STATE OF ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2016 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 ........................................................................................................................................................... Certificate of Achievement for Excellence in Financial Reporting .................................................................................... Arizona State Government Organization ............................................................................................................................ Principal State Officials ...................................................................................................................................................... Page 1 7 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 143 153 154 156 159 160 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 160 161 162 163 164 164 165 165 166 167 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 ............................................................................................... 185 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 ........................................................................... ii 220 222 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 2013 and 2006 ........ 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 State University, for the Last Ten Fiscal Years ................... Schedule 12 – Legal Debt Margin Information, University of Arizona, for the Last Ten Fiscal Years ....................... Schedule 13 – Legal Debt Margin Information, Northern Arizona University, for the Last Ten Fiscal Years ............. Schedule 14 – Pledged-Revenue Coverage, Arizona Transportation Board Highway Revenue Bonds for the Last Ten Fiscal Years ................................................................................................................ Schedule 15 – Pledged-Revenue Coverage, Arizona Transportation Board Transportation Excise Tax Revenue Bonds for the Last Ten Fiscal Years ...................................................................................... Schedule 16 – Pledged-Revenue Coverage, School Facilities Board State School Improvement Revenue Bonds for the Last Ten Fiscal Years ................................................................................................................ Schedule 17 – Pledged-Revenue Coverage, School Facilities Board State School Trust Revenue Bonds for the Last Ten Fiscal Years ................................................................................................................ Schedule 18 – Pledged-Revenue Coverage, Lottery Revenue Bonds for the Last Six Fiscal Years................................................................................................................. Schedule 19 – Pledged-Revenue Coverage, Arizona State University Revenue Bonds for the Last Ten Fiscal Years ................................................................................................................ Schedule 20 – Pledged-Revenue Coverage, University of Arizona Revenue Bonds for the Last Ten Fiscal Years ................................................................................................................ Schedule 21 – 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 STATE OF ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS (CONCLUDED) STATISTICAL SECTION - CONCLUDED Demographic and Economic Information: Schedule 22 – Demographic and Economic Statistics for the Last Ten Calendar Years ............................................... Schedule 23 – Principal Employers, Current Year and Nine Years Ago ....................................................................... Page 273 275 Operating Information: Schedule 24 – State Employees by Function for the Last Ten Fiscal Years .................................................................. Schedule 25 – Operating Indicators by Function for the Last Ten Fiscal Years............................................................ Schedule 26 – 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, 2017 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, 2016. 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 The 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 B udgetary control is maintained through Legislative appropriation and the Executive branch allotment process. The Governor is required to submit an annual budget to the Legislature. The budget is legally required to be adopted through 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) $25 $24 $23 $22 $21 $20 $19 $18 2012 2013 2014 Revenues 2015 2016 Expenditures The General Fund ended the June 30, 2016 fiscal year with a total fund balance of $149.1 million. This compares to the previous year’s total fund balance of $24.9 million, as restated. 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) $500 $400 $300 $200 $100 $0 ($100) 2012 2013 2014 -3- 2015 2016 ECONOMIC CONDITION AND OUTLOOK T he following economic summary is based on the Industry Employment Projections Presentation released on March 09, 2017, by the Office of Economic Opportunity within the Arizona Department of Administration. The employment projections estimation methodology is described below: • • • • Projections are based on past industry employment trends and are refined by a review of current economic developments Short-term projections estimate employment from 2016 Quarter 3 to 2018 Quarter 2 Quarterly Census of Employment and Wages (QCEW) data was used as the principal data source The industry classification structure differs slightly from CES industry classification o Notably: State and local government education employment is categorized in NAICS 611: Educational Services Industry projection methodology included and excluded data as follows: • • Industry Projections Estimates Include: o Nonfarm employment by subsector group (3-digit NAICS) o Self-employed workers who work for profit or fees in their own business, profession, trade, or farm o Private household workers employed as domestic workers whose primary activities are to maintain the household o Railway and religious organization employees Industry Projections Estimates Exclude: o Farm employment in establishments engaged in growing crops, raising animals, harvesting fish and other animals from a farm, ranch, or natural habitats Economic assumptions influencing the projections are as follows: • • • • • • • The institutional framework of the U.S. economy will not change radically Recent technological and scientific trends will continue The long-term employment patterns will continue in most industries Federal, state, and local government agencies are expected to operate under budgetary constraints No major events will occur that will significantly alter the industrial structure of the economy, the occupational staffing patterns, or the rate of long-term growth Population growth rates and age distributions will not differ significantly from the US Census Bureau presently available Attitudes toward work, education, income, and leisure will not change significantly The following are highlights of Arizona’s industry employment forecast: • • • • • Arizona is projected to gain 138,553 jobs over the two-year period (2.4% annual growth) Ten supersectors are projected to add jobs over the two-year period o Natural Resources and Mining is projected to have losses over the two-year period. Educational and Health Services is expected to add the largest number of jobs (38,757) over the two-year period or 3.3% annualized growth Construction is expected to have the largest percentage gain at 3.9% annualized growth (10,943 jobs) Sectors with the largest expected gains are: Educational and Health Services (38,757 jobs), Professional and Business Services (27,852 jobs), Leisure and Hospitality (19,018 jobs), Trade, Transportation and Utilities (15,925 jobs), and Construction (10,943 jobs) -4- The following tables summarize Arizona’s sector employment growth rates and industry shares information: Annual Growth Rate (Compound) Total All Industries Construction Professional and Business Services Education and Health Services Leisure and Hospitality Financial Activities Trade, Transportation, and Utilities Other Services (Except Government) Information Manufacturing Government Natural Resources and Mining 2014 Q2 -2016 Q2(a) 2.7% 3.0% 3.5% 2.7% 3.4% 4.0% 2.1% 2.7% 2.5% 0.7% 0.3% (1.4%) 2016 Q2 - 2018 Q2(b) 2.4% 3.9% 3.3% 3.3% 2.8% 2.7% 1.5% 1.0% 0.7% 0.5% 0.3% (1.1%) a) Historical b) Forecast Arizona Major Industry Groups (2016 & 2018 Employment Share) Government Other Services (Except Government) Accommodation and Food Services Arts, Entertainment, and Recreation Health Care and Social Assistance Educational Services Administrative and Support and Waste Management and Remediation Management of Companies and Enterprises Professional, Scientific, and Technical Services Real Estate and Rental and Leasing Finance and Insurance Information Transportation and Warehousing Retail Trade Wholesale Trade Manufacturing Construction Utilities Mining Agriculture, Forestry, Fishing, and Hunting Self-Employed Workers, All Jobs 2016(c) 161,476 93,804 270,946 59,265 362,712 216,841 236,539 31,164 139,156 49,487 146,990 47,119 82,402 323,243 93,284 158,990 135,857 22,887 11,583 21,105 169,259 2018(d) 162,416 95,747 286,783 62,446 392,572 225,738 251,412 32,879 150,150 50,429 156,927 47,749 86,519 333,688 94,471 160,583 146,800 23,063 11,079 20,872 177,388 c) Estimated d) Projected MAJOR INITIATIVES The Major Initiatives for the year ended June 30, 2016, were as follows: • In May 2016, voters passed Proposition 123 and Proposition 124, both of which will help the State’s shortterm and long-term financial position. o Proposition 123 settled the Cave Creek v. Dewitt school funding lawsuit, which reduced uncertainty in future budgets as the State faced the possibility of being required to increase education funding by over $300 million in the current year and make over $1 billion in back payments. -5- 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, 2016 ELECTED OFFICIALS – as of June 30, 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 30, 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 ELECTED OFFICIALS – as of June 6, 2017 Douglas A. Ducey, Governor Senator Steve Yarbrough, President of the Senate Representative J.D. Mesnard, 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 Tom Forese, Chairman – Corporation Commission Doug Little, Commissioner – Corporation Commission Andy Tobin, Commissioner – Corporation Commission Boyd Dunn, Commissioner – Corporation Commission Bob Burns, Commissioner – Corporation Commission APPOINTED OFFICIALS – as of June 6, 2017 Executive Officials Craig Brown, Director – Department of Administration Charles L. Ryan, Director – Department of Corrections Henry Darwin, Interim 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 Steve Yarbrough, President Arizona State Senate The Honorable J.D. Mesnard, 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, 2016, 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 62.32% 3.76% 1.07% 11.54% 25.43% 0.47% 0.25% 0.60% 1.25% 0.68% 0.01% 14.22% Aggregate discretely presented component units 100.00% 100.00% Fund statements Major funds: General fund Arizona Department of Transportation Arizona Health Care Cost Containment System 0.17% 34.63% 0.02% 28.76% Transportation and aviation planning, highway maintenance and safety fund Arizona Department of Transportation 100.00% 100.00% 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 0.05% 0.54% 0.15% 0.24% 68.50% 3.39% 0.75% 0.63% 12.89% 0.46% 3.87% 4.38% 9.57% 26.25% 1.93% 1.55% 0.43% 8.86% 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 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 other auditors’ reports. 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 other auditors did not audit the financial statements of the Arizona Power Authority and the Universities-Affiliated Component Units, except for those of the Thunderbird School of Global Management and ASU Preparatory Academy, Inc., which were reported as discretely presented component units, 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, 2016, 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, 2016, the State adopted new accounting guidance, Governmental Accounting Standards Board Statement No. 72, Fair Value Measurement and Application. Our opinions are not modified with respect to this matter. As described in Note 9 to the financial statements, the State restated beginning fund balances/net positions of its financial statements for the year ended June 30, 2016, primarily as a result of funds that were previously reported in the general fund and reclassified to the internal service funds. Our opinions are not modified with respect to this matter. Other matters Required supplementary information U.S. generally accepted accounting principles require that the following be presented to supplement the basic financial statements: Required supplementary information Management’s discussion and analysis Budgetary comparison schedules Infrastructure assets Schedules of the State’s proportionate share of the net pension liability—cost-sharing pension plans Schedules of changes in the State’s net pension liability and related ratios—agent pension plans Schedules of state pension contributions Notes to required supplementary information Single-employer OPEB plan funding progress Pages 21 - 33 143 - 155 156 - 158 159 - 160 161 - 162 163 - 165 166 167 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 management’s responsibility 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, 2017 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, 2016. 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 $24.6 billion (reported as net position). Of this amount, a deficit of $4.9 billion exists for unrestricted net position, $8.0 billion is restricted for specific purposes (restricted net position), and $21.5 billion is net investment in capital assets. • The State’s total net position increased in fiscal year 2016 by $1.6 billion. Net position of governmental activities increased by $1.1 billion, while net position of the business-type activities increased by $474.9 million. Fund Level: • As of the close of the fiscal year, the State’s governmental funds reported combined ending fund balances of $7.7 billion, an increase of $100.1 million from the beginning of the year. After accounting for non-spendable, restricted, and committed fund balances of $5.1 billion, $1.6 billion, and $1.1 billion, respectively, the State’s unassigned fund balance had a deficit of $100.2 million, or (1%) of combined fund balances. • As of the close of the fiscal year, unassigned fund balance for the General Fund had a deficit of $78.9 million, which is less than 1% of total General Fund expenditures. • The Land Endowments Fund reported fund balance at fiscal year-end of $5.1 billion, a decrease of $48.3 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 $3.1 billion, an increase of $471.3 million during the year. Long-term Debt: • The State’s total long-term primary government debt decreased during the fiscal year to $9.5 billion, a decrease of $504.2 million or (5%). Changes during the year included the addition of revenue bonds and certificates of participation (COPs) of $360.0 million and $427.6 million, respectively. Also, the State retired $575.1 million of revenue bonds and $604.3 million of certificates of participation. Included in the change in long-term primary government debt are increases and decreases in net issuance premiums of $121.7 million and $84.1 million, respectively. More detailed information regarding the government-wide financial statements, fund level financial statements, and longterm 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 130-139 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 and 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 Other Post-Employment Benefits (OPEB) plan funding progress schedule. Required supplementary information begins on page 143 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. State of Arizona-Primary Government Net Position as of June 30, 2016 and 2015 (expressed in thousands) Governmental Activities 2015, as 2016 restated 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 $ 6,333,278 22,971,687 6,326,774 35,631,739 $ Business-type Activities 2015, as 2016 restated Primary Government Total 2015, as 2016 restated 5,821,787 22,239,522 6,459,576 34,520,885 $ 1,822,589 5,074,870 2,650,605 9,548,064 $ 1,694,636 4,827,779 2,572,773 9,095,188 $ 8,155,867 28,046,557 8,977,379 45,179,803 $ 7,516,423 27,067,301 9,032,349 43,616,073 711,744 738,491 290,441 281,585 1,002,185 1,020,076 4,926,872 9,807,941 14,734,813 4,565,882 10,012,362 14,578,244 884,383 5,398,775 6,283,158 719,520 5,447,263 6,166,783 5,811,255 15,206,716 21,017,971 5,285,402 15,459,625 20,745,027 235,358 405,875 327,227 456,747 562,585 862,622 19,722,730 6,856,271 (5,205,689) $ 21,373,312 18,790,889 7,170,289 (5,685,921) $ 20,275,257 1,761,694 1,191,605 274,821 $ 3,228,120 1,642,507 895,616 215,120 $ 2,753,243 21,484,424 8,047,876 (4,930,868) $ 24,601,432 20,433,396 8,065,905 (5,470,801) $ 23,028,500 For the year ended June 30, 2016, the State’s combined net position totaled $24.6 billion, reflecting an increase of $1.6 billion during the current fiscal year. The largest portion of the State’s net position (87%) represents net investment in capital assets of $21.5 billion. Additions to land, roads, and bridges provided the majority of the governmental activities increase in net investment in capital assets of $931.8 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 $8.0 billion (33%) of resources that are subject to external restrictions on how they may be used. The governmental activities decrease in restricted net position of $314.0 million is largely a result of a decrease of $127.9 million in the amount restricted by the State’s Constitution for basic education funded by the Land Endowments Fund, a decrease of $120.0 million in the amount restricted for health and welfare, and a decrease of $70.1 million in the amount restricted for capital projects. The business-type activities increase in restricted net position of $296.0 million is primarily due to an increase of $193.8 million in the amount restricted for the Unemployment Compensation Fund and an increase of $91.4 million in the amount restricted for the Insurance Department Guaranty Funds. After accounting for the above net position restrictions, the State has a remaining deficit of $4.9 billion (20%) reported as unrestricted net position. More detailed information regarding beginning net position restatements is on page 124. - 25 - State of Arizona-Primary Government Changes in Net Position for Fiscal Years June 30, 2016 and 2015 (expressed in thousands) Governmental Activities 2015, as 2016 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 Other business-type activities Total Expenses Excess (deficiency) before contributions and transfers Contributions to permanent endowments Transfers Change in Net Position Net Position - Beginning, as restated Net Position - Ending $ 1,191,069 $ Business-type Activities 2015, as 2016 restated 1,124,046 $ 3,987,187 $ Primary Government Total 2015, as 2016 restated 3,649,357 $ 5,178,256 $ 4,773,403 13,532,247 870,644 13,200,146 706,089 1,452,562 11,911 1,320,612 43,321 14,984,809 882,555 14,520,758 749,410 6,455,837 4,511,674 318,902 51,735 1,823,998 616,580 58,250 6,290,950 4,430,602 314,522 52,241 1,694,779 560,920 87,115 69,927 68,795 64,757 37,839 6,525,764 4,511,674 318,902 51,735 1,823,998 616,580 127,045 6,355,707 4,430,602 314,522 52,241 1,694,779 560,920 124,954 115,097 75,042 247,462 29,868,537 39,847 97,231 232,658 28,831,146 548 65,143 5,656,073 138,931 5,254,817 115,645 75,042 312,605 35,524,610 39,847 97,231 371,589 34,085,963 807,320 15,152,650 168,719 6,136,303 1,585,620 858,958 208,563 923,659 14,296,714 159,874 5,859,267 1,568,732 786,028 204,939 - - 807,320 15,152,650 168,719 6,136,303 1,585,620 858,958 208,563 923,659 14,296,714 159,874 5,859,267 1,568,732 786,028 204,939 3,176,183 210,326 28,304,642 2,966,400 230,871 26,996,484 4,637,567 1,014,941 5,652,508 4,378,481 1,041,261 5,419,742 3,176,183 210,326 4,637,567 1,014,941 33,957,150 2,966,400 230,871 4,378,481 1,041,261 32,416,226 1,563,895 1,834,662 3,565 (164,925) 1,567,460 1,669,737 (465,840) 1,098,055 20,275,257 21,373,312 (601,539) 1,233,123 19,042,134 20,275,257 5,472 465,840 474,877 2,753,243 3,228,120 5,740 601,539 442,354 2,310,889 2,753,243 5,472 1,572,932 23,028,500 24,601,432 5,740 1,675,477 21,353,023 23,028,500 $ - 26 - $ $ $ $ Change in Net Position Governmental Activities – Net Position increased by $1.1 billion from fiscal year 2015, or a 5% increase from fiscal year 2015. Reported sales and income tax revenues increased by $164.9 million, or 3%, and $81.1 million, or 2%, from fiscal year 2015, respectively. The increase in tax collections generally reflects increased economic activity in the State during fiscal year 2016. Net taxable sales increased by 3% from fiscal year 2015 resulting in the increased reported sales tax revenue. The largest increases in net taxable sales during fiscal year 2016 were in retail sales and restaurants and bars, while the largest decrease was in contracting. The increase in income tax revenue for the State during fiscal year 2016 reflects increases in withholding and individual tax collections. During fiscal year 2016, motor vehicle and fuel taxes increased by $129.2 million (8%) over fiscal year 2015. In addition, capital grants and contributions, primarily for federal reimbursement of construction expenditures, increased by $164.6 million (23%) from fiscal year 2015. Also during fiscal year 2016, operating grants and contributions increased by $332.1 million (3%) over fiscal year 2015. This increase results mostly 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 140,028 members (8.2%) over fiscal year 2015. The increase in operating grants and contributions discussed above was offset by a decrease of $315.1 million in the fair value of the Permanent Fund investment portfolio from fiscal year 2015. The increase in health and welfare expenses of $855.9 million (6.0%) resulted primarily from the increased enrollment in the AHCCCS programs, as discussed above. The increase in education expenses of $277.0 million (4.7%) was primarily due to Proposition 123, as discussed on page 30. A comparison of the net cost (income) of services by function for the State’s governmental activities is shown below for fiscal years 2015 and 2016. 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 2016 2015 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 $ 807,320 15,152,650 168,719 6,136,303 1,585,620 858,958 208,563 3,176,183 210,326 $ 28,304,642 - 27 - $ 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 Net Cost (Income) of Services 2016 2015 $ 471,422 2,897,709 (18,969) 4,754,583 1,415,087 (275,619) 79,960 3,176,183 210,326 $ 12,710,682 $ 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 Expenses and Program Revenues Governmental Activities for Fiscal Year 2016 (in millions of dollars) $16,000 $15,000 $14,000 $13,000 $12,000 $11,000 $10,000 $9,000 Expenses $8,000 Revenues $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Business-type Activities – Net Position increased by $474.9 million from fiscal year 2015, or 17%. This increase is primarily due to increases in net position for the Universities and the Unemployment Compensation Fund of $219.2 million and $193.8 million, respectively. Non-operating revenues and transfers from the General Fund more than offset the Universities’ operating loss of $1.1 billion. The Universities’ operating revenues increased by $284.1 million over fiscal year 2015 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 University of Arizona’s (U of A) reimbursements from Banner Health for salaries and Graduate Medical Education Residency Program expenses. These increases were offset by a decrease in State appropriation transfers from the General Fund and increases in expenses for instruction, academic support, and scholarships and fellowships. Expense increases resulted from continued enrollment growth, as well as the U of A’s affiliation agreement with Banner Health. Also, the Unemployment Compensation Fund’s unemployment assessment revenue increased by $21.9 million and cost of sales and benefits decreased by $28.1 million, as compared to the prior fiscal year, due to the decline in unemployment levels. In addition, unemployment assessment revenue of $483.0 million was higher than the cost of sales and benefits of $291.3 million during fiscal year 2016. A comparison of the net cost (income) of services by function for the State’s business-type activities is shown below for fiscal years 2015 and 2016. 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 2016 2015 Functions/Programs: Universities Other Total Business-type Activities $ 4,637,567 1,014,941 $ 5,652,508 $ 4,378,481 1,041,261 $ 5,419,742 Net Cost (Income) of Services 2016 2015 $ 658,206 (457,358) $ 200,848 $ 711,314 (304,862) $ 406,452 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, 2016, unassigned fund balance of the General Fund had a deficit of $78.9 million, while total fund balance closed the year at $149.1 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 deficit of less than 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 $124.2 million during the fiscal year. Revenues exceeded expenditures by $746.4 million, before other financing sources and uses. However, other financing sources and uses mostly offset this excess by $622.2 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 $827.6 million (4%) and expenditures increased by $784.3 million (3%) from fiscal year 2015. 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 was increases for health and welfare expenditures, as well as increased education 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 $13.3 million during fiscal year 2016. Although revenues exceeded expenditures by $316.8 million, transfers to non-major governmental funds of $304.3 million, to primarily pay debt service, largely offset this excess. Overall revenue increased by $256.5 million (9%), however, expenditures also increased by $301.5 million (12%), 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. For fiscal year 2016, the Land Endowments Fund total fund balance decreased $48.3 million. Endowment investments decreased $51.8 million, at fiscal year end, primarily due to Arizona voters passing Proposition 123 which amended the Arizona Constitution to increase distributions from the Land Endowments Fund from 2.5% to 6.9% of the average monthly market values for the immediately preceding five calendar years, except for a $259.3 million distribution during fiscal year 2016. Along with this distribution, the endowment investments decreased due to a net decrease in the fair value of investments of $63.5 million. These decreases were offset by realized gains of $166.4 million and receipts from land sales of $91.0 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 $2.7 billion net increase in appropriations for the General Fund. Some of the significant changes in the General Fund appropriations were: 1. $531.7 million increase due to prior fiscal year obligations that were paid in the current fiscal year per A.R.S. § 35-191. 2. $1.1 billion increase to the Department of Education’s original budget is primarily due to the basic state aid deferred payment from fiscal year 2015, which was appropriated as a supplemental appropriation in the fiscal year 2016 budget, adjustments related to the passage of Proposition 123, as well as additional state aid funding. 3. $576.8 million increase to the AHCCCS’ original budget is primarily due to supplemental appropriation increases for ACA adult expansion, Proposition 204 services, due to enrollment in excess of budgetary projections, and traditional Medicaid services. Additionally, appropriated amounts for voluntary payments from political subdivisions related to disproportionate share hospital and graduate medical education were increased from the original budget. 4. $258.5 million increase to the Universities’ original budget is primarily due to payment deferrals from fiscal year 2015, which were budgeted in fiscal year 2016, and for lease-purchase capital financing for research infrastructure facilities. 5. $134.7 million increase to the Department of Economic Security’s original budget is primarily due to payment deferrals from fiscal year 2015, which were appropriated as a supplemental appropriation in the fiscal year 2016 budget, as well as supplemental appropriations for certain Title XIX programs, and loans to the Department from the State’s Budget Stabilization Fund to fund program expenses while awaiting federal reimbursement. 6. $94.5 million increase to the Department of Child Safety’s original budget is primarily due to supplemental appropriation increases for both in-home preventative and out-of-home support services, emergency, residential and foster care placement, and child-care subsidies. The actual expenditures were less than the final budget by $1.1 billion. Of this amount, $92.0 million will continue as legislative multiple fiscal year spending authority for fiscal years 2016 and beyond, depending upon the budgetary - 30 - 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 143-152 of this report. