STATE OF ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2015 Douglas A. Ducey GOVERNOR PREPARED BY ARIZONA DEPARTMENT OF ADMINISTRATION 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 Position ......................................................................................................................................... Universities - Affiliated Component Units – Statement of Financial Position ......................................................... Statement of Activities ............................................................................................................................................. Universities - Affiliated Component Units – Statement of Activities ...................................................................... 38 40 42 44 Governmental Funds Financial Statements: Balance Sheet ........................................................................................................................................................... Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position................................... 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 ............................................................................................... 48 Proprietary Funds Financial Statements: Statement of Net Position ......................................................................................................................................... Statement of Revenues, Expenses and Changes in Fund Net Position ..................................................................... Statement of Cash Flows .......................................................................................................................................... 50 52 54 Fiduciary Funds Financial Statements: Statement of Fiduciary Net Position......................................................................................................................... Statement of Changes in Fiduciary Net Position ...................................................................................................... 56 57 Component Units Financial Statements: Combining Statement of Net Position ...................................................................................................................... Combining Statement of Activities .......................................................................................................................... 58 60 Universities – Affiliated Component Units Financial Statements: Combining Statement of Financial Position ............................................................................................................. Combining Statement of Activities .......................................................................................................................... 62 63 Notes to the Financial Statements .............................................................................................................................. 64 45 46 47 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 ...................................................................................................................................................... Schedule of the State’s Proportionate Share of the Net Pension Liability – Arizona State Retirement System ........... Schedule of the State’s Proportionate Share of the Net Pension Liability – Elected Officials’ Retirement Plan ......... i 141 152 153 156 160 161 STATE OF ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS (CONTINUED) FINANCIAL SECTION - CONTINUED Schedule of the State’s Proportionate Share of the Net Pension Liability, as a Nonemployer Contributing Entity – Elected Officials’ Retirement Plan .................................................................... Schedule of Changes in the State’s Net Pension Liability and Related Ratios – PSPRS Department of Public Safety ........................................................................................................................ Schedule of Changes in the State’s Net Pension Liability and Related Ratios – CORP Department of Corrections ............................................................................................................................ Schedule of State Pension Contributions – Arizona State Retirement System ............................................................. Schedule of State Pension Contributions – Elected Officials’ Retirement Plan ............................................................ Schedule of State Pension Contributions, as a Nonemployer Contributing Entity – Elected Officials’ Retirement Plan .......................................................................................................................... Schedule of State Pension Contributions – PSPRS Department of Public Safety ......................................................... Schedule of State Pension Contributions – CORP Department of Corrections ............................................................. Notes to Required Supplementary Information – Pension Plan Schedules.................................................................... Single-Employer OPEB Plan Funding Progress ............................................................................................................ Page 161 162 163 164 165 165 166 166 167 168 COMBINING FINANCIAL STATEMENTS AND SCHEDULES Non-major Governmental Funds: Combining Balance Sheet ........................................................................................................................................ Combining Statement of Revenues, Expenditures and Changes in Fund Balances ................................................. 172 173 Non-major Special Revenue Funds: Combining Balance Sheet ................................................................................................................................. Combining Statement of Revenues, Expenditures and Changes in Fund Balances .......................................... Budgetary Comparison Schedule, Expenditures ............................................................................................... 176 178 180 Land Endowments Fund: Budgetary Comparison Schedule, Expenditures ............................................................................................... 186 Non-major Debt Service Funds: Combining Balance Sheet ................................................................................................................................. Combining Statement of Revenues, Expenditures and Changes in Fund Balances .......................................... 188 189 Non-major Capital Projects Fund: Combining Balance Sheet ................................................................................................................................. Combining Statement of Revenues, Expenditures and Changes in Fund Balances ......................................... 192 193 Non-major Proprietary Funds: Non-major Enterprise Funds: Combining Statement of Net Position ............................................................................................................... Combining Statement of Revenues, Expenses and Changes in Fund Net Position ........................................... Combining Statement of Cash Flows ................................................................................................................ 196 200 202 Internal Service Funds: Combining Statement of Net Position ............................................................................................................... Combining Statement of Revenues, Expenses and Changes in Fund Net Position ........................................... Combining Statement of Cash Flows ................................................................................................................ 206 208 210 Fiduciary Funds: Pension and Other Employee Benefit Trust Funds: Combining Statement of Fiduciary Net Position............................................................................................... Combining Statement of Changes in Fiduciary Net Position ........................................................................... 214 216 Investment Trust Funds: Combining Statement of Fiduciary Net Position............................................................................................... Combining Statement of Changes in Fiduciary Net Position ........................................................................... 220 222 ii STATE OF ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS (CONTINUED) FINANCIAL SECTION - CONCLUDED Agency Funds: Combining Statement of Assets and Liabilities ............................................................................................... Combining Statement of Changes in Assets and Liabilities ............................................................................. Page 227 228 Non-major Component Units: Combining Statement of Net Position ...................................................................................................................... Combining Statement of Activities .......................................................................................................................... 232 234 Non-major Universities – Affiliated Component Units: Combining Statement of Financial Position ............................................................................................................. Combining Statement of Activities .......................................................................................................................... 238 240 STATISTICAL SECTION (Not Covered by the Independent Auditors' Report) Financial Trends: Schedule 1 – Net Position by Component for the Last Ten Fiscal Years ...................................................................... Schedule 2 – Changes in Net Position for the Last Ten Fiscal Years ............................................................................ Schedule 3 – Fund Balances, Governmental Funds for the Last Ten Fiscal Years ....................................................... Schedule 4 – Changes in Fund Balances, Governmental Funds for the Last Ten Fiscal Years ..................................... 246 248 252 254 Revenue Capacity: Schedule 5 – Net Taxable Sales by Classification for the Last Ten Fiscal Years .......................................................... Schedule 6 – Sales Tax Revenue Payers by Classification, Current Year and Nine Years Ago ................................... Schedule 7 – Personal Income by Industry for the Last Ten Calendar Years ................................................................ Schedule 8 – Personal Income Tax Rates for the Last Ten Calendar Years .................................................................. Schedule 9 – Personal Income Tax Filers and Liability by Income Level for the Taxable Years 2012 and 2005 ........ 258 261 262 264 264 Debt Capacity: Schedule 10 – Ratios of Outstanding Debt by Type for the Last Ten Fiscal Years ....................................................... Schedule 11 – Legal Debt Margin Information, Arizona Transportation Board Highway Revenue Bonds for the Last Ten Fiscal Years ................................................................................................................ Schedule 12 – Legal Debt Margin Information, Arizona State University, for the Last Ten Fiscal Years ................... Schedule 13 – Legal Debt Margin Information, University of Arizona, for the Last Nine Fiscal Years ..................... Schedule 14 – Legal Debt Margin Information, Northern Arizona University, for the Last Nine Fiscal Years ............ Schedule 15 – Pledged-Revenue Coverage, Arizona Transportation Board Highway Revenue Bonds for the Last Ten Fiscal Years ................................................................................................................ Schedule 16 – Pledged-Revenue Coverage, Arizona Transportation Board Transportation Excise Tax Revenue Bonds for the Last Ten Fiscal Years ...................................................................................... Schedule 17 – Pledged-Revenue Coverage, School Facilities Board State School Improvement Revenue Bonds for the Last Ten Fiscal Years ................................................................................................................ Schedule 18 – Pledged-Revenue Coverage, School Facilities Board State School Trust Revenue Bonds for the Last Ten Fiscal Years ................................................................................................................ Schedule 19 – Pledged-Revenue Coverage, Lottery Revenue Bonds for the Last Five Fiscal Years ............................................................................................................... Schedule 20 – Pledged-Revenue Coverage, Arizona State University Revenue Bonds for the Last Ten Fiscal Years ................................................................................................................ Schedule 21 – Pledged-Revenue Coverage, University of Arizona Revenue Bonds for the Last Ten Fiscal Years ................................................................................................................ Schedule 22 – Pledged-Revenue Coverage, Northern Arizona University Revenue Bonds for the Last Ten Fiscal Years ................................................................................................................ iii 266 268 268 269 269 270 270 271 271 272 272 273 273 STATE OF ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS (CONCLUDED) STATISTICAL SECTION - CONCLUDED Demographic and Economic Information: Schedule 23 – Demographic and Economic Statistics for the Last Ten Calendar Years ............................................... Schedule 24 – Principal Employers, Current Year and Nine Years Ago ....................................................................... Page 275 275 Operating Information: Schedule 25 – State Employees by Function for the Last Ten Fiscal Years .................................................................. Schedule 26 – Operating Indicators by Function for the Last Ten Fiscal Years............................................................ Schedule 27 – Capital Asset Statistics by Function for the Last Ten Fiscal Years ....................................................... 276 278 280 iv INTRODUCTORY SECTION INTRODUCTORY SECTION Douglas A. Ducey Craig C. Brown Governor Director ARIZONA DEPARTMENT OF ADMINISTRATION OFFICE OF THE DIRECTOR 100 NORTH FIFTEENTH AVENUE • SUITE 401 PHOENIX, ARIZONA 85007 (602) 542-1500 June 6, 2016 The Honorable Douglas A. Ducey, Governor of the State of Arizona; Members of the Legislature; Scott Bales, 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, 2015. Responsibility for the accuracy of data, as well as the 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. U.S. generally accepted accounting principles (GAAP) require that management provides a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of the Management's Discussion and Analysis (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. INTERNAL CONTROLS T he 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 is compiled to allow for the preparation of financial statements in conformity with U.S. GAAP. 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. INDEPENDENT AUDIT I n compliance with State statute, an annual financial audit of the financial reporting entity of the State is completed each year by the State of Arizona, Office of the Auditor General in conjunction with other audit firms. Their audit was conducted 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. Their report on the basic financial statements has been included in the financial section of this report. In addition, A.R.S. § 41-1279.03 requires at least a biennial single audit by the Office of the Auditor General. The Single Audit will be issued as a separate report at a later date. -1- FINANCIAL REPORTING ENTITY OF THE STATE T he accompanying CAFR includes all funds of the State (primary government), as well as its component units. 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. 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 the Governmental Accounting Standards Board (GASB) are reported in a separate column in the government-wide financial statements. Discretely presented component units prepared in accordance with the Financial Accounting Standards Board 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 the GASB. The criteria for inclusion in the financial reporting entity and presentation are defined by the Codification of Governmental Accounting and Financial Reporting Standards, issued by the GASB, (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. ARIZONA The State of Arizona was admitted to the Union as the 48th state in 1912. Arizona is the sixth largest state by area, with 113,909 square miles. Arizona is known for the Grand Canyon, one of the Seven Wonders of the World, and its cacti and other desert landscape. A number of national forests, four national parks, eighteen national monuments, and over 20 million acres of Native American reservations and tribal communities are located in Arizona. PROFILE OF THE GOVERNMENT T he State has three branches of government: Executive, Legislative, and Judicial. The Executive branch is headed by a Governor elected for a four-year term. Arizona's Legislative branch is bicameral, consisting of a thirty-member Senate and a sixty-member House of Representatives. Legislators are elected for two-year terms. The Judicial branch consists of the Arizona Supreme Court, Court of Appeals (with two divisions), Superior Court, justice of the peace courts, and municipal courts. The Superior Court, justice of the peace courts, and municipal courts are excluded from the financial reporting entity of the State as these entities do not meet GASB criteria for inclusion. The Supreme Court is the highest court in the State and is comprised of five justices. Article 6, Section 5 of the Arizona State Constitution describes the types of cases and matters handled by the Supreme Court. The services provided by the State are administered through various agencies, departments, boards, commissions, councils, administrations, offices, 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. 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 the passage of appropriation bills by the Legislature and approved by the Governor. The appropriated funds are controlled by the Executive branch through an allotment process. This process generally 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 and other continuing appropriations that continue from year to year. The State's budgetary policies are explained in detail in the Required Supplementary Information. -2- GENERAL FUND BALANCE G raph 1 summarizes 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) $24 $23 $22 $21 $20 $19 $18 2011 2012 2013 Revenues 2014 2015 Expenditures The General Fund ended the June 30, 2015 fiscal year with a total fund balance of $43.5 million. This compares to the previous year’s total fund balance of $24.6 million. Graph 2 summarizes the General Fund Balance (Deficit) for the last five fiscal years: Graph 2 General Fund Balance (Deficit) for last 5 fiscal years (Dollars in millions) $600 $400 $200 $0 ($200) ($400) ($600) ($800) 2011 2012 2013 -3- 2014 2015 ECONOMIC CONDITION AND OUTLOOK T he following economic summary is based on the Industry Employment Projections Presentation released on March 24, 2016, by the Office of Employment and Population Statistics within the Arizona Department of Administration. The employment projections are organized as described below: • • • • Two-year employment projection period: (2015 Quarter 3 to 2017 Quarter 2) Projections are created from Quarterly Census of Employment and Wages (QCEW) data produced by the US Bureau of Labor Statistics • QCEW uses North American Industry Classification System (NAICS) codes  Industry (describes what the business does)  Six digit industry code  The more digits, the more detail (hierarchical) QCEW program is a near census of all employers and jobs covered by Unemployment Insurance Program (97% of total nonagricultural employment) • Remaining 3% of employment is obtained from the County Business Patterns program QCEW program categorizes government employees differently than the Current Employment Statistics (CES) program • QCEW organizes Government employees within the NAICS industry they work (Government includes Government Public Admin. workers only) • CES organizes Government employees within the government NAICS code regardless of industry (Government includes all Government workers) Economic trends influencing Arizona’s economy are as follows: • • • • • • • • Growth in real Gross Domestic Product, real personal income, employment, retail sales Continued drop in U.S. and Arizona’s unemployment rate • Labor force participation rates increased while unemployment levels have declined Residential and commercial real estate markets in Arizona and Phoenix metropolitan area have shown improvement Arizona outpaced U.S. in population, nonfarm employment and real personal income growth in 2015 Aerospace and defense sector represents a large share of Arizona’s manufacturing sector Arizona’s mining sector has seen sharp declines due to a slowdown in world commodities markets Arizona export markets slow down as the U.S. dollar strengthens vs foreign currencies Arizona economy historically dependent on population growth The following are highlights of Arizona’s industry employment forecast: • • • • • Arizona is projected to gain 156,535 jobs over the two-year period (2.84% annual growth) Eleven of the twelve sectors are forecast to add jobs over the two-year period Professional and Business Services (PBS) sector is expected to add the largest number of jobs (34,902) over the two-year period or 4.36% Construction is expected to have the largest annualized percentage gain at 6.6% (17,732 jobs) Sectors with the largest expected gains are: Professional and Business Services (34,902 jobs), Educational and Health Services (31,428 jobs), Trade, Transportation and Utilities (23,414 jobs), Leisure and Hospitality (22,594 jobs), and Construction (17,732 jobs) -4- The following tables summarize Arizona’s sector employment growth rates and industry shares information: Annual Growth Rate (Compound) Total All Industries Natural Resources and Mining Construction Manufacturing Trade, Transportation, and Utilities Information Financial Activities Professional and Business Services Education and Health Services Leisure and Hospitality Other Services (Except Government) Government Unclassified 2013 Q3 -2015 Q2(a) 2.41% 0.19% 1.25% 0.53% 2.20% 3.72% 3.19% 2.34% 1.91% 4.04% 1.62% (0.45%) 8.08% 2015 Q3 - 2017 Q2(b) 2.84% (2.74%) 6.66% 0.66% 2.24% 3.27% 3.74% 4.36% 2.74% 3.47% 1.21% 0.18% 2.18% Annual Growth Rate (Compound) Total All Industries Natural Resources and Mining Construction Manufacturing Trade, Transportation, and Utilities Information Financial Activities Professional and Business Services Education and Health Services Leisure and Hospitality Other Services (Except Government) Government Unclassified 2015 Q2(a) 2,718,515 33,673 128,777 156,776 517,566 46,617 189,261 391,482 565,750 320,397 72,295 150,867 145,056 2017 Q2(b) 2,875,050 31,852 146,509 158,842 540,980 49,716 203,668 426,384 597,178 342,991 74,060 151,421 151,446 Employment Change 156,535 (1,821) 17,732 2,066 23,414 3,099 14,407 34,902 31,428 22,594 1,765 554 6,390 Arizona Major Industry Shares Education and Health Services Trade, Transportation, and Utilities Professional and Business Services Leisure and Hospitality Financial Activities Manufacturing Unclassified Government Construction Other Services (Except Government) Information Natural Resources and Mining Base Employment 2015 Q2(a) 20.9% 19.0% 14.4% 11.8% 7.0% 5.8% 5.3% 5.5% 4.7% 2.7% 1.7% 1.2% a) Historical b) Forecast -5- Projected Employment 2017 Q2(b) 20.8% 18.8% 14.8% 11.9% 7.1% 5.5% 5.3% 5.3% 5.1% 2.6% 1.7% 1.1% ARIZONA STATE GOVERNMENT ORGANIZATION ELECTORATE LEGISLATIVE BRANCH EXECUTIVE BRANCH STATE HOUSE OF REPRESENTATIVES* STATE SENATE* JUDICIAL BRANCH GOVERNOR* SUPREME COURT AUDITOR GENERAL LEGISLATIVE COUNCIL JOINT LEGISLATIVE BUDGET COMM. SECRETARY OF STATE* ATTORNEY GENERAL* STATE LIBRARY, ARCHIVES AND PUBLIC RECORDS DEPARTMENT OF LAW COURT OF APPEALS SUPERIOR COURTS MUNICIPAL COURTS JUSTICE OF THE PEACE COURTS* SUPERINTENDENT OF PUBLIC INSTRUCTION* STATE TREASURER* 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 DEPARTMENT OF CHILD SAFETY 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, 2015 ELECTED OFFICIALS – as of June 30, 2015 Douglas A. Ducey, Governor Senator Andy Biggs, President of the Senate Representative David M. Gowan Sr., Speaker of the House Michele Reagan, Secretary of State Mark Brnovich, Attorney General Joe Hart, State Mine Inspector Jeff DeWit, State Treasurer Diane Douglas, Superintendent of Public Instruction Susan Bitter Smith, Chairman – Corporation Commission Tom Forese, Commissioner – Corporation Commission Doug Little, Commissioner – Corporation Commission Bob Stump, Commissioner – Corporation Commission Bob Burns, Commissioner – Corporation Commission APPOINTED OFFICIALS – as of June 30, 2015 Executive Officials Kevin Donnellan, Acting Director – Department of Administration Charles L. Ryan, Director – Department of Corrections Timothy Jeffries, Director – Department of Economic Security Greg McKay, Director – Department of Child Safety David Raber, Director – Department of Revenue Frank Milstead, Director – Department of Public Safety Dr. Cara Christ, Director – Department of Health Services Tom Betlach, Director – Arizona Health Care Cost Containment System John Halikowski, Director – Department of Transportation Judicial Officials Scott Bales, Chief Justice – Supreme Court Legislative Officials Michael E. Braun, Executive Director – Legislative Council Richard Stavneak, Director – Joint Legislative Budget Committee Debra K. Davenport, CPA, Auditor General – Office of the Auditor General University Officials Dr. Michael M. Crow, President – Arizona State University Dr. Rita Cheng, President – Northern Arizona University Dr. Ann W. Hart, President – University of Arizona ELECTED OFFICIALS – as of June 6, 2016 Douglas A. Ducey, Governor Senator Andy Biggs, President of the Senate Representative David M. Gowan Sr., Speaker of the House Michele Reagan, Secretary of State Mark Brnovich, Attorney General Joe Hart, State Mine Inspector Jeff DeWit, State Treasurer Diane Douglas, Superintendent of Public Instruction Doug Little, Chairman – Corporation Commission Tom Forese, Commissioner – Corporation Commission Andy Tobin, Commissioner – Corporation Commission Bob Stump, Commissioner – Corporation Commission Bob Burns, Commissioner – Corporation Commission APPOINTED OFFICIALS – as of June 6, 2016 Executive Officials Craig Brown, Director – Department of Administration Charles L. Ryan, Director – Department of Corrections Timothy Jeffries, Director – Department of Economic Security Greg McKay, Director – Department of Child Safety David Briant, Director – Department of Revenue Frank Milstead, Director – Department of Public Safety Dr. Cara Christ, Director – Department of Health Services Tom Betlach, Director – Arizona Health Care Cost Containment System John Halikowski, Director – Department of Transportation Judicial Officials Scott Bales, Chief Justice – Supreme Court Legislative Officials Michael E. Braun, Executive Director – Legislative Council Richard Stavneak, Director – Joint Legislative Budget Committee Debra K. Davenport, CPA, Auditor General – Office of the Auditor General University Officials Dr. Michael M. Crow, President – Arizona State University Dr. Rita Cheng, President – Northern Arizona University Dr. Ann W. Hart, President – University of Arizona -9- FINANCIAL SECTION FINANCIAL SECTION INDEPENDENT AUDITORS’ REPORT INDEPENDENT AUDITORS’ REPORT Independent Auditors’ Report The Honorable Doug Ducey, Governor State of Arizona The Honorable Andy Biggs, President Arizona State Senate The Honorable David M. Gowan Sr., Speaker Arizona House of Representatives The Honorable Scott Bales, Chief Justice Arizona Supreme Court Report on the Financial Statements 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, 2015, and the related notes to the financial statements, which collectively comprise the State’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of certain departments, the State’s retirement plans, and the aggregate discretely presented component units, which account for the following percentages of the assets and deferred outflows of resources and revenues, additions, and other financing sources, as applicable, of the opinion units affected: 2910 NORTH 44 th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051 Assets/Deferred Outflows of Resources Revenues/Additions/ Other Financing Sources 62.30% 2.84% 1.07% 11.03% 20.94% 0.45% 0.25% 0.91% 0.75% 0.72% 0.10% 12.81% Aggregate Discretely Presented Component Units 100.00% 100.00% Fund Statements Major Governmental Funds: General Fund Arizona Department of Transportation Arizona Health Care Cost Containment System 0.14% 26.59% 0.01% 23.71% Transportation and Aviation Planning, Highway Maintenance and Safety Fund Arizona Department of Transportation 100.00% 100.00% 0.04% 0.67% 0.13% 0.13% 65.30% 3.15% 0.69% 0.63% 12.14% 0.41% 12.06% 4.43% 7.22% 29.37% 1.94% 1.23% 0.48% 8.28% Opinion Unit/Department Government-wide Statements Governmental Activities Arizona Department of Transportation Arizona Health Care Cost Containment System Early Childhood Development and Health Board Business-type Activities Arizona Correctional Industries Arizona Department of Transportation Arizona State Lottery Aggregate Remaining Fund Information Arizona Correctional Industries Arizona Department of Transportation Arizona Health Care Cost Containment System Arizona State Lottery Arizona State Retirement System Corrections Officer Retirement Plan Early Childhood Development and Health Board Elected Officials’ Retirement Plan Public Safety Personnel Retirement System Those statements were audited by other auditors whose reports have been furnished to us, and our opinions, insofar as they relate to the amounts included for those departments, retirement plans, and component units, are 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 from material misstatement. The financial statements of the Arizona Power Authority and the Universities—Affiliated Component Units, except for those of the ASU Preparatory Academy, Inc., which were reported as discretely presented component units, were not audited by the other auditors in accordance with Government Auditing Standards. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the State’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the State’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 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, 2015, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with U.S. generally accepted accounting principles. Emphasis of Matter As discussed in Note 1.Q. and Note 9 to the financial statements, for the year ended June 30, 2015, the State adopted new accounting guidance, Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions, as amended by GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date. Our opinions are not modified with respect to this matter. As discussed in Note 9 to the financial statements, for the year ended June 30, 2015, the State restated beginning net position of the other enterprise funds and business-type activities as a result of the reclassification of the Insurance Department Guaranty Funds, previously reported as agency funds. Our opinions are not modified with respect to this matter. As discussed in Note 16.I. to the financial statements, for the year ended June 30, 2015, the State restated beginning net position for the discretely presented component units as a result of the University of Arizona Health Network no longer meeting the requirements for inclusion in the State’s financial reporting entity. Our opinions are not modified with respect to this matter. Other Matters Required Supplementary Information U.S. generally accepted accounting principles require that the Management’s Discussion and Analysis on pages 21 through 34, the Budgetary Comparison Schedules on pages 141 through 155, Infrastructure Assets information on pages 156 through 159, Schedules of the State’s Proportionate Share of the Net Pension Liability—Cost-Sharing Pension Plans on pages 160 and 161, Schedule of Changes in the State’s Net Pension Liability and Related Ratios—Agent Pension Plans on pages 162 and 163, Schedules of State Pension Contributions on pages 164 through 166, related notes on page 167, and the Schedule of Single Employer OPEB Plan Funding Progress on page 168, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We and the other auditors have applied certain limited procedures to the required supplementary information in accordance with U.S. generally accepted auditing standards, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary and Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the State’s basic financial statements. The combining and individual fund statements and schedules and the introductory and statistical sections listed in the table of contents are presented for purposes of additional analysis and are not required parts of the basic financial statements. The combining and individual fund statements and schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with U.S. generally accepted auditing standards by us and the other auditors. In our opinion, based on our audit, the procedures performed as described above, and the reports of the other auditors, the combining and individual fund statements and schedules are fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we will 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 in considering the State’s internal control over financial reporting and compliance. Debbie Davenport Auditor General June 6, 2016 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, 2015. 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 and deferred outflows of resources of the State exceeded liabilities and deferred inflows of resources at the close of the fiscal year by $23.0 billion (reported as net position). Of this amount, a deficit of $5.5 billion exists for unrestricted net position, $8.0 billion is restricted for specific purposes (restricted net position), and $20.5 billion is net investment in capital assets. • As a result of implementing GASB Statement No. 68, Accounting and Financial Reporting for Pensions, as amended by GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date, the State recorded $841.7 million deferred outflows of resources, $4.9 billion net pension liability, and $623.0 million deferred inflows of resources for the primary government. This was the primary reason for a $4.4 billion adjustment to unrestricted beginning net position for fiscal year 2015. After adjustments, the State’s total net position increased in fiscal year 2015 by $1.7 billion. Net position of governmental activities increased by $1.2 billion, while net position of the business-type activities increased by $442.4 million. Fund Level: • As of the close of the fiscal year, the State’s governmental funds reported combined ending fund balances of $7.6 billion, an increase of $244.6 million from the beginning of the year. After accounting for non-spendable, restricted, and committed fund balances of $5.2 billion, $1.8 billion, and $924.9 million, respectively, the State’s unassigned fund balance had a deficit of $336.7 million, or (4%) of combined fund balances. • As of the close of the fiscal year, unassigned fund balance for the General Fund had a deficit of $306.8 million, which is approximately (1%) of total General Fund expenditures. • The Land Endowments Fund reported fund balance at fiscal year-end of $5.1 billion, an increase of $303.1 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. • The enterprise funds reported net position at fiscal year-end of $2.6 billion, an increase of $423.6 million during the year. In addition, beginning net position was restated (reduced) by $1.2 billion primarily due to the implementation of GASB 68. Long-term Debt: • The State’s total long-term primary government debt decreased during the fiscal year to $10.0 billion, a decrease of $35.2 million or (0.35%). Changes during the year included the addition of revenue bonds and certificates of participation (COPs) of $1.5 billion and $206.7 million, respectively. Also, the State retired $1.4 billion of revenue bonds and $415.0 million of certificates of participation. Included in the change in long-term primary government debt are increases and decreases in net issuance premiums of $268.5 million and $103.5 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 38. - 21 - 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, deferred outflows of resources, liabilities, and deferred inflows of resources 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: The Statement of Net Position (pages 38-39) presents the State’s assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position. The total of assets and deferred outflows of resources, minus the total of liabilities and deferred inflows of resources, is reported as net position. Over time, increases and decreases in net position measure whether the State’s financial position is improving or deteriorating. The Statement of Financial Position (page 40) presents the State’s Universities-affiliated component units’ assets and liabilities, with the difference between the two reported as net assets. The Statements of Activities (pages 42-44) present information showing how the State’s net position/net assets changed during the most recent fiscal year. All changes in net position/net assets are reported as soon as the underlying events giving rise to the change occur, regardless of the timing of related cash flows. Therefore, revenues and expenses are reported in these statements for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned, but unused vacation leave). 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. The State’s three universities are examples of business-type activities. • Discretely Presented 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. The Water Infrastructure Finance Authority, the Arizona Power Authority, the Rio Nuevo Multipurpose Facilities District, the Greater Arizona Development Authority, and the Arizona Commerce Authority are discretely presented component units reported by the State. The State has included component units affiliated with the Universities whose financial statements are prepared in conformity with U.S. generally accepted accounting principles (U.S. GAAP), as adopted by the Financial Accounting Standards Board. These organizations include the Arizona State University Foundation, the University of Arizona Foundation, the Arizona Capital Facilities Finance Corporation, and other non-major component units affiliated with the Universities. 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 the Governmental Accounting Standards Board (GASB), and include a statement of financial position (page 40) and a statement of activities (page 44). See pages 65-69 and 129-137 for more information on discretely presented component units. - 22 - 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 172 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 government-wide 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 48-49) 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. • 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’s 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 statements for business-type activities and the proprietary fund financial statements is presented at the end of the propriety fund financial statements on pages 51-52. Proprietary fund financial statements can be found on pages 50-55 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 Position and Changes in Fiduciary Net Position beginning on page 56. These funds are reported using accrual accounting and include pension and other employee benefit trust, investment trust, and agency funds. 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 56-57 of this report. - 23 - 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 65 of this report. Required Supplementary Information Following the basic financial statements is additional Required Supplementary Information (RSI) that further explains and supports the information in the financial statements. The RSI includes budgetary expenditure comparison schedules for the General Fund and each major special revenue fund and a reconciliation of the schedules of statutory and U.S. GAAP expenditures for the fiscal year. The RSI also includes up to ten years of information on the State’s pension plans, including schedules on the State’s proportionate share of the net pension liability, changes in the net pension liability and related ratios, and State pension contributions. The RSI also includes schedules of condition and maintenance data regarding certain portions of the State’s infrastructure and the single-employer benefit plan funding progress schedule. Required supplementary information begins on page 141 of this report. Other Supplementary Information Other supplementary information includes combining financial statements for non-major governmental, non-major enterprise, all internal service funds, all fiduciary funds, non-major component units, and non-major universities – affiliated component units. These funds are added together, by fund type, and presented in single columns in the basic financial statements, but are not reported individually, as are major funds on the governmental funds and proprietary funds financial statements. Budgetary expenditure comparison schedules for the non-major special revenue funds and the Land Endowment Fund are also included. Other supplementary information begins on page 172 of this report. - 24 - 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. In order to compare fiscal year 2015 and fiscal year 2014 financial results, the State has presented fiscal year 2014 information restated to the extent possible for GASB 68, as indicated previously on page 21, and for other accounting changes. State of Arizona-Primary Government Net Position as of June 30, 2015 and 2014 (expressed in thousands) Current assets Capital assets Other non-current assets Total Assets Deferred outflows of resources Current liabilities Non-current liabilities Total Liabilities Deferred inflows of resources Net position: Net investment in capital assets Restricted Unrestricted Total Net Position Governmental Activities 2014, as 2015 restated $ 5,817,169 $ 5,746,818 22,239,504 21,624,109 6,459,576 6,339,643 34,516,249 33,710,570 Business-type Activities 2014, as 2015 restated $ 1,699,254 $ 1,380,976 4,846,738 4,493,718 2,520,682 2,005,169 9,066,674 7,879,863 Primary Government Total 2014, as 2015 restated $ 7,516,423 $ 7,127,794 27,086,242 26,117,827 8,980,258 8,344,812 43,582,923 41,590,433 738,264 243,207 281,812 134,689 1,020,076 377,896 4,563,488 10,010,602 14,574,090 4,598,785 10,313,259 14,912,044 725,014 5,470,623 6,195,637 694,889 5,066,223 5,761,112 5,288,502 15,481,225 20,769,727 5,293,674 15,379,482 20,673,156 405,567 - 457,055 - 862,622 - 18,790,871 7,170,289 (5,686,304) $ 20,274,856 18,053,540 6,829,299 (5,841,106) $ 19,041,733 1,661,466 895,616 138,712 $ 2,695,794 1,581,436 723,590 (51,586) $ 2,253,440 20,452,337 8,065,905 (5,547,592) $ 22,970,650 19,634,976 7,552,889 (5,892,692) $ 21,295,173 For the year ended June 30, 2015, the State’s combined net position totaled $23.0 billion, reflecting an increase of $1.7 billion during the current fiscal year. The largest portion of the State’s net position (89%) represents net investment in capital assets of $20.5 billion. Additions to roads and bridges provided the majority of the governmental activities increase in net investment in capital assets of $737.3 million. 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 are planned to be provided from other sources, since the capital assets themselves are not typically used to liquidate these liabilities. The State’s net position also included $8.1 billion (35%) of resources that are subject to external restrictions on how they may be used. The governmental activities increase in restricted net position of $341.0 million is primarily the result of an increase of $294.9 million in the amount restricted by the State’s Constitution for basic education funded by the Land Endowments Fund. The business-type activities increase in restricted net position of $172.0 million is primarily due to an increase of $140.1 million in the amount restricted for the Unemployment Compensation Fund, which will be used to pay future unemployment claims. After accounting for the above net position restrictions, the State has a remaining deficit of $5.5 billion (24%) reported as unrestricted net position. More detailed information regarding beginning net position restatements is on page 122. - 25 - State of Arizona-Primary Government Changes in Net Position for Fiscal Years June 30, 2015 and 2014 (expressed in thousands) Governmental Activities 2014, as 2015 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 Gain on sale of trust land Miscellaneous revenue 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 Industrial Commission Special Fund Other business-type activities Total Expenses Excess (deficiency) before contributions, extraordinary item, and transfers Contributions to permanent endowments Extraordinary item: Insurance recovery Transfers Change in Net Position Net Position - Beginning, as restated Net Position - Ending $ 1,124,046 $ Business-type Activities 2014, as 2015 restated 936,923 $ 3,649,357 $ Primary Government Total 2014, as 2015 restated 3,381,353 $ 4,773,403 $ 4,318,276 13,200,146 706,089 12,172,836 546,680 1,320,612 43,321 1,343,922 41,250 14,520,758 749,410 13,516,758 587,930 6,290,950 4,430,602 314,522 52,241 1,694,779 560,920 87,115 5,948,055 3,963,197 314,313 41,215 1,650,579 547,481 79,215 64,757 37,839 63,669 108,296 6,355,707 4,430,602 314,522 52,241 1,694,779 560,920 124,954 6,011,724 3,963,197 314,313 41,215 1,650,579 547,481 187,511 39,847 97,231 232,658 28,831,146 37,926 83,695 176,035 26,498,150 138,931 5,254,817 107 78,837 5,017,434 39,847 97,231 371,589 34,085,963 38,033 83,695 254,872 31,515,584 923,659 14,296,714 159,874 5,859,267 1,568,732 786,028 204,939 763,830 12,768,332 160,797 5,573,656 1,408,049 791,006 200,868 - - 923,659 14,296,714 159,874 5,859,267 1,568,732 786,028 204,939 763,830 12,768,332 160,797 5,573,656 1,408,049 791,006 200,868 2,966,400 230,871 - 2,778,299 279,525 - 4,378,481 4,078,053 2,966,400 230,871 4,378,481 2,778,299 279,525 4,078,053 26,996,484 24,724,362 1,041,261 5,419,742 36,895 1,130,299 5,245,247 1,041,261 32,416,226 36,895 1,130,299 29,969,609 1,834,662 1,773,788 (164,925) (227,813) 1,669,737 1,545,975 - - 5,740 6,561 5,740 6,561 (601,539) 1,233,123 19,041,733 (578,361) 1,195,427 17,846,306 601,539 442,354 2,253,440 3,900 578,361 361,009 1,892,431 1,675,477 21,295,173 3,900 1,556,436 19,738,737 20,274,856 $ 19,041,733 $ - 26 - 2,695,794 $ 2,253,440 $ 22,970,650 $ 21,295,173 Change in Net Position Governmental Activities – Net Position increased by $1.2 billion from fiscal year 2014, or a 6% increase from fiscal year 2014. Reported sales and income tax revenues increased by $342.9 million, or 6%, and $467.4 million, or 12%, from fiscal year 2014, respectively. The increase in tax collections generally reflects increased economic activity in the State during fiscal year 2015. Net taxable sales increased by 4% from fiscal year 2014 resulting in the increased reported sales tax revenue. The largest increases in net taxable sales during fiscal year 2015 were in retail sales, restaurants and bars, and use tax. The increase in income tax revenue for the State during fiscal year 2015 reflects increases in withholding, individual, and corporate tax collections as well as decreases in refunds. During fiscal year 2015, operating grants and contributions increased by $1.0 billion (8%) over fiscal year 2014. This increase primarily results from enhanced federal financial participation matching rates for increased enrollment in Arizona Health Care Cost Containment System (AHCCCS) programs due to implementation of the Patient Protection and Affordable Care Act of 2010 (ACA) beginning January 1, 2014. AHCCCS experienced an increase of 200,860 members (13.3%) over fiscal year 2014 primarily as a result of ACA expansion and the simultaneous ending of the Childless Adult program enrollment freeze beginning January 1, 2014. The increase in operating grants and contributions discussed above was offset by a decrease of $346.9 million in the fair value of the Permanent Fund investment portfolio from fiscal year 2014. The increase in health and welfare expenses of $1.5 billion resulted primarily from the increased enrollment in the AHCCCS programs, as discussed above. A comparison of the net cost (income) of services by function for the State’s governmental activities is shown below for fiscal years 2014 and 2015. Net cost (income) is the total cost less revenues generated by the activities and shows the financial burden placed upon the State’s taxpayers by each of these functions. Governmental Activities (expressed in thousands) Total Cost of Services 2015 2014 Functions/Programs: 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 $ 923,659 14,296,714 159,874 5,859,267 1,568,732 786,028 204,939 2,966,400 230,871 $26,996,484 - 27 - $ 763,830 12,768,332 160,797 5,573,656 1,408,049 791,006 200,868 2,778,299 279,525 $ 24,724,362 Net Cost (Income) of Services 2015 2014 $ 564,883 2,556,725 (17,986) 4,418,766 1,350,881 (196,291) 91,954 2,966,400 230,871 $11,966,203 $ 482,170 2,640,807 (17,184) 3,723,347 1,121,604 (26,646) 86,001 2,778,299 279,525 $ 11,067,923 Expenses and Program Revenues Governmental Activities for Fiscal Year 2015 (in millions of dollars) $15,000 $14,000 $13,000 $12,000 $11,000 $10,000 $9,000 $8,000 Expenses $7,000 Revenues $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Business-type Activities – Net Position increased by $442.4 million from fiscal year 2014, or 20%. This increase is primarily due to increases in net position for the Universities and the Unemployment Compensation Fund of $285.9 million and $140.1 million, respectively. Non-operating revenues and transfers from the General Fund more than offset the Universities’ operating loss of $1.2 billion. The Universities’ operating revenues increased by $321.3 million over fiscal year 2014 primarily due to approved student tuition and fee increases, increased enrollment, and increased - 28 - nongovernmental grant and contract revenue. The increase in nongovernmental grant and contract revenue was mainly attributed to the U of A’s affiliation agreement with Banner Health. Also, State appropriation transfers to the Universities from the General Fund increased by $37.6 million over fiscal year 2014. This increase resulted primarily from increased parity funding to the Arizona State University and additional appropriations for the University of Arizona College of Agriculture extension program. These increases were offset by increases in expenses for instruction, academic support, and scholarships and fellowships. Expense increases resulted from continued enrollment growth, as well as U of A’s affiliation agreement with Banner Health and other research support. Also, although the Unemployment Compensation Fund’s unemployment assessment revenue remained stable, cost of sales and benefits decreased $132.7 million as compared to the prior fiscal year due to the decline in unemployment levels. A comparison of the net cost (income) of services by function for the State’s business-type activities is shown below for fiscal years 2014 and 2015. Net cost (income) is the total cost less revenues generated by the activities and shows the financial burden placed upon the State’s taxpayers by each of these functions. Business-type Activities (expressed in thousands) Total Cost of Services 2015 2014 Functions/Programs: Universities Industrial Commission Special Fund Other Total Business-type Activities Net Cost (Income) of Services 2015 2014 $ 4,378,481 $ 4,078,053 $ - 36,895 1,130,299 $ 5,245,247 (304,862) $ 406,452 1,041,261 $ 5,419,742 711,314 - $ 722,356 8,434 (252,068) $ 478,722 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, unassigned 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, 2015, unassigned fund balance of the General Fund had a deficit of $306.8 million, while total fund balance closed the year at $43.5 million. As a measure of the General Fund’s liquidity, it may be useful to compare both unassigned fund balance and total fund balance to total fund expenditures and other financing uses. Unassigned fund balance represents a negative 1% of total expenditures and other financing uses, while total fund balance is less than 1% of the same amount. The fund balance of the State’s General Fund increased $18.9 million during the fiscal year. Revenues exceeded expenditures by $703.1 million, before other financing sources and uses. However, other financing sources and uses mostly offset this excess by $684.2 million, which consist primarily of transfers to the Universities in support of higher education, offset by legislative transfers from other funds to the General Fund. Overall revenues increased by $2.5 billion (12%) and expenditures increased by $1.8 billion (9%) from fiscal year 2014. Primary reasons for increases in fund balance during the fiscal year are increased collections of sales and income taxes and increased intergovernmental revenue, including federal funding received as a result of the AHCCCS implementation of the ACA. A primary reason for decreases in fund balance during the fiscal year is increased health and welfare expenditures. These increases and decreases were discussed in the government-wide financial analysis beginning on page 25. - 29 - Transportation and Aviation Planning, Highway Maintenance and Safety Fund The Transportation and Aviation Planning, Highway Maintenance and Safety Fund is responsible for the repair and maintenance of existing roads, paying the debt service for roads that are built from the issuance of revenue bonds and grant anticipation notes, and providing technical assistance with road construction provided by contractors hired by the Arizona Department of Transportation (ADOT). Total fund balance increased $57.4 million during fiscal year 2015. Although revenues exceeded expenditures by $361.8 million, transfers to non-major governmental funds of $305.4 million, to primarily pay debt service, largely offset this excess. Overall revenue increased by $258.1 million (10%), however, expenditures also increased by $250.3 million (11%), as compared to the prior fiscal year. Land Endowments Fund The Land Endowments Fund was established when the federal government granted Arizona statehood. Both the State’s 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-12. The Land Endowments Fund total fund balance increased $303.1 million during fiscal year 2015. Endowment investments increased $296.8 million, at fiscal year-end, primarily due to receipts from land sales of $123.5 million and a net increase in the fair value of investments of $251.7 million. 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 analysis beginning on page 25. GENERAL FUND BUDGETARY HIGHLIGHTS During the fiscal year, the original budget was amended by various supplemental appropriations and appropriation revisions. Differences between the original budget and the final amended budget resulted in a $2.1 billion net increase in appropriations for the General Fund, before adjustments. Some of the significant changes in the General Fund appropriations were: 1. $492.2 million increase due to prior fiscal year obligations that were paid in the current fiscal year per A.R.S. § 35-191. 2. $957.2 million increase to the Department of Education’s original budget is primarily due to the basic state aid deferred payment from fiscal year 2014 which was appropriated as a supplemental appropriation in the fiscal year 2015 budget. 3. $274.8 million increase to the AHCCCS’ original budget is primarily due to supplemental appropriation increases for Proposition 204 services, due to enrollment in excess of budgetary projections, and for safety net care pool payments to assist Phoenix Children’s Hospital. 4. $229.0 million increase to the Universities’ original budget is primarily due to payment deferrals from fiscal year 2014, which were budgeted in fiscal year 2015, and for lease-purchase capital financing for research infrastructure facilities. 5. $91.4 million increase to the Department of Economic Security’s original budget is primarily due to payment deferrals from fiscal year 2014, which were appropriated as a supplemental appropriation in the fiscal year 2015 budget, as well as supplemental appropriations for certain Title XIX programs. 6. $41.4 million increase to the Department of Administration’s original budget is primarily due to supplemental appropriation increases for the replacement of the State’s financial and accounting system. The actual expenditures were less than the final budget by $1.1 billion, after adjustments. Of this amount, $119.1 million will continue as legislative multiple fiscal year spending authority for fiscal years 2016 and beyond, depending upon the budgetary guidelines of the Legislature. The remaining $1.0 billion represents the unused portion of the State’s legislatively authorized annual operating budget. Additional budgetary information can be found on pages 141-151 of this report. - 30 - 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, 2015 totaled $27.1 billion, net of accumulated depreciation. The total primary government increase in capital assets for the current period was 4%, with a 3% increase in capital assets used for governmental activities and an 8% increase for businesstype activities. Depreciation charges of the governmental and business-type activities for the fiscal year totaled $412.0 million. Major capital asset activity during the current fiscal year included the following: • The Universities’ additions to capital assets totaled $639.7 million and included increased investments in buildings to support instruction, research, and public service missions, as well as building renewal and other capital projects. • The ADOT started or completed roads and bridges totaling $2.6 billion during the fiscal year. For the government-wide financial statement presentation, all depreciable assets were depreciated from the acquisition date to the end of the current fiscal year. Capital asset purchases of the governmental funds are reported in the fundlevel financial statements as expenditures. Capital assets for the governmental and business-type activities as of June 30, 2015 are presented below (expressed in thousands): Governmental Activities 2015 2014 $ 3,115,924 $ 3,046,110 2,338,928 2,315,821 Land Buildings Improvements other than buildings 202,685 Equipment 852,394 Software and other intangibles 251,041 Collections (non-depreciable) Infrastructure 15,755,456 Construction in progress 1,459,732 Development in progress 105,439 Less: accumulated depreciation (1,842,095) Total $ 22,239,504 172,687 826,478 251,407 13,801,205 2,916,383 58,567 (1,764,549) $ 21,624,109 Business-type Activities 2015 2014 $ 247,066 $ 229,637 5,672,653 * 5,300,980 19,713 1,600,405 134,756 20,228 533,792 341,760 60,804 (3,784,439) $ 4,846,738 * 23,092 * 1,551,345 * 131,982 20,114 478,015 * 289,275 * 9,885 (3,540,607) $ 4,493,718 $ Total 2015 3,362,990 $ 8,011,581 222,398 2,452,799 385,797 20,228 16,289,248 1,801,492 166,243 (5,626,534) $ 27,086,242 2014 3,275,747 7,616,801 195,779 2,377,823 383,389 20,114 14,279,220 3,205,658 68,452 (5,305,156) $ 26,117,827 * The fiscal year 2014 amounts have been reclassified for comparison with fiscal year 2015 amounts. As provided by GASB Statement No. 34, the State has elected to record its infrastructure assets, which the ADOT is responsible for maintaining, using the modified approach as described in Note 1.G. Assets accounted for under the modified approach include 6,800 center lane miles of roads (21,390 travel lane miles) and 4,798 bridges. The State manages its roads using the Present Serviceability Rating (PSR), which measures the condition of the pavement and its ability to serve the traveling public. The PSR uses a five-point scale (5 excellent, 0 impassable) to characterize the condition of the roadway. The State’s serviceability rating goal is 3.23 for the overall system. The most recent assessment indicated that an overall rating of 3.68 was achieved for fiscal year 2015. The State manages its bridges using the Arizona Bridge Information and Storage System. The State determines the condition rating based on standards developed by the Federal Highway Administration and additional internal criteria. It is the policy of the State to maintain a Condition Rating Index (CRI) of 92.5% or better. In fiscal year 2015, a CRI of 93.5% was achieved. - 31 - In addition to many smaller projects, each of the following major highway construction projects in excess of $10.0 million were started during fiscal year 2015 (expressed in thousands): Description Capacity additions/reconstruction/emergency reconstruction on US 89 Addition of general purpose lanes on State Route 202, State Route 101 to Broadway Road Traffic interchange at State Route 303 and US 60 Traffic interchange at State Route 303 and El Mirage Road Capacity additions/major widening on US 93 from State Route 71 to State Route 89 Pavement rehabilitation/widening on State Route 264 at Cross Canyon at State Route 191 Bridge replacement/widening on State Route 89 Hell Canyon Bridge, structure #483 Pavement Rehabilitation Interstate 40 Willow Ranch Rd to Mile Post 92 Contract Start Date 7/11/2014 Contract Amount $ 22,252 Current Year Expenditures $ 24,979 9/12/2014 11/14/2014 11/14/2014 109,177 46,062 19,886 99,412 20,049 4,333 12/12/2014 12,482 4,165 3/20/2015 12,309 1,027 3/20/2015 5/17/2015 14,357 11,798 2,040 446 Furthermore, the following major highway construction projects had expenditures in excess of $15.0 million in fiscal year 2015. These project expenditures include payments made to construction contractors (as shown below) as well as utility, design, right-of-way, and landscaping costs (expressed in thousands): Location Description Addition of general purpose lanes on State Route 202, State Route 101 to Broadway Road Capacity additions/reconstruction on State Route 303 from US 60 to Happy Valley Road Capacity additions/major widening on State Route 101 from Shea Boulevard to State Route 202 Capacity additions/reconstruction/emergency reconstruction on US 89 Capacity additions/major widening on State Route 77 from Tangerine Road to the Pinal County Line Traffic interchange at State Route 303 and US 60 System preservation/reconstruction US 89 from State Route 64 to the Little Colorado River Contract Start Date 9/12/2014 Project Expenditures $ 83,756 6/13/2014 29,310 6/13/2014 7/11/2014 27,710 21,100 4/11/2014 11/14/2014 21,007 18,089 10/11/2013 15,614 More detailed information regarding capital assets is on pages 90 and 91. 