TANF Operating Lump Sum Appropriation DACS Tribal Senior Centers - Navajo Data Center Upgrades DBME TANF Cash Benefits DBME Food Stamp Outreach and Education FY00 - 01 DBME General Assistance DBME Operating Lump Sum Appropriation DBME Operating Lump Sum Appropriation DBME TANF Cash Benefits DBME TANF FLSA Supplemental DBME Tribal Pass-Through Funding DBME Tuberculosis Control DCSE Attorney General Legal Services DCSE Attorney General Legal Services DCSE Central Payment Processing DCSE Central Payment Processing DCSE County Participation DCSE Genetic Testing DCSE Genetic Testing DCSE Operating Lump Sum Appropriation DCSE Operating Lump Sum Appropriation DCYF Adoption Services DCYF Adoption Services 0 0 0 2,096,758 4,948 47,817 2 11,262,900 5,496,000 1,155,400 1,583,200 1,286,600 500,000 2,507,900 5,115,900 595 0 22,097 115,400 532,535 22,877 54,750 50,000 65,000 45,000 10,000 30,000 65,000 1,961 30,000 4,273,800 213,400 714,300 0 111,736,700 943 4,260,800 21,922,600 9,024,500 52,803,400 1,008,900 4,288,700 32,200 339,200 6,869,700 444,700 3,275,700 6,845,200 72,400 723,600 4,305,300 34,710,000 15,071,100 5,186,100 The Notes to Required Supplementary Information are an integral part of this schedule. - 128 - FINAL BUDGET (Appropriations) 22,728,025 290,896 9,180,355 2,096,758 4,948 47,817 2 11,262,900 5,424,900 1,155,400 1,649,500 1,286,600 500,000 2,507,900 5,120,700 0 0 22,097 0 532,535 22,877 54,750 50,000 65,000 45,000 10,000 30,000 65,000 1,961 30,000 4,806,300 213,400 714,300 0 120,471,600 0 4,256,300 21,922,600 9,024,500 52,803,400 808,900 4,288,700 36,700 176,940 7,075,500 444,700 2,675,700 6,395,200 37,400 338,600 4,302,560 35,939,200 17,760,700 8,186,100 ACTUAL EXPENDITURE AMOUNTS 21,233,087 290,896 9,180,355 (579,360) 0 0 0 10,277,890 5,001,827 1,127,325 1,464,213 1,213,517 452,691 2,404,154 4,448,954 0 0 0 0 365,679 22,068 31,790 25,000 0 0 0 0 0 0 0 3,830,316 131,714 116,767 0 118,524,566 0 4,156,232 21,869,272 8,495,679 52,759,717 446,581 4,123,356 34,151 120,200 4,950,514 444,700 1,615,495 5,457,403 37,400 178,976 4,277,060 26,210,721 17,745,643 6,486,100 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2004 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) DCYF Attorney General Legal Services DCYF Attorney General Legal Services DCYF Children Services DCYF Children Services DCYF Comprehensive Medical and Dental Program DCYF CPS Appeals DCYF CPS Substance Abuse Treatment DCYF Family Builders TANF DCYF Healthy Families DCYF Homeless Youth Intervention FY00 - 01 DCYF Homeless Youth Intervention FY03 - 04 DCYF Intensive Family Services DCYF Operating Lump Sum Appropriation DCYF Operating Lump Sum Appropriation DCYF Permanent Guardianship Subsidy DCYF Permanent Guardianship Subsidy FY03 - 04 DCYF Residential Drug Treatment DCYF Substance Abuse Treatment FY02 - 03 DCYF TANF to SSBG DDD Arizona Training Program at Coolidge DDD Case Management DDD Home and Community Based Services DDD Institutional Services DDD Operating Lump Sum Appropriation DDD State Funded Long Term Care Services DDD Training Program at Coolidge DERS Character Education DERS Parenting Training DERS Post-Shelter Training DERS Work Related Transportation DERS Daycare Subsidy DERS Independent Living Rehabilitation Services DERS Job Search Stipends DERS Jobs DERS Jobs DERS Jobs DERS Operating Lump Sum Appropriation DERS Operating Lump Sum Appropriation DERS Operating Lump Sum Appropriation DERS Operating Lump Sum Appropriation DERS Out-of-School Program DERS Summer Youth Employment and Training DERS Summer Youth Program DERS TANF Day Care Subsidy DERS TANF Day Care Subsidy DERS TANF Transitional Child Care DERS Vocational Education Grants TANF DERS Vocational Rehabilitation Services DERS WIA Operating Lump Sum DERS Workforce Investment Act Programs DERS Young Fathers Mentoring FY98 - 99 DERS/JTPA Welfare To Work Block Grant Lease-Purchase Equipment LTC Arizona Training Program at Coolidge 4,121,500 48,700 17,370,900 15,174,300 2,057,000 623,400 224,500 5,200,000 5,034,200 30,539 400,000 1,985,600 27,159,000 20,559,900 124,000 859,300 0 2,000,000 25,259,700 2,921,900 3,193,100 27,848,800 294,900 3,925,000 18,032,900 2,359,800 126,098 10,243 706 302,200 31,032,900 784,200 30,000 2,000,000 17,316,600 1,793,500 2,035,900 2,698,000 4,893,200 8,328,700 4,000,000 1,000,000 0 86,603,300 620,300 30,500,000 449 3,285,100 1,934,100 44,070,600 98,638 84,332 645,000 3,659,000 The Notes to Required Supplementary Information are an integral part of this schedule. - 129 - FINAL BUDGET (Appropriations) 4,121,500 48,700 47,798,700 9,359,300 2,057,000 473,400 224,500 5,200,000 5,034,200 (26,161) 400,000 1,985,600 35,449,700 20,912,645 2,144,500 879,300 350,000 5,000,000 25,259,700 2,721,900 3,793,100 30,386,900 194,900 4,210,000 18,032,900 2,359,800 126,098 0 0 302,200 31,032,900 784,200 30,000 2,000,000 17,316,600 1,793,500 2,035,900 2,698,000 4,893,200 8,328,700 500,000 1,000,000 0 86,203,300 620,300 30,900,000 0 3,285,100 4,655,900 51,848,800 11,931 84,332 645,000 3,328,100 ACTUAL EXPENDITURE AMOUNTS 4,121,500 1,533 47,668,004 9,094,161 2,057,000 473,400 224,500 4,289,474 4,115,671 (26,161) 274,950 1,985,600 35,449,700 20,348,865 2,130,129 831,554 0 3,485,755 21,386,579 2,617,894 3,793,100 27,245,346 133,586 4,210,000 15,821,324 0 0 0 0 295,378 31,032,900 673,190 30,000 1,000,000 11,001,095 1,345,125 1,464,675 2,698,000 4,752,140 7,032,013 0 1,000,000 (32,446) 69,446,422 620,300 27,129,140 0 3,285,100 0 42,791,653 11,931 84,332 620,784 3,328,100 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2004 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) LTC Arizona Training Program at Coolidge LTC Case Management LTC Case Management LTC Home and Community Based Services LTC Home and Community Based Services LTC Home and Community Based Services LTC Institutional Services LTC Institutional Services LTC Medical Services LTC Medical Services LTC Operating Lump Sum Appropriation LTC Operating Lump Sum Appropriation State Funded LTC Services Statewide Building Renewal FY00 - 01 Statewide Building Renewal FY02 - 03 Statewide Building Renewal FY03 - 04 Statewide Building Renewal FY92 - 93 Department of Juvenile Corrections Administrative Adjustments Administrative Adjustments Adobe Mountain Kitchen Floor Adobe Mountain Well Repair Building Renewal - Well Pump Building Renewal FY91 - 92 Building Renewal FY94 - 95 Operating Lump Sum Appropriation Operating Lump Sum Appropriation Department of Transportation Operating Lump Sum Appropriation Department of Education Accountability Measures Achievement Testing Additional State Aid to Schools Administrative Adjustments Adult Education Assistance AIMS Intervention and Dropout Prevention Program Arizona Teacher Evaluation Assistance to School Districts for Children of State Employees Basic State Aid Entitlement Certificates of Educational Convenience Chemical Abuse English Learner Classroom Bonus Fund FY02 - 03 English Learner Classroom Bonus Fund FY03 - 04 English Learner FY02 - 03 English Learner FY03 - 04 English Learner Instruction FY02 - 03 English Learner Instruction FY03 - 04 English Learner Materials and Supplies FY02 - 03 English Learner Materials and Supplies FY03 - 04 English Learner Pilot FY02 - 03 English Learner Pilot FY03 - 04 English Learner Teacher FY02 - 03 English Learner Teacher FY03 - 04 Extended School Year FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 11,252,900 8,324,300 25,600,800 115,438,100 355,019,300 848,100 3,940,200 12,117,900 21,607,900 66,453,400 7,819,100 24,047,000 1,952,600 0 0 0 20 13,662,900 7,483,500 22,100,800 110,230,300 370,390,200 848,100 3,567,500 12,417,900 19,603,000 70,453,400 7,064,400 19,547,000 2,462,900 5,000 160,000 186,015 20 0 7,483,500 0 110,230,300 0 0 3,567,500 0 19,603,000 0 7,064,400 0 2,438,800 5,000 160,000 149,000 0 0 0 81 0 0 39 3,794 64,408,700 2,891,058 520,076 2,029 81 13,025 1,300 39 3,794 64,408,700 2,891,058 520,076 2,029 81 13,025 1,300 0 0 63,943,103 2,890,699 68,100 68,100 68,099 50 3,396,600 273,268,500 0 4,438,200 550,000 193,700 99,500 2,584,146,700 269,900 796,300 2,799,058 0 236,254 0 4,738,724 0 260,879 0 101 0 4,500,000 0 500,000 50 5,802,800 273,268,500 2,088,730 4,438,200 550,000 193,700 99,500 2,608,778,400 269,900 796,300 2,799,058 3,060,000 236,254 316,095 4,738,724 5,500,000 260,879 1,500,000 101 750,000 4,500,000 4,500,000 500,000 0 3,396,600 269,669,749 2,088,730 4,438,200 536,956 182,334 82,100 2,588,305,944 0 770,525 2,799,058 3,060,000 33,982 157,022 4,466,136 4,484,893 260,879 1,114,564 101 749,798 0 46,701 460,624 The Notes to Required Supplementary Information are an integral part of this schedule. - 130 - (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2004 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Family Literacy Program FY03 - 04 Family Literacy Program FY98 - 99 Gifted Support Operating Lump Sum Appropriation Operating Lump Sum Appropriation Optional Performance Incentive Programs Parental Choice for Reading Success Residential Placement School Accountability Fund School Report Cards School Safety Program FY00 - 01 School Safety Program FY01 - 02 School Safety Program FY02 - 03 School Safety Program FY03 - 04 School Safety Program FY98 - 99 School Safety Program FY99 - 00 Small Pass-Through Programs Special Education Audit Special Education Fund State Block Grant for Early Childhood Development State Block Grant for Vocational Education Teacher Certification Vocational Education Extended Year Department of Commerce Administrative Adjustments Administrative Adjustments Agriculture Preservation District APNE FY01 - 02 Apprenticeship Services Office General Fund Transfer 1st Special Session Chapter 1 Motion Picture Development NAFTA Agreement Projects NAFTA Projects - Initial Phase Operating Lump Sum Appropriation Operating Lump Sum Appropriation Board of Tax Equalization Administrative Adjustments Operating Lump Sum Appropriation Department of Environmental Quality Administrative Adjustments Administrative Adjustments Aquifer Protection Permit Program Operating Lump Sum Appropriation Operating Lump Sum Appropriation Water Infrastructure Finance Authority Geological Survey Administrative Adjustments Operating Lump Sum Appropriation Government Information Technology Agency Operating Lump Sum Appropriation Administrative Adjustments Governor's Office Administrative Adjustments Arizona - Sonora Study The Notes to Required Supplementary Information are an integral part of this schedule. - 131 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 1,002,100 1,373 1,301,400 498,600 6,550,700 120,000 1,000,000 10,000 18,400 439,100 0 237,354 101,123 6,700,700 0 0 581,600 290,500 29,617,600 19,408,600 11,154,100 1,110,700 600,000 1,002,100 1,373 1,301,400 498,600 6,550,700 120,000 1,000,000 10,000 18,400 439,100 0 237,354 101,123 6,700,700 0 0 581,600 290,500 29,617,600 19,408,600 11,154,100 1,110,700 600,000 990,242 0 1,284,567 416,670 6,507,814 0 974,003 10,000 18,400 408,483 (7,461) 237,354 50,325 5,044,123 0 0 556,400 260,460 29,617,600 19,334,025 11,154,100 1,110,120 600,000 0 0 32,514 331,152 156,000 2,500,000 291,100 37,777 19,874 3,130,500 120,200 48,944 616 32,514 331,152 156,000 2,500,000 291,100 37,777 19,874 3,130,500 120,200 48,944 616 0 329,009 131,533 2,500,000 266,967 0 0 2,786,699 114,250 0 544,600 18 544,600 18 544,591 0 0 740,800 11,666,900 9,681,700 2,445,100 479,365 88,520 740,800 11,666,900 9,681,700 2,445,100 479,365 88,520 739,627 2,843,800 9,673,778 2,445,100 0 779,600 3,992 779,600 3,992 778,831 2,507,600 0 2,507,600 1,456 2,162,331 1,456 0 5,200 8,606 5,200 8,606 0 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2004 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Border Volunteer Corps FY94 - 95 Border Volunteer Corps FY95 - 96 Governor's Office of Strategic Planning and Budgeting Governor's Telecommunication Office of Sonora Operating Lump Sum Appropriation FY00 - 01 Operating Lump Sum Appropriation FY01 - 02 Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY03 - 04 Operating Lump Sum Appropriation FY99 - 00 Arizona Health Care Cost Containment System Administration Administration Administrative Adjustments Administrative Adjustments Board of Nursing Breast & Cervical Cancer Treatment State Program Breast & Cervical Cancer Treatment Fed Administration Breast & Cervical Cancer Treatment Fed Program Breast and Cervical Cancer Treatment Program FY01 - 02 Breast and Cervical Cancer Treatment Program FY03 - 04 Capitation Capitation CHIP - Administration CHIP - Parents CHIP - Services County Hold Harmless Critical Access Hospitals Critical Access Hospitals DES Eligibility DES Eligibility DES Title XIX Pass Through DES Title XIX Pass Through DHS Title XIX Pass Through DHS Title XIX Pass Through Dialysis Chemotherapy Treatment Expense Disproportionate Share Payments Disproportionate Share Payments DOA Data Center Charges DOA Data Center Charges Fee for Service Fee For Service Freedom to Work Program Expense Freedom To Work Program Expense Graduate Medical Education Graduate Medical Education Health Care Group Indian Advisory Council Indian Advisory Council Long Term Care Program Lump Sum Appropriation Medicare Premiums Medicare Premiums Mental Health - Adults FY91 - 92 Office of Administrative Hearings FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 34,705 65,374 1,686,000 504 7,783 1,059 503,194 291,242 5,580,700 99,497 34,705 65,374 1,686,000 504 7,783 1,059 503,194 291,242 5,580,700 99,497 0 0 1,680,585 0 0 1,058 340,802 62,660 5,464,724 98,483 18,162,400 18,110,500 0 0 209,700 1,153,200 52,730 745,860 73 1,493,700 266,040,800 1,018,273,600 1,400,200 9,200,200 15,227,700 4,825,600 506,600 1,193,400 20,770,700 23,547,700 125,100 186,200 906,800 827,600 132,786 44,823,900 92,042,900 1,590,400 4,127,100 66,485,400 292,350,900 865,200 2,038,000 6,102,100 14,374,800 4,000,000 100,100 100,200 772,346,900 11,586,900 27,296,500 45,368 191,900 15,062,400 18,110,500 20,090,960 50,522,620 209,700 1,153,200 52,730 745,860 73 1,016,700 280,533,500 1,059,773,600 1,400,200 7,050,200 16,077,700 4,825,600 506,430 1,193,570 23,870,700 24,647,700 133,400 186,200 962,200 827,600 