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital assets: The State’s investment in capital assets for its governmental and business-type activities as of June 30, 2016 totaled $28.0 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 a 5% increase for business-type activities. Depreciation charges of the governmental and business-type activities for the fiscal year totaled $453.1 million. Major capital asset activity during the current fiscal year included the following: • The Universities’ additions to capital assets totaled $595.1 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 $672.6 million 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 fund- level financial statements as expenditures. Capital assets for the governmental and business-type activities as of June 30, 2016 are presented below (expressed in thousands): Governmental Activities 2016 $ 3,380,840 2,423,465 Land Buildings Improvements other than buildings 183,371 Equipment 941,394 Software and other intangibles 362,681 Collections (non-depreciable) Infrastructure 16,122,195 Construction in progress 1,463,870 Development in progress 25,522 Less: accumulated depreciation (1,931,651) Total $ 22,971,687 2015 $ 3,115,924 2,338,928 Business-type Activities 2015, 2016 as restated $ 238,533 $ 228,125 6,043,615 5,672,653 * 177,107 852,394 251,041 * 15,781,034 1,459,732 105,439 (1,842,095) $ 22,239,504 16,294 1,656,639 137,321 21,032 546,210 369,322 61,167 (4,015,263) $ 5,074,870 19,713 1,600,405 134,756 20,228 533,792 341,760 60,804 (3,784,439) $ 4,827,797 Total 2016 3,619,373 8,467,080 2015, as restated $ 3,344,049 8,011,581 199,665 2,598,033 500,002 21,032 16,668,405 1,833,192 86,689 (5,946,914) $ 28,046,557 196,820 2,452,799 385,797 20,228 16,314,826 1,801,492 166,243 (5,626,534) $ 27,067,301 $ * The fiscal year 2015 amounts have been reclassified for comparison with fiscal year 2016 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 6,822 center lane miles of roads (21,532 travel lane miles) and 4,858 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 3.66 was achieved for fiscal year 2016. The State manages its bridges using the Arizona Bridge Information and Storage System. To comply with federal standards, the State is expected to maintain its bridges to a condition where not more than 10.0% are classified as poor. The State’s most recent assessment indicated that 2.9% of the bridges were so classified for fiscal year 2016. - 31 - The State’s most notable and largest highway construction project started during fiscal year 2016 was for the design, construction, and 30-year maintenance of the Loop 202 South Mountain Freeway. The project is a 22 mile, 8 lane freeway that will complete the Loop 202 and Loop 101 freeway system. The contract was entered into on February 26, 2016 for $1.1 billion. Right-of-way cost estimates, not contractually committed, brings the total project cost estimate to $1.8 billion, not including financing costs. The project has incurred year-to-date expenditures of $314.3 million. More detailed information regarding capital assets is on pages 94 and 95. 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 Arizona Department of Administration (ADOA) and the School Facilities Board (SFB) issued refunding certificates of participation totaling $427.5 million to refinance existing debt to obtain debt service savings by taking advantage of lower market interest rates. • The Universities issued revenue bonds for $360.0 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. State of Arizona-Primary Government Outstanding Major Long-Term Debt as of June 30, 2016 (expressed in thousands) Governmental Activities Revenue bonds Grant anticipation notes Certificates of participation Capital leases Total 2016 $ 2,899,875 147,320 1,891,460 334,909 $ 5,273,564 2015 $ 3,141,190 194,670 2,030,805 408,784 $ 5,775,449 Business-type Activities 2016 $ 2,701,665 600,556 141,117 $ 3,443,338 2015 $ 2,675,430 637,986 168,960 $ 3,482,376 Total 2016 $ 5,601,540 147,320 2,492,016 476,026 $ 8,716,902 2015 $ 5,816,620 194,670 2,668,791 577,744 $ 9,257,825 More detailed information regarding long-term debt begins on page 111. ECONOMIC CONDITION AND OUTLOOK The Office of Economic Opportunity within the Department of Administration is forecasting the State to gain a projected 138,553 jobs, representing annual growth rate of 2.4%, over the two-year projected employment period of 2016 (quarter 3) to 2018 (quarter 2). The State’s fiscal year 2017 General Fund budget reflects projected growth in base revenues of 4.0%. The net revenues are projected to remain stable at $9.7 billion in fiscal year 2016 to fiscal year 2017. General Fund spending is projected to increase from $9.5 billion in fiscal year 2016 to $9.6 billion in fiscal year 2017. The budget includes increased spending for K-12 education formula changes, increases for University funding, and increased spending for ADOT projects. The General Fund fiscal year 2017 cash balance is projected to be a $66 million surplus. - 32 - Legislative discussions on the fiscal year 2017 General Fund budget also included analyzing the impact of budget decisions on estimated fiscal year 2018 and 2019 spending. The fiscal year 2018 General Fund budget is forecasted to have revenues of $9.8 billion and expenditures of $9.6 billion, with a $168 million surplus. After accounting for legislation enacted separately from the budget and technical adjustments, fiscal year 2018 revenues are projected to be $9.8 billion compared to the same spending of $9.6 billion. The fiscal year 2018 surplus is estimated to be $145 million, including the $66 million fiscal year 2017 ending balance. The structural surplus for fiscal year 2018 is estimated to be $103 million. The fiscal year 2018 spending includes statutory formula caseload growth and removal of fiscal year 2017 spending categorized as one-time in the fiscal year 2017 budget process. Fiscal year 2017 ongoing revenues are primarily based on a 4-sector consensus base growth rate of 4.6%, but also incorporate separately enacted tax law changes. It also includes $23 million in one-time fiscal year 2018 spending to complete School Facilities Board school construction projects started in fiscal year 2017. The fiscal year 2019 General Fund budget is forecasted to have revenues of $10.3 billion and expenditures of $9.8 billion, with a $467 million surplus. After accounting for legislation enacted separately from the budget and technical adjustments, fiscal year 2019 revenues are projected to be $10.2 billion compared to the same spending of $9.8 billion. The fiscal year 2019 budget is estimated to have a $418 million surplus, including the $145 million fiscal year 2018 ending balance. The structural surplus for fiscal year 2019 is also estimated to be $272 million. The fiscal year 2019 spending includes statutory formula caseload growth and removal of one-time fiscal year 2018 spending. Fiscal year 2019 ongoing revenues reflect the 4-sector consensus base growth rate of 4.6%, further adjusted for previously enacted tax law changes. 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. - 33 - BASIC FINANCIAL STATEMENTS BASIC FINANCIAL STATEMENTS (This page intentionally left blank) STATE OF ARIZONA STATEMENT OF NET POSITION JUNE 30, 2016 (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 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 $ 3,566 - $ 302,979 332,677 $ 306,545 332,677 COMPONENT UNITS $ 27,956 - 3,382,211 206,492 3,588,703 355,901 383,442 422,933 - 59,293 28,135 415,896 - 442,735 451,068 415,896 - 1,227 5,417 95,957 2,466 2,913 204,805 61,599 75,412 18,725 15,240 1,822,589 608,696 172,665 245,933 476,253 784,002 130,055 132,993 37,696 29,950 8,155,867 3,968 8,276 2,529 12,910 1,412 419,596 3 5,470 5,473 - 1,104,416 30,423 3,134 - 268,138 381,595 1,104,416 298,561 3,134 381,595 11,965 13,952 7,766 31,282 54,555 5,102,961 - 31,410 1,520,086 412,803 31,103 62,692 54,555 1,520,086 5,515,764 31,103 940,205 99,368 613 20,965,325 690,054 21,655,379 8,530 2,006,362 29,298,461 4,384,816 7,725,475 6,391,178 37,023,936 30,463 1,112,862 35,631,739 9,548,064 45,179,803 1,532,458 593,155 118,589 - 178,494 88,741 23,206 - 771,649 207,330 23,206 - 286 57,033 21,584 711,744 290,441 1,002,185 78,903 512,739 170,199 243,020 271,448 (61,599) 708,590 130,055 132,993 18,971 14,710 6,333,278 The Notes to the Financial Statements are an integral part of this statement. (Continued) - 38 - STATE OF ARIZONA STATEMENT OF NET POSITION JUNE 30, 2016 (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 $ 656,105 918,927 422,933 18,572 123,109 1,425,033 478,230 103,330 67,771 531,938 180,924 4,926,872 $ 198,967 1,483 95,382 28,135 327 35 87,146 3,500 172,468 28,200 248,609 20,131 884,383 $ 855,072 1,483 1,014,309 451,068 18,899 123,144 1,425,033 565,376 3,500 275,798 95,971 780,547 201,055 5,811,255 COMPONENT UNITS $ 8,566 8,106 50,250 88 67,010 86,459 372,809 89,083 3,836,769 5,256,330 166,491 9,807,941 352,340 3,586 57,296 1,397,355 3,465,317 23,206 99,675 5,398,775 86,459 725,149 3,586 146,379 5,234,124 8,721,647 23,206 266,166 15,206,716 2,343 2,865 810,631 815,839 14,734,813 6,283,158 21,017,971 882,849 235,358 - 117,114 209,864 249 352,472 209,864 249 367 - 235,358 327,227 562,585 367 19,722,730 1,761,694 21,484,424 34,592 40,231 75,058 5,388 455,262 23,175 10,980 728,390 - 391,445 8,509 30,887 40,231 75,058 5,388 455,262 23,175 10,980 391,445 736,899 30,887 97,292 137,660 5,362,418 349,287 228,493 486,947 5,590,911 - 17,709 (5,205,689) 59,293 123,691 274,821 77,002 123,691 (4,930,868) 21,373,312 $ The Notes to the Financial Statements are an integral part of this statement. - 39 - 3,228,120 $ 24,601,432 572,146 13,058 11,057 $ 728,145 STATE OF ARIZONA STATEMENT OF FINANCIAL POSITION UNIVERSITIES - AFFILIATED COMPONENT UNITS JUNE 30, 2016 (Expressed in Thousands) ASSETS Cash and cash equivalent investments $ Receivables: Pledges receivable Other receivables Total receivables 209,445 51,069 260,514 Investments: Investments in securities Other investments Total investments 1,666,652 74,616 1,741,268 Net direct financing leases Property and equipment, net of accumulated depreciation Other assets 69,317 310,847 61,267 Total Assets 2,533,950 LIABILITIES Accounts payable and accrued liabilities Liability under endowment trust agreements Long-term debt Deferred revenue Other liabilities 50,815 342,684 504,099 27,820 47,795 Total Liabilities 973,213 NET ASSETS Permanently restricted Temporarily restricted Unrestricted Total Net Assets 90,737 996,251 513,189 51,297 $ 1,560,737 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, 2016 (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 807,320 15,152,650 168,719 6,136,303 1,585,620 858,958 208,563 3,176,183 210,326 28,304,642 $ 4,637,567 1,014,941 5,652,508 196,179 423,690 166,075 69,021 120,146 143,697 72,261 1,191,069 $ 2,519,048 1,468,139 3,987,187 139,719 11,826,276 21,613 1,312,699 50,387 134,446 47,107 13,532,247 1,448,402 4,160 1,452,562 $ 33,957,150 $ 5,178,256 $ 14,984,809 $ 34,859 164,544 199,403 $ 29,044 29,744 58,788 $ 26,795 2,345 29,140 $ $ $ $ 11,911 11,911 $ 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 - 4,975 856,434 9,235 870,644 882,555 NET (EXPENSE) REVENUE AND CHANGES IN NET POSITION PRIMARY GOVERNMENT TOTAL GOVERNMENTAL BUSINESS-TYPE PRIMARY COMPONENT ACTIVITIES ACTIVITIES GOVERNMENT UNITS $ (471,422) (2,897,709) 18,969 (4,754,583) (1,415,087) 275,619 (79,960) (3,176,183) (210,326) (12,710,682) $ $ (12,710,682) (471,422) (2,897,709) 18,969 (4,754,583) (1,415,087) 275,619 (79,960) (3,176,183) (210,326) (12,710,682) (658,206) 457,358 (200,848) (658,206) 457,358 (200,848) (200,848) (12,911,530) $ 6,455,837 4,511,674 318,902 51,735 1,823,998 616,580 58,250 115,097 75,042 247,462 (465,840) 13,808,737 1,098,055 20,275,257 $ 21,373,312 $ 20,980 (132,455) (111,475) 69,927 68,795 548 65,143 5,472 465,840 6,525,764 4,511,674 318,902 51,735 1,823,998 616,580 127,045 115,645 75,042 312,605 5,472 - 12,443 3,892 7,789 50 32,462 4,384 - 675,725 474,877 2,753,243 14,484,462 1,572,932 23,028,500 61,020 (50,455) 778,600 3,228,120 $ 24,601,432 $ 728,145 - 43 - STATE OF ARIZONA STATEMENT OF ACTIVITIES UNIVERSITIES - AFFILIATED COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2016 (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 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 Net Assets - Beginning Transfers Net Assets - Ending $ TEMPORARILY PERMANENTLY RESTRICTED RESTRICTED 29,878 $ 50,230 61,778 (8,164) 17,344 31,244 189,233 186,728 $ 90 (11,658) 4,205 (166,687) TOTAL 40,680 $ (7,843) (96) (22,546) 257,286 50,230 61,868 (27,665) 17,344 35,353 - 371,543 12,678 10,195 394,416 195,007 9,524 17,659 8,320 103,735 13,167 20,909 17,546 18,136 - - 195,007 9,524 17,659 8,320 103,735 13,167 20,909 17,546 18,136 404,003 - - 404,003 (32,460) 12,678 10,195 83,546 211 501,532 (1,021) 985,246 810 51,297 $ 513,189 The Notes to the Financial Statements are an integral part of this statement. - 44 - $ 996,251 (9,587) 1,570,324 $ 1,560,737 STATE OF ARIZONA BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2016 (Expressed in Thousands) TRANSPORTATION & AVIATION PLANNING, HIGHWAY MAINTENANCE & SAFETY 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 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 1,765 $ - LAND ENDOWMENTS FUND $ 28 OTHER GOVERNMENTAL FUNDS $ 1,773 TOTAL $ 3,566 1,766,144 42,128 231,615 17,024 94,100 358,311 855,238 5,470 2,947,097 422,933 357,456 26,665 191,869 622,262 130,055 132,993 29,988 10,232 74,157 3,472 14,384 65,096 22,584 6,179 170,199 244,165 4,111 - 81,126 27,764 16,040 75,027 - 512,739 170,199 274,302 238,128 703,398 130,055 132,993 127,599 16,411 3 - - - 3 7,125 17 3,134 54,555 3,376,391 919,789 547 1,354,847 5,102,961 5,973,875 560,944 29,859 1,653,241 1,487,858 30,423 3,134 54,555 5,102,961 12,358,354 359,493 578,239 $ $ 104,859 10,150 $ $ 7,288 188 $ $ 40,224 53,193 $ $ 511,864 641,770 42,128 2,994 123,109 1,136,171 465,873 83,369 78,632 2,870,008 17,024 15,575 147,992 12,457 1,787 309,844 358,311 1 108,009 473,797 5,470 3 140,870 12,356 11,560 1,361 265,037 422,933 18,572 123,109 1,425,033 478,230 107,386 189,789 3,918,686 357,300 561 403,150 508 761,519 9,669 91,833 126,484 (78,903) 149,083 6,179 746,814 291,449 1,044,442 5,118,253 (21,325) 5,096,928 741,196 646,500 1,387,696 5,134,101 1,579,843 1,064,433 (100,228) 7,678,149 . $ 3,376,391 $ 1,354,847 The Notes to the Financial Statements are an integral part of this statement. - 45 - $ 5,973,875 $ 1,653,241 $ 12,358,354 STATE OF ARIZONA RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION JUNE 30, 2016 (Expressed in Thousands) Total fund balances - governmental funds $ 7,678,149 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. 22,889,252 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. 761,519 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. (232,543) The allocation of the internal service funds accumulated net gain results in an amount due to business-type activities, which is not reported in the governmental funds. (83,295) 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 118,589 585,991 704,580 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 (87,676) (3,779,440) (2,899,875) (147,320) (1,891,460) (22,526) (330,247) (176) (22,179) (492,349) (162,435) (25,160) (9,860,843) 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. (253,062) Deferred inflows of resources related to pensions are applicable to future reporting periods and, therefore, are not reported in the governmental funds. (230,445) Net position of governmental activities $ The Notes to the Financial Statements are an integral part of this statement. - 46 - 21,373,312 STATE OF ARIZONA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2016 (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 certificates of participation issued Payment to refunded certificates of participation escrow agent Payment to refunded bond escrow agent Premium on debt issued Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning, as restated Fund Balances - Ending $ 5,609,439 4,513,193 65,580 40,115 8,213 537,215 13,079,163 117,163 30,267 88,975 22,918 6,408 98,907 240,677 24,458,233 AVIATION PLANNING, HIGHWAY MAINTENANCE & SAFETY FUND $ 262,971 9,620 1,661,394 990,880 122,356 11,486 21,599 6,977 3,087,283 LAND ENDOWMENTS FUND $ 3,796 65,926 51,402 91,022 294 212,440 OTHER GOVERNMENTAL FUNDS $ 578,557 26 253,322 2,000 154,391 79,365 96,344 298,749 299,608 67,765 26,691 136,729 85,340 16,526 2,095,413 TOTAL $ 6,450,967 4,513,219 318,902 51,735 1,823,998 616,580 14,166,387 542,064 299,608 175,444 188,667 159,647 91,748 98,907 91,022 264,474 29,853,369 591,999 14,529,077 43,802 5,176,055 1,165,609 62,545 1,855,234 799,702 1,320,941 6,622 222,529 4,838 1,765 - 122,314 538,755 121,207 734,167 286,204 16,109 125,304 8 714,313 15,074,454 165,009 6,132,751 1,456,651 815,811 189,614 3,176,183 145,717 32,801 108,971 23,711,810 11,178 647 637,970 2,770,438 68 235,822 360,494 216,256 66,993 2,587,811 517,389 249,704 814,002 29,305,881 746,423 316,845 (23,382) (492,398) 263,965 (888,098) 1,143 263,545 737 (304,311) 60 - (24,944) - 650,115 (150,626) 3,579 163,995 914,817 (1,367,979) 1,203 3,579 427,540 (296,245) 33,498 (622,192) 124,231 24,852 (303,514) 13,331 1,031,111 (24,944) (48,326) 5,145,254 (126,596) (62,630) 25,435 503,272 10,874 1,376,822 (422,841) (62,630) 58,933 (447,378) 100,110 7,578,039 149,083 $ 1,044,442 The Notes to the Financial Statements are an integral part of this statement. - 47 - $ 5,096,928 $ 1,387,696 547,488 $ 7,678,149 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, 2016 (Expressed in Thousands) Net change in fund balances - total governmental funds $ 100,110 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 814,002 Infrastructure adjustment (16,346) Donated capital assets 79,300 Depreciation expense (141,629) 735,327 The net expense of the internal service funds allocable to governmental activities is included in the Statement of Activities. 6,721 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 4,870 Income taxes (1,545) Operating grants 2,365 Other revenue 655 6,345 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 2016, 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 (15,980) Accrued interest on land sales' contracts (55,700) (71,680) 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 2016 266,399 Pension expense and pension-related grant expense (385,740) The Notes to the Financial Statements are an integral part of this statement. (119,341) 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, 2016 (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 (24,245) Compensated absences 5,814 Pollution remediation obligations (5,447) Interest on long-term obligations 4,466 OPEB obligations (69,867) Other expenses 111 (89,168) 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 certificates of participation issued Premium on debt issued (427,540) (58,933) (486,473) 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 517,389 Payment to refunded certificates of participation escrow agent 422,841 Payment to refunded bond escrow agent Debt premium/discount amortization 62,630 50,157 Amortization of deferred losses on refundings (15,245) 1,037,772 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 funds vehicle purchases financed by governmental fund leases Change in net position of governmental activities (3,579) (17,979) (21,558) $ The Notes to the Financial Statements are an integral part of this statement. - 49 - 1,098,055 STATE OF ARIZONA STATEMENT OF NET POSITION PROPRIETARY FUNDS JUNE 30, 2016 (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 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 $ 274,703 88,968 $ 28,276 332,677 117,524 $ 302,979 332,677 206,492 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS $ 435,114 213,428 59,293 28,135 202,468 59,293 28,135 415,896 - 834 2,913 169,595 75,339 38,648 8,096 14,960 887,484 95,957 1,632 35,210 73 175 10,629 280 912,329 95,957 2,466 2,913 204,805 75,412 38,823 18,725 15,240 1,799,813 33,320 5,192 1,516 2,560 14,710 492,412 5,470 268,138 381,595 - 5,470 268,138 381,595 - 31,410 1,187,601 412,803 21,528 332,485 9,575 31,410 1,520,086 412,803 31,103 - 683,597 6,457 690,054 - 4,361,477 7,353,619 8,241,103 23,339 371,856 1,284,185 4,384,816 7,725,475 9,525,288 82,435 82,435 574,847 173,097 88,741 23,206 285,044 5,397 5,397 178,494 88,741 23,206 290,441 7,164 7,164 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, 2016 (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 $ 187,091 59,254 32,940 172,318 248,609 18,528 718,740 $ 11,876 1,483 36,128 28,135 327 35 54,206 3,500 60,519 150 28,200 1,603 226,162 $ 198,967 1,483 95,382 28,135 327 35 87,146 3,500 60,519 172,468 28,200 248,609 20,131 944,902 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS $ 144,241 1,569 33 67,771 1,366 13,898 228,878 3,586 55,832 1,354,646 3,465,317 23,206 99,569 5,002,156 5,720,896 352,340 1,464 42,709 106 396,619 622,781 352,340 3,586 57,296 1,397,355 3,465,317 23,206 99,675 5,398,775 6,343,677 372,809 1,407 57,329 3,296 145,922 580,763 809,641 113,210 209,864 249 323,323 3,904 3,904 117,114 209,864 249 327,227 4,913 4,913 1,731,898 29,796 1,761,694 81,838 8,509 30,887 391,445 - 391,445 8,509 30,887 - 349,287 228,493 - 349,287 228,493 - 132,854 59,293 123,691 58,672 59,293 123,691 191,526 2,481,928 $ 662,897 $ Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds. Net position of business-type activities 83,295 $ The Notes to the Financial Statements are an integral part of this statement. - 51 - 3,144,825 3,228,120 (314,381) $ (232,543) STATE OF ARIZONA STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2016 (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 $594,602 Auxiliary enterprises, net of scholarship allowances of $29,646 Educational department Other Unemployment assessments Workers' compensation assessments Intergovernmental Nongovernmental grants and contracts Fines, forfeitures, and penalties Settlement income Other Total Operating Revenues $ $ - Change in Net Position Total Net Position - Beginning, as restated $ 1,066,375 2,497 1,068,872 908,286 42,265 25,676 8,675 540 10,987 996,429 472,792 2,082,902 255,753 2,820,303 25,676 288,475 540 10,987 5,484,636 (624,588) 897,210 47,583 33,064 22,987 49,434 11,562 1,061,840 7,032 69,927 314,915 336,897 (1,357) 60,555 (25,053) 13,781 (136,907) (16,039) 616,719 (27) 11,671 2,257 (15,002) (3,510) (4,611) 69,927 314,915 336,897 (1,384) 72,226 (25,053) 16,038 (15,002) (136,907) (19,549) 612,108 970 16 294 (1) (4,376) (3,097) (480,661) 11,911 5,472 682,432 - 468,181 548 (216,592) (12,480) 12,459 5,472 682,432 (216,592) 3,935 19,050 1,962 (14,640) 219,154 2,262,774 $ 1,983,261 413,330 122,457 976,452 482,955 3,928 529,697 292,675 2,056 2,748 50,489 4,860,048 1,174,616 255,753 2,778,038 279,800 4,488,207 (1,097,380) NON-OPERATING REVENUES (EXPENSES) Share of State sales tax revenues Intergovernmental Gifts and donations Gain (loss) 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 $ 976,452 482,955 3,928 729 2,056 2,748 353 1,469,221 413,330 122,457 528,968 292,675 50,136 3,390,827 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) Total Net Position - Ending 1,983,261 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS 2,481,928 252,137 410,760 $ 662,897 Change in net position of enterprise funds Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds Change in net position of business-type activities The Notes to the Financial Statements are an integral part of this statement. - 52 - 471,291 2,673,534 $ 3,144,825 $ 471,291 3,586 $ 474,877 10,307 (242,850) $ (232,543) (This page intentionally left blank) STATE OF ARIZONA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS TOTAL ENTERPRISE OTHER FUNDS UNIVERSITIES 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 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 (Used) by Capital and Related Financing Activities 1,974,552 $ 490,867 489,231 - $ 490,867 489,231 1,974,552 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS $ - 418,251 - 418,251 - 119,846 835,197 7,294 - 729 2,748 119,846 835,926 7,294 2,748 1,044,578 - (1,198,203) (2,682,298) (260,938) (6,763) 39,316 (753,746) (527,238) (56,344) 6,121 406,114 (1,725,441) (2,738,642) (260,938) (6,763) 45,437 (347,632) (986,014) (49,231) (13,244) 2,168 (4,376) (6,119) 254,232 67,516 1,731,567 738,370 (249,903) (989,323) 12,593 (14,944) (180,511) - 254,232 67,516 1,731,567 738,370 (249,903) (989,323) (14,944) (180,511) 12,593 1,962 (14,640) - 1,565,052 (195,455) 1,369,597 (12,678) 446 335,789 17,798 26,854 34,289 (520,203) 2 548 (2,662) 448 2,276 335,789 17,798 27,402 34,289 (522,865) 262 (1,989) (162,225) - (162,225) (187) (324,405) - (324,405) (1,312) (593,769) (950) (591,657) The Notes to the Financial Statements are an integral part of this statement. (2,112) (Continued) - 54 - STATE OF ARIZONA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS TOTAL ENTERPRISE OTHER FUNDS UNIVERSITIES GOVERNMENTAL ACTIVITIES INTERNAL SERVICE 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 Net Cash Provided (Used) by Investing Activities 518,484 38,643 661,312 13,253 1,179,796 51,896 15 (724,632) (167,505) 1,896 (660,395) 16,066 1,896 (1,385,027) (151,439) 15 Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning, as restated 52,144 585,135 224,613 341,292 Cash and Cash Equivalents - Ending RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation and amortization Miscellaneous income (expense) Net changes in assets, deferred outflows of resources, liabilities, and deferred inflows of resources: (Increase) in receivables, net of allowances (Increase) in due from U.S. Government (Increase) decrease in due from other Funds Decrease in inventories, at cost (Increase) decrease in other assets Decrease in deferred pension outflows of resources Increase (decrease) in accounts payable Increase (decrease) in accrued liabilities (Decrease) in due to U.S. Government (Decrease) in due to other Funds (Decrease) in due to others Increase (decrease) in unearned revenue (Decrease) in accrued insurance losses Increase in net OPEB obligation Increase in net pension liability (Decrease) in other liabilities (Decrease) in deferred pension inflows of resources Net Cash Provided (Used) by Operating Activities SCHEDULE OF NONCASH INVESTING, CAPITAL AND NON-CAPITAL FINANCING ACTIVITIES Contribution of capital assets from other Funds Gifts and conveyances of capital assets (Loss) on disposal of capital assets, net (Decrease) in fair value of investments (Decrease) in fair value of investments held by trustee Amortization of bond discount Amortization of bond premium Refinancing long-term debt Total Noncash Investing, Capital and Non-capital Financing Activities 276,757 926,427 $ 637,279 $ 565,905 $ $ (1,097,380) $ 472,792 $ 1,203,184 (19,732) 454,846 $ 435,114 (624,588) $ 7,032 279,800 (8,886) 8,675 1,931 288,475 (6,955) 22,987 (4,157) (293) 477 (772) 12,080 (9,838) 10,202 18,709 45,225 93,459 (96,529) (1,537) (15) 892 195 1,908 1,081 11,114 (51) (55) (49) (79) (90,063) 1,464 1,443 (11) (3,521) (1,830) (15) 1,369 (577) 13,988 (8,757) 21,316 (51) (55) (49) 18,630 (90,063) 46,689 94,902 (11) (100,050) (25,978) (5,192) 8,461 257 1,306 1,799 16,458 (532) (7,767) (1) (16,809) 1,407 521 (890) (5,021) $ (753,746) $ $ $ $ (347,632) $ (6,119) - $ 3,428 (13,714) (7,317) (10,767) (2,545) 11,073 259,762 - $ (27) (5,276) - - $ 3,428 (13,741) (12,593) (10,767) (2,545) 11,073 259,762 19,050 - 239,920 (5,303) $ 234,617 19,050 $ The Notes to the Financial Statements are an integral part of this statement. - 55 - 406,114 $ STATE OF ARIZONA STATEMENT OF FIDUCIARY NET POSITION FIDUCIARY FUNDS JUNE 30, 2016 PENSION AND OTHER (Expressed in Thousands) EMPLOYEE BENEFIT TRUST FUNDS ASSETS Cash Cash and pooled investments with State Treasurer $ 325,159 INVESTMENT AGENCY TRUST FUNDS FUNDS $ - $ 25,166 - 5,823 64,791 Receivables, net of allowances: Accrued interest and dividends Securities sold Futures contracts receivable Contributions Court fees Due from other Funds Other Total receivables 57,573 883,247 27,970 75,902 739 13,791 32,708 1,091,930 2,506 2,506 1 2 3 Investments, at fair value: Short-term investments Fixed income securities Corporate stocks Global tactical asset allocation Real assets Real estate Private equity Private credit Collateral investment pool Other investments Total investments 970,923 9,867,982 21,200,882 1,760,189 794,790 4,167,013 1,247,968 872,424 696,090 1,172,530 42,750,791 2,968,069 81,439 3,049,508 1,343 1,343 - - 82,032 782,460 1,508 4,004 - - 44,171,884 3,057,837 957,303 926 - - 33,215 484,980 - 144 - 696,088 15,432 13,791 6,514 81,439 - 10,384 946,919 - 1,250,020 81,583 957,303 613 - - 40,743,536 2,178,641 - 2,976,254 - 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 Futures 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 $ 42,922,177 $ 2,976,254 The Notes to the Financial Statements are an integral part of this statement. - 56 - $ - STATE OF ARIZONA STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FIDUCIARY FUNDS FOR THE YEAR ENDED JUNE 30, 2016 (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 TRUST FUNDS $ 1,276,675 1,770,498 22,316 36,761 8,580 $ - Investment income: Net increase (decrease) in fair value of investments Interest income Dividends Other investment income Securities lending income Total investment