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 ADOT issued revenue refunding bonds totaling $754.3 million to refinance existing debt to obtain debt service savings by taking advantage of lower market interest rates. • The Universities issued revenue bonds for $705.8 million to fund the acquisition, construction, or renovation of capital facilities and infrastructure, and to refinance existing debt to obtain debt service savings by taking advantage of lower market interest rates. Additionally, the Universities issued $206.7 million refunding certificates of participation to obtain debt service savings by taking advantage of lower market interest rates. - 32 - State of Arizona-Primary Government Outstanding Major Long-Term Debt as of June 30, 2015 (expressed in thousands) Governmental Activities Revenue bonds Grant anticipation notes Certificates of participation Capital leases Total 2015 $ 3,141,190 194,670 2,030,805 408,784 $ 5,775,449 2014, as restated $ 3,406,195 247,710 2,200,675 423,513 $ 6,278,093 Business-type Activities 2015 $ 2,675,430 637,986 168,960 2,805 $ 3,485,181 2014 $ 2,302,035 676,345 132,957 $ 3,111,337 Total 2015 $ 5,816,620 832,656 2,199,765 411,589 $ 9,260,630 2014, as restated $ 5,708,230 247,710 2,877,020 556,470 $ 9,389,430 More detailed information regarding long-term debt begins on page 107. ECONOMIC CONDITION AND OUTLOOK The Office of Employment and Population Statistics within the Department of Administration is forecasting the State to gain a projected 156,535 nonfarm jobs, representing annual growth rate of 2.8%, over the two-year projected employment period of 2015 (quarter 3) to the 2017 (quarter 2). The State’s fiscal year 2016 General Fund budget reflects projected growth in base revenues of 3.8%. The net ongoing revenues are projected to decrease from $9.4 billion in fiscal year 2015 to $9.1 billion in fiscal year 2016. General Fund spending is projected to decrease from $9.3 billion in fiscal year 2015 to $9.1 billion in fiscal year 2016. The budget includes decreased spending by the Universities for lump sum reductions by campus, reductions to local jurisdictions by shifting the Department of Revenue costs to counties and cities, and shifting the Department of Juvenile Corrections costs to counties, and reductions of net administrative adjustment spending and revertments. The General Fund fiscal year 2016 ending balance is projected to be a $35 million shortfall. However, General Fund revenue collections have been stronger than forecast. These gains have the potential to at least offset the $35 million shortfall. Legislative discussions on the fiscal year 2016 General Fund budget also included analyzing the impact of budget decisions on estimated fiscal year 2017 and 2018 spending. The fiscal year 2017 General Fund budget is forecasted to have revenues of $9.3 billion and expenditures of $9.3 billion, with a $23 million shortfall. After accounting for legislation enacted separately from the budget and technical adjustments, fiscal year 2017 revenues are projected to be $9.2 billion compared to the same spending of $9.3 billion. The fiscal year 2017 shortfall is estimated to be $50 million, assuming the $35 million fiscal year 2016 shortfall is separately resolved. The structural shortfall for fiscal year 2017 is estimated to be $150 million. The fiscal year 2017 spending includes statutory formula caseload growth and annualization of new policy changes. Fiscal year 2017 ongoing revenues are primarily based on a 4-sector consensus growth rate of 4.4%, but also incorporate separately enacted tax law changes. The fiscal year 2018 General Fund budget is forecasted to have revenues of $9.6 billion and expenditures of $9.5 billion, with a $27 million surplus. After accounting for legislation enacted separately from the budget and technical adjustments, fiscal year 2018 revenues are projected to be $9.5 billion compared to the same spending of $9.5 billion. The fiscal year 2018 shortfall is estimated to be $8 million, assuming the $50 million fiscal year 2017 shortfall is separately resolved. The structural shortfall for fiscal year 2018 is also estimated to be $8 million. The fiscal year 2018 spending includes statutory formula caseload growth. There are no new policy issues with incremental fiscal year 2018 costs or savings. Fiscal year 2018 ongoing revenues reflect the 4-sector consensus growth rate of 5.1%, further adjusted for previously enacted tax law changes. The Budget Stabilization Fund is expected to have a balance of $460 million at the end of fiscal year 2016, which could be used to offset any shortfall in fiscal year 2017 or 2018. - 33 - 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.az.gov/financials/. The State’s component units issue their own separately issued audited financial statements. These statements may be obtained by directly contacting the component unit. Contact information regarding the component units begins on page 65. - 34 - BASIC FINANCIAL STATEMENTS BASIC FINANCIAL STATEMENTS (This page intentionally left blank) STATE OF ARIZONA STATEMENT OF NET POSITION JUNE 30, 2015 (Expressed in Thousands) 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 Noncurrent Assets: Restricted assets: Cash Cash and pooled investments with State Treasurer Cash held by trustee Investments Investments held by trustee Receivables, net of allowances: Loans and notes Other Securities held in escheat Investments Endowment investments Other noncurrent assets Capital assets: Infrastructure, land, and other non-depreciable Buildings, equipment, and other depreciable, net of accumulated depreciation Total Noncurrent Assets Total Assets DEFERRED OUTFLOWS OF RESOURCES Related to pensions Loss on debt refundings Interest rate swap Future benefits and advances Total Deferred Outflows of Resources PRIMARY GOVERNMENT GOVERNMENTAL BUSINESS-TYPE TOTAL PRIMARY ACTIVITIES ACTIVITIES GOVERNMENT $ 3,148 - $ 243,044 135,098 $ 246,192 135,098 COMPONENT UNITS $ 22,865 - 3,197,866 115,926 3,313,792 301,717 367,645 501,317 - 78,733 26,239 409,689 - 446,378 527,556 409,689 - 18,937 5,005 5,203 95,805 2,423 4,036 198,043 274,196 80,383 20,393 15,246 1,699,254 599,392 229,004 265,424 353,574 639,054 126,843 153,758 39,364 31,305 7,516,423 3,597 10,171 4,148 13,994 1,684 387,321 26 15,705 15,731 - 1,198,341 21,278 3,210 - 315,291 498,098 1,198,341 336,569 3,210 498,098 11,965 16,849 7,758 21,539 60,401 5,154,781 - 31,689 10,411 1,188,988 428,243 32,257 53,228 10,411 60,401 1,188,988 5,583,024 32,257 1,098,277 94,647 606 20,413,664 669,858 21,083,522 7,321 1,825,840 28,699,080 4,176,880 7,367,420 6,002,720 36,066,500 31,803 1,269,226 34,516,249 9,066,674 43,582,923 1,656,547 648,942 89,322 - 192,710 72,330 16,772 - 841,652 161,652 16,772 - 382 53,123 27,491 738,264 281,812 1,020,076 80,996 503,587 226,581 261,388 155,531 (274,196) 558,671 126,843 153,758 18,971 16,059 5,817,169 The Notes to the Financial Statements are an integral part of this statement. (Continued) - 38 - STATE OF ARIZONA STATEMENT OF NET POSITION JUNE 30, 2015 (Expressed in Thousands) LIABILITIES Current Liabilities: Accounts payable and other current liabilities Payable for securities purchased Accrued liabilities Obligations under securities loan agreements Tax refunds payable Due to U.S. Government Due to local governments Due to others Due to component units Unearned revenue Current portion of accrued insurance losses Current portion of long-term debt Current portion of other long-term liabilities Total Current Liabilities PRIMARY GOVERNMENT GOVERNMENTAL BUSINESS-TYPE TOTAL PRIMARY ACTIVITIES ACTIVITIES GOVERNMENT $ Noncurrent Liabilities: Unearned revenue Accrued insurance losses Funds held for others Net OPEB obligation Net pension liability Long-term debt Derivative instrument - interest rate swap Other long-term liabilities Total Noncurrent Liabilities Total Liabilities DEFERRED INFLOWS OF RESOURCES Related to pensions Resources received before time requirements met Gain on debt refundings Total Deferred Inflows of Resources NET POSITION Net investment in capital assets Restricted for: General government Health and welfare Inspection and regulation Education Protection and safety Natural resources Unemployment Compensation Capital projects Debt service Permanent funds and University funds: Expendable Nonexpendable Loans and other financial assistance: Expendable Other Unrestricted (deficit) Total Net Position $ 559,722 777,891 501,317 1,474 7,892 1,401,566 416,126 98,443 60,177 557,316 181,564 4,563,488 $ 178,030 1,592 81,231 26,239 900 83 75,881 985 166,804 27,088 140,677 25,504 725,014 $ 737,752 1,592 859,122 527,556 2,374 7,975 1,401,566 492,007 985 265,247 87,265 697,993 207,068 5,288,502 COMPONENT UNITS $ 10,900 8,663 5,005 58,230 110 82,908 87,977 397,212 17,809 3,607,014 5,732,709 167,881 10,010,602 443,515 25,839 10,607 1,299,644 3,575,682 16,772 98,564 5,470,623 87,977 840,727 25,839 28,416 4,906,658 9,308,391 16,772 266,445 15,481,225 2,191 2,733 870,446 875,370 14,574,090 6,195,637 20,769,727 958,278 405,567 - 217,472 239,331 252 623,039 239,331 252 665 - 405,567 457,055 862,622 665 18,790,871 1,661,466 20,452,337 35,738 40,230 195,105 3,735 448,936 23,674 11,209 798,538 - 197,670 6,125 17,943 40,230 195,105 3,735 448,936 23,674 11,209 197,670 804,663 17,943 98,469 191,338 5,436,617 336,999 225,837 528,337 5,662,454 - 20,907 (5,686,304) 78,770 32,272 138,712 99,677 32,272 (5,547,592) 20,274,856 $ The Notes to the Financial Statements are an integral part of this statement. - 39 - 2,695,794 $ 22,970,650 593,904 31,048 19,441 $ 778,600 STATE OF ARIZONA STATEMENT OF FINANCIAL POSITION UNIVERSITIES - AFFILIATED COMPONENT UNITS JUNE 30, 2015 (Expressed in Thousands) ASSETS Cash and cash equivalent investments $ Receivables: Pledges receivable Other receivables Total receivables 177,359 42,813 220,172 Investments: Investments in securities Other investments Total investments 1,719,267 64,227 1,783,494 Net direct financing leases Property and equipment, net of accumulated depreciation Other assets 72,123 329,041 67,770 Total Assets 2,573,752 LIABILITIES Accounts payable and accrued liabilities Liability under endowment trust agreements Long-term debt Deferred revenue Other liabilities 46,634 358,385 519,688 28,310 50,411 Total Liabilities 1,003,428 NET ASSETS Permanently restricted Temporarily restricted Unrestricted Total Net Assets 101,152 985,246 501,532 83,546 $ 1,570,324 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, 2015 (Expressed in Thousands) PROGRAM REVENUES OPERATING CAPITAL CHARGES FOR GRANTS AND GRANTS AND SERVICES CONTRIBUTIONS CONTRIBUTIONS 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 Other Total Business-type Activities Total Primary Government COMPONENT UNITS: Water Infrastructure Finance Authority Other Component Units Total Component Units 923,659 14,296,714 159,874 5,859,267 1,568,732 786,028 204,939 2,966,400 230,871 26,996,484 $ 4,378,481 1,041,261 5,419,742 188,356 411,914 157,624 67,480 118,424 113,163 67,085 1,124,046 $ 2,303,791 1,345,566 3,649,357 170,420 11,319,093 20,236 1,373,021 99,427 172,279 45,670 13,200,146 1,320,055 557 1,320,612 $ 32,416,226 $ 4,773,403 $ 14,520,758 $ 36,611 64,323 100,934 $ 34,177 31,107 65,284 $ 24,109 9,219 33,328 $ $ $ $ 43,321 43,321 $ General Revenues: Taxes: Sales Income Tobacco Property Motor vehicle and fuel Other Unrestricted investment earnings Unrestricted grants and contributions Gain on sale of trust land Payments from State of Arizona Miscellaneous Contributions to permanent endowments Transfers Total General Revenues, Contributions, and Transfers Change in Net Position Net Position - Beginning, as restated Net Position - Ending The Notes to the Financial Statements are an integral part of this statement. - 42 - 8,982 696,877 230 706,089 749,410 NET (EXPENSE) REVENUE AND CHANGES IN NET POSITION PRIMARY GOVERNMENT TOTAL GOVERNMENTAL BUSINESS-TYPE PRIMARY COMPONENT ACTIVITIES ACTIVITIES GOVERNMENT UNITS $ (564,883) (2,556,725) 17,986 (4,418,766) (1,350,881) 196,291 (91,954) (2,966,400) (230,871) (11,966,203) $ $ (11,966,203) (564,883) (2,556,725) 17,986 (4,418,766) (1,350,881) 196,291 (91,954) (2,966,400) (230,871) (11,966,203) (711,314) 304,862 (406,452) (711,314) 304,862 (406,452) (406,452) (12,372,655) $ 6,290,950 4,430,602 314,522 52,241 1,694,779 560,920 87,115 39,847 97,231 232,658 (601,539) 13,199,326 1,233,123 19,041,733 $ 20,274,856 $ 21,675 (23,997) (2,322) 64,757 37,839 138,931 5,740 601,539 6,355,707 4,430,602 314,522 52,241 1,694,779 560,920 124,954 39,847 97,231 371,589 5,740 - 9,768 13,869 7,314 58 37,164 3 - 848,806 442,354 2,253,440 14,048,132 1,675,477 21,295,173 68,176 65,854 712,746 2,695,794 $ 22,970,650 $ 778,600 - 43 - STATE OF ARIZONA STATEMENT OF ACTIVITIES UNIVERSITIES - AFFILIATED COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) UNRESTRICTED REVENUES Contributions Rental revenue Sales and services Net investment income Grants and aid Other revenues Net assets released from restrictions $ Total Revenues 24,198 49,301 83,352 6,671 15,616 26,291 224,317 TEMPORARILY PERMANENTLY RESTRICTED RESTRICTED $ 198,111 $ 110 7,593 4,077 (181,105) TOTAL 74,221 $ 7,668 (43,212) 296,530 49,301 83,462 21,932 15,616 30,368 - 429,746 28,786 38,677 497,209 174,895 9,679 22,601 9,109 124,790 11,524 21,921 23,004 12,563 - - 174,895 9,679 22,601 9,109 124,790 11,524 21,921 23,004 12,563 Total Expenses 410,086 - - 410,086 Increase in Net Assets, before extraordinary items 19,660 28,786 38,677 87,123 Extraordinary items (Primarily equity transfers) 31,892 - - 31,892 Increase in Net Assets, after extraordinary items 51,552 28,786 38,677 119,015 Net Assets - Beginning, as restated Transfers 31,794 200 473,418 (672) 946,097 472 1,451,309 - EXPENSES Program services: Payments to Universities Leasing related expenses Payments on behalf of Universities Other program services Management and general expenses Fundraising expenses Interest Depreciation and amortization Other expenses Net Assets - Ending $ 83,546 $ 501,532 The Notes to the Financial Statements are an integral part of this statement. - 44 - $ 985,246 $ 1,570,324 STATE OF ARIZONA BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2015 (Expressed in Thousands) TRANSPORTATION & AVIATION PLANNING, HIGHWAY LAND MAINTENANCE & ENDOWMENTS SAFETY FUND FUND GENERAL FUND ASSETS Cash Cash and pooled investments with State Treasurer Collateral investment pool 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 Investments Securities held in escheat Endowment investments Other Total Assets $ $ LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES 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 Due to other Funds Unearned revenue Total Liabilities Deferred Inflows of Resources: Unavailable revenue Fund Balances: Nonspendable Restricted Committed Unassigned Total Fund Balances Total Liabilities, Deferred Inflows of Resources, and Fund Balances 1,467 $ - $ 28 OTHER GOVERNMENTAL FUNDS $ 1,653 TOTAL $ 3,148 1,683,137 34,644 167,083 - 101,105 456,978 802,652 9,695 2,753,977 501,317 345,093 1,532 18,878 106,604 491,924 126,426 153,758 33,213 9,915 80,335 3,904 13,732 50,634 417 21,930 6,341 224,708 260,145 2,754 544 - 78,159 341 25,215 16,113 76,149 - 503,587 226,581 282,927 148,305 558,671 126,843 153,758 131,836 16,256 26 - - - 26 40,530 4,048 3,210 60,401 101 3,114,907 910,915 1,255,291 5,154,781 6,201,043 614,541 17,230 1,641,748 1,565,986 21,278 3,210 60,401 5,154,781 101 12,212,989 311,091 443,789 $ $ 92,591 8,083 $ $ 8,886 7 $ $ 19,436 48,430 $ $ 432,004 500,309 34,644 568 7,892 1,136,677 401,812 284,251 74,915 2,695,639 117,234 7,852 225,760 456,978 1 6,256 110,172 582,300 9,695 906 147,655 14,313 22,376 1,301 264,112 501,317 1,474 7,892 1,401,566 416,126 320,735 186,388 3,767,811 375,787 819 473,489 814 850,909 9,168 241,919 99,145 (306,751) 43,481 6,341 809,095 213,276 1,028,712 5,175,215 (29,961) 5,145,254 764,358 612,464 1,376,822 5,190,724 1,815,372 924,885 (336,712) 7,594,269 . $ 3,114,907 $ 1,255,291 The Notes to the Financial Statements are an integral part of this statement. - 45 - $ 6,201,043 $ 1,641,748 $ 12,212,989 STATE OF ARIZONA RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION JUNE 30, 2015 (Expressed in Thousands) Total fund balances - governmental funds $ 7,594,269 Amounts reported for governmental activities in the Statement of Net Position are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the governmental funds. 22,154,653 Certain revenues collected after year-end are not available soon enough to pay for current period expenditures and, therefore, are reported as unavailable deferred inflows of resources in the governmental funds. 850,909 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 Position. (247,730) The allocation of the internal service fund accumulated net gain results in an amount due to business-type activities, which is not reported in the governmental funds. (79,709) Deferred outflows of resources are applicable to future reporting periods and, therefore, are not reported in the governmental funds. These amounts consist of: Loss on refunding of debt Related to pensions 89,322 642,376 731,698 Certain liabilities and related accrued interest are not due and payable from current financial resources and, therefore, are not reported in the governmental funds. These amounts consist of: Net OPEB Net pension Revenue bonds Grant anticipation notes Certificates of participation Accrued interest on certificates of participation Capital leases Installment purchase contracts Notes payable Premium on debt Compensated absences Pollution remediation obligations (17,809) (3,563,991) (3,141,190) (194,670) (2,030,805) (26,992) (402,841) (349) (22,179) (492,048) (169,022) (19,713) (10,081,609) Accrued liabilities for AHCCCS programmatic costs and reimbursements are not due and payable from current financial resources and, therefore, are not reported in the governmental funds. (249,581) Deferred inflows of resources related to pensions are applicable to future reporting periods and, therefore, are not reported in the governmental funds. (398,044) Net position of governmental activities $ The Notes to the Financial Statements are an integral part of this statement. - 46 - 20,274,856 STATE OF ARIZONA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) TRANSPORTATION & GENERAL FUND REVENUES Taxes: Sales Income Tobacco Property Motor vehicle and fuel Other Intergovernmental Licenses, fees, and permits Hospital and nursing facility assessments Earnings on investments Sales and charges for services Fines, forfeitures, and penalties Gaming Tobacco settlement Proceeds from sale of trust land 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 capital assets Capital lease and installment purchase contracts Refunding bonds issued Proceeds from notes and loans Payment to refunded bond escrow agent Premium on debt issued Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ AVIATION PLANNING, HIGHWAY LAND MAINTENANCE & ENDOWMENTS SAFETY FUND FUND OTHER GOVERNMENTAL FUNDS $ $ 5,469,062 4,398,892 64,363 41,646 7,093 465,805 12,632,194 92,008 24,044 100,375 16,780 6,372 99,975 212,021 23,630,630 254,871 8,595 1,564,789 869,156 101,523 9,386 10,821 11,603 2,830,744 $ 2,984 208,010 48,142 123,483 4,553 387,172 557,353 36 250,159 2,000 122,897 95,115 105,300 289,816 291,324 53,685 34,215 135,948 83,140 26,345 2,047,333 TOTAL $ 6,281,286 4,398,928 314,522 52,241 1,694,779 560,920 13,606,650 486,331 291,324 295,125 193,553 152,728 89,512 99,975 123,483 254,522 28,895,879 692,764 13,828,725 42,164 5,045,965 1,139,230 1 65,993 1,810,749 671,544 1,155,651 5,058 48,514 1,886 3,700 - 150,395 554,366 116,331 762,911 261,109 28,535 119,609 - 843,159 14,388,149 158,495 5,857,390 1,402,225 700,080 189,302 2,966,400 127,469 46,038 128,439 22,927,537 86,413 960 554,367 2,468,935 163 59,321 346,615 223,874 100,957 2,664,702 560,497 270,872 783,926 28,120,495 703,093 361,809 327,851 (617,369) 267,554 (952,780) 1,025 (684,201) 18,892 24,589 (305,410) 259 783 (304,368) 57,441 971,271 291 (24,993) (24,702) 303,149 4,842,105 588,601 (109,118) 754,285 (900,813) 149,554 482,509 (134,860) 1,511,682 43,481 $ 1,028,712 The Notes to the Financial Statements are an integral part of this statement. - 47 - $ 5,145,254 $ 1,376,822 775,384 856,446 (1,392,301) 259 1,025 754,285 783 (900,813) 149,554 (530,762) 244,622 7,349,647 $ 7,594,269 STATE OF ARIZONA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) Net change in fund balances - total governmental funds $ 244,622 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. Also, infrastructure was adjusted to primarily reflect reduction in construction in progress resulting from certain infrastructure projects being reclassified from capital outlay to non-capital. This is the amount by which capital outlays exceeded depreciation and infrastructure adjustments in the current period. Capital outlay 783,926 Infrastructure adjustment (51,430) Depreciation expense (119,086) 613,410 The net expense of the internal service funds allocable to governmental activities is included in the Statement of Activities. (34,054) Net change in certain revenues reported in the Statement of Activities do not provide current financial resources and, therefore, are reported as unavailable deferred inflows of resources in the governmental funds. Sales taxes 9,664 Income taxes 31,674 Operating grants (89,593) Other revenue 138 (48,117) Trust land sales are financed with long-term mortgages. In the Statement of Activities, the gain on sale of trust land is reported, whereas in the governmental funds, the proceeds from the collection of mortgage payments are reported. In fiscal year 2015, mortgage payments received exceeded gains resulting from current year land sales. In addition, accrued interest on land sales contracts is reported as revenues in the Statement of Activities but are not reported as revenues in the governmental funds. Excess of mortgage receipts over gain on sale of land Accrued interest on land sales' contracts (26,252) 9,486 (16,766) Pension contributions are reported as expenditures in the governmental funds in the fiscal year contributed. However, current year contributions are reported as deferred outflows of resources in the Statement of Net Position because the reported net pension liability is measured a year before the State's current fiscal year-end financial statements. Pension expense, which is the change in the net pension liability adjusted for changes in deferred outflows and inflows of resources related to pensions, is reported in the Statement of Activities. Pension contributions made during fiscal year 2015 230,075 Pension expense and pension-related grant expense (414,141) The Notes to the Financial Statements are an integral part of this statement. (184,066) (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 FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) Certain expenses reported in the Statement of Activities do not require the use of current financial resources and, therefore, are not reported as expenditures in the governmental funds. AHCCCS accrued programmatic costs 106,400 Compensated absences (4,116) Pollution remediation obligations 808 Interest on long-term obligations 1,397 OPEB obligations (17,809) Other expenses (12,655) 74,025 Bond proceeds provide current financial resources to the governmental funds; however, issuing debt increases long-term liabilities in the Statement of Net Position. In the current period, proceeds were received from: Refunding bonds issued (754,285) Proceeds from notes and loans (783) Premium on debt issued (149,554) (904,622) Repayment of long-term debt is reported as an expenditure in the governmental funds, but the repayment reduces long-term liabilities and deferred outflows of resources in the Statement of Net Position. Governmental funds report the effect of premiums, discounts, and similar items when debt is issued, whereas these amounts are amortized in the Statement of Activities. In the current year, these amounts consist of: Debt service principal 560,497 Payment to refunded bond escrow agent 900,813 Debt premium/discount amortization 49,226 Amortization of deferred losses on refundings (10,621) 1,499,915 Some capital asset additions were financed through capital leases and installment purchase contracts. Such financing arrangements are reported as other financing sources in the governmental funds; however, these amounts are reported as liabilities in the Statement of Net Position. In addition, certain internal service fund vehicle purchases were financed by leases executed through governmental funds. The vehicles financed through capital leases and transferred to internal service funds are recognized as contributed capital and are, therefore, included in internal service funds' net expense. However, for government-wide reporting, the effect of this contributed capital is eliminated. Governmental funds capital leases and installment purchase contracts Internal service fund vehicle purchases financed by governmental fund leases Change in net position of governmental activities (1,025) (10,199) (11,224) $ The Notes to the Financial Statements are an integral part of this statement. - 49 - 1,233,123 STATE OF ARIZONA STATEMENT OF NET POSITION PROPRIETARY FUNDS JUNE 30, 2015 (Expressed in Thousands) BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS TOTAL ENTERPRISE UNIVERSITIES OTHER FUNDS 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 other Funds Inventories, at cost Other current assets Total Current Assets Noncurrent Assets: Restricted assets: Cash Cash held by trustee Investments held by trustee Receivables, net of allowances: Loans and notes Other Investments Endowment investments Other noncurrent assets Capital assets: Land and other non-depreciable Buildings, equipment, and other depreciable, net of accumulated depreciation Total Noncurrent Assets Total Assets DEFERRED OUTFLOWS OF RESOURCES Related to pensions Loss on debt refundings Interest rate swap Total Deferred Outflows of Resources $ 206,604 47,535 $ 36,440 135,098 68,391 $ 243,044 135,098 115,926 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS $ 443,889 136,847 78,733 26,239 272,842 78,733 26,239 409,689 - 852 4,036 164,039 80,310 222,335 8,562 14,633 885,753 95,805 1,571 34,004 73 185 11,831 613 761,825 95,805 2,423 4,036 198,043 80,383 222,520 20,393 15,246 1,647,578 7,226 2,212 2,715 15,958 472,000 15,705 315,291 498,098 - 15,705 315,291 498,098 - 31,689 10,411 922,571 428,243 22,398 266,417 9,859 31,689 10,411 1,188,988 428,243 32,257 - 663,979 5,879 669,858 11 4,145,321 7,053,706 7,939,459 31,559 313,714 1,075,539 4,176,880 7,367,420 9,014,998 84,840 84,851 556,851 185,178 72,330 16,772 274,280 7,532 7,532 192,710 72,330 16,772 281,812 6,566 6,566 The Notes to the Financial Statements are an integral part of this statement. (Continued) - 50 - STATE OF ARIZONA STATEMENT OF NET POSITION PROPRIETARY FUNDS JUNE 30, 2015 (Expressed in Thousands) BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS TOTAL ENTERPRISE UNIVERSITIES OTHER FUNDS LIABILITIES Current Liabilities: Accounts payable and other current liabilities Payable for securities purchased Accrued liabilities Obligations under securities loan agreements Tax refunds payable Due to U.S. Government Due to others Due to component units Due to other Funds Unearned 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: Accrued insurance losses Funds held for others Net OPEB obligation Net pension liability Long-term debt Derivative instrument - interest rate swap Other long-term liabilities Total Noncurrent Liabilities Total Liabilities DEFERRED INFLOWS OF RESOURCES Related to pensions Resources received before time requirements met Gain on debt refundings Total Deferred Inflows of Resources NET POSITION Net investment in capital assets Restricted for: Unemployment Compensation Capital projects Debt service Universities fund: Expendable Nonexpendable Loans and other financial assistance: Expendable Other Unrestricted (deficit) Total Net Position 167,881 48,482 30,214 164,611 140,677 23,638 575,503 $ $ 178,030 1,592 81,231 26,239 900 83 75,881 985 28,033 166,804 27,088 140,677 25,504 753,047 $ 127,718 1,009 7,800 32 60,177 1,328 11,356 209,420 25,839 10,607 1,256,618 3,575,682 16,772 98,472 4,983,990 5,559,493 443,515 43,026 92 486,633 664,177 443,515 25,839 10,607 1,299,644 3,575,682 16,772 98,564 5,470,623 6,223,670 397,212 43,023 4,615 149,354 594,204 803,624 209,739 239,331 252 449,322 7,733 7,733 217,472 239,331 252 457,055 7,523 7,523 1,624,029 37,437 1,661,466 84,851 6,125 17,943 197,670 - 197,670 6,125 17,943 - 336,999 225,837 - 336,999 225,837 - 78,770 32,272 65,012 78,770 32,272 59,003 (6,009) $ 10,149 1,592 32,749 26,239 900 83 45,667 985 28,033 2,193 27,088 1,866 177,544 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS 2,204,924 $ 411,161 $ 2,616,085 $ 2,695,794 Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds. Net position of business-type activities The Notes to the Financial Statements are an integral part of this statement. - 51 - 79,709 (332,581) $ (247,730) STATE OF ARIZONA STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS TOTAL ENTERPRISE UNIVERSITIES OTHER FUNDS OPERATING REVENUES Sales and charges for services: Student tuition and fees, net of scholarship allowances of $539,959 Auxiliary enterprises, net of scholarship allowances of $53,215 Educational department Other Unemployment assessments Workers' compensation assessments Intergovernmental Nongovernmental grants and contracts Fines, forfeitures, and penalties Settlement income Other Total Operating Revenues $ OPERATING EXPENSES Cost of sales and benefits 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 Intergovernmental Gifts and donations Gain on sale of capital assets Investment income Endowment earnings on investments Other non-operating revenue Distributions Interest expense Other non-operating expense Total Non-Operating Revenues (Expenses) Income (Loss) Before Contributions, and Transfers Capital grants and contributions Contributions to permanent endowments Transfers in Transfers out Change in Net Position Total Net Position - Beginning, as restated Total Net Position - Ending 1,781,332 $ $ 1,781,332 $ - 403,793 118,666 519,624 218,345 64,965 3,106,725 858,314 461,007 14,561 1,972 9,712 3,316 1,348,882 403,793 118,666 858,314 461,007 14,561 519,624 218,345 1,972 9,712 68,281 4,455,607 1,168,415 238,539 2,583,367 274,610 4,264,931 (1,158,206) 936,092 43,632 27,719 3,605 726 9,705 1,021,479 327,403 2,104,507 238,539 2,626,999 27,719 278,215 726 9,705 5,286,410 (830,803) 780,854 38,710 22,682 14,692 92,565 8,980 958,483 65,895 1,024,315 63 1,024,378 64,757 303,572 288,713 46,862 37,203 (10,199) 21,530 (122,444) (9,814) 620,180 4 1,193 2,254 (14,944) (942) (3,896) (16,331) 64,757 303,572 288,713 46,866 38,396 (10,199) 23,784 (14,944) (123,386) (13,710) 603,849 1,240 4 968 (29,112) (26,900) (538,026) 43,321 5,740 774,910 - 311,072 222,956 (396,327) (226,954) 43,321 5,740 997,866 (396,327) 38,995 11,343 (65,684) 285,945 1,918,979 $ - GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS 2,204,924 137,701 273,460 $ $ 2,616,085 Change in net position of enterprise funds $ Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds. 423,646 18,708 Change in net position of business-type activities 411,161 423,646 2,192,439 $ The Notes to the Financial Statements are an integral part of this statement. - 52 - 442,354 (15,346) (232,384) $ (247,730) (This page intentionally left blank) STATE OF ARIZONA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS TOTAL ENTERPRISE UNIVERSITIES OTHER FUNDS CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Receipts from assessments Receipts from student tuition and fees Receipts from sales and services of auxiliary enterprises Receipts from sales and services of educational departments Receipts from interfund services / premiums Receipts from grants and contracts Receipts from student loans collected Receipts from settlement income Payments to suppliers, prize winners, claimants, or insurance companies Payments to employees Payments to retirees Payments for scholarships and fellowships Payments for student loans issued Other receipts Other payments Net Cash Provided (Used) by Operating Activities $ CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Receipts from custodial funds Receipts from share of State sales tax Receipts from grants and contributions Transfers from other Funds Custodial funds disbursed Grants and contributions disbursed Distributions Interest paid on loan due to U.S. Government Transfers to other Funds Other receipts 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, installment purchase contracts, and capital leases Receipts from federal subsidy Receipts from capital grants and contributions Receipts from insurance recoveries Transfers from other Funds 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 Net Cash Provided (Used) by Capital and Related Financing Activities 1,736,280 $ 551,659 479,325 - $ 551,659 479,325 1,736,280 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS $ - 404,673 - 404,673 - 115,995 750,152 7,503 - 9,712 115,995 750,152 7,503 9,712 1,032,563 - (1,159,312) (2,502,943) (244,035) (5,998) 59,417 (838,268) (659,508) (57,272) 3,647 (12,847) 314,716 (1,818,820) (2,560,215) (244,035) (5,998) 63,064 (12,847) (523,552) (872,990) (37,173) (12,194) 646 (29,112) 81,740 326,560 66,190 1,757,714 720,617 (327,948) (904,038) 12,820 222,956 (14,944) (975) (397,943) - 326,560 66,190 1,757,714 943,573 (327,948) (904,038) (14,944) (975) (397,943) 12,820 (65,684) - 1,651,915 (190,906) 1,461,009 (65,684) 54,989 680,752 15,071 40,975 33,160 (549,351) 16 (1,479) 55,005 2,969 680,752 15,071 40,975 33,160 (550,830) 5,511 385 (7,641) (129,693) - (129,693) (37) (276,156) - (276,156) (444) (131,716) 743 (130,253) The Notes to the Financial Statements are an integral part of this statement. (1,463) (Continued) - 54 - STATE OF ARIZONA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS TOTAL ENTERPRISE UNIVERSITIES OTHER FUNDS 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 Equity interest in Thunderbird Net Cash Provided (Used) by Investing Activities Net Increase in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning, as restated Cash and Cash Equivalents - Ending RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation and amortization Provision for uncollectible accounts Miscellaneous income (expense) Net changes in assets, deferred outflows of resources, liabilities, and deferred inflows of resources: (Increase) decrease in receivables, net of allowances (Increase) decrease in due from U.S. Government (Increase) decrease in due from other Funds (Increase) decrease in inventories, at cost (Increase) decrease in other assets (Increase) in deferred pension outflows of resources Increase (decrease) in accounts payable Increase in accrued liabilities (Decrease) in due to U.S. Government Increase in due to other Funds (Decrease) in due to others Increase (decrease) in unearned revenue Increase (decrease) in accrued insurance losses Increase in net OPEB obligation (Decrease) in net pension liability Increase in other liabilities Increase in deferred pension inflows of resources Net Cash Provided (Used) by Operating Activities SCHEDULE OF NONCASH INVESTING, CAPITAL AND NON-CAPITAL FINANCING ACTIVITIES Acquisition of capital assets through capital leases Contribution of capital assets from other Funds Gifts and conveyances of capital assets Gain (loss) on disposal of capital assets, net Unrealized loss on endowments (Decrease) in fair value of investments Amortization of bond discount Amortization of bond premium Amortization of unearned rent Refinancing long-term debt Total Noncash Investing, Capital and Non-capital Financing Activities $ $ 351,886 24,929 279,190 12,626 (910,726) (17,000) (550,911) (18,661) (371,649) (98,494) 132,483 452,652 23,853 321,048 585,135 (1,158,206) GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS 631,076 37,555 4 (18,661) (1,282,375) (17,000) (649,405) 4 156,336 773,700 $ 344,901 $ $ 327,403 $ 930,036 16,803 427,086 $ 443,889 (830,803) $ 65,895 274,610 (7,758) 3,605 40 157 278,215 40 (7,601) 14,692 (28,492) (21,716) (34) 532 (105,072) 23,749 26,323 1,761 10,607 (92,803) 209,739 (2,224) (1) (13) 1,771 52 (4,728) 1,421 7,509 (12,921) 56 (794) (91) (13,541) (943) 225 7,733 (23,940) (1) (13) 1,737 584 (109,800) 25,170 33,832 (12,921) 56 (794) 1,670 (13,541) 10,607 (93,746) 225 217,472 3,960 3,600 654 458 (10,426) (3,761) (8,683) 128 7,786 908 28,060 (2,278) 1,716 7,523 $ (838,268) $ 314,716 $ (523,552) $ 81,740 $ 35,000 8,899 46,874 (5,136) (10,579) (1,856) 3,884 470 505,304 $ - $ (12) (13,095) - 35,000 $ 8,899 46,862 (5,136) (23,674) (1,856) 3,884 470 505,304 5,511 11,343 - 582,860 $ (13,107) $ 569,753 16,854 $ The Notes to the Financial Statements are an integral part of this statement. - 55 - $ - STATE OF ARIZONA STATEMENT OF FIDUCIARY NET POSITION FIDUCIARY FUNDS PENSION AND OTHER JUNE 30, 2015 EMPLOYEE BENEFIT (Expressed in Thousands) TRUST FUNDS ASSETS Cash Cash and pooled investments with State Treasurer Short-term investments $ 404,530 INVESTMENT AGENCY TRUSTS FUNDS $ - $ 19,143 - 613 - 105,944 6,258 Receivables, net of allowances: Accrued interest and dividends Securities sold Forward contracts receivable Contributions Court fees Due from other Funds Other Total receivables 64,531 138,279 14,922 90,099 3,436 10,380 45,461 367,108 3,173 3,173 43 43 Investments, at fair value: Temporary investments Fixed income securities Corporate stocks Global tactical asset allocation Real assets Real estate Private equity Opportunistic investments Collateral investment pool Other investments Total investments 1,417,771 8,375,155 24,037,501 2,399,687 665,575 3,221,238 1,197,508 731,816 656,784 1,135,705 43,838,740 2,813,149 19,486 2,832,635 1,572 1,572 - - 83,132 3,971,599 1,649 4,227 - - 44,614,605 2,836,421 4,189,340 720 - - 41,651 58,275 - 141 - 656,784 7,485 13,131 5,835 19,486 - 1,572 15,442 4,172,326 - 783,161 19,627 4,189,340 1,131 - - 41,569,951 2,261,082 - 2,816,794 - Due from others Custodial securities in safekeeping Other assets Property and equipment, net of accumulated depreciation Total Assets DEFERRED OUTFLOWS OF RESOURCES Related to pensions LIABILITIES Accounts payable and other current liabilities Payable for securities purchased Management fee payable Obligation under securities loan agreements Forward contracts payable Due to local governments Due to others Due to other Funds Net pension liability Total Liabilities DEFERRED INFLOWS OF RESOURCES Related to pensions NET POSITION Restricted for: Pension benefits Other post-employment benefits Pool participants Total Net Position $ 43,831,033 The Notes to the Financial Statements are an integral part of this statement. $ 2,816,794 - 56 - $ - STATE OF ARIZONA STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FIDUCIARY FUNDS FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) PENSION AND OTHER ADDITIONS: Member contributions Employer contributions Non-employer entity contributions Member purchase of service credit Court fees EMPLOYEE BENEFIT INVESTMENT TRUST FUNDS TRUSTS $ 1,257,630 1,644,407 5,000 31,538 8,286 $ - Investment income: Net increase (decrease) in fair value of investments Interest income Dividends Other investment income Securities lending income Total investment income 798,702 162,625 365,408 147,319 10,264 1,484,318 (2,246) 13,597 51 11,402 Less investment expenses: Investment activity expenses Securities lending expenses Net investment income 293,162 1,380 1,189,776 1,564 39 9,799 Capital share and individual account transactions: Shares sold Reinvested interest income Shares redeemed Net capital share and individual account transactions - Other additions Total Additions DEDUCTIONS: Retirement, disability, and survivor benefits Health insurance subsidy Refunds to withdrawing members, including interest Administrative expense Dividends to investors Other deductions Total Deductions Change in net position restricted for: Pension benefits Other post-employment benefits Pool participants Net Position - Beginning, as restated Net Position - Ending $ 4,155,178 10,943 (4,093,854) - 72,267 33,713 - 4,170,350 82,066 3,674,428 18,591 - 298,066 37,285 2,123 9,482 - 4,030,493 9,482 135,527 4,330 43,691,176 72,584 2,744,210 43,831,033 $ 2,816,794 The Notes to the Financial Statements are an integral part of this statement. - 57 - STATE OF ARIZONA COMBINING STATEMENT OF NET POSITION COMPONENT UNITS JUNE 30, 2015 (Expressed in Thousands) WATER INFRASTRUCTURE FINANCE AUTHORITY ASSETS Current Assets: Cash Cash and pooled investments with State Treasurer Cash held by trustee Collateral investment pool Restricted investments held by trustee Receivables, net of allowances: Taxes Interest Loans and notes Other Other current assets Total Current Assets $ Noncurrent Assets: Restricted assets: Cash and pooled investments with State Treasurer Cash held by trustee Investments held by trustee Loans and notes receivable, net of allowances Investments Other noncurrent assets Capital assets: Land and other non-depreciable Buildings, equipment, and other depreciable, net of accumulated depreciation Total Noncurrent Assets Total Assets DEFERRED OUTFLOWS OF RESOURCES Related to pensions Loss on debt refundings Future benefits and advances Total Deferred Outflows of Resources 146,842 18,937 1,434 - OTHER COMPONENT UNITS $ 22,865 154,875 3,571 5,203 TOTAL $ 22,865 301,717 18,937 5,005 5,203 10,165 6,889 184,267 3,597 6 4,148 7,105 1,684 203,054 3,597 10,171 4,148 13,994 1,684 387,321 1,074,508 94,647 - 11,965 16,849 7,758 23,769 606 11,965 16,849 7,758 1,098,277 94,647 606 - 7,321 7,321 45 1,169,200 31,758 100,026 31,803 1,269,226 1,353,467 303,080 1,656,547 277 53,123 - 105 27,491 382 53,123 27,491 53,400 27,596 80,996 The Notes to the Financial Statements are an integral part of this statement. (Continued) - 58 - STATE OF ARIZONA COMBINING STATEMENT OF NET POSITION COMPONENT UNITS JUNE 30, 2015 (Expressed in Thousands) WATER INFRASTRUCTURE FINANCE AUTHORITY LIABILITIES Current Liabilities: Accounts payable and other current liabilities Accrued liabilities Obligations under securities loan agreements Current portion of long-term debt Current portion of other long-term liabilities Total Current Liabilities $ 8,098 1,434 47,540 110 57,182 OTHER COMPONENT UNITS $ 10,900 565 3,571 10,690 25,726 TOTAL $ 10,900 8,663 5,005 58,230 110 82,908 Noncurrent Liabilities: Unearned revenue Net pension liability Long-term debt Total Noncurrent Liabilities 2,191 1,831 764,079 768,101 902 106,367 107,269 2,191 2,733 870,446 875,370 Total Liabilities 825,283 132,995 958,278 320 345 665 45 35,693 35,738 34,815 75,924 31,048 19,856 98,469 593,904 31,048 19,441 DEFERRED INFLOWS OF RESOURCES Related to pensions NET POSITION Net investment in capital assets Restricted for: Debt service Loans and other financial assistance Other Unrestricted Total Net Position 63,654 517,980 (415) $ 581,264 The Notes to the Financial Statements are an integral part of this statement. - 59 - $ 197,336 $ 778,600 STATE OF ARIZONA COMBINING STATEMENT OF ACTIVITIES COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) PROGRAM REVENUES OPERATING EXPENSES FUNCTIONS/PROGRAMS Water Infrastructure Finance Authority $ Other Component Units Total 36,611 CHARGES FOR GRANTS AND SERVICES CONTRIBUTIONS $ 64,323 $ 100,934 34,177 $ 31,107 $ 65,284 9,219 $ General Revenues: Taxes: Sales Other Unrestricted investment earnings Unrestricted grants and contributions Payments from State of Arizona Miscellaneous Change in Net Position Net Position - Beginning, as restated Net Position - Ending The Notes to the Financial Statements are an integral part of this statement. - 60 - 24,109 33,328 NET (EXPENSE) REVENUE AND CHANGES IN NET POSITION WATER $ INFRASTRUCTURE OTHER FINANCE COMPONENT AUTHORITY UNITS 21,675 $ - 6,084 27,759 553,505 $ 581,264 $ TOTAL - $ 21,675 (23,997) (23,997) 9,768 13,869 1,230 58 37,164 3 38,095 159,241 9,768 13,869 7,314 58 37,164 3 65,854 712,746 197,336 $ 778,600 - 61 - STATE OF ARIZONA COMBINING STATEMENT OF FINANCIAL POSITION UNIVERSITIES - AFFILIATED COMPONENT UNITS JUNE 30, 2015 (Expressed in Thousands) ARIZONA STATE UNIVERSITY FOUNDATION ASSETS Cash and cash equivalent investments $ 15,696 UNIVERSITY OF ARIZONA FOUNDATION ARIZONA CAPITAL FACILITIES FINANCE CORPORATION $ $ 53,551 4,244 OTHER COMPONENT UNITS $ 27,661 TOTAL $ 101,152 Receivables: Pledges receivable Other receivables Total receivables 112,992 6,691 119,683 27,890 27,890 350 350 36,477 35,772 72,249 177,359 42,813 220,172 Investments: Investments in securities Other investments Total investments 736,433 50,208 786,641 748,417 748,417 16,260 16,260 218,157 14,019 232,176 1,719,267 64,227 1,783,494 23,690 - 42,007 6,426 72,123 13,317 38,631 12,266 10,505 156,007 3,572 147,451 15,062 329,041 67,770 997,658 852,629 222,440 501,025 2,573,752 9,297 3,392 7,957 25,988 46,634 116,254 105,690 28,167 213,427 6,763 263,288 - 28,704 150,710 28,310 15,481 358,385 519,688 28,310 50,411 259,408 223,582 271,245 249,193 1,003,428 417,755 287,938 32,557 494,137 122,675 12,235 (48,805) 73,354 90,919 87,559 985,246 501,532 83,546 Net direct financing leases Property and equipment, net of accumulated depreciation Other assets Total Assets LIABILITIES Accounts payable and accrued liabilities Liability under endowment trust agreements Long-term debt Deferred revenue Other liabilities Total Liabilities NET ASSETS Permanently restricted Temporarily restricted Unrestricted (deficit) Total Net Assets $ 738,250 $ 629,047 The Notes to the Financial Statements are an integral part of this statement. - 62 - $ (48,805) $ 251,832 $ 1,570,324 STATE OF ARIZONA COMBINING STATEMENT OF ACTIVITIES UNIVERSITIES - AFFILIATED COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) ARIZONA STATE UNIVERSITY FOUNDATION REVENUES Contributions Rental revenue Sales and services Net investment income Grants and aid Other revenues $ Total Revenues EXPENSES Program services: Payments to Universities Leasing related expenses Payments on behalf of Universities Other program services Management and general expenses Fundraising expenses Interest Depreciation and amortization Other expenses Total Expenses Increase (decrease) in Net Assets, before extraordinary items Extraordinary item (Primarily equity transfers) Increase in Net Assets, after extraordinary items Net Assets - Beginning, as restated Net Assets - Ending 109,391 1,430 21,757 10,744 3,766 $ 123,340 1,208 7,419 11,711 $ 15,043 9,570 1 8,545 OTHER COMPONENT UNITS $ 63,799 32,828 50,927 3,768 15,616 6,346 TOTAL $ 296,530 49,301 83,462 21,932 15,616 30,368 147,088 143,678 33,159 173,284 497,209 78,355 32,941 1,592 763 8,656 80,295 16,777 4,342 8,225 - 514 9,662 12,659 12,448 127 15,731 9,679 5,824 9,109 77,845 3,299 7,670 9,793 3,780 174,895 9,679 22,601 9,109 124,790 11,524 21,921 23,004 12,563 122,307 109,639 35,410 142,730 410,086 24,781 34,039 (2,251) 30,554 87,123 - - 7,882 24,010 31,892 24,781 34,039 5,631 54,564 119,015 (54,436) 197,268 (48,805) $ 251,832 713,469 $ ARIZONA CAPITAL FACILITIES FINANCE CORPORATION UNIVERSITY OF ARIZONA FOUNDATION 738,250 595,008 $ 629,047 The Notes to the Financial Statements are an integral part of this statement. - 63 - $ 1,451,309 $ 1,570,324 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS INDEX Page Page Note 1. Summary of Significant Accounting Policies -------- 65 A. Reporting Entity ------------------------------------ 65 B. Basis of Presentation ------------------------------- 70 C. Measurement Focus and Basis of Accounting ------------------------------------------- 71 D. Deposits and Investments ------------------------- 72 E. Taxes Receivable ----------------------------------- 73 F. Inventories ------------------------------------------- 73 G. Capital Assets ---------------------------------------- 73 H. Deferred Outflows of Resources ----------------- 74 I. Investment Earnings ------------------------------- 74 J. Scholarship Allowances --------------------------- 74 K. Unearned Revenue --------------------------------- 74 L. Pensions ---------------------------------------------- 74 M. Compensated Absences ---------------------------- 74 N. Long-Term Obligations ---------------------------- 75 O. Deferred Inflows of Resources ------------------- 75 P. Net Position/Fund Balances ---------------------- 75 Q. New Accounting Pronouncements and Major Fund Change ------------------------------ 76 Note 2. Deposits and Investments ------------------------------- 77 A. Deposits and Investment Policies ---------------- 77 B. Custodial Credit Risk – Deposits and Investments ------------------------ 79 C. Interest Rate Risk ----------------------------------- 79 D. Credit Risk ------------------------------------------ 81 E. Concentration of Credit Risk --------------------- 82 F. Foreign Currency Risk ---------------------------- 83 G. Securities Lending --------------------------------- 84 H. Derivatives ------------------------------------------ 85 I. State Treasurer’s Separately Issued Financial Statements ----------------------------- 88 Note 3. Receivables/Unavailable Revenue/ Unearned Revenue ------------------------------------A. Taxes Receivable ----------------------------------B. Unavailable Revenue -----------------------------C. Unearned Revenue --------------------------------- C. Funding Policy --------------------------------- 105 D. Annual OPEB Cost and Net OPEB Obligation -------------------------------------- 106 E. Funded Status and Funding Progress -------- 106 F. Actuarial Methods and Assumptions ------- 106 Note 7. Long-Term Obligations ---------------------------- 107 A. Revenue Bonds --------------------------------- 107 B. Grant Anticipation Notes --------------------- 114 C. Certificates of Participation ------------------ 115 D. Leases -------------------------------------------- 118 E. Compensated Absences ----------------------- 119 F. Changes in Long-Term Obligations -------- 120 Note 8. Interfund Transactions ------------------------------ 121 Note 9. Accounting Changes -------------------------------- 122 A. Fund Financial Statements ------------------- 122 B. Government-wide Financial Statements --- 122 Note 10. Governmental Fund Balances --------------------- 123 Note 11. Deficit Net Position --------------------------------- 123 Note 12. Joint Ventures ---------------------------------------- 124 A. Large Binocular Telescope Corporation --- 124 B. Giant Magellan Telescope Organization --- 124 Note 13. Commitments, Contingencies, and Compliance ----------------------------------- 124 A. Insurance Losses ------------------------------- 124 B. Litigation ---------------------------------------- 126 C. Accumulated Sick Leave --------------------- 127 D. Unclaimed Property ---------------------------- 127 E. Construction Commitments ------------------ 128 F. Arizona State Lottery -------------------------- 128 Note 14. Tobacco Settlement -------------------------------- 128 88 88 88 89 Note 4. Capital Assets --------------------------------------------- 90 Note 5. Pension Benefits ------------------------------------------ 91 A. Arizona State Retirement System --------------- 92 B. Public Safety Personnel Retirement System and Corrections Officer Retirement Plan ------ 95 C. Elected Officials’ Retirement Plan --------------101 Note 6. Other Post-Employment Benefits ----------------------104 A. Plan Description ------------------------------------104 B. Summary of Significant Accounting Policies ----------------------------------------------105 - 64 - Note 15. Subsequent Events --------------------------------- 128 Note 16. Discretely Presented Component Unit Disclosures ----------------------------------------- 129 A. Summary of Significant Accounting Policies ------------------------------------------ 129 B. Deposits and Investments --------------------- 131 C. Program Loans --------------------------------- 133 D. Pledges Receivable ---------------------------- 133 E. Direct Financing Lease Agreements -------- 133 F. Capital Assets ----------------------------------- 134 G. Long-Term Obligations ----------------------- 134 H. Conduit Debt ------------------------------------ 136 I. Accounting Restatement ---------------------- 137 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 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 (U.S. GAAP) applicable to governmental units adopted by the Governmental Accounting Standards Board (GASB). A. REPORTING ENTITY The State 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 – Discretely Presented Component Unit Disclosures. 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. 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 the GASB. 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. Where the State does not appoint a voting majority of an organization’s governing body, GASB requires inclusion in the reporting entity if it is fiscally dependent on the State and there is a potential for the organization to either provide specific financial benefits to, or to impose specific financial burdens on, the State. Further, component units can be other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the financial statements to be misleading. In addition, GASB 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 Northern Arizona Capital Facilities Finance Corporation (NACFFC) is blended with the Universities financial statements. The NACFFC was established for the purpose of acquiring, developing, constructing, and operating student housing and other capital facilities and equipment for the use and benefit of Northern Arizona University’s (NAU) students. The NACFFC’s debt outstanding is expected to be repaid entirely or almost entirely with resources from the NAU. The State reports the following component units as fiduciary funds: The Arizona State Retirement System (ASRS) is a cost-sharing, multiple-employer, pension plan that benefits employees of the State and participating political subdivisions and school districts. The ASRS is administered in accordance with provisions of Arizona Revised Statutes (A.R.S.) Title 38, Chapter 5, Articles 2 and 2.1. The ASRS is governed by a nine-member board that is appointed by the Governor and approved by the Senate to serve three-year terms. The State has the ability to impose its will on the ASRS as the State Legislature can modify the plan design and benefits. Additionally, per A.R.S. § 38-721, the State Legislature appropriates monies to pay for the administrative expenses of the ASRS. Complete financial statements may be obtained from the ASRS’s administrative office at P.O. Box 33910, Phoenix, AZ 85067-3910, (602) 240-2000, or its website at www.azasrs.gov. - 65 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 The Public Safety Personnel Retirement System (PSPRS) is an agent, multiple-employer public employee retirement system that benefits public safety employees of certain State, county, and local governments. The PSPRS is jointly administered by the Board of Trustees and 237 local boards according to the provisions of A.R.S. Title 38, Chapter 5, Article 4. The Board of Trustees is a seven-member board appointed by the Governor and approved by the Senate to serve a fixed five-year term. The State has the ability to impose its will on the PSPRS as the State Legislature can modify the plan design and benefits. Each eligible group participating in the system has a five-member local board. In general, all members serve a fixed four-year term. Complete financial statements may be obtained from the PSPRS’s administrative office at 3010 East Camelback Road, Suite 200, Phoenix, AZ 85016-4416, (602) 255-5575, or its website at www.psprs.com. The Elected Officials’ Retirement Plan (EORP) is a cost-sharing, multiple-employer public employee retirement plan that benefits elected officials and judges of certain State, county, and local governments who were members of the plan on December 31, 2013. As part of the 2013 Fifty-first Legislature, House Bill 2608 effectively closed the EORP to new members and created the Elected Officials’ Defined Contribution Retirement System, with an effective date of January 1, 2014. The Board of Trustees of the PSPRS administers the EORP plan according to the provisions of A.R.S. Title 38, Chapter 5, Article 3. The State has the ability to impose its will on the EORP as the State Legislature can modify the plan design and benefits. Complete financial statements may be obtained from the PSPRS’s administrative office at 3010 East Camelback Road, Suite 200, Phoenix, AZ 85016-4416, (602) 255-5575, or its website at www.psprs.com. The Corrections Officer Retirement Plan (CORP) is a multiple-employer public employee retirement plan that benefits prison and jail employees of certain state, county, and local governments. CORP includes a cost-sharing multiple-employer plan for Administrative Office of the Courts (AOC) probation officers and an agent multiple-employer plan for all other members. The Board of Trustees of the PSPRS, 26 local boards of the CORP, and 15 local boards of the AOC administer the plans according to the provisions of A.R.S. Title 38, Chapter 5, Article 6. The State has the ability to impose its will on the CORP and AOC as the State Legislature can modify the plans design and benefits. Complete financial statements may be obtained from the PSPRS’s administrative office at 3010 East Camelback Road, Suite 200, Phoenix, AZ 85016-4416, (602) 255-5575, or its website at www.psprs.com. The State reports the following discretely presented component units: Major Component Unit: 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 U.S. 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 seven Governor appointed directors serve staggered terms of five years and serve at the pleasure of the Governor; thus, the State has the ability to impose its will on WIFA. Complete financial statements may be obtained from the WIFA’s administrative office at 1110 West Washington Street, Suite 290, Phoenix, AZ 85007, (602) 364-1324. Non-major Component Units: Greater Arizona Development Authority (GADA) – The purpose of the GADA is to provide cost-effective access to capital for local communities, certain special districts, and tribal governments for public infrastructure projects. The GADA is governed by a nine-member Board of Directors consisting of four State of Arizona agency heads and five members, one of which shall be a representative of a tribal nation in Arizona, appointed by the Governor of the State. Members appointed by the Governor serve staggered five-year terms. A financial benefit/burden relationship exists between the State and GADA as its fund was originally capitalized with General Fund appropriations and the State Legislature has swept monies from its fund over the years to balance the State’s budget. Complete financial statements may be obtained from the GADA’s administrative office at 1110 West Washington Street, Suite 290, Phoenix, AZ 85007, (602) 364-1324. Rio Nuevo Multipurpose Facilities District (Rio Nuevo) – The Rio Nuevo was established in 1999 with the passage of Proposition 400 by the voters in the Cities of Tucson and South Tucson. Under applicable A.R.S., the District can utilize tax incremental financing to help develop multipurpose facilities in the downtown Tucson area. The Rio Nuevo is governed by a nine-member board of directors, with five members appointed by the Governor, two members appointed by the President of the Senate, and the remaining two members appointed by the Speaker of the House of Representatives. All board of directors can be removed at will; thus, the State has the ability to impose its will on Rio Nuevo. Complete financial statements may be obtained - 66 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 from Rio Nuevo’s administrative office at 400 West Congress, Suite 152, Tucson, AZ 85701, (520) 623-7336, or its website at www.rionuevo.org. 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 two years. The APA is required to follow specific State policies; thus, the State has the ability to impose its will on APA. Complete financial statements may be obtained from the APA’s administrative office at 1810 West Adams Street, Phoenix, AZ 85007-2679, (602) 368-4265. Arizona Commerce Authority (ACA) – The ACA is charged with the following responsibilities: job creation and expansion of capital investment through business attraction, expansion and retention, including business incubation and entrepreneurship; creation, monitoring, and execution of a comprehensive economic and workforce strategy; management and administration of economic development and workforce programs; providing statewide marketing leadership; utilization of all means necessary, prudent and practical to integrate private sector-based innovation, flexibility, focus and responsiveness; and advancement of public policy to meet the State’s economic development objectives. The ACA is governed by a nineteen member board of directors consisting of the Governor serving as Chairperson, a Chief Executive Officer, and seventeen members consisting of private sector business leaders serving staggered three-year terms, of which, nine are appointed by the Governor, four are appointed by the President of the Senate, and the other four are appointed by the Speaker of the House of Representatives. A financial benefit/burden relationship exists between the State and ACA as its primary funding source is the allocated State General Fund withholding tax revenues received in each fiscal year according to A.R.S. § 43-409. Complete financial statements may be obtained from the ACA’s administrative office at 333 North Central Avenue, Suite 1900, Phoenix, AZ 85004, (602) 8451200. 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, with the exception of Downtown Phoenix Student Housing, LLC, the ASU Preparatory Academy, Inc. (ASU Prep), and Campus Research Corporation (CRC). The Downtown Phoenix Student Housing, LLC is included due to the nature and significance of the financial arrangement that it has with the State and that the State believes would be misleading to exclude. The ASU Prep is included because of its close affiliation to the State and that the State believes it would be misleading to exclude. The CRC is included because the U of A approves the budget and can access its resources. The following discretely presented component units of the State affiliated with the Universities are reported as major component units: Arizona State University Foundation for a New American University (ASU Foundation) – The ASU Foundation's resources are disbursed at the discretion of the ASU Foundation's independent board of directors, in accordance with donor directions and the ASU Foundation policy. The directors of the ASU Foundation make all decisions regarding the ASU Foundation’s business affairs, including distributions made to the ASU. The economic resources held by the ASU Foundation are significant to the ASU and are entirely for the benefit of the ASU. Arizona Capital Facilities Finance Corporation (ACFFC) – The ACFFC provides facilities for use by students of ASU or ASU itself. A fiscal dependency and financial benefit/burden relationship exists between the ACFFC and the ASU. University of Arizona Foundation (U of A Foundation) – The U of A Foundation supports the U of A through various fundraising activities and contributes funds to the U of A in support of various programs. The restricted resources held by the U of A Foundation are significant to the U of A and can only be used by, or for the benefit of, the U of A or its constituents. The following discretely presented component units of the State affiliated with the Universities are reported as non-major component units: Arizona State University Alumni Association, Sun Angel Foundation, and Sun Angel Endowment – These three component units of the State affiliated with the Universities receive funds primarily through donations, dues, and/or affinity partners and contribute funds to ASU for support of various programs. The economic resources held by these three component units are significant to the ASU and are entirely for the benefit of the ASU. - 67 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 Arizona State University Research Park, Inc. (ASU Research Park) – The ASU Research Park manages a research park to promote and support research activities in coordination with ASU. In developing the research park, bonds were issued that are guaranteed by the ASU. A fiscal dependency and financial benefit/burden relationship exists between the ASU Research Park and the ASU. Thunderbird School of Global Management (Thunderbird) – Thunderbird offers non-degree programs focused on global business across cultural, ethical, and multi-lingual curriculum. A fiscal dependency and financial benefit/burden relationship exists between the Thunderbird and the ASU. Downtown Phoenix Student Housing, LLC – This component unit of the State affiliated with the Universities provides housing facilities for use by students of the ASU. ASU Prep – The ASU Prep prepares Arizona K-12 students for success with a university-embedded academic program that empowers them to complete college, compete globally, and contribute to their communities. University of Arizona Alumni Association (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. The economic resources held by the U of A Alumni Association are significant to the U of A and are entirely or almost entirely for the benefit of the U of A. University of Arizona Law College Association (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. The economic resources held by the Law Association are significant to the U of A and are entirely or almost entirely for the benefit of the U of A. University of Arizona Campus Research Corporation (CRC) – The CRC was established to assist the U of A in the acquisition, improvement, and operation of the U of A Science and Technology Park (Tech Park) and related properties. The CRC currently leases from the U of A the remaining 67% of building space of the Tech Park not leased to the Arizona Research Park Authority. The CRC is responsible for assisting in the development of the presently undeveloped portions of the Tech Park and for subleasing unoccupied space, newly developed 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. University of Arizona Eller Executive Education (EEE) – The EEE was established to advance the missions of the Eller College of Management and the U of A through noncredit, non-degree programs for business, government, and nonprofit leaders. The U of A president appoints all EEE board members and can remove any member at will; thus, the U of A can impose its will on the EEE. Northern Arizona University Foundation, Inc. (NAU Foundation) – The NAU Foundation receives gifts and bequests, administers and invests in securities and property, and disburses payments to and on behalf of NAU for advancement of its mission. The restricted resources of the NAU Foundation can only be used by, or for the benefit of NAU or its constituents. Northern Arizona Real Estate Holdings, LLC, (NAREH) – The NAREH is a wholly owned subsidiary of the NAU Foundation and was established to construct, develop, equip, operate, maintain, lease, and hold real estate investments on behalf of the NAU Foundation. NAU Ventures, LLC (NAUV) – The NAUV is a wholly owned subsidiary of the NAU Foundation and was established to license, or otherwise commercialize the intellectual property owned or controlled by the Arizona Board of Regents, the NAU, or the NAU Foundation. Complete financial statements for each of the aforementioned component units, except for the U of A Foundation, may be obtained as follows: ASU Foundation, ACFFC, ASU Alumni Association, Sun Angel Foundation, Sun Angel Endowment, ASU Research Park, Thunderbird, Downtown Phoenix Student Housing, LLC, and the ASU Prep – contact ASU Financial Services at (480) 965-3601 U of A Alumni Association – Alumni Association, The University of Arizona, P.O. Box 210109, Tucson, AZ 85721-0109 - 68 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 Law Association – Law College Association, James E. Rogers College of Law at the University of Arizona, 1201 E. Speedway Blvd., Tucson, AZ 85721-0176 CRC – The University of Arizona Science and Technology Park, 9070 South Rita Road, Suite 1750, Tucson, AZ 85747 EEE – Eller Executive Education, P.O. Box 210108, Tucson, AZ 85721-0108 NAU Foundation, NAREH, NAUV, and NACFFC – Northern Arizona University, Comptroller's Office, P.O. Box 4069, Flagstaff, AZ 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 U of A Comptroller at the following address: University of Arizona, Financial Services, 1303 E. University Blvd., Box 4, Tucson, AZ 85719-0521. 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 for inclusion. 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) – A.R.S. § 36-482 established the Authority to issue tax-exempt bonds and loans for the purpose of improving health care for Arizona residents by providing less expensive financing for health care facilities. Proceeds from bond issues are loaned to various qualifying health care organizations. The health care organizations 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. The State cannot abrogate the rights of the Authority until all bonds, together with the interest thereon, are fully paid and discharged and all agreements are fully performed. Arizona International Development Authority (the Authority) – A.R.S. § 41-4502 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 and approved by the Senate for five-year terms, and can be removed only for cause. Arizona Sports and Tourism Authority (the Authority) – A.R.S. § 5-802 established the Authority to construct, finance, furnish, maintain, improve, operate, market, and promote the use of a multipurpose facility and do all things necessary or convenient 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 Senate and two members each by the President of the Senate and the Speaker of the House. The directors serve terms of five years, may be re-appointed for one full subsequent term, and can be removed only for cause. Arizona Housing Finance Authority (the Authority) – A.R.S. § 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 shall notify a city, town, county, tribal government, or existing corporation (as defined in A.R.S. § 35-701) that a multifamily residential rental project is planned for its jurisdiction and, before proceeding, shall obtain written consent from the governing body of the city, town, county, or tribal government. 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. Joint Ventures As described in Note 12, the U of A participates in joint ventures. In accordance with U.S. GAAP, the financial activities of these joint ventures are not included in the State’s financial statements. - 69 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 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 and its component units. The statements include a statement of net position 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 Position presents the State’s assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position. The total of assets and deferred outflows of resources, minus the total of liabilities and deferred inflows of resources, is reported as net position. Both the governmental and business-type activities are presented on a consolidated basis by column. 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 operating grants and contributions 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 and 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 (ADOT). The ADOT builds and maintains the - 70 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 State’s highway system and the Grand Canyon Airport. The fund primarily receives revenues from motor vehicle and fuel taxes and federal grants. 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 fund: The Universities – account for transactions of the State’s three universities, which comprise the State’s university system. 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 rate payroll processing charge among all agencies, allocate postage and mailing costs among all agencies, or arrange for the sale of the State’s office equipment and motorized vehicles at public auctions. Pension and Other Employee Benefit Trust Funds – account for the activities of the ASRS, the PSPRS, the EORP, and the CORP, for which the State acts as a trustee. These retirement and other post-employment benefit plans accumulate resources to pay pension, health insurance premium subsidies, and long-term disability 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. 