132,786 51,709,524 113,116,000 1,724,700 4,127,100 60,553,450 258,765,600 689,200 2,038,000 6,100,069 14,376,832 2,989,426 99,900 100,200 772,346,900 11,825,843 34,796,500 45,368 277,200 14,514,359 17,592,553 20,090,960 50,512,116 209,700 228,726 0 0 0 578,730 280,533,500 1,059,531,459 1,400,200 6,994,052 16,077,700 4,825,600 506,430 1,193,570 23,831,747 21,691,047 61,857 80,437 659,620 686,890 132,786 50,396,310 103,532,555 1,646,867 3,559,801 60,553,450 251,262,960 684,220 1,456,305 6,100,069 14,376,831 2,689,426 86,992 81,436 740,636,105 11,825,842 33,570,434 0 213,620 The Notes to Required Supplementary Information are an integral part of this schedule. - 132 - (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2004 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Proposition 204 Administration Proposition 204 Services Proposition 204 Services Reinsurance Reinsurance Services Services Office of Administrative Hearings Operating Lump Sum Appropriation Operating Lump Sum Appropriation Historical Society Field Services and Grants Operating Lump Sum Appropriation Papago Park Museum House of Representatives Operating Lump Sum Appropriation FY00 - 01 Operating Lump Sum Appropriation FY01 - 02 Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY03 - 04 Operating Lump Sum Appropriation FY97- 98 Operating Lump Sum Appropriation FY98 - 99 Operating Lump Sum Appropriation FY99 - 00 Department of Health Services 90/91 Environmental Assessment Phoenix 91/92 Building Renewal FY91 - 92 ADHS Indirect Cost Account ADHS Indirect Costs AHCCCS - CRS Administrative Adjustments Administrative Costs State Match Adult Cystic Fibrosis Adult Sickle Cell Anemia AHCCCS - Children's Rehabilitative Services AIDS Reporting and Surveillance Antipsychotic Treatment Drug Arizona State Hospital Accreditation Arnold v. Sarn ASH - Condensate Receiver ASH - Cooling Towers #1-2 ASH - Juniper/Wick Windows Assurance and Licensure Assurance and Licensure Attorney General Legal Services Building Renewal - Tucson FY00 - 01 Building Renewal - Tucson FY01 - 02 Building Renewal - Tucson FY02 - 03 Building Renewal - Tucson FY98 - 99 Building Renewal - Tucson FY99 - 00 Building Renewal FY96 - 97 Children's Behavioral Health Services Children's Behavioral Health Services - Tobacco Settlement Account Children's Behavioral State Match for Title XIX The Notes to Required Supplementary Information are an integral part of this schedule. - 133 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 25,518,800 52,847,800 35,426,600 5,324,600 55,067,800 45,047,000 23,542,700 55,459,600 103,417,800 673,574,000 25,321,000 52,847,800 34,326,600 5,324,600 55,067,800 45,047,000 11,823,158 33,457,398 102,417,800 680,074,000 24,976,870 52,847,800 30,728,749 5,324,600 53,484,449 45,047,000 11,815,204 28,765,918 102,417,800 671,403,646 13,900 1,078,500 13,900 1,078,500 13,900 1,078,500 80,000 1,886,400 1,407,500 80,000 1,886,400 1,407,500 80,000 1,886,400 1,407,500 855,754 426,822 843,846 11,173,900 33,238 120,282 360,375 855,754 426,822 843,846 11,173,900 33,238 120,282 360,375 1,500 0 958 10,557,490 33,238 117,820 0 8,849 3,548 6,873,300 350,000 0 0 105,200 33,000 10,240,000 1,125,000 0 3,140 27,500,000 4,700 1,599 29,950 6,488,844 410,800 302,800 6,109 74,974 78,900 2,221 37,168 30 9,351,800 5,728,728 44,673,400 8,849 3,548 6,873,300 350,000 1,838,484 436,800 105,200 33,000 11,484,337 1,125,000 128,300 3,140 27,500,000 4,700 1,599 0 6,488,844 410,800 302,800 6,109 74,974 78,900 2,221 37,168 30 9,351,800 5,728,728 45,747,200 0 0 5,261,545 290,000 1,838,484 436,800 105,200 33,000 11,484,337 1,111,125 128,300 0 27,499,999 0 1,599 0 6,153,249 324,545 302,800 0 0 0 0 0 0 9,285,106 4,895,183 45,747,200 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2004 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Children's Rehabilitative Services Cholla - Sexual Predator Community Health Centers Community Placement Treatment Community Placement Treatment Competency Restoration Treatment County Nutrition Services County Prenatal Services Grant County Public Health Court Monitoring Direct Grants Hearing and Speech Professionals Regulation Hepatitis C Surveillance High Risk Perinatal Services Kidney Program Laboratory Services Male Restoration to Competency Program Medicaid Special Exemption Payments Medicaid Special Exemption Payments Mental Health - Non-Title XIX Mental Health and Substance Abuse State Match Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Proposition 204 State Match Reimbursement to Counties Renal and Non-Renal Disease Management Seriously Emotionally Handicapped Children Seriously Mentally Ill Non-Title XIX Seriously Mentally Ill State Match for Title XIX Sexually Transmitted Disease Control Sexually Violent Persons Sexually Violent Persons Capital Improvement Statewide Immunization Information System Substance Abuse - Non-Title XIX TANF Prenatal Services FY99 - 00 Telemedicine Tuberculosis Provider Care and Control Vaccines Vital Records Commission on the Arts Community Service Projects Operating Lump Sum Appropriation Indian Affairs Commission Administrative Adjustments Operating Lump Sum Appropriation Occupational Safety and Health Review Board Employee Related Expenditures FY01 - 02 Operating Lump Sum Appropriation FY00 - 01 The Notes to Required Supplementary Information are an integral part of this schedule. - 134 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 3,587,000 11,655 10,400,580 5,574,100 1,130,700 0 330,300 1,148,500 200,000 197,500 460,300 0 350,409 3,180,600 50,500 2,959,748 17,950 175,600 2,804,800 2,447,300 14,650,900 12,935,046 4,545,775 3,423,618 4,213,893 34,660,496 1,100,000 7,169,300 1,400,000 13,450,500 67,900 468,000 500,000 59,916,700 8,375,100 26,300 9,698,382 0 451,809 12,135,400 46,709 260,000 1,010,500 2,904,700 131,550 3,587,000 11,655 10,400,580 5,574,100 1,130,700 0 330,300 1,148,500 200,000 177,500 460,300 130,000 350,409 2,862,500 50,500 2,959,748 17,950 195,063 2,804,800 2,447,300 17,603,100 12,935,046 4,883,875 3,423,618 4,113,893 34,760,496 1,100,000 7,169,300 1,400,000 8,855,000 67,900 468,000 500,000 59,916,700 14,330,100 26,300 9,698,382 0 451,809 12,135,400 46,709 260,000 1,010,500 2,904,700 131,550 3,587,000 0 9,938,789 5,574,100 1,130,700 0 183,638 793,786 200,000 177,500 460,300 63,989 321,941 2,373,687 50,500 2,802,670 17,950 195,063 2,804,800 2,445,685 17,603,100 12,420,624 4,618,958 3,050,678 3,956,421 34,363,495 1,100,000 7,151,521 0 8,855,000 67,900 403,718 0 59,863,216 14,330,100 24,935 9,379,464 (23,750) 406,778 12,112,054 (260) 250,156 827,000 2,903,860 93,690 1,263,100 538,000 1,263,100 538,000 1,263,100 538,000 0 201,400 165 201,400 165 197,414 75 1,000 75 1,000 0 0 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2004 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Operating Lump Sum Appropriation FY01 - 02 Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY03 - 04 Operating Lump Sum Appropriation FY98 - 99 Operating Lump Sum Appropriation FY99 - 00 Personal Services FY91 - 92 Insurance Department Administrative Adjustments Managed Care and Dental Plan Oversight Operating Lump Sum Appropriation Arizona Criminal Justice Commission Administrative Adjustments Operating Lump Sum Appropriation Rural State Aid to County Attorneys Rural State Aid to Indigent Defense Joint Legislative Budget Committee Operating Lump Sum Appropriation FY 02 - 03 Operating Lump Sum Appropriation FY 03 - 04 Department of Library, Archives and Public Records Grants-In-Aid FY01 - 02 Grants-In-Aid FY02 - 03 Grants-In-Aid FY03 - 04 Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY03 - 04 Operating Lump Sum Appropriation FY00 - 01 Operating Lump Sum Appropriation FY01 - 02 Operating Lump Sum Appropriation FY03 - 04 Statewide Radio Reading Services for the Blind Legislative Council Juvenile Study Ombudsman Citizens Aid Office FY02 - 03 Ombudsman Citizens Aid Office FY03 - 04 Ombudsman FY93 - 94 Ombudsman FY94 - 95 Operating Lump Sum Appropriation FY03 - 04 Operating Lump Sum Appropriation FY99 - 00 Operating Lump Sum Appropriation FY00 - 01 Operating Lump Sum Appropriation FY02 - 03 School Maintenance and Operations Land Department Administrative Adjustments Environmental County Grants Fire Suppression Operating Lump Sum Appropriation Liquor Licensing Department Administrative Adjustments Operating Lump Sum Appropriation Law Enforcement Merit System Council Operating Lump Sum Appropriation Department of Emergency and Military Affairs Administrative Adjustments Apache County River Reservoir Dam Emergency Aspen Fire Emergency Aspen Fire Emergency The Notes to Required Supplementary Information are an integral part of this schedule. - 135 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 6,947 4,800 0 8,363 1,000 53 6,947 4,800 4,800 8,363 1,000 53 0 0 0 312 0 0 0 517,000 5,705,000 1,821 517,000 5,705,000 1,821 480,777 5,588,424 0 994,200 157,700 150,100 110,146 994,200 157,700 150,100 110,146 744,394 157,700 150,100 1,232,147 2,100,600 1,232,147 1,950,600 1,232,147 620,413 97,657 79,400 651,400 3,003 5,817,400 189,093 89,146 426,100 97,000 97,657 79,400 651,400 3,003 5,817,400 189,093 89,146 426,100 97,000 96,314 25,000 562,543 3,003 5,647,972 53,442 0 426,100 97,000 19,520 34,099 363,400 43,000 95,169 3,690,600 890,320 243,027 134,639 214,221 19,520 34,099 363,400 43,000 95,169 3,690,600 890,320 243,027 134,639 214,221 0 34,099 328,462 0 0 3,410,983 3,900 62,698 134,639 0 0 125,000 0 13,429,300 10,744 125,000 3,000,000 13,429,300 10,744 125,000 3,000,000 13,415,491 0 2,449,000 9,579 2,449,000 9,579 2,448,942 56,800 56,800 56,424 0 0 0 63,149 61,684 400,000 1,140,575 63,149 61,684 5,184 321,125 63,149 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2004 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Civil Air Patrol EUZ701 Search and Rescue EUZHAZ - Hazard Material Contingency FY01 - 02 EZU701 Search and Rescue Forest Health Emergency-Pine Bark Beetle Forest Health Emergency-Pine Bark Beetle Gila County Flash Flood Emergency Hazard Materials Contingency Kinishba Fire Emergency La Paz/Maricopa Counties Storm Emergency La Paz/Maricopa Counties Storm Emergency La Paz/Maricopa Counties Storm Emergency Mesa Armory Re-roofing Mitigation Projects 2004 Emergency Funds Navajo, Gila and Coconino Counties Rodeo Fire Navajo, Gila and Coconino Counties Rodeo Fire Nogales and 52nd Street Building Renewal Nuclear Emergency Management Fund Nuclear Emergency Management Fund - Maricopa Off Site Nuclear Emergency 89-90 Operating Lump Sum Appropriation Operating Lump Sum Appropriation - Administration Operating Lump Sum Appropriation - DEMA Prescott and Bellemont Armories Project Challenge Construction FY00 - 01 Project Challenge Construction FY01 - 02 Project Challenge Program Roosevelt Building Renewal Safford and Sunnyslope Building Renewal September Terrorism Incident Emergency Service Contracts FY02 - 03 Service Contracts FY03 - 04 Yuma National Guard Center Mine Inspector Administrative Adjustments Operating Lump Sum Appropriation Department of Building and Fire Safety Administrative Adjustments Operating Lump Sum Appropriation Mines and Mineral Resources Operating Lump Sum Appropriation Medical Student Loans Board Medical Student Loans Northern Arizona University Main Campus - Operating Lump Sum Appropriation NAU - Yuma Campus Temporary Assistance For Needy Families Navigable Streams Adjudication Commission Operating Lump Sum Appropriation Personnel Board Administrative Adjustments Operating Lump Sum Appropriation The Notes to Required Supplementary Information are an integral part of this schedule. - 136 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 56,700 0 15,271 10,333 0 1,977,828 0 0 0 0 173,113 133,393 1,325 0 397,314 1,212 12,032 0 0 1,708 2,660,000 1,294,000 833,400 130,589 6,526 207,656 1,550,700 7,358 141 141,605 4,884 852,300 0 56,700 100,000 15,271 10,333 457,390 1,977,828 62,497 50,000 33,359 120,000 173,113 133,393 1,325 1,636,179 397,314 1,212 12,032 317,568 243,824 1,708 2,660,000 1,294,000 833,400 130,589 6,526 207,656 1,550,700 7,358 141 141,605 4,884 852,300 371,000 56,700 98,990 2,332 10,332 4,694 893,597 62,497 986 33,359 627 171,316 133,343 0 0 70,884 1,160 0 317,568 243,824 0 2,647,922 1,288,590 833,374 28,692 6,526 62,188 1,544,957 7,358 0 141,605 4,884 603,515 371,000 0 1,088,000 5,889 1,088,000 5,889 1,085,131 0 3,197,700 19,023 3,197,700 19,023 2,806,296 648,800 648,800 611,512 47,200 47,200 47,190 109,309,800 2,127,500 216,695 109,309,800 2,127,500 90,597 109,309,800 2,127,500 90,597 157,300 157,300 130,831 0 333,400 45 333,400 45 268,502 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2004 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Commission for Postsecondary Education Leveraging Educational Assistance Partnership Private Postsecondary Education Student Financial Assistance Prescott Historical Society Building Renewal - Sharlot Hall Re-roofing Operating Lump Sum Appropriation Pioneer's Home Operating Lump Sum Appropriation Board of Executive Clemency Operating Lump Sum Appropriation Parks Board Acquisition and Development Administrative Adjustments Growing Smarter Transfer to Land Conservation Fund Kartchner Caverns Kartchner Caverns State Park Operating Lump Sum Appropriation Operating Lump Sum Appropriation Spur Cross Ranch Acquisition FY00 - 01 Spur Cross Ranch Acquisition FY01 - 02 Department of Public Safety Operating Lump Sum Appropriation Administrative Adjustments Board of Fingerprinting Building Renewal - Project 91-2060 Building Renewal - Project 91-2102 Building Renewal - Project 91-3010 Building Renewal - Project 91-3012 Building Renewal - Project 91-4018 Building Renewal - Project 91-4019 Building Renewal - Project 91-4020 G.I.T.E.M. Operating Lump Sum Appropriation Operating Lump Sum Appropriation Racing Department Administrative Adjustments Operating Lump Sum Appropriation Independent Redistricting Commission Operating Lump Sum Appropriation FY00 - 01 Operating Lump Sum Appropriation FY03 - 04 Real Estate Department Operating Lump Sum Appropriation Ranger's Pension Operating Lump Sum Appropriation Retirement System James J. Burke