income (12,182) 135,940 329,733 134,736 11,380 599,607 2,866 16,932 57 19,855 Less investment expenses: Investment activity expenses Securities lending expenses Net investment income 314,423 1,551 283,633 1,560 48 18,247 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 in trust for: Pension benefits Other post-employment benefits Pool participants Net Position - Beginning Net Position - Ending 4,267,961 14,002 (4,123,356) - 158,607 11,907 - 3,410,370 176,854 3,954,957 20,038 - 307,282 33,424 3,525 17,394 - 4,319,226 17,394 (826,415) (82,441) 43,831,033 $ 42,922,177 159,460 2,816,794 $ 2,976,254 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, 2016 (Expressed in Thousands) WATER INFRASTRUCTURE FINANCE AUTHORITY ASSETS Current Assets: Cash Cash and pooled investments with State Treasurer Cash held by trustee 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 287,340 1,227 - OTHER COMPONENT UNITS $ 27,956 68,561 5,417 TOTAL $ 27,956 355,901 1,227 5,417 8,268 5,667 302,502 3,968 8 2,529 7,243 1,412 117,094 3,968 8,276 2,529 12,910 1,412 419,596 915,664 99,368 - 11,965 13,952 7,766 24,541 613 11,965 13,952 7,766 940,205 99,368 613 - 8,530 8,530 11 1,015,043 30,452 97,819 30,463 1,112,862 1,317,545 214,913 1,532,458 214 49,412 - 72 7,621 21,584 286 57,033 21,584 49,626 29,277 78,903 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, 2016 (Expressed in Thousands) WATER INFRASTRUCTURE FINANCE AUTHORITY LIABILITIES Current Liabilities: Accounts payable and other current liabilities Accrued liabilities Current portion of long-term debt Current portion of other long-term liabilities Total Current Liabilities $ 7,595 37,405 88 45,088 OTHER COMPONENT UNITS $ 8,566 511 12,845 21,922 TOTAL $ 8,566 8,106 50,250 88 67,010 Noncurrent Liabilities: Unearned revenue Net pension liability Long-term debt Total Noncurrent Liabilities 2,343 1,942 709,140 713,425 923 101,491 102,414 2,343 2,865 810,631 815,839 Total Liabilities 758,513 124,336 882,849 164 203 367 11 34,581 34,592 62,573 545,645 265 34,719 26,501 13,058 10,792 97,292 572,146 13,058 11,057 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 $ 608,494 The Notes to the Financial Statements are an integral part of this statement. - 59 - $ 119,651 $ 728,145 STATE OF ARIZONA COMBINING STATEMENT OF ACTIVITIES COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) PROGRAM REVENUES OPERATING EXPENSES FUNCTIONS/PROGRAMS Water Infrastructure Finance Authority $ Other Component Units Total 34,859 CHARGES FOR GRANTS AND SERVICES CONTRIBUTIONS $ 29,044 164,544 $ 199,403 $ 29,744 $ 58,788 2,345 $ 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 Net Position - Ending The Notes to the Financial Statements are an integral part of this statement. - 60 - 26,795 29,140 NET (EXPENSE) REVENUE AND CHANGES IN NET POSITION WATER $ $ INFRASTRUCTURE OTHER FINANCE COMPONENT AUTHORITY UNITS 20,980 $ TOTAL - $ 20,980 - (132,455) (132,455) 6,250 27,230 581,264 12,443 3,892 1,539 50 32,462 4,384 (77,685) 197,336 12,443 3,892 7,789 50 32,462 4,384 (50,455) 778,600 608,494 $ 119,651 $ 728,145 - 61 - STATE OF ARIZONA COMBINING STATEMENT OF FINANCIAL POSITION UNIVERSITIES - AFFILIATED COMPONENT UNITS JUNE 30, 2016 (Expressed in Thousands) ARIZONA STATE UNIVERSITY FOUNDATION ASSETS Cash and cash equivalent investments $ 18,605 UNIVERSITY OF ARIZONA FOUNDATION $ 38,573 ARIZONA CAPITAL FACILITIES FINANCE CORPORATION $ 4,403 OTHER COMPONENT UNITS $ 29,156 TOTAL $ 90,737 Receivables: Pledges receivable Other receivables Total receivables 132,492 7,002 139,494 23,854 23,854 37 37 53,099 44,030 97,129 209,445 51,069 260,514 Investments: Investments in securities Other investments Total investments 713,560 60,870 774,430 741,536 741,536 16,800 16,800 194,756 13,746 208,502 1,666,652 74,616 1,741,268 22,820 - 40,899 5,598 69,317 12,793 33,921 11,858 9,363 144,123 3,316 142,073 14,667 310,847 61,267 1,002,063 825,184 209,578 497,125 2,533,950 9,609 3,077 6,870 31,259 50,815 113,659 103,495 28,887 200,188 6,574 252,699 - 28,837 147,905 27,820 12,334 342,684 504,099 27,820 47,795 255,650 209,839 259,569 248,155 973,213 432,262 289,496 24,655 484,140 118,785 12,420 (49,991) 79,849 104,908 64,213 996,251 513,189 51,297 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 $ 746,413 $ 615,345 The Notes to the Financial Statements are an integral part of this statement. - 62 - $ (49,991) $ 248,970 $ 1,560,737 STATE OF ARIZONA COMBINING STATEMENT OF ACTIVITIES UNIVERSITIES - AFFILIATED COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2016 (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 $ $ 14,354 9,669 14 7,790 $ 61,725 34,271 28,216 (3,496) 17,344 7,410 TOTAL $ 257,286 50,230 61,868 (27,665) 17,344 35,353 77,075 31,827 145,470 394,416 86,612 32,690 1,563 668 10,348 66,255 10,716 4,979 8,827 - 128 8,917 11,809 12,142 17 42,012 9,524 6,943 8,320 57,149 4,340 7,537 4,736 7,771 195,007 9,524 17,659 8,320 103,735 13,167 20,909 17,546 18,136 131,881 90,777 33,013 148,332 404,003 (13,702) (1,186) 629,047 (48,805) 251,832 (49,991) $ 248,970 738,250 $ 75,083 1,689 (8,610) 8,913 OTHER COMPONENT UNITS 140,044 8,163 Net Assets - Beginning Net Assets - Ending 120,478 1,605 22,294 (15,573) 11,240 ARIZONA CAPITAL FACILITIES FINANCE CORPORATION UNIVERSITY OF ARIZONA FOUNDATION 746,413 $ 615,345 The Notes to the Financial Statements are an integral part of this statement. - 63 - $ (2,862) (9,587) 1,570,324 $ 1,560,737 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS INDEX Page Note 1. Summary of Significant Accounting Policies ------A. Reporting Entity -----------------------------------B. Basis of Presentation ------------------------------C. Measurement Focus and Basis of Accounting -----------------------------------------D. Deposits and Investments ------------------------E. Taxes Receivable ----------------------------------F. Inventories -----------------------------------------G. Capital Assets -------------------------------------H. Deferred Outflows of Resources ----------------I. Investment Earnings ------------------------------J. Scholarship Allowances --------------------------K. Unearned Revenue --------------------------------L. Pensions ---------------------------------------------M. Compensated Absences --------------------------N. Long-Term Obligations --------------------------O. Deferred Inflows of Resources ------------------P. Net Position/Fund Balances ---------------------Q. New Accounting Pronouncements -------------- 65 65 69 71 71 72 72 72 73 73 73 74 74 74 74 74 74 76 Note 2. Deposits and Investments ------------------------------ 76 A. Deposits and Investment Policies ---------------- 76 B. Custodial Credit Risk – Deposits and Investments ------------------------ 78 C. Interest Rate Risk ----------------------------------- 78 D. Credit Risk ------------------------------------------ 80 E. Concentration of Credit Risk --------------------- 81 F. Foreign Currency Risk ---------------------------- 82 G. Fair Value Measurement of Investments -------- 82 H. Securities Lending --------------------------------- 88 I. Derivatives ------------------------------------------ 90 J. State Treasurer’s Separately Issued Financial Statements ----------------------------- 91 Note 3. Receivables/Unavailable Revenue/ Unearned Revenue ------------------------------------A. Taxes Receivable ----------------------------------B. Unavailable Revenue -----------------------------C. Unearned Revenue --------------------------------- Page 92 92 92 93 Note 4. Capital Assets --------------------------------------------- 94 Note 5. Pension Benefits ------------------------------------------ 95 A. Arizona State Retirement System --------------- 96 B. Public Safety Personnel Retirement System and Corrections Officer Retirement Plan ----- 99 C. Elected Officials’ Retirement Plan --------------105 Note 6. Other Post-Employment Benefits ----------------------108 A. Plan Description ------------------------------------108 - 64 - B. Summary of Significant Accounting Policies --------------------------------------- 109 C. Funding Policy -------------------------------- 109 D. Annual OPEB Cost and Net OPEB Obligation ------------------------------------ 109 E. Funded Status and Funding Progress ----- 110 F. Actuarial Methods and Assumptions ----- 110 Note 7. Long-Term Obligations --------------------------- 111 A. Revenue Bonds ------------------------------- 111 B. Grant Anticipation Notes ------------------- 116 C. Certificates of Participation ---------------- 117 D. Leases ------------------------------------------ 120 E. Compensated Absences --------------------- 121 F. Changes in Long-Term Obligations ------- 122 Note 8. Interfund Transactions ---------------------------- 123 Note 9. Accounting Changes ------------------------------ 124 A. Fund Financial Statements ------------------ 124 B. Government-wide Financial Statements - 124 Note 10. Governmental Fund Balances -------------------- 125 Note 11. Deficit Net Position -------------------------------- 125 Note 12. Joint Ventures -------------------------------------- 126 A. Large Binocular Telescope Corporation - 126 B. Giant Magellan Telescope Organization - 126 Note 13. Commitments, Contingencies, and Compliance ---------------------------------- 126 A. Insurance Losses ----------------------------- 126 B. Litigation -------------------------------------- 128 C. Accumulated Sick Leave -------------------- 128 D. Unclaimed Property -------------------------- 129 E. Construction Commitments ---------------- 129 F. Arizona State Lottery ------------------------ 129 Note 14. Tobacco Settlement -------------------------------- 129 Note 15. Subsequent Events --------------------------------- 130 Note 16. Discretely Presented Component Unit Disclosures --------------------------------------- 130 A. Summary of Significant Accounting Policies --------------------------------------- 131 B. Deposits and Investments ------------------- 133 C. Program Loans -------------------------------- 135 D. Pledges Receivable -------------------------- 135 E. Direct Financing Lease Agreements ------ 136 F. Capital Assets --------------------------------- 136 G. Long-Term Obligations --------------------- 137 H. Conduit Debt ---------------------------------- 139 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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. 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 - 65 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 of Trustees and 233 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 850164416, (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) 2555575, 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 100 North 15th Avenue, Suite 103, Phoenix, AZ 85007, (602) 364-1323. 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 100 North 15th Avenue, Suite 103, Phoenix, AZ 85007, (602) 364-1323. 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 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. - 66 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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) 845-1200. 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 fund-raising 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 (ASU 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 the 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. 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. - 67 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 Thunderbird School of Global Management (Thunderbird) – The 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 the NAU for advancement of its mission. The restricted resources of the NAU Foundation can only be used by, or for the benefit of the 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 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 - 68 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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. 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. - 69 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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 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. - 70 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 Additionally, the State reports the following fund types: Internal Service Funds – account for insurance coverage, employee benefits, automotive maintenance and operation, highway equipment rentals, data processing, telecommunications, information technology, personnel administration, postage and mailing, and surplus material services provided to State agencies on a cost-reimbursement basis. 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. D. DEPOSITS AND INVESTMENTS 1. 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. - 71 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 • 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 based on an evaluation bid. 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. The derivative instruments held by the ASRS consist of futures, forward contracts, options, swaps, rights, and warrants. Fair value of derivative instruments are determined by the custodial agent and reported on the Fiduciary Statement of Net Position. 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. For the PSPRS, the EORP, and the CORP, investments are reported at fair value. Non-publicly traded assets are managed by external managers, who value the investments under their management in accordance with their established valuation policies. Short term investments are reported at cost plus accrued interest. A schedule of investments measured at fair value and additional information regarding the inputs used to determine the fair value of investments are provided in Note 2. 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, 2016. Sales and motor vehicle and fuel tax receivables represent amounts that are earned by the State in the fiscal period ended June 30, 2016, 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 or, if donated, at acquisition value. 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. - 72 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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 governmentwide 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 to approximately 9.2 million acres of land acquired through U.S. Government land grants in the early 1900’s. The State’s unit of account for trust land is total acres for purposes of applying GASB requirements. Grazing lease agreements with open recreation use comprise the primary use of trust land and the nominal charge received from lease agreements fund the cost of the State’s stewardship responsibilities. Trust land is classified as a capital asset. It does not meet the GASB definition of an investment as it’s not held primarily for the purpose of income or profit nor does it have a present service capacity based solely on its ability to generate cash or to be sold to generate cash. The State acquired a substantial portion of trust land at no cost and its acquisition value has not been reliably estimated. Accordingly, trust land is not reported in the accompanying financial statements. 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 acquisition value if donated. 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 therefore 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. - 73 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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 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 therefore 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. - 74 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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. 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 below-trend 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. - 75 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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, 2016, was $460.8 million. Q. NEW ACCOUNTING PRONOUNCEMENTS GASB Statement No. 72, Fair Value Measurement and Application. This Statement requires measurement of certain assets and liabilities at fair value using a consistent and more detailed definition of fair value and accepted valuation techniques. In addition, it provides for enhanced disclosures about fair value measurements. This Statement is effective for financial statements for fiscal years beginning after June 15, 2015. The State has implemented the requirements of this standard. GASB Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets that are not within the Scope of GASB Statement No. 68, and amendments to certain provisions of GASB Statements No. 67 and 68. This Statement establishes a single framework for the presentation of information about pensions, which will enhance the comparability of pension-related information reported by employers and non-employer contributing entities. This Statement is effective for financial statements for fiscal years beginning after June 15, 2015. The State has implemented the requirements of this standard but they had no effect on the financial statements. GASB Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. This Statement reduces the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and nonauthoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP. This Statement is effective for financial statements for fiscal years beginning after June 15, 2015. The State has implemented the requirements of this standard but they had no effect on the financial statements. GASB Statement No. 79, Certain External Investment Pools and Pool Participants. The Statement establishes specific criteria used to determine whether a qualifying external investment pool may elect to use an amortized cost exception to fair value measurement. This Statement is effective for financial statements for fiscal years beginning after June 15, 2015. The State has implemented the requirements of this standard but they had no effect on the financial statements. 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. - 76 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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 Dodd-Frank Act of 2010. 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 $1.6 million was received as payout of funds being held by the Indenture Trustee for Lehman Brothers securities, with $1.2 million distributed to the participants. 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, 2016, the carry or cost basis and the fair value for the Lehman Brothers Pool were $24.1 million and $2.1 million, respectively. There was a distribution in October 2016, 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. 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 market value. 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 - 77 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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 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 regard to custodial credit risk for investments. As of June 30, 2016, the State had $61.9 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. - 78 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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. 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, 2016 (expressed in thousands): Investment Type Asset backed securities Certificates of deposit (negotiable) Commercial mortgage backed securities Commercial paper Corporate notes & bonds 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 $ 559,631 169,967 141,579 1,307,003 2,090,897 330,100 353,859 1,872,260 1,176,729 488,319 1,412,980 206,249 1,955,839 1,057 Weighted Average Maturity (in years) 1.91 0.09 29.95 0.08 3.15 1.82 0.05 0.01 17.63 21.67 1.35 1.91 1.85 1.45 $ 12,066,469 4.13 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, 2016 (expressed in thousands): Investment Type Asset backed securities Commercial mortgage backed securities Corporate bonds Government bonds Government mortgage backed securities U.S. Treasury securities Total Fair Value $ 10,208 55,905 1,572,433 769,082 510,637 226,050 $ 3,144,315 Effective Duration (in years) 3.60 3.70 4.90 6.90 1.60 0.40 4.50 The PSPRS, the EORP, the CORP, and the U of A do not have a formal policy in regard 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. - 79 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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, 2016 (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 $ 39,148 874,204 7,290 Less than 1 $ 11,137 88,740 224 1-5 $ 27,516 272,217 4,679 2,611 104,162 214,088 82,784 850 104,162 111,706 37,126 1,605 55,175 45,626 $ 1,324,287 $ 353,945 $ 406,818 Investment Maturities (in years) 6-10 11-15 16-20 $ 495 $ - $ 34,673 3,105 1,183 2,387 156 39,193 32 $ 76,936 $ More than 20 $ 474,286 - - 3,105 $ 8,014 - 1,183 $ 482,300 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, 2016 (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 $ 527,833 $ Other 119,945 $ Total 64,966 $ 712,744 148,927 - - 148,927 122,714 1,665,049 - 1,787,763 5,543 105,765 180,065 - 180,065 111,308 1,890,759 $ 245,031 $ 2,940,807 $ 805,017 $ 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 an investment grade rating by any NRSRO. 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. 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 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. - 80 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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, 2016. 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 bonds Government mortgage backed securities Money market mutual funds Repurchase agreements U.S. agency mortgage backed securities U.S. agency securities Other Total E. - CCC Thru C $ - A-1 $ 79,721 Not Rated $ 7,916 - - - 115,032 19,994 3,575 - - - - 1,307,003 2,258 - 1,374,114 996,054 403,504 454,137 188,313 - 484,585 933,073 5,715 6,159 302 - - 3,215 7,290 289 - 510,637 - - - - - - - 458,021 458,021 - - - - - - - - 595,000 - 595,000 - - - - - - - 1,161,473 1,619,054 24,387 63,306 401 1,158,674 1,550,748 400 - 256 - - - 5,000 - 2,799 23,330 $12,226,559 $1,362,860 $5,367,228 $1,385,739 $1,006,044 $403,806 $454,137 $188,313 $1,509,971 $548,461 Fair Value $ 529,877 AAA $ 438,676 AA 189,961 - 54,935 - - 197,484 1,307,003 180,270 - 8,228 - 3,153 - 4,535,787 80,354 554,726 7,290 1,090,585 141,832 510,637 $ 807 $ A 2,757 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 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 market 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. - 81 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 government, its agencies, or instrumentalities. At June 30, 2016, investments in any one issuer, that were more than 5% of the primary government’s total investments, are as follows: (i) Federal National Mortgage Association (fair value of $844.8 million, or 6.3%) and (ii) Federal Home Loan Mortgage Corporation (fair value of $705.6 million, or 5.2%). 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, 2016 (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 Japanese Yen Malaysian Ringgit Mexican Peso New Israeli Shekel New Taiwan Dollar New Zealand Dollar Norwegian Krone Philippine Peso Polish Zloty Qatari Riyal Singapore Dollar South African Rand South Korean Won Swedish Krona Swiss Franc Thailand Baht Turkish Lira Total G. Foreign Currency Risk by Investment Type at Fair Value Other Short Term Equities Investments Total $ 96 $ 73,633 $ $ 73,729 56 18,212 18,268 476 549,636 33,143 583,255 226 68,535 68,761 15 1,899 1,914 10 692 702 27 238 265 6 47,793 47,799 18,069 813,904 270,856 1,102,829 485 109,482 109,967 23 433 456 32 4,564 4,596 3,773 548,151 551,924 14 5,382 5,396 40 7,645 13,121 20,806 85 5,105 5,190 786 22,583 23,369 13 2,268 2,281 152 22,684 22,836 37 2,586 2,623 50 1,864 1,914 80 1,720 1,800 136 25,555 25,691 232 13,819 14,051 80 52,439 52,519 52 70,279 70,331 77 152,325 152,402 11 3,509 3,520 28 2,209 2,237 $ 25,167 $ 2,629,144 $ 317,120 $ 2,971,431 FAIR VALUE MEASUREMENT OF INVESTMENTS Fair value measurements are categorized within the fair value hierarchy established by U.S. GAAP. The hierarchy is based on the valuation inputs used to measure the fair value of the asset and give the highest priority to the unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements) as follows: • Level 1 – Quoted prices for identical investments in active markets that are accessible at the measurement date; - 82 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 • Level 2 – Inputs, other than quoted market prices included in Level 1, that are observable, either directly or indirectly; • Level 3 – Prices or valuations that require inputs that are significant to the fair value measurement and unobservable. 1. Primary Government (excluding Universities and Retirement Systems) a. Investments Classified in Fair Value Hierarchy The investments held by the primary government (excluding Universities and Retirement Systems) at June 30, 2016, categorized within the fair value hierarchy, were as follows (expressed in thousands): Investments by Fair Value Level Asset backed securities Certificates of deposit (negotiable) Commercial mortgage backed securities Commercial paper Corporate notes & bonds Equities Government bonds Money market mutual funds Repurchase agreements Security lending collateral investments 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 investments by fair value level June 30, 2016 $ 527,606 169,967 125,851 1,307,003 1,719,301 3,177,518 320,565 174,256 1,872,260 504,372 1,176,729 488,319 1,125,537 206,249 1,795,622 24,387 14,715,542 Investments Measured at the Net Asset Value (NAV) Foreign large value fund Natural resources investment fund Total investments measured at the NAV Total investments measured at fair value Fair Value Measurements Using Quoted Prices Significant In Active Other Significant Markets for Observable Unobservable Identical Assets Inputs Inputs (Level 1) (Level 2) (Level 3) $ - $ 527,606 $ 169,967 125,851 1,307,003 1,719,301 3,177,518 320,565 28,117 146,139 1,872,260 504,372 1,176,729 488,319 5,000 1,120,537 206,249 193,496 1,602,126 23,330 1,057 $ 3,427,461 $ 11,288,081 $ - 16,176 6,785 22,961 14,738,503 $ Investments categorized as Level 1 of the fair value hierarchy are primarily valued using prices quoted in active markets for those investments. Investments categorized as Level 2 of the fair value hierarchy are primarily valued using evaluated bids. The evaluated bid is based on a compilation of primary observable market information or a broker quote in a non-active market. b. Investments Measured at the NAV The investments held at June 30, 2016, valued using the NAV per share were as follows (expressed in thousands): Investments Measured at the NAV Foreign large value fund Natural resources investment fund Total Fair Value $ 16,176 6,785 $ 22,961 Unfunded Commitments - - 83 - Redemption Frequency (if Currently Eligible) N/A N/A Redemption Notice Period N/A N/A STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 2. Universities a. Investments Classified in Fair Value Hierarchy The investments held by the Universities at June 30, 2016, categorized within the fair value hierarchy, were as follows (expressed in thousands): Investments by Fair Value Level Asset backed securities Certificates of deposit (negotiable) Commercial mortgage backed securities Corporate notes & bonds Equities Equity mutual funds Fixed income mutual funds Government bonds Money market mutual funds Mutual funds – asset allocation Real estate U.S. agency securities U.S. Treasury securities Total investments by fair value level Other Investments at Fair Value ASU Foundation Endowment Pool NAU Foundation Investment Pool U of A - Academic Enhancement Fund Trust U of A Foundation U of A - Split Interest Endowment Total other investments at fair value Investments Measured at the NAV Equity mutual funds Total investments measured at the NAV Total investments measured at fair value June 30, 2016 $ 32,025 39,148 15,728 757,967 3,927 35,010 5,009 13,893 283,623 226 52,623 493,517 243,001 1,975,697 Fair Value Measurements Using Quoted Prices Significant In Active Other Significant Markets for Observable Unobservable Identical Assets Inputs Inputs (Level 1) (Level 2) (Level 3) $ - $ 32,025 $ 39,148 15,728 757,967 2,830 367 730 35,010 5,009 13,893 269,823 13,800 226 52,623 493,517 243,001 $ 555,899 $ 1,366,445 $ 53,353 113,659 28,535 246,264 177,450 7,718 573,626 $ 2,500 2,500 2,551,823 Investments categorized as Level 1 of the fair value hierarchy are valued using unadjusted prices quoted for identical assets in active, exchange and brokered markets for those securities. Investments categorized as Level 2 of the fair value hierarchy are primarily valued using a matrix pricing technique. Matrix pricing is used to value securities based on the securities’ relationship to benchmark quoted prices. Investments categorized as Level 3 of the fair value hierarchy are valued using various methods. The fair value of equities are valued using multiple pricing options. For managed assets, business appraisers use valuation methodologies based on a number of assumptions to create the price. For non-managed assets, pricing is provided by various sources including the issuer or private investment manager. Real estate is valued by using either (1) the market approach industry standard valuation technique which includes independent appraisals or (2) the income approach to measuring fair value which discounts future