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. However, the agency funds are custodial in nature and do not have a measurement focus. 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 60 days after yearend. Those revenues susceptible to accrual are federal reimbursements, highway user revenue tax, and state sales tax. Expenditures are recorded when the related fund liability is incurred, except for net pension liability, 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. When an expense is incurred for purposes for which restricted and unrestricted net position are available, the State considers restricted and unrestricted amounts to have been spent in that order. - 71 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 D. 1. DEPOSITS 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 Position (unrestricted/restricted) “Cash”, “Cash with U.S. Treasury”, “Cash and pooled investments with State Treasurer”, “Cash held by trustee” and “Collateral investment pool”. 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) – includes un-deposited 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 – consists of a centralized management of most State cash resources maintained by the State Treasurer. 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. • Cash held by trustee – consists of capital projects and bond debt service funds invested by the trustee in accordance with the applicable financing indenture, generally limited to United States Treasury securities and other Federal agency securities, certificates of deposit, commercial paper, and money market funds. • 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. 2. Investment Valuation Investments maintained by the State Treasurer are reported at fair value using State Street prices, as determined by independent, industry recognized data vendors who provide values that are either exchange based or matrix based. Equities are priced utilizing the primary exchange closing price. All bonds are priced using an evaluated bid, except securities with a remaining maturity of 90 days or less are priced at amortized cost (amortizing premium/accreting discount on a straight-line to maturity method). The evaluated bid is based on a compilation of primary observable market information or a broker quote in a non-active market. The ASRS’ publicly traded investments are reported at fair value determined by the custodial agents. The agents’ determination of fair values includes, among other things, using pricing services or prices quoted by independent brokers at current exchange rates. ASRS’ derivative instruments, which consist of futures, forward contracts, options, swaps, rights, and warrants, are measured at fair value. Changes in fair values of derivative instruments are reported as net increase (decrease) in fair value of investments. The fair value of limited partnership investments are based on estimated current values and accepted industry practice. Fair value is based on estimates and assumptions from information and representations provided by the respective general partners, in the absence of readily ascertainable fair values. Short-term investments are reported at cost plus accrued interest, which approximates fair value. For investments where no readily ascertainable fair value exists, the ASRS, 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. Interest income is recorded on the accrual basis and dividends are recorded on the ex-dividend date. Security transactions and any resulting gains or losses are accounted for on a trade date basis. For the PSPRS, the EORP, and the CORP, investments are reported at fair value. Short term investments are reported at cost plus accrued interest. 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 value as determined by the fixed income broker/dealers plus accrued interest. Investments in hedge funds are valued monthly at the last reported valuations. Limited partnership investments in credit opportunities, private equity, real assets, and real estate are valued on a quarterly or monthly basis at last reported valuations adjusted by any subsequent cash flows. - 72 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 E. TAXES RECEIVABLE Taxes receivable include amounts owed by taxpayers for prior periods 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 inflows of resources. 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, 2015. Sales and motor vehicle and fuel tax receivables represent amounts that are earned by the State in the fiscal period ended June 30, 2015, 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, weighted average, or lower of cost or market. 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. CAPITAL ASSETS Capital assets are stated at cost at the date of acquisition or, if donated, at the appraised or estimated fair value at the date received. Interest incurred during the construction of capital assets, net of interest earned on the invested proceeds over the same period, is only capitalized in the proprietary funds. Most capital assets are depreciated over their estimated useful lives. However, the State reports most infrastructure assets using the modified approach, as provided by the GASB. Under this approach, rather than being depreciated, costs to maintain and preserve these assets are expensed. 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 at 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 Software Other intangibles General State Policy Capitalization Estimated Useful Threshold Life (years) All capitalized Not depreciated All capitalized 25-40 $5,000 15 $5,000 3-15 All capitalized Not depreciated $1,000,000 5-10 $100,000 Varied Other Authorized Agency Policies Capitalization Estimated Useful Threshold Life (years) All capitalized Not depreciated $0-$100,000 10-50 $0-$5,000 3-25 $0-$100,000 10-100 $1,000,000-$5,000,000 5-10 $100,000 Varied Other intangibles include non-software licenses and permits, patents, copyrights and trademarks, rights-of-way and easements, and natural resource extraction rights. These are amortized over the shorter of the legal or estimated useful life if the useful life is definite or limited. If the life is indefinite or unlimited, they are not amortized. In addition, rights-of-way and easements are amortized only if the value is separable from the underlying land and natural resource extraction rights are not amortized unless the value of the underlying asset is identifiable. The State is trustee for approximately 9.2 million acres of land acquired through U.S. Government land grants in the early 1900’s. The State acquired a substantial portion of this land at no cost and its fair value at acquisition has not been reliably estimated. Accordingly, this land is not reported in the accompanying financial statements. - 73 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 The State has interest in and maintains significant special collections, works of art, and historical treasures. Except for ASU, all special collections, works of art, and historical treasures which are held for financial gain are capitalized at fair 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. ASU capitalizes all works of art and historical treasures with a unit cost of $5,000 or more. Additional disclosures related to capital assets and assets acquired through capital leases are provided in Notes 4 and 7, respectively. H. DEFERRED OUTFLOWS OF RESOURCES Deferred outflows of resources represent a consumption of net position by the government that applies to a future period and so will not be recognized as an outflow of resources (expense) until then. Deferred outflows of resources increase net position, similar to assets. I. INVESTMENT EARNINGS Investment earnings are 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 Position. 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 fee waivers, 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 Position. K. UNEARNED REVENUE In the government-wide, governmental fund, and proprietary fund financial statements, unearned revenue is recorded when cash, receivables, or other assets are received prior to their being earned. L. PENSIONS For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the pension plan’s fiduciary net position and additions to/deductions from the plan’s fiduciary net position have been determined on the same basis as they are reported by the plan. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. M. COMPENSATED ABSENCES In the government-wide and proprietary fund financial statements, the State accrues liabilities for compensated absences as required by the 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 uncovered State employees and University employees, an employee generally forfeits accumulated annual leave in excess of 240 hours as of the last day of the last pay period for a calendar year, unless the Director of the Department of Administration authorizes an exception. Uncovered State employees shall forfeit accumulated annual leave in excess of 320 hours as of the end of each calendar year, unless an exception is authorized. 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 employment is paid for all unused and unforfeited annual leave at the employee’s rate of - 74 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 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 hours if working in a public safety activity or an emergency response activity). An employee who separates from State employment is paid for all unused compensatory leave at a rate of compensation not less than the higher of: (1) the average regular rate received by such employee during the last three years of employment or (2) the final regular rate received by such employee. For sick leave policy, see Note 13.C. N. 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 COPs are deferred and amortized over the life of the debt instrument using the straight-line method or the effective interest method. Bonds and COPs are reported net of the applicable premium or discount. In the fund financial statements, governmental fund types recognize proceeds from revenue bonds, COPs, other issuances, and premiums and discounts on debt as other financing sources and uses in the current period. Long-term liabilities are more fully described in Note 7. O. DEFERRED INFLOWS OF RESOURCES Deferred inflows of resources represent an acquisition of net position or fund balance that applies to a future period, and so will not be recognized as an inflow of resources (revenue) until that time. Deferred inflows of resources decrease net position or fund balance, similar to liabilities. P. NET POSITION/FUND BALANCES The difference between assets, deferred outflows of resources, liabilities, and deferred inflows of resources is “Net Position” on the government-wide, proprietary fund, and fiduciary fund financial statements and “Fund Balance” on the governmental fund financial statements. Net position is reported in three categories: Net investment in capital assets consists 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 position results when constraints placed on net position use are either externally imposed by creditors, grantors, contributors, or imposed by law through constitutional provisions, voter initiatives, or court orders. Unrestricted net position consists of net position which does not meet the definition of the two preceding categories. Unrestricted net position often has constraints on resources, which are imposed by management, but can be removed or modified. In the governmental fund financial statements, fund balances are reported in classifications that comprise a hierarchy based primarily on the extent to which the government is bound to honor constraints on the specific purposes for which amounts in those funds can be spent. Five classifications are available for reporting fund balances: Nonspendable fund balance includes items that cannot be spent. This includes activity that is not in a spendable form (inventories, prepaid amounts, long-term portion of loans/notes receivable, or property held for resale unless the proceeds are restricted or committed) and activity that is legally or contractually required to remain intact, such as a principal balance in a permanent fund. - 75 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 Restricted fund balances have constraints placed upon the use of the resources that are either externally imposed by creditors, grantors, and contributors, or imposed by law through constitutional provisions, voter initiatives, or court orders. Committed fund balances can be used only for specific purposes pursuant to constraints imposed by a formal action of the Arizona State Legislature, the State’s highest level of decision-making authority. This formal action is the passage of law by the Legislature, creating, modifying, or rescinding fund balance commitments. Assigned fund balance includes amounts that are constrained by the State’s intent to be used for a specific purpose, but are neither restricted nor committed. The State does not have policies or procedures comparable to the policies that underlie this classification and, accordingly, does not report assigned fund balances. Unassigned fund balance is the residual amount of the General Fund not included in the four categories described above. Also, any deficit fund balances within the other governmental fund types are reported as unassigned. When an expenditure is incurred for purposes for which restricted, committed, and unassigned fund balance is available, the State considers restricted, committed, and unassigned amounts to have been spent in that order. Budget Stabilization Fund The State’s Budget Stabilization Fund (BSF) was enacted in 1990 by A.R.S. § 35-144. The BSF is administered by the State Treasurer, who is responsible for transferring General Fund money into and out of the BSF as required by law. The BSF is designed to set revenue aside during times of above-trend economic growth and to utilize this revenue during times of belowtrend growth. The BSF is also known as the “Rainy Day Fund.” There is a statutory formula to calculate the amount to be appropriated to (deposit) or transferred out (withdrawal) of the BSF. The amount is based on calculations from the Arizona Economic Estimates Commission (EEC). The EEC compares the annual growth rate of real adjusted Arizona personal income (AZPI) for the calendar year ending in the fiscal year to the trend growth rate of real adjusted AZPI for the most recent 7 years. AZPI in the BSF formula is defined as total AZPI less transfer payments, adjusted by the gross domestic product price deflator index. If the annual growth rate exceeds the trend growth rate, the “excess” percent multiplied by General Fund revenue of the prior fiscal year would equal the amount to be deposited into the BSF. If the annual growth rate of AZPI is both less than 2% and less than the trend growth rate, the deficiency when multiplied by the General Fund revenue of the prior year would equal the amount to be withdrawn from the BSF. The BSF's total fund balance cannot be larger than 7% of the current year’s General Fund revenues, excluding the beginning balance. The budgets developed by the Governor and the Joint Legislative Budget Committee and submitted to the State Legislature at the start of each regular session include estimates of the amount to be appropriated to or transferred from the BSF for the upcoming budget year. The final determination of the amount is done by the EEC on June 1 of the budget year. The EEC calculations, however, do not result in any automatic deposits or withdrawals, as they must be authorized by legislative action. Additionally, by a two-thirds majority, the State Legislature, with the concurrence of the Governor, can decrease a deposit or increase a withdrawal. The BSF’s fund balance, including earnings on investments, as of June 30, 2015, was $457.3 million. Q. NEW ACCOUNTING PRONOUNCEMENTS AND MAJOR FUND CHANGE GASB Statement No. 68, Accounting and Financial Reporting for Pensions – an amendment of GASB Statement No. 27. This Statement replaces the requirements of Statements No. 27 and No. 50 as they relate to pensions that are provided through pension plans administered as trusts or equivalent arrangements that meet certain criteria. This Statement establishes standards for measuring and recognizing liabilities, deferred outflows of resources, deferred inflows of resources, and expense/expenditures for pensions. In addition, note disclosure and required supplementary information requirements about pensions are addressed. This Statement is effective for financial statements for fiscal years beginning after June 15, 2014. The State has implemented the requirements of this standard. GASB Statement No. 69, Government Combinations and Disposals of Government Operations. This Statement provides specific accounting and financial reporting guidance for combinations in the governmental environment. This Statement is effective for - 76 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 financial statements for fiscal years beginning after December 15, 2013. The State has implemented the requirements of this standard but they had no effect on the financial statements. GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date – an amendment of GASB Statement No. 68. This Statement amends Statement No. 68 to require that, at transition, a government recognize a beginning deferred outflow of resources for its pension contributions, if any, made subsequent to the measurement date of the beginning net pension liability. The provisions of this Statement are required to be applied simultaneously with the provisions of Statement No. 68. The State has implemented the requirements of this standard. The Industrial Commission Special Fund reported as a major enterprise fund in fiscal year 2014 did not meet the GASB major fund criteria in fiscal year 2015 and, as a result, is reported as a non-major enterprise fund. NOTE 2. DEPOSITS AND INVESTMENTS A. DEPOSITS AND INVESTMENT POLICIES The State’s deposits and investments are primarily under the control of the State Treasurer, the Retirement Systems, the Universities, the Industrial Commission (the Commission), and the Insurance Department Guaranty Funds (IDGF). These entities maintain the majority of the deposits and investments of the primary government. The investment policies of these organizations are defined according to State statutes, or a governing board, or both, and are described below. A.R.S. § 35-312, § 35-313, and § 35-314 authorize the State Treasurer to invest operating, trust, and permanent endowment fund monies. Monies deposited with the State Treasurer by State agencies are invested by the State 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 statutes and the State Treasurer’s investment policies designed to administer these statutes restrict investments to obligations of the U.S. Government and its agencies, obligations or other evidence of indebtedness of the State and certain local government subdivisions, negotiable certificates of deposit, bonds, debentures and notes issued by entities which are U.S. dollar denominated, commercial paper issued by entities which are U.S. dollar denominated, bankers acceptances, collateralized repurchase agreements, money market mutual funds, exchange traded funds, equities, and other securities. The State Treasurer is not allowed to invest in foreign investments unless the investment is denominated in U.S. dollars. The State Treasurer maintains external investment pools [the Local Government Investment Pool (LGIP), Local Government Investment Pool - FF&C, Local Government Investment Pool – Medium Term, and Local Government Investment Pool – Medium Term FF&C]. 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 A.R.S. § 35-311. In September 2008, the State agencies’ and an external investment pool’s share of the Lehman Brothers bond value of $39.4 million was transferred to the Lehman Brothers Pool due to Lehman Brothers filing for Chapter 11 bankruptcy protection on September 15, 2008. The transfer was made to provide for the decline in fair value of the Lehman Brothers securities. In December 2011, the United States Bankruptcy Court for the Southern District of New York entered an order confirming the Modified Third Amended Lehman Brothers Joint Plan of Liquidation. During the current year, approximately $3.1 million was received as payout of funds being held by the Indenture Trustee for Lehman Brothers securities. The payout received was allocated to participants based on the participant’s share balance and then transferred to the LGIP, reducing the carry or cost basis in the Lehman Brothers Pool. As of June 30, 2015, the carry or cost basis and the fair value for the Lehman Brothers Pool were $25.7 million and $2.7 million, respectively. There was a distribution in October 2015, and future distributions are generally expected every six months thereafter. The remaining amount to be recovered is unknown. The fair value of investments is measured on a monthly basis. Participant shares are purchased and sold based on the Net Position Value (NPV) of the shares. The NPV 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. - 77 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 The Central Arizona Water Conservation District is an individual investment account. The State Treasurer’s deposits and investments disclosures include the amounts reported by the State’s component units as (unrestricted/restricted) “Cash and pooled investments with State Treasurer” in the accompanying financial statements, as applicable. State statutes authorize the retirement systems to make investments in accordance with the “Prudent Person” rule. As such, investment management shall discharge the duties of their position with the care, skill, prudence, and diligence, under the circumstances then prevailing, that a “prudent person” acting in a like capacity and familiar with the same matters would use in the conduct of an enterprise of a like character and with like aims as that of the system. The ASRS invests in short-term securities, obligations of the U.S. government or agencies of the U.S. government, corporate bonds, common and preferred stocks (domestic and foreign), mortgages, derivatives, commodities, real estate, private equity, and opportunistic debt and equity investments. Per A.R.S. § 38-718, no more than 80% of the ASRS’ assets may be invested at any given time in equities, measured at fair value. No more than 40% of the ASRS’ assets may be in non-U.S. public investments, measured at fair value. No more than 60% of the ASRS’ assets may be invested internally, measured at fair value. No more than 10% of the ASRS’ assets may be invested in bonds or other evidences of indebtedness of those multinational development banks in which the U.S. is a member nation, including the International Bank for Reconstruction and Development, the African Development Bank, the Asian Development Bank, and the Inter-American Development Bank, measured at fair value. Subject to the limitations noted above, the ASRS Board may authorize the ASRS Director to make investments that are designated by the ASRS Board and that do not exceed 60% of the assets of the investment account measured at cost. The ASRS Board has not formally adopted more restrictive policies for the various types of risks. Per A.R.S. § 38-848D, § 38-803A(4), and § 38-883A(4), the PSPRS, the EORP, and the CORP, respectively, may not invest at any given time more than 80% of the combined assets of the system or other plans that the Board of Trustees manages in corporate stocks, based on cost value of such stocks irrespective of capital appreciation. In addition, the PSPRS, the EORP, and the CORP investments shall be restricted to stocks and exchange traded funds that, except for bank and insurance stocks and membership interests in limited liability companies, are either: 1) listed or approved on issuance for listing on an exchange registered under the Securities Exchange Act of 1934, as amended, 2) designated or approved on notice of issuance for designation on the national market system of a national securities association registered under the Securities Exchange Act of 1934, as amended, 3) listed or approved on issuance for listing on an exchange registered under the laws of this State or any other State, 4) listed or approved on issuance for listing on an exchange registered of a foreign country with which the U.S. is maintaining diplomatic relations at the time of purchase, except that no more than 20% of the combined assets of the system or other plans that the board manages shall be invested in foreign securities, based on the cost value of the stocks irrespective of capital appreciation, or 5) an exchange traded fund that is recommended by the chief investment officer of the system, that is registered under the Investment Company Act of 1940, and that is both traded on a public exchange and based on a publicly recognized index. Not more than 5% of the combined assets of the system or other plans that the board manages shall be invested in corporate stock issued by any one corporation, other than corporate stock issued by corporations chartered by the U.S. government or corporate stock issued by a bank or insurance company. Not more than 5% of the voting stock of any one corporation shall be owned by the system and other plans that the board administers, except that this limitation does not apply to membership interests in limited liability companies. The Arizona Board of Regents (ABOR) governs the investment policies of the Universities. The Universities are generally limited to investing their pooled operating funds in collateralized certificates of deposit and repurchase agreements, U.S. Treasury securities, Federal agency securities, investment grade corporate bonds, or in the LGIP administered by the State Treasurer. Investment of capital project funds is also governed by the financing indenture agreements. For endowment investments, ABOR policy dictates that these funds are to be invested under the direction of an investment committee designated by the president of each university. The investment committee is responsible for advising on the definition, development, and implementation of investment objectives, policies, and restrictions. However, if donors restrict the investments, ABOR policy requires the University to invest those funds separately as directed by the donor, and the individual endowments bear all changes in value. Per A.R.S. § 23-1065, the Commission’s investment committee is responsible for prescribing investment policies and supervising the investment activities of the Commission. The Commission requires that their investment policy be responsive to the unpredictable nature of the incidence and severity of claims, the long periods over which losses may be paid, and the effect on - 78 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 both claims and losses of increases in treatment and rehabilitation costs. The investment committee may invest in any legal investment authorized under A.R.S. § 38-718. Per A.R.S. § 20-665 and § 20-687, the IDGF’s board of directors shall submit to the director the fund’s plan of operations. Investment policies adopted pursuant to the plans of operation authorize the IDGF to invest monies in obligations issued or guaranteed by the United States or any of its senior debt of its agencies, sponsored agencies, corporations, sponsored corporations, or instrumentalities; specified state and local government bonds; interest earning investments such as share, checking, savings accounts, or certificate of deposits. B. CUSTODIAL CREDIT RISK – DEPOSITS AND INVESTMENTS Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, the deposits or collateral securities may not be recovered from an outside party. The State Treasurer’s, the Retirement Systems’, and the Universities’ deposits of State treasury monies with financial institutions are required by State statutes to be entirely covered by the Federal Depository Insurance Corporation (FDIC) or, alternatively, collateralized for amounts in excess of the amount insured. Surety collateral for the Universities and the ASRS must be equal to at least 100% of the bank balance required to be collateralized (102% for the State Treasurer, the PSPRS, the EORP, and the CORP). Beyond this requirement, these organizations do not have a formal policy specifically addressing custodial credit risk on deposits, except for the State Treasurer. The State statutes require surety collateral for the State Treasurer to consist of either: 1) U.S. Government obligations, State obligations, or obligations of counties or municipalities within the State, 2) State Treasurer’s warrant notes, or 3) the safekeeping receipt of the financial institution accepting the deposit. Custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, the value of the investment or collateral securities that are in the possession of an outside party may not be recovered. The State does not have a formal policy in regards to custodial credit risk for investments. As of June 30, 2015, the State had $80.7 million in securities that were uninsured, not registered in the State’s name, and held by either the counterparty or counterparty’s trust department or agent, but not in the State’s name. C. INTEREST RATE RISK Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The State manages interest rate risk using the segmented time distribution, weighted average maturity, and effective duration methods. The State Treasurer manages interest rate risk by incorporating A.R.S. limitations into their investment policy and setting forth various thresholds or parameters relating to interest rate risk in accordance with each investment pool’s portfolio structure. The State Treasurer’s policy provides either maturity or duration limitations for the various investment pools. The interest rate risk inherent in the portfolio is monitored monthly by measuring the weighted average maturity and/or duration. The ASU’s policies do not limit the overall maturity of the investments held by the operating and endowment funds; however, the operating fund investment policy includes guidelines addressing diversification and liquidity. The capital projects fund’s portfolio is not limited as to the overall maturity of its investments, with the funds invested per the financing indentures to coincide with capital spending needs and debt service requirements, which are typically less than three years, with the additional limitation that certificates of deposit and commercial paper have maximum maturities of 360 days and 270 days, respectively. The Commission approves and contracts with different investment managers of fixed income securities in order to manage the exposure to interest rate risk with each different manager focusing on different goals of yield periods or duration of maturities of their particular portion of the investment pool. The IDGF’s investment policy requires that the maximum final maturity on an individual investment is 4 years or less. - 79 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 The following table presents the State Treasurer’s, the ASU’s, the Commission’s, and the IDGF’s weighted average maturity in years by investment type as of June 30, 2015 (expressed in thousands): Investment Type Asset backed securities Certificates of deposit (negotiable) Commercial mortgage backed securities Commercial paper Corporate notes & bonds FDIC certificates of deposit Government bonds Money market mutual funds Repurchase agreements U.S. agency mortgage backed securities U.S. agency mortgage backed securities – full faith U.S. agency securities U.S. agency securities – full faith U.S. Treasury securities Other Total Fair Value $ 751,887 242,115 124,408 1,170,699 1,886,095 179,752 337,711 255,910 1,471,699 1,166,700 400,030 1,527,531 98,751 1,772,687 2,019 Weighted Average Maturity (in years) 1.66 0.12 28.68 0.10 2.89 0.16 2.98 0.04 0.00 19.54 20.14 1.59 1.37 1.68 1.45 $ 11,387,994 4.20 The ASRS has not adopted a specific formal policy for interest rate risk, but does set more restrictive requirements in its contracts with money managers. The ASRS utilizes effective duration to identify and manage its interest rate risk. Effective duration measures the expected change in value of a fixed income security for a given change in interest rate. This method takes into account the likely timing and amounts of variable cash flows for bonds with call options and prepayment provisions. The following table presents ASRS’ effective duration by investment type as of June 30, 2015 (expressed in thousands): Investment Type Asset backed securities Commercial mortgage backed securities Corporate bonds Fixed income mutual funds Government agency CMOs Government bonds Government mortgage backed securities Government related bonds Opportunistic debt Private debt U.S. Treasury securities Total Fair Value $ 5,143 50,686 1,737,914 1,976,526 506,612 735,984 7,337 37,555 1,087,081 1,671,528 502,993 $ 8,319,359 Effective Duration (in years) 6.90 3.50 4.80 * 2.60 6.90 2.90 5.70 * * 0.30 4.28 * Duration calculations for some securities are not available. The PSPRS, the EORP, the CORP, and the U of A do not have a formal policy in regards to interest rate risk. The NAU’s investment policy for its operating funds limits the maximum maturity of any fixed-rate or variable-rate security to five years from the settlement date of purchase. The NAU’s endowment funds have no such limitation. - 80 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 The following table presents the interest rate risk for the PSPRS, the EORP, the CORP, the NAU, the U of A, and other State agencies utilizing the segmented time distribution as of June 30, 2015 (expressed in thousands): Investment Type Certificates of deposit (negotiable) Corporate notes & bonds Fixed income mutual funds Government bonds Money market mutual funds U.S. agency securities U.S. Treasury securities Total Fair Value $ 29,044 924,056 11,595 Less than 1 $ 3,927 52,024 8,116 1-5 $ 25,117 275,608 751 2,821 153,922 263,316 64,492 250 153,922 156,777 20,257 2,571 90,664 44,162 $ 1,449,246 $ 395,273 $ 438,873 Investment Maturities (in years) 6-10 11-15 16-20 $ $ - $ 15,773 12,713 2,974 2,728 8,154 73 $ - 26,728 $ More than 20 $ 564,964 - - 12,713 $ 7,721 - 2,974 $ 572,685 The following table presents the State’s investments at fair value that are considered to be highly sensitive to interest rate changes as of June 30, 2015 (expressed in thousands): Interest Rate Terms Investments (including full faith) with coupon tied to the London Interbank Offered Rate (LIBOR) plus/minus a fixed basis point which resets monthly, quarterly, or semi-annually. Asset backed securities with coupon tied to the LIBOR plus/minus a fixed basis point which resets from monthly to quarterly. Mortgage backed securities (including full faith) - when interest rates fall, mortgages are refinanced and paid off early and the reduced stream of future interest payments diminishes fair value of the investment. U.S. Treasury securities with coupon tied to the U.S. Treasury 3 month bill money market yield plus/minus a fixed basis point which resets weekly. Other investments (including full faith) with high sensitivity to rate changes. Total D. Corporate Notes & Securities U.S. Agency Securities $ 560,668 $ Other 135,056 $ Total 97,115 $ 792,839 191,628 - - 191,628 120,382 1,566,730 - 1,687,112 9,971 135,261 205,018 - 205,018 145,232 1,837,047 $ 302,133 $ 3,021,829 $ 882,649 $ CREDIT RISK Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations to the holder of the investment. State statutes and the State Treasurer’s investment policy require that commercial paper must be rated by at least two nationally recognized statistical rating organizations (NRSROs) and that the ratings assigned by at least two of the NRSROs be of the two highest rating categories for short-term obligations. Corporate bonds, debentures, notes, negotiable certificates of deposit, and municipal bonds must carry a minimum Baa or better rating from Moody’s Investor Service (Moody’s) or a BBB or better rating from Standard and Poor’s Rating Service (S & P) or their successors. For securities of, or any other interests in, any open-end management type investment company or investment trust, including exchange traded funds, the underlying investments must be securities which are allowable under State statutes. For investments not rated by Moody’s, Fitch rating information is used. There is no statute or investment policy on ratings or credit quality for obligations issued by the U.S. Government or its agencies or repurchase agreements. The underlying securities for repurchase agreements are implicitly guaranteed by the U.S. Government, as some are collateralized with U.S. agency securities. The ASRS has not adopted a formal policy with respect to credit risk. The PSPRS’, the EORP’s, and the CORP’s investment policies are specific as to permissible credit quality ranges, exposure levels within individual quality tiers, and the average credit quality of the overall portfolios. The fixed income portfolio must have a minimum weighted average quality rating of A3 by Moody’s and A- by S & P. Fixed income securities must have a - 81 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 minimum quality rating of Baa3 by Moody’s and BBB- by S & P at the time of purchase. The portion of the bond portfolio in securities rated Baa3 through Baa1 by Moody’s and BBB- through BBB+ by S & P must be 20% or less of the fair value of the fixed income portfolio. Commercial paper must have a minimum quality rating of P-1 by Moody’s and A-1 by S & P at the time of purchase. The Universities’ policies mirror that of the ABOR, which requires that negotiable certificates of deposit, corporate bonds, debentures and notes, bankers acceptances, and State of Arizona bonds carry a minimum BBB or better rating by S & P or Baa or better rating by Moody’s; and that commercial paper be rated by at least two NRSROs and be of the two highest rating categories for short-term obligations of at least two of the NRSROs. In addition, the Universities do not have formal policies that specifically address credit risk over endowment funds. The Universities’ endowment funds are primarily invested in their Foundations’ endowment pools, which are not rated. The Foundations’ investment committees manage the credit risk of the pools’ investments. Also, the ASU’s capital projects and bond debt service funds are invested by the bond trustee in accordance with the applicable financing indenture. The Commission’s investment policy requires that purchases of fixed income securities will consist of U.S. Treasury or Federal agency obligations or those bonds rated not less than Baa3 by Moody’s or BBB- by S & P, except for fixed income managers who have been hired to manage funds in a specialized manner (high yield). The IDGF’s investment policy requires that investments shall be limited to those securities or other investments with a rating no lower than A- from S&P. The following table presents the State’s investments which were rated by S & P and/or an equivalent national rating organization as of June 30, 2015. The ratings are presented using S & P’s rating scale (expressed in thousands): Investment Type Asset backed securities Certificates of deposit (negotiable) Commercial mortgage backed securities Commercial paper Corporate notes & bonds Fixed income mutual funds Government agency CMOs Government bonds Government mortgage backed securities Government related bonds Money market mutual funds Opportunistic debt Private debt Repurchase agreements U.S. agency mortgage backed securities U.S. agency securities Other Total E. - CCC Thru D $ - A-1/A-2 $ 208,074 Not Rated $ 6,474 - - - 145,000 10,497 - - - - 1,170,699 774 - 1,386,660 707,891 425,235 619,748 224,448 - 583,965 - - - - - - - 1,988,121 506,612 848,447 215,141 5,824 - - - - - - 7,337 7,337 - - - - - - - - 37,555 23,274 14,281 - - - - - - - 409,832 1,087,081 1,671,528 493,492 409,832 - 493,492 - - - - - - 1,087,081 1,671,528 - 1,149,173 1,783,126 34,557 71,562 400 1,146,328 1,623,233 400 866 300 - - - 85,333 - 2,845 2,998 32,591 $17,096,788 $2,598,600 $4,092,154 $1,432,432 $708,191 $425,235 $619,748 $224,448 $1,609,106 $5,386,874 Fair Value $ 713,929 AAA $ 485,384 AA $ 13,997 A 252,612 - 66,801 30,314 - 175,094 1,170,699 165,552 - - 8,768 - 4,546,628 80,200 518,481 1,988,121 - 506,612 1,069,412 $ BBB - $ BB - $ B - $ CONCENTRATION OF CREDIT RISK Concentration of credit risk is the risk of loss attributed to the magnitude of a government’s investment in a single issuer. The State Treasurer’s, the ASRS’, the Universities’, and the Commission’s investment policies provide that no more than 5% of their investments shall be invested in securities issued by a single corporation and its subsidiaries/affiliates. However, securities issued - 82 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 by the U.S. government or its agencies, sponsored agencies, corporations, sponsored corporations or instrumentalities are exempt. The State Treasurer also exempts from this policy the purchase of Treasurer Warrant Notes for the State Agencies Diversified pool, provided the maximum amount of the notes purchased shall not exceed 50% of the fair value of the pool, bonds issued by an agency of the State, and pre-refunded municipal bonds issued by any entity that are invested in obligations issued or guaranteed by the U.S. government or any of its agencies, sponsored agencies, corporations, sponsored corporations or instrumentalities. The PSPRS’, the EORP’s, and the CORP’s investment policies state that no more than 5% of the Fund or its fixed income portfolio at fair value shall be invested in bonds issued by any one institution, agency, or corporation other than bonds issued as direct obligations of, and fully guaranteed by, the U.S. Government. The IDGF’s investment policies state that no more than 5% of its investment portfolio or $5 million, whichever is less, shall be invested with any one issuer, with the exception of the U.S. government, its agencies, or instrumentalities. At June 30, 2015, more than 5% of the primary government’s total investments are in Federal National Mortgage Association (fair value of $811.4 million or 6.1%). F. FOREIGN CURRENCY RISK Foreign currency risk is the risk that changes in the foreign exchange rate will adversely impact the fair value of an investment or deposit. The State does not have a formal policy regarding foreign currency risk. The ASRS, the PSPRS, the EORP, and the CORP are the primary State agencies that have foreign currency risk. Per A.R.S. § 38-718, no more than 40% of the ASRS' assets may be invested in foreign securities and those investments shall be made only by investment managers with expertise in those investments. The ASRS has not adopted a formal policy that is more restrictive. According to State statutes, the PSPRS, the EORP, and the CORP shall not invest more than 20% of the combined assets of the system or other plans that the Board of Trustees manages in foreign securities. The following table summarizes the State’s foreign currency risk as of June 30, 2015 (expressed in thousands): Currency Australian Dollar Brazilian Real British Pound Sterling Canadian Dollar Chilean Peso Columbian Peso Czech Koruna Danish Krone Euro Currency Hong Kong Dollar Hungarian Forint Indonesian Rupiah Israeli Shekel Japanese Yen Malaysian Ringgit Mexican Peso New Taiwan Dollar New Zealand Dollar Norwegian Krone Philippine Peso Polish Zloty Singapore Dollar South African Rand South Korean Won Swedish Krona Swiss Franc Thailand Baht Turkish Lira Total Foreign Currency Risk by Investment Type at Fair Value Other Short Term Equities Investments Total $ 204 $ 71,203 $ $ 71,407 62 16,422 16,484 11,235 638,434 50,674 700,343 320 69,217 69,537 1,933 1,933 28 913 941 11 304 315 6 40,478 40,484 3,349 859,872 259,714 1,122,935 504 113,970 114,474 12 367 379 17 3,644 3,661 60 6,585 6,645 3,701 608,229 611,930 19 5,436 5,455 24 8,577 47,465 56,066 823 23,331 24,154 36 1,981 2,017 236 20,840 21,076 28 2,373 2,401 24 2,563 2,587 104 26,745 26,849 49 14,283 14,332 48 61,779 61,827 80 60,997 61,077 1,030 210,169 211,199 9,616 9,616 40 2,522 2,562 $ 22,050 $ - 83 - 2,882,783 $ 357,853 $ 3,262,686 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 G. 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. Industrial Commission State statutes and the Commission’s 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, The Northern Trust Company, 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, 2015. The Northern Trust Company’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. U.S. securities are loaned for collateral valued at 102% of the fair value of securities plus any accrued interest. International securities are loaned for collateral valued at 105% of the fair value of securities plus any accrued interest. The fair value at June 30, 2015 for loaned securities collateralized by cash and non-cash collateral was $23.8 million and $2.0 million, respectively. As part of the securities lending transactions, The Northern Trust Company received cash and non-cash collateral valued at $24.3 million and $2.0 million, respectively, at June 30, 2015. Non-cash collateral cannot be pledged or sold unless the borrower defaults. All securities loans can be terminated on demand by either the lender or the borrower although the average term of the Commission’s loans was approximately 73 days, as of June 30, 2015. Cash open collateral is invested in a short-term investment pool, the Core USA Collateral Section, which had an interest sensitivity of 26 days, as of June 30, 2015. There are no dividends or coupon payments owing on securities lent. Securities lending earnings are credited to the Commission 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 Position. A corresponding liability is recorded as the Commission must return the cash collateral to the borrower upon expiration of the loan. At June 30, 2015, the Commission had $24.3 million outstanding as payable for securities lending. A maximum restriction on the amount of securities that can be lent out at any one-time of $43.976 million was set by the Commission on September 29, 2008. This restriction was revised by the Commission on September 15, 2014, and the new maximum restriction on the amount of securities that can be lent out at any one-time was set at 13% of the total investment portfolio. 2. Arizona State Retirement System The ASRS is permitted by A.R.S. § 38-718(G) to enter into securities lending transactions. The ASRS’ custodial bank enters into agreements with borrowers to loan securities and have the same securities redelivered at a later date. Securities eligible for loan include U.S. fixed income securities, U.S. equities, and international equities. The ASRS currently receives as collateral at least 102% of the fair value of the loaned securities and maintains collateral at no less than 100% for the duration of the loan. At yearend, the ASRS had limited counter party risk to borrowers because the collateral held by the ASRS for each loan exceeded the fair value owed to the ASRS. Securities loaned are initially fully collateralized by cash (USD), U.S. Government or agency securities, sovereign debt, corporate bonds and/or equities. Cash collateral may be reinvested (under certain constraints) in: a) instruments issued or fully guaranteed by the U.S. Government, Federal agencies, or sponsored agencies or sponsored corporations, b) repurchase agreements, and c) money market mutual funds. The ASRS records the collateral received as an asset and the same amount as an obligation for securities on loan. 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 are classified as an asset on the Statement of Fiduciary Net Position. A corresponding liability is recorded as the ASRS must return the cash collateral to the borrower upon expiration of the loan. At June 30, 2015, the fair value of securities on loan was $2.8 billion; of which $305.6 million were cash collateralized loans. Cash of $314.7 million received as collateral for securities loaned was reinvested and had a net position value of $314.8 million, as of June 30, 2015. The securities lending payable at June 30, 2015 was $314.7 million. The ASRS does not have the ability to pledge or sell the collateral unless there is a borrower default. There is a restriction of $3.5 billion on the dollar amount of security loans that may be made by the ASRS. The ASRS is indemnified against gross negligence and borrower default by the lending agents, but is not indemnified against cash collateral reinvestment risk. - 84 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 3. Public Safety Personnel Retirement System, Elected Officials’ Retirement Plan, and Corrections Officer Retirement Plan The PSPRS, the EORP, and the CORP are permitted by A.R.S. Title 38, Chapter 5, Articles 4, 3, and 6, respectively, to enter into securities lending transactions. The PSPRS, the EORP, and the CORP are parties to securities lending agreements with a bank. The bank, on behalf of the PSPRS, the EORP, and the 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, the EORP, and the 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, 2015, the fair values of securities on loan for the PSPRS, the EORP, and the CORP were $253.0 million, $13.1 million, and $65.9 million, respectively. At June 30, 2015, the fair value of the associated collateral for the PSPRS, the EORP, and the CORP were $260.7 million, $13.5 million, and $67.8 million, respectively. The PSPRS, the EORP, and the CORP are indemnified for broker default by the securities lending agent. The PSPRS, the EORP, and the CORP have no credit risk because the amounts owed to the borrowers exceed the amounts the borrowers owe to the retirement system or plan. 4. State Treasurer The State Treasurer is permitted under A.R.S. § 35-313 and § 35-324 to enter into securities lending transactions. The State Treasurer’s custodial bank manages the securities lending program through a contractual agreement. At fiscal year-end, the State Treasurer had no credit risk exposure to borrowers because the amount the State Treasurer owes to the borrowers exceeds the amount the borrowers owe the State Treasurer. All securities are eligible for loan, but equities and U.S. Treasuries comprise a majority of securities that are on loan. There are no restrictions on the dollar amount of security loans that may be made by the State Treasurer. Securities are loaned for collateral that may include cash (U.S. currency), U.S. and international equities, and other assets permissible under Rule 15c3-3 under the Securities Exchange Act of 1934. Securities are loaned for collateral valued at not less than 102% of the fair value of the securities loaned at the close of trading on the preceding business day. Investments made with cash collateral are done on an individual investment pool basis and are restricted to the limitations for that investment pool set forth in the State Treasurer’s investment policy, except for investments made for certain endowment equity pools. Permitted investments for these equity pools include those investments authorized in section IV of the State Treasurer’s investment policy. Cash collateral investments include: a) obligations issued or guaranteed by the United States or any of its agencies, sponsored agencies, corporations, sponsored corporations, or instrumentalities including repurchase and tri-party repurchase agreements collateralized at no less than 102% by securities, 100% by cash, and 102% by mortgage-backed securities and b) U.S. 2a-7 money market mutual funds which are regulated by the Securities and Exchange Commission and rated in the highest category by at least one NRSRO. The State Treasurer records the cash collateral received as an asset and the same amount as obligations under securities loan agreements. As of June 30, 2015, the cost and fair value of securities on loan were $740.6 million and $896.9 million, respectively. The associated fair value of the invested collateral was $932.3 million, of which $529.3 million was invested cash collateral. All securities loans can be terminated on demand by either the State Treasurer or the borrower. For the cash collateral investments, the weighted average maturity was one day. The State Treasurer does not have the ability to pledge or sell the noncash collateral unless there is a borrower default. The State Treasurer is indemnified against gross negligence, bad faith, or willful misconduct and borrower default by the lending agent. There were no borrower defaults during the current fiscal year. At June 30, 2015, the State Treasurer had $529.3 million outstanding as payable for securities lending, and the following securities on loan were uninsured and held by the bank trust department not in the Treasurer’s name: Corporate notes U.S. Treasury securities Equities Total Fair Value H. $ 23,444,672 21,798,979 334,153,817 $ 379,397,468 DERIVATIVES A derivative instrument is a financial instrument or other contract with all three of the following characteristics: • Settlement factors: It has one or more reference rates and 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. - 85 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 • Leverage: 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. • Net Settlement: Its terms require or permit net settlement, it can readily be settled net by means outside the contract, or it provides for delivery of an asset that puts the recipient in a position not substantially different from net settlement. The ASRS is the primary State agency that has investment derivatives. The ASRS’s derivatives are considered “Investment Derivative Instruments” as defined in GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments. All funds are considered fiduciary funds. The ASRS’s derivative instruments, which consist of futures contracts, forward contracts, options, swaps, rights, and warrants, are measured at fair value and reported on the Statement of Fiduciary Net Position. Changes in fair values of derivative instruments are reported as net increase (decrease) in fair value of investments on the Statement of Changes in Fiduciary Net Position. The fair value balances and notional amounts of derivative instruments outstanding at June 30, 2015, classified by type, and the changes in fair value of derivative instruments for the year then ended as reported in the June 30, 2015 financial statements are as follows (expressed in thousands): Investment Derivatives by Type Changes in Fair Value (1) Investment Derivatives Fair Value at June 30, 2015 Classification Amount (2) Commodity futures long Net increase (decrease) in fair value of investments $ (253,719) Not applicable Commodity futures short Net increase (decrease) in fair value of investments 20,742 Not applicable - (39) Fixed income futures long Net increase (decrease) in fair value of investments 2,802 Not applicable - 63,200 Fixed income futures short Net increase (decrease) in fair value of investments (312) Not applicable - (19,000) Foreign currency futures long Net increase (decrease) in fair value of investments (113,112) Not applicable - - Foreign currency options written Net increase (decrease) in fair value of investments 106 Fixed income securities - - Foreign currency forwards Net increase (decrease) in fair value of investments (37,321) Forward contracts receivable 3 1,427 Index futures long Net increase (decrease) in fair value of investments 101,020 Not applicable - 199 Receive fixed interest rate swaps Net increase (decrease) in fair value of investments 236 Fixed income securities - - Rights Net increase (decrease) in fair value of investments 152 Equity securities 506 1,294 391 $ (279,015) Equity securities Warrants Total Net increase (decrease) in fair value of investments Classification Amount $ $ Notional (3) - 70 579 $ $ 217,612 210 264,903 (1) Excludes futures margin payments. (2) Negative values refer to losses. (3) Notional denotes the number of units held of each particular derivative instrument. A dollar sign indicates currency units. Negative values refer to short positions. The fair value of derivative instruments reported by the ASRS is based on quoted market prices off national exchanges. The fair value of foreign currency forward contracts is based on mathematical models and is valued using a pricing service, which uses published Reuter’s foreign currency rates as the primary source for the calculation. - 86 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 The credit quality ratings of counterparties as described by NRSROs and the counterparties’ related risk concentration, as of June 30, 2015, are as follows (expressed in thousands): Counterparty Risk and Ratings Total Risk Net Exposure Concentration Counterparty Name Goldman Sachs Total $ 3 100.00% $ 3 100.00% Ratings Fitch S&P A- A Moody's A3 The maximum amount of loss due to credit risk that the ASRS would incur if the counterparties to the derivative instrument failed to perform according to the terms of the contract, without respect to any collateral or other security or netting arrangement, is the total unrealized gain of derivatives at the end of the reporting period. The ASRS has no general investment policy requiring collateral or other security to support derivative instruments. Each investment manager hired has discretion with respect to derivative investments and risk control. Each investment manager is governed by its Investment Manager Agreement. The ASRS has no general investment policy with respect to netting arrangements. The ASRS’s investment managers have master netting arrangements to allow net settlement with the same counterparty in the event the counterparty defaults on its obligations. The aggregate fair value of investment derivative instruments in asset positions at June 30, 2015 was $3 thousand. This represents the maximum amount of loss in case of default of all counterparties of over-the-counter positions as of June 30, 2015. There was no collateral received or netting arrangements in place as of June 30, 2015 with counterparties that would reduce this exposure. The ASRS has exposure to interest rate risk due to the investment in fixed income futures. The required risk disclosures are included in the Interest Rate Risk schedule in Note 2.C. The fair value balance and notional amount of the fixed income futures outstanding at June 30, 2015, for the year then ended, as reported in the June 30, 2015 financial statements are as follows (expressed in thousands): Derivative Instruments Highly Sensitive to Interest Rate Changes Asset ID Asset Description Interest Rate Fair Value Notional (1) FIXED INCOME FUTURES LONG ADI09X7N4 ADI0BHMD1 ADI0BJ3D8 ADI0BJHW1 ADI0CFVN2 0.00% 0.00% 0.00% 0.00% 0.00% US 2YR NOTE (CBT) SEP 15 US 10YR NOTE (CBT) SEP 15 US 5YR NOTE (CBT) SEP 15 US LONG BOND (CBT) SEP 15 US ULTRA BOND (CBT) SEP 15 Total Fixed Income Futures Long $ - $ 24,200 10,900 20,500 3,300 4,300 $ - $ 63,200 $ - $ (19,000) $ - $ (19,000) FIXED INCOME FUTURES SHORT ADI0BHMD1 0.00% US 10YR NOTE (CBT) SEP 15 Total Fixed Income Futures Short (1) Notional denotes the number of units held of each particular derivative instrument. Negative values refer to short positions. The ASRS is exposed to foreign currency risk on its foreign currency forward contracts and futures contracts. The required risk disclosures are included in the Foreign Currency Risk schedule in Note 2.F. Refer to Note 7.A.4.c. for information on debt derivatives utilized by the ASU. - 87 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 I. STATE TREASURER’S SEPARATELY ISSUED FINANCIAL STATEMENTS The State Treasurer issues separately published Annual Audited Financial Statements. These financial statements provide additional information relating to the State Treasurer’s total investing activities, including the investment trust funds. A copy of the State Treasurer’s Office Annual Audited Financial Statements can be obtained from their office at: Office of the Arizona State Treasurer, 1700 W. Washington Street, Phoenix, AZ 85007, (602) 542-7800, or their website at www.aztreasury.gov. NOTE 3. RECEIVABLES/UNAVAILABLE REVENUE/UNEARNED REVENUE A. TAXES RECEIVABLE The following table summarizes taxes receivable at June 30, 2015 (expressed in thousands): Type of Tax Sales Income – individual and corporate Motor vehicle and fuel Luxury Unemployment Other Gross taxes receivable Allowance for uncollectible taxes Net Taxes Receivable B. General Fund $ 525,125 148,622 6,879 680,626 (335,533) $ 345,093 Transportation & Aviation Planning, Highway Maintenance & Safety Fund $ 80,335 80,335 $ 80,335 Non-major Governmental Funds $ 53,874 19,269 5,016 78,159 $ 78,159 Non-major Enterprise Funds $ $ 95,805 95,805 95,805 Government-wide Total $ 578,999 148,622 80,335 26,148 95,805 5,016 934,925 (335,533) $ 599,392 UNAVAILABLE REVENUE At June 30, 2015, the components of unavailable revenue for governmental funds were as follows (expressed in thousands): General Fund Unavailable Revenue for Governmental Funds: Delinquent sales and income tax Tobacco settlement Child support administrative reimbursements Federal grants Drug Rebates Land sales receivable Land leases receivable Other Total Unavailable Revenue for Governmental Funds $ 71,118 50,000 4,375 95,204 153,758 1,332 $ 375,787 Transportation & Aviation Planning, Highway Maintenance & Safety Fund $ $ - 88 - Land Endowments Fund 819 $ 470,786 2,703 - 819 $ 473,489 Other Governmental Funds $ $ Total Governmental Funds 814 $ 71,118 50,000 4,375 95,204 153,758 470,786 2,703 2,965 814 $ 850,909 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 C. UNEARNED REVENUE At June 30, 2015, the components of unearned revenue were as follows (expressed in thousands): Unearned Revenue for Governmental Funds: General Fund: Advance insurance premium taxes Advance land lease payments Advance county acute and long term care payments Vaccine and commodity food supplement Land Endowments Fund: Advance land lease payments Non-Major Funds: Advance payments for Hawaii/Arizona PMMIS Alliance Total Unearned Revenue for Governmental Funds Current $ 47,253 291 23,235 747 Noncurrent Total Unearned Revenue $ $ 25,584 $ Unearned Revenue for Proprietary Funds: Universities: Unexpended cash advances received Auxiliary sales and services Student tuition and fees Deposits Other Non-Major Funds: Magazine subscriptions Other Internal Service Funds: Other Total Unearned Revenue for Proprietary Funds 1,301 98,411 Current $ 66,833 8,334 84,306 1,211 3,927 1,964 229 $ - 89 - 32 166,836 3,389 84,588 $ 87,977 47,253 3,680 23,235 747 110,172 $ 1,301 186,388 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 4. CAPITAL ASSETS Capital asset activities for the fiscal year ended June 30, 2015 were as follows (expressed in thousands): Primary Government Beginning Balance Additions Retirements $ 74,450 521,188 46,872 2,014,581 2,657,091 $ (6,405) (1,978,483) 0 (47,553) (2,032,441) Governmental Activities: Non-depreciable capital assets: Land Construction in progress Development in progress Infrastructure Total Non-depreciable Capital Assets $ 3,046,110 2,916,383 58,567 13,778,329 19,799,389 Depreciable capital assets: Buildings Improvements other than buildings Equipment Software and other intangibles Infrastructure Total Depreciable Capital Assets 2,315,821 172,687 826,478 251,407 22,876 3,589,269 20,828 14,368 75,598 0 0 110,794 Less accumulated depreciation for: Buildings Improvements other than buildings Equipment Software and other intangibles Infrastructure Total Accumulated Depreciation (834,561) (98,276) (617,321) (201,768) (12,623) (1,764,549) Business-type Activities: Non-depreciable capital assets: Land Construction in progress Development in progress Collections Total Non-depreciable Capital Assets $ 3,115,924 1,459,732 105,439 15,732,569 20,413,664 (1,302) (117) (54,082) (366) 0 (55,867) 3,581 15,747 4,400 0 11 23,739 2,338,928 202,685 852,394 251,041 22,887 3,667,935 (59,158) (5,067) (63,140) (5,865) (548) (133,778) 920 83 51,177 366 0 52,546 2,538 64 936 0 148 3,686 (890,261) (103,196) (628,348) (207,267) (13,023) (1,842,095) 1,824,720 (22,984) (3,321) 27,425 1,825,840 $ 21,624,109 $ 2,634,107 $ (2,035,762) 17,050 $ 22,239,504 Beginning Balance Additions Retirements $ $ $ 229,637 289,275 9,885 20,114 548,911 24,372 346,667 51,830 188 423,057 $ Ending Balance 1,769 644 0 (12,788) (10,375) Total Depreciable Capital Assets, Net Total Governmental Activities Capital Assets, Net Adjustments & Reclassifications $ Adjustments & Reclassifications (6,943) (74) (7,017) $ (294,182) (911) (295,093) Ending Balance $ 247,066 341,760 60,804 20,228 669,858 Depreciable capital assets: Buildings Improvements other than buildings Equipment Software and other intangibles Infrastructure Total Depreciable Capital Assets 5,300,980 23,092 1,551,345 131,982 478,015 7,485,414 126,338 113 82,849 1,863 7,020 218,183 (91) (3,492) (33,789) (37,372) 245,426 911 48,757 295,094 5,672,653 19,713 1,600,405 134,756 533,792 7,961,319 Less accumulated depreciation for: Buildings Improvements other than buildings Equipment Software and other intangibles Infrastructure Total Accumulated Depreciation (2,088,219) (14,665) (1,162,830) (74,672) (200,221) (3,540,607) (162,137) (952) (84,704) (12,906) (17,516) (278,215) 91 3,492 30,802 34,385 (2) (2) (2,250,265) (12,125) (1,216,734) (87,578) (217,737) (3,784,439) Total Depreciable Capital Assets, Net Total Business-type Activities Capital Assets, Net 3,944,807 (60,032) $ 4,493,718 $ 363,025 - 90 - (2,987) $ (10,004) $ 295,092 4,176,880 (1) $ 4,846,738 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 Depreciation expense was charged to governmental functions as follows (expressed in thousands): General government $ 20,479 Health and welfare 21,312 Inspection and regulation Education 988 2,430 Protection and safety 61,657 Transportation 18,390 Natural resources 8,522 Total Governmental Activities $ 133,778 Depreciation expense was charged to business-type activities as follows (expressed in thousands): Universities $ 274,610 Other 3,605 Total Business-type Activities $ 278,215 NOTE 5. PENSION BENEFITS The State contributes to eighteen plans. The ASRS, PSPRS – Department of Public Safety (PSA), CORP – Department of Corrections (DCA), and EORP are described below. Benefits are established by State statutes and provide retirement, disability, and survivor benefits to State employees. The PSRPS’ Attorney General Investigators, Department of Liquor License and Control Investigators, the ASU Campus Police, the NAU Campus Police, the U of A Campus Police, State Park Rangers, Department of Emergency and Military Affairs, and Game and Fish Department agent multiple-employer defined benefit pension plans are not further disclosed because of their relative insignificance to the State’s financial statements. The CORP’s Department of Juvenile Corrections, Department of Public Safety Dispatchers, and Department of Public Safety Detention agent multiple-employer defined benefit pension plans are not further disclosed because of their relative insignificance to the State’s financial statements. Also, the Elected Officials’ Defined Contribution Retirement System, the Teachers Insurance Annuity Association/College Retirement Equities Fund, and Fidelity Investments Tax-Exempt Services Company defined contribution plans are not further disclosed because of their relative insignificance to the State’s financial statements. Changes in the State’s net pension liability during the fiscal year ended June 30, 2015, were as follows (expressed in thousands): Beginning balance Increases Decreases Ending balance Governmental Activities $ 3,394,933 834,491 (622,410) $ 3,607,014 Business-type Activities $ 1,386,829 134,081 (221,266) $ 1,299,644 For the year ended June 30, 2015, the State recognized pension expense for all plans to which it contributes of $539.9 million and $38.2 million of grant expense for EORP. Also, the State reported $226.0 million of pension contributions as expenditures in the governmental funds related to all pension plans to which it contributes and $4.1 million of grant expenditures related to EORP. - 91 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 A. ARIZONA STATE RETIREMENT SYSTEM Benefits Provided—Retirement benefits are calculated on the basis of age, average monthly compensation, and service credit as follows: Years of service and age required to receive benefit Retirement Initial Membership Date: Before July 1, 2011 On or after July 1, 2011 Sum of years and age equals 80 30 years age 55 10 years age 62 25 years age 60 5 years age 50* 10 years age 62 Any years age 65 5 years age 50* Any years age 65 Final average salary is based on Highest 36 consecutive months of last 120 months Highest 60 consecutive months of last 120 months Benefit percent per year of service 2.1% to 2.3% 2.1% to 2.3% * With actuarially reduced benefits. Retirement benefits for members who joined the ASRS prior to September 13, 2013, are subject to automatic cost-of-living adjustments based on excess investment earning. Members with a membership date on or after September 13, 2013, are not eligible for cost-of-living adjustments. Survivor benefits are payable upon a member’s death. For retired members, the survivor benefit is determined by the retirement benefit option chosen. For all other members, the beneficiary is entitled to the member’s account balance that includes the member’s contributions and employer’s contributions, plus interest earned. Contributions—In accordance with State statutes, annual actuarial valuations determine active member and employer contribution requirements. The combined active member and employer contribution rates are expected to finance the costs of benefits employees earn during the year, with an additional amount to finance any unfunded accrued liability. For the year ended June 30, 2015, active ASRS members were required by statute to contribute at the actuarially determined rate of 11.48 percent of the members’ annual covered payroll, and the State was required by statute to contribute at the actuarially determined rate of 10.89 percent of the active members’ annual covered payroll. In addition, the State was required by statute to contribute at the actuarially determined rate 9.31 percent of annual covered payroll of retired members who worked for the State in positions that would typically be filled by an employee who contributes to the ASRS. The State’s contributions to the pension plan for the year ended June 30, 2015, were $217.4 million. During fiscal year 2015, the State paid for ASRS pension contributions as follows: 69.02 percent from the General Fund, 16.05 percent from major funds, and 14.93 percent from other funds. Pension Liability—At June 30, 2015, the State reported a liability of $3.2 billion for its proportionate share of the ASRS’ net pension liability. The net pension liability was measured as of June 30, 2014. The total pension liability used to calculate the net pension liability was determined using update procedures to roll forward the total pension liability from an actuarial valuation as of June 30, 2013, to the measurement date of June 30, 2014. The State’s proportion of the net pension liability was based on the State’s actual contributions to the plan relative to the total of all participating employers’ contributions for the year ended June 30, 2014. The State’s proportion measured as of June 30, 2014, was 21.36 percent, which was an increase of .57 percent from its proportion measured as of June 30, 2013. - 92 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 Pension Expense and Deferred Outflows/Inflows of Resources—For the year ended June 30, 2015, the State recognized pension expense for ASRS of $236.4 million. At June 30, 2015, the State reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources (expressed in thousands): Deferred Outflows of Resources Differences between expected and actual experience Net difference between projected and actual earnings on pension plan investments Changes in proportion and differences between State contributions and proportionate share of contributions State contributions subsequent to the measurement date Total $ Deferred Inflows of Resources 160,642 $ - - 552,728 72,107 6,820 217,388 $ 450,137 $ 559,548 The $217.4 million reported as deferred outflows of resources related to ASRS pensions resulting from State contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2016. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to ASRS pensions will be recognized in pension expense as follows (expressed in thousands): Year ending June 30 2016 2017 2018 2019 $ (39,952) (39,952) (108,713) (138,182) Actuarial Assumptions—The significant actuarial assumptions used to measure the total pension liability are as follows: Actuarial valuation date Actuarial roll forward date Actuarial cost method Investment rate of return Projected salary increases Inflation Permanent benefit increase Mortality rates June 30, 2013 June 30, 2014 Entry age normal 8% 3–6.75% 3% Included 1994 GAM Scale BB Actuarial assumptions used in the June 30, 2013 valuation were based on the results of an actuarial experience study for the 5 year period ended June 30, 2012. - 93 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 The long-term expected rate of return on ASRS pension plan investments was determined to be 8.79 percent using a buildingblock method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Long-Term Target Expected Real Asset Class Allocation Rate of Return Equity 63% 7.03% Fixed Income 25% 3.20% Real Estate 8% 4.75% Commodities 4% 4.50% Total 100% Discount Rate—The discount rate used to measure the ASRS total pension liability was 8 percent, which is less than the longterm expected rate of return of 8.79 percent. The projection of cash flows used to determine the discount rate assumed that contributions from participating employers will be made based on the actuarially determined rates based on the ASRS Board’s funding policy, which establishes the contractually required rate under Arizona statute. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Sensitivity of the State’s Proportionate Share of the ASRS Net Pension Liability to Changes in the Discount Rate—The following table presents the State’s proportionate share of the net pension liability calculated using the discount rate of 8 percent, as well as what the State’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (7 percent) or 1 percentage point higher (9 percent) than the current rate (expressed in thousands): 1% Decrease (7%) State’s proportionate share of the net pension liability $ Current Discount Rate (8%) 3,995,100 $ 3,160,809 1% Increase (9%) $ 2,708,164 Pension Plan Fiduciary Net Position—Detailed information about the pension plan’s fiduciary net position is available in the separately issued ASRS financial report. - 94 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 B. PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM AND CORRECTIONS OFFICER RETIREMENT PLAN Benefits Provided—PSPRS and CORP Retirement, disability, and survivor benefits are calculated on the basis of age, average monthly compensation, and service credit as follows: Initial Membership Date: Before January 1, 2012 On or after January 1, 2012 PSPRS Retirement and Disability Years of service and age required to receive benefit Final average salary is based on Benefit percent: Normal retirement Accidental disability retirement Catastrophic disability retirement Ordinary disability retirement 20 years any age 15 years age 62 25 years and age 52.5 Highest 36 consecutive months of last 20 years Highest 60 consecutive months of last 20 years 50% less 2.0% for each year of credited service less than 20 years OR plus 2.0% to 2.5% for each year of credited service over 20 years, not to exceed 80% 2.5 % per year of credited service, not to exceed 80% 50% or normal retirement, whichever is greater 90% for the first 60 months then reduced to either 62.5% or normal retirement, whichever is greater Normal retirement calculated with actual years of credited service or 20 years of credited service, whichever is greater, multiplied by years of credited service (not to exceed 20 years) divided by 20 Survivor Benefit Retired members 80% to 100% of retired member’s pension benefit Active members 80% to 100% of accidental disability retirement benefit or 100% of average monthly compensation if death was the result of injuries received on the job - 95 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 Before January 1, 2012 Initial Membership Date: On or after January 1, 2012 CORP Retirement and Disability Years of service and age required to receive benefit Sum of years and age equals 80 20 years any age 10 years age 62 25 years and age 52.5 10 years age 62 Final average salary is based on Highest 36 consecutive months of last 10 years Highest 60 consecutive months of last 10 years Benefit percent: Normal retirement Accidental disability retirement 2.0% to 2.5% for each year of credited service, not to exceed 80% 50% or normal retirement if more than 20 years of credited service 50% or normal retirement if more than 25 years of credited service Total and permanent disability retirement 50% or normal retirement if more than 25 years of credited service Ordinary disability retirement 2.5% per year of credited service Survivor Benefit Retired members 80% of retired member’s pension benefit Active members 40% of average monthly compensation or 100% of average monthly compensation if death was the result of injuries received on the job. If there is no surviving spouse or eligible children, the beneficiary is entitled to 2 times the member’s contributions. Retirement and survivor benefits are subject to automatic cost-of-living adjustments based on excess investment earning. PSPRS also provides temporary disability benefits of 50 percent of the member’s compensation for up to 12 months. Employees Covered by Benefit Terms—At June 30, 2015, the following employees were covered by the agent pension plans’ benefit terms: PSPRS PSA Retirees or beneficiaries currently receiving benefits Inactive employees entitled to but not yet receiving benefits Active employees Total CORP DCA 1,211 2,642 169 981 2,361 709 8,139 11,490 Contributions—State statutes establish the pension contribution requirements for active PSPRS and CORP employees. In accordance with State statutes, annual actuarial valuations determine employer contribution requirements for PSPRS and CORP pension benefits. The combined active member and employer contribution rates are expected to finance the costs of benefits - 96 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 employees earn during the year, with an additional amount to finance any unfunded accrued liability. Contributions rates for the year ended June 30, 2015, are indicated below. Rates are a percentage of active members’ annual covered payroll. PSPRS PSA 6.05%* 60.30%* Active members - Pension State - Pension CORP DCA 8.41% 13.15% * Per A.R.S. § 38-843B, for the PSPRS, the State has the option of increasing its contributions in order to reduce the contributions required from its members. The PSPRS – PSA rates have been adjusted to reflect that the State pays 5% of the members’ share. In addition, the State was required by statute to contribute at the actuarially determined rate of 19.65 percent for the PSPRS and 7.34 percent for the CORP of annual covered payroll of retired members who worked for the State in positions that would typically be filled by an employee who contributes to the PSPRS or CORP. The State’s contributions to the pension plan for the year ended June 30, 2015, were (expressed in thousands): Pension contributions made PSPRS CORP PSA DCA $ 40,328 $ 43,105 During fiscal year 2015, the State paid for PSPRS and CORP pension contributions as follows: 57.41 percent from the General Fund and 42.59 percent from other funds. Pension Liability—At June 30, 2015, the State reported the following net pension liabilities (expressed in thousands): Net Pension Liability $ 653,668 620,092 PSPRS - PSA CORP - DCA The net pension liabilities were measured as of June 30, 2014, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The total pension liabilities as of June 30, 2014, reflect the following changes of benefit terms and actuarial assumptions. • In February 2014, the Arizona Supreme Court affirmed a Superior Court ruling that a 2011 law that changed the mechanism for funding permanent benefit increases was unconstitutional. As a result, the plans changed benefit terms to reflect the prior mechanism for funding permanent benefit increases and revised actuarial assumptions to explicitly value future permanent benefit increases. • The wage growth actuarial assumption was decreased from 4.5 percent to 4.0 percent. Actuarial Assumptions—The significant actuarial assumptions used to measure the total pension liability are as follows: PSPRS and CORP - Pension Actuarial valuation date Actuarial cost method Investment rate of return Projected salary increases Inflation Permanent benefit increase Mortality rates June 30, 2014 Entry age normal 7.85% 4.0%-8.0% for PSPRS and 4.0%-7.25% for CORP 4.0% Included RP-2000 mortality table (adjusted by 105% for males and females) - 97 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 Actuarial assumptions used in the June 30, 2014 valuation were based on the results of an actuarial experience study for the five year period ended June 30, 2011. The long-term expected rate of return on PSPRS and CORP pension plan investments was determined to be 7.85 percent using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expenses and inflation) are developed for each major asset class. The target allocation and best estimates of geometric real rates of return for each major asset class are summarized in the following table: Asset Class Short term investments Absolute return Risk parity Fixed income Real assets GTAA Private equity Real estate Credit opportunities Non-U.S. equity U.S. equity Total Target Allocation 2% 4% 4% 7% 8% 10% 11% 11% 13% 14% 16% 100% Long-Term Expected Real Rate of Return 3.25% 6.75% 6.04% 4.75% 5.96% 5.73% 9.50% 6.50% 8.00% 8.63% 7.60% Discount Rates—The following discount rates were used to measure the total pension liabilities: Discount rates PSPRS PSA 7.85% CORP DCA 7.85% The projection of cash flows used to determine the PSPRS and CORP discount rates assumed that plan member contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on those assumptions, the pension plans’ fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. - 98 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 Changes in the Net Pension Liability (expressed in thousands) PSPRS - PSA Balances at June 30, 2014 Changes for the year: Service cost Interest on the total pension liability Changes of benefit terms Differences between expected and actual experience in the measurement of the pension liability Changes of assumptions or other inputs Contributions - employer Contributions - employee Net investment income Benefit payments, including refunds of employee contributions Administrative expense Other changes Net changes Balances at June 30, 2015 CORP - DCA Balances at June 30, 2014 Changes for the year: Service cost Interest on the total pension liability Changes of benefit terms Differences between expected and actual experience in the measurement of the pension liability Changes of assumptions or other inputs Contributions - employer Contributions - employee Net investment income Benefit payments, including refunds of employee contributions Administrative expense Other changes Net changes Balances at June 30, 2015 Increase (Decrease) Total Plan Net Pension Fiduciary Pension Net Position Liability Liability (a) (b) (a) – (b) $ 877,415 $ 345,462 $ 531,953 13,111 66,664 23,768 - 13,111 66,664 23,768 (3,711) 107,172 - 34,965 4,080 46,223 (3,711) 107,172 (34,965) (4,080) (46,223) (69,497) 137,507 $ 1,014,922 (69,497) (372) 393 15,792 $ 361,254 372 (393) 121,715 $ 653,668 Increase (Decrease) Total Plan Net Pension Fiduciary Pension Net Position Liability Liability (a) (b) (a) – (b) $ 1,195,822 $ 696,469 $ 499,353 48,061 92,486 21,354 - 48,061 92,486 21,354 (3,818) 125,557 - 40,166 27,722 96,216 (3,818) 125,557 (40,166) (27,722) (96,216) (83,365) 200,275 $ 1,396,097 (83,365) (757) (446) 79,536 $ 776,005 757 446 120,739 $ 620,092 - 99 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 Sensitivity of the State’s Net Pension Liability to Changes in the Discount Rate—The following table presents the State’s net pension liabilities calculated using the discount rates noted above, as well as what the State’s net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower or 1 percentage point higher than the current rate (expressed in thousands): 1% Decrease PSPRS - PSA Rate Net pension liability CORP - DCA Rate Net pension liability Current Discount Rate 1% Increase 6.85% $ 761,568 7.85% $ 653,668 8.85% $ 562,643 6.85% $ 800,059 7.85% $ 620,092 8.85% $ 470,906 Pension Plan Fiduciary Net Position—Detailed information about the pension plans’ fiduciary net position is available in the separately issued PSPRS and CORP financial reports. Pension Expense—For the year ended June 30, 2015, the State recognized the following pension expense (expressed in thousands): Pension Expense $ 92,116 92,124 PSPRS - PSA CORP - DCA Deferred Outflows/Inflows of Resources—At June 30, 2015, the State reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources (expressed in thousands): PSPRS – PSA Differences between expected and actual experience Changes of assumptions or other inputs Net difference between projected and actual earnings on pension plan investments State contributions subsequent to the measurement date Total CORP – DCA Differences between expected and actual experience Changes of assumptions or other inputs Net difference between projected and actual earnings on pension plan investments State contributions subsequent to the measurement date Total - 100 - Deferred Deferred Outflows Inflows of Resources of Resources $ 82,849 $ 2,869 - - 15,417 40,328 $ 123,177 $ 18,286 Deferred Deferred Outflows Inflows of Resources of Resources $ 103,882 $ - $ 43,105 146,987 3,159 31,942 $ 35,101 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 The amounts reported as deferred outflows of resources related to pensions resulting from State contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2016. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows (expressed in thousands): Year Ending June 30 2016 2017 2018 2019 2020 C. PSPRS PSA $ 19,626 19,626 19,626 5,685 - CORP DCA $ 13,030 13,030 13,030 13,030 16,661 ELECTED OFFICIALS’ RETIREMENT PLAN Benefits Provided—Retirement, disability, and survivor benefits are calculated on the basis of age, average yearly compensation, and service credit as follows: Before January 1, 2012 Retirement and Disability Years of service and age required to receive benefit Final average salary is based on Benefit percent: Normal retirement Disability retirement Initial Membership Date: On or after January 1, 2012 20 years any age 10 years age 62 5 years and age 65 5 years any age* any years and age if disabled 10 years age 62 5 years and age 65 any years and age if disabled Highest 36 consecutive months of last 10 years Highest 60 consecutive months of last 10 years 4% per year of service, not to exceed 80% 3% per year of service, not to exceed 75% 80% with 10 or more years of service 40% with 5 to 10 years of service 20% with less than 5 years of service 75% with 10 or more years of service 37.5% with 5 to 10 years of service 18.75% with less than 5 years of service 75% of retired member’s benefit 50% of retired member’s benefit 75% of disability retirement benefit 50% of disability retirement benefit Survivor Benefit Retired members Active members and other inactive members * With reduced benefits of .25% for each month early retirement precedes the member’s normal retirement age, with a maximum reduction of 30%. Retirement and survivor benefits are subject to automatic cost-of-living adjustments based on excess investment earning. - 101 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 Contributions—State statutes establish active member and employer contribution requirements. Statute also appropriates $5 million annually through fiscal year 2043 for the EORP from the State to supplement the normal cost plus an amount to amortize the unfunded accrued liability and designates a portion of certain court fees for the EORP. For the year ended June 30, 2015, active EORP members were required by statute to contribute 13 percent of the members’ annual covered payroll, and the State was required to contribute 23.50 percent of active EORP members’ annual covered payroll. In addition, the State was required by statute to contribute 23.50 percent of annual covered payroll of retired members who worked for the State in positions that would typically be filled by an employee who contributes to the EORP. The State’s contributions to the pension plan for the year ended June 30, 2015, were $8.0 million, including $4.1 million related to State support, as a nonemployer contributing entity. During fiscal year 2015, the State paid for EORP pension contributions as follows: 97.69 percent from the General Fund and 2.31 percent from other funds. In addition, during fiscal year 2015, the State, as a nonemployer contributing entity, paid for EORP pension contributions as follows: 100.00 percent from the General Fund. Pension Liability—At June 30, 2015, the amount the State recognized as its proportionate share of the net pension liability, the related State support, as a nonemployer contributing entity, and the total portion of the net pension liability that was associated with the State were as follows (expressed in thousands): State’s proportionate share of the EORP net pension liability State’s proportionate share of the EORP net pension liability, as a nonemployer contributing entity Total $ 121,797 128,776 $ 250,573 The net pension liability was measured as of June 30, 2014, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. In February 2014, the Arizona Supreme Court affirmed a Superior Court ruling that a 2011 law that changed the mechanism for funding permanent benefit increases was unconstitutional. As a result, for the June 30, 2014, actuarial valuation, the plan changed benefit terms to reflect the prior mechanism for funding permanent benefit increases and revised actuarial assumptions to explicitly value future permanent benefit increases. The State’s proportion of the net pension liability, as of June 30, 2013 and 2014, was based on the State’s actual contributions to the plan relative to the total of all participating employers’ actual contributions for the year ended June 30, 2014. The State’s proportion, measured as of June 30, 2013 and 2014, was 18.16 percent. The State’s proportion, as a nonemployer contributing entity, measured as of June 30, 2013 and 2014, was 19.20 percent. Pension Expense, Grant Expense, and Deferred Outflows/Inflows of Resources—For the year ended June 30, 2015, the State recognized pension expense for EORP of $36.1 million. In addition, the State recognized grant expense of $38.2 million, as a result of its requirement to contribute to EORP as a nonemployer contributing entity. At June 30, 2015, the State and the State, as a result of its requirement to contribute to EORP as a nonemployer contributing entity, reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources (expressed in thousands): The State Deferred Deferred Outflows Inflows of Resources of Resources Differences between expected and actual experience Changes of assumptions or other inputs Net difference between projected and actual earnings on pension plan investments State contributions subsequent to the measurement date Total $ 535 32,961 $ 3,928 $ 37,424 - 102 - - The State, as a nonemployer contributing entity Deferred Deferred Outflows Inflows of Resources of Resources $ 2,309 $ 2,309 566 34,850 $ - $ 4,066 39,482 - 2,442 $ 2,442 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 The amounts reported as deferred outflows of resources related to pensions resulting from State contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2016. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to EORP pensions will be recognized in pension expense as follows (expressed in thousands): Year ending June 30 2016 2017 2018 2019 The State $ 18,713 13,628 (577) (577) The State, as a nonemployer contributing entity $ 19,786 14,409 (610) (611) Actuarial Assumptions—The significant actuarial assumptions used to measure the total pension liability are as follows: Actuarial valuation date Actuarial cost method Investment rate of return Projected salary increases Inflation Permanent benefit increase Mortality rates June 30, 2014 Entry age normal 7.85% 4.25% 4.00% Included RP-2000 mortality table projected to 2025 with projection scale AA Actuarial assumptions used in the June 30, 2014, valuation were based on the results of an actuarial experience study for the 5year period ended June 30, 2011. The long-term expected rate of return on EORP pension plan investments was determined to be 7.85 percent using a buildingblock method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expenses and inflation) are developed for each major asset class. The target allocation and best estimates of geometric real rates of return for each major asset class are summarized in the following table: Asset Class Short term investments Absolute return Risk parity Fixed income Real assets GTAA Private equity Real estate Credit opportunities Non-U.S. equity U.S. equity Total Target Allocation 2% 4% 4% 7% 8% 10% 11% 11% 13% 14% 16% 100% Long-Term Expected Real Rate of Return 3.25% 6.75% 6.04% 4.75% 5.96% 5.73% 9.50% 6.50% 8.00% 8.63% 7.60% Discount Rate—At June 30, 2014, the discount rate used to measure the EORP total pension liability was 5.67 percent, which was a decrease of 2.18 from the discount rate used as of June 30, 2013. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rate, employer contributions will be made at the statutorily set rates, and non-employer contributions will be made as currently required by statute. Based on those assumptions, the pension plan’s fiduciary net position was projected to be insufficient to make all projected future benefit payments of current plan members. Therefore, to determine the total pension liability for the plan, the long-term expected rate of return on pension plan investments of 7.85 percent was applied to periods of projected benefit payments through the year ended - 103 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 June 30, 2030. A municipal bond rate of 4.29 percent obtained from the 20-year Bond Buyer Index, as published by the Federal Reserve as of June 26, 2014, was applied to periods of projected benefit payments after June 30, 2030. Sensitivity of the State’s Proportionate Share of the EORP Net Pension Liability to Changes in the Discount Rate—The following table presents the State’s and the State’s, as a result of its requirement to contribute to EORP as a nonemployer contributing entity, proportionate share of the net pension liability calculated using the discount rate of 5.67 percent, as well as what the State’s and the State’s, as a result of its requirement to contribute to EORP as a nonemployer contributing entity, proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (4.67 percent) or 1 percentage point higher (6.67 percent) than the current rate (expressed in thousands): 1% Decrease (4.67%) State’s proportionate share of the net pension liability State’s proportionate share of the net pension liability, as a nonemployer contributing entity Current Discount Rate (5.67%) 1% Increase (6.67%) $142,188 $121,797 $104,580 150,335 128,776 110,572 Pension Plan Fiduciary Net Position—Detailed information about the pension plan’s fiduciary net position is available in the separately issued EORP financial report. NOTE 6. OTHER POST-EMPLOYMENT BENEFITS A. PLAN DESCRIPTION Cost-sharing plans In addition to the pension benefits described, the ASRS provides health insurance premium supplemental benefits and disability benefits to retired members, disabled members, and eligible dependents through the Health Benefit Supplement Fund (HBS) and the Long Term Disability Fund (LTD), which are cost-sharing, multiple-employer defined benefit post-employment plans. Title 38, Chapter 5 of the A.R.S. assigns the authority to establish and amend the benefit provisions of the HBS plan and the LTD plan to the Arizona State Legislature. The ASRS issues a publicly available financial report that includes the financial information and disclosure requirements for the HBS plan and the LTD plan. Information on how to obtain this report is included in Note 1.A. In addition to the pension benefits described, the EORP provides health insurance premium subsidy benefits to retired members, which is a cost-sharing, multiple employer defined benefit post-employment plan. Title 38, Chapter 5 of the A.R.S. assigns the authority to establish and amend the health insurance subsidy benefit provisions to the Arizona State Legislature. As of July 1, 2013, the EORP administers a separate healthcare plan as defined under IRC § 401(h). In addition, the EORP is statutorily authorized, by A.R.S. § 38-817, to maintain a separate account for the health insurance subsidy assets and benefit payments. The health insurance subsidy assets are accounted for by employer and are available to pay only the health insurance benefit. Information on how to obtain the EORP's publicly available financial report is included in Note 1.A. However, the EORP OPEB benefit is relatively insignificant to the State's financial statements and, therefore, is not further described in these notes. Agent plans In addition to pension benefits described, the PSPRS and the CORP each provide a health insurance premium subsidy benefit to retired members and survivors, which are agent, multiple-employer defined benefit post-employment plans. Title 38, Chapter 5 of the A.R.S. assigns the authority to establish and amend the health insurance premium subsidy benefit provisions to the Arizona State Legislature. As of July 1, 2013, the PSPRS and the CORP each administers a separate healthcare plan as defined under IRC § 401(h). In addition, the PSPRS and the CORP are statutorily authorized, by A.R.S. § 38-857 and A.R.S. § 38-906, respectively, to maintain a separate account for the health insurance premium subsidy assets and benefit payments. The health insurance premium subsidy assets are accounted for by employer and are available to pay only the health insurance premium benefit. The PSPRS and the CORP each issue publicly available financial reports that include the financial information and disclosure requirements for the health insurance subsidy benefits. Information on how to obtain these reports is included in Note 1.A. - 104 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 However, the PSPRS and the CORP OPEB benefits are relatively insignificant to the State's financial statements and, therefore, are not further described in these notes. Single-employer plan The Arizona Department of Administration (ADOA) administers a single-employer defined benefit post-employment plan that provides medical and accident benefits to retired State employees and their dependents. Title 38, Chapter 4 of the A.R.S. assigns the authority to establish and amend the benefit provisions to the Arizona State Legislature. The ADOA pays the medical costs incurred by retired employees minus a specified premium amount, which is paid for entirely by the retiree or on behalf of the retiree. These premium rates are based on a blend of active employee and retiree experience, resulting in a contribution basis which is lower than the expected claim costs for retirees only, which results in an implicit subsidization of retirees by the State and the active population. As of June 30, 2015, the plan had 53,454 active employees and 6,951 retirees and dependents receiving benefits. ADOA does not issue a separate, publicly available financial report. B. SUMMARY OF SIGNIFICANT ACCCOUNTING POLICIES Cost-sharing plan For the ASRS HBS and LTD plans, contributions are recognized as revenues when due, pursuant to statutory and contractual requirements. Benefits and refunds are recognized when due and payable and expenses are recorded when the corresponding liabilities are incurred, regardless of when contributions are received or payments is made. Single-employer plan The ADOA plan's implicit rate subsidy, if not fully funded, represents an obligation of the State, the net OPEB obligation. The net OPEB obligation is allocated to significant participating funds based on their proportionate share of active benefit eligible employees and recorded in the government-wide and proprietary fund financial statements. C. FUNDING POLICY Cost-sharing plan The contribution requirements of plan members and the State are established by Title 38, Chapter 5 of the A.R.S. These contribution requirements are established and may be amended by the Arizona State Legislature. For the year ended June 30, 2015, active ASRS members and the State were each required by statute to contribute at the actuarially determined rate of 0.12% of the members' annual covered payroll for LTD. In addition, the State also contributed 0.59% for the HBS. The State's contributions for LTD to the ASRS for the years ended June 30, 2015, 2014, and 2013 were $2.4 million, $4.5 million, and $4.3 million, respectively, for the primary government which were equal to the required contributions for these years. The State's contributions for the HBS to the ASRS for the years ended June 30, 2015, 2014, and 2013 were $11.6 million, $11.3 million, and $11.8 million, respectively, for the primary government which were equal to the required contributions for these years. Single-employer plan The ADOA's current funding policy is pay-as-you-go for OPEB benefits. There are no dedicated assets at this time to offset the actuarial accrued liability. To the extent that the calculated annual required contribution exceeds the annual pay-as-you-go cost of providing OPEB benefits, a net OPEB obligation is created. The State's contribution for the ADOA OPEB for the years ended June 30, 2015, 2014, and 2013 were $13.7 million, $13.4 million and $11.8 million, respectively, for the primary government. - 105 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 D. ANNUAL OPEB COST AND NET OPEB OBLIGATION The State's annual OPEB cost, OPEB contributions made, and changes in the State's net OPEB obligation of the ADOA singleemployer defined benefit post-employment plan for the year ended June 30, 2015, are as follows (expressed in thousands): Annual required contribution Interest on net OPEB obligation Adjustment to annual required contribution Annual OPEB cost (expense) Contributions made Increase in net OPEB obligation Net OPEB obligation-beginning of year Net OPEB obligation-end of year $ 22,095 811 (753) 22,153 (13,721) 8,432 20,285 $ 28,717 The State's annual OPEB costs, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the current and the two preceding years of the ADOA single-employer defined benefit post-employment plan, are as follows (expressed in thousands): Fiscal Year Ended 6/30/2015 6/30/2014 6/30/2013 E. Annual OPEB Costs $ 22,153 21,247 18,136 Percentage of Annual OPEB Cost Contributed 61.9% 63.1% 65.1% Net OPEB Obligation $ 28,717 20,285 12,445 FUNDED STATUS AND FUNDING PROGESS The State’s funded status for the ADOA single-employer defined benefit post-employment plan for the most recent actuarial valuation is as follows (expressed in thousands): Actuarial Valuation Date 6/30/2014 Actuarial Value of Plan Assets - Actuarial Accrued Liability (AAL) $ 242,946 (Unfunded) AAL $ (242,946) Funded Ratio 0.0% Annual Covered Payroll $ 3,051,816 (Unfunded) AAL as a Percentage of Covered Payroll (8.0)% Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and healthcare cost trends. Actuarially determined amounts are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The required schedule of funding progress immediately following the notes to the financial statements presents multi-year trend information about whether the actuarial value of the plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. F. ACTUARIAL METHODS AND ASSUMPTIONS Projections of benefits for financial reporting purposes are based on the plan and include the types of benefits provided at the time of each valuation. The actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. - 106 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 The State’s actuarial methods and significant assumptions for the ADOA single-employer defined benefit post-employment plan for the most recent actuarial valuation are as follows: Actuarial valuation date Actuarial cost method Actuarial assumptions: Investment rate of return Projected salary increases Discount rate Cost-of-living adjustments Healthcare cost trend rate Amortization method Remaining amortization period June 30, 2014 entry age normal, level dollar n/a 3.5% 4.0% none 8.0% initial 4.5% ultimate level percent-of-pay, open 30 years NOTE 7. LONG-TERM OBLIGATIONS A. REVENUE BONDS Governmental Activities 1. Department of Administration The State has pledged portions of its revenues towards the payment of debt service on the State Lottery Revenue Bonds Series 2010A. These bonds provide additional working capital to the State to pay appropriated expenditures of the State’s General Fund. The bonds are payable solely from and secured by pledged revenues consisting of, until July 1, 2012, amounts distributable to the State’s General Fund from the State Lottery pursuant to Lottery law, and from and after July 1, 2012, all Lottery revenues deposited to the Lottery Fund net of operating expenses of the Lottery. At June 30, 2015, pledged revenues totaled $172.1 million, of which 21.8% ($37.5 million) was required to cover debt service. Future pledged revenues required to pay all remaining debt service for the bonds through final maturity of July 1, 2029 is $525.0 million. 2. Arizona Department of Transportation The ADOT has issued Senior and Subordinated Lien Highway Revenue Bonds to provide funds for acquisition of right-of-way, design, and construction of federal and state highways. The balance of Highway Revenue Bonds issued in prior years and outstanding at the start of the fiscal year was $1.7 billion. On January 28, 2015, the ADOT issued $377.5 million of Highway Revenue Refunding Bonds, Series 2015 (2015 Bonds). The 2015 Bonds were issued at a premium of $75.5 million. The net proceeds were used to (i) advance refund portions of the Senior Series 2005B ($7.3 million), Senior Series 2006 ($18.4 million), Senior Series 2008A ($194.0 million), and Senior Series 2008B ($181.1 million) Highway Revenue Bonds with a combined outstanding principal balance of $441.8 million and (ii) pay costs of issuance. The advance refunding resulted in a combined total debt service savings of $40.8 million and a combined net present value economic gain of $31.5 million (difference between the present values of the old debt and new debt service payments). The advance refunding also resulted in a difference between the reacquisition price and the net carrying amount of the refunded debt of $38.6 million. This difference, reported as a deferred outflow of resources, is being amortized to interest expense on a straightline basis through fiscal year 2033. The Highway Revenue Bonds are secured by a prior lien on and a pledge of motor vehicle and related fuel fees and taxes. On September 21, 2006, House Bill 2206 became effective and eliminated the restriction that limited the principal amount of the Highway Revenue Bonds that could be outstanding at any time to $1.3 billion. Also during fiscal year 2007, the ADOT received legislative authority to begin issuing Highway Revenue Bonds with maturities of up to 30 years in length, replacing the 20 year maturity requirement that had been in place since 1980. The ADOT has pledged future motor vehicle and related fuel fees and taxes to repay $1.6 billion in outstanding Highway Revenue Bonds issued since 2005. Proceeds from the bonds finance portions of the ADOT’s Five Year Transportation Facilities Construction Program. The bonds are payable solely from motor vehicle and related fuel fees and taxes and are payable through - 107 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 2038. The total principal and interest remaining to be paid on the bonds is $2.4 billion. Principal and interest paid for the current year and total pledged revenues were $137.6 million and $566.4 million, respectively. The annual principal and interest payments on the bonds required 24.3% of the pledged revenues. The Maricopa County Regional Area Road Construction Fund is used to record all payments of principal and interest for Transportation Excise Tax Revenue Bonds issued by the ADOT. These bonds are secured by a portion of transportation excise taxes collected by the Arizona Department of Revenue on behalf of Maricopa County. The balance of Transportation Excise Tax Revenue Bonds issued in prior years and outstanding at the start of the fiscal year was $867.4 million. On December 18, 2014, the ADOT issued $376.8 million of Transportation Excise Tax Revenue Refunding Bonds Series 2014 (2014 Bonds). The 2014 Bonds were issued at a premium of $74.0 million. The net proceeds were used to (i) advance refund portions of the Senior Series 2007 ($200.5 million), Senior Series 2009 ($174.6 million), and Senior Series 2010 ($15.4 million) Transportation Excise Tax Revenue Bonds with a combined outstanding principal balance of $735.6 million and (ii) pay costs of issuance. The advance refunding resulted in a combined total debt service savings of $31.8 million and a combined net present value economic gain of $27.6 million (difference between the present values of the old debt and new debt service payments). The advance refunding also resulted in a difference between the reacquisition price and the net carrying amount of the refunded debt of $35.0 million. This difference, reported as a deferred outflow of resources, is being amortized to interest expense on a straightline basis through fiscal year 2025. The ADOT has pledged future transportation excise taxes to repay $782.8 million in outstanding Transportation Excise Tax Revenue Bonds issued since 2007. Proceeds from the bonds pay the costs of design, right-of-way purchase, or construction of certain freeways and other routes within Maricopa County, AZ. The bonds are payable solely from transportation excise taxes and are payable through 2025. The total principal and interest remaining to be paid on the bonds is $1.0 billion. Principal and interest paid for the current year and total pledged revenues were $103.6 million and $254.9 million, respectively. The annual principal and interest payments on the bonds required 40.6% of the pledged revenues. In current and prior fiscal years, 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 these legally defeased bonds are not reflected in the accompanying financial statements. 3. School Facilities Board In prior fiscal years, the School Facilities Board (SFB) 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 these legally defeased bonds are not reflected in the accompanying financial statements. The SFB has pledged portions of its gross revenues towards payment of debt related to State school improvement revenue bonds, State school improvement revenue refunding bonds, and State school trust revenue refunding bonds outstanding at June 30, 2015. These bonds finance the correction of existing deficiencies in school facilities in the State of Arizona. These pledged revenues include Education Transaction Privilege Taxes approved by voters as part of Proposition 301 and expendable State School Trust Revenues. Expendable State School Trust Revenues include State Trust Lands’ land lease revenue, interest earnings on land sales financed over time, and a formula distribution from the State’s Permanent Fund prescribed by the State’s Constitution. Pledged revenues do not include sales of State Trust Lands, sales of natural products derived from State Trust Lands, or royalties from minerals extracted from State Trust Lands. These revenues are held in perpetuity for the benefit of various beneficiaries of the State Land Trust and are not available to pay debt service. Expendable State School Revenues in excess of $72.263 million are not available to pay debt service on the State school trust revenue refunding bonds per the debt documents. At June 30, 2015, pledged revenues totaled $679.6 million, of which 12.9% ($87.5 million) was required to cover current year debt service. Future pledged revenues required to pay all future debt service on these bonds through final maturity of July 1, 2020 are $417.1 million. - 108 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 Business-Type Activities 4. Universities a. University of Arizona The U of A’s bonded debt consists of various issues of system revenue bonds and Stimulus Plan for Economic and Educational Development (SPEED) 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 and for refunding obligations from previously issued bonds. For all outstanding SPEED revenue bonds, up to 80% of the debt service payments are payable from the U of A’s SPEED revenue bond account monies, which are derived from certain revenues of the Lottery. To the extent SPEED revenue bond account monies are not sufficient to make debt service payments, the SPEED revenue bonds are secured by a pledge of certain gross revenues, such as student tuition and fees, but that pledge is subordinate to the pledge of those gross revenues for the U of A’s system revenue bonds. On July 10, 2014, the U of A sold System Revenue Refunding Bonds Series 2014 (2014 Bonds) for $16.025 million dated July 17, 2014. The 2014 Bonds include serial bonds with interest rates ranging from 2.00% to 5.00% and maturity dates ranging from 2015 to 2029. The 2014 Bonds with maturity on or after June 1, 2025, are subject to optional redemption without premium. The 2014 Bonds sold at a premium of $2.300 million. The U of A realized net proceeds of $18.115 million, after payment of $210 thousand for issuance costs and underwriter discounts. The net proceeds were used to finance a portion of the McKale Memorial Center Phase I improvements and to refund the following: • Current-refund the System Revenue Bonds Series 2004B and a portion of the Series 2005A with an outstanding principal balance of $2.025 million and $1.685 million, respectively. The current refunding generated a net present value economic gain of $261 thousand (difference between the present values of the old debt and the new debt service payments) for the U of A. The refunding decreases the U of A’s debt service by $25 thousand in the first year and an average of $17 thousand in years two through fifteen. • Advance-refund a portion of the System Revenue Bonds Series 2006A with an outstanding principal balance of $1.650 million. The advance refunding generated a net present value economic gain of $104 thousand (difference between the present values of the old debt and the new debt service payments) for the U of A. The advance refunding decreases the U of A’s debt service by $15 thousand in the first year and an average of $18 thousand in years two through six. The refunded system revenue bonds will be paid by investments held in an irrevocable trust with a combined carrying value of $1.729 million. Accordingly, the trust account assets and liability for these defeased bonds are not included in the accompanying financial statements. • The overall refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $254 thousand. This difference, reported in the accompanying financial statements as a deferred inflow of resources, is being amortized to interest expense through the year 2029 using the straight-line method. On December 2, 2014, the U of A sold SPEED Revenue Bonds Series 2014 for $129.185 million dated December 17, 2014 (2014 SPEED Bonds). The 2014 SPEED Bonds include serial bonds totaling $68.280 million with interest rates ranging from 3.00% to 5.00% and maturity dates ranging from 2016 to 2034. The 2014 SPEED Bonds also include two term bonds. The first term bond totals $26.755 million with an interest rate of 5.00% and a maturity date of August 1, 2039. The second term bond totals $34.150 million with an interest rate of 5.00% and a maturity date of August 1, 2044. The serial bonds with maturity on or after August 1, 2025, are subject to optional redemption without premium. The 2014 SPEED Bonds with maturity on August 1, 2039 and August 1, 2044, are subject to mandatory sinking fund redemption without premium pursuant to the debt documents. The 2014 SPEED Bonds sold at a premium of $17.322 million. The U of A realized net proceeds of $145.750 million, after payment of $757 thousand for issuance costs and underwriter discounts. The net proceeds were used to finance the Bioscience Partnership Building and a portion of the Bioscience Research Laboratories. On March 31, 2015, the U of A sold System Revenue Refunding Bonds Series 2015A (2015A Bonds) for $103.950 million and System Revenue Refunding Bonds Taxable Series 2015B (2015B Bonds) for $14.660 million dated April 29, 2015. The 2015A - 109 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 Bonds include serial bonds totaling $67.490 million with interest rates of 5.00% on all maturities and maturity dates ranging from 2020 to 2036. The 2015A Bonds also include two term bonds. The first term bond totals $14.425 million with an interest rate of 5.00% and a maturity date of June 1, 2040. The second term bond totals $22.035 million with an interest rate of 4.00% and a maturity date of June 1, 2045. The 2015B Bonds include serial bonds totaling $14.660 million with interest rates ranging from 0.65% to 1.93% and maturity dates ranging from 2016 to 2020. The 2015A Bonds with maturity on or after June 1, 2026, are subject to optional redemption without premium. The 2015A Bonds sold at a premium of $16.026 million. The U of A realized net proceeds of $119.362 million, after payment of $614 thousand for issuance costs and underwriter discounts. The net proceeds were used to finance a portion of the Bioscience Research Laboratories and to refund, in advance of maturity, a portion of the System Revenue Bonds Series 2007 and 2008A totaling $14.455 million and $13.270 million, respectively. The advance refunding generated a net present value economic gain of $2.049 million (difference between the present values of the old debt and the new debt service payments) for the U of A. The advance refunding decreases the U of A's debt service by $645 thousand in the first year and an average of $78 thousand in years two through nineteen. The advance refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $2.951 million. This difference, reported in the accompanying financial statements as a deferred outflow of resources, is being amortized to interest expense through the year 2033 using the straight-line method. The refunded system revenue bonds will be paid by investments held in an irrevocable trust with a combined carrying value of $30.353 million. Accordingly, the trust account assets and liability for these defeased bonds are not included in the accompanying financial statements. The 2015B Bonds are subject to optional redemption at a redemption price equal to the greater of (1) par, or (2) the net present value of remaining debt service payments, discounted to the date of redemption at a rate based on U.S. Treasury Securities plus 25 basis points. The U of A realized net proceeds of $14.552 million, after payment of $108 thousand for issuance costs and underwriter discounts. The net proceeds were used to refund, in advance of maturity, a portion of the System Revenue Bonds Series 2006A totaling $13.580 million. The advance refunding generated a net present value economic gain of $854 thousand (difference between the present values of the old debt and the new debt service payments) for the U of A. The advance refunding decreases the U of A's debt service by $339 thousand in the first year and an average of $103 thousand in years two through six. The advance refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $695 thousand. This difference, reported in the accompanying financial statements as a deferred outflow of resources, is being amortized to interest expense through the year 2020 using the straight-line method. The refunded system revenue bonds will be paid by investments held in an irrevocable trust with a combined carrying value of $14.197 million. Accordingly, the trust account assets and liability for these defeased bonds are not included in the accompanying financial statements. The U of A’s outstanding Series 2010 SPEED Revenue Bonds were issued as designated Build America Bonds under the provisions of the American Recovery and Reinvestment Act (ARRA). As such, the U of A is eligible to receive direct payments from the U.S. Treasury Department equal to 35% of the interest payments on such bonds on each interest payment date. In order to receive such payments, the U of A must file certain required information with the Federal government between 90 and 45 days prior to the interest payment date. The amount paid to the U of A by the Federal government may be reduced or eliminated due to such issues as failure by the U of A to submit the required information, any amounts owed by the U of A to the Federal government, or changes in the law that would reduce or eliminate such payments. Due to the federal sequestration, the U of A will receive a 7.3% reduction (totaling $118 thousand) in the federal interest subsidy for the August 1, 2015 debt service payment and a 6.8% reduction (totaling $220 thousand) in the federal interest subsidy for the February 1 and August 1, 2016 debt service payments. The U of A has pledged portions of its gross revenues towards the payment of debt related to all system revenue bonds, system revenue refunding bonds, and SPEED revenue bonds outstanding at June 30, 2015. The bonds generally provide financing for various capital projects of the U of A. These pledged revenues include student tuition and fees, auxiliary enterprise revenue, sales and service revenue, and other operating revenues, such as indirect cost recovery and certain investment income. Pledged revenues do not include State appropriations, gifts, endowment income, or other restricted revenues. At June 30, 2015, pledged revenues totaled $1.15 billion, of which 5.0% ($59.3 million) was required to cover current year debt service. Future annual principal and interest payments on the bonds are expected to require approximately 4% of pledged revenues. Future pledged revenues required to pay all remaining debt service for the bonds through final maturity of August 1, 2048 are $1.73 billion. - 110 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 b. Northern Arizona University The NAU’s bonded debt consists of various issues that are generally callable at a prescribed date with interest payable semiannually. All issues are at a fixed rate. Bond proceeds primarily pay for acquiring, constructing, or renovating capital facilities. On May 19, 2015, the NAU sold $45.4 million of Systems Revenue Refunding Bonds Series 2015 with an interest rate of 5.00%. Refunded bonds total $47.6 million and include $770 thousand of the 2004 Systems Revenue Refunding Bonds for maturities from June 1, 2032 to June 1, 2034; $3.6 million from the Systems Revenue Bonds Series 2005 for maturities from June 1, 2030 to June 1, 2035; $30.8 million from the Systems Revenue Bonds Series 2007 for maturities on June 1, 2016 and between June 1, 2019 to June 1, 2037; $12.1 million from the Systems Revenue Bonds Series 2008 for maturities on June 1, 2016, between June 1, 2022 to June 1, 2027, and between June 1, 2029 and June 1, 2030; and $290 thousand of the 2009B Systems Revenue Bond maturing on June 1, 2016. The refunding set aside $52.8 million into escrow that purchased Agency, TNotes, and a TSTRIP with maturities between May 28, 2015 and June 1, 2018. The present value of refunded debt prior to May 19, 2015 was $59.1 million and the net present value of savings was $3.2 million. The advanced refunding decreases the NAU's debt service by $1.2 million in year one and $2.0 million in year two with additional debt service savings of $57 thousand until June 1, 2035. On August 21, 2014, the NAU entered into a lease agreement with Student and Academic Services LLC (SAS), a subsidiary of the NACFFC. During the 30 year lease term, the NAU will make lease payments on a four-story building of approximately 102,000 gross square feet that will include new classrooms, space for student support services, and office space for faculty. The SAS Lease Revenue Bonds have a par value of $34.3 million. The Lease Revenue Bonds include serial bonds of $16.8 million with interest rates ranging from 2.00% to 5.00%. The 2014 Lease Revenue Bonds also include two term bonds that are subject to annual sinking fund contributions. The first term bond is for $7.7 million with an interest rate of 5.00% that matures June 1, 2039. The second term bond is for $9.8 million with an interest rate of 5.00% that matures June 1, 2044. The average annual debt service is $2.2 million with final maturity on June 1, 2044. In the current and prior years, the NAU defeased certain revenue bonds by either placing the proceeds of new bonds, or cash and investments accumulated in a 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, 2015, $47.7 million of such bonds outstanding are considered defeased. The Series 2009A and 2010 Bonds were issued as designated Build America Bonds under the provisions of the ARRA. As such, the NAU is eligible to receive direct payments from the U.S. Treasury Department equal to 35% of the interest payments on such bonds on each interest payment date. In order to receive such payments, the NAU must file certain required information with the Federal government between 90 and 45 days prior to the interest payment date. The amount paid to the NAU by the Federal government may be reduced or eliminated due to such issues as failure by the NAU to submit the required information, any amounts owed by the NAU to the Federal government, or changes in the law that would reduce or eliminate such payments. During fiscal year 2015, the Federal government reduced federal direct payment claims filed between December 1, 2014 and September 1, 2015 by 7.3% due to the federal budget sequestration resulting in a $274 thousand reduction in direct payments to the NAU. For accounting purposes, any direct payments received from the U.S. Treasury Department are recorded as nonoperating revenue. For the 2010 and 2013 revenue bonds, up to 80% of the debt service payments are payable from the NAU’s SPEED revenue bond account monies, which are derived from certain revenues of the Lottery. To the extent SPEED revenue bond account monies are not sufficient to make debt service payments, the SPEED revenue bonds are secured by a pledge of certain gross revenues, such as student tuition and fees, but that pledge is subordinate to the pledge of those gross revenues for the NAU’s system revenue bonds. The NAU has pledged portions of its gross revenues towards the payment of debt related to system revenue bonds, system revenue refunding bonds, and SPEED revenue bonds outstanding at June 30, 2015. The bonds generally provide financing for various capital projects of the NAU. These pledged revenues include student tuition and fees, certain auxiliary enterprises revenue, investment income, and indirect cost recovery revenue. Pledged revenues do not include State appropriations, gifts, endowment income, or other restricted revenues. Pledged revenues have averaged $233.5 million for the prior five years. For fiscal year 2015, pledged revenues totaled $273.0 million, of which 10.1% ($27.6 million) was required to cover current year debt service. Future annual principal and interest payments on the bonds are expected to require approximately 10.1% of pledged - 111 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 revenues. Future pledged revenues required to pay all remaining related debt service for the bonds through final maturity of June 1, 2044 are $799.5 million. c. Arizona State University At June 30, 2015, the ASU had issued a combination of fixed and variable rate bonds. The ASU’s long-term obligations generally are structured with level debt service, semi-annual interest, and call options at a prescribed date. Certain revenue bonds of the ASU have been defeased through advance refundings by depositing sufficient U.S. Government securities in an irrevocable trust to pay all future debt service. Accordingly, the liabilities for these defeased bonds are not included in the accompanying financial statements. The principal amount of all defeased bonds outstanding at June 30, 2015 totaled $178.0 million. The ASU has pledged gross revenues as defined in the bond indentures towards the payment of debt related to various senior lien system revenue bonds outstanding at June 30, 2015. These related system revenue bonds are primarily for new academic and research facilities, academic and laboratory renovations, and infrastructure improvements. The pledged revenues include student tuition and fees, certain auxiliary enterprises revenue, net investment income, and indirect cost recovery revenue. Pledged revenues do not include State appropriations, gifts, endowment income, or other restricted revenues. For the year ended June 30, 2015, pledged revenues totaled $1.3 billion, of which 6.3% ($82.3 million, net of federal direct payments) was required to cover current year debt service. Future pledged revenues required to pay all remaining debt service for senior and subordinate revenue bonds through final maturity of July 1, 2046 are $1.9 billion. In addition to a senior pledge of revenues for the ASU system revenue bonds, the ASU has pledged the same revenues on a subordinated basis to secure the ASU SPEED revenue bonds and the Series 2006 Arizona State University Research Park, Inc. Development Refunding Bonds. Research Park bonds outstanding at June 30, 2015 were $6.1 million with annual debt service payments of approximately $1.2 million through July 1, 2021. In June 2008, the Legislature approved the SPEED which provides the ASU with capital improvement funds for critical construction and deferred maintenance projects. SPEED projects are debt financed with revenue bonds and repaid primarily with Lottery revenues. Specifically, up to 80% of SPEED debt service is paid from Lottery revenues, with the balance being the responsibility of the ASU as evidenced by the subordinated pledge of the ASU revenues. In April 2015, the ASU issued $362.3 million of System Revenue and Refunding Bonds, Series 2015A, B, and C, with an average maturity of 14.8 years and an average interest rate of 3.34%. The bonds were issued to fund the new Downtown Phoenix campus Arizona Center for Law and Society facility, the Tempe campus Psychology Renovation project, Phase I of the Sun Devil Stadium Renovation project, IT Infrastructure Renewal, and to refund various outstanding bonds of the ASU and one of its component units, the ACFFC (Las Casas Student Housing). The refunded debt is considered defeased and related liabilities are not included in the accompanying financial statements. The issuance of the refunding bonds, with an average maturity of 9.6 years and an average interest rate of 2.67%, resulted in a $23.1 million reduction in future debt service payments, with an economic gain of $21.2 million based upon the present value savings. The Taxable Series 2010A System Revenue Bonds and the Taxable Series 2010A SPEED Revenue Bonds were issued as Build America Bonds under the provisions of the ARRA. As such, the ASU is eligible to receive Federal Direct Payments from the U.S. Treasury equal to 35% of the interest owed on each interest payment date. The amount paid to the ASU by the Federal government may be reduced or limited due to such issues as failure by the ASU to submit the required information, offsets to reflect any amounts owed by the ASU to the Federal government, or changes in the law that would reduce or eliminate such payments. During fiscal year 2015, the ASU received Federal Direct Payments totaling $3.7 million, net of a $300 thousand or 7.3 percent reduction due to the federal budget sequestration. For accounting purposes, any direct payments received from the U.S. Treasury are recorded as nonoperating revenue. The ASU has two series of variable rate demand system revenue refunding bonds outstanding, Series 2008A and Series 2008B, totaling $91.6 million with final maturities of July 1, 2034. The interest rate in effect on June 30, 2015 was 0.08% for the Series 2008A bonds and 0.06% for the Series 2008B bonds. To provide credit and liquidity support for the bonds, the ASU extended the Irrevocable Transferable Direct-Pay Letter of Credit (LOC) with JPMorgan Chase Bank, N.A. (JPMorgan) through March 18, 2016, under which the ASU has agreed to a commitment fee for the LOC of 0.49% per annum. Should the Series 2008A/B bond rating change, the commitment fee could increase according to the fee agreement. Assuming all of the $45.8 million Series 2008A and $45.8 million Series 2008B bonds are not resold within 365 days, the ASU would be responsible to make quarterly installment principal payments, with the last payment being on the fourth anniversary of JPMorgan acquiring the bonds, plus interest to be calculated as established in the LOC. - 112 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 Securities and cash restricted for bonds debt service held by the trustee at June 30, 2015 totaled $69.8 million. The ASU presently plans to issue up to $144.0 million in system revenue bonds during the next year. Effective January 1, 2007, the ASU entered into a $103.0 million notional amount swap agreement (hedging derivative instrument) expiring on July 1, 2034, in conjunction with the 2008 variable rate demand system revenue refunding bonds (2008 Bonds). The outstanding $91.1 million notional amount at June 30, 2015 is not exchanged; it is only the basis on which the interest payments are calculated and it decreases as principal payments are made on the 2008 Bonds. The intention of the swap is to effectively convert the variable rate interest on the 2008 Bonds to a synthetic fixed rate. Under the terms of the swap agreement, the ASU pays the counterparty interest calculated at a fixed rate of 3.91% and receives payments from the counterparty based on the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Index set weekly. The SIFMA rate at June 30, 2015 was 0.07%. At June 30, 2015, the synthetic fixed interest rate on the bonds was: Interest Rate Swap Fixed payment to counterparty Variable payment from counterparty Net interest rate swap payments Variable-rate bond coupon payments Synthetic fixed interest rate on bonds Terms Fixed SIFMA Spread to SIFMA Rates (%) 3.91 (0.07) 3.84 0.07 3.91 The ASU continues to pay interest to the bondholders at the variable rate provided by the bonds. However, during the term of the swap agreement, the ASU effectively pays a fixed rate on the debt. If the counterparty defaults or if the swap is terminated, the ASU will revert to paying a variable rate. A termination of the swap agreement may also result in the ASU making or receiving a termination payment. The ASU is exposed to interest rate risk based on the SIFMA indexed variable payment received from the counterparty versus the variable rate paid to bondholders. The swap exposes the ASU to basis risk should the weekly SIFMA rate paid by the counterparty fall below the weekly interest rate due on the bonds. As of June 30, 2015, the ASU was not exposed to credit risk because the swap had a negative fair value. However, should interest rates change and the fair value of the swap become positive, the ASU would be exposed to credit risk in the amount of the derivative's fair value. The swap counterparty was rated A by Fitch, A by S&P, and A1 by Moody's as of June 30, 2015. Based on current ratings, the counterparty was not required to provide collateral. In the event a rating downgrade occurs, the counterparty may be required to provide collateral if the ASU's overall exposure exceeds predetermined levels. Collateral may be held by the ASU or a third party custodian. As of June 30, 2015, the swap had a fair value of $(16.8) million, which represents the cost to the ASU to terminate the swap. The June 30, 2014 fair value was $(14.1) million. The fair value was developed by an independent third party, with no vested interest in the transaction, using the zero-coupon discounting method. This method calculates the future payments required by the swap, assuming the current forward rates implied by the yield curve are the market's best estimate of future spot interest rates. These payments are then discounted using the spot rates implied by the current yield curve for a hypothetical zero-coupon rate bond due on the date of each future net settlement on the swaps. In accordance with GASB 53, as amended by GASB 63, the fair value of the ASU's hedging derivative instrument is reported on the statement of net position as a deferred outflow of resources (interest rate swap) and a liability (derivative instrument - interest rate swap). - 113 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 Summary of Revenue Bonds The following schedule summarizes revenue bonds outstanding at June 30, 2015 (expressed in thousands): Revenue Bonds Outstanding Governmental Activities: Department of Transportation School Facilities Board Department of Administration Business-type Activities: University Revenue Bonds Dates Issued Maturity Dates Interest Rates 2005-2015 2002-2013 2010 2016-2038 2016-2020 2016-2029 .94-5.25% .14-5.00% 3.00-5.00% 1992-2015 2016-2049 .07-6.64% Outstanding Balance at June 30, 2015 $ 2,372,775 395,535 372,880 2,675,430 Principal and interest debt service payments on revenue bonds outstanding at June 30, 2015 are as follows (expressed in thousands): Annual Debt Service Governmental Activities Fiscal Year 2016 2017 2018 2019 2020 2021-2025 2026-2030 2031-2035 2036-2040 2041-2045 2046-2049 Total Principal $ 241,315 241,765 268,565 234,145 242,640 1,021,370 573,235 246,975 71,180 - Total $ 3,141,190 B. $ $ Total Interest 138,078 129,986 121,108 112,147 103,660 374,381 162,321 49,870 6,641 1,198,192 Business-type Activities $ Total 379,393 371,751 389,673 346,292 346,300 1,395,751 735,556 296,845 77,821 - $ 4,339,382 Total Principal $ 79,155 91,865 86,710 84,270 95,685 519,770 569,150 481,050 378,890 243,885 45,000 $ 2,675,430 Total Interest $ 126,771 122,305 119,231 116,027 112,146 490,859 354,897 227,362 117,820 35,956 2,501 $ 1,825,875 Net Payments (Receipts) on Swap Agreement $ 3,393 3,281 3,164 3,042 2,913 12,401 8,072 2,548 $ 38,814 $ $ Total 209,319 217,451 209,105 203,339 210,744 1,023,030 932,119 710,960 496,710 279,841 47,501 4,540,119 GRANT ANTICIPATION NOTES Grant Anticipation Notes (GANs) are issued by the ADOT and secured by revenues received from the Federal Highway Administration under grant agreements and certain other federal-aid revenues. The balance of GANs issued in prior years and outstanding at the start of the fiscal year was $247.7 million. In prior fiscal years, the ADOT refinanced various GAN issues through advance-refunding arrangements. Under the terms of the refunding GAN issues, sufficient assets to pay all principal, redemption premium, if any, and interest on the refunded GAN 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 legally defeased GANs are not reflected in the accompanying financial statements. The ADOT has pledged federal revenues to repay $194.7 million in outstanding GANs. Proceeds from the GANs pay the costs of design, right-of-way purchase, or construction of certain freeways and other routes within Arizona. The GANs are payable solely from federal revenues and are payable through 2026. The total principal and interest remaining to be paid on the GANs is $248.5 million. Principal and interest paid for the current year and total pledged revenues were $64.9 million and $795.9 million, respectively. The annual principal and interest payments on the GANs required 8.2% of the pledged revenues. - 114 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 Grant Anticipation Notes currently outstanding are as follows (expressed in thousands): Grant Anticipation Notes Outstanding Governmental Activities: Department of Transportation Dates Issued Maturity Dates Interest Rates 2009-2012 2016-2026 3.00-5.25% Outstanding Balance at June 30, 2015 $ 194,670 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 2016 $ 47,350 $ Total Debt Service 9,553 $ 56,903 2017 11,770 7,393 19,163 2018 12,325 6,838 19,163 2019 12,925 6,240 19,165 2020 13,545 5,622 19,167 2021-2025 78,545 17,273 95,818 2026 18,210 956 Total C. Governmental Activities Total Total Principal Interest $ 194,670 $ 53,875 19,166 $ 248,545 CERTIFICATES OF PARTICIPATION Governmental Activities 1. Department of Administration The State has issued COPs to finance construction or improvements of various capital assets. Additionally, the State issued COPs Series 2010A and 2010B to finance the acquisition of certain property from the State by the trustee, with which the proceeds of were deposited to the State’s General Fund to pay appropriated expenditures of the State. The COPs Series 2010A and 2010B sale-leaseback transactions are nominal sales, with the State retaining all rights of ownership and control of the properties. Accordingly, they are accounted for under the financing method since the State has such an extensive continuing involvement in the properties for the entire duration of the agreement. 