v. ASRS, Attorney Fees and Cost FY01- 02 Department of Revenue Administrative Adjustments Operating Lump Sum Appropriation Revenue Generating Program Schools for the Deaf and the Blind Administrative Adjustments Operating Lump Sum Appropriation - Administration The Notes to Required Supplementary Information are an integral part of this schedule. - 137 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 1,220,800 170,500 1,220,800 170,500 1,220,800 170,500 8,000 612,700 9,500 612,700 9,481 612,498 3,643,600 3,643,600 3,643,053 859,000 859,000 857,570 314,151 0 0 700,000 1,541,700 2,316,600 8,576,200 74,500 500 314,151 24,651 20,000,000 700,000 1,541,700 2,316,600 8,576,200 0 0 199,791 24,651 20,000,000 0 1,525,286 2,203,379 8,241,761 0 0 331,000 0 72,600 0 0 1,981 0 0 0 0 4,271,700 25,309,700 8,206,800 331,000 227 72,600 12,300 17,500 2,540 14,823 36,310 23,500 16,500 4,271,700 25,309,700 8,206,800 222,080 227 72,600 8,058 17,500 2,540 14,823 34,000 20,846 9,956 4,256,245 25,309,700 8,206,800 0 2,446,200 8,279 2,446,200 8,279 2,291,645 557,341 0 557,341 1,703,000 508,708 1,453,458 3,113,700 3,113,700 3,112,403 12,300 12,300 12,300 3,480,819 488,398 488,398 0 53,955,700 6,552,000 50,253 60,507,700 0 50,253 59,858,262 0 0 4,795,232 948,859 4,795,232 948,859 4,549,855 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2004 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Operating Lump Sum Appropriation - Phoenix Operating Lump Sum Appropriation - Tucson School Facilities Board Administrative Adjustments Deficiencies Correction Appropriation New School Facilities Debt Service Operating Lump Sum Appropriation Senate Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY03 - 04 Operating Lump Sum Appropriation FY97 - 98 Operating Lump Sum Appropriation FY98 - 99 Operating Lump Sum Appropriation FY99 - 00 Supreme Court 4th Floor Chiller Administrative Adjustments Administrative Adjustments Administrative Adjustments Adult Intensive Probation Adult Standard Probation Enhancement Case Processing - Automation Case Processing - Automation Commission on Judicial Conduct Community Punishment County Reimbursements Domestic Relations FOSTER CARE REVIEW BOARD HVAC Ductwork Replacement HVAC Piping and Pump - Courts Building HVAC Replace Primary Ductwork - Courts Building HVAC Storage Tank Interstate Compact Judges Compensation Judicial Nomination and Performance Review Juvenile Family Counseling Juvenile Intensive Probation Juvenile Standard Probation Juvenile Treatment Services Model Court Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Progressively Increasing Consequences Rural State Aid to the Courts Special Water Master State Aid Secretary of State Administrative Adjustments Arizona Blue Book and Election Statute Book Elections Help America Vote Act Operating Lump Sum Appropriation The Notes to Required Supplementary Information are an integral part of this schedule. - 138 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 1,736,824 7,338,944 1,736,824 7,338,944 1,462,666 6,935,097 0 15,000,000 21,260,000 1,579,400 1,609 15,000,000 21,260,000 1,579,400 1,609 0 19,803,522 1,574,579 150,698 6,187,100 398,983 525,743 810,835 150,698 6,187,100 398,983 525,743 810,835 150,698 6,093,193 398,983 525,743 99,615 8,124 0 0 0 10,170,800 11,110,200 4,601,400 9,888,600 343,700 891,500 246,000 708,500 1,349,800 20,245 0 389 10,259 558,600 13,399,400 281,300 660,400 13,236,400 8,341,600 23,315,600 514,300 7,665,800 623,900 4,803,200 9,268,100 418,500 20,000 84,700 8,124 753,497 14,419 132,326 10,170,800 11,110,200 4,601,400 7,488,600 343,700 891,500 246,000 708,500 1,767,600 0 150,000 0 10,259 558,600 13,829,400 281,300 660,400 13,236,400 7,911,600 23,315,600 0 7,822,000 623,900 7,203,200 9,268,100 418,500 20,000 25,000 5,596 753,497 14,419 (13,521) 10,148,093 11,078,210 1,939,455 6,338,724 342,195 888,783 143,856 706,970 1,761,089 0 149,671 0 9,048 555,278 13,737,763 279,110 657,463 13,206,253 7,903,131 23,314,637 0 7,567,698 350,399 6,522,148 9,268,100 418,500 19,995 24,993 0 0 2,286,289 800,000 2,101,011 57,428 57,000 2,286,289 800,000 2,101,011 57,428 41,765 2,026,770 800,000 1,883,003 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2004 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Office of Tourism Administrative Adjustments Operating Lump Sum - Tourism Fund Transfer to Tourism Fund State Treasurer Community College Reimbursement Corporate Income Tax Transfer to WQARF Justice of the Peace Salaries Operating Lump Sum Appropriation Property Tax Refund Tax Appeals Board Operating Lump Sum Appropriation University of Arizona Agriculture Clinical Rural Rotation Clinical Teaching Support Liver Research Institute Main Campus - Operating Lump Sum Appropriation Operating Lump Sum Appropriation Sierra Vista Campus Telemedicine Uniform State Law Commission Operating Lump Sum Appropriation Veterans' Services Department Administrative Adjustments Nursing Home Project FY91 - 92 Nursing Home Project FY91 - 92 Nursing Home Project FY91 - 92 Operating Lump Sum Appropriation Southern Arizona Cemetery Southern Arizona Veterans' Cemetery Veterans' Organizations Contracts Water Resources Department Administrative Adjustments Arizona Water Banking Operating Lump Sum Appropriation Rural Water Studies Weights and Measures Department Administrative Adjustments Operating Lump Sum Appropriation 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) 0 9,000,000 9,003,700 4,732 9,000,000 9,003,700 3,664 8,979,409 9,000,000 0 0 2,775,500 2,582,300 0 2,587,648 10,000,000 2,775,500 2,582,300 0 2,587,648 10,000,000 2,316,464 2,578,620 0 273,300 273,300 238,182 38,176,800 446,400 9,015,900 484,300 223,904,800 41,837,400 2,226,400 1,157,800 38,176,800 458,714 9,445,800 486,763 223,904,800 41,382,420 2,226,400 1,168,103 38,176,800 458,714 9,445,800 486,763 223,904,800 41,382,420 2,226,400 1,168,103 49,600 49,600 43,278 0 3,605 18,934 13,284 2,013,800 182,700 129,000 29,200 737 3,605 18,934 13,284 2,013,800 182,700 129,000 29,200 737 0 0 0 2,006,197 109,271 128,997 29,200 0 500,000 12,903,600 500,000 247,315 0 13,403,600 500,000 247,315 0 12,962,820 250,130 0 1,316,900 5,189 1,316,900 5,189 1,292,832 10,780,681,578 11,061,999,215 10,241,521,339 (495,339,400) $ ACTUAL EXPENDITURE AMOUNTS 10,285,342,178 The Notes to Required Supplementary Information are an integral part of this schedule. - 139 - (509,420,300) $ 10,552,578,915 0 $ 10,241,521,339 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, 2004 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS TRANSPORTATION AND AVIATION PLANNING, HIGHWAY MAINTENANCE AND SAFETY FUND Department of Transportation 2003-East Valley Maintenance Yard Administration - Operating Lump Sum Appropriation Administrative Adjustments Administrative Adjustments Administrative Adjustments Airport Planning and Development FY02 - 03 Airport Planning and Development FY03 - 04 Alt Truck Route - Douglas Chino Road Arizona-Mexico Border Points FY97 - 98 Asbestos & Lead Inspections FY01 - 02 Asbestos & Lead Inspections FY02 - 03 Building Renewal Building Renewal FY00 - 01 Building Renewal FY01 - 02 Building Renewal FY00 - 01 Building Renewal FY02 - 03 Building Renewal FY03 - 04 Cottonwood Motor Vehicle Division Service Center FY00 - 01 Cottonwood Motor Vehicle Division Service Center FY99 -00 De-Icer Building FY02 - 03 De-Icer Buildings FY01 - 02 Douglas Maintenance Yard Admin Adjustment FY90 - 91 Douglas Motor Vehicle Division Service Center Fee Accounting and Revenue Mgmt System Fire System Upgrades Glendale Motor Vehicle Division Service Center FY00 - 01 Highway - Operating Lump Sum Appropriation Highway Construction Highway Construction FY02 - 03 Highway Maintenance Lump Sum Appropriation Highway Maintenance Lump Sum Appropriation Highway Maintenance Lump Sum Appropriation Highway to DPS Transfer - Double Load Highways - Construction Administration Holbrook Maintenance Yard Sewer System HURF to DPS Transfer - Double Load Hwy Infra - Douglas Weigh Station Integrated Inventory System Liquid De-Icer Storage Tanks Methane Extraction Unit Modular Vehicle Davison Nogales Port Facility Motor Vehicle Division Central AZ Port New Trailers Motor Vehicle Division Electronic Certificate of Title Sys FY01 - 02 Motor Vehicle Division Electronic Certificate of Title Sys FY02 - 03 Motor Vehicle Division Lump Sum Appropriation Motor Vehicle Division Lump Sum Appropriation Motor Vehicle Division Lump Sum Appropriation Motor Vehicle Division Lump Sum Appropriation Motor Vehicle Division Lump Sum Appropriation Motor Vehicle Division Nogales Port Facility $ 1,183,953 56,253,000 0 0 0 292,087 15,232,000 0 569 605,367 598,039 1,560,500 27,463 81,278 20,520 1,376,433 32,000 1,190 1,563 195,928 3,355 2,000 3,313 0 46,187 2,260 46,116,700 311,475,000 49,105,210 2,582,109 95,155,200 558,700 30,151,400 51,859,000 67,898 48,698,000 0 0 1,436 65,436 18,882 816 4,852 13,488 426,617 80,146,400 1,987,000 1,119,400 1,100,600 925,853 The Notes to Required Supplementary Information are an integral part of this schedule. - 140 - $ 1,183,953 56,253,000 29,608 22,906 0 292,087 15,232,000 250,000 569 605,367 598,039 1,560,500 27,463 81,278 20,520 1,376,433 32,000 1,190 1,563 195,928 3,355 2,000 3,313 343,537 46,187 2,260 46,116,700 311,475,000 49,105,210 2,582,109 95,155,200 558,700 30,151,400 51,859,000 67,898 48,698,000 178,000 276,897 1,436 65,436 18,882 816 4,852 13,488 0 80,146,400 1,987,000 1,119,400 1,100,600 925,853 $ 157,192 56,243,103 29,608 22,906 0 292,087 10,525,446 0 0 203,598 0 646,257 25,000 68,678 0 741,540 0 0 0 181,106 0 0 0 187,453 0 0 46,018,069 241,574,241 49,105,210 2,580,388 92,484,356 558,600 30,151,400 51,645,774 0 48,698,000 0 177,652 0 0 0 0 0 0 0 80,013,167 906,925 913,020 1,052,122 905,506 (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, 2004 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Motor Vehicle Division Nogales Port Facility Motor Vehicle Division One-Time Trailer Fees Implementation Motor Vehicle Division Security Enhancement Issues FY01 - 02 Motor Vehicle Division Security Enhancement Issues FY02 - 03 Nogales Cyber Port Study Nogales Port of Entry North Phoenix Maintenance Yard On-Line Verification Of Soc Sec Numbers Operating Lump Sum Appropriation Operating Lump Sum Appropriation Payson Motor Vehicle Division Service Center FY00 -01 Payson Motor Vehicle Division Service Center FY01-02 Safety, Security, Traffic Mgmt & Control San Luis Poe Connector Road Sef to DPS Transfer - Double Load Site Improve - Nogales Insp Station Southern Border Ports Administrations Office Annex Special Projects Vehicle Registration Enforcement Vehicle Registration Enforcement West Phoenix Motor Vehicle Division Service Center Governor's Office of Highway Safety Voluntary Motorcycle Education Awareness Department of Public Safety Operating Lump Sum Appropriation Total Transportation and Aviation Planning, Highway Maintenance and Safety Fund Budgetary Expenditures $ FINAL BUDGET (Appropriations) 24,270 43,724 987,689 2,682,456 0 2 67,181 0 1,896,100 55,700 44,138 856,000 0 0 1,192,800 0 50,000 30,868 383,300 383,300 351,089 24,270 43,724 987,689 2,682,456 300,000 2 67,181 797 1,896,100 55,700 44,138 856,000 18,000 200,000 1,192,800 54,000 50,000 30,868 383,300 383,300 351,089 18,790 0 812,773 513,951 0 0 39,964 0 1,823,832 55,700 0 0 0 0 1,022,138 0 7,400 0 211,827 383,300 349,742 0 0 0 80,000 80,000 74,368 808,227,619 The Notes to Required Supplementary Information are an integral part of this schedule. - 141 - ACTUAL EXPENDITURE AMOUNTS $ 809,474,747 $ 721,422,189 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION – BUDGETARY COMPARISON SCHEDULES JUNE 30, 2004 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, 2003 that affect available appropriations during fiscal year 2004. The final budget represents any appropriation bills passed during fiscal year 2004 for fiscal year 2004 plus the original budget. Appropriation bills passed after the end of fiscal year 2004 for fiscal year 2004 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 $ 10,241,521 $ 721,422 Differences - budget to GAAP: Increase (decrease) in unpaid incurred expenditures from fiscal year end 2003 to fiscal year end 2004. (Decrease) in unpaid payroll expenditures from fiscal year end 2003 to fiscal year end 2004. For budgetary reporting, final June 2004 payroll expenditures were charged to fiscal year 2005 budget. (17,412) 375,467 (1,039) - Distributions to counties and cities of sales taxes are recognized as expenditures on the modified accrual basis, but have no effect on budgetary expenditures. 756,605 - 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. 365,065 - Capital leases and installment purchase contracts initiated during the fiscal year, which are not reported in budgetary expenditures. 21,485 - Programs which are not controlled by legislative appropriations but have disbursed cash or incurred obligations during fiscal year 2004. 3,759,547 1,418,097 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 (527,990) (788,382) $ 14,337,390 $ There were no expenditures in excess of appropriations or allotments in the individual budget accounts for the year. - 142 - 1,986,996 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION – BUDGETARY COMPARISON SCHEDULES JUNE 30, 2004 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 appropriations do not lapse until the end of the second year. 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. - 143 - STATE OF ARIZONA REQUIRED SEPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION – BUDGETARY COMPARISON SCHEDULES JUNE 30, 2004 During the fiscal year, $374.653 million in supplemental appropriations net of increases and reversions were provided to major and non-major governmental funds to enhance various programs. The General Fund and the Transportation and Aviation Planning, Highway Maintenance and Safety Fund received $281.318 and $1.247 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 on pages 129 and 130. 