amounts to a single current amount. When the income approach is used, the fair value measurement reflects current market expectations about those future amounts. - 84 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 b. Other Investments at Fair Value The fair value of the ASU’s position in the ASU Foundation Endowment Pool is based on the ASU’s proportionate share of the Pool, which is valued at marked-to-market monthly. The fair values of the Academic Enhancement Fund Trust and Split Interest Endowment are derived from their respective custodial bank’s independent pricing services. The U of A has beneficial interests in these investment accounts, and determines fair value based on the U of A’s percentage of beneficial interest, which is the unit of account for purposes of fair value determination. The fair value of the U of A’s position in the U of A Foundation Pool is based on the U of A’s proportionate share of the Pool, which is valued at marked-to-market monthly. c. Investments Measured at the NAV The investments held by the Universities at June 30, 2016, valued using the NAV per share were as follows (expressed in thousands): Investments Measured at the NAV Equity mutual funds Total Fair Value $ 2,500 $ 2,500 Unfunded Commitments - Redemption Frequency (if Currently Eligible) Quarterly Redemption Notice Period 90 days Equity mutual funds include event-driven hedge funds investing in corporate financial restructurings, major operations reorganizations, distressed situations, and other events. - 85 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 3. Retirement Systems a. Investments Classified in Fair Value Hierarchy The investments held by the ASRS, PSPRS, CORP, and EORP at June 30, 2016, categorized within the fair value hierarchy, were as follows (expressed in thousands): Investments by Fair Value Level Asset backed securities Commercial mortgage backed securities Corporate notes & bonds Foreign currency Government bonds Government mortgage backed securities Real estate U.S. equities Non-U.S. equities U.S. Treasury securities Total investments by fair value level Investments Measured at the NAV Absolute return Comingled funds - commodities Comingled funds - equity Comingled funds - fixed income Comingled funds - multi asset Comingled funds - real estate Farmland fund Global tactical asset allocation Infrastructure fund Opportunistic debt funds Opportunistic equity funds Private credit Private debt funds Private equity funds Real assets Real estate Real estate funds Risk parity Total investments measured at the NAV Short-term investment funds at cost plus interest Securities lending collateral Total investments June 30, 2016 $ 10,208 55,905 2,058,519 18,624 777,096 510,637 58,472 9,834,708 3,042,418 226,050 16,592,637 $ Fair Value Measurements Using Quoted Prices Significant In Active Other Significant Markets for Observable Unobservable Identical Assets Inputs Inputs (Level 1) (Level 2) (Level 3) $ - $ 10,208 $ 55,905 1,592,689 465,830 18,624 777,096 510,637 58,472 9,536,834 297,874 2,825,033 217,385 226,050 $ 12,380,491 $ 3,172,585 $ 1,039,561 342,966 3,314 5,171,302 2,536,967 1,018,673 22,198 188,960 741,515 331,287 1,171,277 312,605 872,425 2,866,971 4,087,817 794,790 788,597 3,297,747 306,004 24,855,415 606,649 696,090 42,750,791 Equity securities classified in Level 1 are valued using prices quoted in active markets for those securities. Fixed income securities classified in Level 2 are primarily valued using a compilation of primarily observable market information, a broker quote in a nonactive market, or a matrix pricing technique that values securities based on their relationship to benchmark quoted prices. Level 3 securities, whose stated market prices are unobservable by the marketplace, are primarily priced using discounted cash flow techniques. Real estate assets classified in Level 3 are real estate investments valued by external appraisals generally obtained at least annually and performed by an independent appraiser. - 86 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 b. Investments Measured at the NAV The investments held by the ASRS, PSPRS, CORP, and EORP at June 30, 2016, valued using the NAV per share were as follows (expressed in thousands): Investment Measured at the NAV Absolute return Comingled funds - commodities Comingled funds - equity Comingled funds - fixed income Comingled funds - multi asset Comingled funds - real estate Farmland fund Global tactical asset allocation Infrastructure fund Opportunistic debt funds Opportunistic equity funds Private credit Private debt funds Private equity funds Real assets Real estate Real estate funds Risk parity Total Fair Value $ 342,966 3,314 5,171,302 2,536,967 1,018,673 22,198 188,960 741,515 331,287 1,171,277 312,605 872,425 2,866,971 4,087,817 794,790 788,597 3,297,747 306,004 $ 24,855,415 Unfunded Commitments $ 103,439 443,000 154,000 672,052 2,520,000 2,489,080 235,356 609,157 1,420,000 $ 8,646,084 Redemption Frequency (if Currently Eligible) N/A Daily Daily, Monthly Daily Monthly Daily N/A Monthly, Quarterly, Annually N/A N/A N/A Daily, Monthly, Quarterly, Annually N/A N/A Daily, Monthly, Quarterly, Annually Daily, Monthly, Quarterly, Annually N/A Monthly, Quarterly, Annually Redemption Notice Period N/A None 1-3 days None 5 days None N/A 5 days - 1 year N/A N/A N/A 1 day – 1 year N/A N/A 1 day – 1 year 1 day – 1 year N/A 5 days Absolute Return Funds – Absolute Return Funds include investments that are designed to make a positive absolute return regardless of the underlying market condition in the asset class that is primarily being invested in. Commingled Funds – The types of strategies within commingled funds include investments in fixed income, public equity, real estate, commodities, and multi-asset type funds. Investments in the commingled multi-asset fund are in a fund that invests in liquid public securities. Multi-asset class strategies invest tactically within and across asset classes, seeking to exploit quantitative or fundamental drivers of asset class returns or risk allocations as market conditions warrant. The funds have a perpetual life. Redemption frequencies range from daily to monthly. There are no plans to liquidate the total portfolio. Farmland Fund – Farmland investments are invested within one limited partnership. The investment strategy within this partnership includes: purchasing farmland, renting production land, and active farming. This investment has an approximate life of ten years and is considered illiquid. Redemptions are restricted over the life of the partnership. During the life of the partnerships, distributions are received as underlying partnership investments are realized. There are no plans to liquidate the investment. Global Tactical Asset Allocation (GTAA) – GTAA investments are designed to offer risk reduction, uncorrelated returns and liquidity. Private Credit – Private Credit investments are held in funds that focus on debt instruments. Private Debt and Opportunistic Debt Funds – Opportunistic and Private Debt investments are primarily invested within limited partnerships or limited liability companies. The types of investment strategies within these structures consist of corporate debt, real estate, asset backed, and special situations. These investments generally have an approximate life of seven to ten years and are generally illiquid. Redemption restrictions are in place throughout the life of the investment. Distributions are received as investments are realized. There are no plans to liquidate the portfolio. Private Equity and Opportunistic Equity Funds – Private equity investments are primarily invested within limited partnerships. The types of investment strategies within these partnerships include: buyouts, distressed debt, special situations, secondaries, mezzanine, and venture capital. These investments generally have an approximate life of ten years and are considered illiquid. Redemptions are generally restricted over the life of the partnerships. During the life of the partnerships, distributions are received as underlying partnership investments are realized. There are no plans to liquidate the total portfolio. Real Asset – Real asset investments are held in assets like gas, oil, minerals, and timber. - 87 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 Real Estate and Infrastructure Funds – Investments in real estate and infrastructure funds are invested within limited partnerships or limited liability companies. Real estate investments include opportunistic, stabilized, and development assets within multifamily and senior housing, industrial, retail, office, and self-storage, with a North America focus. Infrastructure investments consist of mature, operational core infrastructure assets located in countries with investment-grade ratings. These investments generally have an approximate life of seven to ten years and are generally illiquid. Redemption restrictions are in place throughout the life of the investment. Distributions are received as investments are realized. There are no plans to liquidate the portfolio. Risk Parity – Risk Parity investments focus on allocation of risk or volatility to be more resistant to market downturns. c. Other Investments at Cost Plus Accrued Interest Reinvested securities lending collateral generally includes repurchase agreements. Although the carrying of reinvested securities lending collateral approximates fair value, investments in repurchase agreements are reported at cost plus accrued interest, and accordingly, are not categorized within the fair value level hierarchy. Short term investment funds are reported at cost plus accrued interest, which approximates fair value. H. 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, 2016. 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, 2016 for loaned securities collateralized by cash and noncash collateral was $27.7 million and $0.8 million, respectively. As part of the securities lending transactions, The Northern Trust Company received cash and non-cash collateral valued at $28.1 million and $0.8 million, respectively, at June 30, 2016. 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 27 days, as of June 30, 2016. Cash open collateral is invested in a short-term investment pool, the NILAP fund, which had an interest sensitivity of 34 days, as of June 30, 2016. 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, 2016, the Commission had $28.1 million outstanding as payable for securities lending. The Commission has set a maximum restriction on the amount of securities that can be lent out at any one time 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 - 88 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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, 2016, the fair value of securities on loan was $2.3 billion; of which $282.0 million were cash collateralized loans. Cash of $287.5 million received as collateral for securities loaned was reinvested and had a net position value of $287.7 million, as of June 30, 2016. The securities lending payable at June 30, 2016 was $287.5 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. 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, 2016, the fair values of securities on loan for the PSPRS, the EORP, and the CORP were $304.0 million, $14.9 million, and $80.2 million, respectively. At June 30, 2016, the fair value of the associated collateral for the PSPRS, the EORP, and the CORP were $311.2 million, $15.2 million, and $82.1 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, 2016, the cost and fair value of securities on loan were $638.3 million and $720.0 million, respectively. The associated fair value of the invested collateral was $736.0 million, of which $504.4 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 non-cash 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, 2016, the State Treasurer had $504.4 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 - 89 - $ 21,780,902 69,504,549 135,510,493 $ 226,795,944 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 I. 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. • 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. 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, 2016, classified by type, and the changes in fair value of derivative instruments for the year then ended as reported in the June 30, 2016 financial statements are as follows (expressed in thousands): Investment Derivatives by Type Changes in Fair Value (1) Investment Derivatives Classification Fair Value at June 30, 2016 Amount (2) Classification Amount Notional (3) Commodity futures long Net increase (decrease) in fair value of investments (88,649) Not applicable Commodity futures short Net increase (decrease) in fair value of investments 8,176 Not applicable - (22) Fixed income futures long Net increase (decrease) in fair value of investments 2,650 Not applicable - 246,100 Fixed income futures short Net increase (decrease) in fair value of investments (1,656) Not applicable - (16,800) Foreign currency forwards Net increase (decrease) in fair value of investments 5 Futures receivable - - Index futures long Net increase (decrease) in fair value of investments (30,277) Not applicable - 14,700 Index futures short Net increase (decrease) in fair value of investments (16) Not applicable - - Rights Net increase (decrease) in fair value of investments (686) Equity securities 406 6,519 5 $ (110,448) Equity securities Warrants Total Net increase (decrease) in fair value of investments $ $ $ - 4 410 $ $ 93,348 32 343,877 (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 - 90 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 published Reuter’s foreign currency rates as the primary source for the calculation. As of June 30, 2016, the ASRS did not have any investments in foreign currency forward contracts. 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. As of June 30, 2016, investing activity in derivative instruments included exchange traded futures contracts. The ASRS did not have any over-the-counter investment derivative instruments as of June 30, 2016. Accordingly, the ASRS was not exposed to loss in case of default of all counterparties of over-the-counter positions as of June 30, 2016. 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, 2016, for the year then ended, as reported in the June 30, 2016 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 ADI0HSWK4 ADI0HSWX6 ADI0HSY30 ADI0KF8V1 ADI0KPN34 0.00% 0.00% 0.00% 0.00% 0.00% US 5YR NOTE (CBT) SEP 16 US 10YR NOTE (CBT) SEP 16 US 2YR NOTE (CBT) SEP 16 US ULTRA BOND (CBT) SEP 16 US LONG BOND (CBT) SEP 16 Total Fixed Income Futures Long $ - $ 68,300 58,200 87,400 16,800 15,400 $ - $ 246,100 $ - $ (16,800) $ - $ (16,800) FIXED INCOME FUTURES SHORT ADI0HSWX6 0.00% US 10YR NOTE (CBT) SEP 16 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 did not hold foreign currency forward contracts and future contracts as of June 30, 2016, and was not exposed to foreign currency risk through derivative instruments. Refer to Note 7.A.4.c. for information on debt derivatives utilized by the ASU. J. 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. - 91 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 3. RECEIVABLES/UNAVAILABLE REVENUE/UNEARNED REVENUE A. TAXES RECEIVABLE At June 30, 2016, taxes receivable were as follows (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 $ 533,191 155,964 7,011 - Transportation & Aviation Planning, Highway Maintenance & Safety Fund $ 74,157 - Non-major Governmental Funds $ 57,058 19,127 4,941 696,166 (338,710) 357,456 74,157 74,157 81,126 81,126 $ $ $ Non-major Enterprise Government-wide Funds Total $ $ 590,249 155,964 74,157 26,138 95,957 95,957 4,941 $ 95,957 95,957 $ 947,406 (338,710) 608,696 UNAVAILABLE REVENUE At June 30, 2016, 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 $ 74,443 50,000 4,318 94,432 132,993 1,114 $ 357,300 Transportation & Aviation Planning, Highway Maintenance & Safety Fund $ $ - 92 - Land Endowments Fund 561 $ 399,106 4,044 - 561 $ 403,150 Other Governmental Funds $ $ Total Governmental Funds 508 $ 74,443 50,000 4,318 94,432 132,993 399,106 4,044 2,183 508 $ 761,519 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 C. UNEARNED REVENUE At June 30, 2016, the components of unearned revenue were as follows (expressed in thousands): Unearned Revenue for Governmental Funds: Current General Fund: Advance insurance premium taxes Advance land lease payments Advance county acute and long term care payments Vaccine and commodity food supplement Other Transportation & Aviation Planning, Highway Maintenance & Safety Fund: Magazine subscriptions Land Endowments Fund: Advance land lease payments Non-Major Funds: Advance payments for Hawaii/Arizona PMMIS Alliance Advance renewal of contractors' license assessment Other Total Unearned Revenue for Governmental Funds $ Unearned Revenue for Proprietary Funds: Universities: Unexpended cash advances received Auxiliary sales and services Student tuition and fees Deposits Other Non-Major Funds: Other Total Unearned Revenue for Proprietary Funds 54,273 291 20,189 563 218 $ 3,098 - Total Unearned Revenue $ 54,273 3,389 20,189 563 218 1,787 - 1,787 24,648 83,361 108,009 572 702 87 $ 103,330 86,459 572 702 87 189,789 Current $ 74,987 8,632 85,424 1,180 2,095 150 $ 172,468 - 93 - Noncurrent $ $ STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 4. CAPITAL ASSETS Capital asset activities for the fiscal year ended June 30, 2016 were as follows (expressed in thousands): Primary Government Beginning Balance Governmental Activities: Non-depreciable capital assets: Land Construction in progress Development in progress Infrastructure Total Non-depreciable Capital Assets $ 3,115,924 1,459,732 105,439 15,758,147 20,439,242 Depreciable capital assets: Buildings Improvements other than buildings Equipment Software and other intangibles Infrastructure Total Depreciable Capital Assets Less accumulated depreciation for: Buildings Improvements other than buildings Equipment Software and other intangibles Infrastructure Total Accumulated Depreciation Total Depreciable Capital Assets, Net Total Governmental Activities Capital Assets, Net $ Development in progress Collections Total Non-depreciable Capital Assets Depreciable capital assets: Buildings Improvements other than buildings Equipment Software and other intangibles Infrastructure Total Depreciable Capital Assets Less accumulated depreciation for: Buildings Improvements other than buildings Equipment Software and other intangibles Infrastructure Total Accumulated Depreciation Total Depreciable Capital Assets, Net Total Business-type Activities Capital Assets, Net $ Adjustments & Reclassifications $ $ $ 266,465 393,741 21,340 34,190 715,736 (1,661) (2,801) (12,358) (16,820) 112 (386,802) (101,257) 315,114 (172,833) Ending Balance $ 3,380,840 1,463,870 25,522 16,095,093 20,965,325 14,063 5,604 145,759 25,598 4,396 195,420 (2,526) (47,345) (7,660) (57,531) 73,000 660 (9,414) 93,702 (181) 157,767 2,423,465 183,371 941,394 362,681 27,102 3,938,013 (890,261) (103,196) (628,348) (207,267) (13,023) (1,842,095) 1,800,262 (59,556) (16,616) (73,192) (14,803) (449) (164,616) 30,804 2,129 45,379 7,660 55,168 (2,363) (736) (214) 9,861 10,959 22 19,892 177,659 (948,424) (120,026) (646,300) (203,451) (13,450) (1,931,651) 2,006,362 4,826 $ 22,971,687 22,239,504 $ Retirements 2,338,928 177,107 852,394 251,041 22,887 3,642,357 Beginning Balance (as restated) Business-type Activities: Non-depreciable capital assets: Land Construction in progress Additions 228,125 341,760 $ 746,540 $ (19,183) $ Additions Retirements Adjustments & Reclassifications $ $ $ 10,417 290,982 (46,452) (9) (216,968) Ending Balance $ 238,533 369,322 60,804 20,228 650,917 2,928 820 305,147 (16) (46,468) (2,565) (219,542) 61,167 21,032 690,054 5,672,653 19,713 1,600,405 134,756 533,792 7,961,319 174,697 310 107,348 9,868 292,223 (17,580) (50,414) (4) (67,998) 213,845 (3,729) (700) 2,565 2,554 214,535 6,043,615 16,294 1,656,639 137,321 546,210 8,400,079 (2,250,265) (12,125) (1,216,734) (87,578) (217,737) (3,784,439) (166,336) (4,670) (89,936) (9,775) (17,758) (288,475) 9,562 44,190 1 53,753 1,726 1,302 869 1 3,898 (2,405,313) (15,493) (1,261,611) (97,352) (235,494) (4,015,263) 4,176,880 4,827,797 3,748 $ 308,895 218,433 (1,109) 4,384,816 $ 5,074,870 For beginning balance restatement detail, see Note 9. B. - 94 - $ (14,245) (60,713) $ STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 Depreciation expense was charged to governmental functions as follows (expressed in thousands): General government Health and welfare Inspection and regulation Education Protection and safety Transportation Natural resources $ 27,039 27,063 1,002 1,783 68,421 26,180 13,128 Total Governmental Activities $ 164,616 Depreciation expense was charged to business-type activities as follows (expressed in thousands): Universities Other Total Business-type Activities $ 279,800 8,675 $ 288,475 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 PSPRS’ 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, 2016, were as follows (expressed in thousands): Governmental Activities $ 3,608,773 1,115,654 (887,658) $ 3,836,769 Beginning balance (as restated) Increases Decreases Ending balance Business-type Activities $ 1,297,884 337,836 (238,365) $ 1,397,355 For the year ended June 30, 2016, the State recognized pension expense for all plans to which it contributes of $508.8 million and $34.9 million of grant expense for EORP. Also, the State reported $262.3 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. - 95 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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 retirement benefit option chosen determines the survivor benefit. 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, 2016, statute required active ASRS members to contribute at the actuarially determined rate of 11.35 percent of the members’ annual covered payroll, and statute required the State to contribute at the actuarially determined rate of 10.85 percent of the active members’ annual covered payroll. In addition, the State was required by statute to contribute at the actuarially determined rate of 9.17 percent of annual covered payroll of retired members who worked for the State in positions that an employee who contributes to the ASRS would typically fill. The State’s contributions to the pension plan for the year ended June 30, 2016, were $221.0 million. During fiscal year 2016, the State paid for ASRS pension contributions as follows: 69.98 percent from the General Fund, 15.40 percent from major funds, and 14.62 percent from other funds. Pension Liability—At June 30, 2016, the State reported a liability of $3.4 billion for its proportionate share of the ASRS’ net pension liability. The net pension liability was measured as of June 30, 2015. 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, 2014, to the measurement date of June 30, 2015. 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, 2015. The State’s proportion measured as of June 30, 2015, was 21.67 percent, which was an increase of .31 from its proportion measured as of June 30, 2014. - 96 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 Pension Expense and Deferred Outflows/Inflows of Resources—For the year ended June 30, 2016, the State recognized pension expense for ASRS of $226.0 million. At June 30, 2016, 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 92,104 $ 176,868 - 108,170 96,705 24,879 220,982 409,791 309,917 $ The $221.0 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, 2017. 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 2017 2018 2019 2020 $ (27,370) (96,835) (74,989) 78,086 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, 2014 June 30, 2015 Entry age normal 8% 3–6.75% 3% Included 1994 GAM Scale BB Actuarial assumptions used in the June 30, 2014 valuation were based on the results of an actuarial experience study for the 5 year period ended June 30, 2012. - 97 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 The long-term expected rate of return on ASRS pension plan investments was determined to be 8.79 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 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 Expected Arithmetic Target Real Rate Asset Class Allocation of Return Equity 58% 6.79% Fixed Income 25% 3.70% Real Estate 10% 4.25% Multi-Asset 5% 3.41% Commodities 2% 3.93% Total 100% Discount Rate—The discount rate used to measure the ASRS total pension liability was 8 percent, which is less than the long-term 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 $ 4,422,774 Current Discount Rate (8%) $ 3,375,283 1% Increase (9%) $ 2,657,408 Pension Plan Fiduciary Net Position—Detailed information about the pension plan’s fiduciary net position is available in the separately issued ASRS financial report. - 98 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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, age 52.5 Highest 36 consecutive months of last 20 years Highest consecutive 60 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 - 99 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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, 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 earnings. In addition, from and after December 31, 2015, the Legislature may enact permanent one-time benefit increases after a Joint Legislative Budget Committee analysis of the increase’s effects on the plan. 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, 2016, the following employees were covered by the agent pension plans’ benefit terms: PSPRS CORP PSA DCA Retirees or beneficiaries currently receiving benefits 1,254 2,821 Inactive employees entitled to but not yet receiving benefits 181 970 Active employees 981 8,027 Total 2,416 11,818 - 100 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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 employees earn during the year, with an additional amount to finance any unfunded accrued liability. The rates for contributions for the year ended June 30, 2016, are indicated below. Rates are a percentage of active members’ annual covered payroll. PSPRS PSA 6.65%* 81.00%* Active members - Pension State - Pension CORP DCA 8.41% 18.45% * 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, statute required the State to contribute at the actuarially determined rate of 28.62 percent for the PSPRS and 11.33 percent for the CORP of annual covered payroll of retired members who worked for the State in positions that an employee who contributes to the PSPRS or CORP would typically fill. The State’s contributions to the pension plan for the year ended June 30, 2016, were (expressed in thousands): Pension contributions made PSPRS CORP PSA DCA $ 56,121 $ 60,984 During fiscal year 2016, the State paid for PSPRS and CORP pension contributions as follows: 58.20 percent from the General Fund and 41.80 percent from other funds. Pension Liability—At June 30, 2016, the State reported the following net pension liabilities (expressed in thousands): Net Pension Liability $ 680,573 647,658 PSPRS - PSA CORP - DCA The net pension liabilities were measured as of June 30, 2015, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. In May 2016, voters approved Proposition 124 that authorized certain statutory adjustments to PSPRS’ automatic cost-of-living adjustments. The statutory adjustments change the basis for future cost-of-living adjustments from excess investment earnings to the change in the consumer price index, limited to a maximum annual increase of 2 percent. The change in the State’s net pension liability as a result of the statutory adjustments is not known. 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, 2015 Entry age normal 7.85% 4.0% to 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) Actuarial assumptions used in the June 30, 2015 valuation were based on the results of an actuarial experience study for the five year period ended June 30, 2011. - 101 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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% 5% 4% 7% 8% 10% 11% 10% 13% 14% 16% 100% Long-Term Expected Geometric Real Rate of Return 0.75% 4.11% 5.13% 2.92% 4.77% 4.38% 9.50% 4.48% 7.08% 8.25% 6.23% Discount Rates— The discount rate used to measure the PSPRS and CORP total pension liabilities was 7.85 percent. 