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 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 leases will terminate and there can be no assurance that the proceeds for the re-leasing or sale of the projects will be sufficient to pay principal and interest with respect to the then outstanding COPs. The scheduled payments of principal and interest with respect to the COPs 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 COPs. 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. In prior fiscal years, the State refinanced various COPs through advance-refunding arrangements. Under the terms of the refundings, sufficient assets to pay all principal, redemption premiums, if any, and interest on the refunded COPs have been placed in irrevocable trust accounts at commercial banks and invested in U.S. 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 these legally defeased COPs are not reflected in the accompanying financial statements. - 115 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 2. School Facilities Board The SFB Series 2010 COPs are not subject to mandatory sinking fund prepayment. However, as a means to provide a source of funds that will be available to pay the principal with respect to the Series 2010 COPs at maturity, the lease agreement with the trustee for the 2010 COPs will provide for mandatory sinking fund payments to be made as part of the base rent due under the lease. The SFB Series 2010 COPs are subject to extraordinary mandatory prepayment from unexpended proceeds pursuant to the debt documents. On February 6, 2014, the SFB redeemed $9.5 million of the Series 2010 COPs pursuant to the extraordinary mandatory prepayment provisions in the debt documents. Beginning August 15, 2012, annual deposits to the sinking fund were scheduled to be made on August 15 of each year through August 15, 2027, at which time, the accumulated balance (including investment earnings and losses) in the sinking fund will be sufficient to retire the Series 2010 COPs on their stated maturity date of September 1, 2027. The sinking fund deposit requirements were adjusted to reflect the extraordinary mandatory prepayment redemption which occurred on February 6, 2014. All proceeds received from the issuance of the Series 2010 COPs have been expended as of June 30, 2015. As a result, the extraordinary mandatory prepayment discussed above no longer applies. All other prepayment provisions remain in force pursuant to the debt documents. In current and prior fiscal years, the SFB refinanced various COPs through advance-refunding arrangements. Under the terms of the refundings, sufficient assets to pay all principal, redemption premiums, if any, and interest on the refunded COPs have been placed in irrevocable trust accounts at commercial banks and invested in U.S. 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 these legally defeased COPs are not reflected in the accompanying financial statements. Business-Type Activities 3. Universities a. University of Arizona The U of A utilizes COPs and various capital leases to acquire buildings, equipment, and land. The COPs are generally callable, and the capital leases are subject to prepayment. On April 1, 2015, the U of A issued Refunding COPs Series 2015A (2015A COPs) for $89.5 million and Refunding COPs Taxable Series 2015B (2015B COPs) for $13.8 million dated May 12, 2015. The 2015A COPs include $89.5 million of serial certificates with interest rates ranging from 2.00% to 5.00% and maturity dates ranging from 2015 to 2025. The 2015B COPs include $13.8 million of taxable serial certificates with interest rates ranging from 0.60% to 3.09% and maturity dates ranging from 2015 to 2025. The 2015A COPs are subject to extraordinary redemption dates pursuant to the debt documents. The U of A realized net proceeds of $102.3 million, after receipt of a premium of $13.4 million and payment of $568 thousand for issuance costs and underwriter discounts. The net proceeds were used to current-refund $53.7 million and advance-refund $44.2 million of the Series 2005A – 2005D, 2005F – 2005I, 2006A – 2006C, and 2006E COPs. The refunding generated a net present value economic gain of $11.0 million (difference between the present values of the old debt and new debt service payments) for the U of A. The refunding decreases the U of A’s debt service by $4.5 million in the 1st year and an average of $655 thousand in years two through eleven. The refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $4.1 million. This difference, reported in the accompanying financial statements as a deferred outflow of resources, is being amortized to interest expense through the year 2025 using the straight-line method. The refunded COPs will be paid by investments held in an irrevocable trust with a combined carrying value of $46.1 million. Accordingly, the trust account assets and liability for these defeased COPs are not included in the accompanying financial statements. The 2015B COPs are subject to optional redemption at a redemption price equal to the greater of (1) par, or (2) the net present value of the remaining debt service payments, discounted to the date of redemption at a rate based on U.S. Treasury Securities plus 25 basis points. There are also extraordinary redemption dates pursuant to the debt documents. The U of A realized net proceeds of $13.6 million, after deducting an issuance discount of $79 thousand and payment of $121 thousand for issuance costs and underwriter discounts. The net proceeds were used to current and advance refund the Series 2006C, 2006D, and 2007A COPs with an outstanding principal balance of $12.5 million. The refunding generated a net present value economic gain of $341 thousand (difference between the present values of the old debt and new debt service payments) for the U of A. The refunding decreases the U of A’s debt service by $45 thousand in the first year and an average of $29 thousand in years two through eleven. The refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $1.4 million. This difference, reported in the accompanying financial statements as a deferred outflow of resources, is being amortized to - 116 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 interest expense through the year 2025 using the straight-line method. The refunded COPs will be paid by investments held in an irrevocable trust with a combined carrying value of $13.3 million. Accordingly, the trust account assets and liability for these defeased COPs are not included in the accompanying financial statements. b. Northern Arizona University The NAU’s COPs consist of various issues that are generally callable at a prescribed date with interest payable semiannually. All issues are at a fixed rate. On May 20, 2015, the NAU issued $18.8 million of Refunding COPs Series 2015 (2015 COPs) with interest rates ranging from 3.00% to 5.00%. The net proceeds of the 2015 COPs were used to advance-refund the Series 2005 COPs with an outstanding principal balance of $20.5 million and maturities ranging from September 1, 2016 to September 1, 2030. The refunding set aside $21.0 million into escrow that purchased a TSTRIP maturing on August 31, 2015. The present value of the refunded debt service prior to May 20, 2015 was $24.2 million and the net present value savings was $2.3 million. The advance refunding increases the NAU’s debt service by an average of $287 thousand per year between June 30, 2016 and June 30, 2020 and decreases debt service by an average of $337 thousand per year between June 30, 2021 and June 30, 2031. In current and prior fiscal years, the NAU defeased certain COPs by either placing the proceeds of new COPs, or cash and investments accumulated in a sinking fund, in an irrevocable trust to provide for all future debt service payments on the refunded COPs. Accordingly, the trust account assets and liability for the defeased COPs are not included in the accompanying financial statements. At June 30, 2015, $38.4 million of such outstanding COPs are considered defeased. c. Arizona State University At June 30, 2015, the ASU has issued fixed rate COPs. The ASU’s long-term obligations generally are structured with level debt service, semi-annual interest, and call options at a prescribed date. In August 2014, the ASU issued $84.5 million of refunding COPs to refund the remaining Series 2004 and 2005A COPs. The refunded debt is considered defeased and the related liabilities are not included in the accompanying financial statements. The issuance of the refunding COPs with an average maturity of 10.6 years and an average interest rate of 3.04% resulted in a $14.3 million reduction in future debt service payments, with an economic gain of $10.9 million based on present value savings. Securities and cash restricted for COP debt service held by the trustee at June 30, 2015 totaled $7.3 million. A summary of the COPs issued as of June 30, 2015 is as follows (expressed in thousands): Project Governmental Activities: Department of Administration: 4000 Bed Prison, Wastewater Upgrades, Forensic Unit 2008A General Fund Budget Reconciliation 2010A General Fund Budget Reconciliation 2010B Refund 2001 PLTO, 2002A/2004B COPs School Facilities Board: Refunding Certificates of 2003A Refunding Certificates of 2003B Refunding Certificates of 2004B New School Construction 2008 Refunding Certificates of 2003B Refunding Certificates of 2004B Refunding Certificates of 2008 Qualified School Construction 2010 Refunding Certificates of 2003B and 2004A Refunding Certificates of 2004B and 2004C Refunding Certificates of 2005A-1 Refunding Certificates of 2005A-2 Refunding Certificates of 2005A-3 Total Governmental Activities Issue Date Final Maturity Date 2008 2010 2010 2013 2028 2030 2030 2029 2005 2005 2005 2009 2011 2011 2011 2011 2014 2014 2014 2014 2014 2016 2016 2016 2024 2020 2020 2020 2028 2020 2020 2018 2019 2020 Original Amount Issued $ $ - 117 - 238,990 709,090 289,705 62,630 201,125 80,055 53,045 580,035 11,100 10,000 37,685 91,325 29,945 49,605 110,695 60,390 55,040 2,670,460 Outstanding Balance $ $ Interest Rates 179,345 629,945 256,470 46,905 3.75 – 5.00 3.00 – 5.25 3.00 – 5.00 2.00 – 5.00 47,495 16,900 220 419,360 11,100 10,000 37,685 81,820 27,920 39,515 110,695 60,390 55,040 2,030,805 5.00 5.00 3.63 4.25 – 5.75 3.00 – 3.50 3.00 – 5.00 3.00 – 5.00 6.00 4.00 – 5.00 4.00 – 5.00 0.32 – 1.47 0.95 – 2.08 0.95 – 2.38 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 Project Business-type Activities: Arizona State University: 2002 Certificates of Participation 2006 Certificates of Participation 2006 Refunding Certificates of Participation 2011A Mercado Refunding Certificates of Participation 2013 A/B Refunding Certificates of Participation 2014 A/B Refunding Certificates of Participation University of Arizona: Fixed Student Union Refund COPs 1999A&B, 2001B, 2002A&B, 2003A&B, 2004A Biomedical Research Collaborative Bldg. Project Refund COPs 2001B, 2002A, 2004B Refund COPs 2003A Refund COPs 2002B Refund COPs 2003B & 2004A Refund COPs 2005A-2005D, 2005F-2005I, 2006A-2006C, & 2006E Refund COPs 2006C, 2006D, & 2007A Northern Arizona University: 2004 Certificates of Participation 2005 Certificates of Participation 2006 Certificates of Participation 2013 Refunding Certificates of Participation 2015 Refunding Certificates of Participation Total Business-type Activities Issue Date Final Maturity Date 2002 2006 2007 2011 2013 2015 2019 2031 2027 2025 2027 2031 1999 2006 2006 2007 2012 2012 2012 2020 2017 2031 2031 2022 2023 2031 2015 2015 2005 2006 2006 2013 2015 Original Amount Issued $ Outstanding Balance 103,800 15,810 65,890 8,465 64,780 84,525 430 11,985 60,250 6,800 63,340 82,160 4.76 4.53 4.15 4.27 3.09 3.04 21,607 46,255 18,240 93,045 10,190 20,600 124,940 556 6,565 14,055 79,610 8,295 18,450 124,725 5.13 – 5.30 4.25 4.00 – 5.00 4.00 – 4.50 1.96 – 3.42 4.00 – 5.00 3.00 – 5.00 2025 2025 89,470 13,810 88,925 13,555 3.00 – 5.00 0.65 – 3.09 2031 2024 2018 2031 2031 37,585 40,255 12,445 36,005 18,825 926,542 1,240 1,350 865 36,005 18,825 637,986 4.85 4.65 4.35 4.78 4.92 $ $ Interest Rates $ Principal and interest debt service requirements on COPs outstanding at June 30, 2015 are as follows (expressed in thousands): Annual Debt Service Governmental Activities Fiscal Year Total Principal 2016 $ Total Interest 188,955 $ Business-type Activities Total Amount Required 89,273 $ Total Principal 278,228 $ 37,430 Total Amount Required Total Interest $ 27,461 $ 64,891 2017 196,540 81,620 278,160 43,050 26,080 69,130 2018 203,090 74,891 277,981 48,460 24,209 72,669 2019 174,635 67,946 242,581 51,085 22,128 73,213 2020 175,855 60,462 236,317 53,256 19,900 73,156 2021-2025 585,230 203,743 788,973 219,290 64,169 283,459 2026-2030 506,500 65,366 571,866 153,830 22,814 176,644 2031 Total $ - - - 2,030,805 $ 643,301 $ 2,674,106 31,585 $ 637,986 786 $ 207,547 32,371 $ 845,533 D. LEASES 1. Leases The State has entered into capital lease agreements for the acquisition of buildings and equipment. Capital lease assets and liabilities are reported on the government-wide Statement of Net Position. A lease is reported as a capital lease if one or more of the following criteria are 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. - 118 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 • The lease term is equal to 75% or more of the useful life of the leased asset. (This criterion 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 value of the leased asset. (This criterion 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, 2015 are summarized below (expressed in thousands): Total minimum lease payments Less: amount representing interest Less: amount representing executory costs Annual Debt Service Governmental Business-type Activities Activities $ 60,101 $ 13,393 58,135 14,336 56,561 13,611 53,818 13,440 50,367 13,443 241,747 67,601 58,267 64,078 24,139 41,277 5,440 4,470 603,135 251,089 (148,423) (82,129) (45,928) - Present Value of Net Minimum Lease Payments $ Fiscal Year 2016 2017 2018 2019 2020 2021-2025 2026-2030 2031-2035 2036-2040 2041-2072 2. 408,784 $ 168,960 Capital Assets Financed through Capital Leases The following table summarizes the historical costs of assets acquired under capital leases (expressed in thousands): Less: accumulated depreciation Governmental Activities $ 445 463,650 57,634 521,729 (90,991) Carrying Value $ Land Buildings Equipment 430,738 $ $ Business-type Activities 8,241 196,833 2,192 207,266 (42,467) 164,799 E. 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 2015, the State paid for compensated absences as follows: 73.46% from the General Fund, 18.31% from other funds, and 8.23% from other major funds. - 119 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 F. CHANGES IN LONG-TERM OBLIGATIONS The following is a summary of changes in Long-term Obligations (expressed in thousands): Balance July 1, 2014, as restated Increases Balance June 30, 2015 Decreases Due Within One Year Due Thereafter Governmental Activities: Long-term Debt: Revenue bonds $ Grant anticipation notes Certificates of participation Capital leases Installment purchase contracts Notes payable Premiums and discounts on debt Total Long-term Debt 3,406,195 $ 754,285 $ (1,019,290) $ 3,141,190 $ 241,315 $ 2,899,875 247,710 - (53,040) 194,670 47,350 147,320 2,200,675 - (169,870) 2,030,805 188,955 1,841,850 423,513 17,085 (31,814) 408,784 35,045 373,739 - 527 (178) 349 173 176 89,865 783 (68,469) 22,179 - 22,179 427,865 149,554 (85,371) 492,048 44,478 447,570 6,795,823 922,234 (1,428,032) 6,290,025 557,316 5,732,709 323,884 218,028 (212,180) 329,732 178,455 151,277 Other Long-term Liabilities: Compensated absences Pollution remediation obligations 20,521 - (808) 19,713 3,109 16,604 344,405 218,028 (212,988) 349,445 181,564 167,881 $ 7,140,228 $ 1,140,262 $ $ 2,302,035 $ $ Total Other Long-term Liabilities Total Long-term Obligations (1,641,020) $ 6,639,470 $ (332,365) $ 2,675,430 $ 738,880 $ 5,900,590 79,155 $ 2,596,275 Business-type Activities: Long-term Debt: Revenue bonds 705,760 Certificates of participation 676,345 206,731 (245,090) 637,986 37,430 600,556 Capital leases 132,957 41,650 (5,647) 168,960 5,858 163,102 4,098 - (1,293) 2,805 691 2,114 130,315 118,959 (18,096) 231,178 17,543 213,635 3,245,750 1,073,100 (602,491) 3,716,359 140,677 3,575,682 83,477 101,566 (86,899) 98,144 22,004 76,140 Installment purchase contracts Premiums and discounts on debt Total Long-term Debt Other Long-term Liabilities: Compensated absences U of A capital commitments Total Other Long-term Liabilities Total Long-term Obligations - 25,924 - 25,924 3,500 22,424 83,477 127,490 (86,899) 124,068 25,504 98,564 $ 3,329,227 $ 1,200,590 $ (689,390) $ 3,840,427 $ 166,181 $ 3,674,246 The above long-term obligations relating to governmental activities include internal service funds. Amounts for capital leases and compensated absences differ from those in the Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position because $5.943 million of capital leases and $160.710 million of compensated absences are attributable to internal service funds. These amounts are included in the reconciliation as part of internal service fund net position. For beginning balance restatement detail, see Note 9.B. - 120 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 8. INTERFUND TRANSACTIONS INTERFUND BALANCES AND TRANSFERS Interfund Receivables/Payables Interfund balances as of June 30, 2015 are as follows (expressed in thousands): Due To Due From General Fund Transportation & Aviation Planning, Highway Maintenance & Safety Fund Land Endowments Fund Non-Major Governmental Funds Non-Major Enterprise Funds Internal Service Funds Total Due From General Fund $ - Transportation & Aviation Planning, Highway Maintenance & Safety Fund $ 21,740 Land Endowments Fund $ 544 Non-Major Governmental Funds $ 59,920 Universities Fund $ 200,062 Non-Major Enterprise Funds $ 36 Internal Service Funds $ 1,949 Total Due To $ 284,251 4,252 - - - 3,451 6,256 - 149 - - 7,852 6,256 20,259 9 - 1,845 - - 263 22,376 902 7,800 $ 33,213 181 21,930 544 4,677 76,149 22,273 222,335 185 2,212 28,033 7,800 356,568 $ $ $ $ $ $ $ Interfund balances represent (1) amounts due to and from the internal service funds for goods and services rendered, and (2) cash transferred between funds for various interfund activities subsequent to the balance sheet date. The cash is recorded in the fund which initiated the transfer, and a corresponding liability is recorded. The receiving fund records an interfund receivable. Interfund Transfers Transfers for the year ended June 30, 2015 are as follows (expressed in thousands): General Fund Transferred From General Fund Transportation & Aviation Planning, Highway Maintenance & Safety Fund Land Endowments Fund Non-Major Governmental Funds Non-Major Enterprise Funds Internal Service Funds Total Transfers In Land Endowments Funds $ - $ 93 105,426 96,351 65,684 $ 267,554 $ Transferred To Non-Major Governmental Universities Funds Fund Non-Major Enterprise Funds 277 $ 199,758 $ 752,637 $ 14 291 305,410 24,900 3,678 54,855 588,601 $ 22,273 774,910 $ $ Total Transfers Out 108 $ 952,780 305,410 24,993 109,118 222,848 396,327 65,684 222,956 $ 1,854,312 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. - 121 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 9. ACCOUNTING CHANGES A. FUND FINANCIAL STATEMENTS Net Position has been restated as follows (expressed in thousands): Net Position, as previously reported Prior period adjustment Implementation of GASB 68: Net pension liability (measurement date as of June 30, 2013) Deferred outflows – contributions made during fiscal year 2014 Fund reclassification Non-major fund change Net Position, as restated Proprietary Funds Fiduciary Funds Non-Major Internal Universities Enterprise Funds Service Funds $ 3,156,634 $ 207,793 $ (189,888) Pension and Other Employee Benefit Trust Funds $ 43,697,530 (1,317,760) (43,969) (45,301) (6,734) 80,105 - 2,805 63,110 43,721 273,460 2,805 - 380 - $ 1,918,979 $ $ (232,384) $ 43,691,176 B. GOVERNMENT-WIDE FINANCIAL STATEMENTS Government-wide Net Position has been restated as follows (expressed in thousands): Net Position, as previously reported Prior period adjustment Implementation of GASB 68: Net pension liability (measurement date as of June 30, 2013) Deferred outflows – contributions made during fiscal year 2014 Correction of error Fund reclassification Net Position, as restated Governmental Activities $ 22,194,124 Business-type Activities $ 3,469,149 (3,394,933) (1,361,729) 216,846 25,696 $ 19,041,733 82,910 63,110 $ 2,253,440 Prior Period Adjustment and Fund Reclassification Beginning net position has been restated for the implementation of GASB Statement No. 68, Accounting and Financial Reporting for Pensions, as amended by GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date. Capital lease liabilities related to private prisons were overstated in fiscal year 2014 by $25.7 million. The Insurance Department Guaranty Funds, previously reported as agency funds, have been reclassified to enterprise funds upon further review of administrative responsibilities and policy for recovery of costs. Beginning net position in other enterprise funds and business-type activities was restated by $63.1 million to show the change for this reclassification. The Industrial Commission Special Fund reported as a major enterprise fund in fiscal year 2014 did not meet the GASB major fund criteria in fiscal year 2015 and, as a result, is reported as a non-major enterprise fund. The effect on beginning net position was $43.7 million. - 122 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 10. GOVERNMENTAL FUND BALANCES Details of the fund balance categories and classifications shown in the aggregate on the governmental funds balance sheet for the year ended June 30, 2015 are as follows (expressed in thousands): General Fund Fund Balances: Nonspendable: Inventory Permanent fund principal Restricted for: General government Health and welfare Inspection and regulation Education Protection and safety Natural resources Debt service Capital projects School facilities improvements Committed to: General government Health and welfare Inspection and regulation Education Protection and safety Transportation Natural resources School facilities improvements Unassigned: Total Fund Balances $ 9,168 - $ Transportation & Aviation Planning, Highway Maintenance & Safety Fund $ 6,341 - Land Endowments Fund $ Non-Major Governmental Funds 5,175,215 $ - Total $ 15,509 5,175,215 10,509 192,023 3,735 3,408 23,674 3,805 4,765 809,095 - - 29,721 20,845 443,958 7,404 57,409 205,021 - 40,230 212,868 3,735 447,366 23,674 11,209 57,409 1,014,116 4,765 32,848 24,022 13,883 28,392 (306,751) 43,481 213,276 1,028,712 (29,961) 5,145,254 132,945 179,415 129,096 98,586 72,422 1,376,822 132,945 212,263 129,096 24,022 98,586 213,276 86,305 28,392 (336,712) 7,594,269 $ $ $ $ NOTE 11. DEFICIT NET POSITION The Risk Management Fund (RMF), an internal service fund, reported a deficit net position of $398.2 million primarily due to the RMF receiving annual funding only for expected paid insurance losses (including loss adjustment expenditures) within the State’s self-insured retention for the specific fiscal year. Accrued insurance losses of the RMF are not considered when determining funding for each fiscal year. The Retire Accumulated Sick Leave Fund (RASL), an internal service fund, pays retirees for their accumulated sick leave upon retirement from State service when they meet certain criteria. Beginning with fiscal year 2008, the State applied the provisions of GASB Statement No. 16, Accounting for Compensated Absences to the RASL. This results in a liability in the RASL which is significantly greater than the actual funding of the RASL, because the liability is based upon an estimate of the total RASL benefit earned by existing employees at the balance sheet date; however, State agencies pay for only one year based on a 0.40% charge on gross payroll. The $154.3 million deficit net position is primarily due to the above funding mechanism. A deficit net position is reported in certain funds as a result of implementing the new GASB Statement No. 68 requirement for recognition of net pension liability. These funds were: the Telecommunication Fund, an internal service fund, which reported a deficit of $440 thousand; the Lottery Fund, an enterprise fund, which reported a deficit of $1.3 million; and the Other Non-Major Enterprise Fund, which reported a deficit of $1.6 million. - 123 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 NOTE 12. JOINT VENTURES A. LARGE BINOCULAR TELESCOPE CORPORATION The U of A 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 U of A and the Arcetri Astrophysical Observatory in Florence, Italy. The purpose of the joint venture is to design, develop, construct, own, operate, and maintain a binocular telescope located in Arizona. The current members of the LBT are the U of A, INAF Astrophysical Observatory, Research Corporation, Ohio State University, and LBT Beteiligungsgesellschaft. The U of A has committed resources equivalent to 25% of the LBT’s construction costs and annual operating costs. As of June 30, 2015, the U of A has made cash contributions of $18.2 million toward the project’s construction costs, which were recorded as non-current investments on the Statement of Net Position. The U of A’s financial interest represents its future viewing/observation rights. As of December 31, 2007, the assets had been substantially completed and the telescope entered the commissioning phase. During calendar year 2007, the telescope became operational for research purposes; thus, depreciation of the property and equipment has commenced. The U of A recorded its proportionate share of the use of the viewing/observation rights, $896 thousand in calendar year 2015, as a reduction in its investment. At June 30, 2015, the investment totaled $11.9 million. According to the most recent draft financial statements of the LBT for the year ended December 31, 2014, assets, liabilities, revenues, and expenses totaled $125.0 million, $3.0 million, $16.0 million, and $16.0 million, respectively. Information regarding the LBT’s financial statements can be obtained from the University of Arizona Comptroller at the University of Arizona, Financial Services, 1303 E. University Blvd., Box 4, Tucson, AZ 85719-0521. B. GIANT MAGELLAN TELESCOPE ORGANIZATION The Giant Magellan Telescope Organization (GMTO) is a non-stock, nonprofit, jointly governed corporation founded to own and administer the planning, design, construction, and operation of the 25-meter Giant Magellan Telescope, a proposed astronomical telescope and its associated buildings, equipment and instrumentation, to be located in northern Chile. The GMTO is jointly governed by several leading educational and research institutions from the United States, South Korea, and Australia, including the U of A. The U of A comprises two of the fifteen members of the GMTO Board of Directors, and is one of eleven founders and participants. The GMTO will hold all rights, title and interest to and in the telescope. Although the U of A does not have a defined equity interest, as a founder the U of A will receive viewing rights to the telescope in proportion to their voluntary contributions to the project. The U of A has recognized an intangible asset related to the costs incurred during the design, development, and construction/commissioning phases. The U of A has also signed an agreement outlining future capital commitments to the GMTO between June 2016 and June 2022. Capital commitments in the amount of $25.9 million related to the GMTO as of June 30, 2015 are reported in Note 7.F. In the current fiscal year, the U of A contributed $20.0 million to the GMTO and has contributed a total of $34.1 million as of June 30, 2015. The U of A has been and will be responsible for manufacturing the telescope’s mirrors and will receive compensation from other GMTO founders and participants based on individual contractual agreements. As of June 30, 2015, the U of A has received contractual payments related to the project from the GMTO and related partners totaling $57.1 million. Contractual payments were for projects related to mirror construction and process development and include the acquisition of glass and mold materials, the development of mirror testing systems, design study, and engineering support. NOTE 13. COMMITMENTS, CONTINGENCIES, AND COMPLIANCE A. INSURANCE LOSSES The Department of Administration – Risk Management Division manages the State’s property, environmental, general 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 Division. Consequently, all agencies are required to participate in this program. The State’s Risk Management Division evaluates the proper mix of purchased commercial insurance and self-insurance annually. The Special Fund provides payment of workers’ compensation benefits in the following areas: claims against uninsured employers; continuing benefits in claims against insolvent workers compensation insurance carriers and bankrupt self-insured - 124 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 employers; payment for vocational rehabilitation; continuing medical benefits for pre-1973 workers compensation claims; and, partial coverage of benefits for second injury claims (apportionment claims). During fiscal year 2014, the Legislature passed Senate Bill 1181 (S. B. 1181), which transfers all insolvent workers’ compensation insurance carrier administration from the Special Fund to the Insurance Department Guaranty Fund (Guaranty Fund) effective July 1, 2015. The cash and investments and liabilities related to the insolvent workers’ compensation insurance carrier activity were transferred to the Guaranty Fund in fiscal year 2015. A transfer in the amount of $222.8 million and a Special Item in the amount of $241.5 million are recorded on the Combining Statement of Revenues, Expenses, and Changes in Fund Net Position for this transaction. The liability for bankrupt self-insured employers will remain a liability of the Special Fund. The Guaranty Fund provides payment for settlement of covered claims and return of unearned premiums under certain property and casualty insurance contracts of insolvent insurance companies in accordance with A.R.S. Title 20, Chapter 3, Article 6, and contractual obligations under certain life, annuity and disability insurance contracts of insolvent insurance companies in accordance with A.R.S. Title 20, Chapter 3, Article 7. The Guaranty Fund records claims liability when the reported loss is probable and reasonably estimated based on reserves established by adjusters handling the claim files. To provide funding for the payments of claims, the Guaranty Fund may direct the payment of assessments by member insurers under A.R.S. § 20-666 and A.R.S. § 20-686. Assessments under A.R.S. § 20-666 may not exceed 1% of net direct written premiums by member insurers. Under A.R.S. § 20-686, there are two classes of assessments: Class A assessments that are paid by each member insurer to cover administrative costs and other general expenses; and Class B assessments levied by account and paid by member insurers licensed to write insurance covered by the account, that pay the costs related to an impaired insurer or insolvent insurer pursuant to A.R.S. § 20-685. The total assessments under A.R.S. § 20-686 on a member insurer for each account may not exceed 2% of that member insurer’s average annual premium received in the State during the three calendar years preceding the year in which an insurer becomes impaired or insolvent. The Risk Management Fund and the Special Fund record claims liability when the reported loss is probable and reasonably estimated. On an annual basis, independent actuarial firms are engaged to estimate the Risk Management Fund’s and the Special Fund’s total year-end outstanding claims liability, which takes into account recorded claims and related allocated claims adjustment expenditures, loss development factors, and an estimate for incurred but not reported claims. There were no nonincremental claims adjustment expenses included in the liability for claims and adjustments. The management and payment of these losses is accomplished through the funding mechanism of the Risk Management Fund and the Special Fund. As discussed in the above paragraph, an independent annual actuarial analysis is performed to evaluate the needed funding. The Risk Management Division will assess each agency an annual portion of the necessary funding for the Risk Management Fund based on their exposures and prior loss experience. Assessments on gross premium revenues and settlement income primarily fund the Special Fund. To provide funding for the payment of these workers’ compensation benefits, the Special Fund may direct the payment of assessments into the State Treasury under A.R.S. § 23-1065(A) (general liability assessment – not to exceed 1.5%), A.R.S. § 23-1065(F) (apportionment assessment - not to exceed .5%), and A.R.S. § 23966(D) (insolvency assessment - not to exceed .5%), in a total amount not to exceed 2.5% of all premiums received by private insurance carriers and what would have been paid by self-insured employers if they had been fully insured by an insurance carrier authorized to transact workers compensation insurance during the immediately preceding calendar year. The Special Fund levied the following assessment taxes for calendar year 2015: 0.58% assessment under A.R.S. § 23-1065(A) and .17% assessment under A.R.S. § 23-1065(F). Additionally, as a result of the passage of S. B. 1181, the assessment authority for the Special Fund liability was reduced by 1%. Effective July 1, 2015, the Special Fund assessment that can be levied may not exceed 1.5%, which is allocated as follows: 1% under A.R.S. § 23-1065(A) (reduced from 1.5%) and .5% percent under A.R.S. § 23-1065(F). The A.R.S. § 23-966(D) assessment was eliminated. AMI Risk Consultants, Inc. was retained to evaluate the medical and compensation related liabilities of the Special Fund as of June 30, 2015. The total estimated loss reserve of $219.0 million decreased by 54.8%, or $265.1 million, over the prior year estimated loss reserve of $484.1 million. The primary reason for this significant decrease is directly related to the transfer of insolvent carrier liabilities to the Guaranty Fund. Other than the aforementioned insolvent carrier reserve, there were no major shifts in any award categories. A confidence level of 80% was used in calculating medical and compensation related liabilities. A confidence level of 80% indicates a confidence that the estimated liability will be adequate to cover actual costs 80 out of 100 - 125 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 years. The reserves were discounted at an assumed rate of .6% for the compensation benefits and zero percent for the medical benefits. For medical benefits, it was assumed that the inflation in medical costs will equal the investment return earned by the Special Fund on those reserves. The Special Fund has filed proofs of claim with ancillary receivers and liquidators regarding the recovery of statutory deposits and other monies for insolvencies. Since the actual amount that will ultimately be received cannot be determined, the Special Fund will continue to recognize receipt of insolvent carrier deposits as revenue at the time received rather than recording a receivable. Occasionally, the Risk Management Division agrees with claimants to purchase an annuity contract to settle specific claims when it is determined that it is in the best interest of the State to do so. In these instances, the State obtains a release agreement from the claimant and transfers its obligation to make future periodic payments to an assignment company. The State requires a secondary guarantor which is obtained when the assignment company transfers the obligation to make the payments through the use of a qualified assignment (typically a life insurance company with an approved rating). 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 fiscal years. The following table presents the changes in claims liabilities balances (short- and long-term combined) during fiscal years ended June 30, 2014 and June 30, 2015 (expressed in thousands): Fiscal Year Risk Management Fund: 2014 2015 Industrial Commission Special Fund: 2014 2015 Insurance Department Guaranty Funds: 2015 B. Beginning Balance $ 395,615 429,329 477,847 484,144 - Special Item Current Year Claims and Changes in Estimates $ $ - Claims Payments $ (58,570) (51,280) Ending Balance - 92,284 79,340 $ 429,329 457,389 (241,491) 31,177 577 (24,880) (24,199) 484,144 219,031 241,491 23,007 (12,926) 251,572 LITIGATION In Cave Creek Unified School District vs. State of Arizona, plaintiffs claimed that A.R.S. § 15-901.01, which the voters had enacted by referendum and required the Legislature to appropriate funds to adjust school equalization assistance funding for inflation by increasing both the base level and the transportation components of the revenue control limit each fiscal year by a statutorily defined growth rate, had been violated with the Legislature’s fiscal year 2010-2011 K-12 education budget reconciliation bill because only the transportation component of the revenue control limit was increased. The plaintiffs further asserted that because the voters enacted A.R.S. § 15-901.01 by referendum, the bill also violated the Arizona Constitution’s Voter Protection Act (VPA) provisions, which prohibit the Legislature from eliminating voter-enacted measures and from altering them except as the VPA allows. The Trial Court denied the plaintiff’s application for declaratory judgment and injunctive relief and granted the State’s motion to dismiss the amended complaint for failure to state a claim for which relief could be granted. The Court of Appeals reversed the Trial Court’s decision. The State petitioned the Supreme Court for review, which it granted. The Supreme Court considered whether the voters could constitutionally impose a mandate on the Legislature to increase appropriations. The Supreme Court has found that the voters could impose restrictions on the Legislature’s discretion through voter-protected statutes and that the Legislature must fund, on a go-forward basis, all components of the base level A.R.S. § 15901.01. The Supreme Court remanded the case to Superior Court for further proceedings. The Superior Court then bi-furcated the post-judgment proceedings and has determined that the base level should be recalculated as though the Legislature had never stopped funding the inflation adjustments. This decision is on appeal by the State. The second part of the case seeking retroactive payment for the inflationary increases not made since fiscal year 2009-2010 is pending in the Superior Court. A new judge was appointed in the Superior Court to hear the claims and defenses relating to the potential recovery of past due monies. - 126 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 However, the parties subsequently renewed negotiations in an effort to settle both cases. A settlement was announced by Governor Ducey on October 30, 2015, after he signed several bills intended to settle these two lawsuits. The settlement, which requires voter approval, involves a plan to provide $3.5 billion to public schools over the next decade by: 1) raising the base level amount of per student funding; 2) requiring that base level amount to be adjusted annually for inflation, with built-in ‘out-clauses’ to temporarily pause those inflation payments during economic downturns; and 3) adding an extra $625.0 million from the State’s General Fund. Voters approved Proposition 123, Arizona Education Finance Amendment, in the May 17, 2016 special election. As a result, the parties have agreed to the dismissal of both lawsuits. 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, 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 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. State employees are eligible to receive payment for an accumulated sick leave balance of at least 500 hours, with a maximum of 1,500 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% for 500 hours to a maximum of 50% for 1,500 hours. The maximum benefit value is $30 thousand. The benefit shall be paid either in a lump sum or in installments over a three-year period. The RASL Fund is accounted for in the financial statements as an internal service fund and accounts for the retiree accumulated sick leave liability of $158.5 million at June 30, 2015. D. UNCLAIMED PROPERTY The State of Arizona’s Uniform Unclaimed Property Act requires the deposit of certain unclaimed assets into a managed agency fund. A total of approximately $1.2 billion (net of refunds issued) has been collected since the inception of the fund. The State is also holding securities valued at $49.4 million and mutual funds valued at $11.0 million. In accordance with A.R.S. § 44-313 and A.R.S. § 44-314, for fiscal year 2015, $24.5 million was deposited in the Department of Revenue Administrative Fund, $2.5 million was deposited in the Housing Trust Fund, $2.0 million was deposited in the Seriously Mentally Ill Housing Trust Fund, $54.0 million was deposited in the General Fund, and $1.1 million was deposited in other funds as required by State statute. 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 GASB 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. At June 30, 2015, $397.7 million of this liability is reported in the General Fund because it is the fund to which the property ultimately escheats in Arizona. - 127 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 E. CONSTRUCTION COMMITMENTS The ADOT had outstanding commitments under construction contracts of $145.7 million at June 30, 2015. (in thousands) Expenditures Remaining to Date Commitments Construction contracts: Rural roadways Small urban roadways Urban roadways Large urban roadways Sub-total Design contracts Other commitments Total F. $ $ 9,489 20,152 322,102 458,584 810,327 118,042 142,039 1,070,408 $ $ 2,408 18,573 107,940 128,921 2,036 14,751 145,708 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. The annuities are purchased from qualifying insurance companies which have the highest ratings from among A.M. Best Company, S & P, Moody’s, Duff & Phelps, or Weiss. Purchases of annuities transfer liabilities for prizes to the insurance company. However, the Lottery may incur liabilities for prizes in the event of a default of an insurance company. Aggregate future payments to prize winners on existing annuities totaled $46.2 million at June 30, 2015. Approximately $43.8 million of the total aggregate future payments at June 30, 2015 relate to annuities purchased from five separate insurance companies, of which approximately $19.9 million relates to a single insurance company. NOTE 14. TOBACCO SETTLEMENT The State is one of many states participating in the settlement of litigation with the tobacco industry over the reimbursement of healthcare costs. The settlement money is intended to compensate the State for costs it has incurred in providing health and other services to its citizens that were necessitated by the use of tobacco products. The State expects to receive settlement payments through 2025. The State recorded tobacco settlement revenue of $100.0 million in the fund statements and the government-wide statements in fiscal year 2015. 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, 2015. NOTE 15. SUBSEQUENT EVENTS In July 2015, the State issued $164.0 million in Refunding Certificates of Participation, Series 2015 (Series 2015 Certificates), to: (1) refund, prior to maturity, all outstanding Government Office Lease Revenue Refunding Bonds (Capitol Mall L.L.C. Project), Series 2005, dated October 12, 2005, issued by The Industrial Development Authority of the City of Phoenix, Arizona in the initial principal amount of $87.6 million and currently outstanding in the amount of $64.5 million, (2) refund prior to maturity certain outstanding Certificates of Participation, Series 2008A, dated April 30, 2008, originally executed and delivered in the initial principal amount of $239.0 million and currently outstanding in the amount of $179.3 million, and (3) pay costs of issuance. The Series 2015 Certificates include serial certificates with interest rates ranging from 1.00% to 5.00% and maturity - 128 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 dates ranging from 2016 to 2028. The Series 2015 Certificates are subject to optional and extraordinary redemption prior to their stated maturity dates pursuant to the debt documents. In July 2015, the SFB issued $263.5 million in Refunding Certificates of Participation, Series 2015A (Series 2015A Certificates), to: (1) refund, in advance of maturity, portions of the outstanding Series 2008 COPs and (2) pay costs of issuance. The Series 2015A Certificates include serial and term certificates with interest rates ranging from 2.00% to 5.00% and maturity dates ranging from 2016 to 2024. The Series 2015A Certificates are not subject to optional redemption prior to maturity; however, they are subject to defeasance pursuant to the debt documents. In December 2015, the ASU issued $102.7 million in System Revenue Bonds, Series 2015D (Series 2015D Bonds), for the following projects: (1) renovations to research laboratories, classrooms, buildings, and infrastructure on all of the University’s campuses, (2) renovations to the Sun Devil Stadium, and (3) pay costs of issuance. The Series 2015D Bonds include both serial and term bonds with interest rates ranging from 3.00% to 5.00% and maturity dates ranging from 2018 to 2047. The Series 2015D Bonds are subject to optional and mandatory redemption prior to their stated maturity dates pursuant to the debt documents. In March 2016, the U of A issued $175.4 million in System Revenue Refunding Bonds, Series 2016 (Series 2016 Bonds), to: (1) refund, prior to maturity, portions of the outstanding 2007 Bonds, 2008A Bonds, and 2009A Bonds and (2) pay costs of issuance. The Series 2016 Bonds include serial bonds with interest rates ranging from 3.00% to 5.00% and maturity dates ranging from 2019 to 2039. The Series 2016 Bonds maturing on or after June 1, 2027 are subject to optional redemption, without premium, pursuant to the debt documents. NOTE 16. DISCRETELY PRESENTED COMPONENT UNIT DISCLOSURES The accounting policies of the State’s component units conform to U.S. GAAP applicable to governmental units adopted by the 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 FASB standards for not-for-profit organizations for financial reporting purposes. Each component unit has a June 30 year-end. A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. 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. 2. 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: • 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 even if the restrictions are satisfied in the same reporting period in which the contributions are received. • 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. - 129 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 3. Cash and Cash Equivalents Cash and cash equivalents includes monies held in certificates of deposit, overnight money market accounts, and U.S. Government or U.S. Treasury money market funds with original maturities of three months or less. Cash equivalents are stated at cost, which approximates fair value. 4. Investments The fair values of publicly traded securities are based on quoted market prices and exchange rates, if applicable. Absolute return limited partnership interests are recorded at fair value based on quoted market prices (where the underlying investment is a mutual fund) or as determined by the fund manager. Purchases and sales of investment securities are reflected on a trade-date basis. Realized gains and losses are calculated using the average cost for securities sold. Investment securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility. Investment income or loss comprises the sum of realized and unrealized gains and losses on investments and interest and dividends, less an investment management fee. In addition, investments include Universities’ endowment funds totaling $334.5 million managed by the Foundations. These funds are primarily held in pooled endowment funds managed for the Universities under service contracts with the Foundations and invested in the Foundations’ endowment pools. 5. Income Taxes The Universities-affiliated component units qualify as tax-exempt organizations under Section 501(c)(3) of the Internal Revenue Code, except for the ACFFC and, accordingly, there is no provision for income taxes in the accompanying financial statements. In addition, they qualify for the charitable contribution deduction and have been classified as organizations that are not private foundations. Any unrelated business income would be taxable. The ACFFC is 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. 6. Contributions 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 The Universities-affiliated component units' expenses are not incurred in the temporarily restricted or permanently restricted net asset categories. As the restrictions on these net assets are met, the net assets are reclassified to unrestricted net assets. The total net assets reclassified are reported as net assets released from restriction in the accompanying Statement of Activities. 8. Deferred Outflows of Resources Deferred outflows of resources represent a consumption of net position by the component units that applies to a future period and so will not be recognized as an outflow of resources (expense) until then. Deferred outflows of resources increase net position, similar to assets. 9. Endowments The management of the ASU Foundation and the U of A Foundation endowments is governed by laws in the State of Arizona created under the Arizona Management of Charitable Funds Act. The ASU Foundation has interpreted State statute as requiring the preservation of the fair value of the original gifts at the gift date of the donor restricted endowment funds. As a result of this interpretation, the ASU Foundation classifies as permanently restricted net assets: (a) the original value of gifts donated to the permanent endowment; (b) the original value of subsequent gifts to the permanent endowment; and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The ASU Foundation's investment policies are - 130 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 reviewed periodically. The long-term financial objectives are to produce a relatively predictable and stable payout stream that increases over time at least as fast as the general rate of inflation and to preserve intergenerational equity by achieving growth of the investments at a rate that at least keeps pace with the general rate of inflation, net of spending. The U of A Foundation endowment payout rate is a percentage (4% of the average fair value at the three previous calendar yearends) of the fair value of each endowment account, as determined from time to time by the U of A Foundation’s Board. The U of A Foundation considers the following factors in making a determination to appropriate donor-restricted endowment funds: the net rate of return earned by each endowment account in each of the five most recent fiscal years; the net real rate of return (as measured by the Higher Education Price Index) earned by the endowment in each of the five most recent fiscal years (i.e., the duration and preservation of the endowment fund); payout rates established by other university endowments as published in the Commonfund and National Association of College and University Business Officers survey; any unusual or extraordinary circumstances impacting the U of A flow of funds from other sources (i.e., tuition revenues, State appropriations, etc.); the extent to which programs benefiting from the payout rate rely on these funds to achieve their goals and objectives; general economic conditions; the possible effect of inflation or deflation; and the expected total return from income and appreciation of investments per the most recent asset allocation study. The U of A Foundation’s goal is to manage endowment assets such that the annual nominal return exceeds the annual “hurdle rate” (the sum of the payout and the endowment fee) so the endowment principal is able to grow and continue to fund in perpetuity the set of activities envisioned by the donor at the time of the gift. The U of A Foundation expects its endowment funds to provide an annual average rate of return of 8.7% with a standard deviation of 8.6%. 10. Use of Estimates The preparation of the Universities-affiliated component units' financial statements in conformity with U.S. GAAP requires 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 the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. B. DEPOSITS AND INVESTMENTS 1. Component Units a. Deposits and Investment Policies The investments of the WIFA are stated at fair value, except guaranteed investment contracts, which are stated at cost since they are non-participating contracts. b. Custodial Credit Risk - Deposits and Investments Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, the deposits or collateral securities may not be recovered from the outside party. The WIFA does not have a formal policy regarding custodial credit risk for deposits. Custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, the value of the investment or collateral securities that are in the possession of an outside party may not be recovered. The WIFA does not have a formal policy regarding custodial credit risk for investments. - 131 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 c. Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The WIFA does not have a formal policy regarding interest rate risk. The following table presents the interest rate risk for the WIFA utilizing the segmented time distribution method as of June 30, 2015 (expressed in thousands): Investment Type Guaranteed investment contracts Money market mutual funds U.S. agency securities U.S. Treasury securities Total d. Fair Value $ 61,692 18,937 22,877 10,078 Less than 1 $ 2,109 18,937 22,877 9,876 Investment Maturities (in years) 1-5 6-10 More than 10 $ 38,477 $ - $ 21,106 202 - $ $ $ 113,584 53,799 38,679 $ - $ 21,106 Credit Risk Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations to the holder of the investment. The WIFA does not have a formal policy regarding credit risk but their investments are in accordance with the master bond indenture. The following table presents the WIFA’s investments which were rated by S & P and/or an equivalent national rating organization. The ratings are presented using S & P’s rating scale as of June 30, 2015 (expressed in thousands): Investment Type Guaranteed investment contracts Money market mutual funds U.S. agency securities Total e. Fair Value $ 61,692 18,937 22,877 $ 103,506 AAA AA $ 18,937 - $ 22,877 $ $ 18,937 $ 22,877 $ A 61,692 61,692 Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of a government’s investment in a single issuer. The WIFA’s investment policy contains no limitations on the amount that can be invested in any one issuer. At June 30, 2015, investments in any one issuer, that were more than 5% of the WIFA’s total investments, are as follows: (i) Bayerische Landesbank (fair value of $40.6 million, or 15.6%) and (ii) Federal Home Loan (fair value of $22.9 million, or 8.8%). 2. Universities-Affiliated Component Units Investments of the Universities-affiliated component units include the following amounts at June 30, 2015. Investments are stated at fair value (expressed in thousands): Money market funds and cash equivalents Domestic/international equity securities and mutual funds U.S. fixed income obligations and mutual funds Absolute return limited partnerships and funds Other investments Total Investments - 132 - ASU Foundation $ 30,305 549,354 115,370 91,612 $ 786,641 U of A Foundation $ 229,360 118,853 236,620 163,584 $ 748,417 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 C. PROGRAM LOANS The 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 semi-annual 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 2015 are as follows (expressed in thousands): Clean Water Fund Drinking Water Fund Total Beginning Balance $ 747,609 346,697 $ 1,094,306 Increases $ 22,610 26,530 $ 49,140 Decreases $ (47,390) (21,548) $ (68,938) Ending Balance $ 722,829 351,679 $ 1,074,508 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 .30% to 3.00% annual administrative fee. When loans have been repaid, the principal and interest for the pledged loans are placed in restricted accounts used to make bond payments. For loans that are not pledged, the money is placed in a fund from which additional loans are made. 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 the WIFA to the borrowers and interest on the reserve accrues to the borrowers. As of June 30, 2015, the debt service reserve was $69 thousand and $2.1 million for the Clean Water and Drinking Water Funds, respectively, and no allowance for loan loss was recorded. D. PLEDGES RECEIVABLE Pledges receivable (unconditional promises to give) are recorded at their net realizable value, which is net of a discount and loss allowance. The ASU Foundation’s pledges are discounted using the applicable risk free rate at the date the pledge was recognized. The discount rates range from 1.20% to 10.90%. An allowance for uncollectible pledges is estimated based on the ASU Foundation’s collection history and is recorded as a reduction to contribution support and revenue and an increase in the allowance for uncollectible pledges. Pledges receivable, as of June 30, 2015, include the following (expressed in thousands): Gross pledges receivable Present value discount Allowance for uncollectible pledges Net Pledges Receivable E. 1. ASU Foundation $ 163,949 (11,548) (39,409) $ 112,992 DIRECT FINANCING LEASE AGREEMENTS ASU Foundation The ASU Foundation leases a portion of the Fulton Center building (the ASU Foundation's headquarters) to the ASU under a direct financing lease. At the end of lease, the ASU Foundation and affiliates will gift their portion of the building to the ASU and the ASU will receive title to the building. The ASU Foundation's net investment in this direct financing lease at June 30, 2015 is $23.7 million. 2. ACFFC Pursuant to a Sublease Agreement, dated April 7, 2004 and amended on April 1, 2009 (the Sublease), Nanotechnology Research, LLC, a wholly-owned subsidiary of the ACFFC, leases its interest in the Research Park to the ASU. The ASU will make lease payments at times in amounts sufficient to pay all principal and interest on the Series 2009A and 2009B Bonds. The Sublease has successive annual renewals without action from either party through the period ending March 31, 2034. The Sublease is subject to early termination by Nanotechnology or the ASU upon the payment in full of the Series 2009A and 2009B Bonds. Upon - 133 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 termination or expiration of the Sublease, the ACFFC's interest in the premises, including all buildings and improvements on the leased premises, transfers to the ASU without further consideration. The ACFFC's net investment in the Nanotechnology facility direct financing lease is $30.1 million at June 30, 2015. Pursuant to the ASU Lease Agreement, dated July 1, 2005, McAllister Academic Village, LLC, a wholly-owned subsidiary of the ACFFC, leases its interest in the non-residential portion of Hassayampa Academic Village (Hassayampa, HAV) to the ASU which consists of the academic, tutorial, retail, and food service facilities. The lease was amended effective September 1, 2008 to change the annual renewal period through June 30, 2039 to correspond with the maturity of the Hassayampa 2008 Bonds. Any right, title, or interest of Hassayampa in and to the academic portions of the Hassayampa project will pass to the ASU without further cost upon payment in full of the Hassayampa 2008 Bonds. Lease payments are based on the fixed interest rates determined by the Hassayampa 2008 Bonds maturity schedule. The ACFFC's net investment in the McAllister (HAV) direct financing lease is $12.0 million at June 30, 2015. F. CAPITAL ASSETS Capital assets for the Universities-affiliated component units for the fiscal year ended June 30, 2015 include the following (expressed in thousands): Buildings and improvements Furniture, fixtures, and equipment Total cost or donated value Less: Accumulated Depreciation Total Property and Equipment, Net G. LONG-TERM OBLIGATIONS 1. Component Units a. Water Infrastructure Finance Authority $ $ ACFFC 174,045 79,027 253,072 (97,065) 156,007 U of A Campus Research Corporation $ 24,041 6,778 30,819 (10,431) $ 20,388 Downtown Phoenix Student Housing $ 114,129 10,501 124,630 (30,760) $ 93,870 The WIFA’s 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 obligations are not obligations, general, specific, or otherwise, of the State or any other political subdivision, thereof, other than the WIFA. In prior fiscal years, the WIFA 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. The amount outstanding on the refunded bonds for the WIFA at June 30, 2015 totaled $115.4 million. On December 4, 2014, the WIFA issued $342.6 million of Water Quality Revenue Refunding Bond series 2014A for the purpose of advance refunding or defeasing a portion of the 2006 Water Quality Revenue Bonds, 2008 Water Quality Revenue Bonds, 2009 Water Quality Revenue Bonds, 2010 Water Quality Revenue Bonds and the 2012 Water Quality Refunding Bonds. The advanced refunding was done in order to reduce debt payments and take advantage of the low interest rates. The refunding decreased the WIFA's total debt payments by approximately $38.8 million. The transaction resulted in an economic gain of approximately $22.3 million. Under the terms of the refunding issue, sufficient assets to pay all principal and interest in the refunded bonds issues had 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. Two different bank escrow accounts were established, a 2014 account and a 2014/2012 escrow account. The amount outstanding of the defeased bonds as of June 30, 2015 was $390.3 million. In addition to the refunding, the 2004 Series bonds were prepaid. - 134 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 The security for the bonds includes a pledge of monies and investments in the accounts held by the Trustee and the Financial Assistance accounts held for the WIFA by the State Treasurer and all pledged loans. At the end of fiscal year 2015, the amount of money and investments held by the Trustee and the monies held by the State Treasurer was $260.8 million. The principal and interest repayments received on pledged loans in fiscal year 2015 were $91.5 million. The principal and interest paid on the outstanding bonds in fiscal year 2015 was $480.5 million. Summary of Revenue Bonds The following schedule summarizes revenue bonds outstanding at June 30, 2015 (expressed in thousands): Revenue Bonds Outstanding Component Units: Water Infrastructure Finance Authority Dates Issued Maturity Dates 2006-2015 2016-2031 Outstanding Balance at June 30, 2015 Interest Rates 0.20-5.00% $ 712,305 Principal and interest debt service payments on revenue bonds outstanding at June 30, 2015 are as follows (expressed in thousands): Annual Debt Service Water Infrastructure Finance Authority Principal Interest Total $ 47,540 $ 31,408 $ 78,948 46,110 29,671 75,781 46,625 27,898 74,523 47,545 25,980 73,525 49,725 23,774 73,499 262,315 80,714 343,029 189,680 22,796 212,476 22,765 398 23,163 $ 712,305 $ 242,639 $ 954,944 Fiscal Year 2016 2017 2018 2019 2020 2021-2025 2026-2030 2031 Total b. 