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 139. - 144 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2004 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 its roads and bridges using the modified approach. Assets accounted for under the modified approach include 6,912 center lane miles (18,391 travel lane miles) of roads and 4,488 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 roadway’s 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 2005 and beyond, was adopted by the Transportation Board on June 18, 2004. This program is a dynamic instrument and adjustments are made to the annual plans based on the needs of the State to maintain the condition level of the roads and bridges at a level equal to, or greater than, the goals established by the State. In addition, not only are adjustments made during the life of the Five-Year Transportation Facilities Construction Program, circumstances may require that refinements to the individual components of the Program be made during the fiscal year. In comparing Estimated to Actual Expenditures, significant variances can occur. These variances are primarily due to the methodology used in the preparation of the Program. In this Program, the Estimated Expenditures for the current year are based on “programmed” projects which may or may not be spent in the current year of the Program. “Programmed” expenditures consist of those items that are planned for the future and contracts that have not yet been awarded. Furthermore, the Actual Expenditures will include projects that were “programmed” for a prior year’s Estimated Expenditures but which did not occur, or were not completed, in the prior year. The following information pertains to the condition assessment and maintenance of infrastructure assets and reflects the State’s success in achieving condition levels that exceed the established levels. 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 - 145 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2004 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 Weaver/AASHTO Scale Perfect Very Good Good Fair Poor Very Poor PSR Excellent Good Fair Poor Very Poor Impassable 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 pavement on an annual basis. As of the end of fiscal year 2004, an overall rating of 3.8 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 (as specified in the Program as programmed amounts) and actual expenditures for fiscal years 2002 through 2004 were as follows: 2002 2003 2004 Estimated Expenditures (in millions) $227.4 $243.5 $198.5 - 146 - Actual Expenditures (in millions) $234.8 $220.8 $215.5 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2004 Bridges Bridges constitute a significant portion of all infrastructure assets in Arizona. As of June 30, 2004, the State owns and maintains 4,488 bridges with an approximate total deck area of 41,189,551 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 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 2004, the CRI was computed at 93.8%. - 147 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2004 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 indicates that approximately 65% of the bridges in the State were constructed prior to the 1970s while only 22% have been constructed in the last two decades. 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 Figure 3 - 148 - 80s 90s 2000s STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2004 Preservation of the bridges is accomplished through programs managed by the Bridge Group. The estimated (as specified in the Program as programmed amounts) and actual expenditures for fiscal years 2002 through 2004 were as follows: Fiscal Year 2002 2003 2004 Estimated Expenditures (in millions) $14.4 $13.6 $12.1 - 149 - Actual Expenditures (in millions) $18.2 $15.8 $12.2 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION AGENT RETIREMENT PLANS’ FUNDING PROGRESS JUNE 30, 2004 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 6/30/2004 6/30/2003 6/30/2002 Actuarial Value of Plan Assets $ 588,237 612,183 618,490 6/30/2004 6/30/2003 6/30/2002 649,029 632,635 613,427 Actuarial Accrued Liability $ 635,120 594,058 534,873 (Unfunded)/ Funding Excess $ (46,883) 18,125 83,617 Funded Ratio 92.6% 103.1% 115.6% Annual Covered Payroll $ 69,576 71,364 69,923 (Unfunded)/ Funding Excess as Percentage of Covered Payroll (67.4)% 25.4% 119.6% 30,656 79,895 118,303 105.0% 114.5% 123.9% 296,028 286,197 266,189 10.4% 27.9% 44.4% 618,373 552,740 495,124 - 150 - 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, 2004 (Expressed in Thousands) SPECIAL REVENUE FUNDS ASSETS Cash Cash and pooled investments with State Treasurer Receivables, net of allowances: Taxes Interest Other 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 - $ 1,674 637,716 7,787 - 645,503 17,467 860 20,230 1 49,612 2,542 302 - 431 - 17,467 1,593 20,230 1 49,612 2,542 174 12,356 1 19,773 46 - 119,368 10,355 - 139,315 22,757 1 $ 742,633 $ 27,908 $ 130,154 $ 900,695 $ 166,377 14,602 1,288 262 25,086 1,512 151 209,278 $ 197 18 215 $ 1,238 1,238 $ 167,812 14,602 1,288 262 25,104 1,512 151 210,731 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 1,674 DEBT SERVICE FUNDS 17,808 28,298 144 487,105 533,355 $ 742,633 27,693 27,693 $ 27,908 - 154 - 87,751 41,165 128,916 $ 130,154 87,751 41,165 17,808 28,298 27,693 144 487,105 689,964 $ 900,695 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2004 SPECIAL (Expressed in Thousands) REVENUE FUNDS REVENUES Taxes: Sales Income Tobacco Property Motor vehicle and fuel Other Intergovernmental Licenses, fees and permits Earnings on investments Sales and charges for services Fines, forfeitures and penalties Gaming 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 grant anticipation notes issued Grant anticipation notes issued Premium on grant anticipation notes issued Refunding certificates of participation issued Payment to refunded certificate 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 Fund Balances - Ending $ 429,122 45 165,333 1,242 88 108,117 38,789 153,774 6,404 31,853 87,284 53,905 44,166 1,120,122 $ DEBT SERVICE FUNDS CAPITAL PROJECTS FUNDS 66,053 2,073 68,126 $ 3,064 3,064 TOTAL $ 495,175 45 165,333 1,242 88 108,117 38,789 153,774 11,541 31,853 87,284 53,905 44,166 1,191,312 90,838 283,135 91,367 614,743 103,315 104,092 - 37,492 - 90,838 283,135 91,367 614,743 103,315 37,492 104,092 489 9,003 13,620 1,310,602 321,080 140,438 461,518 2,585 344,671 384,748 321,569 152,026 358,291 2,156,868 (190,480) (393,392) (381,684) (965,556) 193,322 (238,994) 195 247,125 - 403,608 (1,626) 107,940 (145,965) 274 13,189 22,633 16,725 (54,042) 142,347 8,835 177,322 9,623 - 596,930 (294,662) 195 107,940 (145,965) 389,746 22,024 22,633 177,322 9,623 16,725 201,648 11,168 522,187 (17,273) 548 400,053 6,661 21,032 31,965 1,386 317,436 (64,248) 193,164 (17,273) 31,965 1,934 919,137 (46,419) 736,383 533,355 $ 27,693 $ - 155 - 128,916 $ 689,964 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 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, 2004 (Expressed in Thousands) PUBLIC SAFETY & CORRECTIONAL ENVIRONMENTAL PROTECTION PROGRAMS SCHOOL FACILITIES PROCEEDS ASSETS Cash Cash and pooled investments with State Treasurer Receivables, net of allowances: Taxes Interest Other 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 $ - $ 1,596 $ 14 HEALTHCARE & SOCIAL SERVICES $ - TOBACCO TAX & HEALTHCARE $ - JUDICIAL & LEGAL SERVICES $ 2 5,431 71,221 81,427 41,819 11,559 27,554 21 - 3,888 78 64 1 6,003 2,542 149 8,989 - 2,477 26 6,080 2,829 - 11,102 19 - 29 11 951 - 12,356 - - - 174 - - - $ 17,808 $ 85,393 $ 90,579 $ 53,405 $ 22,680 $ 28,547 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 - $ 10,193 502 18 105 15 10,833 $ 38,908 514 11,707 51,129 $ 3,946 10,146 2,132 1,512 131 17,867 $ 1,316 33 10,299 11,648 $ 1,031 283 21 1,335 Fund Balances: Reserved for: School facilities improvements Continuing appropriations Other fund balance reservations Unreserved Total Fund Balances Total Liabilities and Fund Balances 17,808 17,808 $ 17,808 3,916 81 70,563 74,560 $ 85,393 1,474 1 37,975 39,450 $ - 158 - 90,579 2,006 33,532 35,538 $ 53,405 11,032 11,032 $ 22,680 304 26,908 27,212 $ 28,547 REGULATING & LICENSING $ 27 GROUNDWATER STATE PARKS BUSINESS EDUCATIONAL PROTECTION & DEVELOPMENT DEVELOPMENT PROGRAMS CONSERVATION GAME & FISH $ 30 $ 5 $ - $ - $ - CLEAN ELECTIONS SYSTEM $ - TOTAL $ 1,674 91,075 30,839 49,565 50,322 119,204 39,669 18,031 637,716 50 2,433 1,070 - 61 1,301 1,654 - 120 1,737 - 201 140 21,175 - 2 10,201 5,204 - 104 - - 17,467 860 20,230 1 49,612 2,542 - - - 1 - - - 174 12,356 1 $ 94,655 $ 33,885 $ 51,427 $ 71,839 $ 134,611 $ 39,773 $ 18,031 $ 742,633 $ 1,948 1,802 241 658 4,649 $ 1,216 976 3 144 2,339 $ 1,343 103 15 1,461 $ 274 122 3 5 404 $ 106,149 63 1,288 1 107,501 $ 53 40 1 94 $ 18 18 $ 166,377 14,602 1,288 262 25,086 1,512 151 209,278 5,431 27 84,548 90,006 $ 94,655 4,880 30 26,636 31,546 $ 33,885 2,435 5 47,526 49,966 $ 51,427 4,015 67,420 71,435 $ 71,839 3,837 23,273 27,110 $ 134,611 - 159 - 39,679 39,679 $ 39,773 18,013 18,013 $ 18,031 17,808 28,298 144 487,105 533,355 $ 742,633 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2004 (Expressed in Thousands) PUBLIC SCHOOL FACILITIES PROCEEDS REVENUES Taxes: Sales Income Tobacco Property Motor vehicle and fuel Other Intergovernmental Licenses, fees and permits Earnings on investments Sales and charges for services Fines, forfeitures and penalties Gaming 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 Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ 436 436 SAFETY & CORRECTIONAL ENVIRONMENTAL PROTECTION PROGRAMS $ 25,769 53,135 5,473 12,122 523 27,964 37,984 6,537 169,507 $ 2,197 124 41,268 942 71 1,634 207 46,443 HEALTHCARE & SOCIAL SERVICES $ 6,313 27,843 11,956 8,978 5,543 1,236 403 9,351 12,616 3,521 87,760 TOBACCO TAX & HEALTHCARE $ 137,490 3,923 113 238 141,764 JUDICIAL & LEGAL SERVICES $ 3,576 1,287 210 288 29,115 749 35,225 234,673 - 26,929 103,315 17,411 1,025 98,162 1,167 704 4,026 68,128 111 - 116,760 - 30,692 15 - 8,304 242,977 430 694 4,423 153,202 119 101,177 96 72,361 9 116,769 5 15 30,727 (242,541) 16,305 (54,734) 15,399 24,995 4,498 1,422 (22,091) 86,868 (115,692) 60,858 (17,436) 5,021 (26,781) 6 (21,687) 1,385 (2,643) 247,125 226,456 (16,085) 33,893 (28,824) (12,519) 87,079 43,422 (11,312) 50,762 (21,760) (6,361) 41,899 (21,681) 3,314 7,718 (1,258) 3,240 23,972 17,808 $ 74,560 - 160 - $ 39,450 $ 35,538 $ 11,032 $ 27,212 REGULATING & LICENSING $ $ 36,906 1,333 60,304 367 557 1,708 11,125 3,754 116,054 GAME & FISH $ 88 15,775 21,416 439 339 176 3,612 2,314 44,159 CLEAN ELECTIONS SYSTEM GROUNDWATER STATE PARKS BUSINESS EDUCATIONAL PROTECTION & DEVELOPMENT DEVELOPMENT CONSERVATION PROGRAMS $ 1,242 413 719 250 2,624 $ 1,882 3,117 690 234 19,349 25,272 $ 397,040 45 1,648 94 23 1,690 26,552 1,438 428,530 $ 8,210 706 69 1,711 10,696 $ 7,316 4,336 11,652 TOTAL $ 429,122 45 165,333 1,242 88 108,117 38,789 153,774 6,404 31,853 87,284 53,905 44,166 1,120,122 1,193 85 90,185 283 - 46,979 16,933 25,302 142 379,676 - 21,923 1,671 - 90,838 283,135 91,367 614,743 103,315 104,092 57 1,189 92,992 4,518 51,497 2,601 19,534 29 25,473 621 380,297 21,923 2 1,673 489 9,003 13,620 1,310,602 23,062 (7,338) (16,910) (201) 48,233 (11,227) 9,979 (190,480) 95 (6,437) 10,021 (1,000) 19,399 (8,826) 2,675 (3,029) 5,072 (518) 500 (9,000) (3,854) 193,322 (238,994) 195 (6,147) 16,915 73,091 9,021 1,683 29,863 10,573 (6,337) 56,303 (354) (555) 71,990 4,554 52,787 (25,677) (8,500) (19,727) 59,406 (3,854) 6,125 11,888 195 247,125 201,648 11,168 522,187 90,006 $ 31,546 $ 49,966 $ 71,435 $ - 161 - 27,110 $ 39,679 $ 18,013 $ 533,355 NON-MAJOR GOVERNMENTAL FUNDS DEBT SERVICE FUNDS The Department of Transportation Fund administers the payment of principal and interest on Highway Revenue Bonds issued by the Arizona Department of Transportation Board. The Maricopa Regional Area Road Fund administers the payment of principal and interest on Arizona Transportation Excise Tax Revenue Bonds issued by the Arizona Department of Transportation Board. The Certificates of Participation Fund administers the payment of principal and interest on Certificates of Participation issued by the State of Arizona (acting by and through the Director of the Department of Administration). The School Facilities Debt Instrument Fund administers the payment of principal and interest on Revenue Bonds issued by the State of Arizona’s School Facilities Board. The Grant Anticipation Notes Fund administers the payment of principal and interest on Grant Anticipation Notes issued by the Arizona Department of Transportation Board. STATE OF ARIZONA COMBINING BALANCE SHEET NON-MAJOR DEBT SERVICE FUNDS JUNE 30, 2004 (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: Accounts payable and other current liabilities Due to other Funds Total Liabilities $ $ 1,055 - CERTIFICATES OF PARTICIPATION 81 $ 16,544 - - $ 1,290 46 GRANT ANTICIPATION NOTES 7,787 43 $ - - 884 - $ 1,233 $ 16,625 $ 1,336 $ 7,830 $ 884 $ - $ - $ 47 18 65 $ - $ 150 150 Fund Balances: Reserved for: Debt service Total Fund Balances Total Liabilities and Fund Balances 178 MARICOPA RARF SCHOOL FACILITIES DEBT INSTRUMENT 1,233 1,233 $ 1,233 16,625 16,625 $ 16,625 - 164 - 1,271 1,271 $ 1,336 7,830 7,830 $ 7,830 734 734 $ 884 TOTAL $ 7,787 302 19,773 46 $ 27,908 $ 197 18 215 27,693 27,693 $ 27,908 - 165 - STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR DEBT SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2004 (Expressed in Thousands) DEPARTMENT OF TRANSPORTATION REVENUES Taxes: Sales Earnings on investments Total Revenues $ EXPENDITURES Debt service: Principal Interest and other fiscal charges Total Expenditures Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers in Transfers out Refunding bonds issued Payment to refunded bond escrow agent Bonds issued Premium on bonds issued Refunding grant anticipation notes 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 $ 514 514 MARICOPA RARF $ 1,399 1,399 SCHOOL FACILITIES DEBT INSTRUMENT CERTIFICATES OF PARTICIPATION $ 49 49 $ 66,053 110 66,163 GRANT ANTICIPATION NOTES $ 51,155 53,487 104,642 199,400 23,653 223,053 9,050 11,909 20,959 (104,128) (221,654) (20,910) 102,692 107,940 (119,556) 274 11,645 - 222,100 - 21,665 (203) 16,725 7,091 (1,423) - 50,060 (26,409) 1,544 22,633 - 102,995 (1,133) 2,366 222,100 446 16,179 (17,273) 548 21,462 552 719 5,668 6,062 1,768 47,828 734 - 1,233 $ 16,625 - 166 - $ 1,271 27,215 38,554 65,769 1 1 34,260 12,835 47,095 394 $ 7,830 (47,094) $ 734 TOTAL $ 66,053 2,073 68,126 321,080 140,438 461,518 (393,392) 403,608 (1,626) 107,940 (145,965) 274 13,189 22,633 16,725 (17,273) 548 400,053 6,661 21,032 $ 27,693 - 167 - NON-MAJOR GOVERNMENTAL FUNDS CAPITAL PROJECTS FUNDS The Department of Transportation Financed Fund administers the proceeds from the Highway Revenue Bonds issued by the Arizona Department of Transportation Board. These monies are expended for the construction of federal, state and local highways. The Grant Anticipation Notes Financed Fund administers the proceeds from the Grant Anticipation Notes issued by the Arizona Department of Transportation Board. These monies are expended for the acquisition of right-of-way purchases or the construction of certain controlled access highways within Maricopa County. Certificates of Participation Financed Fund administers the proceeds from the Certificates of Participation issued by the State of Arizona (acting by and through the Director of the Department of Administration). 