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. Changes in the Net Pension Liability (expressed in thousands) PSPRS - PSA Balances at June 30, 2015 Changes for the year: Service cost Interest on the total pension liability Differences between expected and actual experience in the measurement of the pension liability Contributions - employer Contributions - employee Net investment income Benefit payments, including refunds of employee contributions Administrative expense Other changes Net changes Balances at June 30, 2016 Increase (Decrease) Total Plan Net Pension Fiduciary Pension Net Position Liability Liability (a) (b) (a) – (b) $ 1,014,922 $ 361,254 $ 653,668 13,258 77,421 - 13,258 77,421 (6,328) - 40,328 4,418 12,867 (6,328) (40,328) (4,418) (12,867) (70,586) 13,765 $ 1,028,687 (70,586) (317) 150 (13,140) $ 348,114 317 (150) 26,905 $ 680,573 - 102 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 Increase (Decrease) Total Plan Net Pension Fiduciary Pension Net Position Liability Liability (a) (b) (a) – (b) $ 1,396,097 $ 776,005 $ 620,092 CORP - DCA Balances at June 30, 2015 Changes for the year: Service cost Interest on the total pension liability Differences between expected and actual experience in the measurement of the pension liability Contributions – employer Contributions – employee Net investment income Benefit payments, including refunds of employee contributions Administrative expense Other changes Net changes Balances at June 30, 2016 47,131 108,123 - 47,131 108,123 (30,179) - 43,105 27,734 28,414 (30,179) (43,105) (27,734) (28,414) (84,586) 40,489 $ 1,436,586 (84,586) (704) (1,040) 12,923 $ 788,928 704 1,040 27,566 $ 647,658 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 rate of 7.85 percent, 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 (6.85 percent) or 1 percentage point higher (8.85 percent) than the current rate (expressed in thousands): 1% Decrease (6.85%) PSPRS - PSA Net pension liability CORP - DCA Net pension liability Current Discount Rate (7.85%) 1% Increase (8.85%) $ 788,714 $ 680,573 $ 589,289 $ 830,683 $ 647,658 $ 495,816 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, 2016, the State recognized the following pension expense (expressed in thousands): Pension Expense $ 80,172 83,086 PSPRS - PSA CORP - DCA - 103 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 Deferred Outflows/Inflows of Resources—At June 30, 2016, 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 Deferred Deferred Outflows Inflows of Resources of Resources $ - $ 58,527 14 $ 56,121 114,662 $ 6,917 6,917 Deferred Deferred Outflows Inflows of Resources of Resources $ - $ 82,207 1,558 $ 60,984 144,749 $ 27,399 27,399 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, 2017. 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 2017 2018 2019 2020 2021 PSPRS PSA $ 21,082 21,082 7,142 2,318 - - 104 - CORP DCA $ 14,129 14,129 14,129 17,758 (3,779) STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 C. 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, age 65 5 years, any age* any years and age if disabled 10 years, age 62 5 years, 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. In addition, from and after December 31, 2015, the Legislature may enact permanent one-time benefit increases after a Joint Legislative Budget Committee analysis of the increase’s effects of the plan. 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, 2016, statute required active EORP members to contribute 13 percent of the members’ annual covered payroll and the State to contribute 23.5 percent of active EORP members’ annual covered payroll. In addition, statute required the State to contribute 23.5 percent of annual covered payroll of retired members who worked for the State in positions that an employee who contributes to the EORP would typically fill. The State’s contributions to the pension plan for the year ended June 30, 2016, were $7.9 million, including $4.1 million related to State support, as a nonemployer contributing entity. During fiscal year 2016, the State paid for EORP pension contributions as follows: 97.61 percent from the General Fund and 2.39 percent from other funds. In addition, during fiscal year 2016, the State, as a nonemployer contributing entity, paid for EORP pension contributions as follows: 100.00 percent from the General Fund. - 105 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 Pension Liability—At June 30, 2016, 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 $ 145,898 $ 151,048 296,946 The net pension liability was measured as of June 30, 2015, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. 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’ actual contributions for the year ended June 30, 2015. The State’s proportion, measured as of June 30, 2015, was 18.67 percent, which was an increase of .51 from its proportions measured as of June 30, 2014. The State’s proportion, as a nonemployer contributing entity, measured as of June 30, 2015, was 19.33 percent, which was an increase of .13 from its proportions measured as of June 30, 2014. Pension Expense, Grant Expense, and Deferred Outflows/Inflows of Resources—For the year ended June 30, 2016, the State recognized pension expense for EORP of $36.1 million and revenue of $3.1 million for the designated court fees. In addition, the State recognized grant expense of $34.9 million, as a result of its requirement to contribute to EORP as a nonemployer contributing entity. At June 30, 2016, 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 Changes in proportion and differences between State contributions and proportionate share of contributions State contributions subsequent to the measurement date Total $ $ 233 24,446 $ 1,624 - The State, as a nonemployer contributing entity Deferred Deferred Outflows Inflows of Resources of Resources $ 242 25,310 $ 1,682 - 885 - 916 - 1,177 - 741 - 1,624 4,078 $ 31,287 3,805 30,546 - 106 - $ $ 1,682 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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, 2017. 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 2017 2018 2019 2020 The State $ 20,877 3,502 73 665 The State, as a nonemployer contributing entity $ 21,306 3,455 75 691 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, 2015 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, 2015, valuation were based on the results of an actuarial experience study for the 5-year 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 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% 5% 4% 7% 8% 10% 11% 10% 13% 14% 16% 100% Long-Term Expected Geometric Real Rate of Return 0.75% 4.11% 5.13% 2.92% 4.77% 4.38% 9.50% 4.48% 7.08% 8.25% 6.23% Discount Rate—At June 30, 2015, the discount rate used to measure the EORP total pension liability was 4.86 percent, which was a decrease of 0.81 from the discount rate used as of June 30, 2014. 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 June 30, 2028. A municipal bond rate of 3.80 percent obtained from the 20-year Bond Buyer Index, as published by the Federal Reserve as of June 25, 2015, was applied to periods of projected benefit payments after June 30, 2028. - 107 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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 4.86 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 (3.86 percent) or 1 percentage point higher (5.86 percent) than the current rate (expressed in thousands): 1% Decrease (3.86%) State’s proportionate share of the net pension liability State’s proportionate share of the net pension liability, as a nonemployer contributing entity $ 169,843 175,839 Current Discount Rate (4.86%) $ 1% Increase (5.86%) 145,898 $ 125,761 151,048 130,201 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. 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. - 108 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 Single-employer plan The Arizona Department of Administration (ADOA) provides medical and accident benefits to retired State employees and their dependents, which is a single-employer defined benefit post-employment plan. 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, except for the NAU, which through the ADOA plan pays its medical costs directly. The notes that follow were adjusted to include the NAU in the ADOA plan disclosures, which in prior years were excluded due to its relative insignificance to the State’s financial statements. 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. As of June 30, 2016, the plan had 56,152 active employees and 7,486 retirees and dependents receiving benefits. The 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 are made. Administrative expenses are recognized when incurred. 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, 2016, 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 0.50% for the HBS. The State's contributions for LTD to the ASRS for the years ended June 30, 2016, 2015, and 2014 were $2.4 million, $2.4 million, and $4.5 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, 2016, 2015, and 2014 were $10.1 million, $11.6 million, and $11.3 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, 2016, 2015, and 2014 were $24.3 million, $14.4 million, and $14.1 million, respectively, for the primary government. 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, 2016, 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 - 109 - $ 143,439 834 (1,376) 142,897 (24,298) 118,599 27,780 $ 146,379 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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 6/30/2016 6/30/2015 6/30/2014 E. Percentage of Annual OPEB Cost Contributed 17.0% 62.7% 63.0% Annual OPEB Costs $ 142,897 22,977 22,455 Net OPEB Obligation $ 146,379 27,780 19,614 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 6/30/2016 Actuarial Value of Plan Assets - Actuarial Accrued Liability (AAL) $ 1,182,155 (Unfunded) AAL $ (1,182,155) Funded Ratio 0.0% Annual Covered Payroll $ 3,496,022 (Unfunded) AAL as a Percentage of Covered Payroll (33.8)% 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 and on the pattern of sharing of costs between the employer and plan member to that point. 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. 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 June 30, 2016 entry age normal, level dollar Amortization method Remaining amortization period - 110 - 3.0% 0.0% 3.0% none 7.0% initial 4.5% ultimate level dollar, open 30 years STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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, 2016, pledged revenues totaled $200.8 million, of which 18.7% ($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 $487.5 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 $1.6 billion. 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 $1.5 billion in outstanding Highway Revenue Bonds issued since 2011. 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 2038. The total principal and interest remaining to be paid on the bonds is $2.3 billion. Principal and interest paid for the current year and total pledged revenues were $144.4 million and $589.5 million, respectively. The annual principal and interest payments on the bonds required 24.5% 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 $782.8 million. The ADOT has pledged future transportation excise taxes to repay $717.2 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 $900.5 million. Principal and interest paid for the current year and total pledged revenues were $103.6 million and $263.0 million, respectively. The annual principal and interest payments on the bonds required 39.4% of the pledged revenues. In 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. - 111 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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, 2016. 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, 2016, pledged revenues totaled $688.5 million, of which 13.6% ($93.9 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 $323.3 million. 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 February 25, 2016, the U of A sold System Revenue Refunding Bonds Series 2016 (2016 Bonds) for $175.385 million dated March 31, 2016. The 2016 Bonds include $175.385 million of serial bonds with interest rates ranging from 3.00% to 5.00% and maturity dates ranging from 2019 to 2039. The 2016 Bonds with maturity on or after June 1, 2027, are subject to optional redemption without premium. The 2016 Bonds sold at a premium of $31.311 million. The U of A realized net proceeds of $205.559 million, after payment of $1.137 million for issuance costs and underwriter discounts. The net proceeds were used to refund in advance of maturity a portion of System Revenue Bonds Series 2007, 2008A, and 2009A totaling $6.840 million, $15.295 million, and $159.305 million respectively. The advance refunding generated a net present value economic gain of $18.127 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 $3.053 million in the first year and an average of $655 thousand in years two through twentyfour. The advance refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $18.189 million. This difference, reported in the accompanying financial statements as a deferred outflow of resources, is being amortized to interest expense through the year 2039 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 $202.120 million. Accordingly, the trust account assets and liability for these defeased bonds are not included in the accompanying financial statements. In fiscal year 2015, the U of A refunded, in advance of maturity, a portion of outstanding System Revenue Bonds Series 2007 and 2008A. At June 30, 2016, the outstanding principal balance of the refunded bonds was $27.725 million, which will be paid by investments held in an irrevocable trust with fair value of $29.404 million. Accordingly, the trust account assets and liability for these defeased bonds are not included in the accompanying financial statements. - 112 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 The U of A’s outstanding SPEED Revenue Bonds Series 2010 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 6.8% reduction (totaling $110 thousand) in the federal interest subsidy for the August 1, 2016 debt service payment and a 6.9% reduction (totaling $219 thousand) in the federal interest subsidy for the February 1 and August 1, 2017 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, 2016. 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, 2016, pledged revenues totaled $1.21 billion, of which 6.0% ($70.7 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 $1.64 billion. b. Northern Arizona University On May 19, 2016, the NAU sold $11.1 million of Lease Revenue Refunding Bonds Series 2016 with an interest rate of 2.61%. Refunded bonds total $10.6 million of the 2006 North Campus Facilities Lease Revenue Bonds for maturities from June 1, 2016 to June 1, 2036. The refunding set aside $10.8 million that purchased Global Proceed Escrow that matured between 6/01/2016 and 6/02/2016. The present value of refunded debt prior to 5/19/2016 was $17.0 million and the net present value of savings was $2.2 million. The advanced refunding decreases the NAU’s debt service by an average of $103 thousand annually through 6/1/2036. On May 26, 2016, the NAU sold $33.8 million of Systems Revenue and Refunding Bonds Series 2016 for the purpose of the acquisition, construction, improvements, renovations and equipping of the South Dining buildings and the first floor of the adjoining DuBois Center totaling approximately 51,000 square feet, located in the south campus area of the NAU main campus. The Systems Revenue and Refunding Bonds Series 2016 includes Series 2016A new money tax-exempt portion of $9.1 million and a refunding tax-exempt portion of $21.6 million with interest rates ranging from 4% to 5%, and Series 2016B new money taxable portion of $3.1 million with interest rates ranging from 1.15% to 2.88%. Refunded bonds total $23.1 million including $940 thousand of the Systems Revenue Bonds Series 2007 with a maturity date of June 1, 2018, $22.2 million of the Systems Revenue Bonds Series 2008 (New Money) with June 1 maturities in years 2019 to 2021, and 2028 to 2038. The refunding set aside $25.6 million, including proceeds from the issuance premium, into escrow that purchased Treasury note securities maturing between 5/31/2016 and 5/31/2018. The present value of prior refunded debt was $41.9 million and the net present value of savings was $2.3 million. The advanced refunding decreases the NAU’s debt service by an average of $568 thousand annually for fiscal years 6/30/2016 through 6/30/2019 and decreases debt service by an average of $3 thousand annually for fiscal years 6/30/2020 through 6/30/2033. 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 the June 30, 2016, $64.3 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 2016, the Federal Government reduced federal direct payment claims filed between October 1, 2015 and September 30, 2016 by 6.8% due to the federal budget sequestration resulting in a $259 thousand reduction in direct payments to the NAU. For accounting purposes, any direct payments received from the U.S. Treasury Department are recorded as non-operating revenue. - 113 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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, 2016. 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 $252 million for the prior five years. For fiscal year 2016, pledged revenues totaled $287 million, of which 9.3% ($26.7 million) was required to cover current year debt service. Future annual principal and interest payments on the bonds are expected to require approximately 9.8% of pledged revenues. Future pledged revenues required to pay all remaining related debt service for the bonds through final maturity of June 1, 2044 are $786.3 million. c. Arizona State University As of June 30, 2016, the ASU had issued a combination of fixed and variable rate bonds, of which $1.2 billion is outstanding. 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 defeased bonds outstanding at June 30, 2016 totaled $162.4 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, 2016. 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 enterprise 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, 2016, pledged revenues totaled $1.5 billion, of which 5.9 percent ($86.2 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 the ASU’s senior and subordinate revenue bonds through final maturity of July 1, 2046 total $2.0 billion. In addition to a senior pledge of revenues for 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 ASU Research Park, Inc. Development Refunding Bonds. Research Park bonds outstanding at June 30, 2016 totaled $5.2 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 December 2015, the ASU issued $102.7 million of system revenue bonds, Series 2015D, with an average maturity of 18.2 years and an average interest rate of 3.67 percent. The bonds were issued to fund Phase 2 of the Sun Devil Stadium Renovation project, classroom and laboratory renovations and building and infrastructure enhancements and modifications. In January 2016, the ASU issued $37.1 million of system revenue refunding bonds, Series 2016A, with an average maturity of 8.7 years and an average interest rate of 2.29 percent. The bonds were issued to refund various outstanding bonds of the ASU. The refunded debt is considered defeased and related liabilities are not included in the accompanying financial statements. The issuance of the refunding bonds, resulted in a $2.9 million reduction in future debt service payments, with an economic gain of $2.9 million based upon 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 2016, the ASU received Federal Direct Payments totaling $3.7 million, net of a $300 thousand or 6.8 percent reduction due to - 114 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 the federal budget sequestration. For accounting purposes, any direct payments received from the U.S. Treasury are recorded as non-operating revenue. The ASU has two series of variable rate demand system revenue refunding bonds outstanding, Series 2008A and Series 2008B, totaling $88.9 million with final maturities of July 1, 2034. The interest rate in effect on June 30, 2016 was 0.40 percent for the Series 2008A bonds and 0.39 percent for the Series 2008B bonds. The ASU’s variable rate demand bonds have remarketing features which allow bondholders to put debt back to the ASU. In accordance with GASB Interpretation No. 1, Demand Bonds Issued by State and Local Government Entities, the total outstanding principal balance for variable rate demand bonds is required to be classified as a current liability. On May 4, 2016, the Irrevocable Transferable Direct-Pay Letter of Credit with JPMorgan Chase Bank, N.A. expired and the ASU executed a self-liquidity facility agreement to provide liquidity if the bonds are put by bondholders. It is the ASU’s intent to repay its variable rate demand bonds in accordance with the maturities set forth in the official statement; however, in the absence of a “take out agreement” the ASU has classified the total outstanding principal balance of the 2008 bonds as a current liability. Securities and cash restricted for bonds debt service held by the trustee at June 30, 2016 totaled $76.7 million. The ASU presently plans to issue up to $275.6 million in system revenue bonds during the next year. Effective January 1, 2007, the ASU entered into a $103 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 $88.3 million notional amount at June 30, 2016 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 percent 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, 2016 was 0.41 percent. At June 30, 2016, 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 (0.41) 3.50 0.40 3.90 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, 2016, 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, 2016. 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, 2016, the swap had a fair value of $(23.2) million, which represents the cost to the ASU to terminate the swap. The June 30, 2015 fair value was $(16.8) 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 - 115 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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). Summary of Revenue Bonds The following schedule summarizes revenue bonds outstanding at June 30, 2016 (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 2007-2015 2003-2013 2010 2017-2038 2017-2020 2017-2029 1.19-5.25% .35-5.00% 3.00-5.00% 2004-2016 2017-2049 .40-6.64% Outstanding Balance at June 30, 2016 $ 2,236,995 309,205 353,675 2,701,665 Principal and interest debt service payments on revenue bonds outstanding at June 30, 2016 are as follows (expressed in thousands): Annual Debt Service Governmental Activities Fiscal Year 2017 2018 2019 2020 2021 2022-2026 2027-2031 2032-2036 2037-2041 2042-2046 2047-2049 Total B. Total Principal $ 241,765 268,565 234,145 242,640 187,860 950,085 517,060 216,990 40,765 $ 2,899,875 $ $ Total Interest 129,986 122,200 113,238 104,751 95,406 329,327 137,089 37,919 3,082 1,072,998 Business-type Activities Total $ 371,751 390,765 347,383 347,391 283,266 1,279,412 654,149 254,909 43,847 $ 3,972,873 Total Principal $ 92,385 84,815 85,055 97,285 97,115 554,180 580,145 483,625 365,770 228,095 33,195 $ 2,701,665 Total Interest $ 127,016 123,994 120,779 116,874 112,471 486,516 343,736 214,924 106,054 28,381 1,133 $ 1,781,878 Net Payments (Receipts) on Swap Agreement $ 2,991 2,884 2,773 2,655 2,532 10,589 6,446 1,416 $ 32,286 $ $ Total 222,392 211,693 208,607 216,814 212,118 1,051,285 930,327 699,965 471,824 256,476 34,328 4,515,829 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 $194.7 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 $147.3 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 $191.6 million. Principal and interest paid for the current year and total pledged revenues were $56.9 million and $998.3 million, respectively. The annual principal and interest payments on the GANs required 5.7% of the pledged revenues. - 116 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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 2017-2026 4.00-5.25% Outstanding Balance at June 30, 2016 $ 147,320 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 Governmental Activities Total Total Principal Interest Fiscal Year 2017 $ $ 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 14,215 4,947 19,162 2022-2026 Total C. 11,770 Total Debt Service 82,540 $ 147,320 13,282 $ 44,322 95,822 $ 191,642 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 saleleaseback 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. On July 29, 2015, the State issued Refunding COPs Series 2015 (2015 COPs) for $164.0 million. The 2015 COPs include serial certificates with interest rates ranging from 1.00% to 5.00% and maturity dates from 2016 to 2028. The 2015 COPs are subject to optional or extraordinary redemption prior to maturity pursuant to the debt documents. The State realized net proceeds of $192.6 million. Included in net proceeds were the receipt of $25.4 million of net issue premium and $3.9 million of accumulated lease payments made by the State for the Capitol Mall Series 2005 Refunding Bonds (PLTO I Bonds) held by the trustee, and payment of $767 thousand of bond issuance costs. The net proceeds were used to current-refund all outstanding PLTO I Bonds, and to advance-refund a portion of the Series 2008A COPs with an outstanding principal balance of $112.4 million. The current and advance refundings resulted in a combined debt service savings of $18.5 million and a combined net present value economic gain of $15.3 million. The advance-refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $9.4 million. This difference, reported as a deferred outflow of resources in the accompanying financial statements, is - 117 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 being amortized to interest expense on a straight-line basis through fiscal year 2028. The refunded 2008A COPs will be redeemed on March 1, 2018 by investments in U.S. government obligations held in an irrevocable trust. In the current and 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. 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. On July 30, 2015, the SFB issued Refunding COPs Series 2015A for $263.5 million (2015A COPs). The 2015A COPs include serial certificates with interest rates ranging from 2.00% to 5.00% and maturity dates from 2016 to 2024. The 2015A COPs are not subject to optional prepayment prior to maturity; however, these COPs are subject to defeasance pursuant to the debt documents. The SFB realized net proceeds of $296.2 million, after receipt of $33.5 million of issue premium and payment of $798 thousand of bond issuance costs. The net proceeds were used to advance-refund a portion of the Series 2008 COPs with an outstanding principal balance of $257.4 million. The advance refunding resulted in a debt service savings of $15.1 million and a net present value economic gain of $13.9 million. The advance-refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $35.1 million. This difference, reported as a deferred outflow of resources in the accompanying financial statements, is being amortized to interest expense on a straight-line basis through fiscal year 2024. The refunded 2008 COPs will be redeemed on September 1, 2018 by investments in U.S. government obligations held in an irrevocable trust. 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. In fiscal year 2015, the U of A refunded, in advance of maturity, the remaining principal balance of COP Series 2007A. At June 30, 2016, the outstanding principal balance of the refunded certificates was $10.210 million which will be paid by investments held in an irrevocable trust with fair value of $10.590 million. Accordingly, the trust account assets and liability for these defeased COPs are not included in the accompanying financial statements. b. Northern Arizona University In 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. - 118 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 Accordingly, the trust account assets and liability for the defeased COPs are not included in the accompanying financial statements. At June 30, 2016, $8.7 million of such outstanding COPs are considered defeased. c. Arizona State University At June 30, 2016, 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. Securities and cash restricted for COP debt service held by the trustee at June 30, 2016 totaled $7.5 million. A summary of the COPs issued as of June 30, 2016 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 Refund 2005 Gov Office Lease Rev Capitol Mall, 2008A COP School Facilities Board: 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 Refunding Certificates of 2008 Total Governmental Activities Project Issue Date Final Maturity Date 2008 2010 2010 2013 2016 2028 2030 2030 2029 2028 2009 2011 2011 2011 2011 2014 2014 2014 2014 2014 2016 2019 2020 2020 2020 2028 2020 2020 2018 2019 2020 2024 Original Amount Issued Outstanding Balance $ $ 238,990 709,090 289,705 62,630 163,995 580,035 11,100 10,000 37,685 91,325 29,945 49,605 110,695 60,390 55,040 263,545 2,763,775 $ 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 2006 2013 2015 Original Amount Issued $ Interest Rates 55,400 601,000 244,280 42,005 161,630 4.00 – 5.00 3.75 – 5.25 3.00 – 5.00 3.00 – 5.00 2.00 – 5.00 124,560 11,100 10,000 37,685 81,820 27,920 17,205 103,590 60,390 55,040 257,835 1,891,460 4.38 – 5.75 3.00 – 3.50 3.00 – 5.00 3.00 – 5.00 6.00 4.00 – 5.00 5.00 0.95 – 1.47 0.95 – 2.08 0.95 – 2.38 2.35 – 5.00 Outstanding Balance Interest Rates 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: 2006 Certificates of Participation 2013 Refunding Certificates of Participation 2015 Refunding Certificates of Participation $ 230 11,425 55,350 6,225 63,340 77,140 4.76 4.53 4.15 4.27 3.09 3.04 21,607 46,255 18,240 93,045 10,190 20,600 124,940 266 4,105 13,435 72,925 7,190 16,500 122,470 5.13 4.25 4.10 – 5.00 4.00 – 4.50 2.21 – 3.42 4.00 – 5.00 3.00 – 5.00 2025 2025 89,470 13,810 81,640 13,330 4.00 – 5.00 0.89 – 3.09 2017 2031 2031 12,445 36,005 18,825 848,702 440 36,005 18,540 600,556 4.4 4.8 4.9 $ Total Business-type Activities - 119 - 103,800 15,810 65,890 8,465 64,780 84,525 $ $ STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 Principal and interest debt service requirements on COPs outstanding at June 30, 2016 are as follows (expressed in thousands): Annual Debt Service Governmental Activities Fiscal Year Total Principal 2017 $ Business-type Activities Total Amount Required Total Interest 200,095 $ 81,500 $ 281,595 Total Principal $ 43,050 Total Amount Required Total Interest $ 26,073 $ 69,123 2018 206,725 74,662 281,387 48,460 24,196 72,656 2019 178,615 67,545 246,160 51,085 22,130 73,215 2020 180,845 59,972 240,817 53,256 19,899 73,155 2021 122,815 52,915 175,730 50,215 17,379 67,594 2022-2026 572,040 175,855 747,895 200,100 53,942 254,042 2027-2030 Total D. LEASES 1. Leases $ 430,325 41,309 471,634 1,891,460 $ 553,758 $ 2,445,218 154,390 $ 600,556 16,427 $ 180,046 170,817 $ 780,602 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. • 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, 2016 are summarized below (expressed in thousands): Total minimum lease payments Less: amount representing interest Annual Debt Service Governmental Business-type Activities Activities $ 52,393 $ 11,904 50,758 11,219 47,772 11,014 44,259 11,018 40,539 11,024 156,245 55,651 35,503 51,446 17,044 33,119 3,614 4,366 444,513 204,375 (109,604) (63,258) Present Value of Net Minimum Lease Payments $ Fiscal Year 2017 2018 2019 2020 2021 2022-2026 2027-2031 2032-2036 2037-2041 2042-2072 - 120 - 334,909 $ 141,117 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 2. 