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, 2014 Water Infrastructure Finance Authority: Long-term Debt: Revenue bonds $ 818,750 Revenue bond premium 73,997 Total Long-term Debt 892,747 Other Long-term Liabilities: Compensated absences Total Other Long-term Liabilities Total Long-term Obligations Increases $ 104 104 $ 892,851 $ Decreases 342,565 60,721 403,286 $ (449,010) (35,404) (484,414) 93 93 (87) (87) 403,379 $ (484,501) - 135 - Balance June 30, 2015 Due Within One Year Due Thereafter $ $ 47,540 47,540 $ 664,765 99,314 764,079 110 110 - 47,650 $ 764,079 712,305 99,314 811,619 110 110 $ 811,729 $ STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 2. Universities-Affiliated Component Units A summary of bonds payable as of June 30, 2015 include the following (expressed in thousands): Final Amount Series 2014A Tax-Exempt Lease Revenue Bonds 2035 $ 31,390 Series 2014B Taxable Lease Revenue Bonds 2019 3,610 Series 2014A Revenue Refunding Bonds 2034 39,050 Series 2014B Revenue Refunding Bonds 2016 2,465 Series 2004A Variable Rate Revenue Bonds 2034 22,420 Series 2004B Variable Rate Revenue Bonds 2022 6,755 Series 2011 Tax-Exempt Revenue Refunding Bonds 2018 11,065 Series 2009 Revenue Bonds 2024 32,035 Series 2009A Lease Revenue Refunding Bonds 2034 22,955 Series 2009B Lease Revenue Refunding Bonds 2022 7,415 Series 2008 Revenue Bonds 2028 13,375 Series 2008 Revenue Refunding Bonds 2039 140,930 Series 2008 Variable Rate Demand Revenue Refunding Bonds 2030 35,560 ASU Foundation: ACFFC: Deferred Cost of Refunding (225) Unamortized Bond Premium 178 Downtown Phoenix Student Housing: Series 2007A&C Revenue Bonds 2042 117,530 Series 2007D Tax-Exempt Revenue Bonds 2042 22,700 Unamortized Bond Discount (1,013) Scheduled future maturities of Universities-affiliated component units' bonds payable are as follows (expressed in thousands): Fiscal Year 2016 ASU Foundation $ 2,195 ACFFC $ 9,640 Downtown Phoenix Student Housing $ 810 2017 3,590 10,300 1,025 2018 3,730 10,985 1,245 2019 3,900 11,715 1,480 2020 4,085 9,345 1,735 Thereafter Total 88,190 $ 105,690 211,303 $ 263,288 132,922 $ 139,217 H. CONDUIT DEBT The purpose of the GADA is to provide cost-effective capital for local communities, certain special districts, and tribal governments for public infrastructure projects. The GADA’s bond structure allows it to lower borrowing costs for Arizona’s communities by issuing and selling bonds tax-exempt and by sharing financing costs among several borrowers. Principal and interest are payable semi-annually. Loans are secured by the Pledged Collateral Reserve Fund, a requirement that is calculated and deposited by the GADA from the GADA Fund, which is held by the State Treasurer. Some borrowers also have separate, additional reserve funds, which are held by the Trustee. An intercept mechanism of state-shared revenues for political subdivisions enhances the security of the GADA bonds. In previous years, the State appropriated a total of $20.0 million to the GADA for the express purpose of securing bonds issued by the GADA. Although issued in the name of the GADA, loans funded through the GADA bonds are solely the obligation of the underlying borrowers and are documented by loan repayment agreements. Pursuant to A.R.S. § 41-2259, the GADA’s bonds - 136 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2015 do not constitute nor create a general, special, or other obligation or other indebtedness of the State or any governmental unit within the meaning of any constitutional or statutory debt limitation. The bonds do not constitute a legal debt of the State and are not enforceable against the State. The only exposure to the State is related to the restricted net position of $12.0 million in the Pledged Collateral Reserve Fund. At June 30, 2015, the total outstanding face value of all bonds issued by the GADA was $389.2 million. I. ACCOUNTING RESTATEMENT Net Position has been restated as follows (expressed in thousands): Net Position, as previously reported Prior period adjustment Implementation of GASB 68: Net pension liability (measurement date as of June 30, 2013) Deferred outflows – contributions made during fiscal year 2014 Change in reporting entity Net Position, as restated Component Units $ 1,053,534 (3,253) $ 179 (337,714) 712,746 Prior Period Adjustment and Change in Reporting Entity Beginning net position has been restated for the implementation of GASB Statement No. 68, Accounting and Financial Reporting for Pensions, as amended by GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date. The University of Arizona Health Network (UAHN), previously reported as a discretely presented component unit, no longer meets the GASB requirements for inclusion in the State's financial reporting entity after its merger agreement with Banner Health that closed on February 28, 2015. The component units’ beginning net position has been restated by $337.7 million as a result of removing the UAHN. - 137 - REQUIRED SUPPLEMENTARY INFORMATION REQUIRED SUPPLEMENTARY INFORMATION STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Dollars) ADMINISTRATION, ARIZONA DEPARTMENT OF 500 BED MAXIMUM SECURITY FY12-13 500 BED MAXIMUM SECURITY FY13-14 ADMINISTRATIVE ADJUSTMENTS ADULT INFORMATION MANAGEMENT SYSTEM FY13-14 ADULT INFORMATION MANAGEMENT SYSTEM FY14-15 AFIS REPLACEMENT ERP FY13-14 AFIS REPLACEMENT ERP FY14-15 ANNUAL REV PERSONNEL DIV FUND ARS41-764C AUTOMATION AND INFORMATION TECH PROJECTS FY13-14 AUTOMATION AND INFORMATION TECH PROJECTS FY14-15 BUILDING RENEWAL COST FY14-15 BUILDING RENEWAL FY11-12 BUILDING RENEWAL FY12-13 BUILDING RENEWAL FY13-14 BUILDING RENEWAL GF FY14-15 CAPITOL MALL FIRE SYSTEM REPLACE FY08-09 CAPITOL MALL SECURITY SYSTEM CHILD SAFETY CHILDRENS INFORMATION LIBRARY COP DEBT SERVICE 2009 3RD SS CH 6 SEC 32 COP DEBT SERVICE 2009 6TH SS CH 4 SEC 2A COUNTY ATTORNEYS IMMIGRATION ENFORCEMENT FY12-13 COUNTY ATTORNEYS IMMIGRATION ENFORCEMENT FY13-14 COUNTY ATTORNEYS IMMIGRATION ENFORCEMENT FY14-15 COUNTY SERVICES DISTRIBUTION DATA SECURITY AND ENCRYPTION DOR E LICENSING DEQ FY13-14 E LICENSING DEQ FY14-15 ESSENTIAL COUNTY SERVICES GR TRANSFER TO AUTOMATION PROJECTS FUND HB1464 PERSONNEL REFORM FY98-99 HB2703 TRANSFER TO AUTO PROJECTS FUND IMPLEMENT UPGRADE TAXPAYER ACCOUNTING SYSTEM FY13-14 IMPLEMENT UPGRADE TAXPAYER ACCOUNTING SYSTEM FY14-15 OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION - ST BD RELIEF BILL CASH TRANSFER FY15 RELOCATION FY99-00 RELOCATION FY00-01 RELOCATION FY01-02 RELOCATION FY02-03 SOUTHWEST DEFENSE CONTRACTS STATE SURPLUS PROPERTY SALES PROCEEDS STATEWIDE INFO SECURITY AND PRIVACY OFC STUDENT LONGITUDINAL DATA SYSTEM TOBACCO TAX PROCESSING AND REV ACCT SYS UTILITIES WHITE MOUNTAIN APACHE TRIBES WATER RIGHT ADMINISTRATIVE HEARINGS, OFFICE OF OPERATING LUMP SUM APPROPRIATION AGRICULTURE, ARIZONA DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS AGRICULTURAL EMPLOYMENT RELATIONS BOARD AGRICULTURE CONSULTING AND TRAINING PARI-MUTUEL ANIMAL DAMAGE CONTROL ORIGINAL BUDGET (Appropriations) $ The Notes to Required Supplementary Information are an integral part of this schedule. -141 - 4,038,351 13,392,699 8,000,000 8,000,000 12,638,813 5,976,357 9,000,000 9,000,000 13,430 3,599,673 7,933,828 9,000,000 6,764 1,768,661 25,000,000 5,000,000 60,108,600 24,015,100 60,981 239,481 1,213,200 7,150,500 4,646,511 516,476 6,800,000 500,000 45 17,100,000 628,671 1,700,000 40,839,500 231,000 4,520 55,301 59,026 58,149 25,000 1,260,000 871,700 12,000,000 1,000,000 8,275,600 2,000,000 FINAL BUDGET (Appropriations) $ 4,038,351 13,392,699 3,202,322 8,000,000 8,000,000 12,638,813 26,533,000 1,389,234 5,976,357 9,001,700 9,000,000 5,780 3,599,673 7,933,828 9,000,000 6,764 1,768,661 19,500,000 5,000,000 60,108,600 24,015,100 60,981 239,481 1,213,200 7,150,500 4,646,511 516,476 6,800,000 500,000 18,400,000 45 17,100,000 628,671 1,700,000 40,893,900 231,100 257 4,520 55,301 59,026 58,149 25,000 1,820,000 871,700 12,000,000 1,000,000 8,275,600 2,000,000 ACTUAL EXPENDITURE AMOUNTS $ 3,800,827 12,104,776 3,202,322 8,000,000 8,440,961 8,342,599 1,389,234 4,238,435 4,016,393 2,184,165 5,780 3,461,513 5,026,830 1,192,975 1,058,708 11,096,100 60,108,600 24,015,100 (32,293) 231,423 7,150,500 4,626,974 513,169 4,933,368 500,000 18,400,000 17,100,000 397,302 566,666 38,271,826 154,606 257 25,000 1,761,127 735,588 11,661,924 1,000,000 7,026,464 - 874,500 862,500 862,500 23,300 128,500 65,000 20,126 23,300 128,500 65,000 20,126 23,300 127,994 50,057 (continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FINAL BUDGET (Appropriations) 7,881,800 23,200 198,434 7,884,600 23,200 198,434 7,809,049 23,200 227,369,700 1,290,650,800 197,070,000 54,867,700 13,487,100 19,373,400 165,918,500 6,223,000 77,785,300 6,863,100 38,354,100 1,725,888,200 22,650,000 68,500,000 3,862,007,600 212,369,700 331,879,092 1,294,650,800 222,042,400 90,474,500 13,487,100 30,392,100 165,918,500 7,512,500 89,820,400 8,481,800 38,358,700 2,070,593,400 22,650,000 177,755,700 3,607,269,900 205,850,770 331,879,092 1,236,413,496 219,112,534 90,474,500 4,202,300 30,391,970 156,310,521 7,073,759 82,042,107 7,794,825 28,155,667 2,035,152,062 22,115,340 175,134,446 3,421,700,112 1,955,200 15,719,600 12,539,200 145,793,600 23,263,300 6,647,000 38,843,100 1,385 - 1,955,200 22,445,000 18,289,400 213,828,600 33,328,100 6,647,000 38,843,100 1,385 13,032,400 917,000 1,955,200 22,445,000 18,289,400 213,828,600 33,328,100 6,647,000 38,843,100 13,030,279 917,000 800,000 1,000,000 100,000 206 316 90,000 39,106,400 181,100 176,441 800,100 1,000,000 100,000 206 316 90,000 39,111,900 181,100 176,441 726,188 1,000,000 86,169 38,000,728 178,236 425,540 1,679,539 1,870,400 2,724,767 17,989,700 250,000 425,540 1,679,539 1,870,400 2,724,767 17,996,400 157,306 425,540 366,291 363,222 1,440,776 16,086,156 994,400 1,277 994,700 1,277 896,844 188,483,300 18,563,300 39,753,600 84,366,300 190,483,300 20,563,300 46,753,600 90,166,300 69,460,019 14,359,441 27,760,847 50,554,481 OFFSITE NUCLEAR EMERGENCY RESPONSE PLANS OPERATING LUMP SUM APPROPRIATION RED IMPORTED FIRE ANT AHCCCS - ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ACA ADULT EXPANSION ADMINISTRATIVE ADJUSTMENTS ALTCS SERVICES CHILDREN'S REHABILITATIVE SERVICES DES ELIGIBILITY DISPROPORTIONATE SHARE PAYMENTS DSH - VOLUNTARY GRADUATE MEDICAL EDUCATION KIDSCARE SERVICES OPERATING LUMP SUM APPROPRIATION PROP 204 AHCCCS ADMINISTRATION PROP 204 DES ELIGIBILITY PROPOSITION 204 SERVICES RURAL HOSPITAL REIMBURSEMENT SAFETY NET CARE POOL TRADITIONAL MEDICAID SERVICES ARIZONA STATE UNIVERSITY BIOMEDICAL INFORMATICS DOWNTOWN PHOENIX CAMPUS OPERATING LUMP SUM APPROPRIATION-EAST OPERATING LUMP SUM APPROPRIATION-MAIN OPERATING LUMP SUM APPROPRIATION-WEST PARITY FUNDING POLY PARITY FUNDING TEMPE RESEARCH INFRASTRUCTURE LEASE-PURCHASE PAYMENT FY13-14 RESEARCH INFRASTRUCTURE LEASE-PURCHASE PAYMENT FY14-15 RESEARCH INFRASTRUCTURE LEASE-PURCHASE PAYMENT-POLY ATTORNEY GENERAL - DEPARTMENT OF LAW ADMINISTRATIVE ADJUSTMENTS CAPITAL POSTCONVICTION PROSECUTION CHILD SAFETY AND FAMILY SERVICES LEGAL ARIZONA WORKERS ACT FY07-08 MILITARY INSTALLATION/PLANNING FY11-12 MILITARY INSTALLATION/PLANNING FY12-13 MILITARY INSTALLATION/PLANNING FY14-15 OPERATING LUMP SUM APPROPRIATION STATE GRAND JURY AUDITOR GENERAL INDEPENDENT CONSULTANT - CHILD WELFARES OPERATING LUMP SUM APPROPRIATION FY10-11 OPERATING LUMP SUM APPROPRIATION FY11-12 OPERATING LUMP SUM APPROPRIATION FY12-13 OPERATING LUMP SUM APPROPRIATION FY13-14 OPERATING LUMP SUM APPROPRIATION FY14-15 CHARTER SCHOOLS, STATE BOARD FOR ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION CHILD SAFETY, DEPARTMENT OF DCS ADOPTION SERVICES DCS ATTORNEY GENERAL LEGAL SERVICES DCS CHILD CARE SUBSIDY DCS CPS EMERGENCY The Notes to Required Supplementary Information are an integral part of this schedule. -142 - ACTUAL EXPENDITURE AMOUNTS (continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FINAL BUDGET (Appropriations) 55,932,000 157,300 1,000,000 3,469,300 31,146,100 2,748,400 8,500,000 350,000 10,500,400 216,536,000 139,266,800 12,865,000 11,215,300 597,400 1,707,000 5,150,000 56,432,000 87,300 1,000,000 4,119,300 13,234,900 1,204,600 8,500,000 350,000 5,500,400 200,849,800 161,178,000 13,515,000 11,815,300 597,400 807,000 5,150,000 31,049,022 87,300 761,932 2,719,300 1,180,467 600,000 8,500,000 165,381 4,349,900 141,991,800 105,830,351 10,256,226 10,766,276 500,000 807,000 150,000 125,000 125,000 40,419 659,800 47,510 4,886 660,630 47,510 4,886 655,556 - 7,208,525 673,984 4,111,327 8,464,300 115,274,900 764,628,400 118,825,100 1,548,625 7,208,525 673,984 4,111,327 8,464,300 120,174,900 761,261,900 117,225,100 1,548,625 6,890,033 560,826 2,519,680 2,558,452 114,323,523 752,820,624 110,793,967 10,065,400 21,097 10,039,900 21,097 9,987,002 4,350,900 4,340,300 4,338,157 4,207,600 4,149,200 1,519,800 832,400 695,800 738,000 10,348,300 4,209,400 1,625,292 3,714,142 1,956,628 832,800 695,800 738,000 10,351,130 4,099,596 1,625,292 3,111,661 1,848,805 633,612 609,935 61,972 9,234,681 7,924,100 226,079,300 11,731,100 300,000 20,968,400 3,926,600 62,927,500 98,396,600 3,724,000 145,741,643 7,924,100 241,869,400 10,687,600 22,167,000 3,978,600 66,146,600 98,421,600 3,724,000 145,741,643 7,198,929 188,209,787 8,893,402 17,594,797 3,928,600 56,181,626 75,595,596 3,427,191 DCS FOSTER CARE PLACEMENT DCS GENERAL COUNSEL DCS GRANDPARENT STIPENDS DCS INDEPENDENT LIVING MAINTENANCE DCS IN-HOME PREVENTIVE SUPPORT SERVICES DCS INSPECTIONS BUREAU DCS INTENSIVE FAMILY SERVICES DCS INTERNET CRIMES AGAINST CHILDREN DCS OFFICE OF CHILD WELFARE INVESTIGATE DCS OPERATING LUMP SUM DCS OUT-OF-HOME SUPPORT SERVICES DCS OVERTIME DCS PERMANENT GUARDIAN SUBSIDY DCS RECORDS RETENTION STAFF DCS RETENTION PAY DCS TRAINING RESOURCES COMMISSION OF AFRICAN-AMERICAN AFFAIRS OPERATING LUMP SUM CORPORATION COMMISSION ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION RAILROAD WARNING SYSTEMS FY00-01 CORRECTIONS, STATE DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS ASPC YUMA CHEYENNE REPAIRS BUILDING RENEWAL FUND EXPENDITURES 12-13 BUILDING RENEWAL FUND EXPENDITURES 13-14 CAPITAL OUTLAY APPROPRIATION INMATE HEALTH CARE CONTRACTED SERVICES OPERATING LUMP SUM APPROPRIATION PRIVATE PRISON PER DIEM COURT OF APPEALS DIVISION I ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION - DIVISION I COURT OF APPEALS DIVISION II OPERATING LUMP SUM APPROPRIATION - DIVISION II DEAF AND BLIND, ARIZONA SCHOOLS FOR THE ADMINISTRATION STATEWIDE ADMINISTRATIVE ADJUSTMENTS PHOENIX DAY SCHOOL FOR THE DEAF PRESCHOOL AND OUTREACH PROGRAMS REGIONAL COOPERATIVES REPLACE NETWORK CORE INFRASTRUCTURE SCHOOL BUS REPLACEMENT TUCSON CAMPUS ECONOMIC SECURITY, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS ADULT SERVICES AGENCYWIDE OPERATING LUMP SUM APPROPRIATION ATTORNEY GENERAL LEGAL SERVICES AUTISM PARENTING SKILLS-RURAL AREAS AZ TRAINING PROGRAM COOLIDGE-TITLE XIX CASE MANAGEMENT-STATE ONLY CASE MANAGEMENT-TITLE XIX CHILD CARE SUBSIDY COMMUNITY AND EMERGENCY SERVICES The Notes to Required Supplementary Information are an integral part of this schedule. -143 - ACTUAL EXPENDITURE AMOUNTS (continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FINAL BUDGET (Appropriations) 2,522,600 1,754,600 6,740,200 9,903,700 21,296,700 1,046,694,800 500,000 166,000 25,004,100 9,894,700 300,000 2,902,400 182,740,900 3,594,400 26,527,900 44,999,400 4,680,300 53,654,600 2,522,600 1,754,600 7,588,200 55,000,000 9,903,700 19,846,700 1,062,951,700 500,000 166,000 28,425,400 9,894,700 19,930 2,902,400 187,219,800 2,594,400 28,154,800 38,599,400 4,680,300 53,654,600 2,494,120 1,298,794 5,155,903 35,000,000 9,177,074 18,319,464 970,120,230 375,000 166,000 24,813,686 8,804,719 19,930 2,902,400 181,890,236 2,594,400 25,931,355 34,724,214 4,680,300 39,654,426 670,408 670,408 204,483 11,223,600 352,502,000 4,500,000 4,960,400 2,350,607,100 1,576,422 24,500,000 100,987 2,827 6,516,200 477,154 1,000,000 500,000 40,007,600 8,461,000 1,234,700 983,900 674,122 3,646,400 33,242,100 11,575,400 22,400,000 21,500,000 - 11,223,600 7,407,200 352,502,000 3,118,918 4,500,000 4,960,400 930,727,700 2,350,607,100 19,453,900 1,576,422 24,500,000 100,987 2,827 6,516,700 477,154 1,000,000 500,000 40,007,800 8,464,900 564,392 983,900 674,122 3,646,400 33,242,100 11,575,400 22,400,000 21,500,000 300,000 11,223,600 7,407,200 352,502,000 3,118,918 4,500,000 4,960,400 930,727,700 2,344,394,795 19,453,900 1,576,422 24,500,000 67,049 2,827 6,448,336 999,953 500,000 40,007,800 8,464,900 564,391 206,002 674,122 3,451,731 33,242,100 11,575,400 22,400,000 18,746,645 - 1,805,700 729,200 30,095 1,806,900 165 4,000,000 729,200 30,095 1,784,534 165 2,217,914 721,052 13,283 COORDINATED HOMELESS PROGRAM COORDINATED HUNGER COUNTY PARTICIPATION DCS SPECIAL SUPPLEMENTAL APPROPRIATION DOMESTIC VIOLENCE PREVENTION HOME AND COMMUNITY BASED SERVICES-STATE ONLY HOME AND COMMUNITY BASED SERVICES-TITLE XIX HOMELESS CAPITAL GRANT INDEPENDENT LIVING REHABILITATION SERVICES INSTITUTIONAL SERVICES-TITLE XIX JOBS LONG-TERM CARE ASSISTED LIVING MEDICAL CLAWBACK MEDICAL SERVICES-TITLE XIX REHABILITATION SERVICES STATE FUNDED LONG-TERM CARE SERVICES TANF CASH BENEFITS TRIBAL PASS-THRU FUNDING WORKFORCE INVESTMENT ACT SERVICES EDUCATION, BOARD OF OPERATING LUMP SUM APPROPRIATION-STATE BOARD EDUCATION, DEPARTMENT OF ACHIEVEMENT TESTING ADDITIONAL STATE AID SUPPLEMENTAL ADDITIONAL STATE AID TO SCHOOLS ADMINISTRATIVE ADJUSTMENTS ADULT EDUCATION ARIZONA STRUCTURED ENGLISH IMMERSION BASIC STATE AID DEFERRED PAYMENT BASIC STATE AID ENTITLEMENT BASIC STATE AID SUPPLEMENTAL CASH TRANSFER TO AUTOMATION PROJECTS FUND DISTRICT-CHARTER SCHOOL CONVERSIONS EMPOWERMENT SCHOLARSHIP ACCOUNT ENGLISH LANGUAGE ACQUISITION FY06-07 ENGLISH LEARNER ADMINISTRATION ENGLISH LEARNER TEACHER FY04-05 INFORMATION TECHNOLOGY CERTIFICATIONS JTED PERFORMACE PAY K-3 READING OPERATING LUMP SUM APPROPRIATION-ADMINISTRATION OPERATING LUMP SUM APPROPRIATION-STATE BOARD OTHER STATE AID TO DISTRICTS SCHOOL SAFETY PROGRAM FY13-14 SCHOOL SAFETY PROGRAM FY14-15 SPECIAL EDUCATION FUND STATE BLOCK GRANT FOR VOCATIONAL EDUCATION STUDENT SUCCESS FUND DEPOSIT STUDENT SUCCESS FUNDING TECH-BASED LANGUAGE DEVELOPMENT EMERGENCY AND MILITARY AFFAIRS, DEPARTMENT OF ADMINISTRATION ADMINISTRATIVE ADJUSTMENTS DISASTER DECLARATION EMERGENCY MANAGEMENT FEBRUARY 2005 WINTER STORMS FY07-08 The Notes to Required Supplementary Information are an integral part of this schedule. -144 - ACTUAL EXPENDITURE AMOUNTS (continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 32,972 1,897 1,327,900 39,649 23,218 38,605 2,500,000 252,877 69,174 234,354 636,505 1,215,000 159,764 32,972 1,897 1,327,900 39,649 23,218 38,605 90,000 2,500,000 252,877 69,909 549,229 756,264 69,174 234,354 636,505 1,215,000 159,764 (40,484) 1,299,044 56,317 252,877 69,909 549,229 756,264 5,200 (337,233) 581,734 154,538 845 13,308,500 67,383 13,410,100 67,383 5,410,393 188,500 188,600 188,348 639,500 1,525 641,800 1,525 501,219 958,400 3,435 958,600 3,435 906,108 3,019,100 3,981 3,020,200 3,981 3,004,628 175,000 2,026,000 20,158 175,000 2,030,300 20,158 1,917,066 275,000 1,000,000 1,350,000 695,700 2,779,200 156,831 275,000 1,000,000 3,000,000 1,350,000 695,700 2,783,100 156,831 275,000 1,000,000 3,000,000 996,667 657,347 2,677,776 3,870,500 15,025,500 5,283,300 192,500 5,343,400 1,775,800 346,300 2,261,300 7,409,500 1,543,300 3,870,500 15,025,500 5,283,300 184,595 5,343,400 1,775,800 346,300 2,261,300 7,409,500 1,543,300 3,870,500 15,025,500 5,283,300 184,595 5,343,400 1,775,800 346,300 2,261,300 7,409,500 1,543,300 FEBRUARY 2005 WINTER STORMS FY10-11 HAZARD MATERIALS CONTINGENCY FY07-08 JANUARY 2010 WINTER STORM FY11-12 MILITARY AFFAIRS MILITARY AFFAIRS COMMISSION FY10-11 MILITARY AFFAIRS COMMISSION FY11-12 MILITARY AFFAIRS COMMISSION FY12-13 MILITARY AFFAIRS COMMISSION FY14-15 MILITARY INSTALLATION FUND DEPOSIT NORTHERN ARIZONA WINTER STORM FY10-11 NUCLEAR EMERGENCY MANAGEMENT FUND-BUCKEYE GF TRF NUCLEAR EMERGENCY MANAGEMENT FUND-GF TSF NUCLEAR EMERGENCY MANAGEMENT FUND-MARICOPA-GF TRF SCHULTZ FIRE POST-FIRE FLOOD FY10-11 SERVICE CONTRACTS FY12-13 SERVICE CONTRACTS FY13-14 SERVICE CONTRACTS FY14-15 SUMMER 2006 MONSOONS AND FLOODING FY11-12 ENVIRONMENTAL QUALITY, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION EQUAL OPPORTUNITY, GOVERNOR'S OFFICE OF OPERATING LUMP SUM APPROPRIATION EQUALIZATION, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION EXECUTIVE CLEMENCY, BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION FINANCIAL INSTITUTIONS, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION FIRE, BUILDING AND LIFE SAFETY, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS FIRE SCHOOL OPERATING LUMP SUM APPROPRIATION FORESTER, OFFICE OF THE STATE ADMINISTRATIVE ADJUSTMENTS ENVIRONMENTAL COUNTY GRANTS FIRE SUPPRESSION SLI GENERAL FUND TRANSFER TO FIRE SUPPRESSION HAZARDOUS VEGETATION REMOVAL INMATE FIRE CREWS OPERATING LUMP SUM APPROPRIATION GENERAL ACCOUNTING OFFICE EQUALIZATION AID - COCHISE EQUALIZATION AID - GRAHAM EQUALIZATION AID - NAVAJO LEASE PURCHASE ADJUSTMENTS NAMED CLAIMANTS BILL OPERATING STATE AID - COCHISE OPERATING STATE AID - COCONINO OPERATING STATE AID - GILA OPERATING STATE AID - GRAHAM OPERATING STATE AID - MARICOPA OPERATING STATE AID - MOHAVE The Notes to Required Supplementary Information are an integral part of this schedule. -145 - (continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FINAL BUDGET (Appropriations) 1,618,200 6,493,500 2,023,900 47,900 887,000 2,726,600 409,100 1,273,800 1,236,700 426,900 142,800 640,500 1,400,000 593,700 375,400 600,000 1,009,300 45,400 802,900 882,500 - 1,618,200 6,493,500 2,023,900 47,900 887,000 2,726,600 1,273,800 1,236,700 426,900 142,800 640,500 1,400,000 593,700 375,400 600,000 1,009,300 45,400 802,900 882,500 34,502 1,618,200 6,493,500 2,023,900 47,900 887,000 2,726,600 1,273,800 1,236,700 426,900 142,800 640,500 1,400,000 593,700 375,400 600,000 1,009,300 45,400 802,900 882,500 34,502 941,400 941,700 941,700 2,066,115 2,252,981 6,926,000 969,774 124,535 15,993 73,224 1,993,200 2,066,115 2,252,981 6,920,100 969,774 124,535 15,993 73,224 1,994,000 2,066,115 2,252,981 4,954,874 969,774 124,535 15,993 73,224 1,234,184 105,200 47,318,700 1,000,000 1,375,000 57,699,500 398,060 900,000 9,728,700 1,369,400 590,700 14,141,100 2,093,400 73,805,900 182,521,300 533,313,600 784,402,600 23,795,400 14,100,700 250,000 300,000 78,846,900 198,000 3,669,686 105,200 46,817,428 1,000,000 1,375,000 57,716,232 398,060 900,000 9,731,711 1,369,429 590,700 14,141,100 2,093,400 38,805,900 182,521,300 545,649,257 813,194,043 23,795,400 14,100,700 250,000 300,000 78,846,900 198,000 3,669,686 105,200 34,412,331 993,616 1,375,000 55,933,156 900,000 9,361,701 914,059 485,903 14,058,550 1,543,313 58,128,500 117,955,257 230,409,443 7,578,200 14,100,700 184,069 17,757 74,241,295 89,174 OPERATING STATE AID - NAVAJO OPERATING STATE AID - PIMA OPERATING STATE AID - PINAL OPERATING STATE AID - SANTA CRUZ OPERATING STATE AID - YAVAPAI OPERATING STATE AID - YUMA LA PAZ RETIREMENT CONTRIBUTION ADJUSTMENTS RURAL COUNTY REIMBURSEMENT SUBSIDY STEM AND WORKFORCE PROGRAM STATE AID - COCHISE STEM AND WORKFORCE PROGRAM STATE AID - COCONINO STEM AND WORKFORCE PROGRAM STATE AID - GILA STEM AND WORKFORCE PROGRAM STATE AID - GRAHAM STEM AND WORKFORCE PROGRAM STATE AID - MARICOPA STEM AND WORKFORCE PROGRAM STATE AID - MOHAVE STEM AND WORKFORCE PROGRAM STATE AID - NAVAJO STEM AND WORKFORCE PROGRAM STATE AID - PIMA STEM AND WORKFORCE PROGRAM STATE AID - PINAL STEM AND WORKFORCE PROGRAM STATE AID - SANTA CRUZ STEM AND WORKFORCE PROGRAM STATE AID - YAVAPAI STEM AND WORKFORCE PROGRAM STATE AID - YUMA/LAPAZ WOOLSEY FLOOD DISTRICT GEOLOGICAL SURVEY, ARIZONA OPERATING LUMP SUM APPROPRIATION GOVERNOR, OFFICE OF THE OPERATING LUMP SUM APPROPRIATION FY12-13 OPERATING LUMP SUM APPROPRIATION FY13-14 OPERATING LUMP SUM APPROPRIATION FY14-15 OPERATING LUMP SUM APPROPRIATION-OSPB FY10-11 OPERATING LUMP SUM APPROPRIATION-OSPB FY11-12 OPERATING LUMP SUM APPROPRIATION-OSPB FY12-13 OPERATING LUMP SUM APPROPRIATION-OSPB FY13-14 OPERATING LUMP SUM APPROPRIATION-OSPB FY14-15 HEALTH SERVICES, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS ADULT CYSTIC FIBROSIS AGENCYWIDE OPERATING LUMP SUM APPROPRIATION AIDS REPORTING AND SURVEILLANCE ALZHEIMER DISEASE RESEARCH ARIZONA STATE HOSPITAL - OPERATING ASH - CORRECTIVE ACTION PLAN SUPPLEMENTAL FY04-05 ASH - RESTORATION TO COMPETENCY ASH - SEXUALLY VIOLENT PERSONS BREAST AND CERVICAL CANCER SCREENING COUNTY TUBERCULOSIS PROVIDER CARE AND CONTROL CRISIS SERVICES HIGH RISK PERINATAL SERVICES MEDICAID BEHAVIORAL HEALTH - ADULT EXPANSION MEDICAID BEHAVIORAL HEALTH - COMPREHENSIVE AND DENTAL MEDICAID BEHAVIORAL HEALTH - PROP 204 MEDICAID BEHAVIORAL HEALTH - TRADITIONAL MEDICAID INSURANCE PREMIUM PAYMENTS MEDICARE CLAWBACK PAYMENTS MENTAL HEALTH FIRST AID MIDDLE AND HIGH SCHOOL PREVENTION ED PRG NON MEDICAID SERIOUSLY MENTAL ILL SVS NON RENAL DISEASE MANAGEMENT The Notes to Required Supplementary Information are an integral part of this schedule. -146 - ACTUAL EXPENDITURE AMOUNTS (continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FINAL BUDGET (Appropriations) 3,850,000 990,000 6,446,700 62,243 5,324,800 47,270 3,850,000 990,000 6,446,700 62,243 5,324,800 47,270 2,688,008 656,828 2,053,100 5,194,485 - 826,000 74,176 826,300 74,176 735,681 428,300 66,000 2,116,500 544,200 428,330 66,014 2,117,272 544,384 428,330 66,014 2,117,272 544,384 2,654,065 1,353,951 1,087,704 1,285,746 1,045,676 13,372,200 2,654,065 1,353,951 1,087,704 1,285,746 1,045,676 13,372,200 2,654,065 1,353,951 1,087,704 1,285,746 1,045,676 5,915,567 1,183,528 1,115,100 1,183,528 1,115,300 22,373 913,832 56,900 222 56,900 222 54,343 5,364,900 5,366,700 5,305,298 1,107,309 2,491,095 2,492,000 1,107,309 2,491,095 2,493,000 1,107,309 1,201,050 84 46,118,900 46,479,600 42,616,177 673,600 500,000 390,000 11,442,100 737,800 500,000 390,000 11,446,200 705,672 390,000 11,410,749 52 59 26,904 106,993 7 430,943 3,592,139 7,418,000 52 59 26,904 106,993 828,956 7 430,943 3,592,139 7,419,944 10 1 26,897 67,638 718,389 430,942 2,854,316 3,752,970 79,726 626,700 2,939,100 79,726 626,700 2,962,500 37,960 174,920 2,950,844 346,555 346,555 - ONE TIME ELECTRONIC MED RECORDS START UP POISON CONTROL CENTER FUNDING PROP 204 ADMINISTRATION TITLE XIX MATCH REG HA DISPENSERS-AUDIOL PATHOL FY03-04 SUPPORTED HOUSING TANF PERINATAL SERVICES FY99-00 HISTORICAL SOCIETY OF ARIZONA, PRESCOTT ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION HISTORICAL SOCIETY, ARIZONA ARIZONA EXPERIENCE MUSEUM FIELD SERVICES AND GRANTS OPERATING LUMP SUM APPROPRIATION PAPAGO PARK MUSEUM HOUSE OF REPRESENTATIVES OPERATING LUMP SUM APPROPRIATION FY09-10 OPERATING LUMP SUM APPROPRIATION FY10-11 OPERATING LUMP SUM APPROPRIATION FY11-12 OPERATING LUMP SUM APPROPRIATION FY12-13 OPERATING LUMP SUM APPROPRIATION FY13-14 OPERATING LUMP SUM APPROPRIATION FY14-15 INDEPENDENT REDISTRICTING COMMISSION OPERATING EXPENDITURES OPERATING LUMP SUM APPROPRIATION FY14-15 INDIAN AFFAIRS, ARIZONA COMMISSION OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION INSURANCE, DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION JOINT LEGISLATIVE BUDGET COMMITTEE OPERATING LUMP SUM APPROPRIATION FY12-13 OPERATING LUMP SUM APPROPRIATION FY13-14 OPERATING LUMP SUM APPROPRIATION FY14-15 JUVENILE CORRECTIONS, DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION LAND DEPARTMENT, STATE CAP USER FEES DUE DILIGENCE FUND NATURAL RESOURCE CONSERVATION DISTRICTS OPERATING LUMP SUM APPROPRIATION LEGISLATIVE COUNCIL OMBUDSMAN-CITIZENS AID OFFICE FY10-11 OMBUDSMAN-CITIZENS AID OFFICE FY11-12 OMBUDSMAN-CITIZENS AID OFFICE FY12-13 OMBUDSMAN-CITIZENS AID OFFICE FY13-14 OMBUDSMAN-CITIZENS AID OFFICE FY14-15 OPERATING LUMP SUM APPROPRIATION FY11-12 OPERATING LUMP SUM APPROPRIATION FY12-13 OPERATING LUMP SUM APPROPRIATION FY13-14 OPERATING LUMP SUM APPROPRIATION FY14-15 LIQUOR, LICENSES, AND CONTROL, DEPARTMENT OF IMPROVEMENT OF DATA PROCESSING SYSTEM FY06-07 LICENSING SYSTEM - REPLACEMENT OPERATING LUMP SUM APPROPRIATION MEDICAL STUDENT LOANS, BOARD OF MEDICAL STUDENT FINANCIAL ASSISTANCE FY06-07 The Notes to Required Supplementary Information are an integral part of this schedule. -147 - ACTUAL EXPENDITURE AMOUNTS (continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FINAL BUDGET (Appropriations) 309,800 309,800 - 194,700 1,028,600 194,700 1,240 1,020,900 173,320 1,240 977,560 67,666 129,200 230 67,666 129,200 230 59,675 129,037 3,000,000 2,446,500 62,007,900 12,549,900 2,290,600 3,000,000 2,446,500 92,502,700 12,549,900 5,491,500 2,290,600 3,000,000 2,446,500 92,502,700 12,549,900 5,491,500 2,290,600 150,000 150,000 150,000 11,697 11,697 880 500,000 2,228,700 10,592,400 809,856 1,500,000 278,660 500,000 2,232,000 10,643,100 809,856 1,500,000 278,660 71,622 2,180,054 9,991,356 416,043 427,275 374,900 4,419 375,000 4,419 311,637 1,602,800 1,603,400 1,599,173 1,220,800 176,000 1,220,800 176,000 1,220,800 176,000 21,304,700 3,373 437,888 2,603,400 2,390,000 15 97,396 3,704,200 65,842,400 20,800 21,305,900 3,373 437,888 2,603,400 2,390,000 15 97,396 3,704,200 65,844,700 20,800 21,048,986 436,087 2,231,670 2,113,626 87,048 3,018,633 65,836,015 250,000 1,779,500 250,000 1,779,500 234,921 1,779,500 1,352,900 746 695,250 1,353,400 746 695,250 1,342,699 2,988,700 22,393 2,989,700 22,393 2,507,164 MEDICAL STUDENT FINANCIAL ASSISTANCE FY08-09 MINE INSPECTOR, STATE ABANDONED MINES SAFETY FUND DEPOSIT ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION NAVIGABLE STREAM ADJUDICATION COMMISSION, ARIZONA ADMINISTRATIVE ADJUSTMENTS LEGAL EXPENSES SUPPLEMENTAL OPERATING LUMP SUM APPROPRIATION NORTHERN ARIZONA UNIVERSITY MEDICAL RESEARCH FND BIO TECHNOLOGY NAU - YUMA OPERATING LUMP SUM APPROPRIATION PARITY FUNDING RESEARCH INFRASTRUCTURE LEASE-PURCHASE PAYMENT TEACHER TRAINING NURSING, STATE BOARD OF GF SUPPLEMENTAL APPROPRIATION FOR CNA PROGRAM OCCUPATIONAL SAFETY AND HEALTH REVIEW BOARD OPERATING LUMP SUM APPROPRIATION PARKS BOARD, ARIZONA STATE ADMINISTRATIVE ADJUSTMENTS GF C/O YARNELL HILL MEMORIAL SITE ACQUIS KARTCHNER CAVERNS STATE PARK OPERATING LUMP SUM APPROPRIATION SPRF BSF STATE PARKS CAPITAL IMPROVEMENT SPRF FY15 PARKS CAPITAL IMPROVEMENT PERSONNEL BOARD ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION PIONEERS' HOME, ARIZONA OPERATING LUMP SUM APPROPRIATION POSTSECONDARY EDUCATION, COMMISSION FOR LEVERAGING EDUCATIONAL ASSISTANCE PARTNERSHIP MATH AND SCIENCE TEACHER INITIATIVE PUBLIC SAFETY, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS GIITEM GIITEM IMPACT APPROPRIATION FY12-13 GIITEM IMPACT APPROPRIATION FY13-14 GIITEM IMPACT APPROPRIATION FY14-15 GIITEM SUBACCOUNT GITTEM-GANG INTELLIGENCE TEAM ENFORCEMENT FY09-10 MICROWAVE COMMUNICATION SYSTEM FY06-07 MOTOR VEHICLE FUEL OPERATING LUMP SUM APPROPRIATION RACING, ARIZONA DEPARTMENT OF ARIZONA BREEDERS AWARD COUNTY FAIR LIVESTOCK AND AGRICULTURAL RADIATION REGULATORY AGENCY ADMINISTRATIVE ADJUSTMENTS NUCLEAR EMERGENCY MANAGEMENT FUND OPERATING LUMP SUM APPROPRIATION REAL ESTATE DEPARTMENT, STATE ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION The Notes to Required Supplementary Information are an integral part of this schedule. -148 - ACTUAL EXPENDITURE AMOUNTS (continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FINAL BUDGET (Appropriations) 90,000 213,700 3,000,000 2,349,600 5,000,000 10,041,200 131,000 4,100,000 90,000 213,700 3,000,000 2,352,500 5,000,000 10,041,200 137,000 4,094,000 90,000 213,700 3,000,000 2,352,500 5,000,000 10,041,200 137,000 4,094,000 7,602,500 64,130,200 1,218,500 161,281 7,602,500 64,148,500 1,222,500 161,281 7,519,516 62,293,636 1,070,455 16,667,900 858,200 170,155,200 1,676,500 34,209 27,787,594 858,200 149,619,606 1,677,100 34,209 27,787,594 643,650 149,619,606 1,595,650 121,818 4,431,600 877,877 243,123 2,941,000 3,438 35,500 119,709 651,400 10,596,500 97,000 4,634 121,818 4,431,900 877,877 243,123 2,941,100 3,438 35,500 119,709 651,400 10,588,800 97,000 4,634 19,021 3,537,589 545,700 241,542 1,715,593 23,000 530,000 10,411,294 97,000 263,667 784,184 130,564 79,583 8,283,800 263,667 784,184 130,564 79,583 8,283,800 784,184 130,564 79,583 7,691,928 10,754,500 13,543,200 3,352,800 139,400 522,300 187,900 102,000 655,400 1,013,600 61,322 250,000 250,000 3,617,100 648,000 7,682,500 209,520 10,754,600 13,543,300 3,352,900 139,400 522,500 187,900 102,000 655,600 1,013,600 61,322 250,000 250,000 3,617,900 648,100 8,273,000 209,520 10,700,436 13,512,426 2,519,927 520,291 187,900 102,000 649,563 1,006,775 250,000 250,000 3,611,503 648,050 8,272,292 REGENTS, ARIZONA BOARD OF ARIZONA TEACHERS INCENTIVE PROGRAM ARIZONA TRANSFER ARTICULATION SUPPORT SYSTEM BUILDING RENEWAL FY14-15 OPERATING LUMP SUM APPROPRIATION PERFORMANCE FUNDING STUDENT FINANCIAL ASSISTANCE WESTERN INTERSTATE COMMISSION OFFICE WICHE STUDENT SUBSIDIES REVENUE, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS BRITS OPERATIONAL SUPPORT OPERATING LUMP SUM APPROPRIATION UNCLAIMED PROPERTY ADMINISTRATION/AUDIT SCHOOL FACILITIES BOARD ADMINISTRATIVE ADJUSTMENTS BUILDING RENEWAL GRANT NEW SCHOOL CONSTRUCTION NEW SCHOOL FACILITIES DEBT SERVICE OPERATING LUMP SUM APPROPRIATION SECRETARY OF STATE ADMINISTRATIVE ADJUSTMENTS BUILDING RENOVATION AND CODE COMPLIANCE ELECTION SERVICES HELP AMERICA VOTE ACT FY12-13 HELP AMERICA VOTE ACT FY13-14 HELP AMERICA VOTE ACT FY14-15 LIBRARY GRANTS-IN-AID FY11-12 LIBRARY GRANTS-IN-AID FY12-13 LIBRARY GRANTS-IN-AID FY13-14 LIBRARY GRANTS-IN-AID FY14-15 OPERATING LUMP SUM APPROPRIATION STATEWIDE RADIO READING SERVICE FOR BLIND SENATE BORDER SECURITY TRUST FUND OPERATING LUMP SUM APPROPRIATION FY11-12 OPERATING LUMP SUM APPROPRIATION FY12-13 OPERATING LUMP SUM APPROPRIATION FY13-14 OPERATING LUMP SUM APPROPRIATION FY14-15 SUPREME COURT ADMINISTRATIVE ADJUSTMENTS ADULT INTENSIVE PROBATION ADULT STANDARD PROBATION AUTOMATION CASE AND CASH MANAGEMENT SYSTEM COMMISSION ON JUDICIAL CONDUCT COUNTY REIMBURSEMENTS COURT APPOINTED SPECIAL ADVOCATE DOMESTIC RELATIONS DRUG COURT DRUG COURT FY06-07 DRUG TREATMENT ALTERNATIVE TO PRISON FAMILY DRUG COURT ORDERED COUNSELING FOSTER CARE REVIEW BOARD INTERSTATE COMPACT JUDGES COMPENSATION The Notes to Required Supplementary Information are an integral part of this schedule. -149 - ACTUAL EXPENDITURE AMOUNTS (continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FINAL BUDGET (Appropriations) 428,400 9,024,900 660,400 9,175,600 4,606,200 22,341,400 447,600 10,761,500 220,000 428,500 9,024,900 660,400 8,516,700 4,606,300 22,341,600 447,600 10,753,300 220,000 426,755 9,024,900 658,309 8,467,251 4,601,724 22,230,848 446,755 10,398,419 131,294 264,700 265,600 263,921 2,000,000 7,102,600 2,000,000 7,103,700 2,000,000 7,103,700 50,400 50,400 949 1,205,100 2,820,900 158,292 3,195,464 7,000,000 1,205,100 2,821,900 158,292 3,195,464 7,000,000 778,432 2,775,052 27,621,700 14,325,900 353,400 8,587,000 500,000 430,100 20,578,400 93,034,800 21,025,800 2,112,500 1,833,900 28,628,200 14,660,200 353,400 8,587,005 500,000 430,100 34,900,195 153,189,300 23,460,200 9,593,200 2,770,300 1,854,400 28,628,200 14,660,200 353,400 8,587,005 500,000 430,100 34,900,195 153,189,300 23,460,200 9,593,200 2,770,300 1,854,400 9,200,000 15,291 2,312,600 275,600 27,858 2,848,100 9,200,000 15,291 2,314,600 275,600 27,858 2,848,100 2,235,708 274,791 2,707,689 1,256,700 1,723,100 410,200 410,000 169,100 500,000 7,858,700 1,167,700 1,256,700 543 1,723,100 410,200 410,000 169,100 500,000 7,862,600 1,167,700 1,223,459 543 1,721,841 385,522 409,598 149,437 6,815,217 1,103,703 JUDICIAL NOMINATION AND PERFORMANCE REVIEW JUVENILE DIVERSION CONSEQUENCES JUVENILE FAMILY COUNSELING JUVENILE INTENSIVE PROBATION JUVENILE STANDARD PROBATION JUVENILE TREATMENT SERVICES MODEL COURT OPERATING LUMP SUM APPROPRIATION SPECIAL WATER MASTER TAX APPEALS, STATE BOARD OF OPERATING LUMP SUM APPROPRIATION TOURISM, OFFICE OF ARIZONA PROMOTION TOURISM FUND DEPOSIT TRANSPORTATION, DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION TREASURER, STATE ADMINISTRATIVE ADJUSTMENTS COMMUNITY COLLEGE REIMBURSEMENT ARS 15-1469.01 CORPORATE INCOME TAX TRANSFER JUSTICE OF THE PEACE SALARIES OPERATING LUMP SUM APPROPRIATION UNIVERSITY OF ARIZONA AGRICULTURE ARIZONA COOPERATIVE EXTENSION CLINICAL RURAL ROTATION CLINICAL TEACHING SUPPORT FREEDOM CENTER LIVER RESEARCH INSTITUTE OPERATING LUMP SUM APPROPRIATION-HSC OPERATING LUMP SUM APPROPRIATION-MAIN PHOENIX MEDICAL CAMPUS RESEARCH INFRASTRUCTURE FACILITIES SIERRA VISTA CAMPUS TELEMEDICINE NETWORK VETERANS' SERVICES, DEPARTMENT OF ASVH - YUMA CONSTRUCTION MILITARY FAMILY RELIEF FUND OPERATING LUMP SUM SOUTHERN ARIZONA CEMETERY TUCSON VETERAN HOME CONSTRUCTION FY09-10 VETERANS BENEFIT COUNSELING WATER RESOURCES, DEPARTMENT OF ADJUDICATION SUPPORT ADMINISTRATIVE ADJUSTMENTS ASSURED AND ADEQUATE WATER SUPPLY ADMIN AUTOMATED GROUNDWATER MONITORING CONSERVATION AND DROUGHT PROGRAM LOWER COLORADO RIVER LITIGATION EXPENSES FY13-14 LOWER COLORADO RIVER LITIGATION EXPENSES FY14-15 OPERATING LUMP SUM APPROPRIATION RURAL WATER STUDIES The Notes to Required Supplementary Information are an integral part of this schedule. -150 - ACTUAL EXPENDITURE AMOUNTS (continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FINAL BUDGET (Appropriations) 1,475,300 1,348 1,475,700 1,348 1,362,053 TOTAL GENERAL FUND BUDGETARY EXPENDITURES BEFORE ADJUSTMENTS 18,016,014,338 20,119,113,274 17,781,391,701 Less: Department of Health Services' Medicaid Behavioral Health appropriations for Insurance Premium Payments, Comprehensive and Dental, Prop 204 Administration Title XIX Match, Prop 204, Traditional, Adult Expansion, and other appropriations that were duplicate expenditure authorizations (1,206,187,100) (1,206,172,700) WEIGHTS AND MEASURES, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS GENERAL SERVICES TOTAL GENERAL FUND BUDGETARY EXPENDITURES AFTER ADJUSTMENTS $ The Notes to Required Supplementary Information are an integral part of this schedule. -151 - 16,809,827,238 $ 18,912,940,574 ACTUAL EXPENDITURE AMOUNTS - $ 17,781,391,701 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, 2015 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) TRANSPORTATION, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS AIRPORT PLANNING AND DEVELOPMENT FY14-15 ATTORNEY GENERAL LEGAL SERVICES BUILDING RENEWAL FY12-13 BUILDING RENEWAL FY13-14 BUILDING RENEWAL FY14-15 DE ICER BUILDINGS FY13-14 DE ICER BUILDINGS FY14-15 FRAUD INVESTIGATION HIGHWAY MAINTENANCE FY13-14 HIGHWAY MAINTENANCE FY14-15 HIGHWAY TO DPS TRANSFER - DOUBLE LOAD HURF TO DPS TRANSFER - DOUBLE LOAD LIE TO WMA TRANSFER NEW THIRD PARTY FUNDING OPERATING LUMP SUM APPROPRIATION RELIEF BILL CASH TRANSFER FY15 SEF TO DPS TRANSFER - DOUBLE LOAD STATEWIDE HIGHWAY CONSTRUCTION FY13-14 STATEWIDE HIGHWAY CONSTRUCTION FY14-15 VEHICLE WASH SYSTEMS FY13-14 VEHICLE WASH SYSTEMS FY14-15 TOTAL TRANSPORTATION AND AVIATION PLANNING, HIGHWAY MAINTENANCE AND SAFETY FUND BUDGETARY EXPENDITURES The Notes to Required Supplementary Information are an integral part of this schedule -152 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS $ 20,012,300 2,895,600 130,054 2,320,225 3,396,800 1,741,269 2,280,000 773,300 5,583,272 136,178,400 6,743,800 89,247,100 330,000 971,100 206,902,200 1,566,300 78,374,138 208,899,000 2,914,533 3,000,000 $ 439,211 46,412,300 2,895,600 130,054 2,320,225 3,396,800 1,741,269 2,280,000 773,600 5,583,272 136,202,000 6,743,900 89,255,000 330,100 971,500 207,675,000 9,274 1,566,300 78,374,138 208,899,000 2,914,533 3,000,000 $ 439,211 25,015,861 2,895,600 129,222 1,639,358 757,131 1,737,379 163 762,309 5,561,929 126,369,062 6,743,900 89,255,000 330,000 552,157 203,611,751 9,274 1,090,525 66,232 156,695,947 1,991,465 5,710 $ 774,259,391 $ 801,913,076 $ 625,659,186 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION – BUDGETARY COMPARISON SCHEDULES JUNE 30, 2015 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, 2014 that affect available appropriations during fiscal year 2015. The final budget represents any appropriation bills passed during fiscal year 2015 for fiscal year 2015 plus the original budget. Appropriation bills passed after the end of fiscal year 2015 for fiscal year 2015 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): General Fund Transportation & Aviation Planning, Highway Maintenance & Safety Fund Uses/outflows of resources Actual expenditure amounts (budgetary basis) “total charges to appropriations” from the budgetary comparison schedule $ 17,781,392 $ 625,659 Differences – budget to GAAP: Increase in unpaid incurred expenditures from fiscal year end 2014 to fiscal year end 2015. 38,065 459,722 5,368 - Distributions to counties and cities of sales taxes are recognized as expenditures on the modified accrual basis, but have no effect on budgetary expenditures. 1,170,313 - 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. 640,436 - Capital leases and installment purchase contracts initiated during the fiscal year, which are not reported in budgetary expenditures. 1,025 - Programs which are not controlled by legislative appropriations but have disbursed cash or incurred obligations during fiscal year 2015. 4,243,718 1,688,964 Transfers to other funds are outflows of budgetary resources but are not expenditures for financial reporting purposes. (952,780) (305,410) Increase in unpaid payroll expenditures from fiscal year end 2014 to fiscal year end 2015. For budgetary reporting, final June 2014 payroll expenditures were charged to fiscal year 2015 budget and final June 2015 payroll expenditures were charged to fiscal year 2016 budget. Total expenditures, as reported on the Statement of Revenues, Expenditures and Changes in Fund Balances $ 22,927,537 $ 2,468,935 There were no expenditures in excess of appropriations or allotments in the individual budget accounts for the year. - 153 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION – BUDGETARY COMPARISON SCHEDULES JUNE 30, 2015 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 (OSPB), unless an extension is granted for up to an additional 30 days by the OSPB Director. 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 and various omnibus reconciliation bills, which are used for statutory adjustments that must be implemented to carry out the budget. 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 the appropriation of certain state revenues (primarily tax and fee collections) from exceeding 7.41% of Arizona personal income as estimated by the Economic Estimates Commission. The State prepares its operating budget on the cash basis of accounting. 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 an annual basis. The budget format used by the State Legislature determines how an agency’s appropriation appears in the General Appropriation 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 funds. Among the 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. Lump Sum with Special Line Items – The appropriation of an agency for each fiscal year consists of a dollar amount for an operating budget and dollar amounts for individual special line items. Special line items are particular programs for which the Legislature has a specific policy interest. These line items may or may not include Full Time Equivalent positions. Agencies are permitted to shift funds among line items, programs, and subprograms without further Legislative or Executive Branch review, though footnotes may place additional restrictions or notifications upon the agency prior to or associated with transfers between special line items or to or from the operating budget. During the fiscal year, $2.1 billion in supplemental appropriations, net of mid-year reversions and adjustments, were provided to the General Fund. The Transportation and Aviation Planning, Highway Maintenance and Safety Fund appropriations increased by $27.7 million. These 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 ADOA’s General Accounting Office 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 fiscal year 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. - 154 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION – BUDGETARY COMPARISON SCHEDULES JUNE 30, 2015 All expenditures 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 final budget amount of $813.2 million for the Department of Health Services’ Medicaid Behavioral Health - Traditional on page 146, which includes $582.8 million of duplicate expenditure authorizations. 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 the General Fund’s budget (appropriation) totals on page 151. - 155 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2015 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), as amended, the State of Arizona reports its roads and bridges using the modified approach. Assets accounted for under the modified approach include 6,800 center lane miles (21,390 travel lane miles) of roads and 4,798 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 (Program) contains estimated expenditures for highway system improvements and the preservation of existing roadways and bridges. Both of these factors impact the condition assessment of the roads and bridges as described in the following sections. The Program in effect for fiscal year 2015 and beyond was adopted by the Transportation Board on June 13, 2014. 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 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 in the tables that follow, 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, with 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 Arizona Department of Transportation’s (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 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 traveling public (as documented in 1961 after the American Association of State Highway and Transportation Officials (AASHTO) Road Test, 1956-1961). Serviceability is based on detailed measurements of objective features of the pavement. Many surveys since the original road test have shown that these measurements closely track the subjective opinion of the traveling public. Most commonly, this number is called the “Present Serviceability Rating” (PSR). PSR is a five-point scale (5 excellent, 0 impassable), similar to the Weaver/AASHTO Scale shown as follows: - 156 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2015 Numerical Rating 5 4 3 2 1 0 PSR Excellent Good Fair Poor Very Poor Impassable Weaver/AASHTO Scale Perfect Very Good Good Fair Poor Very Poor 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 2015, an overall rating of 3.68 was achieved, as shown in the following graph: Condition Levels - Roads 5 PSR 4 3 Actual 2 Goal 1 0 2011 2012 2013 2014 2015 Fiscal Year Figure 1 Preservation of the roads is accomplished through programs managed primarily by the ADOT’s PMS, as well as other units within the ADOT. The estimated (as specified in the Program as programmed amounts) and actual expenditures for fiscal years 2011 through 2015 were as follows: Fiscal Year 2011 2012 2013 2014 2015 Estimated Expenditures (in millions) $265.7 $261.9 $276.3 $271.2 $249.5 - 157 - Actual Expenditures (in millions) $373.4 $373.6 $291.3 $287.2 $300.6 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2015 Bridges The State’s bridge assets constitute a significant portion of all infrastructure assets in Arizona. As of June 30, 2015, the State owned and maintained 4,798 bridges with an approximate total deck area of 49,753,220 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 assisting 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 sub-structure condition. The bridge joints condition rating is an Arizona specific rating item not included in the FHWA condition rating guidelines, whereas the other three 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 the 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 2015, the CRI was computed at 93.5%. Condition Levels - Bridges 95% CRI 94% 93% Actual 92% Goal 91% 90% 2011 2012 2013 Fiscal Year Figure 2 - 158 - 2014 2015 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2015 Bridges represent a major public investment, and their inspection and maintenance is an essential function of the State in its mission of providing products and services for a safe, efficient, and cost effective transportation system. Figure 3 indicates that approximately 56% of the bridges in the State were constructed prior to the 1970s while only 15% have been constructed since 2000. Age of the State's Bridge Population 30% 25% % of bridges built in corresponding decade 20% 15% 10% 5% 0% <1930 30s 40s 50s 60s 70s 80s 90s 2000s 2010s Figure 3 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 2011 through 2015 were as follows: Fiscal Year 2011 2012 2013 2014 2015 Estimated Expenditures (in millions) $11.8 $12.5 $14.7 $21.2 $13.7 - 159 - Actual Expenditures (in millions) $26.0 $20.6 $10.7 $20.5 $21.9 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF THE STATE'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY ARIZONA STATE RETIREMENT SYSTEM FOR THE LAST FISCAL YEAR (1) JUNE 30, 2015 (Expressed in Thousands) State's proportion of the net pension liability State's proportionate share of the net pension liability State's covered-employee payroll State's proportionate share of the net pension liability as a percentage of its covered-employee payroll Plan fiduciary net position as a percentage of the total pension liability Fiscal Year 2015 21.36% $ $ 3,160,809 1,930,650 163.72% 69.49% (1) The State implemented GASB 68 in fiscal year 2015. Therefore, ten years of data is not available, but will be accumulated over time. - 160 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF THE STATE'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY ELECTED OFFICIALS' RETIREMENT PLAN FOR THE LAST FISCAL YEAR (1) JUNE 30, 2015 (Expressed in Thousands) State's proportion of the net pension liability State's proportionate share of the net pension liability State's covered-employee payroll State's proportionate share of the net pension liability as a percentage of its covered-employee payroll Plan fiduciary net position as a percentage of the total pension liability Fiscal Year 2015 18.16% $ $ 121,797 12,604 966.34% 31.91% (1) The State implemented GASB 68 in fiscal year 2015. Therefore, ten years of data is not available, but will be accumulated over time. STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF THE STATE'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY, AS A NONEMPLOYER CONTRIBUTING ENTITY ELECTED OFFICIALS' RETIREMENT PLAN FOR THE LAST FISCAL YEAR (1) JUNE 30, 2015 (Expressed in Thousands) State's proportion of the net pension liability State's proportionate share of the net pension liability Plan fiduciary net position as a percentage of the total pension liability Fiscal Year 2015 19.20% $ 128,776 31.91% (1) The State implemented GASB 68 in fiscal year 2015. Therefore, ten years of data is not available, but will be accumulated over time. - 161 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN THE STATE'S NET PENSION LIABILITY AND RELATED RATIOS PSPRS DEPARTMENT OF PUBLIC SAFETY FOR THE LAST FISCAL YEAR (1) FISCAL YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) Fiscal Year 2015 Total pension liability Service cost Interest on the total pension liability Changes of benefit terms Differences between expected and actual experience in the measurement of the pension liability Changes of assumptions or other inputs Benefit payments, including refunds of employee contributions Net change in total pension liability Total pension liability - beginning Total pension liability - ending (a) Plan fiduciary net position Contributions - employer Contributions - employee Net investment income Benefit payments, including refunds of employee contributions Administrative expense Other changes Net change in plan fiduciary net position Plan fiduciary net position - beginning $ 13,111 66,664 23,768 (3,711) 107,172 (69,497) 137,507 877,415 $ 1,014,922 $ 34,965 4,080 46,223 (69,497) (372) 393 15,792 345,462 Plan fiduciary net position - ending (b) $ 361,254 State's net pension liability - ending (a) - (b) $ 653,668 Plan fiduciary net position as a percentage of the total pension liability Covered-employee payroll State's net pension liability as a percentage of covered-employee payroll $ 35.59% 86,396 756.60% (1) The State implemented GASB 68 in fiscal year 2015. Therefore, ten years of data is not available, but will be accumulated over time. The Notes to Required Supplementary Information are an integral part of this schedule. - 162 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN THE STATE'S NET PENSION LIABILITY AND RELATED RATIOS CORP DEPARTMENT OF CORRECTIONS FOR THE LAST FISCAL YEAR (1) FISCAL YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) Fiscal Year 2015 Total pension liability Service cost Interest on the total pension liability Changes of benefit terms Differences between expected and actual experience in the measurement of the pension liability Changes of assumptions or other inputs Benefit payments, including refunds of employee contributions Net change in total pension liability Total pension liability - beginning Total pension liability - ending (a) Plan fiduciary net position Contributions - employer Contributions - employee Net investment income Benefit payments, including refunds of employee contributions Administrative expense Other changes Net change in plan fiduciary net position Plan fiduciary net position - beginning $ 48,061 92,486 21,354 (3,818) 125,557 (83,365) 200,275 1,195,822 $ 1,396,097 $ 40,166 27,722 96,216 (83,365) (757) (446) 79,536 696,469 Plan fiduciary net position - ending (b) $ 776,005 State's net pension liability - ending (a) - (b) $ 620,092 Plan fiduciary net position as a percentage of the total pension liability Covered-employee payroll State's net pension liability as a percentage of covered-employee payroll $ 55.58% 369,174 167.97% (1) The State implemented GASB 68 in fiscal year 2015. Therefore, ten years of data is not available, but will be accumulated over time. The Notes to Required Supplementary Information are an integral part of this schedule. - 163 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF STATE PENSION CONTRIBUTIONS ARIZONA STATE RETIREMENT SYSTEM FOR THE LAST TWO FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) Fiscal Year 2015 2014 Statutorily required contribution State's contributions in relation to the statutorily required contribution $ 217,388 $ 206,040 State's contribution deficiency (excess) $ - $ - State's covered-employee payroll State's contributions as a percentage of covered-employee payroll $ 2,000,961 $ 1,930,650 217,388 206,040 10.86% 10.67% (1) The State implemented GASB 68 in fiscal year 2015. Therefore, ten years of data is not available, but will be accumulated over time. - 164 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF STATE PENSION CONTRIBUTIONS ELECTED OFFICIALS' RETIREMENT PLAN FOR THE LAST TWO FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) Fiscal Year 2015 2014 Statutorily required contribution (2) State's contributions in relation to the statutorily required contribution (2) $ 3,928 $ 3,870 State's contribution deficiency (excess) $ - $ - State's covered-employee payroll State's contributions as a percentage of covered-employee payroll $ 12,987 $ 12,604 3,928 3,870 30.25% 30.70% (1) The State implemented GASB 68 in fiscal year 2015. Therefore, ten years of data is not available, but will be accumulated over time. (2) The State appropriated $5 million annually, in addition to payroll contributions. This amount is split between employer and nonemployer contributions based on the State's actual payroll contributions to the plan relative to the total of all participating employers' actual contributions. STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF STATE PENSION CONTRIBUTIONS, AS A NONEMPLOYER CONTRIBUTING ENTITY ELECTED OFFICIALS' RETIREMENT PLAN FOR THE LAST TWO FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) Fiscal Year 2015 Statutorily required contribution (2) State's contributions in relation to the statutorily required contribution (2) $ State's contribution deficiency (excess) $ 2014 4,066 $ 4,066 - 4,092 4,092 $ - (1) The State implemented GASB 68 in fiscal year 2015. Therefore, ten years of data is not available, but will be accumulated over time. (2) The State appropriated $5 million annually, in addition to payroll contributions. This amount is split between employer and nonemployer contributions based on the State's actual payroll contributions to the plan relative to the total of all participating employers' actual contributions. - 165 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF STATE PENSION CONTRIBUTIONS PSPRS DEPARTMENT OF PUBLIC SAFETY FOR THE LAST TWO FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) Fiscal Year 2015 2014 Actuarially determined contribution State's contributions in relation to the actuarially determined contribution $ 40,328 $ 34,965 State's contribution deficiency (excess) $ - $ - State's covered-employee payroll State's contributions as a percentage of covered-employee payroll $ 88,338 $ 86,396 40,328 34,965 45.65% 40.47% (1) The State implemented GASB 68 in fiscal year 2015. Therefore, ten years of data is not available, but will be accumulated over time. STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF STATE PENSION CONTRIBUTIONS CORP DEPARTMENT OF CORRECTIONS FOR THE LAST TWO FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) Fiscal Year 2015 2014 Actuarially determined contribution State's contributions in relation to the actuarially determined contribution $ 43,105 $ State's contribution deficiency (excess) $ - $ - State's covered-employee payroll State's contributions as a percentage of covered-employee payroll $ 378,481 $ 369,174 43,105 40,166 40,166 11.39% 10.88% (1) The State implemented GASB 68 in fiscal year 2015. Therefore, ten years of data is not available, but will be accumulated over time. The Notes to Required Supplementary Information are an integral part of these schedules. - 166 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION – PENSION PLAN SCHEDULES JUNE 30, 2015 ACTUARIALLY DETERMINED CONTRIBUTION RATES Actuarially determined contribution rates for PSPRS and CORP are calculated as of June 30 two years prior to the end of the fiscal year in which contributions are made. The actuarial methods and assumptions used to establish the contribution requirements are as follows: Actuarial cost method Amortization method Remaining amortization period, as of the 2013 actuarial valuation Asset valuation method Actuarial assumptions: Investment rate of return Projected salary increases Wage growth Retirement age Mortality Entry age normal Level percent closed for unfunded actuarial accrued liability, open for excess 23 years for unfunded actuarial liability, 20 years for excess 7-year smoothed market value, 20% corridor In the 2013 actuarial valuation, the investment rate of return was decreased from 8.0% to 7.85% In the 2013 actuarial valuation, projected salary increases were decreased from 5.0%–9.0% to 4.5%–8.5% for PSPRS and from 5.0%–8.25% to 4.5%–7.75% for CORP In the 2013 actuarial valuation, wage growth was decreased from 5.0% to 4.5% for PSPRS and CORP Experience-based table of rates that is specific to the type of eligibility condition. Last updated for the 2012 valuation pursuant to an experience study of the period July 1, 2006 - June 30, 2011 RP-2000 mortality table (adjusted by 105% for both males and females) - 167 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION SINGLE-EMPLOYER OPEB PLAN FUNDING PROGRESS JUNE 30, 2015 Analysis of the funding progress for the ADOA single-employer defined benefit post-employment plan, as of the most recent actuarial valuations, is as follows (expressed in thousands): Actuarial Valuation Date 6/30/2014 6/30/2012 6/30/2010 Actuarial Value of Plan Assets - Actuarial Accrued Liability (AAL) $ 242,946 226,169 279,815 (Unfunded) AAL $ (242,946) (226,169) (279,815) - 168 - Funded Ratio 0.0% 0.0% 0.0% Annual Covered Payroll $ 3,051,816 2,791,581 2,681,211 (Unfunded) AAL as a Percentage of Covered Payroll (8.0)% (8.1)% (10.4)% COMBINING FINANCIAL STATEMENTS AND SCHEDULES COMBINING FINANCIAL STATEMENTS AND SCHEDULES NON-MAJOR GOVERNMENTAL FUNDS Special Revenue Funds Special Revenue Funds account for the proceeds of specific revenue sources (other than major capital projects) that are legally restricted to expenditures for specified purposes. Debt Service Funds The Debt Service Funds account for the accumulation of resources for, and the payment of, 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, 2015 (Expressed in Thousands) SPECIAL REVENUE FUNDS ASSETS Cash Cash and pooled investments with State Treasurer Collateral investment pool Receivables, net of allowances: Taxes Interest Other Due from U.S. Government Due from other Funds Restricted assets: Cash and pooled investments with State Treasurer Cash held by trustee Total Assets LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES Liabilities: Accounts payable and other current liabilities Accrued liabilities Obligations under securities loan agreements Tax refunds payable Due to local governments Due to others Due to other Funds Unearned revenue Total Liabilities $ $ - $ TOTAL - $ 1,653 800,883 9,695 1,769 - - 802,652 9,695 78,159 154 25,215 16,113 72,398 89 3,751 98 - 78,159 341 25,215 16,113 76,149 369,118 468 35,295 16,762 210,128 - 614,541 17,230 $ 1,373,856 $ 57,666 $ 210,226 $ 1,641,748 $ 14,266 48,138 $ 20 237 $ 5,150 55 $ 19,436 48,430 Deferred Inflows of Resources: Unavailable revenue Fund Balances: Restricted Committed Total Fund Balances Total Liabilities, Deferred Inflows of Resources, and Fund Balances 1,653 CAPITAL PROJECTS FUNDS DEBT SERVICE FUNDS $ 9,695 906 147,655 14,313 22,376 1,301 258,650 257 5,205 9,695 906 147,655 14,313 22,376 1,301 264,112 814 - - 814 501,928 612,464 1,114,392 57,409 57,409 205,021 205,021 764,358 612,464 1,376,822 1,373,856 $ 57,666 - 172 - $ 210,226 $ 1,641,748 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) SPECIAL REVENUE FUNDS REVENUES Taxes: Sales Income Tobacco Property Motor vehicle and fuel Other Intergovernmental Licenses, fees, and permits Hospital and nursing facility assessments 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 Refunding bonds issued 501,271 36 250,159 2,000 122,897 95,115 105,300 289,816 291,324 49,411 34,215 135,948 83,140 26,287 1,986,919 $ $ TOTAL 2,482 2,482 $ 557,353 36 250,159 2,000 122,897 95,115 105,300 289,816 291,324 53,685 34,215 135,948 83,140 26,345 2,047,333 150,395 554,366 116,331 762,911 261,109 119,609 - 28,535 - 150,395 554,366 116,331 762,911 261,109 28,535 119,609 10,490 15,104 21,020 2,011,335 336,125 208,770 544,895 79,937 108,472 346,615 223,874 100,957 2,664,702 (24,416) (486,963) (105,990) 104,597 (109,118) 484,004 - 1,114,392 57,409 - 173 - 588,601 (109,118) - (900,813) 149,554 487,030 67 57,342 $ (617,369) - 754,285 (4,521) (28,937) 1,143,329 $ CAPITAL PROJECTS FUNDS 56,082 1,792 58 57,932 - Payment to refunded bond escrow agent Premium on debt issued Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending DEBT SERVICE FUNDS 754,285 (105,990) 311,011 $ 205,021 (900,813) 149,554 482,509 (134,860) 1,511,682 $ 1,376,822 NON-MAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS 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; to increase the quality of, and access to, the early childhood development and health system that ensures a child entering school comes healthy and ready to succeed; and for 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 lands, 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 strategic water resources planning, Colorado River water management, drought management planning, dam safety, flood mitigation, administration of the Arizona Groundwater Management Code, and administration of water rights. 