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, 2004 (Expressed in Thousands) GRANT ANTICIPATION NOTES FINANCED DEPARTMENT OF TRANSPORTATION FINANCED ASSETS 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 $ $ 63,328 - 148 $ 24,223 - - TOTAL $ 31,817 10,355 431 119,368 10,355 $ 63,611 $ 24,371 $ 42,172 $ 130,154 $ 88 88 $ 143 143 $ 1,007 1,007 $ 1,238 1,238 Fund Balances: Reserved for: Highway construction Other construction Total Fund Balances Total Liabilities and Fund Balances 283 CERTIFICATES OF PARTICIPATION FINANCED 63,523 63,523 $ 63,611 24,228 24,228 $ 24,371 - 170 - 41,165 41,165 $ 42,172 87,751 41,165 128,916 $ 130,154 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR CAPITAL PROJECTS FUNDS FOR THE YEAR ENDED JUNE 30, 2004. (Expressed in Thousands) GRANT ANTICIPATION NOTES FINANCED 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 out Bonds issued Premium on bonds issued Grant anticipation notes issued Premium on grant anticipation notes issued Certificates of participation issued Premium on certificates of participation issued Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ 1,020 1,020 $ CERTIFICATES OF PARTICIPATION FINANCED 750 750 $ 1,294 1,294 TOTAL $ 3,064 3,064 37,492 - - 37,492 1,145 158,986 197,623 1,099 159,417 160,516 341 26,268 26,609 2,585 344,671 384,748 (196,603) (159,766) (25,315) (381,684) (50,733) 142,347 8,835 100,449 (96,154) 159,677 (2,961) 177,322 9,623 183,984 24,218 10 (348) 31,965 1,386 33,003 7,688 33,477 (54,042) 142,347 8,835 177,322 9,623 31,965 1,386 317,436 (64,248) 193,164 63,523 $ 24,228 - 171 - $ 41,165 $ 128,916 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, 2004 (Expressed in Thousands) ASSETS Current Assets: Cash Cash and pooled investments with State Treasurer Restricted cash and pooled investments with State Treasurer Short-term investments Receivables, net of allowances: 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 ARIZONA ARIZONA COLISEUM & 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, net of 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 Unrestricted Total Net Assets HIGHWAY ARIZONA $ 64 $ 44 $ - $ EXPANSION 21 $ - 1,191 3,242 1,636 2,560 - - - - - 91,639 - 1 1,583 123 5 3,085 6,052 15 2,509 3,300 127 9,237 4 542 2,274 506 4,962 115 267 2,963 136 9,219 386 106,232 207,612 - - 179 3,439 - 18,329 - 182 846 8 223 - 1,555 1,737 7,789 1,606 2,452 11,689 802 989 5,951 3,658 7,320 10,283 18,329 225,941 963 183 50 158 1,354 970 195 233 1,398 129 86 3,903 131 4,249 92 82 17 179 370 7 162,414 20 162,441 30 73 103 1,457 1,398 4,249 58 58 428 162,441 1,737 2,452 810 3,881 - 4,595 7,839 892 5,974 63,500 - 6,332 $ 10,291 $ - 174 - 1,702 $ 9,855 $ 63,500 HEALTHCARE GROUP OF ARIZONA $ $ OTHER - $ TOTAL 239 $ 368 7,718 1,764 18,111 - 61 91,639 61 300 8 8,026 3 473 29 4 2,573 159 9,219 5,222 123 386 106,566 8,663 908 241,425 - - 3,439 18,329 179 - 980 2,239 220 220 8,246 9,871 10,851 13,424 17,712 41,898 283,323 56 828 4,247 66 5,197 212 253 169 2 636 2,422 1,634 169 162,416 8,150 67 787 175,645 5,197 636 88 73 161 175,806 220 10,851 19,951 2,829 1,937 63,500 24,066 3,049 $ 12,788 $ 107,517 - 175 - STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS NON-MAJOR ENTERPRISE FUNDS FOR THE YEAR ENDED JUNE 30, 2004 (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) 19,098 778 69 19,945 $ 19,915 19,915 13,477 3,954 1,301 316 76 19,124 821 5,908 2,823 363 320 593 10,007 (231) 18 72 90 485 (2) 28 26 (205) 9 (2) 7 828 Transfers in Transfers out 123 - (1,000) 951 5,381 (515) 10,806 Total Net Assets - Ending $ 6,332 $ 10,291 - 176 - 9,271 505 9,776 16,760 1,815 106 453 386 19,520 395 NON-OPERATING REVENUES (EXPENSES) Gain (loss) on sale of capital assets Investment income Other non-operating revenue Interest expense Total Non-Operating Revenues (Expenses) Income (Loss) Before Transfers Change in Net Assets Total Net Assets - Beginning $ $ $ 3,529 3,529 1 4,097 215 99 1 4,413 (884) 54 398 452 310 (205) 1,907 1,702 $ 1,560 4,339 2,255 1,178 429 1,341 11,102 (142) - $ 10,256 704 10,960 1,135 1,135 251 (1,000) - (690) 10,545 251 63,249 9,855 $ 63,500 HEALTHCARE GROUP OF ARIZONA $ 30,602 30,602 OTHER $ 10,288 589 30 10,907 $ 99,430 778 589 3,529 1,308 105,634 31,693 1,022 270 6 446 33,437 (2,835) 309 9,279 948 332 176 1,295 12,339 (1,432) 69,708 4,097 23,447 5,342 2,605 605 4,138 109,942 (4,308) 146 146 (2,689) 30 30 (1,402) 16 1,474 398 (2) 1,886 (2,422) 2,989 - 282 - 300 2,749 $ TOTAL 3,049 3,394 (2,000) (1,120) 13,908 $ 12,788 (1,028) 108,545 $ 107,517 - 177 - STATE OF ARIZONA COMBINING STATEMENT OF CASH FLOWS NON-MAJOR ENTERPRISE FUNDS FOR THE YEAR ENDED JUNE 30, 2004 (Expressed in Thousands) ARIZONA INDUSTRIES FOR THE BLIND CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Receipts from federal and local governments Receipts from other Funds Payments to suppliers Payments to employees Payments 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 Other receipts (payments) Net Cash Provided (Used) by Non-capital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition and construction of capital assets Other receipts Net Cash Provided (Used) by Capital and Related Financing Activities CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of investments Interest and dividends from investments Purchase of investments Net Cash Provided 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 (loss) 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) decrease in due from other Funds (Increase) decrease in inventories, at cost (Increase) decrease in other assets Increase (decrease) in accounts payable Increase (decrease) in accrued liabilities Increase in due to others Increase (decrease) 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 18,514 $ 713 (13,538) (3,905) (1,193) 591 ARIZONA HIGHWAYS MAGAZINE 19,681 $ (17,893) (1,770) (83) (65) COLISEUM & EXPOSITION CENTER 8,873 $ (6,474) (2,851) 507 55 HIGHWAY EXPANSION & EXTENSION LOAN PROGRAM 10,970 $ (5,841) (4,323) 806 1,907 71,934 (34) (213) (79,238) (1) (5,645) (3) (1,000) 15 - (1,000) - - (3) (985) - (1,000) - (74) - (226) - (6) - (295) 473 - (74) (226) (6) 178 - 8 (2) 6 75 75 28 28 520 735 (1,201) 4,472 77 1,559 $ 1,255 $ 3,271 $ $ 821 $ 395 $ 1,636 (231) $ 316 453 320 (583) (65) 213 (581) 7 551 53 (100) (41) (234) (623) (74) (27) 60 (15) (55) 384 (1) 6 (27) (340) (1) $ 591 $ (65) $ SCHEDULE OF NONCASH INVESTING, CAPITAL AND NON-CAPITAL FINANCING ACTIVITIES Assets acquired under capital leases $ Change in fair value of investments Total Noncash Investing, Capital and Non-capital Financing Activities $ - $ - - $ - $ 2,900 85 (2,901) 84 1,250 1,250 68 5,952 (4,395) 96,034 6,020 $ (142) $ 1,178 91,639 (884) - 10 (263) 7 16 - (6) 4,373 2 (9,131) 1 55 $ 806 $ (5,645) $ - $ 89 - $ (400) $ - $ 89 $ (400) - 178 - HEALTHCARE GROUP OF ARIZONA $ OTHER 30,969 $ (34,346) (977) (4,354) $ 102,452 713 71,934 (80,950) (22,904) (79,238) (570) (8,563) (7) 1,504 (2,000) 5 1,504 (7) (491) (220) - - (821) 473 (220) - (348) 146 146 31 (2) 29 7,718 2,900 1,623 (2,905) 1,618 71 1,932 $ 2,003 (7,784) 121,326 $ 113,542 (2,835) $ (1,432) $ (4,308) 6 332 2,605 715 (29) (3) 119 176 169 2 - (150) (65) (6) 4,557 (823) (331) 734 (1,733) 169 (9,229) 29 (12) (3) 78 (2,013) 369 44 $ 11,538 $ (2,824) (8,865) 200 49 1,504 - (2,924) 10,642 $ TOTAL (4,354) $ 49 $ (8,563) $ - $ 3 $ 89 (397) $ - $ 3 $ (308) - 179 - 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, 2004 (Expressed in Thousands) TECHNOLOGIES ASSETS Current Assets: Cash and pooled investments with State Treasurer Receivables, net of allowances: Interest Other Due from others 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: Depreciable buildings, property and equipment, net of 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 accrued insurance losses 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 $ 32,332 $ 1,983 $ 27,912 $ 9,047 $ 4,218 57 2 1,593 33,984 1 2,502 4,486 8,448 36,360 571 1,773 334 11,725 4,218 185 185 34,169 39,337 39,337 43,823 46 46 36,406 7,212 7,212 18,937 4,218 2,010 137 30 49,432 234 51,843 201 356 562 573 1,692 39,250 1,649 98 40,997 2,453 313 4 667 3,437 6,025 6,025 193,696 193,696 245,539 1,692 40,997 3,437 3,421 3,421 9,446 185 (211,555) 38,776 3,355 46 (4,637) 7,212 8,288 (5,228) (211,370) $ 42,131 $ - 182 - (4,591) $ 15,500 $ (5,228) MOTOR POOL $ $ TOTAL 9,892 $ 85,384 827 2 1,054 40 5 11,820 1 9,903 2 2,829 2,542 1,932 102,593 11,976 11,976 23,796 58,756 58,756 161,349 986 20 6 34 1,046 44,900 826 1,689 49,432 562 7,631 105,040 1,046 193,696 3,421 197,117 302,157 11,976 10,774 58,195 (199,003) 22,750 $ (140,808) - 183 - STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS INTERNAL SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2004 (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) $ 32,298 990 33,288 4,461 24,273 79 57,143 1,055 87,011 3,945 NON-OPERATING REVENUES (EXPENSES) Gain on sale of capital assets Investment income Interest expense Other non-operating revenue Total Non-Operating Revenues (Expenses) Income (Loss) Before Contributions and Transfers $ (13,439) (1,000) 3,247 (214,617) 1,399 40,732 (211,370) $ 42,131 - 184 - $ - 2,399 (605) 446,489 446,489 459,928 459,928 (13,439) 19 (64) (45) 3,852 Change in Net Assets Total Net Assets - Beginning $ 11,918 10,948 447 5,967 605 959 30,844 2,444 (99) 6 (93) Capital grants and contributions Transfers out Total Net Assets - Ending 90,956 90,956 (13,439) 8,848 $ (4,591) $ 29,558 1 29,559 $ 10,604 10,604 11,640 10,121 1,761 3,358 328 3,443 30,651 (1,092) 9,685 9,685 919 (17) (17) - (1,109) 919 (22) - (1,131) 16,631 15,500 919 (6,147) $ (5,228) MOTOR POOL $ TOTAL 11,126 4 11,130 $ 4,147 600 137 3,906 1,644 785 11,219 (89) $ 621,031 995 622,026 497,318 26,130 26,618 13,310 59,720 6,242 629,338 (7,312) 173 173 173 19 (180) 6 18 84 (7,294) 453 (1,044) 453 (2,671) (507) 23,257 (9,512) (131,296) 22,750 $ (140,808) - 185 - STATE OF ARIZONA COMBINING STATEMENT OF CASH FLOWS INTERNAL SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2004 (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 TECHNOLOGIES RISK TRANSPORTATION EMPLOYEE & TELE- MANAGEMENT EQUIPMENT BENEFITS COMMUNICATIONS $ Net Cash Provided (Used) by Operating Activities Net Cash (Used) by Non-capital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from sale of capital assets Acquisition and construction of capital assets Principal paid on capital debt, installment purchase contracts and capital leases Net Cash Provided by Investing Activities Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning 30,794 (15,201) (10,051) 1 (3,320) 5,543 (64) (1,000) - - (17) (22) - (698) (1,064) - (39) (54) 1,004 (7,616) (46) (1,708) (2,547) - (8,320) (481) (46) (3,028) - 19 - - - 19 - - 13,932 18,400 (922) 2,905 (3,366) 31,278 $ 32,332 $ 1,983 $ $ 3,945 $ 2,444 $ 79 5,967 1 (2) (94) 663 35 23 10,048 (14) $ 449,788 $ (453,108) - (99) (605) 6 (54) CASH FLOWS FROM INVESTING ACTIVITIES Interest and dividends from investments Net Cash Provided (Used) by Operating Activities 8,443 - Net Cash (Used) by Capital and Related Financing Activities 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 others (Increase) decrease in due from other Funds (Increase) in inventories, at cost (Increase) decrease in other assets Increase in accounts payable Increase in accrued liabilities Increase (decrease) in due to other Funds Increase in accrued insurance losses Increase (decrease) in other liabilities 32,298 $ (13,922) (10,933) 1,000 14,684 CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Interest Paid Transfers to other Funds Other receipts Cash and Cash Equivalents - Ending 90,955 $ (71,831) (4,440) - 14,684 8,443 - 186 - $ (13,439) $ - 10 (131) 50 107 (4) $ 27,912 2,476 6,571 $ 9,047 (1,092) 3,358 (1,043) 4,342 5,073 1,649 98 1,358 (122) 67 1,908 70 (4) - (3,320) $ 5,543 $ SICK LEAVE MOTOR LIABILITY POOL 10,604 $ (9,128) 1,476 10,850 $ (6,234) (577) 4 625,289 (560,296) (26,001) (9,128) 1,005 4,043 30,869 - (1,044) - (180) (2,671) 6 - (1,044) (2,845) - (790) 1,004 (11,053) - - - (2,189) (790) (12,238) - - 19 - - 19 1,476 2,742 2,209 7,683 15,805 69,579 $ 4,218 $ $ 919 $ - 1,476 9,892 $ (89) $ 3,906 557 $ TOTAL 4,043 (7,312) 13,310 308 (2) (582) (29) (5) 509 8 4 15 $ 85,384 634 (2) 3,636 (160) (32) 8,203 220 1,672 10,048 652 $ 30,869 - 187 - 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, 2004 (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 U.S. 