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 $ 445 380,576 3,579 72,700 457,300 (83,071) Carrying Value $ Land Buildings Software Equipment E. 374,229 $ $ Business-type Activities 8,241 196,832 1,627 206,700 (48,097) 158,603 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 2016, the State paid for compensated absences as follows: 78.14% from the General Fund, 15.91% from other funds, and 5.95% from other major funds. - 121 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 F. CHANGES IN LONG-TERM OBLIGATIONS The following is a summary of changes in Long-term Obligations (expressed in thousands): Balance July 1, 2015, as restated Increases Balance June 30, 2016 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 3,141,190 $ - $ (241,315) $ 2,899,875 $ 241,765 $ 2,658,110 194,670 - (47,350) 147,320 11,770 135,550 2,030,805 427,540 (566,885) 1,891,460 200,095 1,691,365 408,784 21,566 (95,441) 334,909 34,572 300,337 349 - (173) 176 176 - 22,179 - - 22,179 - 22,179 492,048 58,933 (58,632) 492,349 43,560 448,789 6,290,025 508,039 (1,009,796) 5,788,268 531,938 5,256,330 329,888 188,152 (195,785) 322,255 169,259 152,996 Other Long-term Liabilities: Compensated absences Pollution remediation obligations Total Other Long-term Liabilities Total Long-term Obligations 19,713 5,447 - 25,160 11,665 13,495 349,601 193,599 (195,785) 347,415 180,924 166,491 $ 6,639,626 $ 701,638 $ (1,205,581) $ 6,135,683 $ 712,862 $ 5,422,821 $ 2,675,430 $ 360,040 $ (333,805) $ 2,701,665 $ 178,315 $ 2,523,350 Business-type Activities: Long-term Debt: Revenue bonds Certificates of participation 637,986 14 (37,444) 600,556 43,050 557,506 Capital leases 168,960 185 (28,028) 141,117 6,043 135,074 2,805 - (691) 2,114 654 1,460 231,178 62,723 (25,427) 268,474 20,547 247,927 3,716,359 422,962 (425,395) 3,713,926 248,609 3,465,317 97,988 100,289 (100,895) 97,382 16,631 80,751 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 - (3,500) 22,424 3,500 18,924 123,912 100,289 (104,395) 119,806 20,131 99,675 3,840,271 $ 523,251 $ (529,790) $ 3,833,732 $ 268,740 $ 3,564,992 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 $4.662 million of capital leases and $159.820 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. Compensated absences is restated for the Arizona Highway Magazine Fund. For detail, see Note 9.B. - 122 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 8. INTERFUND TRANSACTIONS INTERFUND BALANCES AND TRANSFERS Interfund Receivables/Payables Interfund balances as of June 30, 2016 are as follows (expressed in thousands): General Fund Due From General Fund Transportation & Aviation Planning, Highway Maintenance & Safety Fund Non-Major Governmental Funds Non-Major Enterprise Funds Internal Service Funds Total Due From Due To Transportation & Aviation Planning, Non-Major Highway Maintenance Governmental Universities & Safety Fund Funds Fund $ - 5,683 11,402 12,903 $ 29,988 $ 22,584 $ 22,584 $ 59,452 $ 6,607 8,968 75,027 Non-Major Enterprise Fund $ - $ 38,648 38,648 $ Internal Service Funds 8 $ 167 175 $ 1,325 $ $ Total Due To 83,369 12,457 158 11,560 60,519 33 33 1,516 $ 167,938 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, 2016 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 $ Transferred To Transportation & Aviation Planning, Highway Non-Major Maintenance & Governmental Universities Safety Fund Funds Fund Internal Service Funds Total Transfers Out - $ 510 $ 241,842 $ 643,784 $ 1,962 $ 888,098 13 139,669 111,604 12,679 $ 263,965 $ 227 737 $ 304,311 24,931 10,730 66,340 1,961 650,115 $ 38,648 682,432 $ 304,311 24,944 150,626 216,592 14,640 1,962 $ 1,599,211 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. - 123 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 9. ACCOUNTING CHANGES A. FUND FINANCIAL STATEMENTS Fund Balance and Net Position have been restated as follows (expressed in thousands): Fund Balance/Net Position, as previously reported Prior period adjustment Implementation of GASB 72: Fair value adjustment Fund reclassification Fund Balance/Net Position, as restated B. Governmental Funds Proprietary Funds Transportation & Aviation Planning, Highway Maintenance & Non-Major Internal General Fund Safety Fund Universities Enterprise Funds Service Funds $ 43,481 $ 1,028,712 $ 2,204,924 $ 411,161 $ (247,730) (18,629) $ 24,852 2,399 $ 1,031,111 57,850 $ 2,262,774 $ (401) 410,760 $ 4,880 (242,850) 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 72: Fair value adjustment Fund reclassification Net Position, as restated Governmental Activities $ 20,274,856 Business-type Activities $ 2,695,794 401 $ 20,275,257 57,850 (401) $ 2,753,243 Prior Period Adjustment and Fund Reclassification Beginning net position for the universities has been restated for the implementation of GASB Statement No. 72, Fair Value Measurement and Application. Included in the restatement of net position is a reclassification of land previously recorded as a capital asset of $18.9 million. The Arizona Highways Magazine Fund, previously reported as a non-major enterprise fund, has been reclassified as part of the Transportation & Aviation Planning, Highway Maintenance, & Safety Fund. Beginning fund balance and net position have been restated to reflect Arizona Highways Magazine Fund as a governmental fund as of July 1, 2015. The Personnel Division Funds, Information Technology Fund, Special Services Fund, Surplus Property Funds, Legal Services Cost Allocation Fund, Stimulus Statewide Administration Fund, and the Construction Insurance Fund, previously reported in the General Fund, have been reclassified to Other Internal Service Funds. Beginning fund balance and net position have been restated to reflect these funds as proprietary funds as of July 1, 2015. - 124 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 10. GOVERNMENTAL FUND BALANCES Detail of the fund balance categories and classifications shown in the aggregate on the governmental funds balance sheet for the year ended June 30, 2016 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 $ $ 9,669 - Transportation & Aviation Planning, Highway Maintenance & Safety Fund $ 6,179 - Land Endowments Fund $ Non-Major Governmental Funds 5,118,253 $ - Total $ 15,848 5,118,253 9,449 48,513 3,136 22,629 8,106 746,814 - - 30,782 30,232 2,252 454,298 546 10,980 72,822 139,284 - 40,231 78,745 5,388 454,298 23,175 10,980 72,822 886,098 8,106 27,576 5,036 17,552 15,833 60,487 (78,903) 149,083 291,449 1,044,442 (21,325) 5,096,928 131,830 221,808 131,175 84,429 77,258 1,387,696 131,830 249,384 136,211 17,552 84,429 291,449 93,091 60,487 (100,228) 7,678,149 $ $ $ $ NOTE 11. DEFICIT NET POSITION The Risk Management Fund (RMF), an internal service fund, reported a deficit net position of $377.4 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 beyond the specific fiscal year are not considered when determining funding for each fiscal year. The Retiree 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 $153.1 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 recognition of net pension liability. These funds were the Telecommunication Fund, an internal service fund, which reported a deficit of $155 thousand, and the Other Non-Major Enterprise Fund, which reported a deficit of $409 thousand. - 125 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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 INAF 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 for Scientific Advancement, The 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, 2016, the U of A has made cash contributions of $18.2 million toward the project’s construction costs, which were recorded as noncurrent 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, $1.1 million in calendar year 2016, as a reduction in its investment. In the current fiscal year, the U of A also contributed services and materials totaling $3.2 million, which increased its investment. At June 30, 2016, the investment totaled $14.0 million. According to the most recent audited financial statements of the LBT for the year ended December 31, 2015, assets, liabilities, revenues, and expenses totaled $130.0 million, $3.0 million, $22.0 million, and $17.0 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 Office, 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 $22.4 million related to the GMT as of June 30, 2016 are reported in Note 7.F. The U of A has contributed a total of $37.6 million as of June 30, 2016. 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, 2016, the U of A has received contractual payments related to the project from the GMTO and related partners totaling $60.0 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. - 126 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 The Special Fund provides payment of workers’ compensation benefits. The fund processes payment of claims for injured workers where the employer failed to provide workers’ compensation insurance; provides continual workers’ compensation benefits for bankrupt self-insured employers; provides partial coverage of workers’ compensation benefits for second injury claims (apportionment claims); provides vocational rehabilitation benefits; and provides continuing medical benefits for pre-1973 workers’ compensation claims. 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 either experienced claims adjusters of the Guaranty Fund, by a third party administrator handling claim files, or by actuaries. The claims liability includes an estimate for incurred but not reported claims. A significant reduction in claims liability was reported by the Guaranty Fund related to workers’ compensation at June 30, 2016. The Guaranty Fund assumed administrative responsibilities for payment of insolvent workers’ compensation insurance carrier claims from the Special Fund effective July 1, 2015. The primary reasons for the reduction in claims liability were the reassessment of loss reserves estimates after administrative transition and the instituted practice of settling ordinary open claims that can be closed. 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 non-incremental 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 1.0%) and A.R.S. § 23-1065(F) (apportionment assessment - not to exceed .5%), in a total amount not to exceed 1.5% 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 was determined to be actuarially sound as of June 30, 2015 and as a result did not levy an A.R.S. § 23-1065(A) or A.R.S. § 23-1065(F) assessment for calendar year 2016. AMI Risk Consultants, Inc. was retained to evaluate the medical and compensation related liabilities of the Special Fund as of June 30, 2016. The total estimated loss reserve of $231.6 million increased by 5.75%, or $12.6 million, over the prior year estimated loss reserve of $219.0 million. The total Compensation reserve decreased $41.9 million due to old inactive claims being closed out prior to the implementation of a new software program. This decrease was offset by a $51.0 million increase in the Uninsured reserve due to strengthened reserving practices for “lifetime” claims. There were no other major shifts in any of the other 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 years. The reserves were discounted at an assumed rate of .7% 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. - 127 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 The Special Fund has filed proofs of claim with bankruptcy trustees for bankrupt self-insured employers. Additionally, the Special Fund has filed proofs of claim with ancillary receivers and liquidators regarding the recovery of statutory deposits and other monies for Insurance Carrier insolvencies that the Special Fund was responsible for prior to July 1, 2015. Since the actual amount that will ultimately be received cannot be determined, the Special Fund will continue to recognize receipt of insolvent carrier and bankrupt self-insured employer 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, 2015 and June 30, 2016 (expressed in thousands): Fiscal Year Risk Management Fund: 2015 2016 B. Beginning Balance $ 429,329 457,389 Special Item Current Year Claims and Changes in Estimates $ $ - 79,340 65,607 Claims Payments $ (51,280) (82,416) Ending Balance $ 457,389 440,580 Industrial Commission Special Fund: 2015 2016 484,144 219,031 (241,491) - 577 23,808 (24,199) (11,217) 219,031 231,622 Insurance Department Guaranty Funds: 2015 2016 251,572 241,491 - 23,007 (90,780) (12,926) (11,874) 251,572 148,918 LITIGATION 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 Risk Management Fund, Insurance Department Guaranty Funds, and the Industrial Commission Special Fund. C. ACCUMULATED SICK LEAVE Sick leave includes any approved period of paid absence granted to 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 $157.0 million at June 30, 2016. - 128 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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 $1.3 billion (net of refunds issued) has been collected since the inception of the fund. The State is also holding securities valued at $39.1 million and mutual funds valued at $15.5 million. In accordance with A.R.S. § 44-313 and A.R.S. § 44-314, for fiscal year 2016, $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, $64.9 million was deposited in the General Fund, and $1.0 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, 2016, $452.8 million of this liability is reported in the General Fund, because it is the fund to which the property ultimately escheats in Arizona. E. CONSTRUCTION COMMITMENTS The ADOT had outstanding commitments under construction contracts of $1.5 billion at June 30, 2016. (in thousands) Remaining Commitments Construction contracts: Rural roadways Small urban roadways Urban roadways Large urban roadways Loop 202 / SM Freeway General roadways Sub-total Capital asset replacement and maintenance: Loop 202 / SM Freeway Total F. $ $ 131,992 20,657 26,228 80,578 890,389 125,353 1,275,197 191,153 1,466,350 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 $47.2 million at June 30, 2016. Approximately $44.8 million of the total aggregate future payments at June 30, 2016 relate to annuities purchased from five separate insurance companies, of which approximately $20.9 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 $98.9 million in the fund statements and the government-wide statements in fiscal year 2016. 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 - 129 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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, 2016. NOTE 15. SUBSEQUENT EVENTS In September 2016, the ASU issued $130.5 million in System Revenue Bonds, Series 2016B (Series 2016B Bonds) and $95.7 million in System Revenue Bonds, Series 2016C (Series 2016C Bonds), for the following projects: (1) construction of the Biodesign C building on the Tempe campus, (2) construction of the Student Pavilion facility on the Tempe Campus, (3) renovations to research laboratories, classrooms, buildings and other infrastructure on all of the ASU campuses, (4) Phase III renovations to the Sun Devil Stadium, and (5) pay costs of issuance. The Series 2016B Bonds include both serial and term bonds with interest rates ranging from 3.00% to 5.00% and maturity dates ranging from 2017 to 2047. The Series 2016C Bonds include both serial and term bonds with interest rates ranging from 3.00% to 5.00% and maturity dates ranging from 2018 to 2046. The Series 2016B Bonds and the Series 2016C Bonds are subject to optional and mandatory redemption prior to their stated maturity dates pursuant to the debt documents. In October 2016, the State issued $119.9 million in Certificates of Participation, Series 2016 (Series 2016 Certificates) to: (1) pay a portion of the purchase option price for certain property and (2) pay costs of issuance. The Series 2016 Certificates include serial certificates with interest rates ranging from 2.00% to 5.00% and maturity dates ranging from 2017 to 2024. The Series 2016 Certificates are subject to extraordinary redemption prior to their stated maturity dates pursuant to the debt documents. In October 2016, the Arizona Department of Transportation issued $203.1 million in Highway Revenue Refunding Bonds, Series 2016 to: (1) refund, in advance of maturity, Highway Revenue Bonds, Series 2011A and 2013A and (2) pay costs of issuance. The bonds include serial bonds with interest rates of 5.00% and maturity dates ranging from 2017 to 2036. The bonds are subject to optional redemption prior to their stated maturity dates pursuant to the debt documents. In October 2016, the Arizona Department of Transportation issued $109.9 million in Transportation Excise Tax Revenue Refunding Bonds, Series 2016 to: (1) refund, in advance of maturity, Transportation Excise Tax Revenue Bonds, Series 2009, Series 2010, and Series 2011 and (2) pay costs of issuance. The bonds include serial bonds with interest rates of 5.00% and maturity dates ranging from 2020 to 2025. The bonds are not subject to redemption prior to their stated maturity dates pursuant to the debt documents. In October 2016, the Arizona Department of Transportation issued $90.4 million in Grant Anticipation Refunding Notes, Series 2016 to: (1) refund, in advance of maturity, Grant Anticipation Notes, Series 2011A and (2) pay costs of issuance. The notes include serial notes with interest rates of 5.00% and maturity dates ranging from 2021 to 2026. The notes are not subject to redemption prior to their stated maturity dates pursuant to the debt documents. In November 2016, the U of A issued $44.2 million in System Revenue and Revenue Refunding Bonds, Series 2016A (Series 2016A Bonds) and $142.4 million in System Revenue Bonds, Series 2016B (Series 2016B Bonds), for the following projects: (1) construction of the Health Sciences Innovation Building on the U of A campus, (2) paying off a capital lease associated with the buildings at the U of A Phoenix Biomedical Campus, (3) the purchase and renovation of an approximately 42,600 square foot building near the U of A’s campus for various U of A programs, and (4) pay costs of issuance. The Series 2016A Bonds include both serial and term bonds with interest rates ranging from 3.00% to 5.00% and maturity dates ranging from 2017 to 2040. The Series 2016B Bonds include both serial and term bonds with interest rates ranging from 4.00% to 5.00% and maturity dates ranging from 2020 to 2046. The Series 2016A Bonds and the Series 2016B Bonds are subject to optional and mandatory redemption prior to their stated maturity dates 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 statements for not-for-profit organizations for financial reporting purposes. Each component unit has a June 30 year-end. - 130 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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: 3. • 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. Donor-restricted 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. 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 and fund 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 $319.7 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. - 131 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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 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 8.5% with a standard deviation of 10.1% over a 20 year period. 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. - 132 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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. 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, 2016 (expressed in thousands): Investment Type Guaranteed investment contracts Money market mutual funds U.S. agency securities U.S. Treasury securities Total d. Fair Value $ 59,584 1,227 10,172 29,612 Less than 1 $ 1,227 7,701 Investment Maturities (in years) 1-5 6-10 More than 10 $ 38,477 $ - $ 21,107 10,172 21,911 - $ $ $ 100,595 8,928 60,388 $ - $ 31,279 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, 2016 (expressed in thousands): Investment Type Guaranteed investment contracts Money market mutual funds U.S. agency securities Total e. Fair Value $ 59,584 1,227 10,172 $ 70,983 AAA $ 1,227 10,172 $ $ 11,399 $ AA 48,957 48,957 $ $ A 10,627 10,627 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, 2016, investments in any one issuer, that were more than 5% of the WIFA’s total investments are in Bayerische Landesbank (fair value of $38.5 million, or 9.9%). - 133 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 f. Fair Value Measurement The WIFA’s investments at June 30, 2016, categorized within the fair value hierarchy established by U.S. GAAP, were as follows (expressed in thousands): Investment by Fair Value Level U.S. agency securities U.S. Treasury securities Total June 30, 2016 $ 10,172 29,612 $ Fair Value Measurement Using Quoted Prices Significant Is Active Other Significant Markets for Observable Unobservable Identical Assets Inputs Inputs (Level 1) (Level 2) (Level 3) $ 10,172 $ - $ 29,612 - 39,784 $ 39,784 $ - $ - Investments categorized as Level 1 are valued using prices quoted in active markets for those investments. In addition, the WIFA had $1,227 invested in money market funds as well as $59,584 in guaranteed investment contracts that were recorded at cost. 2. Universities-Affiliated Component Units a. Investment Summary Investments of the Universities-affiliated component units include the following amounts at June 30, 2016. 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 b. ASU Foundation $ 20,899 490,510 149,350 113,671 $ 774,430 U of A Foundation $ 216,780 114,926 237,115 172,715 $ 741,536 Investments Classified in Fair Value Hierarchy The ASU Foundation and U of A Foundation categorizes its fair value measurements within the fair value hierarchy established by U.S. GAAP. The ASU Foundation has the following recurring fair value measurements as of June 30, 2016 (expressed in thousands): Investments by Fair Value Level Assets Charitable trust receivable Investments Land and buildings held for investment Assets with limited use Assets held under split-interest agreements Total Liabilities Assets held for other entities Unrealized swap liability Total June 30, 2016 $ $ $ $ Fair Value Measurements Using Quoted Prices Significant In Active Other Significant Markets for Observable Unobservable Identical Assets Inputs Inputs (Level 1) (Level 2) (Level 3) 3,182 713,561 60,869 24,617 6,900 809,129 $ 128,692 10,395 139,087 $ - 134 - $ $ 314,171 24,617 6,900 345,688 $ - $ $ $ - $ 10,395 10,395 $ $ $ 3,182 399,390 60,869 463,441 128,692 128,692 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 The U of A Foundation has the following recurring fair value measurements as of June 30, 2016 (expressed in thousands): Investments by Fair Value Level Absolute return limited partnerships and funds Domestic/international equity securities and mutual funds U.S. fixed income obligations and mutual funds Other investments Total June 30, 2016 $ 237,115 216,780 114,926 172,715 $ 741,536 Fair Value Measurements Using Quoted Prices Significant In Active Other Significant Markets for Observable Unobservable Identical Assets Inputs Inputs (Level 1) (Level 2) (Level 3) $ 44,419 $ $ 192,696 159,192 57,588 114,926 55,576 117,139 $ 374,113 $ $ 367,423 Investments categorized as Level 1 of the fair value hierarchy are valued using quoted prices in active markets for identical assets or liabilities which provides the most reliable fair value measurement because it is directly observable to the market. Investments categorized as Level 2 of the fair value hierarchy are valued at other than quoted prices in active markets, which are either directly or indirectly observable. The nature of these securities include investments for which quoted prices are available but traded less frequently and investments that are fair valued using other securities, the parameters of which can be directly observed. Investments categorized as Level 3 of the fair value hierarchy are measured using management’s best estimate of fair value, where the inputs included in the determination of fair value are not observable and require significant management judgment or estimation. Also included in Level 3 are investments measured using a Net Asset Valuation (NAV) per share, or its equivalent, that can never be redeemed at the NAV or for which redemption at NAV is uncertain due to lock-up periods or other investment restrictions. 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 2016 are as follows (expressed in thousands): Clean Water Fund Drinking Water Fund Total Beginning Balance $ 722,829 351,679 $ 1,074,508 Increases $ 75,057 72,351 $ 147,408 Decreases $ (263,019) (43,233) $ (306,252) Ending Balance $ 534,867 380,797 $ 915,664 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, 2016, the debt service reserve was $69 thousand and $2.3 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. - 135 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 Pledges receivable, as of June 30, 2016, include the following (expressed in thousands): Gross pledges receivable Present value discount Allowance for uncollectible pledges Net Pledges Receivable E. DIRECT FINANCING LEASE AGREEMENTS 1. ASU Foundation ASU Foundation $ 185,902 (13,094) (40,316) $ 132,492 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, 2016 is $22.8 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 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 $29.1 million at June 30, 2016. 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 $11.8 million at June 30, 2016. F. CAPITAL ASSETS Capital assets for the Universities-affiliated component units for the fiscal year ended June 30, 2016 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 $ $ ACFFC 174,046 79,027 253,073 (108,950) 144,123 - 136 - U of A Campus Research Corporation $ 27,797 5,617 33,414 (12,225) $ 21,189 Downtown Phoenix Student Housing $ 114,233 10,664 124,897 (34,580) $ 90,317 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 G. LONG-TERM OBLIGATIONS 1. Component Units a. Water Infrastructure Finance Authority 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. On December 4, 2014, the WIFA issued $342.6 million of Water Quality Revenue Refunding Bond series 2014A for the purpose of advance refunding 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. 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, 2016, was $144.9 million. 