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, 2015 (Expressed in Thousands) PUBLIC SAFETY & CORRECTIONAL ENVIRONMENTAL PROGRAMS PROTECTION ASSETS Cash Cash and pooled investments with State Treasurer Collateral investment pool Receivables, net of allowances: Taxes Interest Other Due from U.S. Government Due from other Funds Restricted assets: Cash and pooled investments with State Treasurer Cash held by trustee Total Assets LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES Liabilities: Accounts payable and other current liabilities Accrued liabilities Obligations under securities loan agreements Tax refunds payable Due to local governments Due to others Due to other Funds Unearned revenue Total Liabilities $ $ - $ - TOBACCO TAX & HEALTHCARE $ - JUDICIAL & LEGAL SERVICES $ REGULATING & LICENSING - $ 17 107,899 - 113,274 1,969 98,677 - 18,794 6,621 104,636 1,105 134,403 - 4,606 10 6,279 39 266 3,764 5,880 10 7,269 16,110 1,234 15,393 5 55 3 1,004 24 5 1,556 10 2,889 729 - - 1,473 468 367,645 - - - $ 120,400 $ 119,312 $ 131,121 $ 409,520 $ 107,326 $ 138,048 $ 2,943 5,580 $ 3,097 450 $ 1,453 36,779 $ 884 421 $ 2,085 815 $ 1,049 2,372 Deferred Inflows of Resources: Unavailable revenue Fund Balances: Restricted Committed Total Fund Balances Total Liabilities, Deferred Inflows of Resources, and Fund Balances 1,606 HEALTHCARE & SOCIAL SERVICES $ 35 8,558 1,969 220 5,736 5,283 1,301 44,816 6,621 14,027 16,765 38,718 1,105 2 27 4,034 906 284 46 4,657 - - 814 - - - 111,842 111,842 113,576 113,576 20,845 64,646 85,491 370,802 370,802 6,426 96,866 103,292 133,391 133,391 120,400 $ 119,312 - 176 - $ 131,121 $ 409,520 $ 107,326 $ 138,048 GROUNDWATER STATE PARKS BUSINESS EDUCATIONAL PROTECTION & PROGRAMS CONSERVATION DEVELOPMENT DEVELOPMENT GAME & FISH $ 30 $ - $ - $ - $ - CLEAN ELECTIONS SYSTEM $ - TOTAL $ 1,653 45,355 - 15,541 - 20,551 - 98,357 - 20,575 - 22,821 - 800,883 9,695 19 1,849 154 7 242 11 - 52,280 9 12,881 57,433 10 - 1 3 78,159 154 25,215 16,113 72,398 - - - - - - 369,118 468 $ 47,407 $ 15,790 $ 20,562 $ 220,960 $ 20,585 $ 22,825 $ 1,373,856 $ 2,132 1,329 $ 197 108 $ 109 $ 16 133 $ 168 22 $ 242 20 $ 14,266 48,138 $ 3,461 305 109 147,655 147,804 190 262 9,695 906 147,655 14,313 22,376 1,301 258,650 - - - - - - 814 7,404 36,542 43,946 15,485 15,485 732 19,721 20,453 73,156 73,156 20,395 20,395 22,563 22,563 501,928 612,464 1,114,392 47,407 $ 15,790 $ 20,562 $ 220,960 $ - 177 - 20,585 $ 22,825 $ 1,373,856 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) REVENUES Taxes: Sales Income Tobacco Property Motor vehicle and fuel Other Intergovernmental Licenses, fees, and permits Hospital and nursing facility assessments Earnings on investments Sales and charges for services Fines, forfeitures, and penalties Gaming Other Total Revenues PUBLIC SAFETY & HEALTHCARE CORRECTIONAL ENVIRONMENTAL & SOCIAL PROGRAMS PROTECTION SERVICES TOBACCO TAX & HEALTHCARE $ $ 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 Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending 17,592 5,015 97,062 56,833 17,270 21,563 243 14,360 73,646 1,847 305,431 $ $ 4,425 8,256 2,000 53,434 24,999 291,324 133 2,985 9,622 22,301 2,316 421,795 236,888 442 6,827 637 244,794 $ 1,213 25,615 872 506 41,153 2,340 71,699 REGULATING & LICENSING $ 330 36,073 85 96,824 143 2,145 2,925 9,828 2,145 150,498 31,888 261,105 23,478 1,063 69,427 1,324 539 3,034 396,332 - 525 80,550 162,400 - 89,763 15 - 1,772 8,057 114,992 4 - 9,905 14,481 12,894 353,751 40 72,393 269 399,635 21 243,496 45 89,823 763 125,588 (48,320) 9,051 22,160 1,298 (18,124) 24,910 3,079 (18,900) (15,821) (33,945) 137,237 4,670 (14,212) (9,542) 15,368 118,023 70,879 (20,572) 50,307 1,987 109,855 $ 247 14,967 2,209 63,061 586 230 144 81,444 JUDICIAL & LEGAL SERVICES 111,842 7,000 (6,675) 325 9,376 104,200 $ 113,576 - 178 - 7,055 (5,144) 1,911 24,071 61,420 $ 85,491 1,445 (37,599) (36,154) (34,856) 405,658 $ 370,802 $ 103,292 $ 133,391 GAME & FISH $ $ 926 30,019 38,814 299 2,873 125 6,372 833 80,261 GROUNDWATER STATE PARKS BUSINESS EDUCATIONAL PROTECTION & PROGRAMS CONSERVATION DEVELOPMENT DEVELOPMENT $ 9,291 3,269 91 43 12,694 $ 1,728 5,013 154 266 3,240 10,401 $ 479,007 36 321 1,109 3,869 39,941 11,072 44,639 7,997 587,991 $ 6,789 122 8 1 4,589 11,509 CLEAN ELECTIONS SYSTEM $ 8,246 156 8,402 TOTAL $ 501,271 36 250,159 2,000 122,897 95,115 105,300 289,816 291,324 49,411 34,215 135,948 83,140 26,287 1,986,919 78,146 1,690 6,946 11,448 13 - 600,498 - 10,500 9,212 - 150,395 554,366 116,331 762,911 261,109 119,609 585 622 6,002 85,355 768 9,404 1 1 11,463 214 600,712 10,500 3 9,215 10,490 15,104 21,020 2,011,335 (5,094) 3,290 (1,062) (12,721) 1,009 (813) (24,416) 10,169 (5,282) 4,887 (207) 44,153 (1) (1) 3,289 12,196 (465) (465) (1,527) 21,980 (236) (236) (12,957) 86,113 300 300 1,309 19,086 (32) (32) (845) 23,408 104,597 (109,118) (4,521) (28,937) 1,143,329 43,946 $ 15,485 $ 20,453 $ 73,156 $ - 179 - 20,395 $ 22,563 $ 1,114,392 STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Dollars) ACCOUNTANCY, ARIZONA STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION ACUPUNCTURE BOARD OF EXAMINERS ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION ADMINISTRATION, ARIZONA DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION AHCCCS - ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ALTCS SERVICES PROPOSITION 204 SERVICES TRADITIONAL MEDICAID SERVICES APPRAISAL, STATE BOARD OF OPERATING LUMP SUM APPROPRIATION ATHLETIC TRAINING, BOARD OF OPERATING LUMP SUM APPROPRIATION ATTORNEY GENERAL - DEPARTMENT OF LAW ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION PAD NATIONAL MORTGAGE SETTLEMENT VICTIMS RIGHTS AUTOMOBILE THEFT AUTHORITY AUTOMOBILE THEFT AUTHORITY GRANTS OPERATING LUMP SUM APPROPRIATION REIMBURSABLE PROGRAMS BARBERS, BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION BEHAVIORAL HEALTH EXAMINERS, BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION BOARD OF MASSAGE THERAPY ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION CHILD SAFETY, DEPARTMENT OF DCS IN-HOME PREVENTIVE SUPPORT SERVICES DCS OPERATING LUMP SUM CHIROPRACTIC EXAMINERS, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION CONTRACTORS, REGISTRAR OF ADMINISTRATIVE ADJUSTMENTS OFFICE OF ADMINISTRATIVE HEARINGS COSTS OPERATING LUMP SUM APPROPRIATION CORPORATION COMMISSION ADMINISTRATIVE ADJUSTMENTS ANNUAL REV PUBLIC ACCESS FUND ARS 10-122 ANNUAL REVERSION PER ARS 44-3298 CORPORATION FILINGS, SAME DAY SERVICE OPERATING LUMP SUM APPROPRIATION SEC DATABASE REPLACEMENT UTILITIES, AUDITS, STUDIES, INVEST, HEAR FY09-10 UTILITIES, AUDITS, STUDIES, INVEST, HEAR FY10-11 UTILITIES, AUDITS, STUDIES, INVEST, HEAR FY11-12 UTILITIES, AUDITS, STUDIES, INVEST, HEAR FY12-13 FINAL BUDGET (Appropriations) $ 9,693 1,936,800 ACTUAL EXPENDITURE AMOUNTS $ 9,693 1,400,800 341 154,700 341 144,258 1,716 1,501,200 1,716 930,131 54,386,300 288,644,500 34,178,800 54,386,298 279,119,156 34,178,800 861,800 616,949 118,200 103,060 100,979 12,439,300 40,152,361 3,758,600 100,979 11,799,287 17,417,554 3,752,596 4,607,700 640,100 50,000 4,579,747 480,087 5,000 5 333,900 5 306,236 2,296 1,758,600 2,296 1,551,773 2,842 438,700 2,842 434,364 1,459,100 207,700 2,580 2,372 2,930 450,600 2,930 377,473 2,270 1,017,600 11,179,100 2,270 254,400 7,882,580 420,130 1,561,709 3,924,146 400,400 25,598,500 750,000 43,950 379,960 380,000 380,000 420,130 1,561,709 3,924,146 25,191,879 20,000 43,950 379,960 174,198 (continued) -180 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Dollars) UTILITIES, AUDITS, STUDIES, INVEST, HEAR FY13-14 UTILITIES, AUDITS, STUDIES, INVEST, HEAR FY14-15 CORRECTIONS, STATE DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS CASH TRANSFER TO AUTOMATION PROJECTS FUND CASH TRANSFER TO BUILDING RENEWAL FUND INMATE HEALTH CARE CONTRACTED SERVICES OPERATING LUMP SUM APPROPRIATION PRIVATE PRISON PER DIEM COSMETOLOGY, BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION CRIMINAL JUSTICE COMMISSION, ARIZONA ADMINISTRATIVE ADJUSTMENTS INDIGENT DEFENSE FUND TRANSFERS OPERATING LUMP SUM APPROPRIATION STATE AID TO COUNTY ATTORNEYS VICTIM COMPENSATION AND ASSISTANCE DEAF AND HARD OF HEARING, COMMISSION FOR THE ADMINISTRATIVE ADJUSTMENTS AGENCY BUSINESS UPGRADES INTERPRETER FOR CERTIFICATION AND LICENSURE FY04-05 OPERATING LUMP SUM APPROPRIATION RELIEF BILL CASH TRANSFER FY15 DENTAL EXAMINERS, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION ECONOMIC SECURITY, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS AGENCYWIDE OPERATING LUMP SUM APPROPRIATION ATTORNEY GENERAL LEGAL SERVICES DOMESTIC VIOLENCE PREVENTION INDEPENDENT LIVING REHABILITATION SERVICES JOBS REHABILITATION SERVICES EDUCATION, BOARD OF OPERATING LUMP SUM APPROPRIATION-STATE BOARD EDUCATION, DEPARTMENT OF ACCOUNTABILITY-SCHOOL SAFETY-PROP 301 FY11-12 ACCOUNTABILITY-SCHOOL SAFETY-PROP 301 FY13-14 ACCOUNTABILITY-SCHOOL SAFETY-PROP 301 FY14-15 ACHIEVEMENT TESTING-PROP 301 FY11-12 ACHIEVEMENT TESTING-PROP 301 FY12-13 ACHIEVEMENT TESTING-PROP 301 FY13-14 ACHIEVEMENT TESTING-PROP 301 FY14-15 ADDITIONAL SCHOOL DAYS-PROP 301 FY14-15 CHARACTER EDUCATION-PROP 301 FY11-12 CHARACTER EDUCATION-PROP 301 FY13-14 CHARACTER EDUCATION-PROP 301 FY14-15 FAILING SCHOOL TUTORING-PROP 301 FY13-14 FAILING SCHOOL TUTORING-PROP 301 FY14-15 OPERATING LUMP SUM APPROPRIATION-ADMINISTRATION OPERATING LUMP SUM APPROPRIATION-STATE BOARD SCHOOL ACCOUNTABILITY-PROP 301 FY09-10 TEACHER CERTIFICATION FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 380,000 380,000 - 71,226 8,000,000 2,500,000 10,000,000 7,239,400 24,517,000 71,226 8,000,000 2,500,000 9,538,676 6,899,353 24,516,999 1,718 1,785,000 1,718 1,771,402 34,265 1,500,100 889,000 973,600 4,092,500 34,265 1,500,100 691,131 730,200 3,084,006 37,745 220,000 255,313 4,056,700 331 37,745 3,522,770 331 730 1,215,100 730 1,116,021 4,621,932 2,602,100 91,600 2,220,000 1,123,400 1,110,900 204,700 4,621,932 370,208 2,220,000 1,091,737 155,847 109,989 - 3,400 60,044 7,800,000 1,721,241 5,575,413 7,000,000 7,000,000 86,280,500 91,006 200,000 193,665 1,500,000 138,200 269,811 121,803 1,842,500 3,400 60,044 7,240,354 1,492,257 5,170,766 4,292,329 86,280,500 (1,167) 91,006 177,863 193,665 968,552 124,492 269,811 11,139 1,662,092 (continued) -181 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Dollars) EMERGENCY AND MILITARY AFFAIRS, DEPARTMENT OF EMERGENCY MANAGEMENT ENVIRONMENTAL QUALITY, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS AIR QUALITY FEE FUND STATE TRANSFERS AIR QUALITY PROGRAM - CONTINUING FY01-02 AIR QUALITY PROGRAM - CONTINUING FY02-03 CASH TRANSFER TO AUTOMATION PROJECT FUND EMISSIONS CAP AND TRADING PROGRAM FY01-02 EMISSIONS CAP AND TRADING PROGRAM FY02-03 EMISSIONS CONTROL - CONTRACTOR PAYMENTS OPERATING LUMP SUM APPROPRIATION POLITICAL SUBDIVISION ASSISTANCE FY01-02 ROADSIDE DIESEL EMISSIONS TEST FY01-02 SAFE DRINKING WATER PROGRAM UNDERGROUND STORAGE TANK APPEALS FY00-01 VISIBILITY INDEX DEVELOPMENT FY01-02 FINANCIAL INSTITUTIONS, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION FUNERAL DIRECTORS AND EMBALMERS, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION GAME AND FISH DEPARTMENT, ARIZONA ADMINISTRATIVE ADJUSTMENTS BLACK CANYON DAM MODIFICATIONS FY05-06 BOAT SHADE CANOPIES FY08-09 BUILDING RENEWAL FY12-13 BUILDING RENEWAL FY13-14 DAM MAINTENANCE FY11-12 DAM MAINTENANCE FY12-13 FLAGSTAFF SHOOTING RANGE PLANNING FY02-03 LOWER COLORADO MULTI-SPECIES CONSERVATION OPERATING LUMP SUM APPROPRIATION PERFORMANCE INCENTIVE PAY FY12-13 PERFORMANCE INCENTIVE PAY FY13-14 PERFORMANCE INCENTIVE PAY FY14-15 PITTMAN-ROBERTSON/DINGELL-JOHNSON ACT PROPERTY MAINTENANCE FY11-12 PROPERTY MAINTENANCE FY12-13 RADIO TOWER FY10-11 REGIONAL KINGMAN OFFICE REMODEL FY09-10 TRI-STATE SHOOTING RANGE DEVELOPMENT FY04-05 WATERCRAFT GRANT PROGRAM WATERCRAFT SAFETY EDUCATION PROGRAM GAMING, DEPARTMENT OF ADDITIONAL OPERATING EXPENSES CASINO OPERATION CERTIFICATION OPERATING LUMP SUM APPROPRIATION PROBLEM GAMBLING GOVERNOR, OFFICE OF THE OPERATING LUMP SUM APPROPRIATION FY11-12 HEALTH SERVICES, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS AGENCYWIDE OPERATING LUMP SUM APPROPRIATION ALZHEIMER DISEASE RESEARCH FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 132,700 128,504 545,055 400,000 186,035 182,451 6,800,000 70,576 266,582 22,219,500 31,812,200 18,500 200,000 1,800,000 7,500 80,589 545,055 400,000 6,800,000 21,707,717 19,380,125 705,784 - 1,383 1,247,400 1,383 1,134,183 322 353,700 322 326,395 2,920 368,321 56,535 76,743 547,600 434,294 500,000 2,673 350,000 34,720,100 346,100 346,100 346,100 3,808,000 131,261 38,774 250,000 823,186 95,385 1,000,000 250,000 2,920 10,938 52,085 503,557 225,351 30,279 2,673 350,000 30,075,746 3,713,369 104,454 38,461 224,641 162,210 95,385 243,375 800,400 2,104,900 8,318,400 2,292,500 1,726,401 8,000,337 1,747,307 192,300 - 511,084 19,075,000 1,000,000 511,084 16,543,299 1,000,000 (continued) -182 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Dollars) CRISIS SERVICES FOLIC ACID GENOMICS-BASED MEDICAL RESEARCH HIGH RISK PERINATAL SERVICES MEDICAID BEHAVIORAL HEALTH - TRADITIONAL NEWBORN SCREENING PROGRAM NURSING FACILITY STUDY RELIEF BILL CASH TRANSFER FY15 RENAL DENTAL CARE AND NUTRITION SUPPLEMT HOMEOPATHIC AND INTEGRATED MEDICINE EXAMINERS, BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION HOUSING, ARIZONA DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION INDUSTRIAL COMMISSION OF ARIZONA ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION JUVENILE CORRECTIONS, DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION LAND DEPARTMENT, STATE NATURAL RESOURCE CONSERVATION DISTRICTS MEDICAL EXAMINERS BOARD ADMINISTRATIVE ADJUSTMENTS CREDENTIALS VERIFICATION CONTRACT MD FINGERPRINT REFUND SB1149 OPERATING LUMP SUM APPROPRIATION PERFORMANCE BASED INCENTIVE PROGRAM MINE INSPECTOR, STATE ADMINISTRATIVE ADJUSTMENTS AGGREGATE MINED LAND RECLAMATION NATUROPATHIC PHYSICIANS MEDICAL BOARD ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION NAVIGABLE STREAM ADJUDICATION COMMISSION, ARIZONA LEGAL EXPENSES SUPPLEMENTAL NURSING CARE INSTITUTION ADMINISTRATORS AND ASSISTED LIVING FACILITY MANAGERS, BOARD OF EXAMINERS OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION NURSING, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION OCCUPATIONAL THERAPY EXAMINERS, BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION OPTICIANS, STATE BOARD OF DISPENSING ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION OPTOMETRY, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION OSTEOPATHIC EXAMINERS, ARIZONA BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION PEST MANAGEMENT, OFFICE OF OPERATING LUMP SUM APPROPRIATION FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 2,250,000 400,000 2,000,000 450,000 34,767,000 6,307,700 50,000 6,095 300,000 2,250,000 396,282 997,500 193,072 34,767,000 5,371,307 45,110 6,095 225,000 64 102,100 64 92,476 314,600 314,600 20,311 19,994,800 20,311 18,895,482 530,600 207,542 260,000 173,125 20,519 855,000 200,000 5,740,300 165,000 20,519 734,311 5,632,413 110,475 499 112,500 499 20,560 126 177,600 126 163,265 359,300 - 978 420,300 978 387,297 5,910 4,272,100 5,910 4,247,338 87 184,200 87 171,694 67 135,800 67 133,920 2,342 206,100 2,342 193,671 4,851 801,700 4,851 757,861 1,700,500 1,329,214 (continued) -183 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Dollars) PHARMACY, ARIZONA STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS AZ POISON AND DRUG INFORMATION CENTER CONTROLLED SUBSTANCE PRESCRIPTION MONITORING PROGRAM ONE TIME FUNDING LEAVE PAYOUT OPERATING LUMP SUM APPROPRIATION PHYSICAL THERAPY EXAMINERS, BOARD OF OPERATING LUMP SUM APPROPRIATION PODIATRY EXAMINERS, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION POSTSECONDARY EDUCATION, COMMISSION FOR ARIZONA COLLEGE AND CAREER GUIDE AZ MINORITY ED POLICY ANALYSIS CENTER LEVERAGING EDUCATIONAL ASSISTANCE PARTNERSHIP OPERATING LUMP SUM APPROPRIATION FY14-15 TWELVE PLUS PARTNERSHIP PRIVATE POSTSECONDARY EDUCATION, STATE BOARD FOR ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION PSYCHOLOGIST EXAMINERS, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION PUBLIC SAFETY, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS DNA TESTING DNA TESTING FY02-03 DNA TESTING FY03-04 DNA TESTING FY07-08 MICROWAVE COMMUNICATION SYSTEM UPGRADE MOTOR VEHICLE FUEL OPERATING LUMP SUM APPROPRIATION PUBLIC SAFETY EQUIPMENT FY09-10 PUBLIC SAFETY EQUIPMENT FY11-12 PUBLIC SAFETY EQUIPMENT FY12-13 PUBLIC SAFETY EQUIPMENT FY13-14 PUBLIC SAFETY EQUIPMENT FY14-15 PUBLIC SAFETY EQUIPMENT SURCHARGE RACING, ARIZONA DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION RADIATION REGULATORY AGENCY ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION RESIDENTIAL UTILITY CONSUMER OFFICE ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION PROFESSIONAL WITNESSES FY10-11 PROFESSIONAL WITNESSES FY11-12 PROFESSIONAL WITNESSES FY12-13 PROFESSIONAL WITNESSES FY13-14 PROFESSIONAL WITNESSES FY14-15 RESPIRATORY CARE EXAMINERS, BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 12,582 200,000 395,795 36,300 2,017,600 12,582 200,000 395,795 9,615 1,931,231 408,000 396,303 66 147,300 66 123,148 21,300 100,000 1,098,700 184,900 130,500 62 13,275 1,098,700 116,496 70,511 1,077 395,700 1,077 363,934 3,530 413,600 3,530 362,581 197 38,680 1,258,331 678,704 938,531 2,000,000 231,300 148,191,100 2,728,719 244,856 84,568 76,385 1,200,000 2,890,000 197 115,650 145,589,223 2,494 893,045 2,534,391 1,510 2,900,700 1,510 2,848,098 339 273,400 339 271,026 670 1,192,800 195 44,796 134,923 113,726 145,000 670 996,416 195 44,790 128,401 48,000 28,689 262 297,200 262 271,915 (continued) -184 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Dollars) FINAL BUDGET (Appropriations) REVENUE, DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION SUPREME COURT ADULT INTENSIVE PROBATION ADULT STANDARD PROBATION AUTOMATION CASE AND CASH MANAGEMENT SYSTEM COMMUNITY PUNISHMENT COURT APPOINTED SPECIAL ADVOCATE INTERSTATE COMPACT JUVENILE CRIME REDUCTION JUVENILE STANDARD PROBATION OPERATING LUMP SUM APPROPRIATION STATE AID TECHNICAL REGISTRATION, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION TREASURER, STATE LAW ENFORCEMENT AND BOATING SAFETY DIST VETERANS' SERVICES, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM VETERINARY MEDICAL EXAMINING BOARD, ARIZONA STATE OPERATING LUMP SUM APPROPRIATION WATER RESOURCES, DEPARTMENT OF ASSURED AND ADEQUATE WATER SUPPLY ADMIN OPERATING LUMP SUM APPROPRIATION WEIGHTS AND MEASURES, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS GENERAL SERVICES OXYGENATED FUEL VAPOR RECOVERY TOTAL NON-MAJOR SPECIAL REVENUE FUNDS BUDGETARY EXPENDITURES -185 - $ ACTUAL EXPENDITURE AMOUNTS 679,500 544,849 1,588,000 4,190,700 7,992,100 3,187,100 2,310,300 2,941,100 100,500 5,192,100 150,000 3,311,400 5,949,400 1,473,000 4,175,367 7,726,313 2,426,587 1,450,955 2,548,440 100,500 3,388,146 19,186 1,988,333 4,648,978 11,333 2,124,600 11,333 1,844,291 2,183,800 1,690,405 2,074 906,600 2,074 659,323 577,300 526,754 266,500 640,400 52,434 5,627 1,806 330,100 790,000 653,200 1,806 273,297 772,025 529,847 1,139,815,433 $ 1,022,177,836 STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES LAND ENDOWMENTS FUND FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Dollars) FINAL BUDGET (Appropriations) CORRECTIONS, STATE DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION PRIVATE PRISON PER DIEM DEAF AND BLIND, ARIZONA SCHOOLS FOR THE PHOENIX DAY SCHOOL FOR THE DEAF PRESCHOOL AND OUTREACH PROGRAMS TUCSON CAMPUS EDUCATION, DEPARTMENT OF BASIC STATE AID ENTITLEMENT HEALTH SERVICES, DEPARTMENT OF ARIZONA STATE HOSPITAL - OPERATING JUVENILE CORRECTIONS, DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION LAND DEPARTMENT, STATE ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION SCANNING AND DIGITIZING TRUST RECORDS PIONEERS' HOME, ARIZONA ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION PRESCRIPTION DRUGS $ TOTAL LAND ENDOWMENTS FUNDS BUDGETARY EXPENDITURES $ -186 - 360,000 979,200 ACTUAL EXPENDITURE AMOUNTS $ 338,794 979,200 5,851,372 2,736,332 4,002,496 5,701,876 1,819,908 3,938,884 46,475,500 46,475,500 650,000 585,044 1,098,600 549,300 7,813 3,662,500 1,200,000 7,813 2,849,909 1,006,216 52,057 4,458,100 200,000 52,057 4,233,084 113,741 71,733,970 $ 68,651,326 NON-MAJOR GOVERNMENTAL FUNDS DEBT SERVICE FUNDS The Lottery Fund administers the payment of principal and interest on the Lottery Revenue Bonds issued by the State of Arizona (acting by and through the Director of the Department of Administration). The Department of Transportation Fund administers the payment of principal and interest on the Highway Revenue Bonds, Transportation Excise Tax Revenue Bonds, and Grant Anticipation Notes issued by the Arizona Department of Transportation Board. The Certificates of Participation Fund administers the payment of principal and interest on the certificates of participation issued by the State of Arizona (acting by and through the Director of the Department of Administration) and the retirement of previously issued certificates of participation. 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 and the retirement of previously issued revenue bonds. STATE OF ARIZONA COMBINING BALANCE SHEET NON-MAJOR DEBT SERVICE FUNDS JUNE 30, 2015 (Expressed in Thousands) LOTTERY ASSETS Cash and pooled investments with State Treasurer Interest receivable Due from other Funds Restricted assets: Cash and pooled investments with State Treasurer Cash held by trustee Total Assets $ 3,751 DEPARTMENT OF TRANSPORTATION CERTIFICATES OF PARTICIPATION $ $ 68 - - 88 - 1,234 - SCHOOL FACILITIES DEBT INSTRUMENT $ 317 TOTAL 535 21 - $ 35,207 16,445 1,769 89 3,751 35,295 16,762 $ 3,751 $ 156 $ 1,551 $ 52,208 $ 57,666 $ - $ 20 20 $ 237 237 $ - $ 20 237 257 Fund Balances: Restricted $ 3,751 $ 136 $ 1,314 $ 52,208 $ 57,409 Total Liabilities and Fund Balances $ 3,751 $ 156 $ 1,551 $ 52,208 $ 57,666 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and other current liabilities Accrued liabilities Total Liabilities - 188 - STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR DEBT SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) DEPARTMENT OF CERTIFICATES OF TRANSPORTATION PARTICIPATION LOTTERY REVENUES Sales taxes Earnings on investments Other Total Revenues $ EXPENDITURES Debt service: Principal Interest and other fiscal charges Total Expenditures (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers in Refunding bonds issued Payment to refunded bond escrow agent Premium on debt issued Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ SCHOOL FACILITIES DEBT INSTRUMENT - $ 686 686 $ 58 58 $ 56,082 1,106 57,188 TOTAL $ 56,082 1,792 58 57,932 18,305 19,194 37,499 185,640 123,525 309,165 54,880 55,860 110,740 77,300 10,191 87,491 336,125 208,770 544,895 (37,499) (308,479) (110,682) (30,303) (486,963) 37,500 37,500 1 3,750 305,410 754,285 (900,813) 149,554 308,436 (43) 179 111,165 111,165 483 831 29,929 29,929 (374) 52,582 484,004 754,285 (900,813) 149,554 487,030 67 57,342 3,751 $ 136 - 189 - $ 1,314 $ 52,208 $ 57,409 NON-MAJOR GOVERNMENTAL FUND CAPITAL PROJECTS FUND The Department of Transportation Financed Fund administers the proceeds from the Highway Revenue Bonds, Transportation Excise Tax Revenue Bonds, and Grant Anticipation Notes issued by the Arizona Department of Transportation Board. These monies are expended for the construction of projects in the Five-Year Transportation Facilities Construction Program. STATE OF ARIZONA COMBINING BALANCE SHEET NON-MAJOR CAPITAL PROJECTS FUND JUNE 30, 2015 (Expressed in Thousands) DEPARTMENT OF TRANSPORTATION FINANCED ASSETS Interest receivable Restricted assets: Cash and pooled investments with State Treasurer Total Assets $ 98 210,128 $ 210,226 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and other current liabilities $ Accrued liabilities Total Liabilities 5,150 55 5,205 Fund Balances: Restricted Total Fund Balances $ 205,021 205,021 Total Fund Balances $ 210,226 - 192 - STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR CAPITAL PROJECTS FUND FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) DEPARTMENT OF TRANSPORTATION FINANCED REVENUES Earnings on investments Total Revenues $ EXPENDITURES Current: Transportation Capital outlay Total Expenditures (Deficiency) of Revenues Over Expenditures Fund Balances - Beginning Fund Balances - Ending 2,482 2,482 28,535 79,937 108,472 (105,990) 311,011 $ 205,021 - 193 - 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 Insurance Department Guaranty Funds pay for claims against insolvent insurance companies under certain property and casualty insurance contracts (also includes return of unearned premiums) and contractual obligations under certain life, annuity and disability insurance contracts. 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 Lottery Fund accounts for the revenues received from the sale of lottery tickets, the receipt of license fees, prize payments, operational expenses, including consulting, promotional, and advertising expenses, and transfers of monies to other state funds. 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. The Industrial Commission Special Fund accounts for the payment of workers’ compensation claims that are not covered by the Risk Management Division of the Department of Administration, private insurance carriers, and self-insured employers. The Unemployment Compensation Fund pays claims for unemployment to eligible recipients from employer contributions and reimbursements. The 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 50 or fewer employees and employees of political subdivisions. The Healthcare Group of Arizona processes premium billing, collections and fund disbursements, performs data analysis, and is responsible for the regulatory oversight of the health plans. The Other Enterprise Funds consist of the Veterans Administration Reimbursement Fund, the State Home for Veterans Trust Fund, and the Tonto Natural Bridge Publications and Souvenirs Revolving Fund. STATE OF ARIZONA COMBINING STATEMENT OF NET POSITION NON-MAJOR ENTERPRISE FUNDS JUNE 30, 2015 (Expressed in Thousands) 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 Other Due from U.S. Government Due from other Funds Inventories, at cost Other current assets Total Current Assets Noncurrent Assets: Investments Other noncurrent assets Capital assets: Land and other non-depreciable Buildings, equipment, and other depreciable, net of accumulated depreciation Total Noncurrent Assets Total Assets DEFERRED OUTFLOWS OF RESOURCES Related to pensions INSURANCE ARIZONA ARIZONA ARIZONA DEPARTMENT INDUSTRIES CORRECTIONAL HIGHWAYS GUARANTY FUNDS FOR THE BLIND INDUSTRIES MAGAZINE $ 457 - $ 3,111 - LOTTERY $ - $ 274 - $ - 133 2,579 42,547 7,072 3,609 - - - - - 272,842 - - - - 273,432 1 973 73 8 2,267 128 9,140 8,558 4,785 55,890 6,351 4,471 50 18,218 204 62 308 435 4,618 10,412 - - - - - - 9,859 - - - 182 938 705 8 10,412 283,844 1,483 1,665 10,805 2,514 13,311 69,201 3,584 4,289 22,507 10 18 4,636 - 872 740 933 227 - 196 - HIGHWAY $ COLISEUM & INDUSTRIAL EXPOSITION COMMISSION CENTER SPECIAL FUND 60 3,380 $ 32,538 2,473 EXPANSION HEALTHCARE UNEMPLOYMENT & EXTENSION GROUP OF COMPENSATION LOAN PROGRAM ARIZONA $ 135,098 $ - - - $ OTHER - $ TOTAL 6,598 $ 36,440 135,098 68,391 - - - 78,733 - - 78,733 - 24,339 - - 1,900 - - - 26,239 272,842 3 3,443 1,912 1,568 1,177 64,007 93,893 13,847 242,838 37 80,670 - 2 2,854 115 9,569 95,805 1,571 34,004 73 185 11,831 613 761,825 - 256,005 - - - - 266,417 - - - - - - 9,859 70 2,996 - - - 980 5,879 8,784 8,854 12,297 8,581 267,582 331,589 242,838 80,670 - 6,603 7,583 17,152 31,559 313,714 1,075,539 479 - - - - 4,281 7,532 (Continued) - 197 - STATE OF ARIZONA COMBINING STATEMENT OF NET POSITION NON-MAJOR ENTERPRISE FUNDS JUNE 30, 2015 (Expressed in Thousands) LIABILITIES Current Liabilities: Accounts payable and other current liabilities Payable for securities purchased Accrued liabilities Obligations under securities loan agreements Tax refunds payable Due to U.S. Government Due to others Due to component units Due to other Funds Unearned revenue Current portion of accrued insurance losses Current portion of other long-term liabilities Total Current Liabilities INSURANCE ARIZONA ARIZONA ARIZONA DEPARTMENT INDUSTRIES CORRECTIONAL HIGHWAYS GUARANTY FUNDS FOR THE BLIND INDUSTRIES MAGAZINE $ Noncurrent Liabilities: Accrued insurance losses Net pension liability Other long-term liabilities Total Noncurrent Liabilities Total Liabilities DEFERRED INFLOWS OF RESOURCES Related to pensions NET POSITION Net investment in capital assets Restricted for: Unemployment Compensation Loans and other financial assistance: Expendable Other Unrestricted Total Net Position $ 11,901 11,901 $ 430 245 101 223 999 LOTTERY $ 2,526 32,480 985 27,363 291 63,645 $ 2,290 426 527 3,243 $ 47 46 181 1,964 156 2,394 239,671 239,671 251,572 6,658 92 6,750 7,749 6,280 6,280 69,925 7,011 7,011 10,254 1,760 1,760 4,154 - 1,164 1,307 1,226 308 - 1,665 3,452 4,288 18 - - - - - 32,272 - 1,099 7,672 383 32,272 $ - 198 - 2,764 (4,743) $ (1,291) $ 11,960 $ 401 HIGHWAY $ $ COLISEUM & INDUSTRIAL EXPOSITION COMMISSION CENTER SPECIAL FUND 72 67 60 177 376 $ 4,366 1,592 24,339 900 56 68 15,187 46,508 EXPANSION HEALTHCARE UNEMPLOYMENT & EXTENSION GROUP OF COMPENSATION LOAN PROGRAM ARIZONA $ 5 31,460 83 13,187 433 45,168 $ 1,900 1,900 $ OTHER - $ TOTAL 413 505 492 1,410 $ 10,149 1,592 32,749 26,239 900 83 45,667 985 28,033 2,193 27,088 1,866 177,544 2,880 2,880 3,256 203,844 203,844 250,352 45,168 1,900 - 18,437 18,437 19,847 443,515 43,026 92 486,633 664,177 504 - - - - 3,224 7,733 8,854 11,577 - - - 7,583 37,437 - - 197,670 - - - 197,670 162 69,660 - 78,770 - - 9,016 $ 81,237 $ 197,670 $ 78,770 - 199 - $ - (9,221) $ (1,638) $ 78,770 32,272 65,012 411,161 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION NON-MAJOR ENTERPRISE FUNDS FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) OPERATING REVENUES Sales and charges for services Unemployment assessments Workers' compensation assessments Fines, forfeitures, and penalties Settlement income Other Total Operating Revenues INSURANCE ARIZONA ARIZONA ARIZONA DEPARTMENT INDUSTRIES CORRECTIONAL HIGHWAYS GUARANTY FUNDS FOR THE BLIND INDUSTRIES MAGAZINE $ OPERATING EXPENSES Cost of sales and benefits Personal services Contractual services Depreciation and amortization Insurance Other Total Operating Expenses Operating Income (Loss) 1,292 1,292 $ 12,926 457 75 200 13,658 (12,366) NON-OPERATING REVENUES (EXPENSES) Gain (loss) on sale of capital assets Investment income Other non-operating revenue Distributions Interest expense Other non-operating expense Total Non-Operating Revenues (Expenses) Income (Loss) Before Special Items, and Transfers 17,639 228 17,867 LOTTERY $ 8,621 6,155 2,231 343 928 18,278 (411) 260 (89) 171 $ 557,316 5,860 14,386 285 40 2,036 579,923 170,990 8 8 (12,195) 749,974 939 750,913 $ 4,428 644 5,072 33,206 4,471 719 38,396 3,797 2,461 1,699 480 5 91 4,736 336 16 24 40 25 25 156,114 3,837 361 (161,078) (1,000) 68 (14,944) (14,876) (403) 42,193 42,193 Special Items: Transfer of insolvent insurance carriers workers' compensation continuing benefit costs Transfers in Transfers out (241,491) 222,848 - Change in Net Position Total Net Position - Beginning, as restated Total Net Position - Ending - (30,838) 63,110 $ 32,272 (403) 3,167 $ - 200 - 2,764 (4,964) 3,673 $ (1,291) $ 361 40 2,837 9,123 11,960 $ 401 HIGHWAY $ COLISEUM & INDUSTRIAL EXPOSITION COMMISSION CENTER SPECIAL FUND 11,597 458 12,055 $ 1,577 4,504 3,868 643 276 1,547 12,415 (360) 10 10 (12) (758) 2,254 (3,764) (2,280) (350) 18,873 & EXTENSION GROUP OF COMPENSATION LOAN PROGRAM ARIZONA $ 81,237 $ - 144,225 140,085 57,585 197,670 $ OTHER - $ - TOTAL 32,483 57 32,540 $ 49 20,486 6,679 359 410 4,903 32,886 (346) 858,314 461,007 14,561 1,972 9,712 3,316 1,348,882 936,092 43,632 27,719 3,605 726 9,705 1,021,479 327,403 980 (43) 937 - 19 19 4 1,193 2,254 (14,944) (942) (3,896) (16,331) 937 - (327) 311,072 108 - 222,956 (396,327) (4,140) $ $ - 557 (942) (385) 37,516 43,721 $ 461,007 1,972 990 463,969 319,359 319,359 144,610 241,491 (222,848) (358) 9,374 9,016 HEALTHCARE UNEMPLOYMENT 577 1,251 1,828 21,153 (8) $ 14,561 8,420 22,981 EXPANSION - (7,253) 937 77,833 (7,253) 7,253 78,770 - 201 - $ - $ (219) (1,419) 137,701 273,460 (1,638) $ 411,161 STATE OF ARIZONA COMBINING STATEMENT OF CASH FLOWS NON-MAJOR ENTERPRISE FUNDS FOR THE YEAR ENDED JUNE 30, 2015 INSURANCE (Expressed in Thousands) DEPARTMENT GUARANTY FUNDS CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Receipts from assessments Receipts from settlement income Payments to suppliers, prize winners, claimants, or insurance companies Payments to employees Other receipts Other payments Net Cash Provided (Used) by Operating Activities $ 1,292 ARIZONA INDUSTRIES FOR THE BLIND $ 19,062 - (3,120) (457) (2,285) CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Transfers from other Funds Distributions Interest paid on loan due to U.S. Government Transfers to other Funds Net Cash Provided (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 Net Cash (Used) by Capital and Related Financing Activities $ 40,733 - (262,194) (6,013) 175,185 (16,581) (20,190) 3,962 $ 4,275 (3,013) (1,616) 645 291 (14,944) (162,694) (1,000) - 222,848 - (177,638) (1,000) - - (47) (38) 16 (1,022) - - (47) (38) (1,006) - 7 59 24 26 59 24 26 1,980 5,366 317 3,292 Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning (1,941) 2,531 1,515 4,175 SCHEDULE OF NONCASH INVESTING, CAPITAL AND NON-CAPITAL FINANCING ACTIVITIES (Loss) on disposal of capital assets, net (Decrease) in fair value of investments Total Noncash Investing, Capital and Non-capital Financing Activities 443,392 - - 7 Net Cash Provided (Used) by Operating Activities $ ARIZONA HIGHWAYS MAGAZINE 222,848 - (222,848) (222,504) 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 Provision for uncollectible accounts Miscellaneous income Net changes in assets, deferred outflows of resources, liabilities, and deferred inflows of resources: (Increase) decrease in receivables, net of allowances (Increase) in due from U.S. Government (Increase) decrease in due from other Funds (Increase) decrease in inventories, at cost (Increase) decrease in other assets (Increase) in deferred pension outflows of resources Increase (decrease) in accounts payable Increase (decrease) in accrued liabilities (Decrease) in due to U.S. Government Increase in due to other Funds (Decrease) in due to others Increase (decrease) in unearned revenue Increase (decrease) in accrued insurance losses Increase (decrease) in net pension liability Increase (decrease) in other liabilities Increase in deferred pension inflows of resources LOTTERY (8,533) (6,049) 233 (3,158) 1,555 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 Net Cash Provided (Used) by Investing Activities Cash and Cash Equivalents - Ending ARIZONA CORRECTIONAL INDUSTRIES 344 $ 590 $ $ (12,366) $ 5,690 - (2,432) 44,979 $ 42,547 $ 7,346 $ 3,609 (411) $ 170,990 $ 3,797 $ 336 285 - 343 - 719 40 - (935) 1,172 3 (331) (933) 4,702 (1,075) 1,307 5 - (2,839) 515 87 (477) 1,438 126 (723) 53 1,226 (77) (22) (134) (112) (5) 10 (76) (126) 184 308 10,081 - 1,355 (1) 1 106 (20) (438) 13 15 73 (665) 20 1,164 $ (2,285) $ 1,555 $ 175,185 $ 3,962 $ 291 $ - $ (311) - $ - $ - $ - $ (311) $ - $ - $ - $ - - 202 - COLISEUM & EXPOSITION CENTER $ $ $ INDUSTRIAL COMMISSION SPECIAL FUND 11,636 - $ UNEMPLOYMENT COMPENSATION 17,721 8,420 $ 461,604 - HIGHWAY EXPANSION & EXTENSION LOAN PROGRAM $ - HEALTHCARE GROUP OF ARIZONA $ - OTHER $ TOTAL 32,561 - $ 551,659 479,325 9,712 (7,130) (4,443) 458 521 (26,336) 2,254 2,059 (320,503) (9,689) 131,412 - (4) (4) (8) (222,848) (975) (4,140) - (7,253) 108 - 222,956 (14,944) (975) (397,943) (8) (222,848) (5,115) - (7,253) 108 (190,906) (12,094) (18,504) 57 2,020 (659,508) (57,272) 3,647 (12,847) 314,716 (245) - - - - (127) 16 (1,479) (245) - - - - (127) (1,463) 10 279,190 10,682 557 900 - 17 279,190 12,626 10 (20,561) (148,801) 120,510 557 1,900 2,800 - 17 (18,661) (371,649) (98,494) 278 3,162 (100,279) 159,629 126,854 8,244 2,800 77,833 3,440 (360) (7,257) 7,257 2,018 4,580 $ 59,350 $ 135,098 $ 80,633 $ - $ $ 21,153 $ 144,610 $ - $ - $ 643 - 1,251 74 62 116 (291) 22 (1) (23) (155) 4 504 2,269 943 56 (65) (23,622) - 83 (2,151) 2,585 (12,921) (794) - - - - (4) - $ 521 $ 2,059 $ 131,412 $ - $ $ - $ (12) (12,784) $ - $ - $ - $ - $ (12,796) $ - $ - $ - - 203 - 6,598 23,853 321,048 $ 344,901 (346) $ 327,403 359 - 3,605 40 157 92 (14) (3,079) (53) 72 1,801 (36) 3,224 (4) $ (2,224) (1) (13) 1,771 52 (4,728) 1,421 7,509 (12,921) 56 (794) (91) (13,541) (943) 225 7,733 2,020 $ 314,716 $ - $ (12) (13,095) $ - $ (13,107) 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 Telecommunication Fund receives monies from State agencies for services related to administering the State’s contracts for the installation and maintenance of telecommunications equipment through the Telecommunications Program Office. The Automation Operations Fund receives monies from State agencies for services related to the implementation and operation of automation programs throughout the State. The Retiree Accumulated Sick Leave Fund accounts for monies paid out to retirees for their accumulated sick leave. The Motor Pool Fund receives monies from State agencies for the use of State vehicles and uses these monies for operation of the State Motor Pool. STATE OF ARIZONA COMBINING STATEMENT OF NET POSITION INTERNAL SERVICE FUNDS JUNE 30, 2015 (Expressed in Thousands) ASSETS Current Assets: Cash and pooled investments with State Treasurer Receivables, net of allowances: Other Due from other Funds Inventories, at cost Other current assets Total Current Assets RISK TRANSPORTATION EMPLOYEE TELE- MANAGEMENT EQUIPMENT BENEFITS COMMUNICATION $ 84,086 $ 1,465 $ 339,801 $ 523 1 3,962 88,049 6 35 2,680 4,186 5,600 10,061 355,462 149 672 - - - - 66 66 88,115 66,154 66,154 70,340 16 16 355,478 672 DEFERRED OUTFLOWS OF RESOURCES Related to pensions 2,180 1,865 494 196 LIABILITIES Current Liabilities: Accounts payable and other current liabilities Accrued liabilities Due to other Funds Unearned revenue Current portion of accrued insurance losses 5,320 338 7,800 60,177 742 375 32 - 121,067 61 - 25 - 707 74,342 745 1,894 150 121,278 58 83 397,212 14,390 14,017 2,971 1,043 411,602 485,944 14,017 15,911 2,971 124,249 1,043 1,126 2,516 2,451 520 182 Noncurrent Assets: Capital assets: Land and other non-depreciable Buildings, equipment, and other depreciable, net of accumulated depreciation Total Noncurrent Assets Total Assets Current portion of long-term debt Current portion of other long-term liabilities Total Current Liabilities Noncurrent Liabilities: Accrued insurance losses Net pension liability Long-term debt Other long-term liabilities Total Noncurrent Liabilities Total Liabilities DEFERRED INFLOWS OF RESOURCES Related to pensions NET POSITION Net investment in capital assets Unrestricted (deficit) Total Net Position 66 (398,231) $ (398,165) 66,154 (12,311) $ 53,843 - 206 - 16 231,187 $ 231,203 (440) $ (440) $ AUTOMATION RETIREE MOTOR OPERATIONS SICK LEAVE POOL 11,403 $ $ 2,406 $ 443,889 928 1,873 1,919 16,123 4,205 542 304 35 16 3,303 7,226 2,212 2,715 15,958 472,000 11 - - 11 6,196 6,207 22,330 4,205 12,408 12,408 15,711 84,840 84,851 556,851 1,665 - 166 6,566 96 193 - - 493 17 - 127,718 1,009 7,800 32 60,177 876 474 1,639 9,179 9,179 452 43 1,005 1,328 11,356 209,420 9,599 - 1,003 397,212 43,023 3,211 12,810 14,449 149,354 149,354 158,533 1,404 2,407 3,412 4,615 149,354 594,204 803,624 1,679 - 175 7,523 6,207 1,660 $ 4,205 TOTAL 7,867 (154,328) $ (154,328) 12,408 (118) $ 12,290 84,851 (332,581) $ (247,730) - 207 - STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION INTERNAL SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) OPERATING REVENUES Sales and charges for services Other Total Operating Revenues RISK TRANSPORTATION EMPLOYEE TELE- MANAGEMENT EQUIPMENT BENEFITS COMMUNICATION $ OPERATING EXPENSES Cost of sales and benefits Personal services Contractual services Depreciation and amortization Insurance Other Total Operating Expenses Operating Income (Loss) NON-OPERATING REVENUES (EXPENSES) Gain on sale of capital assets Investment income Other non-operating revenue Other non-operating expense Total Non-Operating Revenues (Expenses) Income (Loss) Before Contributions and Transfers Capital grants and contributions Transfers out Change in Net Position Total Net Position - Beginning, as restated Total Net Position - Ending $ 103,302 1 103,303 $ 24,341 37 24,378 $ 843,069 843,069 $ 1,637 1,637 12,959 18,785 35 83,874 1,412 117,065 (13,762) 9,420 13,567 234 10,489 4,819 38,529 (14,151) 742,611 2,159 1,341 7 7,790 652 754,560 88,509 (14,709) (14,709) 1,223 4 385 1,612 (14,403) (14,403) 6 6 (28,471) (1,775) (12,539) 10,927 - 74,106 (54,170) (85) (41) (30,246) (367,919) (1,612) 55,455 19,936 211,267 (126) (314) (398,165) $ 53,843 - 208 - $ 231,203 2 960 239 52 20 455 1,728 (91) $ (440) $ AUTOMATION RETIREE MOTOR OPERATIONS SICK LEAVE POOL 29,636 29,636 $ 10,465 8,218 1,937 1,812 370 446 23,248 6,388 $ 13,984 68 4 14,056 (388) 11 11 $ 13,668 13,668 - TOTAL 8,662 25 8,687 780,854 38,710 22,682 14,692 92,565 8,980 958,483 65,895 583 583 1,240 4 968 (29,112) (26,900) (27) 405 (2) 38,995 11,343 (65,684) (388) - (3,286) 11,153 (388) (153,940) 376 11,914 (154,328) $ 12,290 $ 1,024,315 63 1,024,378 4,372 779 142 2,297 511 1,196 9,297 (610) 6,399 11 (9,696) 7,867 $ (15,346) (232,384) $ (247,730) - 209 - STATE OF ARIZONA COMBINING STATEMENT OF CASH FLOWS INTERNAL SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) CASH FLOWS FROM OPERATING ACTIVITIES Receipts from interfund services / premiums Payments to suppliers or insurance companies Payments to employees Payments to retirees Other receipts Other payments Net Cash Provided (Used) by Operating Activities RISK MANAGEMENT $ CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Transfers to other Funds Net Cash (Used) by Non-capital Financing Activities TRANSPORTATION EQUIPMENT 103,346 $ (64,799) (12,163) 1 (14,709) 11,676 (1,775) (1,775) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from sale of capital assets Proceeds from capital debt, installment purchase contracts, and capital leases Receipts from insurance recoveries 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 Net Cash Provided (Used) by Capital and Related Financing Activities EMPLOYEE BENEFITS 24,334 $ (13,281) (12,943) 37 (1,853) - - 850,707 $ (773,483) (2,411) (14,403) 60,410 (54,170) (54,170) 2,010 (8) TELECOMMUNICATION 385 (56) 6 - - - - - - - - - - 2,339 - 6 - (8) - 4 4 - Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning 9,893 74,193 490 975 6,240 333,561 Reconciliation of operating income (loss) to net cash provided (used) by operating activities: Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation and amortization Miscellaneous income (expense) Net changes in assets, deferred outflows of resources, liabilities, and deferred inflows of resources: (Increase) decrease in receivables, net of allowances Decrease in due from U.S. Government Decrease in due from other Funds Decrease in inventories, at cost (Increase) decrease in other assets (Increase) in deferred pension outflows of resources Increase (decrease) in accounts payable Increase (decrease) in accrued liabilities Increase (decrease) in due to other Funds Increase in accrued insurance losses Increase in unearned revenue (Decrease) in net pension liability Increase (decrease) in other liabilities Increase in deferred pension inflows of resources Net Cash Provided (Used) by Operating Activities SCHEDULE OF NONCASH INVESTING, CAPITAL AND NON-CAPITAL FINANCING ACTIVITIES Acquisition of capital assets through capital leases Contribution of capital assets from other Funds Total Noncash Investing, Capital and Non-capital Financing Activities $ $ (41) (41) - CASH FLOWS FROM INVESTING ACTIVITIES Interest and dividends from investments Net Cash Provided by Investing Activities Cash and Cash Equivalents - Ending 1,637 (942) (1,031) (336) 84,086 $ (13,762) $ 1,465 $ 339,801 $ 523 (14,151) $ 88,509 $ (91) 10,489 - 35 (14,709) 39 5 240 (1,242) 3,179 57 7,793 28,060 (537) 2 2,516 (41) 442 (951) 751 62 32 (883) (54) 2,451 $ 11,676 $ (1,853) $ $ - $ 10,927 $ - $ 10,927 - 210 - (371) 894 7 (14,403) 52 - 4,037 3,600 1 (10,053) (300) (11,029) 8 (7) (470) (10) 520 (128) (226) (117) (8) 182 60,410 $ (336) $ - $ - $ - $ - AUTOMATION OPERATIONS $ RETIREE SICK LEAVE 29,960 $ (14,223) (7,855) 7,882 (9,696) (9,696) MOTOR POOL 13,668 $ (4) (68) (12,194) 1,402 - 371 8,911 $ (6,258) (702) 608 2,559 (2) (2) - 3,211 (4,413) TOTAL 1,032,563 (872,990) (37,173) (12,194) 646 (29,112) 81,740 (65,684) (65,684) 582 2,969 - 2,300 (3,164) 5,511 385 (7,641) - - (37) (37) - - (444) (444) - (763) 743 (831) (2,645) 14,048 $ 11,403 $ $ 6,388 $ 1,812 - - - 4 4 1,402 2,803 1,794 612 16,803 427,086 4,205 $ (388) $ - 42 282 (612) (1,039) (1,269) (1) 876 (271) (5) 1,679 2,406 $ 443,889 (610) $ 65,895 2,297 620 1,790 - 14,692 (28,492) (117) 366 16 (1) (101) (89) 2 1 175 3,960 3,600 654 458 (10,426) (3,761) (8,683) 128 7,786 28,060 908 (2,278) 1,716 7,523 $ 7,882 $ 1,402 $ 2,559 $ 81,740 $ 3,211 11 $ - $ 2,300 405 $ 5,511 11,343 $ 3,222 $ - $ 2,705 $ 16,854 - 211 - PENSION AND OTHER EMPLOYEE BENEFIT 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 (ASRS) 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 (PSPRS) 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 (EORP) 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 (CORP) 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. The Administrative Office of the Courts Probation Officers (AOC) is a cost-sharing, multipleemployer pension plan within CORP that benefits county probation officers. Other Employee Benefit Trust Funds account for health insurance premium subsidies paid by the ASRS, PSPRS, EORP, CORP, and AOC, as well as long-term disability benefits paid by the ASRS to State employees and employees of other governmental entities participating in the plans. The ASRS Health Benefit Supplement Fund is a benefit cost-sharing, multiple-employer postemployment benefit plan that provides for health insurance premium subsidies to eligible retired and disabled members. The ASRS Long-Term Disability Fund is a benefit cost-sharing, multiple-employer post-employment benefit plan that provides for long term disability benefits to eligible participants. The PSPRS Health Benefit Supplement Fund is a benefit agent multiple-employer post-employment benefit plan that provides for health insurance premium subsidies to eligible retired and disabled members. The EORP Health Benefit Supplement Fund is a benefit cost-sharing, multiple-employer postemployment benefit plan that provides for health insurance premium subsidies to eligible retired and disabled members. The CORP Health Benefit Supplement Fund is a benefit agent multiple-employer post-employment benefit plan that provides for health insurance premium subsidies to eligible retired and disabled members. The AOC Health Benefit Supplement Fund is a benefit cost-sharing, multiple-employer postemployment benefit plan that provides for health insurance premium subsidies to eligible retired and disabled members. STATE OF ARIZONA COMBINING STATEMENT OF FIDUCIARY NET POSITION PENSION AND OTHER EMPLOYEE BENEFIT TRUST FUNDS JUNE 30, 2015 (Expressed in Thousands) PENSION TRUST FUNDS ASRS ASSETS Cash $ Receivables, net of allowances: Accrued interest and dividends Securities sold Forward contracts receivable Contributions Court fees Due from other Funds Other Total receivables Investments, at fair value: Temporary investments Fixed income securities Corporate stocks Global tactical asset allocation Real assets Real estate Private equity Opportunistic investments Collateral investment pool Other investments Total investments Property and equipment, net of accumulated depreciation Total Assets DEFERRED OUTFLOWS OF RESOURCES Related to pensions LIABILITIES Accounts payable and other current liabilities Payable for securities purchased Obligation under securities loan agreements Forward contracts payable Due to other Funds Net pension liability Total Liabilities DEFERRED INFLOWS OF RESOURCES Related to pensions NET POSITION Restricted for: Pension benefits Other post-employment benefits Total Net Position $ PSPRS 8,646 $ 286,022 EORP $ CORP 14,883 $ AOC 58,055 $ 16,097 54,426 115,599 14,303 64,896 2,753 451 5,614 12,937 20,192 7,734 285 657 646 685 1,032 1,122 2,585 1,158 82 311 715 866 23 252,428 46,477 3,305 4,947 1,915 1,292,130 7,368,913 20,552,820 1,524,346 2,272,272 301,892 458,998 458,751 1,760,595 588,714 482,784 600,256 868,628 530,832 248,113 472,269 23,302 89,427 29,903 24,522 30,489 44,121 26,963 12,603 23,988 91,668 351,804 117,638 96,470 119,944 173,570 106,072 49,478 94,371 25,370 97,364 32,557 26,699 33,195 48,037 29,356 13,821 26,116 33,771,371 6,010,942 305,318 1,201,015 332,515 - 3,387 230 478 132 34,032,445 6,346,828 323,736 1,264,495 350,659 - 549 28 111 32 30,981 33,625 1,316 16,869 1,360 857 5,025 3,371 1,421 933 301,892 7,170 13,131 - 248,113 4,448 12,603 231 49,578 899 13,721 257 386,799 270,746 15,051 58,873 16,332 - 862 45 174 50 33,645,646 - 6,075,769 - 308,668 - 1,205,559 - 334,309 - 33,645,646 $ 6,075,769 $ - 214 - 308,668 $ 1,205,559 $ 334,309 OTHER EMPLOYEE BENEFIT TRUST FUNDS ASRS ASRS PSPRS EORP CORP AOC HEALTH BENEFIT LONG-TERM HEALTH BENEFIT HEALTH BENEFIT HEALTH BENEFIT HEALTH BENEFIT SUPPLEMENT FUND DISABILITY FUND SUPPLEMENT FUND SUPPLEMENT FUND SUPPLEMENT FUND SUPPLEMENT FUND $ $ $ 243 $ - 14,417 $ 1,058 $ 4,755 $ 354 TOTAL $ 404,530 2,374 4,846 619 1,075 7,627 31,510 436 2,751 4,620 279 659 727 7 21 48 - 92 217 56 2 7 16 47 - 64,531 138,279 14,922 90,099 3,436 10,380 45,461 48,051 7,807 1,672 69 367 70 367,108 124,018 323,196 895,099 63,727 101,930 12,838 20,043 1,623 50,603 162,390 19,511 5,584 23,360 89,651 29,978 24,584 30,566 44,231 27,030 12,634 24,048 1,714 6,579 2,200 1,804 2,243 3,246 1,984 927 1,764 7,704 29,568 9,887 8,108 10,081 14,588 8,915 4,167 7,931 574 2,204 737 604 751 1,087 664 311 593 1,417,771 8,375,155 24,037,501 2,399,687 665,575 3,221,238 1,197,508 731,816 656,784 1,135,705 1,540,851 239,711 306,082 22,461 100,949 7,525 43,838,740 - - - - - - 4,227 1,589,145 247,518 322,171 23,588 106,071 7,949 44,614,605 - - - - - - 720 1,303 1,394 245 - 859 63 283 21 41,651 58,275 12,838 315 - - 12,634 - 927 - 4,167 - 311 - 656,784 7,485 13,131 5,835 15,850 245 13,493 990 4,450 332 783,161 - - - - - - 1,131 1,573,295 247,273 308,678 22,598 101,621 7,617 41,569,951 2,261,082 1,573,295 $ 247,273 $ 308,678 $ 22,598 - 215 - $ 101,621 $ 7,617 $ 43,831,033 STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET POSITION PENSION AND OTHER EMPLOYEE BENEFIT TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) PENSION TRUST FUNDS ASRS ADDITIONS: Member contributions Employer contributions Non-employer entity contributions Member purchase of service credit Court fees $ PSPRS 1,031,954 1,004,747 19,673 - $ 154,359 448,098 10,433 - EORP $ CORP 8,472 15,431 5,000 642 8,286 $ AOC 42,817 66,017 479 - $ 9,303 16,561 311 - Investment income: Net increase in fair value of investments Interest income Dividends 524,148 150,759 298,127 178,078 3,945 39,658 9,064 203 2,035 35,737 788 7,931 9,747 215 2,163 Other investment income 22,794 89,759 4,624 17,893 4,879 7,091 1,002,919 2,085 313,525 107 16,033 417 62,766 114 17,118 152,846 913 849,160 96,928 312 216,285 4,943 16 11,074 19,423 62 43,281 5,297 17 11,804 1,029 365 633 24 155 2,906,563 829,540 49,538 152,618 38,134 2,671,496 - 665,138 - 54,453 - 97,252 - 19,131 - 255,606 26,400 1,120 13,898 5,387 23 173 298 - 26,757 1,086 704 1,632 293 19 2,954,622 684,446 54,924 125,799 21,075 26,819 1,178,740 17,059 317,250 Securities lending income Total investment income Less investment expenses: Investment activity expenses Securities lending expenses Net investment income Other additions Total Additions DEDUCTIONS: Retirement, disability, and survivor benefits Health insurance subsidy Refunds to withdrawing members, including interest Administrative expense Other deductions Total Deductions Change in net position restricted for: Pension benefits Other post-employment benefits Net Position - Beginning, as restated Net Position - Ending (48,059) 33,693,705 $ 33,645,646 145,094 5,930,675 $ 6,075,769 (5,386) 314,054 $ - 216 - 308,668 $ 1,205,559 $ 334,309 OTHER EMPLOYEE BENEFIT TRUST FUNDS ASRS ASRS PSPRS EORP CORP AOC HEALTH BENEFIT LONG-TERM HEALTH BENEFIT HEALTH BENEFIT HEALTH BENEFIT HEALTH BENEFIT SUPPLEMENT FUND DISABILITY FUND $ 53,586 - $ $ 21,481 - $ - $ 6,209 - $ 1,378 - TOTAL $ 1,257,630 1,644,407 5,000 31,538 8,286 25,229 6,433 12,665 3,991 - 8,901 197 1,982 658 15 148 2,942 65 653 207 5 46 798,702 162,625 365,408 972 - 4,486 335 1,473 104 147,319 302 45,601 3,991 104 15,670 8 1,164 34 5,167 2 364 10,264 1,484,318 6,540 39 39,022 269 3,722 4,845 15 10,810 359 1 804 1,599 5 3,563 113 251 293,162 1,380 1,189,776 31,507 - - - - - 33,713 124,115 25,346 32,291 804 9,772 1,629 4,170,350 105,913 - 61,045 - 14,242 957 3,074 318 3,674,428 18,591 1,149 - 2,287 257 268 - 22 - 89 - 6 - 298,066 37,285 2,123 107,062 63,589 14,510 979 3,163 324 4,030,493 (38,243) 285,516 17,781 290,897 6,609 95,012 1,305 6,312 135,527 4,330 43,691,176 17,053 1,556,242 $ 10,725 10,899 - SUPPLEMENT FUND SUPPLEMENT FUND SUPPLEMENT FUND SUPPLEMENT FUND 1,573,295 $ 247,273 $ 308,678 (175) 22,773 $ 22,598 - 217 - $ 101,621 $ 7,617 $ 43,831,033 INVESTMENT TRUST FUNDS Investment Trust Funds account for assets held by the State Treasurer in a trustee capacity for local governments and political subdivisions of the State of Arizona which have elected to invest cash with the State Treasurer’s Office. Central Arizona Water Conservation District is an Investment Trust Account composed of corporate debt, money market mutual funds, 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, money market mutual funds, certificates of deposit, repurchase agreements, and United States Government securities. Local Government Investment Pool – Medium-Term is an Investment Trust Account for participants who want to invest their monies for a longer time period composed of corporate notes, money market mutual funds, certificates of deposit, repurchase agreements, and United States Government securities. Local Government Investment Pool – FF&C is an Investment Trust Account composed of corporate notes, 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. Local Government Investment Pool – Medium-Term FF&C is an Investment Trust Account for participants who want to invest their monies for a longer time period composed of corporate notes, money market mutual funds, certificates of deposit, 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. Lehman Brothers Pool is an Investment Trust Account composed of the Local Government Investment Pool’s share of the Lehman Brothers bond value that was transferred to this pool due to Lehman Brothers filing for Chapter 11 bankruptcy. The transfer was made to provide for the decline in fair value of the Lehman Brothers securities held by the Local Government Investment Pool. STATE OF ARIZONA COMBINING STATEMENT OF FIDUCIARY NET POSITION INVESTMENT TRUST FUNDS JUNE 30, 2015 (Expressed in Thousands) LOCAL CENTRAL ASSETS Cash and pooled investments with State Treasurer LOCAL LOCAL GOVERNMENT ARIZONA LOCAL WATER GOVERNMENT INVESTMENT INVESTMENT POOL - CONSERVATION INVESTMENT POOL - POOL - MEDIUM-TERM DISTRICT POOL FF&C FF&C $ Receivables, net of allowances: Accrued interest and dividends - $ GOVERNMENT GOVERNMENT MEDIUM-TERM 573 $ - $ 40 INVESTMENT $ - 884 168 602 1,112 407 Investments, at fair value: Fixed income securities Collateral investment pool Total investments 309,553 5,041 314,594 1,052,828 101 1,052,929 252,573 14,344 266,917 1,061,893 1,061,893 134,065 134,065 Total Assets 315,478 1,053,670 267,519 1,063,045 134,472 14 60 11 50 6 5,041 101 14,344 - - 5,055 161 14,355 50 6 LIABILITIES Management fee payable Obligations under securities loan agreements Total Liabilities NET POSITION Held in trust for pool participants $ Net position consist of: Participant shares outstanding Participants' net position value (net position/shares outstanding) 310,423 $ 308,970 $ 1.00 1,053,509 $ 1,053,509 $ 1.00 - 220 - 253,164 $ 245,219 $ 1.03 1,062,995 $ 1,062,995 $ 1.00 134,466 133,390 $ 1.01 LEHMAN BROTHERS POOL $ $ TOTAL - 613 - 3,173 2,237 2,237 2,813,149 19,486 2,832,635 2,237 2,836,421 - 141 - 19,486 - 19,627 2,237 21,180 $ $ $ 2,816,794 2,825,263 0.11 - 221 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET POSITION INVESTMENT TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) LOCAL LOCAL ADDITIONS: Investment income: Net increase (decrease) in fair value of investments Interest income Securities lending income Total investment income $ GOVERNMENT CENTRAL LOCAL GOVERNMENT LOCAL ARIZONA WATER GOVERNMENT INVESTMENT GOVERNMENT POOL - CONSERVATION INVESTMENT POOL - INVESTMENT MEDIUM-TERM DISTRICT POOL MEDIUM-TERM POOL - FF&C FF&C (1,369) $ 5,097 21 3,749 3 1,993 1 1,997 $ (754) $ 3,388 26 2,660 INVESTMENT 45 1,216 3 1,264 $ (488) 1,903 1,415 Less: Investment activity expenses Securities lending expenses Net investment income Capital share and individual account transactions: Shares sold Reinvested interest income Shares redeemed Transfers in (out) Net capital share and individual account transactions 655 143 523 76 15 3,567 1 1,341 21 2,496 2 739 1,339 26,321 5,011 (23,114) - Total Additions DEDUCTIONS: Dividends to investors Total Deductions Change in net position held in trust for pool participants Net Position - Beginning Net Position - Ending 167 2,478,513 1,331 (2,509,229) 2,555 17,581 2,695 (21,921) - 8,218 (26,830) (1,645) 11,785 (25,489) 3,567 3,567 8,218 302,205 $ 310,423 7,895 1,200 (39,835) - 125,819 (30,740) 851 126,558 (29,401) 1,341 2,496 739 1,339 1,341 2,496 739 1,339 (26,830) 1,080,339 $ 1,624,868 706 (1,499,755) - 1,053,509 - 222 - (1,645) 254,809 $ 253,164 125,819 937,176 $ 1,062,995 (30,740) 165,206 $ 134,466 LEHMAN BROTHERS POOL $ TOTAL 317 317 $ - 1,564 317 39 9,799 (2,555) 4,155,178 10,943 (4,093,854) - (2,555) 72,267 (2,238) 82,066 - 9,482 - 9,482 (2,238) 4,475 $ (2,246) 13,597 51 11,402 2,237 72,584 2,744,210 $ 2,816,794 - 223 - AGENCY FUNDS Agency Funds account for the receipt and disbursement of various taxes, deposits, deductions, 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 that are required to be made by other governmental units or organizations with the State Treasurer. The Other Funds consist 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, 2015 (Expressed in Thousands) TREASURER CUSTODIAL SECURITIES FUND ASSETS Cash Cash and pooled investments with State Treasurer Collateral investment pool Short-term investments Receivables, net of allowances: Accrued interest Due from others Custodial securities in safekeeping Other assets Total Assets LIABILITIES Obligation under securities loan agreements Due to local governments Due to others Total Liabilities $ - OTHER TREASURER FUNDS $ OTHER FUNDS - $ 19,143 TOTAL $ 19,143 - 15,628 - 90,316 1,572 6,258 105,944 1,572 6,258 3,965,606 - 5 - 38 83,132 5,993 1,649 43 83,132 3,971,599 1,649 $ 3,965,606 $ 15,633 $ 208,101 $ 4,189,340 $ 3,965,606 $ 4,221 11,412 $ 1,572 11,221 195,308 $ 1,572 15,442 4,172,326 $ 3,965,606 $ 15,633 $ 208,101 $ 4,189,340 - 227 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUNDS FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) RESTATED BALANCE JULY 1, 2014 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 ADDITIONS BALANCE JUNE 30, 2015 DELETIONS $ 3,805,147 $ 1,009,328 $ 848,869 $ 3,965,606 $ 3,805,147 $ 1,009,328 $ 848,869 $ 3,965,606 $ 3,805,147 $ 1,009,328 $ 848,869 $ 3,965,606 $ 3,805,147 $ 1,009,328 $ 848,869 $ 3,965,606 $ 11,685 $ 92,631 $ 88,688 $ 15,628 Receivables, net of allowances: Accrued interest - 5 5 - Total Assets $ 11,685 $ 92,636 $ 88,688 $ 15,633 Liabilities: Due to local governments Due to others $ 48 11,637 $ 83,686 19,252 $ 79,513 19,477 $ 4,221 11,412 $ 11,685 $ 102,938 $ 98,990 $ 15,633 $ 22,851 58,195 $ 759,699 265,338 $ 763,407 233,217 $ 19,143 90,316 Total Liabilities OTHER FUNDS Assets: Cash Cash and pooled investments with State Treasurer Collateral investment pool Short-term investments Receivables, net of allowances: Accrued interest Other Due from others Custodial securities in safekeeping Other assets Total Assets $ 8,236 1,572 6,258 8,236 1,572 6,258 1 2 82,589 5,697 1,658 37 83,132 5,993 1,649 2 82,589 5,697 1,658 38 83,132 5,993 1,649 179,229 $ - $ 1,123,678 $ 1,572 $ 1,094,806 $ - $ 208,101 Liabilities: Obligation under securities loan agreements $ Due to local governments Due to others Total Liabilities $ 1,572 964 81,225 70,968 11,221 178,265 1,050,480 1,033,437 195,308 179,229 $ 1,133,277 $ 1,104,405 $ 208,101 (Continued) - 228 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUNDS FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) RESTATED BALANCE JULY 1, 2014 COMBINED TOTAL ALL AGENCY FUNDS Assets: Cash Cash and pooled investments with State Treasurer Collateral investment pool Short-term investments Receivables, net of allowances: Accrued interest Other Due from others Custodial securities in safekeeping Other assets Total Assets $ 22,851 69,880 8,236 ADDITIONS $ 1 2 82,589 3,810,844 1,658 759,699 357,969 1,572 6,258 BALANCE JUNE 30, 2015 DELETIONS $ 42 83,132 1,015,321 1,649 763,407 321,905 8,236 $ 2 82,589 854,566 1,658 19,143 105,944 1,572 6,258 43 83,132 3,971,599 1,649 $ 3,996,061 $ 2,225,642 $ 2,032,363 $ 4,189,340 loan agreements Due to local governments Due to others $ 1,012 3,995,049 $ 1,572 164,911 2,079,060 $ 150,481 1,901,783 $ 1,572 15,442 4,172,326 Total Liabilities $ 3,996,061 $ 2,245,543 $ 2,052,264 $ 4,189,340 Liabilities: Obligation under securities - 229 - NON-MAJOR COMPONENT UNITS Component units are legally separate entities for which the State is considered to be financially accountable. 