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' 19,145 $ - $ CORRECTIONS OFFICER - $ TOTAL - $ 19,145 65,186 309,235 1,817,679 18,474 1,719 25,923 9,515 - 1,781 69 298 - 4,496 122 - 97,386 309,235 1,817,679 28,180 298 1,719 2,212,293 35,438 2,148 4,618 2,254,497 1,993,462 - - - 1,993,462 2,289,996 3,143,563 2,204,732 14,680,860 26,775 - 180,582 587,531 164,927 3,091,719 827,031 236,290 8,619 14,373 40,453 7,995 212,443 50,519 16,072 2,448 26,596 102,041 33,484 508,338 145,654 40,118 4,040 2,289,996 3,365,114 2,934,757 206,406 18,493,360 26,775 1,023,204 292,480 15,107 24,339,388 5,096,699 344,303 860,271 30,640,661 - 4,629 - - 4,629 26,570,826 5,136,766 346,451 864,889 32,918,932 1,828,025 1,021,706 - - - 1,828,025 1,021,706 2,289,996 827,031 50,519 145,654 3,313,200 5,139,727 827,031 50,519 145,654 6,162,931 NET ASSETS Held in Trust for Pension Benefits $ 21,431,099 $ 4,309,735 - 190 - $ 295,932 $ 719,235 $ 26,756,001 STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS PENSION TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2004 (Expressed in Thousands) STATE RETIREMENT ADDITIONS: Member contributions Employer contributions Member purchase of service credit Court fees $ Investment income: Net increase in fair value of investments Interest income Dividends Real estate $ 2,811,047 239,355 190,865 6,958 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 413,462 413,458 112,038 - PUBLIC SAFETY $ ELECTED OFFICIALS' 71,874 79,000 - $ 457,065 75,719 28,884 38 CORRECTIONS OFFICER 3,990 3,363 3,614 $ 31,898 5,291 2,016 - 32,163 14,555 - TOTAL $ 73,959 12,459 4,720 - 521,489 510,376 112,038 3,614 3,373,969 332,824 226,485 6,996 3,826 - - - 3,826 28,670 3,280,721 1,458 563,164 110 39,315 254 91,392 30,492 3,974,592 29,885 22,051 3,228,785 551 562,613 36 39,279 92 91,300 30,564 22,051 3,921,977 1,906 1,282 160 635 3,983 4,169,649 714,769 50,406 138,653 5,073,477 1,381,622 14,859 229,885 - 23,754 - 26,624 - 1,661,885 14,859 36,212 26,834 8,911 6,391 1,100 196 118 89 124 14,053 541 1,139 56,774 28,564 10,370 1,468,438 237,572 24,085 42,357 1,772,452 2,701,211 18,729,888 477,197 3,832,538 26,321 269,611 96,296 622,939 3,301,025 23,454,976 21,431,099 $ 4,309,735 - 191 - $ 295,932 $ 719,235 $ 26,756,001 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 is 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, 2004 (Expressed in Thousands) LOCAL CENTRAL ARIZONA WATER ASSETS Receivables, net of allowances: Accrued interest and dividends Total receivables Total Assets LIABILITIES Due to local governments Total Liabilities GOVERNMENT GOVERNMENT INVESTMENT CONSERVATION INVESTMENT POOL- DISTRICT POOL GOVERNMENT $ Investments, at fair value: U.S. Government securities Corporate bonds Repurchase agreements Money market Total investments LOCAL 901 901 $ 2,503 2,503 $ 548 548 TOTAL $ 3,952 3,952 116,743 11,897 20,077 148,717 490,807 1,047,772 1,538,579 359,880 801,024 1,160,904 967,430 1,059,669 801,024 20,077 2,848,200 149,618 1,541,082 1,161,452 2,852,152 1,747 2,044 1,062 4,853 1,747 2,044 1,062 4,853 NET ASSETS Held in trust for pool participants $ Net assets consist of: Participant shares outstanding Participants' net asset value (net assets/shares outstanding) 147,871 $ 147,871 $ 1,539,038 $ 1,539,038 1.00 $ 1.00 $ - 194 - 1,160,390 1,160,390 1.00 $ 2,847,299 2,847,299 STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS INVESTMENT TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2004 (Expressed in Thousands) LOCAL ADDITIONS: Investment income: Net (decrease) in fair value of investments Interest income Total investment income $ Less: Investment activity expenses Net investment income LOCAL GOVERNMENT INVESTMENT WATER GOVERNMENT CONSERVATION INVESTMENT POOL- DISTRICT POOL GOVERNMENT (2,745) $ 4,142 1,397 121 1,276 Capital share and individual account transactions: Shares sold Reinvested interest income Shares redeemed Net capital share and individual account transactions 2,108 3,322 (14,353) Total Additions DEDUCTIONS: Dividends to investors Total Deductions Change in net assets held in trust for pool participants Net Assets - Beginning, as restated Net Assets - Ending CENTRAL ARIZONA (5,887) $ 22,359 16,472 (2,424) $ 14,533 12,109 1,185 15,287 1,082 11,027 2,649,112 21,795 (2,606,436) (11,056) 41,034 29,978 2,388 27,590 1,655,851 15,754 (2,120,150) 4,307,071 40,871 (4,740,939) (8,923) 64,471 (448,545) (392,997) (7,647) 79,758 (437,518) (365,407) 1,276 15,287 11,027 27,590 1,276 15,287 11,027 27,590 (8,923) 156,794 $ TOTAL 147,871 64,471 1,474,567 $ - 195 - 1,539,038 (448,545) 1,608,935 $ 1,160,390 (392,997) 3,240,296 $ 2,847,299 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, 2004 (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 LIABILITIES Accounts payable and other current liabilities Accrued liabilities Due to local governments Due to others Total Liabilities $ - OTHER TREASURER FUNDS $ OTHER FUNDS - $ 35,661 TOTAL $ 35,661 - 24,696 - 157,488 2,127 182,184 2,127 2,497,736 - 29 - 84 1,064 89,446 60,214 2,089 113 1,064 89,446 2,557,950 2,089 $ 2,497,736 $ 24,725 $ 348,173 $ 2,870,634 $ 2,497,736 $ 11,412 13,313 $ 122,417 7,412 831 217,513 $ 122,417 7,412 12,243 2,728,562 $ 2,497,736 $ 24,725 $ 348,173 $ 2,870,634 - 199 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUNDS FOR THE YEAR ENDED JUNE 30, 2004 (Expressed in Thousands) BALANCE JULY 1, 2003 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, 2004 DELETIONS $ 2,928,537 $ 655,851 $ 1,086,652 $ 2,497,736 $ 2,928,537 $ 655,851 $ 1,086,652 $ 2,497,736 $ 2,928,537 $ 38,427 $ 469,228 $ 2,497,736 $ 2,928,537 $ 38,427 $ 469,228 $ 2,497,736 $ 18,629 53 $ 290,600 29 $ 284,533 53 $ 24,696 29 $ 18,682 $ 290,629 $ 284,586 $ 24,725 $ 372 2,049 16,261 $ 63,845 206,529 35,508 $ 64,217 197,166 38,456 $ 11,412 13,313 $ 18,682 $ 305,882 $ 299,839 $ 24,725 (Continued) - 200 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUNDS FOR THE YEAR ENDED JUNE 30, 2004 (Expressed in Thousands) BALANCE JULY 1, 2003 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 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 Total Liabilities $ 28,948 142,113 2,978 ADDITIONS $ 35,661 4,170,518 2,127 87 764 89,170 37,538 2,295 BALANCE JUNE 30, 2004 DELETIONS $ 84 1,064 89,446 63,730 2,089 28,948 4,155,143 2,978 $ 87 764 89,170 41,054 2,295 35,661 157,488 2,127 84 1,064 89,446 60,214 2,089 $ 303,893 $ 4,364,719 $ 4,320,439 $ 348,173 $ 111,343 6,123 1,224 185,203 $ 5,844,736 7,412 2,021 285,607 $ 5,833,662 6,123 2,414 253,297 $ 122,417 7,412 831 217,513 $ 303,893 $ 6,139,776 $ 6,095,496 $ 348,173 $ 28,948 160,742 2,978 $ 35,661 4,461,118 2,127 $ 28,948 4,439,676 2,978 $ 35,661 182,184 2,127 140 764 89,170 2,966,075 2,295 113 1,064 89,446 719,581 2,089 140 764 89,170 1,127,706 2,295 113 1,064 89,446 2,557,950 2,089 $ 3,251,112 $ 5,311,199 $ 5,691,677 $ 2,870,634 $ 111,715 6,123 3,273 3,130,001 $ 5,908,581 7,412 208,550 359,542 $ 5,897,879 6,123 199,580 760,981 $ 122,417 7,412 12,243 2,728,562 $ 3,251,112 $ 6,484,085 $ 6,864,563 $ 2,870,634 - 201 - BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2004 (Expressed in Dollars) OTHER GOVERNMENTAL FUNDS Accountancy Board Administrative Adjustments Operating Lump Sum Appropriation Department of Administration Administrative Adjustments Administrative Adjustments ASPC - Perryville Security Improvements Building Renewal Miners' Hospital Fund FY02 - 03 Building Renewal Pioneers' Home FY01 - 02 Department of Corrections Building Renewal Department of Corrections Fort Grant Landfill Closure Department of Corrections Safety Improvements Department of Juvenile Corrections Building Renewal Department of Juvenile Corrections Medical Center Employee Bus Subsidy Florence - 400 Modular and Tent Beds FY96 - 97 General Fund Transfer 1st Regular Session Chapter 262 New Prison Complex New Prison Complex Operating Lump Sum Appropriation Pioneer Home Fire and Life Safety Pioneers' Home Plumbing Renovations Pioneers' Home Plumbing Renovations Prison Planning and Sitting Southwest Regional Prison Complex FY96 -97 Southwest Regional Prison Complex FY97 - 98 Southwest Regional Prison Complex FY98 - 99 Statewide Prison Maintenance FY93 - 94 Yuma Complex - 800 Male Beds FY95 - 96 Radiation Regulatory Agency Administrative Adjustments MRTB Assistant Operating Lump Sum Appropriation Attorney General Administrative Adjustments Administrative Adjustments Administrative Adjustments Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY01 - 02 Operating Lump Sum Appropriation FY03 - 04 Victims' Rights Implementation Fund Victims' Rights/Non Revert - HB 2427 Department of Agriculture Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation FINAL BUDGET (Appropriations) $ 8,198 2,122,200 3,732 34,042 11,947 165,419 5,600 237,963 275,570 1,206,463 463 0 475,400 90 3,000,000 3,207 0 628,100 52,584 500,000 23,505 0 203 101,946 1,063,224 0 0 ACTUAL EXPENDITURE AMOUNTS $ 8,198 1,650,511 3,732 34,042 0 126,763 5,600 230,827 232,446 1,084,353 0 2 475,400 0 3,000,000 (257,490) 31 614,850 52,584 140,422 14,586 (1,426) 203 101,946 1,063,224 0 1,797 273 11,375 239,900 273 0 206,752 2,478 174 3,355 1,855,500 402,000 0 3,769,500 3,185,000 479,145 2,478 174 3,355 1,426,906 342,917 0 3,315,226 2,716,375 175,375 16 9,275 55 10,121 16 8,239 396 63,700 205,400 488,200 16 9,275 55 10,121 16 8,239 396 49,935 204,926 454,731 (Continued) - 205 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2004 (Expressed in Dollars) Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Ratite General Fund FY98 - 99 Wine Promotion Acupuncture Board of Examiners Operating Lump Sum Appropriation Appraisal Board Administrative Adjustments Operating Lump Sum Appropriation Payment Of FY2001-2002 Expenses Automobile Theft Authority Auto Theft Authority Grants Operating Lump Sum Appropriation Barber Examiners Board Administrative Adjustments Operating Lump Sum Appropriation Board of Behavioral Health Examiners Operating Lump Sum Appropriation Board of Nursing Administrative Adjustments Operating Lump Sum Appropriation Cosmetology Board Operating Lump Sum Appropriation Corporation Commission Administrative Adjustments Administrative Adjustments Administrative Adjustments Annual Reversion per ARS 10-122 Annual Reversion per ARS 44-3298 Investigation and Prosecution of Security Fraud Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Utility Audits, Studies, Investigations and Rate Hearing Utility Audits, Studies, Investigations and Rate Hearing Utility Audits, Studies, Investigations and Rate Hearing Utility Audits, Studies, Investigations and Rate Hearing Utility Audits, Studies, Investigations and Rate Hearing Chiropractic Examiners Board Operating Lump Sum Appropriation Department of Corrections Additional Beds Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Corrections Fd Pseudo Appn Drug Treatment Pilot Program FY00 - 01 FY00 - 01 FY01 - 02 FY02 - 03 FY03 - 04 FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 240,000 21,400 50,900 79,400 257,700 1,008,000 9,200 249,600 71,786 54,858 239,189 0 31,452 31,488 257,566 779,101 5,043 139,900 0 0 75,300 51,746 3,836 483,000 1,100 3,836 445,484 1,022 3,499,500 538,700 3,497,215 519,279 1,086 221,400 1,086 203,462 816,100 785,829 143 3,403,200 143 3,256,879 1,538,900 1,415,363 2,599 3,431 1,000 789,090 783,102 165,599 3,424,000 1,824,500 770,800 11,050,900 17,890 249,375 380,000 380,000 380,000 2,599 3,431 1,000 789,090 783,102 0 2,978,197 1,774,932 768,573 10,914,628 0 0 0 0 0 450,800 393,048 859,200 828,403 89 82,071 160,518 0 250,000 859,201 828,403 89 82,071 160,518 0 0 (Continued) - 206 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2004 (Expressed in Dollars) Navajo & Coconino County Jail Beds Operating Lump Sum Operating Lump Sum Operating Lump Sum Appropriation Operating Lump Sum Appropriation Prison Expansion & Additional Beds Retention Stipends & Recruitment Bonus State Char Pen/Ret Land Earnings Department of Economic Security ADM Oper Lump Sum-Pac Fund ADM Operating Lump Sum Appropriation ADM Operating Lump Sum Appropriation Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Attorney General Legal Services DACS Community and Emergency Services DACS Domestic Violence Prevention DCYF Child Abuse Prevention DCYF Children Services - Cap DCYF Operating Lump Sum Appropriation DEARS Operating Lump Sum - Appropriation DERS Independent Living Rehabilitation Services DERS Independent Living Rehabilitation Services DERS Operating Lump Sum - Appropriation DERS Operating Lump Sum - Special Admin DERS Vocational Rehabilitation Services DERS Vocational Rehabilitation Services Jobs Operating Lump Sum Appropriation Public Assistance Collections Commission for the Deaf and Hard of Hearing Administrative Adjustments General Fund Transfer 1st RS Chapter 262 Operating Lump Sum Appropriation Department of Juvenile Corrections Adobe Mountain - Upgrade Fire Booster Pump Catalina Mountain Institution - Replace Kitchen Floor Operating Lump Sum Operating Lump Sum Appropriation Dispensing Opticians Board Operating Lump Sum Appropriation Board of Dental Examiners Administrative Adjustments Operating Lump Sum Appropriation Department of Education Achievement Testing Additional School Days Administrative Adjustments Administrative Adjustments Basic State Aid Entitlement Failing School Tutoring Fund School Accountability Fund School Accountability Fund - Proposition 301 FY03 - 04 FINAL BUDGET (Appropriations) 1,700,000 28,394,700 449,300 869,200 570,000 2,400,000 5,000,000 46,000 ACTUAL EXPENDITURE AMOUNTS 1,683,041 27,729,820 441,375 379,564 208,419 1,700,120 5,000,000 15,342 130,000 0 86,900 351,587 21,792 48,787 316,569 86,700 500,000 1,700,000 815,700 750,000 209,600 0 0 1,707,700 478,800 85,000 0 204,700 1,500,000 544,500 230,100 14,003 0 0 351,587 21,792 48,787 316,569 38,296 323,535 1,571,000 809,252 0 50,719 0 0 973,031 430,146 7,043 0 169,130 630,000 (17,319) 168,138 293,749 1,000,000 5,190,300 293,749 1,000,000 4,859,343 0 36,085 585,300 360,000 0 36,085 584,798 360,000 113,300 92,976 144 881,700 144 871,955 2,255,500 48,727,700 908,621 0 59,761,100 1,500,000 4,659,700 7,800,000 2,255,500 48,727,700 908,621 0 59,761,100 4,220 1,768,790 5,671,871 (Continued) - 207 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2004 (Expressed in Dollars) School Accountability Fund - Proposition 301 School Safety School Safety - Character Education Department of Commerce Administrative Adjustments Administrative Adjustments Advertising and Promotion Arizona Sonora Economic Development Study CEDC Commission Economic Development Matching Funds International Trade Offices Lottery 1989 Main Street Minority and Women Owned Business National Law Center/Free