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. Summary of Revenue Bonds The following schedule summarizes revenue bonds outstanding at June 30, 2016 (expressed in thousands): Revenue Bonds Outstanding Component Units: Water Infrastructure Finance Authority Dates Issued Maturity Dates 2006-2015 2017-2031 Interest Rates 0.20-5.00% Outstanding Balance at June 30, 2016 $ 656,060 Principal and interest debt service payments on revenue bonds outstanding at June 30, 2016 are as follows (expressed in thousands): Annual Debt Service Water Infrastructure Finance Authority Fiscal Year 2017 2018 2019 2020 2021 2022-2026 2027-2031 Total Principal 37,405 46,625 47,545 49,725 51,900 256,635 166,225 $ 656,060 $ - 137 - Interest $ 29,522 27,898 25,980 23,774 21,327 67,882 14,699 $ 211,082 $ $ Total 66,927 74,523 73,525 73,499 73,227 324,517 180,924 867,142 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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, 2015 Water Infrastructure Finance Authority: Long-term Debt: Revenue bonds $ 712,305 Revenue bond premium 99,314 Total Long-term Debt 811,619 Other Long-term Liabilities: Compensated absences Total Other Long-term Liabilities 2. $ 110 110 Total Long-term Obligations Decreases Balance June 30, 2016 Due Within One Year 25 25 $ (56,245) (8,854) (65,099) $ 656,060 90,485 746,545 $ 37,405 37,405 66 66 (88) (88) 88 88 88 88 91 $ (65,187) $ 746,633 $ 37,493 Increases $ 811,729 $ Due Thereafter $ 618,655 90,485 709,140 $ 709,140 Universities-Affiliated Component Units A summary of bonds payable as of June 30, 2016 include the following (expressed in thousands): Final Maturity Amount ASU Foundation: Series 2014A Tax-Exempt Lease Revenue Bonds 2035 Series 2014B Taxable Lease Revenue Bonds 2019 $ 31,390 3,610 Series 2014A Revenue Refunding Bonds 2034 39,050 Series 2014B Revenue Refunding Bonds 2016 1,020 Series 2004A Variable Rate Revenue Bonds 2034 22,420 Series 2004B Variable Rate Revenue Bonds 2022 6,005 ACFFC: Series 2011 Tax-Exempt Revenue Refunding Bonds 2018 8,525 Series 2009 Revenue Bonds 2024 29,475 Series 2009A Lease Revenue Refunding Bonds 2034 22,955 Series 2009B Lease Revenue Refunding Bonds 2022 6,465 Series 2008 Revenue Bonds 2028 12,715 Series 2008 Revenue Refunding Bonds 2039 139,545 Series 2008 Variable Rate Demand Revenue Refunding Bonds 2030 34,015 Deferred Cost of Refunding (150) Unamortized Bond Premium (846) Downtown Phoenix Student Housing: Series 2007A&C Revenue Bonds 2042 116,720 Series 2007D Tax-Exempt Revenue Bonds 2042 22,653 Unamortized Bond Discount (969) Scheduled future maturities of Universities-affiliated component units' bonds payable are as follows (expressed in thousands): Fiscal Year 2017 ASU Foundation $ 2,275 ACFFC $ 10,300 Downtown Phoenix Student Housing $ 1,025 2018 3,680 10,985 1,245 2019 3,845 11,715 1,480 2020 4,035 9,345 1,735 2021 4,215 9,980 2,000 Thereafter 85,445 200,374 130,919 Total $ 103,495 $ - 138 - 252,699 $ 138,404 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 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 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, 2016, the total outstanding face value of all bonds issued by the GADA was $284.6 million. - 139 - REQUIRED SUPPLEMENTARY INFORMATION REQUIRED SUPPLEMENTARY INFORMATION STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2016 (Expressed in Dollars) ADMINISTRATION, ARIZONA DEPARTMENT OF 500 BED MAXIMUM SECURITY ADMIN ADJUSTMENT ADULT INFORMATION MANAGEMENT SYSTEM ADMIN ADJUSTMENT AFIS REPLACEMENT ERP ADMIN ADJUSTMENT AUTOMATION AND INFORMATION TECH PROJECTS ADMIN ADJUSTMENT CHILDRENS INFORMATION LIBRARY ADMIN ADJUSTMENT E LICENSING DEQ ADMIN ADJUSTMENT IMPLEMENT UPGRADE TAXPAYER ACCTG SYSTEM ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ADMIN ADJUSTMENT STUDENT LONGITUDINAL DATA SYSTEM ADMIN ADJUSTMENT UTILITIES AFIS COLLECTIONS AFIS REPLACEMENT ERP AUTOMATION AND INFORMATION TECH PROJECTS AUTOMATION PROJECTS GF BUILDING RENEWAL BUILDING RENEWAL COSF BUILDING RENEWAL COST BUILDING RENEWAL GF CAPITOL MALL FIRE SYSTEM REPLACE CAPITOL MALL SECURITY SYSTEM CHILD SAFETY COP DEBT SERVICE 2009 3RD SS CH 6 SEC 32 COP DEBT SERVICE 2009 6TH SS CH 4 SEC 2A COUNTY ATTORNEY IMMIGRATION ENFORCEMENT COUNTY SERVICES DISTRIBUTION E-LICENSING DEQ ESSENTIAL COUNTY SERVICES GOVERNMENT TRANSFORMATION OFFICE OPERATING LUMP SUM APPROPRIATION RELIEF RELOCATION SOUTHWEST DEFENSE CONTRACTS STATE FED SECURITY IT STANDARDS DES STUDENT LONGITUDINAL DATA SYSTEM SWEEPS UTILITIES WHITE MOUNTAIN APACHE TRIBES WATER RIGHT ADMINISTRATIVE HEARINGS, OFFICE OF OPERATING LUMP SUM APPROPRIATION AGRICULTURE, ARIZONA DEPARTMENT OF ADMIN ADJUSTMENT ANIMAL DAMAGE CONTROL ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION AG CONSULTING AND TRAINING PARI-MUTUEL AGRICULTURAL EMPLOYMENT RELATIONS BOARD ANIMAL DAMAGE CONTROL OFFSITE NUCLEAR EMERGENCY RESPONSE PLANS OPERATING LUMP SUM APPROPRIATION RED IMPORTED FIRE ANT AHCCCS - ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ACA ADULT EXPANSION ADMIN ADJUSTMENT ACA ADULT EXPANSION ADMIN ADJUSTMENT ALTCS SERVICES ADMIN ADJUSTMENT CHILDRENS REHABILITATIVE SERVICES ADMIN ADJUSTMENT CHIP - SERVICES ADMIN ADJUSTMENT DISPROPORTIONATE SHARE PAYMENTS ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ADMIN ADJUSTMENT PROP 204 AHCCCS ADMINISTRATION ADMIN ADJUSTMENT PROP 204 DES ELIGIBILITY ADMIN ADJUSTMENT PROPOSITION 204 SERVICES ADMIN ADJUSTMENT TRADITIONAL MEDICAID SERVICES ORIGINAL BUDGET (Appropriations) $ The Notes to Required Supplementary Information are an integral part of this schedule. 1,525,447 7,567,800 4,197,852 1,737,922 2,383,000 3,045,157 9,000,000 6,815,835 12,807,025 6,764 709,953 8,403,900 60,104,300 24,010,300 332,755 5,500,500 5,000,000 500,000 1,000,000 23,736,400 176,995 25,000 936,400 7,000,000 3,775,000 8,275,600 2,000,000 FINAL BUDGET (Appropriations) $ 1,525,447 4,609,112 15,754,084 2,687,643 313,000 1,864,687 1,026,562 1,051,502 338,075 574,106 7,567,800 6,580,852 11,212,922 2,383,000 3,045,157 9,000,000 6,815,835 12,807,025 6,764 709,953 8,403,900 60,104,300 24,010,300 332,755 5,500,500 5,000,000 500,000 1,000,000 23,702,500 375 176,995 25,000 936,400 7,000,000 3,775,000 8,275,600 2,000,000 ACTUAL EXPENDITURE AMOUNTS $ 157,418 4,609,112 15,754,084 2,687,643 313,000 1,864,687 1,026,562 1,051,502 338,075 574,106 7,063,058 1,036,050 5,499,870 2,383,000 2,660,181 2,770,458 2,742,382 4,819,437 6,764 696,304 8,403,900 60,104,300 24,010,300 5,500,500 500,000 824,610 21,770,227 375 80,276 25,000 487,778 7,000,000 3,775,000 6,879,367 - 862,500 861,700 861,700 128,500 23,300 65,000 7,884,600 23,200 14,941 65,324 128,500 23,300 65,000 198,434 7,849,000 23,200 14,941 65,324 128,497 23,300 46,897 198,434 7,739,990 23,200 197,183,800 - 424,683,800 6,518,930 42,223,212 2,929,866 403,740 9,239,800 3,465,533 361,812 9,995,210 35,416,139 122,383,864 403,521,565 6,518,930 42,223,212 2,929,866 403,740 9,239,800 3,465,533 361,812 9,995,210 35,416,139 122,383,864 (continued) -143- STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2016 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) ALTCS SERVICES CHILDRENS REHABILITATIVE SERVICES CHIP - SERVICES DES ELIGIBILITY DISPROPORTIONATE SHARE PAYMENTS DSH - VOLUNTARY GRADUATE MEDICAL EDUCATION 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 - MAIN OPERATING LUMP SUM APPROPRIATION - EAST OPERATING LUMP SUM APPROPRIATION - WEST RESEARCH INFRASTRUCTURE LEASE PURCHASE PAYMENT RESEARCH INFRASTRUCTURE LEASE PURCHASE PAYMENT-POLY ATTORNEY GENERAL - DEPARTMENT OF LAW ADMIN ADJUSTMENT CAPITAL POSTCONVICTION PROSECUTION ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ADMIN ADJUSTMENT STATE GRAND JURY CAPITAL POSTCONVICTION PROSECUTION ICAC APPROPRIATION LEGAL ARIZONA WORKERS ACT MILITARY INSTALLATION/PLANNING MILITARY INSTALLATION-PLANNING OPERATING LUMP SUM APPROPRIATION SOUTHERN ARIZONA DRUG ENFORCEMENT STATE GRAND JURY TOBACCO ENFORCEMENT AUDITOR GENERAL INDEPENDENT CONSULTANT - CHILD WELFARE OPERATING LUMP SUM APPROPRIATION CHARTER SCHOOLS, STATE BOARD FOR ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION CHILD SAFETY, DEPARTMENT OF ADMIN ADJUSTMENT DCS ADOPTION SERVICES ADMIN ADJUSTMENT DCS ATTORNEY GENERAL LEGAL SERVICES ADMIN ADJUSTMENT DCS CHILD CARE SUBSIDY ADMIN ADJUSTMENT DCS FOSTER CARE PLACEMENT ADMIN ADJUSTMENT DCS GENERAL COUNSEL ADMIN ADJUSTMENT DCS GRANDPARENT STIPENDS ADMIN ADJUSTMENT DCS INDEPENDENT LIVING MAINTENANCE ADMIN ADJUSTMENT DCS IN-HOME PREVENTIVE SUPPORT SERVICES ADMIN ADJUSTMENT DCS INSPECTIONS BUREAU ADMIN ADJUSTMENT DCS OFFICE OF CHILD WELFARE INVESTIGATIONS ADMIN ADJUSTMENT DCS OPERATING LUMP SUM ADMIN ADJUSTMENT DCS OUT-OF-HOME SUPPORT SERVICES ADMIN ADJUSTMENT DCS OVERTIME ADMIN ADJUSTMENT DCS PERMANENT GUARDIAN SUBSIDY ADMIN ADJUSTMENT DCS RETENTION PAY ADMIN ADJUSTMENT DCS TRAINING RESOURCES ADMIN ADJUSTMENT EMERGENCY AND RESIDENTIAL PLACEMENT BACKLOG PRIVATIZATION DCS ADOPTION SERVICES The Notes to Required Supplementary Information are an integral part of this schedule. FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 1,311,671,000 234,866,700 6,295,200 54,874,500 5,087,100 18,784,700 157,312,000 77,874,700 6,863,900 38,358,700 2,202,141,800 22,650,000 137,000,000 3,698,368,600 1,323,671,000 266,339,100 6,295,200 95,874,500 5,087,100 38,859,700 186,539,086 84,375,000 16,294,400 44,358,700 2,326,463,900 22,650,000 137,000,000 3,767,663,300 1,239,945,702 250,450,501 2,050,724 72,084,454 38,855,107 163,725,884 78,107,577 11,200,408 38,269,396 2,252,056,486 21,988,610 118,584,650 3,584,122,580 2,746,600 28,946,400 198,159,500 21,339,100 28,890,700 - 2,722,400 20,217,500 280,500,800 26,995,900 38,818,900 10,509,100 917,000 2,722,400 20,217,500 280,500,800 26,995,900 38,818,900 10,509,100 912,439 800,100 100,000 3,831 5,000 36,939,400 1,200,000 181,100 84,900 88 296,091 1,700 799,400 1,800,000 100,000 3,831 90,000 36,840,700 1,200,000 181,100 84,900 88 296,091 1,700 769,382 89,107 36,156,134 1,198,575 179,670 68,453 92,694 24,011,060 92,694 23,947,960 18,245 18,586,354 1,209,200 22,008 1,200,900 22,008 1,024,392 206,301,000 16,549,690 139,487 10,586,582 5,194,680 10 170,427 1,986,900 2,822,320 329,160 1,415,624 2,795,060 11,245,570 712,880 997,060 15,000 4,950,071 13,209,470 2,700,000 205,101,000 16,549,690 139,487 10,586,582 5,194,680 10 170,427 1,986,900 2,822,320 329,160 1,415,624 2,795,060 11,245,570 712,880 997,060 15,000 4,950,071 13,209,470 188,283,823 (continued) -144- STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2016 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) DCS ATTORNEY GENERAL LEGAL SERVICES DCS CHILD CARE SUBSIDY 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 INVESTIGATIONS 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 EMERGENCY AND RESIDENTIAL PLACEMENT COMMISSION OF AFRICAN-AMERICAN AFFAIRS ADMIN ADJUSTMENT OPERATING LUMP SUM OPERATING LUMP SUM CORPORATION COMMISSION ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION RAILROAD WARNING SYSTEMS CORRECTIONS, STATE DEPARTMENT OF ADMIN ADJUSTMENT INMATE HEALTH CARE CONTRACTED SERVICES ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ADMIN ADJUSTMENT PRIVATE PRISON PER DIEM ASPC YUMA CHEYENNE REPAIRS BUILDING RENEWAL FUND EXPENDITURES CAPITAL OUTLAY APPROPRIATION INMATE HEALTH CARE CONTRACTED SERVICES LEAP YEAR OPERATING LUMP SUM APPROPRIATION PRIVATE PRISON PER DIEM RELIEF SWEEPS COURT OF APPEALS DIVISION I ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION - DIV I OPERATING LUMP SUM APPROPRIATION - DIV I COURT OF APPEALS DIVISION II ADMIN ADJUSTMENT OPERATING LUM SUM-DIVISION II OPERATING LUM SUM-DIVISION II DEAF AND BLIND, ARIZONA SCHOOLS FOR THE ADMIN ADJUSTMENT ADMIN-STATEWIDE ADMIN ADJUSTMENT PHOENIX DAY SCHOOL FOR THE DEAF ADMIN ADJUSTMENT PRESCHOOL-OUTREACH PROGRAMS ADMIN ADJUSTMENT REGIONAL COOPERATIVES ADMIN ADJUSTMENT SCHOOL BUS REPLACEMENT ADMIN ADJUSTMENT TUCSON CAMPUS ADMIN-STATEWIDE PHOENIX DAY SCHOOL FOR THE DEAF PRESCHOOL-OUTREACH PROGRAMS REGIONAL COOPERATIVES SCHOOL BUS REPLACEMENT TUCSON CAMPUS ECONOMIC SECURITY, DEPARTMENT OF ADMIN ADJUSTMENT ADULT SERVICES ADMIN ADJUSTMENT ATTORNEY GENERAL LEGAL SERVICES ACTUAL EXPENDITURE AMOUNTS 19,758,000 39,753,600 59,081,300 157,300 1,000,000 3,469,300 33,755,100 2,500,400 8,500,000 350,000 10,771,200 209,967,100 136,329,900 8,400,000 12,215,300 597,400 1,707,000 5,150,000 76,306,300 21,515,600 49,990,600 64,381,300 141,300 900,000 4,185,600 38,255,100 2,486,500 8,500,000 350,000 10,706,600 213,601,700 174,163,700 12,298,500 11,895,300 595,600 630,600 5,150,000 103,006,300 20,503,269 45,101,360 55,098,257 94,957 657,366 4,037,169 16,958,935 2,414,010 8,495,465 144,827 9,073,001 188,033,451 151,932,998 11,533,077 10,759,088 535,261 514,147 4,037,822 94,195,466 125,000 5,286 125,000 5,286 121,451 660,000 47,510 950 664,300 47,510 950 657,681 - 318,492 1,704,804 11,370,148 130,503,900 929,100 780,245,100 126,022,400 1,500,000 5,219,040 7,905,072 6,046,862 318,492 1,704,804 11,370,148 135,703,900 929,100 782,721,900 118,022,400 6,948 1,500,000 5,219,040 7,905,072 6,046,862 247,437 1,343,786 6,306,972 125,751,884 929,099 774,136,440 117,609,335 6,948 1,500,000 10,039,900 50,269 9,988,800 50,269 9,965,365 4,340,300 2,015 4,326,700 2,015 4,326,699 4,209,400 4,151,900 1,516,400 832,800 738,000 10,353,600 109,804 599,835 29,751 199,188 651,501 1,116,190 4,152,100 4,115,641 1,493,855 821,900 738,000 10,274,904 109,804 599,835 29,751 199,188 651,501 1,116,190 4,105,394 3,678,145 1,425,955 802,181 458,497 9,712,316 1,514,171 1,650,362 1,514,171 1,650,362 - The Notes to Required Supplementary Information are an integral part of this schedule. FINAL BUDGET (Appropriations) (continued) -145- STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2016 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) ADMIN ADJUSTMENT AZ TRAINING PROGRAM COOLIDGE-TITLE XIX ADMIN ADJUSTMENT CASE MANAGEMENT-STATE ONLY ADMIN ADJUSTMENT CASE MANAGEMENT-TITLE XIX ADMIN ADJUSTMENT COMMUNITY AND EMERGENCY SERVICES ADMIN ADJUSTMENT COORDINATED HOMELESS PROGRAM ADMIN ADJUSTMENT COORDINATED HUNGER ADMIN ADJUSTMENT COUNTY PARTICIPATION ADMIN ADJUSTMENT DCS SPECIAL SUPPLEMENTAL APPROPRIATION ADMIN ADJUSTMENT DES OPERATING LUMP SUM ADMIN ADJUSTMENT DOMESTIC VIOLENCE PREVENTION ADMIN ADJUSTMENT HOME AND COMMUNITY SERVICES-STATE ONLY ADMIN ADJUSTMENT HOME AND COMMUNITY BASED SERVICES-TITLE XIX ADMIN ADJUSTMENT HOMELESS CAPITAL GRANT ADMIN ADJUSTMENT INDEPENDENT LIVING REHABILITATION SERVICES ADMIN ADJUSTMENT INSTITUTIONAL SERVICES-TITLE XIX ADMIN ADJUSTMENT JOBS ADMIN ADJUSTMENT MEDICAL SERVICES-TITLE XIX ADMIN ADJUSTMENT REHABILITATION SERVICES ADMIN ADJUSTMENT STATE FUNDED LONG-TERM CARE SERVICES ADMIN ADJUSTMENT TANF CASH BENEFITS ADMIN ADJUSTMENT WORKFORCE INVESTMENT ACT SERVICES ADULT SERVICES AGENCY OPERATING LUMP SUM APPROPRIATION ATTORNEY GENERAL LEGAL SERVICES AZ TRAINING PROGRAM COOLIDGE-TITLE XIX CASE MANAGEMENT-STATE ONLY CASE MANAGEMENT-TITLE XIX CASH TRANSFER TO GENERAL FUND CHILD CARE SUBSIDY COMMUNITY AND EMERGENCY SERVICES COORDINATED HOMELESS PROGRAM COORDINATED HUNGER COUNTY PARTICIPATION DCS SPECIAL SUPPLEMENTAL APPROPRIATION DDD OPERATING LUMP SUM DES OPERATING LUMP SUM DOMESTIC VIOLENCE PREVENTION HOME AND COMMUNITY BASED SERVICES-STATE ONLY HOME AND COMMUNITY BASED SERVICES-TITLE XIX INDEPENDENT LIVING REHABILITATION SVCS INSTITUTIONAL SERVICES-TITLE XIX JOBS LOAN FOR REIMBURSEMENT GRANTS 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 ADMIN ADJUSTMENT OPERATING LUMP SUM OPERATING LUMP SUM EDUCATION, DEPARTMENT OF ACHIEVEMENT TESTING ADDITIONAL FUNDING ADDITIONAL STATE AID-1 PERCENT CAP ADDITIONAL STATE AID TO SCHOOLS ADMIN ADJUSTMENT BASIC STATE AID ENTITLEMENT ADMIN ADJUSTMENT OTHER STATE AID TO DISTRICTS ADULT EDUCATION The Notes to Required Supplementary Information are an integral part of this schedule. FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 7,924,100 1,000,000 11,042,800 20,876,100 3,928,600 67,549,200 34,814,703 98,396,600 3,724,000 2,522,600 1,754,600 6,740,200 62,256,300 150,372,200 9,903,700 21,296,700 1,141,483,600 166,000 27,235,900 11,894,700 2,928,700 199,029,600 3,594,400 26,554,800 44,999,400 4,680,300 51,654,600 3,068,461 1,566,711 9,598,217 232,559 35,379 455,806 794,180 21,000,000 35,276,165 947,200 4,102,449 50,881,528 237,672 1,000 3,188,430 1,169,981 7,394,863 6,000 2,198,011 1,635,180 6,201,362 7,924,100 1,000,000 10,969,700 21,757,600 3,912,700 72,679,000 34,814,703 98,396,600 3,724,000 2,522,600 1,754,600 7,190,200 41,000,000 72,618,100 153,459,900 9,903,700 20,323,200 1,187,283,100 166,000 29,706,200 11,894,700 35,000,000 2,928,700 201,993,500 4,594,400 27,554,000 31,594,400 4,680,300 51,654,600 3,068,461 1,566,711 9,598,217 232,559 35,379 455,806 794,180 21,000,000 35,276,165 947,200 4,102,449 50,881,528 237,672 1,000 3,188,430 1,169,981 7,394,863 6,000 2,198,011 1,635,180 6,201,362 6,897,967 9,931,740 19,942,631 3,785,906 69,970,345 34,814,703 84,181,496 3,389,279 2,285,891 1,435,837 4,030,639 20,000,000 61,410,127 137,568,839 9,266,489 14,393,916 1,052,612,266 166,000 26,515,008 8,833,680 2,928,700 198,806,963 4,176,805 26,610,045 28,299,125 4,680,300 32,903,204 1,325,200 56,237 1,325,200 56,237 1,139,025 9,423,600 7,380,300 359,303,700 4,500,000 9,422,400 50,000,000 7,380,300 359,303,700 6,179,264 147,686 4,500,000 9,422,400 50,000,000 7,380,300 359,303,700 6,179,264 147,686 4,500,000 (continued) -146- STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2016 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) ALTERNATIVE TEACHER DEVELOPMENT PROGRAM ARIZONA STRUCTURED ENGLISH IMMERSION BASIC STATE AID DEFERRED PAYMENT BASIC STATE AID ENTITLEMENT EMPOWERMENT SCHOLARSHIP ACCOUNT ENGLISH LEARNER ADMINISTRATION ENGLISH LEARNER TEACHER JTED SOFT CAPITAL AND EQUIPMENT K-3 READING OPERATING LUMP SUM APPROPRIATION-ADMIN OTHER STATE AID TO DISTRICTS SCHOOL SAFETY PROGRAM SPECIAL EDUCATION FUND STATE BLOCK GRT FOR VOCATIONAL EDUCATION SWEEPS TECHNOLOGY-BASED LANGUAGE DEVELOPMENT TECHNOLOGY-BASED LANGUAGE DEVELOPMENT AND LITERACY PROGRAM TRIBAL COLLEGE DUAL ENROLLMENT PROGRAM FUND EMERGENCY AND MILITARY AFFAIRS, DEPARTMENT OF ADEM MATCHING FUND ADMIN ADJUSTMENT ADMINISTRATION ADMIN ADJUSTMENT EMERGENCY MANAGEMENT ADMIN ADJUSTMENT MILITARY AFFAIRS ADMIN ADJUSTMENT MILITARY INSTALLATION FUND DEP ADMINISTRATION DISASTER DECLARATION EMERGENCY MANAGEMENT FEBRUARY 2005 WINTER STORMS HAZARD MATERIALS CONTINGENCY JANUARY 2010 WINTER STORM MILITARY AFFAIRS MILITARY AFFAIRS COMMISSION NUCLEAR EMERGENCY MANAGEMENT FUND-GF TSF NUCLEAR EMERGENCY MGMT FD-BUCKEYE GF TRF NUCLEAR EMERGENCY MGMT FD-MARICOPA-GF TF SCHULTZ FIRE POST-FIRE FLOOD SERVICE CONTRACTS SUMMER 2006 MONSOONS AND FLOODING ENVIRONMENTAL QUALITY, DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION EQUAL OPPORTUNITY, GOVERNOR'S OFFICE OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION EQUALIZATION, STATE BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION EXECUTIVE CLEMENCY, BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION FINANCIAL INSTITUTIONS, DEPARTMENT OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION FIRE, BUILDING AND LIFE SAFETY, DEPARTMENT OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION FIRE SCHOOL OPERATING LUMP SUM APPROPRIATION FORESTER, OFFICE OF THE STATE ADMIN ADJUSTMENT HAZARDOUS VEGETATION REMOVAL ADMIN ADJUSTMENT INMATE FIRE CREWS ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ENVIRONMENTAL COUNTY GRANTS The Notes to Required Supplementary Information are an integral part of this schedule. FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 500,000 4,960,400 2,394,233,000 33,938 6,516,800 477,154 1,000,000 39,917,300 8,663,900 983,900 3,841,169 32,242,100 11,576,300 1,600,000 300,000 - 500,000 4,960,400 930,727,700 2,470,981,400 33,938 6,507,900 477,154 1,000,000 39,917,300 8,638,400 983,900 3,841,169 32,226,700 11,576,300 1,600,000 300,000 246,800 160,000 500,000 4,960,400 930,638,568 2,470,663,047 17,518 6,366,589 238,791 1,000,000 39,917,300 8,634,653 82,152 2,469,661 32,211,300 11,576,300 1,576,314 - 1,540,900 1,806,200 1,782,086 729,500 49,785 1,897 40,484 1,328,300 33,683 64,261 1,275,462 158,920 1,540,900 14,368 1,016 2,629 2,500,000 1,813,100 5,782,086 729,500 49,785 1,897 40,484 1,328,300 123,683 633,196 69,909 682,808 64,261 2,022,162 158,920 1,540,900 14,368 1,016 2,629 2,500,000 1,791,825 3,700,000 729,273 1,286,775 59,624 633,196 69,909 682,808 1,270,394 158,920 13,410,100 13,506,500 458,936 188,600 78 189,000 78 187,280 641,800 18,291 642,800 18,291 525,368 958,600 16,410 956,000 16,410 892,656 3,020,200 12,575 3,008,000 12,575 2,904,295 174,200 2,031,100 23,680 174,200 2,027,800 23,680 167,895 2,005,684 250,000 336,872 38,353 105,324 250,000 336,872 38,353 105,324 250,000 (continued) -147- STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2016 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FIRE SUPPRESSION SLI GENERAL FUND TRSF TO FIRE SUPPRESSION HAZARDOUS VEGETATION REMOVAL INMATE FIRE CREWS OPERATING LUMP SUM APPROPRIATION GAMING, DEPARTMENT OF ADMIN ADJUSTMENT ARIZONA BREEDERS AWARD COUNTY FAIR LIVESTOCK AND AGRICULTURAL GENERAL ACCOUNTING OFFICE EQUALIZATION AID - COCHISE EQUALIZATION AID - GRAHAM EQUALIZATION AID - NAVAJO OPERATING STATE AID - COCHISE OPERATING STATE AID - COCONINO OPERATING STATE AID - GILA OPERATING STATE AID - GRAHAM OPERATING STATE AID - MOHAVE OPERATING STATE AID - NAVAJO OPERATING STATE AID - PINAL OPERATING STATE AID - SANTA CRUZ OPERATING STATE AID - YAVAPAI OPERATING STATE AID - YUMA LA PAZ 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 - MOHAVE STEM AND WORKFORCE PROGRAM STATE AID - NAVAJO STEM AND WORKFORCE PROGRAM STATE AID - PINAL STEM AND WORKFORCE PROGRAM STATE AID - YAVAPAI STEM AND WRKFORCE PROGRAM STATE AID - SANTA CRUZ STEM AND WRKFORCE PROGRAM STATE AID - YUMA/LAPAZ SWEEPS WOOLSEY FLOOD DISTRICT GEOLOGICAL SURVEY, ARIZONA OPERATING LUMP SUM APPROPRIATION GOVERNOR, OFFICE OF THE OPERATING LUMP SUM APPROPRIATION - OSPB OPERATING LUMP SUM APPROPRIATION HEALTH SERVICES, DEPARTMENT OF ADMIN ADJUSTMENT AGENCYWIDE OPERATING LUMP SUM APPN ADMIN ADJUSTMENT AIDS REPORTING AND SURVEILLANCE ADMIN ADJUSTMENT ARIZONA STATE HOSPITAL - OPERATING ADMIN ADJUSTMENT ASH - SEXUALLY VIOLENT PERSONS ADMIN ADJUSTMENT BREAST AND CERVICAL CANCER SCREENING ADMIN ADJUSTMENT COUNTY TUBERCULOSIS PROVIDER CARE - CTL ADMIN ADJUSTMENT HIGH RISK PERINATAL SERVICES ADMIN ADJUSTMENT MENTAL HEALTH FIRST AID ADMIN ADJUSTMENT NON MEDICAID SERIOUSLY MENTAL ILL SVS ADMIN ADJUSTMENT NON RENAL DISEASE MANAGEMENT ADMIN ADJUSTMENT POISON CONTROL CENTER FUNDING ADMIN ADJUSTMENT SUPPORTED HOUSING ADULT CYSTIC FIBROSIS AGENCYWIDE OPERATING LUMP SUM APPROPRIATION AIDS REPORTING AND SURVEILLANCE ALZHEIMER DISEASE RESEARCH ARIZONA STATE HOSPITAL - OPERATING ASH - SEXUALLY VIOLENT PERSONS ASH - CORRECTIVE ACTION PLAN SUPPLEMENTAL ASH - RESTORATION TO COMPETENCY The Notes to Required Supplementary Information are an integral part of this schedule. FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 1,000,000 1,350,000 695,700 2,726,100 1,000,000 3,000,000 1,350,000 691,000 2,868,000 1,000,000 3,000,000 685,396 629,202 2,699,819 1,779,500 14,906 1,779,500 14,906 1,779,500 4,332,800 14,538,800 5,849,400 5,206,000 1,771,200 368,100 2,175,600 1,524,000 1,582,100 1,903,500 57,300 890,300 2,702,500 1,273,800 1,150,000 423,200 160,900 569,500 577,700 345,500 96,500 805,700 53,100 867,300 5,400,000 - 4,332,800 14,538,800 5,849,400 5,206,000 1,771,200 368,100 2,175,600 1,524,000 1,582,100 1,903,500 57,300 890,300 2,702,500 1,273,800 1,150,000 423,200 160,900 569,500 577,700 345,500 96,500 805,700 53,100 867,300 5,400,000 95,028 4,332,800 14,538,800 5,849,400 5,206,000 1,771,200 368,100 2,175,600 1,524,000 1,582,100 1,903,500 57,300 890,300 2,702,500 1,273,800 1,150,000 423,200 160,900 569,500 577,700 345,500 96,500 805,700 53,100 867,300 5,400,000 95,028 941,700 941,000 936,907 2,753,816 8,885,326 2,753,816 8,854,226 2,092,378 7,996,865 105,200 34,932,900 1,000,000 125,000 58,916,200 9,731,700 398,060 900,000 516,002 6,384 1,173,662 291,054 416,969 86,605 539,449 39,412 4,605,605 56,270 333,173 104,621 105,200 34,916,297 1,000,000 125,000 58,639,796 9,682,515 398,060 896,792 516,002 6,384 1,173,662 291,054 416,969 86,605 539,449 39,412 4,605,605 56,270 333,173 104,621 105,200 32,843,932 990,127 125,000 56,987,290 9,136,262 896,792 (continued) -148- STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2016 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) BREAST AND CERVICAL CANCER SCREENING COUNTY TUBERCULOSIS PROVIDER CARE - CTL CRISIS SERVICES HIGH RISK PERINATAL SERVICES MEDICAID BEHAVIORAL HEALTH - PROP 204 MEDICAID BEHAVIORAL HEALTH - TRADITIONAL MEDICAID BEHAVIORAL HEALTH - COMPREHENSIVE AND DENTAL MEDICAID INSURANCE PREMIUM PAYMENTS MEDICARE CLAWBACK PAYMENTS MIDDLE AND HIGH SCHOOL PREVENTION ED PRG NON MEDICAID SERIOUSLY MENTAL ILL SVS NON RENAL DISEASE MANAGEMENT ONE TIME ELECTRONIC MED RECORDS START UP POISON CONTROL CENTER FUNDING PRESCRIPTION DRUG REBATE PROP 204 ADMINISTRATION TXIX MATCH REG HA DISPENSERS-AUDIOL PATHOL RELIEF SUPPORTED HOUSING TANF PERINATAL SERVICES HISTORICAL SOCIETY OF ARIZONA, PRESCOTT ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION 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 INDEPENDENT REDISTRICTING COMMISSION ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING EXPENDITURES OPERATING LUMP SUM APPROPRIATION INDIAN AFFAIRS, ARIZONA COMMISSION OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION INSURANCE, DEPARTMENT OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION JOINT LEGISLATIVE BUDGET COMMITTEE OPERATING LUMP SUM APPROPRIATION JUVENILE CORRECTIONS, DEPARTMENT OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION LAND DEPARTMENT, STATE ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION CAP USER FEES DUE DILIGENCE FUND NATURAL RESOURCE CONSERVATION DISTRICTS OPERATING LUMP SUM APPROPRIATION LEGISLATIVE COUNCIL OMBUDSMAN-CITIZENS AID OFFICE OPERATING LUMP SUM APPROPRIATION LIQUOR, LICENSES, AND CONTROL, DEPARTMENT OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION IMPROVEMENT OF DATA PROCESSING SYSTEM LICENSING SYSTEM - REPLACEMENT OPERATING LUMP SUM APPROPRIATION MEDICAL STUDENT LOANS, BOARD OF MEDICAL STUDENT FINANCIAL ASSIST FY06-07 The Notes to Required Supplementary Information are an integral part of this schedule. FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 1,369,400 590,700 14,141,100 2,093,400 103,420,512 231,633,874 54,380,434 8,715,032 14,228,600 282,243 78,846,900 198,000 1,161,992 990,000 2,011,048 62,243 5,324,800 47,270 1,369,400 590,700 14,141,100 2,093,400 103,420,512 231,633,874 54,380,434 8,715,032 14,228,600 282,243 78,846,900 198,000 1,161,992 990,000 8,824,500 2,011,048 62,243 157 5,324,800 47,270 984,408 534,345 13,926,054 1,700,338 103,420,512 231,633,874 54,380,434 8,715,032 14,228,600 272,504 78,279,391 46,372 658,702 828,173 2,011,048 157 5,207,197 - 826,300 90,619 825,800 90,619 807,417 428,300 66,000 2,117,300 544,400 428,300 66,000 2,118,500 544,400 428,300 66,000 2,118,500 544,400 20,828,833 20,746,133 13,683,013 1,161,155 1,115,300 39,554 1,161,155 1,115,300 39,554 626,441 1,093,927 56,900 641 57,400 641 56,945 5,883,300 33,043 5,867,400 33,043 5,036,423 5,809,628 5,807,528 2,261,802 40,877,100 311,857 40,585,300 311,857 38,957,449 737,800 500,000 390,000 11,446,200 1,642 737,800 500,000 390,000 11,392,700 1,642 737,748 390,000 11,274,058 978,531 11,825,203 975,539 11,812,595 803,908 5,439,845 41,766 851,780 2,962,500 9,499 41,766 851,780 2,955,300 9,499 41,766 30,582 2,861,665 346,555 346,555 (continued) -149- STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2016 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) MEDICAL STUDENT FINANCIAL ASSIST FY08-09 MINE INSPECTOR, STATE ABANDONED MINES SAFETY FUND DEPOSIT ADMIN ADJUSTMENT ABANDONED MINES SAFETY FUND DEPOSIT ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION NAVIGABLE STREAM ADJUDICATION COMMISSION, ARIZONA OPERATING LUMP SUM APPROPRIATION NORTHERN ARIZONA UNIVERSITY MEDICAL RESEARCH FND BIO TECHNOLOGY NAU - YUMA OPERATING LUMP SUM APPROPRIATION RESEARCH INFRASTRUCTURE LEASE-PURCH PYMT TEACHER TRAINING OCCUPATIONAL SAFETY AND HEALTH REVIEW BOARD OPERATING LUMP SUM APPROPRIATION PARKS BOARD, ARIZONA STATE ADMIN ADJUSTMENT KARTCHNER CAVERNS STATE PARK ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION GF C/O YARNELL HILL MEMORIAL SITE ACQUIS KARTCHNER CAVERNS STATE PARK OPERATING LUMP SUM APPROPRIATION SPRF BSF STATE PARKS CAPITAL IMPROVEMENT POSTSECONDARY EDUCATION, COMMISSION FOR ADMIN ADJUSTMENT AZ MINORITY ED POLICY ANALYSIS CENTER ARIZONA COLLEGE AND CAREER GUIDE AZ MINORITY ED POLICY ANALYSIS CENTER LEVERAGING EDUCATIONAL ASSISTANCE PRTSHP MATH AND SCIENCE TEACHER INITIATIVE OPERATING LUMP SUM APPROPRIATION TWELVE PLUS PARTNERSHIP PUBLIC SAFETY, DEPARTMENT OF ACTIC ADMIN ADJUSTMENT GIITEM ADMIN ADJUSTMENT GIITEM SUBACCOUNT ADMIN ADJUSTMENT MOTOR VEHICLE FUEL GIITEM GIITEM IMPACT APPROPRIATION GIITEM SUBACCOUNT MICROWAVE COMMUNICATION SYSTEM UPGRADE MOTOR VEHICLE FUEL OPERATING LUMP SUM APPROPRIATION RADIATION REGULATORY AGENCY ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION NUCLEAR EMERGENCY MANAGEMENT FUND OPERATING LUMP SUM APPROPRIATION REAL ESTATE DEPARTMENT, STATE ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION REGENTS, ARIZONA BOARD OF ARIZONA TEACHERS INCENTIVE PROGRAM ARIZONA TRANSFER ARTICULATION SUPPORT SYSTEM HEALTH CARE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION PERFORMANCE FUNDING STUDENT FINANCIAL ASSISTANCE WESTERN INTERSTATE COMMISSION OFFICE WICHE STUDENT SUBSIDIES REVENUE, DEPARTMENT OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ADMIN ADJUSTMENT UNCLAIMED PROPERTY ADMINISTRATION-AUDIT ACTUAL EXPENDITURE AMOUNTS 309,800 309,800 194,700 1,020,900 194,700 2,457 16,172 1,020,500 186,311 2,457 16,172 975,651 129,200 126,600 121,267 2,430,000 56,770,800 2,290,600 3,000,000 2,428,600 118,200,000 5,493,200 2,290,600 3,000,000 2,428,600 118,200,000 5,493,200 2,290,600 10,818 10,818 2,525 428,378 2,232,000 10,610,100 2,966,539 45,779 341,797 428,378 2,227,400 10,666,400 2,966,539 45,779 341,797 422,982 2,203,708 9,670,760 778,138 21,300 100,000 2,319,500 176,000 184,900 130,500 35 21,300 100,000 2,319,500 176,000 184,300 130,500 35 2,087 48,982 2,319,500 176,000 125,553 24,557 750,000 22,217,700 2,980,304 2,390,000 10,348 4,384,200 67,453,000 750,000 171,532 38,057 376,511 22,172,900 2,980,304 2,390,000 10,348 3,074,500 68,605,500 527,440 171,532 38,057 376,511 21,105,695 2,639,277 2,033,212 8,248 2,446,024 68,605,500 1,353,400 10,701 819,663 1,354,000 10,701 819,663 1,351,500 2,989,700 9,624 2,985,200 9,624 2,551,718 90,000 213,700 2,352,500 5,000,000 10,041,200 137,000 4,094,000 90,000 213,700 4,076,000 2,352,500 5,000,000 10,041,200 141,000 4,090,000 90,000 213,700 4,076,000 2,352,500 5,000,000 10,041,200 141,000 4,090,000 1,479,395 16,413 1,479,395 16,413 - The Notes to Required Supplementary Information are an integral part of this schedule. FINAL BUDGET (Appropriations) - (continued) -150- STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2016 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) BRITS