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. The Arizona Power Authority 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 Rio Nuevo Multipurpose Facilities District (Rio Nuevo) utilizes tax incremental financing to help develop multipurpose facilities in the downtown Tucson area. The Greater Arizona Development Authority provides cost-effective access to capital for local communities, certain special districts, and tribal governments for public infrastructure projects. The Arizona Commerce Authority is charged with the following responsibilities: job creation and expansion of capital investment through business attraction, expansion and retention, including business incubation and entrepreneurship; creation, monitoring, and execution of a comprehensive economic and workforce strategy; management and administration of economic development and workforce programs; providing statewide marketing leadership; utilization of all means necessary, prudent and practical to integrate private sector-based innovation, flexibility, focus and responsiveness; and advancement of public policy to meet the State’s economic development objectives. STATE OF ARIZONA COMBINING STATEMENT OF NET POSITION NON-MAJOR COMPONENT UNITS JUNE 30, 2015 (Expressed in Thousands) ARIZONA POWER AUTHORITY ASSETS Current Assets: Cash Cash and pooled investments with State Treasurer Collateral investment pool Restricted investments held by trustee Receivables, net of allowances: Taxes Interest Loans and notes Other Other current assets Total Current Assets $ GREATER AZ DEVELOPMENT AUTHORITY RIO NUEVO 5,828 5,203 $ 8,115 - $ 1,320 - ARIZONA COMMERCE AUTHORITY $ TOTAL 14,750 147,727 3,571 - $ 22,865 154,875 3,571 5,203 3,424 402 14,857 3,597 1,332 1,082 14,126 6 1,326 4,148 2,349 200 172,745 3,597 6 4,148 7,105 1,684 203,054 7,758 599 16,849 16,337 - 11,965 - 7,432 7 11,965 16,849 7,758 23,769 606 - 7,321 - - 7,321 79 8,436 30,976 71,483 11,965 703 8,142 31,758 100,026 23,293 85,609 13,291 180,887 303,080 105 27,491 - - - 105 27,491 Total Deferred Outflows of Resources 27,596 - - - 27,596 LIABILITIES Current Liabilities: Accounts payable and other current liabilities Accrued liabilities Obligations under securities loan agreements Current portion of long-term debt Total Current Liabilities 2,661 532 5,615 8,808 7,102 28 5,075 12,205 5 5 1,137 3,571 4,708 10,900 565 3,571 10,690 25,726 Noncurrent Liabilities: Net pension liability Long-term debt Total Noncurrent Liabilities 902 38,740 39,642 67,627 67,627 - - 902 106,367 107,269 Total Liabilities 48,450 79,832 5 4,708 132,995 345 - - - 345 79 34,911 - 703 35,693 11,965 1,321 75,924 31,048 68,504 34,815 75,924 31,048 19,856 Noncurrent Assets: Restricted assets: Cash and pooled investments with State Treasurer Cash held by trustee Investments held by trustee Loans and notes receivable, net of allowances Other noncurrent assets Capital assets: Land and other non-depreciable Buildings, equipment, and other depreciable, net of accumulated depreciation Total Noncurrent Assets Total Assets DEFERRED OUTFLOWS OF RESOURCES Related to pensions Future benefits and advances DEFERRED INFLOWS OF RESOURCES Related to pensions NET POSITION Net investment in capital assets Restricted for: Debt service Loans and other financial assistance Other Unrestricted Total Net Position 12,962 (10,947) $ 2,094 9,888 (39,022) $ 5,777 - 232 - $ 13,286 $ 176,179 $ 197,336 (This page intentionally left blank) STATE OF ARIZONA COMBINING STATEMENT OF ACTIVITIES NON-MAJOR COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) PROGRAM REVENUES OPERATING EXPENSES FUNCTIONS/PROGRAMS Arizona Power Authority $ Rio Nuevo Greater Arizona Development Authority Arizona Commerce Authority Total $ 29,872 $ CHARGES FOR GRANTS AND SERVICES CONTRIBUTIONS 28,542 $ - 7,540 1,394 - 110 - - 26,801 1,171 9,219 64,323 $ 31,107 $ General Revenues: Taxes: Sales Other Unrestricted investment earnings Unrestricted grants and contributions Payments from State of Arizona Miscellaneous Change in Net Position Net Position - Beginning, as restated Net Position - Ending - 234 - 9,219 NET (EXPENSE) REVENUE AND CHANGES IN NET POSITION ARIZONA GREATER AZ ARIZONA POWER DEVELOPMENT COMMERCE AUTHORITY AUTHORITY AUTHORITY $ RIO NUEVO (1,330) $ - $ - - - - - 9,768 27 3,649 2,128 114 3 7 13,279 2,094 $ 5,777 $ - - 6 (1,324) 3,418 $ (6,146) (110) $ 13,286 $ - 235 - TOTAL - $ (1,330) - (6,146) - (110) (16,411) (16,411) 13,869 1,083 58 37,164 35,763 140,416 9,768 13,869 1,230 58 37,164 3 38,095 159,241 176,179 $ 197,336 NON-MAJOR UNIVERSITIES – AFFILIATED COMPONENT UNITS 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, with the exception of Downtown Phoenix Student Housing, LLC, the ASU Preparatory Academy, Inc. (ASU Prep), and Campus Research Corporation (CRC). The Downtown Phoenix Student Housing, LLC is included due to the nature and significance of the financial arrangement that it has with the State and that the State believes would be misleading to exclude. The ASU Prep is included because of its close affiliation to the State and that the State believes it would be misleading to exclude. The CRC is included because the U of A approves the budget and can access its resources. The Northern Arizona University Foundation receives gifts and bequests, administers and invests securities and property, and disburses payments to and on behalf of the NAU for advancement of its mission. The NAREH is a wholly owned subsidiary of the NAU Foundation and was established to construct, develop, equip, operate, maintain, lease, and hold real estate investments on behalf of the NAU Foundation. The NAUV is a wholly owned subsidiary of the NAU Foundation and was established to license, or otherwise commercialize the intellectual property owned or controlled by the Arizona Board of Regents, the NAU, or the NAU Foundation. Sun Angel Foundation receives funds primarily through donations, and contributes funds to the ASU for support of various athletic programs. Sun Angel Endowment receives funds primarily through donations, with the annual earnings being used for support of various athletic programs at the ASU. Thunderbird School of Global Management offers non-degree programs focused on global business across cultural, ethical, and multi-lingual curriculum. Arizona State University Research Park, Inc. manages a research park to promote and support research activities in coordination with the ASU. The Arizona State University Alumni Association receives funds primarily through donations, dues, and affinity partners and contributes funds to the ASU for support of various programs. Downtown Phoenix Student Housing, LLC provides facilities for use by students of the ASU. The Arizona State University Preparatory Academy, Inc. prepares Arizona K-12 students for success with a university-embedded academic program that empowers them to complete college, compete globally, and contribute to their communities. The University of Arizona Law College Association (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. The University of Arizona Campus Research Corporation was established to assist the U of A in the acquisition, improvement, and operation of the U of A Science and Technology Park and related properties. The University of Arizona 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. The University of Arizona Eller Executive Education was established to advance the missions of the Eller College of Management and the U of A through noncredit, non-degree programs for business, government, and nonprofit leaders. STATE OF ARIZONA COMBINING STATEMENT OF FINANCIAL POSITION NON-MAJOR UNIVERSITIES - AFFILIATED COMPONENT UNITS JUNE 30, 2015 (Expressed in Thousands) NORTHERN ARIZONA UNIVERSITY FOUNDATION ASSETS Cash and cash equivalent investments $ Receivables: Pledges receivable Other receivables Total receivables Investments: Investments in securities Other investments Total investments Net direct financing leases Property and equipment, net of accumulated depreciation Other assets Total Assets LIABILITIES Accounts payable and accrued liabilities Liability under endowment trust agreements Long-term debt Deferred revenue Other liabilities Total Liabilities NET ASSETS Permanently restricted Temporarily restricted Unrestricted (deficit) Total Net Assets $ 3,189 SUN ANGEL FOUNDATION SUN ANGEL ENDOWMENT THUNDERBIRD SCHOOL OF GLOBAL MANAGEMENT $ $ $ 4,297 211 4,018 ARIZONA STATE UNIVERSITY RESEARCH PARK, INC. ARIZONA STATE UNIVERSITY ALUMNI ASSOCIATION $ $ 2,481 43 6,262 106 6,368 29,527 284 29,811 - 8,558 8,558 21,838 21,838 41 227 268 137,512 13,137 150,649 - 7,471 704 8,175 22,710 22,710 1,180 1,180 16,414 16,414 6,426 - - - - - 500 12 186 32 28,123 1,602 4,850 2,455 76 167,132 34,306 8,418 65,011 32,804 16,801 166 509 3 3,430 169 175 28,704 5,439 3,290 9 - 3,000 1,486 5,373 6,120 13,074 2,209 30 18 37,599 518 3,003 10,289 21,572 223 66,749 51,942 10,842 32,975 813 1,842 889 2,684 21 54,701 11,232 291 16,287 129,533 $ 33,788 - 238 - $ 5,415 $ 54,722 $ 11,232 $ 16,578 DOWNTOWN PHOENIX STUDENT HOUSING $ $ 1,384 ARIZONA STATE UNIVERSITY PREPARATORY ACADEMY, INC. $ UNIVERSITY OF ARIZONA LAW COLLEGE ASSOCIATION 4,499 $ 751 UNIVERSITY OF ARIZONA CAMPUS RESEARCH CORPORATION UNIVERSITY OF ARIZONA ALUMNI ASSOCIATION $ $ 5,035 1,476 UNIVERSITY OF ARIZONA ELLER EXECUTIVE EDUCATION $ TOTAL 277 $ 27,661 52 52 200 722 922 340 340 878 878 107 3,077 3,184 30 30 36,477 35,772 72,249 14,255 14,255 - 11,575 178 11,753 - 7,040 7,040 - 218,157 14,019 232,176 - - - - - - 6,426 93,870 5,562 150 40 7 20,388 4,540 58 62 - 147,451 15,062 115,123 5,611 12,851 30,841 11,820 307 501,025 17,797 1,304 185 2,073 173 4 25,988 139,217 11 797 94 358 171 - 5,257 3,181 623 22 4,720 - 2 - 28,704 150,710 28,310 15,481 157,822 1,927 185 11,134 4,915 6 249,193 (42,699) 1,342 2,342 4,763 3,377 4,526 19,707 6,905 82 219 73,354 90,919 87,559 (42,699) $ 3,684 $ 12,666 $ 19,707 - 239 - $ 6,905 $ 301 $ 251,832 STATE OF ARIZONA COMBINING STATEMENT OF ACTIVITIES NON-MAJOR UNIVERSITIES - AFFILIATED COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) NORTHERN ARIZONA UNIVERSITY FOUNDATION REVENUES Contributions Rental revenue Sales and services Net investment income Grants and aid Other revenues $ Total Revenues EXPENSES Program services: Payments to Universities Leasing related expenses Payments on behalf of Universities Other program services Management and general expenses Fundraising expenses Interest Depreciation and amortization Other expenses Total Expenses Increase (decrease) in Net Assets, before extraordinary items Extraordinary items (Primarily equity transfers) Increase (decrease) in Net Assets, after extraordinary items Net Assets - Beginning, as restated Net Assets - Ending $ 13,358 3,237 2,193 SUN ANGEL FOUNDATION SUN ANGEL ENDOWMENT THUNDERBIRD SCHOOL OF GLOBAL MANAGEMENT $ $ $ 39,872 534 8 128 91 1 526 44,883 (210) 347 ARIZONA STATE UNIVERSITY RESEARCH PARK, INC. ARIZONA STATE UNIVERSITY ALUMNI ASSOCIATION $ $ 9,594 5 67 2,654 2,280 175 193 18,788 40,542 92 45,546 9,666 5,302 9,109 551 3,090 464 - 11,999 1,318 1,213 139 169 - 45,805 4,164 - 2,709 1,123 295 404 150 5,082 329 13,214 14,530 308 49,969 4,681 5,411 5,574 26,012 (216) (4,423) 4,985 - - 5,574 26,012 123,959 7,776 129,533 $ 33,788 - (216) 5,631 $ - 240 - 5,415 $ 24,010 - 19,587 4,985 35,135 6,247 54,722 $ 11,232 (109) - (109) 16,687 $ 16,578 DOWNTOWN PHOENIX STUDENT HOUSING $ 10,459 11 155 ARIZONA STATE UNIVERSITY PREPARATORY ACADEMY, INC. $ $ 2,884 241 90 UNIVERSITY OF ARIZONA CAMPUS RESEARCH CORPORATION UNIVERSITY OF ARIZONA ALUMNI ASSOCIATION $ $ 12,775 7 416 422 1,103 203 2,734 UNIVERSITY OF ARIZONA ELLER EXECUTIVE EDUCATION $ 15 771 - TOTAL $ 63,799 32,828 50,927 3,768 15,616 6,346 10,625 21,062 3,215 13,198 4,462 786 173,284 3,025 7,206 4,587 830 18,353 174 - 1,000 2,089 - 9,679 1,477 1,258 3,164 751 209 - 23 571 221 - 15,731 9,679 5,824 9,109 77,845 3,299 7,670 9,793 3,780 15,648 18,527 3,089 12,414 4,124 815 142,730 (5,023) 2,535 126 784 338 (29) 30,554 - - - - (5,023) 2,535 126 784 338 (37,676) 1,149 12,540 18,923 6,567 (42,699) $ 3,684 - $ 4,068 1,356 15,616 22 UNIVERSITY OF ARIZONA LAW COLLEGE ASSOCIATION $ 12,666 $ 19,707 - 241 - $ 6,905 - $ 24,010 (29) 54,564 330 197,268 301 $ 251,832 STATISTICAL SECTION (Not Covered by the Independent Auditors’ Report) STATISTICAL SECTION STATISTICAL SECTION This part of the State of Arizona’s Comprehensive Annual Financial Report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the State’s overall financial health. Financial Trends – Schedules 1 thru 4 contain trend information to help the reader understand how the State’s financial performance and well-being have changed over time. Revenue Capacity – Schedules 5 thru 9 contain information to help the reader assess the State’s most significant own-source revenues, the sales tax, and personal income tax. Debt Capacity – Schedules 10 thru 22 present information to help the reader assess the affordability of the State’s current levels of outstanding debt and the State’s ability to issue additional debt in the future. Demographic and Economic Information – Schedules 23 and 24 offer demographic and economic indicators to help the reader understand the environment within which the State’s financial activities take place and to help make comparisons over time and among other governments. Operating Information – Schedules 25 thru 27 contain service and infrastructure data to help the reader understand how the information in the State’s financial report relates to the services the State provides and the activities it performs. STATE OF ARIZONA SCHEDULE 1 NET POSITION BY COMPONENT (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) Fiscal Year 2015 GOVERNMENTAL ACTIVITIES: Net investment in capital assets (5) Restricted (3) Unrestricted (6) Total Governmental Activities Net Position BUSINESS-TYPE ACTIVITIES: Net investment in capital assets (4) Restricted (7) Unrestricted (2,4,6) Total Business-type Activities Net Position PRIMARY GOVERNMENT: Net investment in capital assets (4,5) Restricted (3,7) Unrestricted (2,4,6) Total Primary Government Net Position 2014, as 2013, as 2012, as restated restated restated 2011 17,410,055 $ 6,116,083 (2,527,441) 16,940,512 $ 5,447,576 (3,351,315) 16,326,569 5,125,527 (4,243,824) $ 20,998,697 $ 19,036,773 $ 17,208,272 $ 18,790,871 $ 7,170,289 (5,686,304) 18,053,540 $ 6,829,299 (5,841,106) $ 20,274,856 $ $ 1,661,466 895,616 138,712 $ 1,581,436 $ 723,590 (51,586) 1,526,777 531,972 1,049,391 $ 1,483,416 496,444 810,810 $ 1,397,683 501,437 695,862 $ 2,695,794 $ 2,253,440 $ 3,108,140 $ 2,790,670 $ 2,594,982 19,041,733 $ 20,452,337 $ 8,065,905 (5,547,592) 19,634,976 $ 7,552,889 (5,892,692) 18,936,832 $ 6,648,055 (1,478,050) 18,423,928 $ 5,944,020 (2,540,505) $ 22,970,650 21,295,173 24,106,837 21,827,443 $ $ $ $ (1) This schedule reports using the accrual basis of accounting. (2) Fiscal year 2012 unrestricted net position was restated as a result of GASB Statement No. 61 in which Northern Arizona Capital Facilities Corporation was reclassified from a discretely presented non-major university component unit to a blended university component unit. (3) Fiscal year 2012 restricted net position was restated as a result of an agency fund being reclassified to a special revenue fund. (4) Fiscal year 2013 unrestricted net position for the Universities was restated as a result of GASB Statement No. 65 to expense debt issuance costs. (5) Fiscal year 2014 net investment in capital assets was restated due to a correction of an error related to the private prisons' capital leases. (6) Fiscal year 2014 unrestricted net position has been restated due to the implementation of GASB Statement No. 68. (7) Fiscal year 2014 restricted net position was restated due to the fund reclassification of the Insurance Department Guaranty Funds. - 246 - 17,724,252 5,626,964 (3,547,962) 19,803,254 Fiscal Year 2007, as 2006, as 2010 2009 2008 restated restated $ 15,738,121 $ 4,648,280 (4,155,346) 15,094,719 $ 3,990,594 (2,984,628) 14,530,867 $ 4,987,365 (1,105,246) 13,500,218 4,734,039 614,606 $ 12,878,151 3,560,868 733,455 $ 16,231,055 $ 16,100,685 $ 18,412,986 $ 18,848,863 $ 17,172,474 $ 1,352,658 550,102 576,426 $ 1,328,658 1,085,399 376,908 $ 1,387,655 1,581,212 188,354 $ 1,186,177 1,575,991 295,377 $ 1,146,618 1,400,455 179,524 $ 2,479,186 $ 2,790,965 $ 3,157,221 $ 3,057,545 $ 2,726,597 $ 17,090,779 $ 5,198,382 (3,578,920) 16,423,377 $ 5,075,993 (2,607,720) 15,918,522 $ 6,568,577 (916,892) 14,686,395 6,310,030 909,983 $ 14,024,769 4,961,323 912,979 $ 18,710,241 18,891,650 21,570,207 21,906,408 $ 19,899,071 $ $ $ - 247 - STATE OF ARIZONA SCHEDULE 2 CHANGES IN NET POSITION (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) Fiscal Year 2015 EXPENSES Governmental Activities: General government Health and welfare (8) Inspection and regulation Education Protection and safety Transportation (2) Natural resources Intergovernmental revenue sharing Interest on long-term debt Total Governmental Activities Expenses $ Business-type Activities: Universities (7) Unemployment Compensation (5) Industrial Commission Special Fund (3), (9) Lottery (5) Other Total Business-type Activities Expenses Total Primary Government Expenses (8) PROGRAM REVENUES Governmental Activities: Charges for services: General government Inspection and regulation Transportation Other activities Operating grants and contributions Capital grants and contributions Total Governmental Activities Program Revenues Business-type Activities: Charges for services: Universities Lottery (5) Other activities Operating grants and contributions Capital grants and contributions Total Business-type Activities Program Revenues Total Primary Government Program Revenues 923,659 14,296,714 159,874 5,859,267 1,568,732 786,028 204,939 2,966,400 230,871 26,996,484 2014 (10) $ 4,378,481 1,041,261 5,419,742 763,830 12,768,332 160,797 5,573,656 1,408,049 791,006 200,868 2,778,299 279,525 24,724,362 $ 4,078,053 36,895 1,130,299 5,245,247 2013, as 2012, as restated restated 836,431 12,168,426 161,480 5,372,267 1,400,413 754,510 204,179 2,685,378 355,975 23,939,059 $ 3,888,145 38,614 1,329,816 5,256,575 840,189 11,992,408 151,937 5,331,848 1,380,999 808,967 213,339 2,473,881 350,483 23,544,051 2011 $ 3,629,568 1,069,531 83,290 496,830 113,347 5,392,566 929,107 12,558,119 149,649 5,467,543 1,299,205 857,194 196,210 2,462,178 341,801 24,261,006 3,533,977 1,655,364 27,196 439,069 115,442 5,771,048 $ 32,416,226 $ 29,969,609 $ 29,195,634 $ 28,936,617 $ 30,032,054 $ 188,356 157,624 113,163 664,903 13,200,146 706,089 $ 188,943 157,149 113,267 477,564 12,172,836 546,680 $ 188,462 156,164 119,862 386,381 11,588,834 651,999 $ 189,175 150,557 108,877 398,893 11,357,470 778,572 $ 191,738 149,890 114,453 381,633 12,580,013 745,559 $ 15,030,281 13,656,439 13,091,702 12,983,544 14,163,286 2,303,791 1,345,566 1,320,612 43,321 2,056,307 1,325,046 1,343,922 41,250 1,892,356 1,289,456 1,570,854 15,210 1,752,509 646,675 584,240 1,705,773 53,571 1,601,077 583,537 560,502 2,212,673 14,799 5,013,290 4,766,525 4,767,876 4,742,768 4,972,588 20,043,571 $ 18,422,964 $ 17,859,578 $ 17,726,312 $ 19,135,874 NET (EXPENSE) REVENUE Governmental activities Business-type activities $ (11,966,203) $ (406,452) (11,067,923) $ (478,722) (10,847,357) $ (488,699) (10,560,507) $ (649,798) (10,097,720) (798,460) Total Primary Government Net (Expense) $ (12,372,655) $ (11,546,645) $ (11,336,056) $ (11,210,305) $ (10,896,180) - 248 - Fiscal Year 2010 $ 941,813 13,090,357 157,786 5,706,667 1,451,571 511,397 183,535 2,585,683 261,518 24,890,327 2009 $ 3,343,377 2,103,028 67,750 432,150 126,029 6,072,334 928,485 12,055,439 176,354 6,084,342 1,514,282 695,070 228,430 2,755,710 222,851 24,660,963 2008 $ 3,290,033 1,086,330 30,055 395,950 142,229 4,944,597 982,382 10,884,297 185,996 6,242,173 1,510,615 670,173 250,258 3,023,836 179,795 23,929,525 $ 3,227,481 356,333 14,824 372,740 162,300 4,133,678 2007, as 2006, as restated restated 802,659 9,789,699 175,609 5,984,196 1,401,513 583,304 193,862 2,864,543 191,674 21,987,059 $ 2,960,790 248,111 23,669 363,508 176,486 3,772,564 781,542 9,057,733 159,766 5,304,555 1,279,129 386,777 187,947 2,658,636 172,439 19,988,524 2,762,557 226,171 (18,300) 377,104 136,894 3,484,426 $ 30,962,661 $ 29,605,560 $ 28,063,203 $ 25,759,623 $ 23,472,950 $ 208,316 143,329 123,372 402,496 13,735,263 576,027 $ 199,011 153,642 138,520 315,660 10,620,642 553,198 $ 190,374 159,857 149,560 318,776 9,190,910 523,898 $ 200,495 158,022 158,019 281,796 8,536,030 354,255 $ 161,664 146,191 134,068 279,836 7,941,223 388,646 15,188,803 11,980,673 10,533,375 9,688,617 9,051,628 1,432,055 551,492 509,254 2,260,071 12,563 1,272,694 484,486 439,010 1,243,697 14,710 1,167,696 472,937 485,242 898,441 38,029 1,069,339 462,200 518,922 883,373 27,981 962,967 468,697 474,801 852,788 30,056 4,765,435 3,454,597 3,062,345 2,961,815 2,789,309 $ 19,954,238 $ $ $ 15,435,270 $ 13,595,720 $ 12,650,432 $ 11,840,937 (9,701,524) $ (1,306,899) (12,680,290) (1,490,000) $ (13,396,150) (1,071,333) $ (12,298,442) (810,749) $ (10,936,896) (695,117) (11,008,423) $ (14,170,290) $ (14,467,483) $ (13,109,191) $ (11,632,013) (Continued) - 249 - STATE OF ARIZONA SCHEDULE 2 CHANGES IN NET POSITION (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) Fiscal Year 2015 GENERAL REVENUES AND OTHER CHANGES IN NET POSITION Governmental Activities: Taxes: Sales Income Tobacco Property Motor vehicle and fuel Other Unrestricted investment earnings (4) Unrestricted grants and contributions Miscellaneous general revenues (6) Gain (loss) on sale of trust land Transfers Total Governmental Activities $ Business-type Activities: Sales taxes Unrestricted investment earnings Unrestricted grants and contributions Miscellaneous general revenues Contributions to permanent endowments Special items Extraordinary items Transfers Total Business-type Activities 2014 (10) 2013, as 2012, as restated restated 2011 6,290,950 $ 4,430,602 314,522 52,241 1,694,779 560,920 87,115 39,847 232,658 97,231 (601,539) 13,199,326 5,948,055 $ 3,963,197 314,313 41,215 1,650,579 547,481 79,215 37,926 176,035 83,695 (578,361) 12,263,350 6,518,480 $ 3,974,998 316,050 27,429 1,592,911 531,186 18,705 45,746 144,403 174,095 (534,722) 12,809,281 6,296,151 $ 3,706,698 317,369 30,656 1,581,909 522,510 79,190 40,678 265,214 125,479 (576,846) 12,389,008 64,757 37,839 138,931 5,740 601,539 848,806 63,669 108,296 107 78,837 6,561 3,900 578,361 839,731 57,490 62,017 5 148,743 3,192 534,722 806,169 55,309 49,501 3,468 155,757 3,270 576,846 844,151 5,942,250 3,366,783 320,657 32,038 1,565,525 550,430 29,183 16,468 140,854 (154,359) (734,892) 11,074,937 52,913 68,401 50,510 3,656 3,884 734,892 914,256 Total Primary Government $ 14,048,132 $ 13,103,081 $ 13,615,450 $ 13,233,159 $ 11,989,193 CHANGE IN NET POSITION Governmental activities Business-type activities $ 1,233,123 442,354 $ 1,195,427 361,009 $ 1,961,924 317,470 $ 1,828,501 194,353 $ 977,217 115,796 Total Primary Government $ 1,675,477 $ 1,556,436 $ 2,279,394 $ 2,022,854 $ 1,093,013 (1) This schedule reports using the accrual basis of accounting. (2) For fiscal year 2006, net position for governmental activities were increased by the capitalization of $302,375 of capital assets that were previously recorded as transportation expenses. (3) The Industrial Commission Special Fund's cost of sales and benefits expense decreased $125,828 during fiscal year 2006, primarily due to a decrease in insolvent carrier liabilities. (4) Fiscal year 2007 unrestricted investment earnings were reduced by $17,771 due to reclassifying the Greater Arizona Development Authority from the primary government to a component unit. (5) For fiscal year 2013, Unemployment Compensation and Lottery changed from major to non-major funds. (6) Fiscal year 2012 miscellaneous general revenues was restated as a result of an agency fund being reclassified to a special revenue fund. (7) Fiscal year 2013 expenses for the Universities were restated as a result of GASB Statement No. 65 to expense debt issuance costs. (8) For fiscal year 2015, Health and Welfare expenses continue to climb as a result of enrollment increases. (9) For fiscal year 2015, Industrial Commission Special Fund changed from a major to a non-major fund. (10) Historical data has not been restated for footnote items (5) - (7) in Schedule 1. - 250 - Fiscal Year 2010 $ 2009 5,029,050 $ 2,809,995 332,893 31,417 1,583,790 535,435 37,665 13,213 204,295 64,005 (809,864) 9,831,894 52,318 70,766 52,072 3,020 7,080 809,864 995,120 $ 10,827,014 5,442,563 3,126,076 370,073 32,564 1,643,276 574,030 92,957 12,440 222,712 (165,696) (983,006) 10,367,989 2008 $ 58,528 22,450 45,786 4,014 7,240 2,720 983,006 1,123,744 $ 6,270,419 4,205,426 413,333 36,732 1,800,920 559,440 243,160 13,574 214,751 196,953 (994,435) 12,960,273 $ 72,945 39,763 64,564 3,927 (20,100) 15,475 994,435 1,171,009 11,491,733 $ 14,131,282 2007, as 2006, as restated restated 6,537,584 4,636,447 358,205 43,736 1,826,893 529,629 243,328 11,711 212,253 451,501 (876,456) 13,974,831 $ 79,223 103,362 77,841 4,815 876,456 1,141,697 6,322,311 4,548,843 248,122 43,035 1,857,293 575,946 172,311 12,293 235,610 567,364 (774,492) 13,808,636 54,550 49,050 58,816 3,803 (7,874) 774,492 932,837 $ 15,116,528 $ 14,741,473 $ 130,370 $ (311,779) (2,312,301) (366,256) $ (435,877) 99,676 $ 1,676,389 330,948 $ 2,871,740 237,720 $ (181,409) $ (2,678,557) $ (336,201) $ 2,007,337 $ 3,109,460 - 251 - STATE OF ARIZONA SCHEDULE 3 FUND BALANCES, GOVERNMENTAL FUNDS (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) Fiscal Year 2012, as 2015 GENERAL FUND: Reserved for: Budget stabilization fund School facilities improvements Continuing appropriations Other fund balance reservations Unreserved Nonspendable (2) Restricted (2) Committed (2) Unassigned (2) Total General Fund ALL OTHER GOVERNMENTAL FUNDS: Reserved for: Highway construction Other construction School facilities improvements Permanent funds Continuing appropriations Debt service Other fund balance reservations Unreserved, reported in: Special revenue funds Capital projects funds Nonspendable (2) Restricted (2,3) Committed (2) Unassigned (2) Total All Other Governmental Funds $ 2014 - $ 9,168 241,919 99,145 (306,751) 2013 restated - $ 9,600 124,390 79,837 (189,238) 844 192,187 73,237 156,935 $ - $ 891 246,977 109,469 (437,035) 716 317,471 141,183 (1,162,531) (79,698) $ (703,161) $ 43,481 $ 24,589 $ 423,203 $ $ - $ - $ - $ 5,181,556 1,573,453 825,740 (29,961) $ 7,550,788 4,878,682 1,741,674 734,446 (29,744) $ 2011 7,325,058 4,160,485 1,860,872 661,110 (26,266) $ 6,656,201 3,472,005 1,762,356 514,085 (33,861) $ 5,714,585 (1) This schedule reports using the modified accrual basis of accounting. (2) Beginning in fiscal year 2011, the fund balance categories were reclassified as a result of implementing GASB Statement No. 54. Additionally, as a result of the reclassification, fund balance for fiscal year 2010 was restated. (3) Fiscal year 2012 restricted fund balance was restated as a result of an agency fund being reclassified to a special revenue fund. - 252 - $ 3,244,080 1,531,992 452,447 (39,009) $ 5,189,510 Fiscal Year 2010, as 2007, as restated (2) 2009 2008 restated 2006 $ - $ 14,764 55,354 232 (817,348) - 2,767 $ 376,993 43,091 252 (1,401,381) - 147,212 1,914 103,320 262 108,914 - $ 673,531 4,931 162,657 272 1,081,708 - $ 651,020 110,149 69,861 302 1,434,806 - $ (746,998) $ (978,278) $ 361,622 $ 1,923,099 $ 2,266,138 1,253,202 238,985 2,544,365 143,785 35,236 27,132 $ 976,488 5,288 2,454,564 94,602 34,421 17,702 $ 426,015 6,256 2,043,591 118,671 37,792 5,145 $ 809,497 45,403 2,674,953 116,350 26,389 40,327 $ 821,491 $ 4,534,410 1,304,781 108,129 2,196,040 212,553 27,115 7,447 $ 767,258 $ 4,623,323 919,679 $ 5,162,384 793,890 $ 4,376,955 657,371 $ - 253 - 3,294,841 STATE OF ARIZONA SCHEDULE 4 CHANGES IN FUND BALANCES, GOVERNMENTAL FUNDS (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) Fiscal Year 2012, as 2015 REVENUES Taxes: Sales Income Tobacco (2) Property Motor vehicle and fuel Other Intergovernmental Licenses, fees, and permits Earnings (loss) on investments (3,5) Sales and charges for services (7) Fines, forfeitures, and penalties Gaming Tobacco settlement Proceeds from sale of trust land (6) Other (8) Total Revenues EXPENDITURES Current: General government (7) Health and welfare Inspection and regulation Education Protection and safety Transportation (4) Natural resources Intergovernmental revenue sharing Debt service: Principal Interest and other fiscal charges Capital outlay (4) Total Expenditures Excess (Deficiency) of Revenues Over Expenditures $ 6,281,286 4,398,928 314,522 52,241 1,694,779 560,920 13,606,650 486,331 295,125 193,553 152,728 89,512 99,975 123,483 545,846 28,895,879 2014 $ 5,933,824 4,012,603 314,313 41,215 1,650,579 547,481 11,752,711 475,833 739,859 185,682 171,161 86,326 100,765 86,319 300,436 26,399,107 2013 $ 6,530,609 4,034,631 316,050 27,429 1,592,911 531,186 11,592,676 476,972 499,919 182,075 181,216 86,507 149,125 225,659 169,119 26,596,084 restated $ 6,312,870 3,715,082 317,369 30,656 1,581,909 522,510 11,843,908 477,344 190,055 188,806 168,240 85,535 101,067 137,405 297,065 25,969,821 2011 $ 5,971,141 3,398,972 320,657 32,038 1,565,525 550,430 13,019,744 452,629 438,068 186,325 184,950 80,455 99,130 95,500 164,658 26,560,222 843,159 14,388,149 158,495 5,857,390 1,402,225 700,080 189,302 2,966,400 750,163 12,643,455 161,318 5,572,414 1,360,387 687,798 193,043 2,778,299 812,770 12,216,622 160,636 5,369,538 1,349,146 683,607 194,714 2,685,168 838,776 12,029,530 153,947 5,332,141 1,351,251 745,306 202,677 2,473,535 933,313 12,818,468 153,718 5,467,695 1,288,577 820,417 191,429 2,459,934 560,497 270,872 783,926 28,120,495 493,592 312,024 829,630 25,782,123 412,617 329,773 765,339 24,979,930 386,027 344,903 769,716 24,627,809 383,591 357,754 824,417 25,699,313 775,384 616,984 1,616,154 1,342,012 860,909 - 254 - Fiscal Year 2010, as 2007, as restated $ 2009 2008 5,429,453 $ 3,137,794 370,073 32,564 1,672,151 574,030 11,316,023 410,002 (318,321) 154,671 203,337 84,140 125,571 143,674 253,868 23,589,030 6,278,181 4,174,966 413,333 36,732 1,802,572 559,440 9,499,419 447,090 135,879 167,329 167,309 94,004 115,587 263,443 24,155,284 923,977 13,054,472 157,461 5,702,963 1,417,428 584,363 175,568 2,574,539 913,266 11,959,640 174,633 6,031,605 1,460,692 608,631 220,030 2,764,776 966,512 10,874,581 184,451 6,240,862 1,447,372 630,283 242,893 3,026,563 879,519 9,679,226 173,897 5,983,513 1,358,439 524,318 185,592 2,863,218 861,373 8,995,430 157,401 5,302,942 1,247,508 373,603 178,832 2,661,894 288,172 286,027 1,291,341 26,456,311 235,971 238,430 1,295,530 25,903,204 261,228 210,856 1,106,951 25,192,552 220,473 195,317 992,000 23,055,512 261,277 176,933 1,066,815 21,284,008 (2,314,174) (1,037,268) 919,866 1,706,636 5,017,977 2,805,426 332,893 31,417 1,585,919 535,435 13,562,547 425,526 422,564 203,725 224,000 77,554 105,394 78,564 230,223 25,639,164 (817,147) $ restated $ 6,527,968 4,629,220 358,205 43,736 1,828,701 529,629 8,313,720 442,236 510,253 158,318 183,923 94,771 90,258 264,440 23,975,378 2006 $ 6,313,090 4,535,492 248,122 43,035 1,857,293 575,946 8,019,509 410,069 247,250 162,048 138,354 84,794 86,231 269,411 22,990,644 (Continued) - 255 - STATE OF ARIZONA SCHEDULE 4 CHANGES IN FUND BALANCES, GOVERNMENTAL FUNDS (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) Fiscal Year 2012, as OTHER FINANCING SOURCES (USES) Transfers in Transfers out Proceeds from sale of trust land (6) Proceeds from sale of capital assets Capital lease and installment purchase contracts Proceeds from notes and loans Refunding bonds issued Payment to refunded bond escrow agent Bonds issued Refunding grant anticipation notes issued Grant anticipation notes issued Refunding certificates of participation issued Payment to refunded certificates of participation escrow agent Certificates of participation issued Premium on debt issued Total Other Financing Sources (Uses) NET CHANGE IN FUND BALANCES DEBT SERVICE AS A PERCENTAGE OF NONCAPITAL EXPENDITURES 2015 2014 2013 restated 2011 856,446 (1,392,301) 259 904,261 (1,397,332) 900 782,420 (1,256,408) 1,636 821,072 (1,323,778) 1,815 862,040 (1,574,406) 3,712 113,914 29,130 - 15,158 51,550 837,340 (954,372) 194,295 - 8,166 9,541 455,900 (560,228) 259,460 43,825 - 305,675 62,630 (310,059) 6,770 (346,741) (42,096) 136,210 (171,637) 1,025 783 754,285 (900,813) 149,554 (530,762) $ 244,622 3.0% $ 270,243 $ 3.2% 1,444,517 - - 90,753 (193,474) $ 1,148,538 3.1% (1) This schedule reports using the modified accrual basis of accounting. (2) Increase in tobacco tax revenue from fiscal year 2006 to fiscal year 2007 primarily due to Proposition 203, implemented December 2006. (3) Increase from fiscal year 2006 to fiscal year 2007 primarily due to increase in Land Endowment fair market value of investments, larger cash balances available to invest, and market interest rates. (4) For fiscal year 2006, transportation expenditures were reduced and capital outlay was increased by $302,375 for addition of capital assets that were previously recorded as transportation expenditures. (5) In fiscal year 2008, the Greater Arizona Development Authority Fund was reclassified from a special revenue fund to a component unit. Fiscal year 2007 earnings on investments has been restated to reflect this change. (6) In fiscal year 2009, "Proceeds from sale of trust land" was moved from "Other financing sources (uses)" to "Revenues." (7) In fiscal year 2010, amounts were restated as a result of implementing GASB Statement No. 54. (8) Fiscal year 2012 other revenues was restated as a result of an agency fund being reclassified to a special revenue fund. - 256 - 4,583 11,113 180,000 158,585 3.1% 150,110 42,291 (161,972) $ 698,937 3.0% Fiscal Year 2010, as 2007, as restated 1,106,250 (1,872,212) 3,088 $ 2009 2008 restated 1,248,267 (2,168,964) 2,127 897,771 (1,874,084) 249,970 28,233 187,836 32,628 425,420 - 4,056 23,139 621,050 55,420 - - - 998,795 77,709 959,514 580,035 70,083 435,213 238,990 48,972 261,220 142,367 2.3% $ (1,878,961) $ 1.9% 23,556 19,529 82,880 (86,547) 563,950 68,000 (776,048) $ 2.0% 2006 910,605 (1,784,833) 199,089 10,162 812,083 (1,585,754) 284,293 11,118 132,985 325,000 - 3,543 596,160 (646,689) 118,250 - - - 26,201 (180,791) 739,075 59,711 (347,285) $ 1,359,351 2.2% 1.9% - 257 - STATE OF ARIZONA SCHEDULE 5 NET TAXABLE SALES BY CLASSIFICATION (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) Fiscal Year 2015 CLASSIFICATION (5) Transporting (2) Mining, oil and gas Mining severance Utilities Communications Private car and pipelines Publishing Job printing Restaurants and bars Amusements Commercial lease (3) Personal property rentals Contracting Retail MRRA amount (8) Hotel/motel Rental occupancy tax (7) Use tax Use tax-utilities (6) Membership camping (7) Total Direct sales tax rate (4) 2014 2013 2012 2011 2010 $ 57,588 111,808 994,478 9,856,234 2,565,400 6,498 106,357 259,672 12,053,486 1,252,514 6 3,453,882 10,653,405 58,463,542 26,816 2,675,510 5,659,094 48,070 - $ 54,981 116,678 1,047,580 9,923,490 2,965,233 5,616 101,751 321,225 11,085,652 1,096,945 2 3,355,048 11,269,503 55,257,510 2,334,373 4,749,508 62,511 - $ 41,324 115,775 1,193,176 9,900,238 3,061,730 6,250 84,673 235,349 10,544,419 1,051,581 2 3,254,822 10,092,876 51,276,108 2,221,059 5,186,464 10,283 - $ 52,137 105,614 1,623,111 9,474,521 3,190,962 1,186 92,505 252,603 9,996,825 1,037,059 1 3,257,588 9,543,335 48,178,714 2,156,864 (3) 5,302,844 10,022 - $ 41,555 96,514 1,609,451 9,394,361 2,853,538 1,908 98,343 266,564 9,311,826 994,092 2 3,056,386 8,983,261 45,898,838 2,039,283 43 4,610,921 10,040 1 $ 41,990 102,900 1,164,231 9,354,244 3,618,208 1,640 103,681 236,985 9,020,795 1,051,919 141 3,127,828 9,311,612 42,913,933 1,949,718 (62) 5,464,504 (35,594) 10 $ 108,244,360 $ 103,747,606 $ 98,276,129 $ 94,275,888 $ 89,266,927 $ 87,428,683 5.60% 5.60% 6.60% 6.60% 6.60% 5.60% (1) Net taxable sales are based upon tax receipts. (2) The transporting/towing and railroads/aircraft business classifications have been combined into one category and renamed "transporting." (3) Commercial lease rate dropped to 0% effective July 1, 1997. (4) A significant portion of the revenue base was subject to a sales tax rate of 5.6% for fiscal years 2006 through 2010, 2014 and 2015. The sales tax rate was 6.6% for fiscal years 2011 through 2013. For fiscal years 2006 through 2015, the tax rate for non-metal mining, oil and gas was 3.125%, the mining severance was 2.5%, and the jet fuel and jet fuel use tax was $.0305 per gallon. The hotel/motel tax rate was 5.5% for fiscal years 2006 through 2010, 2014 and 2015. The hotel/motel tax rate was 6.5% for fiscal years 2011 through 2013. Per the Arizona Constitution, Article 9, Section 22, the Legislature can raise tax rates with an affirmative vote of two-thirds of the members of each house. The 1.00% rate increase approved under Proposition 100 on May 18, 2010 increased the state transaction privilege and use rate by one percentage point beginning June 1, 2010 and ending May 31, 2013, which is reflected in this table. (5) The names of the ten largest revenue payers are not available. Therefore, the categories are intended to provide alternative information regarding the sources of the State's revenue. (6) Use tax-utilities was not reported prior to fiscal year 2008. Fiscal years 2006 through 2008 were reported beginning in fiscal year 2008. (7) Effective November 1, 2006, membership camping and rental occupancy were repealed. (8) MRRA - Maintenance, Repair, Replacement or Alteration projects. Source: Arizona Department of Revenue Annual Reports for fiscal years 2015 and prior. - 258 - Fiscal Year 2009 2008 $ 37,920 175,743 729,482 9,236,366 2,928,433 7,743 102,457 307,581 9,094,485 1,053,048 1 3,552,696 14,882,706 46,174,068 2,117,242 (25) 5,882,942 38,653 11 $ $ 96,321,552 $ 5.60% 2007 48,713 216,675 1,752,522 9,237,779 3,669,683 16,021 122,652 391,038 9,663,959 1,146,344 (443) 3,995,697 20,156,299 52,626,993 2,405,705 (2,669) 6,837,880 12,461 52 112,297,361 5.60% $ $ 2006 43,351 255,531 1,743,361 8,609,034 3,513,667 19,679 129,681 397,802 9,619,785 1,086,364 (2) 3,927,824 22,415,051 55,009,403 2,411,634 1,065 6,091,507 12,154 12 115,286,903 5.60% $ 59,801 321,538 1,219,984 7,679,982 3,220,062 25,751 133,680 403,686 8,933,459 998,767 (120) 3,633,374 20,487,917 53,147,971 2,268,776 3,471 6,155,959 16,582 2,785 $ 108,713,425 5.60% - 259 - (This page intentionally left blank) STATE OF ARIZONA SCHEDULE 6 SALES TAX REVENUE PAYERS BY CLASSIFICATION CURRENT YEAR AND NINE YEARS AGO (Expressed in Thousands) Fiscal Year 2015 CLASSIFICATION Transporting Non-metal mining, oil and gas Mining severance Timbering severance - ponderosa (1) Utilities Communications Private car and pipelines Publishing Job Printing Restaurants and bars Amusements Commercial lease (2) Personal property rentals Contracting Retail MRRA amount (4) Hotel/motel Rental occupancy tax (1) Use tax utilities Use tax License fees Membership camping (1) Jet fuel tax Jet fuel use tax Non sufficient funds Telecommunications service assistance Mandatory EFT fees Education tax (3) Total $ Percentage Tax Percentage Collections of Total Collections of Total 2,879 3,494 24,862 492,812 128,270 325 5,318 12,984 602,674 62,626 172,693 532,708 2,923,177 1,341 147,153 2,403 281,144 840 3,948 672 72 546 626,401 $ Fiscal Year 2006 Tax 6,029,342 0.05 % 0.06 0.41 8.17 2.13 0.01 0.09 0.22 10.00 1.04 2.86 8.84 48.47 0.02 2.44 0.04 4.66 0.01 0.07 0.01 - $ 0.01 10.39 100.00 % 2,984 10,022 30,440 33 382,991 160,610 1,284 6,666 20,136 445,591 49,829 (4) 181,224 1,017,224 2,650,934 124,483 104 828 306,199 1,039 139 6,060 724 1 (263) 628,471 $ 6,027,749 0.05 % 0.17 0.50 6.35 2.66 0.02 0.11 0.33 7.39 0.83 3.01 16.88 43.98 2.07 0.01 5.08 0.02 0.10 0.01 10.43 100.00 % (1) Effective November 1, 2006 these rates were repealed. (2) Commercial lease rate dropped to 0% effective July 1, 1997. (3) The education tax is .6% of net taxable sales for most classifications. The ones that do not collect the education tax are non-metal mining, oil and gas, mining and timbering severances, hotel/motel, rental occupancy, and jet fuel taxes. The Arizona Department of Revenue's annual report does not include the amount of education tax collected from each classification; rather it reports the total collected from all classifications. The education tax became effective June 1, 2001. (4) MRRA - Maintenance, Repair, Replacement or Alteration projects Source: Arizona Department of Revenue Annual Reports for fiscal years 2015 and 2006. - 261 - STATE OF ARIZONA SCHEDULE 7 PERSONAL INCOME BY INDUSTRY (3) FOR THE LAST TEN CALENDAR YEARS (Expressed in Thousands) Calendar Year Ended December 31 2014 CLASSIFICATION Farm earnings Forestry and fishing Mining Utilities Construction Manufacturing Wholesale trade Retail trade Transportation and warehousing Information Finance and insurance Real estate, rental, and leasing Professional and technical services Managing companies/enterprises Administrative and waste services Educational services Health care and social assistance Arts, entertainment, and recreation Accommodation and food services Other services, except public administration Government and government enterprises Other (1) Total Average effective rate (2) $ $ 2013 1,155,792 503,882 1,412,101 1,658,782 10,062,829 14,095,554 8,687,046 13,369,873 5,477,916 3,819,863 13,326,833 4,059,589 13,835,937 3,110,448 10,599,902 3,001,497 21,543,014 2,173,428 6,828,111 $ 2012 1,265,407 452,846 1,417,060 1,572,265 9,602,367 13,613,799 8,540,660 12,491,888 5,292,565 3,465,480 12,311,052 3,797,928 13,350,344 2,841,364 9,957,852 2,908,293 20,818,802 1,997,265 6,402,038 $ 2011 838,149 454,547 1,384,690 1,542,179 8,943,763 13,570,855 8,758,218 12,504,874 5,193,321 3,116,565 11,230,845 4,741,526 13,023,667 2,505,461 9,240,229 2,963,587 20,228,349 1,890,923 6,188,423 $ 2010 986,598 440,489 1,223,284 1,581,577 8,295,293 13,032,386 8,188,350 12,316,131 4,948,388 2,926,787 10,426,744 4,111,488 12,551,710 2,291,182 8,854,837 2,745,004 19,681,806 1,694,718 5,848,103 $ 2009 537,775 437,051 996,532 1,524,831 8,404,395 12,403,418 7,861,098 11,649,145 4,563,008 2,825,917 9,884,023 3,239,757 11,801,237 2,193,738 8,522,260 2,589,823 18,964,490 1,671,411 5,569,987 $ 415,586 413,290 967,718 1,552,827 9,501,698 12,357,432 7,952,813 11,542,983 4,575,730 3,047,084 9,453,310 3,100,084 12,076,361 2,462,194 8,707,357 2,333,676 18,164,486 1,619,892 5,570,360 6,570,369 6,147,963 6,060,887 5,628,164 5,392,701 5,381,320 30,074,436 79,725,726 29,580,073 75,829,552 29,312,391 77,498,737 28,927,720 74,219,567 28,679,464 69,483,714 28,547,342 66,321,222 255,092,928 1.47% $ 243,656,863 $ 1.42% 241,192,186 1.41% $ 230,920,326 1.34% $ 219,195,775 1.31% (1) Includes dividends, interest, rental income, personal current transfer receipts, adjustment for residence, and deductions for government social insurance. (2) The total direct rate for personal income is not available. Average effective rate equals tax collections for the fiscal year, ending the following June 30, divided by personal income. (3) Personal income estimates for years 2005 through 2013 were revised to reflect revisions made by the U.S. Bureau of Economic Analysis. Source: U.S. Bureau of Economic Analysis and Arizona Department of Revenue Annual Report. - 262 - $ 216,064,765 1.12% Calendar Year Ended December 31 2008 $ $ 2007 660,325 408,317 1,326,946 1,566,139 13,110,247 13,699,896 8,566,548 12,327,789 4,837,443 3,120,325 9,801,188 3,922,054 13,136,870 2,470,198 9,567,920 2,075,080 17,594,905 1,693,891 5,928,434 $ 2006 837,247 457,453 991,202 1,455,783 15,562,946 13,674,920 8,624,381 13,128,380 5,055,292 3,067,970 10,409,468 3,858,585 12,490,540 2,426,609 9,617,313 1,844,838 16,010,696 1,659,932 6,014,942 $ 2005 709,433 461,631 854,763 1,325,521 16,395,985 13,432,145 7,718,890 12,816,987 4,797,771 3,063,223 10,282,521 4,683,954 11,469,765 2,020,026 9,208,807 1,706,338 14,677,313 1,608,229 5,624,322 $ 994,693 399,051 677,482 1,150,823 13,912,787 12,365,657 6,990,167 11,678,494 4,291,039 2,900,864 9,477,950 4,388,068 9,884,137 1,650,697 8,142,287 1,565,536 13,076,104 1,409,468 5,141,305 5,502,130 5,782,401 5,597,351 4,900,222 28,488,923 66,768,059 26,957,426 61,668,461 25,039,926 56,608,395 23,302,238 51,058,558 226,573,627 1.14% $ 221,596,785 1.54% $ 210,103,296 1.75% $ 189,357,627 1.93% - 263 - STATE OF ARIZONA SCHEDULE 8 PERSONAL INCOME TAX RATES FOR THE LAST TEN CALENDAR YEARS (Expressed in Thousands) Calendar Year Ended December 31 2014 AVERAGE EFFECTIVE RATE (3) Personal Income Tax Revenue (1) Personal Income (2) Average Effective Rate (3) TAX RATES ON THE PORTION OF TAXABLE INCOME IN RANGES (4) $0 - $10 $10 - $25 $25 - $50 $50 - $150 ` $150 and over $ 2013 3,761,764 255,092,928 1.47% 2.59% 2.88% 3.36% 4.24% 4.54% $ 2012 3,463,266 243,656,863 1.42% $ 2.59% 2.88% 3.36% 4.24% 4.54% 2011 3,398,902 241,192,186 1.41% $ 2010 3,099,177 230,920,326 1.34% 2.59% 2.88% 3.36% 4.24% 4.54% 2.59% 2.88% 3.36% 4.24% 4.54% $ 2,870,565 219,195,775 1.31% 2.59% 2.88% 3.36% 4.24% 4.54% (1) Personal income tax revenue includes income tax collections and refunds, on a cash basis, for the fiscal year ending the following June 30. (2) Personal income is reported on a calendar basis. Years 2005 through 2013 have been revised to reflect revisions made by the U.S. Bureau of Economic Analysis. (3) The total direct rate for personal income is not available. Average effective rate equals tax collections for the fiscal year, ending the following June 30, divided by personal income. (4) Amounts shown are for single and married filing separate returns. For all other filing status returns, double the amounts for the income tax ranges. Per the Arizona Constitution, Article 9, Section 22, the Legislature can raise tax rates with a vote of two-thirds of the members of each house. Source: Arizona Department of Revenue Annual Reports/Tax Tables and the U.S. Bureau of Economic Analysis. STATE OF ARIZONA SCHEDULE 9 PERSONAL INCOME TAX FILERS AND LIABILITY BY INCOME LEVEL FOR THE TAXABLE YEARS 2012 AND 2005 (1) (Expressed in Thousands, Except Number of Filers) Taxable Year Ended December 31, 2012 FEDERAL ADJUSTED GROSS INCOME LEVEL (3) $50 and under $50 - $100 $100 - $500 $500 and over Total Number of Percentage Filers of Total 1,822,168 556,719 321,602 14,840 2,715,329 67.11% 20.50% 11.84% 0.55% 100.00% Percentage Liability (2) $ $ 438,961 722,977 1,326,538 866,498 3,354,974 of Total 13.09% 21.55% 39.53% 25.83% 100.00% (1) The taxable year 2012 is the most recent year for which data is available, and combines the number of filers of the Arizona Forms 140, 140A, 140NR (nonresident), and 140PY (part year resident) Individual Income tax returns. (2) Liability, as reported on Arizona Forms 140, 140A, 140NR (nonresident), and 140PY (part year resident) Individual Income tax returns for tax year 2012, filed from January 2013 forward (or 2005, filed from January 2006 forward). (3) The names of the ten largest revenue payers are not available. Therefore, the categories are intended to provide alternative information regarding the sources of the State's revenue. Source: Arizona Department of Revenue Annual Reports. - 264 - Calendar Year Ended December 31 2009 $ 2008 2,423,215 216,064,765 1.12% 2.59% 2.88% 3.36% 4.24% 4.54% $ 2007 2,575,453 226,573,627 1.14% $ 2.59% 2.88% 3.36% 4.24% 4.54% 2006 3,414,304 221,596,785 1.54% 2.59% 2.88% 3.36% 4.24% 4.54% $ 2005 3,666,923 210,103,296 1.75% $ 2.73% 3.04% 3.55% 4.48% 4.79% Taxable Year Ended December 31, 2005 Number of Percentage Filers of Total 1,679,552 509,349 242,518 16,366 2,447,785 68.61% 20.81% 9.91% 0.67% 100.00% Percentage Liability (2) $ $ 473,940 709,542 1,148,106 1,204,255 3,535,843 of Total 13.40% 20.07% 32.47% 34.06% 100.00% - 265 - 3,651,576 189,357,627 1.93% 2.87% 3.20% 3.74% 4.72% 5.04% STATE OF ARIZONA SCHEDULE 10 RATIOS OF OUTSTANDING DEBT BY TYPE FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2015 (Expressed in Thousands, Except Amount of Debt per Capita) Fiscal Year 2014, as 2015 GOVERNMENTAL ACTIVITIES: Revenue bonds Grant anticipation notes Certificates of participation Capital leases (3) Installment purchase contracts Notes payable Premiums and discounts on debt Deferred amount on refundings (2) Total Governmental Activities $ BUSINESS-TYPE ACTIVITIES: Revenue bonds Certificates of participation Capital leases Installment purchase contracts Notes payable Premiums and discounts on debt Deferred amount on refundings (2) Total Business-type Activities Total Primary Government 3,141,190 194,670 2,030,805 408,784 349 22,179 492,048 6,290,025 $ 2,675,430 637,986 168,960 2,805 231,178 3,716,359 $ Debt as a Percentage of Personal Income (1) Amount of Debt per Capita (1) restated 10,006,384 1,487 $ 2,302,035 676,345 132,957 4,098 130,315 3,245,750 $ 3.9% $ 3,406,195 247,710 2,200,675 423,513 89,865 427,865 6,795,823 2013 10,041,573 $ 1,513 2010 3,593,420 $ 335,230 2,495,825 391,184 177 55,666 396,465 (813) 7,267,154 3,529,115 $ 392,495 2,611,255 400,540 245 59,891 342,602 (1,221) 7,334,922 3,522,605 304,480 2,571,125 412,919 901 60,712 334,721 (5,197) 7,202,266 2,237,710 714,735 135,519 5,758 123,051 (46,096) 3,170,677 1,942,755 756,980 163,637 8,397 12,643 87,993 (33,391) 2,939,014 1,742,125 812,706 167,841 10,511 292 41,393 (20,875) 2,753,993 1,692,825 840,719 171,448 13,043 360 39,705 (23,100) 2,735,000 $ 4.3% $ 2011 3,606,720 $ 296,240 2,360,595 360,316 105,817 474,747 (19,945) 7,184,490 10,355,167 4.1% $ 2012 1,579 10,206,168 $ 4.4% $ 1,577 10,088,915 $ 4.6% $ 1,573 4.6% $ Note: Details regarding the State's outstanding debt can be found in the notes to the financial statements. (1) See Schedule 23 for personal income and population data. These ratios are calculated using personal income and population data for the calendar year that ends during that fiscal year. For example, fiscal year 2014 contains data for the calendar year ending December 31, 2013. (2) Implementation of GASB Statement No. 65 in fiscal year 2014 required the amortization of deferred amount on refundings to be reported as deferred outflow of resources. (3) For fiscal year 2014, capital leases related to private prisons were restated due to a correction of an error. - 266 - 9,937,266 1,567 Fiscal Year $ $ 2009 2008 2007 2006 3,251,580 $ 329,650 1,649,870 236,125 6,343 42,668 285,613 (9,171) 5,792,678 2,759,070 $ 298,280 1,135,640 249,876 8,908 22,838 242,816 (13,145) 4,704,283 2,328,840 $ 282,860 959,865 242,209 10,644 3,309 225,071 (14,266) 4,038,532 2,106,700 325,430 1,020,810 129,808 6,815 219,958 (17,832) 3,791,689 1,239,675 872,829 175,453 16,418 674 43,112 (25,294) 2,322,867 902,255 903,843 179,052 13,024 1,022 38,211 (27,711) 2,009,696 868,565 935,127 166,780 9,544 1,354 39,582 (29,211) 1,991,741 802,600 946,766 113,388 10,279 38,331 (21,606) 1,889,758 8,115,545 $ 3.6% $ 1,292 6,713,979 $ 3.0% $ 1,089 6,030,273 $ 2.9% $ 1,000 5,681,447 3.0% $ 973 - 267 - STATE OF ARIZONA SCHEDULE 11 LEGAL DEBT MARGIN INFORMATION ARIZONA TRANSPORTATION BOARD HIGHWAY REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) Total Principal Outstanding Debt Limit (1) Total Principal Total Applicable to Principal Fiscal Year 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 the Limit as Applicable to Limit Debt Limit $ 1,300,000 $ 1,223,425 $ Legal Debt a Percentage Margin of Debt Limit - % 94.11 76,575 (1) As stated in House Bill 2206 of the Second Regular Session of the Forty-seventh Legislature, the $1.3 billion debt limit is eliminated from ARS §28-7510. The general effective date of this change was September 21, 2006. Prior to September 21, 2006, Arizona Revised Statutes restricted the total principal amount of Arizona Highway Revenue Bonds that could be outstanding at any time, excluding refunded bonds, from exceeding $1.3 billion. STATE OF ARIZONA SCHEDULE 12 LEGAL DEBT MARGIN INFORMATION ARIZONA STATE UNIVERSITY FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) Projected Projected Amount of Total Projected Debt Service Projected Debt Debt Service as Fiscal Total Limit (8% of Service Applicable Legal a Percentage of Year (1) Expenditures Expenditures) (2) to Limit Debt Margin Debt Service Limit 2015 $ 2,044,231 $ 163,538 $ 106,300 $ 57,238 5.20 % 5.80 % 2014 1,844,828 147,586 107,000 40,586 2013 1,710,909 136,873 94,100 42,773 5.50 % 2012 1,612,000 128,960 80,600 48,360 5.00 % 2011 1,606,250 128,500 77,100 51,400 4.80 % 2010 1,894,737 151,579 108,000 43,579 5.70 % 2009 1,865,385 149,231 97,000 52,231 5.20 % 2008 2,017,544 161,404 115,000 46,404 5.70 % 2007 2006 1,880,769 1,724,528 150,462 137,962 97,800 91,400 52,662 46,562 5.20 % 5.30 % (1) For fiscal years 2006 through 2015, projections are based upon the University's fiscal years 2008-2010, 2009-2011, 2010-2012, 2011-2013, 2012-2014, 2013-2015, 2014-2016, 2015-2017, 2016-2018, and 2017-2019 capital improvement plans, respectively. (2) Per ARS §15-1683, the projected debt service on bonds and certificates of participation outstanding and proposed to be issued, as shown in the University's most recent capital improvement plan reported to the Arizona Board of Regents, may not exceed, in any fiscal year shown in such capital improvement plan, more than eight percent of the University's total projected expenditures and mandatory transfers. - 268 - STATE OF ARIZONA SCHEDULE 13 LEGAL DEBT MARGIN INFORMATION UNIVERSITY OF ARIZONA FOR THE LAST NINE FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) Projected Projected Amount of Total Projected Debt Service Projected Debt Debt Service as Fiscal Total Limit (8% of Service Applicable Legal a Percentage of Year (2) Expenditures Expenditures) (3) to Limit Debt Margin Debt Service Limit 72,388 4.10 % 2014 2015 $ 1,739,216 1,856,098 $ 139,137 148,488 $ 76,100 88,700 $ 50,437 5.10 2013 1,683,019 134,642 89,200 45,442 5.30 2012 1,611,765 128,941 82,200 46,741 5.10 2011 1,556,364 124,509 85,600 38,909 5.50 2010 1,817,647 145,412 92,700 52,712 5.10 2009 1,681,818 134,545 92,500 42,045 5.50 2008 2007 1,681,132 1,657,971 134,491 132,638 89,100 114,400 45,391 18,238 5.30 6.90 (1) Ten years of data is not available, but will be accumulated over time. (2) For fiscal years 2007 through 2015, projections are based upon the University's fiscal years 2009-2011, 2010-2012, 2011-2013, 2012-2014, 2013-2015, 2014-2016, 2015-2017, 2016-2018, 2017-2019 capital improvement plans, respectively. (3) Per ARS §15-1683, the projected debt service on bonds and certificates of participation outstanding and proposed to be issued, as shown in the University's most recent capital improvement plan reported to the Arizona Board of Regents, may not exceed, in any fiscal year shown in such capital improvement plan, more than eight percent of the University's total projected expenditures and mandatory transfers. STATE OF ARIZONA SCHEDULE 14 LEGAL DEBT MARGIN INFORMATION NORTHERN ARIZONA UNIVERSITY FOR THE LAST NINE FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) Projected Projected Amount of Total Projected Debt Service Projected Debt Debt Service as Fiscal Total Limit (8% of Service Applicable Legal a Percentage of Year (2) Expenditures Expenditures) (3) to Limit Debt Margin Debt Service Limit 2015 18,374 4.43 % 2014 $ 514,673 485,265 $ 41,174 38,821 $ 22,800 24,700 $ 14,121 5.09 2013 453,039 36,243 24,600 11,643 5.43 2012 427,586 34,207 24,800 9,407 5.80 2011 405,109 32,409 22,200 10,209 5.48 2010 423,601 33,888 28,000 5,888 6.61 2009 419,448 33,556 28,900 4,656 6.89 2008 2007 430,360 410,811 34,429 32,865 27,500 30,400 6,929 2,465 6.39 7.40 (1) Ten years of data is not available, but will be accumulated over time. (2) For fiscal years 2007 through 2015, projections are based upon the University's fiscal years 2009-2011, 2010-2012, 2011-2013, 2012-2014, 2013-2015, 2014-2016, 2015-2017, 2016-2018, and 2017-2019 capital improvement plans, respectively. (3) Per ARS §15-1683, the projected debt service on bonds and certificates of participation outstanding and proposed to be issued, as shown in the University's most recent capital improvement plan reported to the Arizona Board of Regents, may not exceed, in any fiscal year shown in such capital improvement plan, more than eight percent of the University's total projected expenditures and mandatory transfers. - 269 - STATE OF ARIZONA SCHEDULE 15 PLEDGED-REVENUE COVERAGE ARIZONA TRANSPORTATION BOARD HIGHWAY REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) (1), (2) Fiscal Pledged Year 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 Revenue 566,352 537,768 512,971 392,648 504,175 502,874 509,183 658,616 635,140 624,408 $ Debt Service Principal $ 61,660 58,485 60,540 67,885 71,770 68,140 64,190 60,645 57,825 54,830 $ Interest 75,937 80,495 78,198 71,113 83,960 87,661 89,825 75,538 73,785 62,222 $ Total 137,597 138,980 138,738 138,998 155,730 155,801 154,015 136,183 131,610 117,052 Coverage 4.1 3.9 3.7 2.8 3.2 3.2 3.3 4.8 4.8 5.3 (1) The Highway Revenue Bonds are secured by a prior lien on and pledge of motor vehicle and related fuel fees and taxes. (2) Includes vehicle license tax revenues distributed directly to the State Highway Fund. Fiscal year 2009 is net of $66 million, 2010 is net of $44 million, and 2011 is net of $45 million distribution to the State General Fund. STATE OF ARIZONA SCHEDULE 16 PLEDGED-REVENUE COVERAGE ARIZONA TRANSPORTATION BOARD TRANSPORTATION EXCISE TAX REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) (1) Fiscal Pledged Year 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 Revenue $ 254,871 243,786 227,800 216,281 206,545 199,672 219,165 253,742 262,264 316,491 Debt Service Principal $ 70,940 58,600 55,870 55,460 45,970 33,315 13,825 19,045 80,375 $ Interest 32,652 44,988 47,721 48,129 42,496 38,225 17,193 10,673 1,566 $ Total 103,592 103,588 103,591 103,589 88,466 71,540 31,018 29,718 81,941 Coverage 2.5 2.4 2.2 2.1 2.3 2.8 7.1 8.5 N/A 3.9 (1) The Bonds are secured by transportation excise taxes collected by the Arizona Department of Revenue on behalf of Maricopa County. - 270 - STATE OF ARIZONA SCHEDULE 17 PLEDGED-REVENUE COVERAGE SCHOOL FACILITIES BOARD STATE SCHOOL IMPROVEMENT REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) (1) Fiscal Year 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 (2) Debt Service Pledged $ Revenue 626,401 601,854 567,824 542,395 514,346 504,391 558,900 645,828 666,184 628,471 $ Principal 57,920 46,720 43,680 41,405 39,215 37,230 35,420 33,810 31,055 34,480 Interest 6,274 9,575 13,487 22,804 25,088 27,074 28,885 30,498 31,893 30,052 $ $ Total 64,194 56,295 57,167 64,209 64,303 64,304 64,305 64,308 62,948 64,532 Coverage 9.76 10.69 9.93 8.45 8.00 7.84 8.69 10.04 10.58 9.74 (1) Pledged revenues consist of education transaction privilege tax revenues. These revenues result from a .6% increase in the State transaction privilege and use tax rate that was approved by a statewide vote at the November 2000 election. (2) Principal does not include sinking fund deposits of $1,270 each year, beginning in fiscal year 2003 and ending in fiscal year 2007, that will be sufficient to retire bonds with a par amount of $6,350 upon maturity, in fiscal year 2016. Additionally, principal does not include sinking fund deposits of $1,538 each year, beginning in fiscal year 2006 and ending in fiscal year 2018, that will be sufficient to retire bonds with a par amount of $20,000 upon maturity, in fiscal year 2018. STATE OF ARIZONA SCHEDULE 18 PLEDGED-REVENUE COVERAGE SCHOOL FACILITIES BOARD STATE SCHOOL TRUST REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) (1) Fiscal Pledged Year 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 Revenue $ 53,241 57,345 49,645 39,155 42,191 38,147 72,263 72,263 72,263 72,263 Debt Service Principal $ 19,380 19,275 18,315 17,400 16,535 15,710 15,105 14,470 13,980 13,440 $ Interest 3,911 4,971 5,933 6,846 7,714 8,539 9,143 8,400 11,524 12,061 $ Total 23,291 24,246 24,248 24,246 24,249 24,249 24,248 22,870 25,504 25,501 Coverage 2.29 2.37 2.05 1.61 1.74 1.57 2.98 3.16 2.83 2.83 (1) Pledged revenues consist of expendable revenue from the State School Trust. This revenue includes the State Treasurer's formula distribution of earnings on permanent fund investments as specified in the Arizona Constitution. Additionally, the State Land Commissioner distributes interest received from financed sales of trust lands and revenue received from land trust leases, except that, under current statutes, the amount of State School Trust Revenues available to pay debt service on all State School Trust Revenue Obligations shall not exceed $72,263. Expendable trust revenues in excess of $72,263 must be deposited in the Classroom Site Fund. - 271 - STATE OF ARIZONA SCHEDULE 19 PLEDGED-REVENUE COVERAGE LOTTERY REVENUE BONDS FOR THE LAST FIVE FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) Debt Service (2) Fiscal Pledged Year Revenue 2015 2014 2013 2012 2011 $ 172,108 174,374 174,373 96,200 96,200 Principal $ 18,305 17,445 16,790 - Interest $ Total 19,194 20,055 20,710 20,709 21,630 $ Coverage 37,499 37,500 37,500 20,709 21,630 4.59 4.65 4.65 4.65 4.45 (1) No debt service payments were due prior to fiscal year 2011. (2) Pledged revenues consist of lottery revenue deposited to the Lottery Fund net of operating expenses of the lottery. STATE OF ARIZONA SCHEDULE 20 PLEDGED-REVENUE COVERAGE ARIZONA STATE UNIVERSITY REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) Debt Service (1) Fiscal Year 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 Net Payments (Receipts) On Pledged Revenue $ 1,300,624 1,161,306 1,047,661 977,828 876,770 782,727 702,797 638,707 580,102 505,890 Principal $ 45,650 44,770 33,965 31,215 28,595 26,975 21,555 19,135 17,125 14,625 Interest $ 50,246 43,623 41,477 39,560 35,051 33,003 21,896 16,682 21,339 17,313 Total Swap Agreements $ 3,393 3,507 3,631 3,612 3,791 3,716 3,692 2,448 186 - (1) Pledged revenues include student tuition and fees, auxiliary enterprises revenue, investment income, and indirect cost recovery revenue. - 272 - $ 99,289 91,900 79,073 74,387 67,437 63,694 47,143 38,265 38,650 31,938 Coverage 13.10 12.64 13.25 13.15 13.00 12.29 14.91 16.69 15.01 15.84 STATE OF ARIZONA SCHEDULE 21 PLEDGED-REVENUE COVERAGE UNIVERSITY OF ARIZONA REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) (1) Fiscal Year 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 $ (1), (2) Direct Net Revenue Gross Operating Available for Revenues 1,567,859 1,400,095 1,356,478 1,226,227 1,215,062 1,128,091 1,044,354 1,113,954 982,559 897,706 $ Expenses 1,374,458 1,261,247 1,199,559 1,126,649 1,056,408 962,469 911,440 1,005,572 899,084 836,657 Debt Service $ 193,401 138,848 156,919 99,578 158,654 165,622 132,914 108,382 83,475 61,049 Debt Service $ Principal 21,575 22,600 21,895 17,375 24,720 23,860 22,725 21,235 17,440 12,355 $ Interest 37,732 38,250 34,556 31,480 28,571 24,593 15,437 14,978 14,166 13,433 $ Total 59,307 60,850 56,451 48,855 53,291 48,453 38,162 36,213 31,606 25,788 (1) Gross Revenues and Direct Operating Expenses include current operating unrestricted funds since these are the funds that are pledged for debt service payments under the System Revenue Bond Indentures. Also excluded from expenses are interest, depreciation, and amortization. (2) Payment of principal and interest on revenue bonds are secured by a pledge of student tuition and fees, auxiliary enterprise revenue, sales and service revenue, and other operating revenues, such as indirect cost recovery and certain investment income. STATE OF ARIZONA SCHEDULE 22 PLEDGED-REVENUE COVERAGE NORTHERN ARIZONA UNIVERSITY REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2015 (Expressed in Thousands) (1), (2), (3) Fiscal Year 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 Gross $ Revenues 303,860 283,468 263,733 246,098 220,538 198,197 164,877 143,733 136,100 129,608 Debt Service $ Principal 6,500 6,615 6,610 5,835 24,310 6,545 6,570 10,455 9,610 10,310 $ Interest 20,310 17,305 15,474 15,028 14,712 10,912 7,383 6,628 5,943 6,603 $ Total 26,810 23,920 22,084 20,863 39,022 17,457 13,953 17,083 15,553 16,913 Coverage 11.33 11.85 11.94 11.80 5.65 11.35 11.82 8.41 8.75 7.66 (1) Payment of principal and interest on revenue bonds are secured by a pledge of student tuition and fees and certain auxiliary enterprise revenue, investment income and indirect cost recovery revenue. (2) Fiscal year 2011 includes debt defeasance of $18.7 million. (3) Fiscal year 2013 gross revenue was revised by NAU in fiscal year 2014. - 273 - Coverage 3.26 2.28 2.78 2.04 2.98 3.42 3.48 2.99 2.64 2.37 (This page intentionally left blank) STATE OF ARIZONA SCHEDULE 23 DEMOGRAPHIC AND ECONOMIC STATISTICS FOR THE LAST TEN CALENDAR YEARS Calendar Year Ended December 31 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 Population (1,3) 6,731,484 6,634,997 6,556,236 6,472,867 6,411,999 6,343,154 6,280,362 6,167,681 6,029,141 5,839,077 Personal Income (3) (in thousands) $ 255,092,928 243,656,863 241,192,186 230,920,326 219,195,775 216,064,765 226,573,627 221,596,785 210,103,296 189,357,627 Per Capita Personal (2) Income $ 37,895 36,723 36,788 35,675 34,185 34,063 36,077 35,929 34,848 32,429 Unemployment Rate (4) 6.3 7.1 7.7 8.6 9.6 10.6 7.8 4.2 3.6 4.2 (1) These are midyear population estimates of the U.S. Bureau of the Census. (2) Per capita personal income is total personal income divided by total midyear population estimates of the U.S. Bureau of the Census. (3) Population and personal income estimates were revised to reflect revisions made by the U.S. Bureau of Economic Analysis. (4) Unemployment rates were revised to reflect revisions made by the Office of Employment and Population Statistics. Sources: U.S. Bureau of Economic Analysis (for population, personal income, and per capita personal income figures). U.S. Bureau of the Census (also for population). Office of Employment and Population Statistics at Arizona Department of Administration (for unemployment rate). STATE OF ARIZONA SCHEDULE 24 PRINCIPAL EMPLOYERS CURRENT YEAR AND NINE YEARS AGO Employer State of Arizona Wal-Mart Stores Inc. Banner Health City of Phoenix Wells Fargo Maricopa County Intel Corp. Scottsdale Lincoln Health Network Honeywell JPMorgan Chase & Co. U.S. Postal Service Raytheon Co. Total Calendar Year Ended December 31, 2014 Full-Time Percentage Equivalent of Total State Employees Rank Employment 48,910 1 1.64 % 32,438 2 1.06 30,266 3 0.84 14,875 4 0.50 14,126 5 0.49 13,341 6 0.42 11,700 7 0.39 10,500 8 0.37 10,000 9 0.37 9,600 10 0.37 195,756 6.45 (1) The 10th rank is not available. Source: Phoenix Business Journal, Book of Lists 2015 and 2006 for employers. - 275 - % Calendar Year Ended December 31, 2005 Full-Time Percentage Equivalent of Total State Employees Rank (1) Employment 49,958 1 1.73 % 28,246 2 0.98 19,250 3 0.67 13,844 4 0.48 11,533 6 0.40 13,002 5 0.45 10,700 8 0.37 11,000 7 0.38 10,300 9 0.36 167,833 5.82 % STATE OF ARIZONA SCHEDULE 25 STATE EMPLOYEES BY FUNCTION (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2015 FULL-TIME EQUIVALENT EMPLOYEES General government: Lottery Arizona State Retirement System Department of Revenue All other Health and welfare: Department of Economic Security (2) Department of Child Safety (2) Arizona Health Care Cost Containment System Department of Health Services All other Inspection and regulation Education: Universities All other Protection and safety: Department of Corrections Department of Juvenile Corrections Department of Public Safety All other Department of Transportation Natural resources Total Fiscal Year 2015 2014 2013 2012 2011 2010 98.8 246.9 880.8 2,308.6 98.8 246.9 861.8 2,229.6 97.8 233.9 860.3 2,214.4 104.0 236.0 935.0 2,427.6 104.0 236.0 935.0 2,646.5 104.0 236.0 863.0 2,746.5 3,882.6 3,045.1 2,208.3 1,176.7 949.6 1,650.4 5,654.1 2,217.3 1,176.7 946.6 1,643.9 5,453.5 2,217.3 1,176.7 946.6 1,649.8 3,726.0 1,407.3 1,513.3 1,098.5 1,801.2 3,726.0 1,423.0 1,513.3 954.5 1,807.7 4,201.0 1,484.0 1,538.6 966.5 1,820.7 15,635.7 840.9 15,607.7 838.9 15,478.7 834.4 16,964.2 886.5 15,754.2 896.0 15,664.5 972.4 9,534.0 738.5 1,907.7 97.6 4,548.0 730.5 9,384.0 738.5 1,904.7 95.6 4,548.0 716.5 10,118.2 738.5 1,903.7 90.1 4,548.0 716.5 10,015.2 1,001.7 2,139.8 112.6 4,548.0 930.2 10,015.2 1,001.7 2,081.8 117.9 4,548.0 937.2 9,755.9 1,050.7 2,099.8 118.4 4,548.0 956.7 50,480.7 48,909.6 49,278.4 49,847.1 48,698.0 49,126.7 (1) Full-time equivalent employees are categorized by the function of government that their respective agency generally serves. Information is not available to distinguish between governmental, business-type, or fiduciary activities. (2) The change in fiscal year 2015 full-time equivalent employees was primarily the result of a division within the Department of Economic Security being established as the Department of Child Safety. Source: The Appropriations Report. Includes only those positions funded by appropriated funds approved in the Executive Budget. - 276 - Fiscal Year 2009 2008 2007 2006 110.0 236.0 1,164.0 2,989.2 110.0 235.0 1,164.0 2,999.2 110.0 231.0 1,148.0 2,957.5 110.0 221.0 1,146.0 2,898.6 4,201.0 1,635.8 1,699.1 981.5 1,943.1 4,099.2 1,629.0 1,702.1 981.5 1,930.1 3,874.4 1,617.3 1,680.4 859.9 1,853.7 3,953.7 1,583.5 1,735.5 858.5 1,827.3 17,353.5 1,003.4 17,138.8 1,001.4 16,975.0 969.0 16,419.5 913.8 9,932.5 1,163.7 2,114.8 134.9 4,748.0 1,009.7 9,755.9 1,163.7 2,108.8 133.9 4,744.0 1,007.7 9,726.9 1,195.7 2,065.8 125.4 4,703.5 967.3 9,726.9 1,160.5 1,901.8 127.4 4,649.0 926.9 52,420.2 51,904.3 51,060.8 50,159.9 - 277 - STATE OF ARIZONA SCHEDULE 26 OPERATING INDICATORS BY FUNCTION FOR THE LAST TEN FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2015 2015 FUNCTIONS/PROGRAMS General government: Number of tax returns received (in millions) Health and welfare: Arizona Health Care Cost Containment System membership (2) Average monthly number of recipients of temporary assistance for needy families Average monthly number of persons receiving food stamp benefits Inspection and regulation: Nonfatal occupational injuries and illnesses: Total recordable cases (in thousands) (3) Incident rate per 100 full-time workers (3) Education: Public school enrollment, grades K-12 (4) Protection and safety: Number of miles patrolled by the Highway Patrol State prison adult inmate population (5) Transportation: Number of registered vehicles (6) Number of driver licenses issued (7) Natural resources: Game and Fish Department's license and tag sales (8) Universities: University full-time equivalent students (9) Unemployment compensation: Number of initial unemployment claims filed Industrial Commission special fund: No-insurance awards issued Number of vocational rehabilitation awards issued Lottery: Total lottery sales (in millions) Other business-type activities: Arizona Health Care Cost Containment System's Healthcare Group membership (10) $ 2014 Fiscal Year 2012 2013 2011 2010 2009 5.7 5.7 5.5 5.4 5.4 5.2 5.7 1,709,550 1,508,690 1,318,650 1,314,210 1,392,810 1,392,420 1,282,910 27,272 32,888 39,050 39,194 44,842 82,127 83,969 1,027,845 1,070,674 1,116,068 1,123,068 1,049,522 986,413 752,772 65.4 3.2 70.6 3.5 66.5 3.4 67.9 3.5 66.4 3.5 75.2 3.7 84.0 3.9 1,098,701 1,084,276 1,077,703 1,066,740 1,062,200 1,068,987 1,062,618 N/A 42,611 19,222,811 41,773 18,914,572 40,273 19,465,944 39,877 19,953,766 40,181 21,275,292 40,477 21,987,920 39,628 7,694,309 N/A 7,453,046 1,188,903 7,180,797 1,159,695 6,823,906 1,184,630 6,839,659 1,196,675 6,740,536 1,241,977 6,692,834 1,246,358 N/A 822,923 848,617 815,488 826,385 874,442 874,363 148,819 141,264 136,884 134,051 129,653 122,734 118,743 229,770 257,951 261,418 288,097 311,472 363,189 396,755 1,599 125 1,303 170 1,618 136 1,365 125 882 132 1,781 128 2,244 103 750.0 $ - 723.9 $ - 692.9 6,370 $ 646.7 7,080 $ 583.5 $ 8,260 551.5 10,760 N/A = Not available (1) Some figures may represent time periods other than a fiscal year (such as an academic or calendar year), as indicated in the notes below. (2) Approximate number of members enrolled as of June 1. Excludes membership in the Healthcare Group, which is listed separately as other business-type activities, beginning in fiscal year 2002. (3) Numbers represent total recordable cases and incident rates for the calendar year ended December 31. The fiscal years above contain data for the calendar year that ends during that fiscal year. For example, fiscal year 2015 contains data for the calendar year ending December 31, 2014. One hundred full-time workers represent 200,000 hours worked (100 times 40 hours per week times 50 weeks per year). (4) These enrollment counts represent a head count of all active enrollments on October 1st of each school year. The fiscal years above contain data for the academic year that occurs during that fiscal year. For example, fiscal year 2015 contains data from the October 1, 2014 enrollment figures. Starting with the 2008-09 school year, due to federal requirements, new business rules were used to calculate enrollment, so that counts are unduplicated. Prior to this, the counts are not unduplicated counts; concurrently enrolled students are counted as having an active membership in each school. Also, there was a change in data collection in 2003. From 2003 to 2008, concurrent enrollments in technology schools are included, which may additionally overstate aggregated enrollment figures. (5) Beginning in 2007, the state prison inmate population on the 2 Year Prison Population Trend Report excludes the inmate count from the county jail. For fiscal years 2006 and prior, the number includes both the county jail and the outside count of inmates. Fiscal year 2015 total is as of June 30. (6) Count represents the total number of vehicles registered as of the end of the fiscal year. (7) Count represents the number of driver licenses issued during that fiscal year, beginning July 1 and ending June 30. (8) Numbers represent sales for licenses, stamps, and tags for the calendar year ended December 31. The fiscal years above contain data for the calendar year that ends during that fiscal year. For example, fiscal year 2015 contains data for the calendar year ending December 31, 2014. (9) Enrollment figures represent the number of full-time equivalent students for the fall semester. The fiscal years above contain data for the fall semester that occurs during that fiscal year. For example, fiscal year 2015 contains data for the fall 2014 semester. These figures are generated by calculating one full-time equivalent student for each 15 student credit hours produced in lower-division undergraduate courses, each 12 student credit hours produced in upper-division undergraduate courses, and each 10 student credit hours produced in graduate courses. (10) Approximate number of members enrolled as of June 1. Healthcare Group ceased operations on December 31, 2013. Sources: The State Departments of Transportation, Public Safety, Corrections, Education, Game and Fish, Economic Security, Revenue, the Industrial Commission of Arizona, Arizona Lottery, Arizona Health Care Cost Containment System, Arizona Board of Regents, and the U.S. Department of Labor. - 278 - $ 484.5 14,560 Fiscal Year 2007 2008 $ 2006 5.6 5.5 5.5 1,136,585 1,075,125 1,065,444 80,221 82,408 93,553 600,549 537,072 546,424 101.8 4.6 99.4 4.6 97.0 4.9 1,132,963 1,106,207 1,084,247 21,881,034 38,897 20,282,212 37,088 19,703,282 34,864 6,733,610 1,200,227 6,608,726 1,266,973 6,318,402 1,205,068 896,143 940,223 897,159 113,092 110,580 107,765 226,772 185,397 161,869 2,748 118 3,265 133 2,744 124 472.9 21,646 $ 462.2 26,914 $ 468.7 21,600 - 279 - STATE OF ARIZONA SCHEDULE 27 CAPITAL ASSET STATISTICS BY FUNCTION FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2015 Fiscal Year 2015 FUNCTIONS/PROGRAMS Protection and safety: Number of adult prison facilities (2) Transportation: Public road mileage (center lane miles) (1) Number of bridges (1) Natural resources: State Trust acres Universities: Number of facilities (3) Gross square feet (in thousands) (3) 2014 2013 2012 2011 2010 2009 10 10 10 10 10 10 10 6,800 4,798 6,800 4,787 6,751 4,754 6,751 4,754 6,722 4,741 6,789 4,700 6,753 4,648 9,217,704 9,223,617 9,223,873 9,302,256 9,252,495 9,258,071 9,259,296 1,705 41,141 1,212 44,658 1,705 41,141 1,711 39,933 1,740 37,967 1,737 37,589 1,670 37,186 Note: No capital asset indicators are available for the general government, health and welfare, inspection and regulation, education, and business-type activity functions. (1) These are the number of center lane miles and bridges that the Arizona Department of Transportation accounts for under the modified approach, which is discussed in the Required Supplementary Information portion of this report. (2) The Arizona Department of Corrections also contracts with private prison facilities to provide custody and treatment. (3) In addition to academic/support facilities, auxiliary enterprise facilities are also reported. These would include essentially self-supporting entities, such as residence halls and parking structures. Sources: The State Departments of Transportation, Land, Corrections, and the Universities. - 280 - Fiscal Year 2008 2007 2006 10 10 10 6,785 4,637 6,817 4,648 6,922 4,676 9,260,253 9,262,781 9,267,377 1,669 36,000 1,663 34,946 1,002 20,154 - 281 - ACKNOWLEDGMENTS The Comprehensive Annual Financial Report was prepared by the Department of Administration, General Accounting Office, Financial Reporting Section: Ron Santa Cruz Michael J. Kallaur, CPA Chris Freitag, CPA Cody Johnson, MBA, CPA Neil Broadstock, MBA, CPA, CMA, CGFM Tami Schuler, MEd Christopher Lesure 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.