Trade Oil Overcharge Administration Operating Lump Sum Appropriation REDI Matching Grants Small Business Advocate Williams Gateway Airport Authority Department of Environmental Quality Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Air Permits Administration Program Air Quality Program Air Quality Program - Continuing FY01 - 02 Air Quality Program - Continuing FY02 - 03 Department of Administration Travel Reduction Transfer Emissions Cap & Trading Program FY01 - 03 Emissions Cap & Trading Program FY02 - 03 Emissions Control - Contractor Payments Emissions Control Program-Administration Gen Fund Transfer 1st Regular Session Chapter 262 Gen Fund Transfer 1st Regular Session Chapter 263 Hazardous Waste Program Hazardous Waste Reserve FY94 - 96 Hazardous Waste Reserve FY95 - 96 Pima County Air Quality Program Political Subdivisions Assistance Roadside Diesel Emissions Testing Program FY01 - 02 Roadside Diesel Emissions Testing Program FY02 - 03 Solid Waste Program Solid Waste Program Solid Waste Program UST Assurance Technical Appeals Panel FY00 - 01 UST Assurance Acct - Policy Comm UST Assurance Acct - Policy Comm FY00 - 01 UST Assurance Acct - Policy Comm FY99 - 00 Visibility Index Development FY01 - 03 FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 3,164,277 200,000 3,151,112 0 0 207,433 659,200 10,000 248,200 104,000 968,200 5,001 130,000 104,500 200,000 156,400 611,800 45,000 103,700 4,000,000 0 207,433 490,357 0 240,524 49,278 843,396 0 107,273 89,485 200,000 115,830 531,235 44,289 100,254 0 16,116 3,068 499,496 1,073 177,702 24,849 1,432 3,985 13,544 5,384,700 4,496,000 225,000 196,989 400,000 292,977 110,010 31,739,600 3,953,500 5,000,000 11,700,000 695,600 29,273 64,000 165,000 40,526 200,000 200,000 2,091,100 1,092,800 130,900 7,500 22,000 274 18,857 272,563 16,116 3,068 499,496 1,073 177,702 24,849 1,432 3,985 13,544 3,491,625 3,318,067 10,948 14,538 400,000 26,396 39,434 27,671,295 2,354,423 5,000,000 11,700,000 276,385 0 0 165,000 22,026 0 0 1,254,235 482,609 56,373 0 5,812 272 0 151,439 (Continued) - 208 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2004 (Expressed in Dollars) Visibility Index Development FY02 - 03 Waste Tire Program Water Quality Program Funeral Directors and Embalmers Administrative Adjustments Operating Lump Sum Appropriation Game and Fish Department Administrative Adjustments Administrative Adjustments Building Renewal FY00 - 01 Building Renewal FY02 - 03 Building Renewal FY03 - 04 Building Renewal FY01 - 02 Canyon Creek Hatchery Improvement Exp and Renov Gf Hdqtrs Facility Improvements FY00 - 01 Facility Improvements FY01 - 02 Facility Improvements FY02 - 03 Facility Improvements FY99 - 00 Flagstaff Shooting Range Development FY00 - 01 Flagstaff Shooting Range Development FY99 - 00 Flagstaff Shooting Range Planning FY02 - 03 Flagstaff Shooting Range Planning FY02 - 04 General Fund Transfer 1st Regular l Session Chapter 262 Headquarters Expansion and Renovation FY01 - 02 Headquarters Expansion and Renovation FY02 - 03 Headquarters Security System Lake Havasu Shooting Range Development Migration Waterfowl Development FY98 - 99 Migration Waterfowl Habitat FY96 - 97 Migratory Waterfowl Development Migratory Waterfowl Development FY00 - 01 Migratory Waterfowl Development FY01 - 02 Migratory Waterfowl Development FY02 - 03 Migratory Waterfowl Development FY99 - 00 Migratory Waterfowl Development FY97 - 98 Migratory Waterfowl Habitat FY93 - 94 Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Performance Based Incentives Program Performance Based Incentives Program FY00 - 01 Performance Based Incentives Program FY03 - 04 Performance Based Incentives Program FY97 -98 Performance Incentive Pay Program Pinetop Warehouse and Paving Pittman-Robertson/Dingell-Johnson Act Shooting Range Dev/Grants Program Shooting Range Development FY00 - 01 Shooting Range Development FY01 - 02 Shooting Range Development FY02 - 03 Shooting Range Development FY98 - 99 FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 80,589 202,000 3,736,900 0 37,984 1,970,031 533 279,100 533 269,436 82,403 4,450 13,800 232,317 323,300 11,810 360,000 212,333 2,453 135,700 146,600 6,690 74,000 15,340 500,000 461,092 1,000,000 500,000 800,000 200,000 300,000 89,311 3 100,000 100,000 100,000 100,000 100,000 59,605 1,302 20,074,300 2,094,000 293,400 43,400 16,000 322 13 300,000 6,571 46,800 310,000 2,808,000 100,000 30,938 42,122 100,000 4,270 82,403 4,450 13,800 187,432 25,723 11,809 4,514 0 0 64,142 618 6,689 142 3,756 100 381 1,000,000 0 0 13,280 55 82,831 3 2,514 975 0 12,622 23,100 59,605 0 16,870,982 1,915,367 238,850 21,001 8,404 0 0 300,000 0 45,724 5,498 2,808,000 19,363 30,938 2,564 86,217 4,270 (Continued) - 209 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2004 (Expressed in Dollars) Shooting Range Development FY99 - 00 W.C. Performance Based Incentives Program Department of Gaming Administrative Adjustments Joint Monitoring System Operating Lump Sum Appropriation Operating Lump Sum Gaming Admn & Reg Expen Prevention & Treatment Problem Gambling Arizona Health Care Cost Containment System Administrative Adjustments Capitation Children's Health Insurance Program - Administrations Children's Health Insurance Program - Parents Children's Health Insurance Program - Services Kids Care Federal Rev and Exp Prop 204 Services Prop 204 Services Trauma Centers Department of Housing Operating Lump Sum Appropriation Homeopathic Medical Examiners Operating Lump Sum Appropriation Department of Health Services Public Health - Laboratory Services Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Alzheimer Disease Research Alzheimer's Grants Assurance and Licensure Attorney General Legal Services Central Medical Direction - EMS Child Fatality Review Team Emergency Medical Services Hepatitis C Virus Surveillance High Risk Prenatal Services Immunization Information System Loan Repayment Services Mental Health Research Institute Grant Newborn Screening Fund - Indirect Costs Newborn Screening Program Operating Lump Sum Operating Lump Sum Appropriation Poison Control Center Funding Rural Emergency Medial Services Rural Medical Services Seriously Mentally Ill Non-Title XIX Seriously Mentally Ill St Mch For T-XIX Substance Abuse - Non Title XIX Trauma Advisory Board University of Arizona Poison Center FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 2,058 2 0 0 8,528 1,291,500 1,528,600 7,148,800 951,100 8,528 0 1,512,701 5,407,747 406,116 59,895 59,445,900 4,723,700 27,939,600 54,210,600 0 20,541,100 22,806,151 5,000,000 59,895 59,445,900 4,505,571 22,978,437 54,210,600 (11) 17,318,849 22,806,151 5,000,000 432,200 432,200 74,800 62,115 822,800 462,500 181,242 48,779 11,560 10,920 0 1,000,000 0 38,000 30,000 100,000 100,000 3,051,100 0 450,000 0 100,000 1,845,068 478,600 3,239,800 29,800 650,000 800,000 0 73,091 1,200,000 28,224,800 2,500,000 250,000 1,050,000 640,096 462,500 181,242 29,582 11,560 10,920 0 1,000,000 0 2,510 30,000 0 85,278 2,509,950 0 252,139 0 67,745 360,750 340,261 2,867,964 12,700 576,639 600,000 0 1,713 0 28,224,800 2,500,000 122,857 787,500 (Continued) - 210 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2004 (Expressed in Dollars) Industrial Commission Administrative Adjustments General Fund Transfer 1st Regular l Session Chapter 262 Operating Lump Sum Appropriation Criminal Justice Commission Crime Victim Compensation Special AG Transfer FY00 - 01 Drug and Gang Prevention Resource Center Operating Lump Sum Appropriation Operating Lump Sum Appropriation Rural State Aid to County Attorneys Rural State Aid to Indigent Defense Land Department Natural Resource Conservation Districts Department of Emergency and Military Affairs Operating Lump Sum Appropriation Medical Examiners Board Administrative Adjustments Operating Lump Sum Appropriation Performance Based Incentive Program Medical Student Loans Board Medical Student Loans Board of Massage Therapy Operating Lump Sum Appropriation Naturopathic Board Inspections and Evaluation Operating Lump Sum Appropriation Nursing Care Examiners Board Administrative Adjustments Operating Lump Sum Appropriation Optometry Board Administrative Adjustments Operating Lump Sum Appropriated Osteopathic Examiners Board Administrative Adjustments Operating Lump Sum Appropriation Occupational Therapy Examiners Board Administrative Adjustments Operating Lump Sum Appropriation Commission for Postsecondary Education Arizona College and Career Guide Arizona Minority Education Policy Analysis Center Family College Savings Program Leveraging Educational Assistance Partnership Operating Lump Sum Appropriation Twelve Plus Partnership Pioneer's Home Administrative Adjustments Administrative Adjustments Building Renewal FY01 - 02 Building Renewal FY02 - 03 Operating Lump Sum Appropriation Operating Lump Sum Appropriation Prescription Drugs FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 92,079 2,000,000 16,498,800 92,079 2,000,000 15,157,710 26,746 262,000 561,300 3,900,000 706,500 670,800 18,544 262,000 531,682 3,832,746 706,500 670,800 490,000 488,500 132,700 132,700 3,070 4,752,200 183,334 3,070 4,424,777 121,481 283,400 283,400 75,000 65,053 19,600 213,100 19,600 210,829 3,119 361,700 3,119 348,031 1,590 176,200 1,590 169,150 215 466,900 215 422,078 413 213,700 413 181,627 21,200 150,000 26,900 2,143,700 335,700 119,600 15,549 27,112 26,900 1,644,137 335,691 67,673 845 1,763 2,910 0 278,500 1,121,500 436,400 845 1,763 2,910 0 207,894 1,012,323 343,179 (Continued) - 211 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2004 (Expressed in Dollars) Pharmacy Board Administrative Adjustments Operating Lump Sum Appropriation Podiatry Examiners Board Operating Lump Sum Appropriation Parks Board Parks Operations Administrative Adjustments FY 89 Pass Through Grants FY 90 Pass Through Grants FY 91 Pass Through Grants General Fund Transfer 1st Regular l Session Chapter 262 General Fund Transfer 1st Regular Session Chapter 262 Kartchner Caverns State Park Land, Buildings and Improvement Control Land, Buildings and Improvement Control Land, Buildings and Improvement Control FY91 - 92 Land, Buildings and Improvement Control FY91 - 92 Land, Buildings and Improvement Control FY91 - 92 Operating Lump Sum Appropriation Department of Public Safety Board of Fingerprinting DNA Testing DNA Testing Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Patrol Officers - SB1243 Year 2 Physical Therapy Examiners Board Operating Lump Sum Appropriation Private Post-Secondary Education Administrative Adjustments Operating Lump Sum Appropriation Board of Respiratory Care Examiners Administrative Adjustments Operating Lump Sum Appropriation Racing Department Administrative Adjustments Operating Lump Sum Appropriation Operating Lump Sum Appropriation Registrar of Contractors Administrative Adjustments Incentive Pay Office of Administrative Hearing Operating Lump Sum Appropriation Department of Revenue Administrative Adjustments Administrative Adjustments Ladewig v. State Of Arizona - Administrative Costs Operating Lump Sum Appropriation FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 3,703 1,347,700 3,703 1,259,648 104,600 90,642 692,100 883 10,436 40,191 2,067,639 6,800,000 2,000,000 298,700 4,388 258,697 1,500 19,258 32,684 1,250,000 551,286 829 0 0 0 6,800,000 2,000,000 298,426 0 0 0 0 0 1,174,613 268,700 1,437,087 2,000,000 30,151,400 16,429,900 1,192,800 4,424,700 2,194,900 525,100 48,698,000 2,297,200 2,574,215 268,700 0 1,004,919 30,151,400 16,335,156 1,022,138 3,903,100 2,152,887 525,100 48,698,000 2,297,200 2,532,645 242,100 230,053 6 258,600 6 248,531 2,776 198,600 2,776 170,376 4,077 75,500 362,500 4,077 52,556 300,306 78,414 113,500 869,500 9,041,500 78,414 113,500 869,500 8,544,079 1,825 1,838 4,911,401 1,448,200 1,825 1,838 3,741,636 1,370,734 (Continued) - 212 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2004 (Expressed in Dollars) Operating Lump Sum Appropriation Operating Lump Sum Appropriation Structural Pest Control Board Administrative Adjustments Operating Lump Sum Appropriation Schools for the Deaf and the Blind Administrative Adjustments Operating Lump Sum Appropriation - Phoenix Operating Lump Sum Appropriation - Sw/Admin Operating Lump Sum Appropriation - Tucson Operating Lump Sum - Phoenix Operating Lump Sum - Sw/Admin Operating Lump Sum - Tucson School Facilities Board Administrative Adjustments Building Inspections Supreme Court Administrative Adjustments Administrative Adjustments Administrative Adjustments Case Processing - State Aid Community Punishment Confidential Intermediary FY00 - 01 Confidential Intermediary FY01 - 02 Confidential Intermediary FY02 - 03 Court Appointed Special Advocate Drug Study Foster Care Review Board Juvenile Crime Reduction Model Court Operating Lump Sum Appropriation Private Fiduciary State Aid to the Courts Psychologist Examiners Board Administrative Adjustments Operating Lump Sum Appropriation Technical Registration Board Administrative Adjustments Operating Lump Sum Appropriation Residential Utilities Consumer Office Administrative Adjustments Operating Lump Sum Appropriation Professional Witnesses FY00 - 01 Professional Witnesses FY01 - 02 Professional Witnesses FY02 - 03 Professional Witnesses FY03 - 04 Professional Witnesses FY97 - 98 Professional Witnesses FY98 - 99 Professional Witnesses FY99 - 00 Veterans' Services Department Lump Sum Appropriation Veterinary Medical Examiners Board Administrative Adjustments Operating Lump Sum Appropriation FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 385,800 435,400 379,291 428,236 11,160 1,875,600 11,160 1,874,121 0 5,070,200 1,634,200 5,888,300 222,200 665,600 990,600 0 4,657,432 1,634,200 5,231,673 165,229 495,687 715,992 0 400,000 0 0 13,552 1,572 366,304 3,031,100 1,830,400 7,688 183,276 384,095 2,652,700 38,514 284,900 5,136,100 465,100 428,300 88,146 1,840,100 13,303 1,572 366,304 1,667,035 600,000 7,688 130,463 87,019 2,458,820 0 282,643 2,949,497 465,100 10,746 88,146 1,800,108 156 319,900 156 268,197 9,748 1,333,700 9,748 1,276,152 460 1,000,700 22,508 98,886 61,948 145,000 10,604 11,977 49,324 460 968,567 20,238 35,889 44,901 44,306 0 0 0 565,200 561,166 625 391,100 625 366,238 (Continued) - 213 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2004 (Expressed in Dollars) FINAL BUDGET (Appropriations) Water Resources Department General Fund Transfer 1st Regular Session Chapter 262 Weights and Measures Department Administrative Adjustments Operating Lump Sum Appropriation Total Other Governmental Funds Budgetary Expenditures $ - 214 - ACTUAL EXPENDITURE AMOUNTS 9,000,000 9,000,000 9,695 1,228,000 9,695 1,153,986 839,166,530 $ 756,112,626 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, 2004 (Expressed in Thousands) SOURCE 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 Taxes: Sales $4,985,424 $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 Income 2,818,778 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 Motor vehicle and fuel 1,613,952 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 Property 50,455 37,470 49,611 47,987 50,490 52,785 55,354 51,185 198,035 193,625 Tobacco 223,804 - - - - - - - - - - - - 175,733 177,607 191,327 223,517 225,102 239,481 235,800 Unemployment Other 539,218 632,896 543,055 508,499 491,379 493,760 443,999 487,921 445,526 390,564 7,159,976 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 Licenses, fees and permits 349,938 320,564 327,006 221,063 204,976 189,657 175,335 194,410 173,311 159,890 Earnings on investments 131,715 111,771 136,513 266,400 232,849 205,875 217,620 179,276 152,795 118,767 Sales and charges for services 161,170 111,438 140,568 78,684 58,203 47,910 56,662 28,111 24,096 13,105 Fines, forfeitures and penalties 120,032 96,192 98,349 87,620 80,466 80,210 63,425 57,000 56,702 59,271 Gaming 57,517 - - - - - - - - - Tobacco Settlement 92,550 - - - - - - - - - 313,220 337,930 320,870 397,017 323,888 191,446 169,685 215,337 205,691 165,231 $18,617,749 $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 Intergovernmental Other Total Revenues STATE OF ARIZONA EXPENDITURES BY FUNCTION ALL GOVERNMENTAL FUND TYPES FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2004 (Expressed in Thousands) FUNCTION General government 2004 $718,229 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 Health and welfare 7,733,516 6,652,661 5,788,774 5,131,426 4,556,141 4,304,739 4,005,762 4,057,734 3,790,039 3,644,541 136,189 139,863 129,226 119,643 117,034 109,154 102,032 98,445 95,675 91,954 Education 4,702,609 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 Protection and safety Inspection and regulation 1,028,134 925,667 892,986 855,421 845,645 777,636 687,696 627,322 571,325 533,166 Transportation 717,463 463,756 401,372 1,829,350 1,811,957 1,748,482 1,499,551 1,307,624 1,287,309 1,008,472 Natural resources 153,533 163,946 140,600 116,732 100,718 94,399 97,377 90,417 87,252 81,629 2,144,438 2,159,691 2,190,160 - - - - - - - 695,289 1,041,038 1,127,716 339,421 302,790 320,621 237,698 250,144 253,753 192,337 327,595 297,508 270,850 227,408 192,563 180,157 167,590 168,815 151,652 118,869 Intergovernmental revenue sharing Capital outlay Debt service: Principal Interest and other fiscal charges Total Expenditures 188,247 140,613 125,594 91,364 91,222 89,323 89,272 99,150 103,562 107,750 $18,545,242 $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 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. - 217 - STATE OF ARIZONA PROPERTY TAX LEVIES, COLLECTIONS, TAXABLE PROPERTY ASSESSED AND ESTIMATED ACTUAL VALUE FOR THE LAST TEN PROPERTY TAX YEARS FISCAL YEAR ENDED JUNE 30, 2004 (Expressed in Thousands) (1) Collections Taxable Property Percent of Property Property Related to Taxable Property Estimated Assessed to Tax Year Tax Levies Property Tax Year Assessed Value Actual Value Actual Value 2004 2003 2002 2001 2000 $ 12,400 13,629 13,802 17,905 22,532 $ 12,400 13,629 13,802 17,905 22,532 $ 41,874,701 38,294,937 34,854,286 32,528,311 29,944,135 $ 341,712,184 309,396,454 277,595,500 256,712,786 234,908,258 12.25 % 12.38 12.56 12.67 12.75 1999 1998 24,059 27,129 24,059 27,129 27,483,100 25,682,910 216,336,711 202,817,004 12.70 12.66 1997 28,650 28,650 24,277,784 189,751,599 12.79 1996 32,759 28,828 22,811,159 176,486,243 12.93 1995 174,706 169,992 22,109,869 169,499,669 13.04 Source: Department of Revenue Annual Financial Report (1) 1995 - 2003 taxable property estimated actual value amounts revised to reflect limited (primary) values. STATE OF ARIZONA HIGHWAY CONSTRUCTION REVENUE BOND COVERAGE FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2004 (Expressed in Thousands) (1) Pledged Fiscal Year 2004 2003 2002 2001 2000 1999 1998 1997 Principal $ 51,155 44,490 45,365 52,055 46,270 43,805 43,405 40,970 Interest $ 53,149 41,932 38,534 36,581 33,994 31,090 33,266 36,148 Revenue Total $ 104,304 86,422 83,899 88,636 80,264 74,895 76,671 77,118 $ Coverage 557,854 540,540 523,326 513,890 528,721 509,935 468,240 468,542 5.3 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 36,330 40,974 77,304 399,605 5.2 (1) For fiscal year 1995 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. - 218 - STATE OF ARIZONA MARICOPA COUNTY ROAD CONSTRUCTION REVENUE BOND COVERAGE FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2004 (Expressed in Thousands) (1) Pledged Fiscal Year 2004 2003 2002 2001 2000 1999 1998 1997 Principal $ 199,400 190,415 163,455 156,865 128,805 106,765 82,765 78,015 Interest $ Revenue Total 23,553 31,533 35,445 40,035 42,609 43,251 40,512 45,248 $ 222,953 221,948 198,900 196,900 171,414 150,016 123,277 123,263 $ Coverage 288,600 268,721 267,563 264,722 248,596 229,470 209,263 192,257 1.3 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 57,930 47,320 105,250 160,319 1.5 (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. STATE OF ARIZONA ARIZONA STATE UNIVERSITY REVENUE BOND COVERAGE FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2004 (Expressed in Thousands) Debt Service Requirements (1) Fiscal Gross Year 2004 Revenues $ 325,626 Principal $ Interest - $ 13,754 Total $ 13,754 Coverage 23.68 2003 297,691 9,695 9,575 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 (1) "Gross Revenues" consist of pledged revenues for the bond issued. Source: Arizona State University - 219 - STATE OF ARIZONA NORTHERN ARIZONA UNIVERSITY REVENUE BOND COVERAGE FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2004 (Expressed in Thousands) Debt Service Requirements (1) Fiscal Gross Year 2004 Revenues $ 103,192 Principal $ 10,294 Interest $ 5,778 Total $ Coverage 16,072 6.42 2003 85,294 9,426 5,066 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 (1) "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, 2004 (Expressed in Thousands) (1), (2) (1), (2) Direct Net Revenue Fiscal Gross Operating Available for Year Revenues Expenses Debt Service 2004 2003 2002 2001 2000 1999 1998 $ 778,939 726,258 670,326 710,423 674,330 650,201 605,197 $ 727,161 667,627 625,664 663,284 625,318 580,292 555,733 $ 51,778 58,631 44,662 47,139 49,012 69,909 49,464 Debt Service Requirements Principal $ 10,970 12,625 9,946 12,415 11,700 10,714 9,830 Total Interest $ 11,706 12,156 15,500 16,359 13,081 14,869 14,463 $ Coverage 22,676 24,781 25,446 28,774 24,781 25,583 24,293 2.28 2.37 1.76 1.64 1.98 2.73 2.04 1997 577,412 535,178 42,234 9,360 14,935 24,295 1.74 1996 563,623 513,444 50,179 9,491 15,421 24,912 2.01 1995 537,891 486,926 50,965 8,147 15,334 23,481 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 - 220 - STATE OF ARIZONA ECONOMIC INDICATORS FOR THE LAST TEN CALENDAR YEARS Calendar Unemployment Rate Year Ended (1) December 31 Arizona 2003 2002 2001 2000 5.60 6.20 4.70 4.00 1999 4.40 4.20 24,057 27,939 1998 4.10 4.50 23,216 26,883 1997 4.70 5.00 21,861 25,334 1996 5.50 5.40 20,823 24,175 1995 5.10 5.60 19,929 23,076 1994 6.40 6.10 19,212 22,172 Per Capita Personal Income U.S. % 6.00 5.80 4.80 4.00 Arizona % $ 26,838 26,360 26,055 25,661 US $ Source: Arizona Department of Economic Security's website, www.workforce.az.gov (1) Arizona unemployment rate estimates for 1997 and 2000 have been revised. 31,632 30,906 30,527 29,847 STATE OF ARIZONA MAJOR PRIVATE EMPLOYERS FISCAL YEAR ENDED JUNE 30, 2004 Number of Employer Employees Wal-Mart Stores Inc 19,510 Banner Health 14,447 Honeywell International Inc. 12,000 Wells Fargo & Company 11,000 Raytheon Company 10,300 Bashas' Supermarkets 9,646 Albertsons-Osco 9,500 Intel Corporation 9,500 Safeway 9,500 JP Morgan Chase & Company 9,200 Source: The Business Journal Phoenix 2005 Book of Lists, pgs. 164-166. - 221 - STATE OF ARIZONA POPULATION BY COUNTY FOR THE LAST TEN FISCAL YEARS COUNTY MARICOPA 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 3,396,875 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 PIMA 910,950 890,545 870,610 843,746 845,775 823,900 789,650 780,750 758,575 728,425 PINAL 201,565 192,395 186,795 179,727 165,400 157,675 150,375 144,150 139,000 132,225 YAVAPAI 186,885 180,260 175,305 167,517 155,900 148,500 142,075 134,600 130,300 123,500 MOHAVE 170,805 166,465 161,580 155,032 142,925 138,625 133,550 127,700 125,150 120,325 YUMA 175,045 169,760 165,280 160,895 139,650 135,200 129,275 124,950 121,975 119,650 COCHISE 126,160 124,040 121,435 117,755 124,575 123,750 119,650 114,925 112,000 108,225 COCONINO 128,925 125,420 122,770 116,320 122,825 121,625 117,475 113,475 110,750 107,500 NAVAJO 103,790 101,615 99,780 97,470 93,400 92,500 89,225 84,300 82,875 81,750 APACHE 70,625 70,105 69,880 69,423 66,950 66,350 55,500 64,475 63,750 63,275 GILA 53,555 53,015 52,420 51,335 50,150 49,175 47,450 45,300 44,525 43,350 GRAHAM 34,490 34,070 34,065 33,489 35,750 34,700 32,575 31,150 30,050 30,625 GREENLEE LA PAZ SANTA CRUZ TOTAL Source: 8,595 8,605 8,590 8,547 9,225 9,125 8,875 8,650 8,525 8,425 20,715 20,365 19,935 19,715 19,250 19,000 17,625 18,200 16,700 16,075 40,890 39,840 39,325 38,381 39,100 37,800 36,350 35,050 34,275 32,400 5,629,870 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 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, 2004 (Expressed in Millions) Banks Savings and Loans Fiscal Year 2004 2003 2002 2001 2000 1999 1998 State $ 7,272 6,307 5,124 4,518 4,454 4,031 3,331 Federal $ 49,042 44,902 39,899 39,673 36,000 33,660 32,844 $ Total (1) Deposits State 56,314 51,209 45,023 44,191 40,454 37,691 36,175 $ N/A N/A N/A N/A N/A N/A N/A Total Federal $ 5,495 4,757 3,793 3,129 2,768 2,480 2,138 Deposits $ 5,495 4,757 3,793 3,129 2,768 2,480 2,138 1997 2,724 31,611 34,335 N/A 1,738 1,738 1996 9,746 23,912 33,658 22 1,289 1,311 1995 9,403 23,984 33,387 86 1,496 1,582 (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 - 222 - STATE OF ARIZONA ASSESSED VALUE OF NEW COMMERCIAL AND RESIDENTIAL CONSTRUCTION FOR THE LAST TEN CALENDAR YEARS COMMERCIAL CONSTRUCTION RESIDENTIAL CONSTRUCTION Calendar 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 2003 2002 2001 2000 1999 57,387 56,100 54,785 53,877 48,536 1998 1997 43,303 39,717 9.03 9.69 4,538,720 4,004,022 1996 36,209 10.87 1995 32,659 8.04 1994 30,228 6.30 Source: 2.29 % 2.40 1.69 11.00 12.08 $ 4,104,953 3,946,678 5,038,963 4,784,452 4,107,783 Number of 4.01 % (21.68) 5.32 16.47 (9.49) Value 94,260 83,019 75,863 74,629 80,432 13.54 % 9.43 1.65 (7.21) 3.66 $ 10,646,256 8,583,036 7,508,550 6,863,290 7,263,997 13.35 1.41 77,594 69,613 11.46 5.17 3,948,490 33.15 66,194 3.93 4,911,269 22.77 2,965,456 30.15 63,688 (0.59) 4,000,436 (15.26) 2,278,460 47.15 64,065 21.08 4,720,754 30.09 6,674,574 5,460,787 24.04 % 14.31 9.40 (5.52) 8.83 22.23 11.19 W.P. Carey School 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) Total Academic Grades Grades Grades Grades All (4) High School Dropouts (3,4) Year K-3 4-6 7-9 10-12 Grades Total Percent 2003-04 305,772 229,413 243,225 224,220 1,002,630 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 (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. Percent of total high school enrollment (Grades 9-12). 2003-2004 data is not available. 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 - 223 - N/A N/A % STATE OF ARIZONA AVERAGE STATE PRISON ADULT INMATE POPULATION FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2004 Incarceration Institution Florence Complex Lewis Complex Perryville Complex Phoenix Complex Tucson Complex Douglas Complex Winslow Complex Safford Complex Yuma Complex Misc Prison No Private Prisons Total Repeat Offenders Admitted (1) 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 8,444 4,093 2,502 887 3,539 2,146 1,722 1,661 2,145 306 4,492 8,624 4,555 2,415 906 3,931 2,147 1,807 1,757 2,199 157 2,400 8,468 4,058 2,165 940 3,874 2,154 1,824 1,797 2,159 170 1,664 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 31,937 30,898 29,273 27,451 26,402 26,169 23,884 22,383 20,728 19,542 N/A 6,271 5,814 5,268 4,773 4,555 2,581 2,248 2,271 N/A Source: Arizona Department of Corrections (1) Repeat offenders are those who have one or more prior adult Arizona commitments. 2004 and 2000 data is not available. STATE OF ARIZONA PUBLIC HIGHER EDUCATION INSTITUTIONS' FULL-TIME EQUIVALENT FALL ENROLLMENT FOR THE LAST TEN YEARS Institution Universities: Arizona State University Northern Arizona University University of Arizona Total Community Colleges: Cochise County Coconino County Graham County Maricopa County Mohave County Navajo County Pima County Pinal County Yavapai County Yuma/La Paz Counties Total Total All Institutions Sources: Fall 2004 Fall 2003 Fall 2002 Fall 2001 Fall 2000 Fall 1999 53,873 16,794 34,018 104,685 52,265 16,389 33,807 102,461 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 2,288 1,660 2,250 53,262 2,069 2,196 16,750 2,630 2,794 3,417 89,316 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 72,446 194,001 186,865 181,724 173,309 165,171 Fall 1997 Fall 1996 Fall 1995 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 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 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 65,557 163,750 160,561 157,461 154,081 153,743 Arizona Board of Regents State Board of Directors for Community Colleges - 224 - Fall 1998 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 Evan Chang Michael J. Kallaur, CPA Dale Stomberg Brian Dodge Sylvia Berumen Charmayne Skow Marla Grossman 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.