OPERATIONAL SUPPORT OPERATING LUMP SUM APPROPRIATION RELIEF TPT INFORMATION TECHNOLOGY TPT SIMPLIFICATION UNCLAIMED PROPERTY ADMINISTRATION - AUDIT UNCLAIMED PROPERTY ADMINISTRATION - AUDIT GF TRANSFER SCHOOL FACILITIES BOARD ACCESS OUR BEST PUBLIC SCHOOLS FUND DEPOSIT ADMIN ADJUSTMENT NEW SCHOOL CONSTRUCTION ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION BUILDING RENEWAL GRANT NEW SCHOOL CONSTRUCTION NEW SCHOOL FACILITIES DEBT SERVICE OPERATING LUMP SUM APPROPRIATION SECRETARY OF STATE ADMIN ADJUSTMENT ELECTION SERVICES ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION BUILDING RENOVATION AND CODE C ELECTION SERVICES ELECTION SERVICES MAY 17 HELP AMERICA VOTE ACT LIBRARY GRANTS-IN-AID OPERATING LUMP SUM APPROPRIATION STATEWIDE RADIO READING SVC FOR BLIND SENATE BORDER SECURITY TRUST FUND OPERATING LUMP SUM APPROPRIATION SUPREME COURT ADMIN ADJUSTMENT ADULT INTENSIVE PROBATION ADMIN ADJUSTMENT ADULT STANDARD PROBATION ADMIN ADJUSTMENT DOMESTIC RELATIONS ADMIN ADJUSTMENT FOSTER CARE REVIEW BOARD ADMIN ADJUSTMENT JUDICIAL NOMINATION - PERFORMANCE REVIEW ADMIN ADJUSTMENT JUVENILE FAMILY COUNSELING ADMIN ADJUSTMENT JUVENILE TREATMENT SERVICES ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ADULT INTENSIVE PROBATION ADULT STANDARD PROBATION AUTOMATION CENTRALIZED SERVICE PAYMENTS COMMISSION ON JUDICIAL CONDUCT COUNTY REIMBURSEMENTS DOMESTIC RELATIONS DRUG COURT FOSTER CARE REVIEW BOARD INTERSTATE COMPACT JUDGES COMPENSATION JUDICIAL NOMINATION - PERFORMANCE REVIEW JUVENILE DIVERSION CONSEQUENCES JUVENILE FAMILY COUNSELING JUVENILE INTENSIVE PROBATION JUVENILE STANDARD PROBATION JUVENILE TREATMENT SERVICES MODEL COURT OPERATING LUMP SUM OPERATING LUMP SUM APPROPRIATION SPECIAL WATER MASTER TAX APPEALS, STATE BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION The Notes to Required Supplementary Information are an integral part of this schedule. FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 7,604,200 66,300,800 1,230,700 990,600 1,218,500 825,000 7,538,900 66,165,400 5,323 1,230,700 990,600 2,043,500 825,000 7,150,815 62,291,909 5,323 1,150,412 974,919 1,880,848 825,000 23,900,000 16,667,900 2,249,600 172,388,100 1,677,100 23,900,000 214,550 28,804 31,667,900 2,249,600 171,109,400 1,672,500 23,900,000 214,550 28,804 31,667,900 2,249,600 171,109,400 1,451,178 102,797 4,431,900 4,166,607 908,448 10,588,800 97,000 2,432 161,992 102,797 10,556,400 9,300,000 4,167,007 908,448 10,573,700 97,000 2,432 161,992 4,335,913 892,030 658,212 10,162,901 97,000 263,667 8,875,672 263,667 8,815,772 219,248 7,946,698 8,374,800 11,335,100 6,884,800 3,008,100 512,500 187,900 629,100 1,054,922 3,255,900 323,900 8,231,000 418,500 8,039,300 500,000 5,532,700 3,595,700 19,937,800 437,600 3,879,400 9,981,900 160,000 43,328 30,749 4,428 3,906 44 1,782 110,752 168,413 8,635,208 11,575,296 6,884,800 3,008,100 505,000 187,900 621,000 1,054,922 3,212,300 323,900 8,231,000 413,500 8,039,300 500,000 5,272,292 3,355,504 19,937,800 437,600 3,879,400 9,886,300 160,000 43,328 30,749 4,428 3,906 44 1,782 110,752 168,413 8,635,208 11,575,294 6,131,472 2,910,508 504,940 187,900 610,409 993,598 3,204,251 323,900 8,104,855 412,096 8,039,300 490,786 5,272,292 3,355,504 19,937,800 434,625 3,871,570 9,580,509 111,265 265,600 442 266,400 442 262,339 (continued) -151- STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2016 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) TOURISM, OFFICE OF TOURISM FUND DEPOSIT TRANSPORTATION, DEPARTMENT OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION NAVAJO NATION TRANSPORTATION PROJECT OPERATING LUMP SUM APPROPRIATION TREASURER, STATE ADMIN ADJUSTMENT JUSTICE OF THE PEACE SALARIES ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION 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 ADMIN ADJUSTMENT ARIZONA STATE VETERANS CEMETERIES ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ADMIN ADJUSTMENT VETERANS BENEFIT COUNSELING ARIZONA STATE VETERANS CEMETERIES ASVH - YUMA CONSTRUCTION MILITARY FAMILY RELIEF FUND OPERATING LUMP SUM APPROPRIATION VETERANS BENEFIT COUNSELING WATER RESOURCES, DEPARTMENT OF ADJUDICATION SUPPORT ADMIN ADJUSTMENT AUTOMATED GROUNDWATER MONITORING ADMIN ADJUSTMENT RURAL WATER STUDIES ASSURED - ADEQUATE WATER SUPPLY ADMIN AUTOMATED GROUNDWATER MONITORING CONSERVATION AND DROUGHT PROGRAM LOWER COLORADO RIVER LITIGATION EXPENSES OPERATING LUMP SUM APPROPRIATION RURAL WATER STUDIES WEIGHTS AND MEASURES, DEPARTMENT OF ADMIN ADJUSTMENT GENERAL SERVICES GENERAL SERVICES HB2485 SUPPLEMENTAL APPROPRIATION TOTAL GENERAL FUND BUDGETARY EXPENDITURES $ The Notes to Required Supplementary Information are an integral part of this schedule -152- FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 7,103,700 7,110,400 7,103,700 1,200,000 50,400 90 1,200,000 50,400 90 1,200,000 49,641 1,205,100 2,861,900 327,759 46,708 2,523,400 7,000,000 1,205,100 2,848,100 327,759 46,708 2,523,400 7,000,000 945,188 2,686,320 27,310,100 14,660,200 353,400 8,587,000 500,000 430,100 35,270,000 124,640,900 22,589,100 2,695,700 1,854,400 28,537,900 14,317,700 350,500 8,484,400 500,000 450,600 50,790,000 185,959,500 23,256,200 9,593,600 2,743,800 1,838,500 28,537,900 14,317,700 350,500 8,484,400 500,000 450,600 50,790,000 185,959,500 23,256,200 9,593,600 2,743,800 1,838,500 929,400 9,200,000 15,291 2,314,600 2,848,100 13 43,075 8,956 928,000 9,200,000 15,291 2,316,100 2,833,700 13 43,075 8,956 903,387 2,280,161 2,775,117 1,257,200 1,723,800 410,300 410,200 1,019,663 7,360,700 1,168,100 1,251,800 689 59,326 1,716,600 409,400 408,300 1,019,663 7,352,500 1,164,500 1,249,726 689 59,326 1,699,500 375,982 388,417 955 6,989,744 1,096,613 1,407,700 - 10,842 1,399,000 1,318 10,842 1,180,869 1,318 17,307,223,941 $ 20,035,543,259 $ 18,979,327,723 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, 2016 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) TRANSPORTATION, DEPARTMENT OF ADMIN ADJUSTMENT FRAUD INVESTIGATION ADMIN ADJUSTMENT NEW THIRD PARTY FUNDING ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION AIRPORT PLANNING AND DEVELOPMENT ATTORNEY GENERAL LEGAL SERVICES BUILDING RENEWAL DE ICER BUILDINGS FRAUD INVESTIGATION HIGHWAY MAINTENANCE NEW THIRD PARTY FUNDING OPERATING LUMP SUM APPROPRIATION RELIEF STATEWIDE HIGHWAY CONSTRUCTION SWEEPS VEHICLE WASH SYSTEM 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 -153- FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS $ 43,188,239 3,310,400 6,718,169 4,563,727 773,600 148,120,937 971,500 206,550,200 364,981,959 17,000,000 6,827,357 $ 2,250 408,024 3,505,823 43,188,239 3,577,700 6,718,169 4,563,727 768,500 147,685,637 965,300 205,654,700 3,487 364,981,959 17,000,000 6,827,357 $ 2,250 408,024 3,505,823 25,700,382 3,527,640 4,037,848 2,294,850 741,995 136,715,485 942,769 195,656,458 3,487 146,534,578 17,000,000 664,552 $ 803,006,088 $ 805,850,872 $ 537,736,141 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION – BUDGETARY COMPARISON SCHEDULES JUNE 30, 2016 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, 2015 that affect available appropriations during fiscal year 2016. The final budget represents any appropriation bills passed during fiscal year 2016 for fiscal year 2016 plus the original budget. Appropriation bills passed after the end of fiscal year 2016 for fiscal year 2016 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 $ 18,979,328 $ 537,736 Differences – budget to GAAP: Increase in unpaid incurred expenditures from fiscal year end 2015 to fiscal year end 2016. 88,589 567,850 Increase in unpaid payroll expenditures from fiscal year end 2015 to fiscal year end 2016. For budgetary reporting, final June 2015 payroll expenditures were charged to fiscal year 2016 budget and final June 2016 payroll expenditures were charged to fiscal year 2017 budget. 13,667 - Distributions to counties and cities of sales taxes are recognized as expenditures on the modified accrual basis, but have no effect on budgetary expenditures. 1,298,100 - 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. 557,134 - Programs which are not controlled by legislative appropriations but have disbursed cash or incurred obligations during fiscal year 2016. 3,663,090 1,969,163 Transfers to other funds are outflows of budgetary resources but are not expenditures for financial reporting purposes. (888,098) (304,311) Total expenditures, as reported on the Statement of Revenues, Expenditures and Changes in Fund Balances $ 23,711,810 $ There were no expenditures in excess of appropriations or allotments in the individual budget accounts for the year. - 154 - 2,770,438 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION – BUDGETARY COMPARISON SCHEDULES JUNE 30, 2016 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, $2.7 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 $2.8 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. 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. - 155 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2016 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 6,822 center lane miles (21,532 travel lane miles) of roads and 4,858 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 2016 and beyond was adopted by the Transportation Board on June 19, 2015. 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, 2016 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 2016, an overall rating of 3.66 was achieved, as shown in the following graph: Condition Levels - Roads 5 PSR 4 3 Actual 2 Goal 1 0 2012 2013 2014 2015 2016 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 2012 through 2016 were as follows: Fiscal Year 2012 2013 2014 2015 2016 Estimated Expenditures (in millions) $261.9 $276.3 $271.2 $249.5 $272.0 Actual Expenditures (in millions) $373.6 $291.3 $287.2 $300.6 $317.0 Bridges The State’s bridge assets constitute a significant portion of all infrastructure assets in Arizona. As of June 30, 2016, the State owned and maintained 4,858 bridges with an approximate total deck area of 49,764,611 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 - 157 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2016 used for reporting bridge inventory and condition, on a biennial basis, to the Federal Highway Administration (FHWA). Historically, a Condition Rating Index (CRI) has been used to track the condition of the bridge network. The CRI was 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.” In 2015, the FHWA issued new rules which have had the effect of replacing the CRI as the summary statistic for bridge condition. Instead, the various states are expected to maintain their bridges so that no more than 10% are classified as Poor. Financial sanctions are held against states that do not comply with this standard. Management of the bridge inventory is a major function of the State’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. In fiscal year 2016, 2.9% of bridges maintained by the states were classified as Poor. As this is the first year this measurement has been used, long-term trend data is not available, but will be accumulated over time. 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 2 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 2 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 2012 through 2016 were as follows: Estimated Expenditures Actual Expenditures Fiscal Year (in millions) (in millions) 2012 $12.5 $20.6 2013 $14.7 $10.7 2014 $21.2 $20.5 2015 $13.7 $21.9 2016 $11.6 $39.8 - 158 - 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 TWO FISCAL YEARS (1) JUNE 30, 2016 (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 Reporting Fiscal Year (measurement date) 2016 2015 (2015) (2014) 21.67% 21.36% $ $ 3,375,283 $ 1,999,691 $ 3,160,809 1,939,038 168.79% 163.01% 68.35% 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. The Notes to Required Supplementary Information are an integral part of this schedule. - 159 - 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 TWO FISCAL YEARS (1) JUNE 30, 2016 (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 Reporting Fiscal Year (measurement date) 2016 2015 (2015) (2014) 18.67% 18.16% $ $ 145,898 $ 12,987 $ 121,797 12,604 1,123.42% 966.34% 28.32% 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. The Notes to Required Supplementary Information are an integral part of this schedule. 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 TWO FISCAL YEARS (1) JUNE 30, 2016 (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 Reporting Fiscal Year (measurement date) 2016 2015 (2015) (2014) 19.33% 19.20% $ 151,048 $ 28.32% 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. The Notes to Required Supplementary Information are an integral part of this schedule. - 160 - 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 TWO FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) Reporting Fiscal Year (measurement date) 2016 2015 (2015) (2014) 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 $ 13,258 $ 77,421 - 13,111 66,664 23,768 (6,328) - (3,711) 107,172 (70,586) 13,765 1,014,922 (69,497) 137,507 877,415 $ 1,028,687 $ 1,014,922 $ 40,328 $ 4,418 12,867 34,965 4,080 46,223 (70,586) (317) 150 (13,140) 361,254 (69,497) (372) 393 15,792 345,462 Plan fiduciary net position - ending (b) $ 348,114 $ 361,254 State's net pension liability - ending (a) - (b) $ 680,573 $ 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 $ 33.84% 66,879 $ 35.59% 63,956 1,017.62% 1,022.06% (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. - 161 - 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 TWO FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) Reporting Fiscal Year (measurement date) 2016 2015 (2015) (2014) 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 $ 47,131 $ 108,123 - 48,061 92,486 21,354 (30,179) - (3,818) 125,557 (84,586) 40,489 1,396,097 (83,365) 200,275 1,195,822 $ 1,436,586 $ 1,396,097 $ 43,105 $ 27,734 28,414 40,166 27,722 96,216 (84,586) (704) (1,040) 12,923 776,005 (83,365) (757) (446) 79,536 696,469 Plan fiduciary net position - ending (b) $ 788,928 $ 776,005 State's net pension liability - ending (a) - (b) $ 647,658 $ 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 $ 54.92% 327,798 $ 55.58% 326,819 197.58% 189.74% (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 STATE PENSION CONTRIBUTIONS ARIZONA STATE RETIREMENT SYSTEM FOR THE LAST THREE FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) Fiscal Year 2016 2015 220,982 $ 2014 Statutorily required contribution State's contributions in relation to the statutorily required contribution $ State's contribution deficiency (excess) $ - $ - $ - State's covered-employee payroll State's contributions as a percentage of covered-employee payroll $ 2,039,238 $ 1,999,691 $ 1,939,038 220,982 217,388 $ 217,388 10.84% 10.87% (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 - 206,040 206,040 10.63% STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF STATE PENSION CONTRIBUTIONS ELECTED OFFICIALS' RETIREMENT PLAN FOR THE LAST THREE FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) Fiscal Year 2016 2015 3,805 $ 2014 Statutorily required contribution (2) State's contributions in relation to the statutorily required contribution (2) $ 3,928 State's contribution deficiency (excess) $ - $ - $ - State's covered-employee payroll State's contributions as a percentage of covered-employee payroll $ 12,794 $ 12,987 $ 12,604 3,805 $ 3,870 3,928 29.74% 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. The Notes to Required Supplementary Information are an integral part of this schedule. STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF STATE PENSION CONTRIBUTIONS, AS A NONEMPLOYER CONTRIBUTING ENTITY ELECTED OFFICIALS' RETIREMENT PLAN FOR THE LAST THREE FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) Fiscal Year 2016 Statutorily required contribution (2) State's contributions in relation to the statutorily required contribution (2) $ State's contribution deficiency (excess) $ 2015 4,078 $ 4,078 - 2014 4,066 $ 4,066 $ - 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. The Notes to Required Supplementary Information are an integral part of this schedule. - 164 - 4,092 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF STATE PENSION CONTRIBUTIONS PSPRS DEPARTMENT OF PUBLIC SAFETY FOR THE LAST THREE FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) Fiscal Year 2016 2015 56,121 $ 2014 Actuarially determined contribution State's contributions in relation to the actuarially determined contribution $ 40,328 State's contribution deficiency (excess) $ - $ - $ - State's covered-employee payroll State's contributions as a percentage of covered-employee payroll $ 69,286 $ 66,879 $ 63,956 56,121 $ 34,965 40,328 81.00% 34,965 60.30% 54.67% (1) The State implemented GASB 68 in fiscal year 2015. Therefore, ten years of data is not available, but will be accumulated over time. The Notes to Required Supplementary Information are an integral part of this schedule. STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF STATE PENSION CONTRIBUTIONS CORP DEPARTMENT OF CORRECTIONS FOR THE LAST THREE FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) Fiscal Year 2016 2015 60,984 $ 2014 Actuarially determined contribution State's contributions in relation to the actuarially determined contribution $ State's contribution deficiency (excess) $ - $ - $ - State's covered-employee payroll State's contributions as a percentage of covered-employee payroll $ 330,538 $ 327,798 $ 326,819 60,984 43,105 $ 43,105 18.45% 13.15% (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. - 165 - 40,166 40,166 12.29% STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION – PENSION PLAN SCHEDULES JUNE 30, 2016 A. ACTUARIALLY DETERMINED CONTRIBUTION RATES Actuarial 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 2014 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 22 years for unfunded actuarial liability, 20 years for excess 7-year smoothed market value, 80%/120% market corridor In the 2013 actuarial valuation, the investment rate of return was decreased from 8.0% to 7.85%. In the 2014 actuarial valuation, projected salary increases were decreased from 4.5%-8.5% to 4.0%-8.0% for PSPRS and from 4.5%-7.75% to 4.0%-7.25% for CORP. 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 2014 actuarial valuation, wage growth was decreased from 4.5% to 4.0% for PSPRS and 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) B. FACTORS THAT AFFECT TRENDS 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 PSPRS and CORP changed benefit terms to reflect the prior mechanism for funding permanent benefit increases and revised actuarial assumptions to explicitly value future permanent benefit increases. These changes are included in the PSPRS’ and CORP’s changes in total pension liability for fiscal year 2015 (measurement date 2014) in the schedule of changes in the State’s net pension liability and related ratios. These changes also increased the PSPRS’ and CORP’s required contributions beginning in fiscal year 2016 in the schedule of State pension contributions. - 166 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION SINGLE-EMPLOYER OPEB PLAN FUNDING PROGRESS JUNE 30, 2016 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 6/30/2016 6/30/2014 6/30/2012 Actuarial Value of Plan Assets - Actuarial Accrued Liability (AAL) $ 1,182,155 254,365 226,169 (Unfunded) AAL $ (1,182,155) (254,365) (226,169) - 167- Funded Ratio 0.0% 0.0% 0.0% Annual Covered Payroll $ 3,496,022 3,230,344 2,791,581 (Unfunded) AAL as a Percentage of Covered Payroll (33.8)% (7.9)% (8.1)% 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, 2016 (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 $ $ CAPITAL PROJECTS FUNDS - $ TOTAL - $ 1,773 845,566 3,340 9,672 - 2,130 855,238 5,470 81,126 27,764 16,040 71,276 3,751 - 81,126 27,764 16,040 75,027 384,262 - 31,487 29,859 145,195 - 560,944 29,859 $ 1,431,147 $ 74,769 $ 147,325 $ 1,653,241 $ 34,382 51,177 $ 1,947 $ 5,842 69 $ 40,224 53,193 Deferred Inflows of Resources: Unavailable revenue Fund Balances: Restricted Committed Total Fund Balances Total Liabilities, Deferred Inflows of Resources, and Fund Balances 1,773 DEBT SERVICE FUNDS $ 3,340 3 140,870 12,356 11,560 1,361 255,049 1,947 2,130 8,041 5,470 3 140,870 12,356 11,560 1,361 265,037 508 - - 508 529,090 646,500 1,175,590 72,822 72,822 139,284 139,284 741,196 646,500 1,387,696 1,431,147 $ 74,769 - 172 - $ 147,325 $ 1,653,241 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2016 (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 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 Capital lease and installment purchase contracts Refunding certificates of participation issued Payment to refunded certificates of participation escrow agent 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 $ 514,410 26 253,322 2,000 154,391 79,365 96,344 298,749 299,608 63,972 26,691 136,729 85,340 16,377 2,027,324 DEBT SERVICE FUNDS $ 64,147 1,770 149 66,066 CAPITAL PROJECTS FUNDS $ TOTAL 2,023 2,023 $ 578,557 26 253,322 2,000 154,391 79,365 96,344 298,749 299,608 67,765 26,691 136,729 85,340 16,526 2,095,413 118,482 538,755 121,207 734,167 286,204 125,304 - 3,832 - 16,109 8 122,314 538,755 121,207 734,167 286,204 16,109 125,304 8 11,924 14,356 15,350 1,965,749 348,570 201,900 554,302 51,643 67,760 360,494 216,256 66,993 2,587,811 61,575 (488,236) (65,737) 146,670 (150,626) 3,579 - 503,445 163,995 (377) 61,198 1,114,392 (126,596) (62,630) 25,435 503,649 15,413 57,409 1,175,590 $ - 173 - 72,822 (492,398) - 650,115 (150,626) 3,579 163,995 (65,737) 205,021 $ 139,284 (126,596) (62,630) 25,435 503,272 10,874 1,376,822 $ 1,387,696 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, 2016 (Expressed in Thousands) ASSETS Cash Cash and pooled investments with State Treasurer Collateral investment pool Receivables, net of allowances: Taxes Other Due from U.S. Government Due from other Funds Restricted assets: Cash and pooled investments with State Treasurer 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 PUBLIC SAFETY & CORRECTIONAL PROGRAMS ENVIRONMENTAL PROTECTION $ $ - $ - TOBACCO TAX & HEALTHCARE $ - JUDICIAL & LEGAL SERVICES $ REGULATING & LICENSING - $ 17 114,648 - 122,260 - 131,408 - 13,825 3,340 100,806 - 140,010 - 4,889 2,755 229 185 6,884 5,797 7,226 16,013 4,363 15,179 27 388 5 1,042 5,988 - - - 820 383,442 - - $ 124,018 $ 129,558 $ 165,627 $ 416,201 $ 101,853 $ 146,015 $ 15,790 7,708 $ 1,789 652 $ 4,590 35,886 $ 3,630 482 $ 1,581 1,062 $ 2,900 3,068 Deferred Inflows of Resources: Unavailable revenue Fund Balances: Restricted Committed Total Fund Balances Total Liabilities, Deferred Inflows of Resources, and Fund Balances 1,726 HEALTHCARE & SOCIAL SERVICES $ 23,498 4 233 87 2,765 1,225 572 42,273 3,340 3 11,898 10,096 29,449 381 3,024 68 6 702 6,744 - - 508 - - - 539 99,981 100,520 126,793 126,793 30,232 92,614 122,846 386,752 386,752 4,439 94,390 98,829 2,259 137,012 139,271 124,018 $ 129,558 - 176 - $ 165,627 $ 416,201 $ 101,853 $ 146,015 GROUNDWATER STATE PARKS BUSINESS EDUCATIONAL PROTECTION & DEVELOPMENT DEVELOPMENT PROGRAMS CONSERVATION GAME & FISH $ 30 $ - $ - $ - $ - CLEAN ELECTIONS SYSTEM $ - TOTAL $ 1,773 53,884 - 14,263 - 22,460 - 86,284 - 19,399 - 26,319 - 845,566 3,340 1,821 183 172 - 55,032 12,538 55,488 - 1 1 81,126 27,764 16,040 71,276 - - - - - - 384,262 $ 55,918 $ 14,435 $ 22,460 $ 209,342 $ 19,399 $ 26,321 $ 1,431,147 $ 1,219 1,748 $ 879 163 $ 522 140 $ 733 193 $ 189 49 $ 560 26 $ 34,382 51,177 $ 2,967 1,042 5 667 140,870 141,796 238 586 3,340 3 140,870 12,356 11,560 1,361 255,049 - - - - - - 508 10,980 41,971 52,951 13,393 13,393 608 21,185 21,793 67,546 67,546 19,161 19,161 25,735 25,735 529,090 646,500 1,175,590 55,918 $ 14,435 $ 22,460 $ 209,342 $ - 177 - 19,399 $ 26,321 $ 1,431,147 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) PUBLIC SAFETY & CORRECTIONAL PROGRAMS 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 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 17,920 5,785 106,641 55,926 21,952 23,890 307 9,423 67,149 1,213 310,206 ENVIRONMENTAL PROTECTION $ 2,427 34,875 57,202 459 244 7 95,214 HEALTHCARE & SOCIAL SERVICES $ 5,009 7,980 2,000 1,876 1 30,408 26,763 299,608 275 2,727 10,385 22,445 3,023 412,500 TOBACCO TAX & HEALTHCARE $ 239,557 193 10,050 27 113 249,940 JUDICIAL & LEGAL SERVICES $ 1,603 25,799 621 675 48,844 2,212 79,754 REGULATING & LICENSING $ 329 23,438 114 108,395 213 2,990 2,171 11,681 1,389 150,720 28,980 286,204 27,170 895 70,499 466 540 3,180 391,069 - 628 69,085 127,957 - 73,024 - 1,783 8,102 120,741 - 11,314 13,762 5,160 372,590 175 72,575 625 394,874 197,670 63 73,087 686 131,312 (62,384) 22,639 17,626 52,270 6,667 19,408 78,079 (30,596) 7,000 (16,422) 27,135 (7,406) 12,735 (49,055) 3,954 (15,084) 4,010 (17,538) 3,579 51,062 (11,322) 111,842 (9,422) 13,217 113,576 19,729 37,355 85,491 (36,320) 15,950 370,802 (11,130) (4,463) 103,292 (13,528) 5,880 133,391 Capital lease and installment purchase contracts Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ 100,520 $ 126,793 - 178 - $ 122,846 $ 386,752 $ 98,829 $ 139,271 GAME & FISH $ $ 966 39,413 40,363 346 3,174 149 6,402 839 91,652 STATE PARKS BUSINESS DEVELOPMENT DEVELOPMENT GROUNDWATER EDUCATIONAL PROTECTION & PROGRAMS CONSERVATION $ $ 9,543 1,748 123 72 11,486 $ 1,562 4,794 184 468 5,351 12,359 489,054 26 161 1,099 3,093 51,268 7,199 44,812 873 597,585 $ 6,702 126 8 1,236 8,072 CLEAN ELECTIONS SYSTEM $ 7,787 49 7,836 TOTAL $ 514,410 26 253,322 2,000 154,391 79,365 96,344 298,749 299,608 63,972 26,691 136,729 85,340 16,377 2,027,324 80,455 8,229 5,370 29 - 606,181 - 8,910 4,622 - 118,482 538,755 121,207 734,167 286,204 125,304 610 594 7,213 88,872 1,349 9,578 49 5,448 606,181 8,910 30 4,652 11,924 14,356 15,350 1,965,749 2,780 1,908 6,911 (8,596) (838) 3,184 61,575 10,273 (4,048) (4,000) 215 (5,786) 3,139 (153) 130 (526) (12) 146,670 (150,626) 6,225 9,005 43,946 (4,000) (2,092) 15,485 (5,571) 1,340 20,453 2,986 (5,610) 73,156 (396) (1,234) 20,395 (12) 3,172 22,563 3,579 (377) 61,198 1,114,392 52,951 $ 13,393 $ 21,793 $ 67,546 $ - 179 - 19,161 $ 25,735 $ 1,175,590 STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2016 (Expressed in Dollars) FINAL BUDGET (Appropriations) ACCOUNTANCY, ARIZONA STATE BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION ACUPUNCTURE BOARD OF EXAMINERS ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION ADMINISTRATION, ARIZONA DEPARTMENT OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION AHCCCS - ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMIN ADJUSTMENT PROPOSITION 204 SERVICES ALTCS SERVICES PROPOSITION 204 SERVICES TRADITIONAL MEDICAID SERVICES ATHLETIC TRAINING, BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION ATTORNEY GENERAL - DEPARTMENT OF LAW ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION FEDERALISM UNIT NATIONAL MORTGAGE SETTLEMENT OPERATING LUMP SUM APPROPRIATION TOBACCO ENFORCEMENT VICTIMS RIGHTS AUTOMOBILE THEFT AUTHORITY ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION AUTOMOBILE THEFT AUTHORITY GRANTS OPERATING LUMP SUM APPROPRIATION REIMBURSABLE PROGRAMS BARBERS, BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION BEHAVIORAL HEALTH EXAMINERS, BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION BOARD OF MASSAGE THERAPY ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION CHILD SAFETY, DEPARTMENT OF ADMIN ADJUSTMENT DCS OPERATING LUMP SUM DCS IN-HOME PREVENTIVE SUPPORT SERVICES DCS OPERATING LUMP SUM CHIROPRACTIC EXAMINERS, STATE BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION CONTRACTORS, REGISTRAR OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OFFICE OF ADMINISTRATIVE HEARINGS COSTS OPERATING LUMP SUM APPROPRIATION CORPORATION COMMISSION ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ANNUAL REVERSION ANNUAL REVERSION PUBLIC ACCESS FUND CORPORATION FILINGS, SAME DAY SERVICE OPERATING LUMP SUM APPROPRIATION SEC DATABASE REPLACEMENT SWEEPS UTILITY, AUDIT, STUDY, INVEST, HEAR CORRECTIONS, STATE DEPARTMENT OF ADMIN ADJUSTMENT INMATE HEALTH CARE CONTRACTED SERVICES $ 23,709 1,939,100 ACTUAL EXPENDITURE AMOUNTS $ 23,709 1,569,582 109 159,100 109 141,813 107,042 1,498,500 107,042 610,114 9,525,344 74,917,900 250,060,800 34,498,500 9,525,344 61,270,997 224,402,860 34,498,500 402 118,900 402 107,273 95,394 1,000,000 22,734,807 10,473,900 734,600 3,759,400 95,394 724,363 3,158,134 10,250,361 159,165 3,704,750 682 4,607,700 639,800 50,000 682 4,595,727 503,099 - 1,793 335,400 1,793 307,055 13,844 1,760,500 13,844 1,532,396 1,807 455,800 1,807 425,034 205,000 1,459,300 207,900 205,000 1,459,300 207,900 1,980 451,400 1,980 398,741 5,802 1,017,600 11,169,900 5,802 328,461 8,181,467 186,452 2,297,041 903,199 398,500 25,535,500 730,000 2,000,000 1,725,802 186,452 2,297,041 903,199 25,275,494 668,140 2,000,000 629,991 346,184 346,184 (continued) -180- STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2016 (Expressed in Dollars) FINAL BUDGET (Appropriations) ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION CASH TRANSFER TO BUILDING RENEWAL FUND INMATE HEALTH CARE CONTRACTED SERVICES OPERATING LUMP SUM APPROPRIATION PRIVATE PRISON PER DIEM SWEEPS COSMETOLOGY, BOARD OF OPERATING LUMP SUM APPROPRIATION CRIMINAL JUSTICE COMMISSION, ARIZONA ADMIN ADJUSTMENT STATE AID TO COUNTY ATTORNEYS ADMIN ADJUSTMENT VICTIM COMPENSATION - ASSISTANCE OPERATING LUMP SUM APPROPRIATION STATE AID TO COUNTY ATTORNEYS VICTIM COMPENSATION - ASSISTANCE DEAF AND HARD OF HEARING, COMMISSION FOR THE ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION AGENCY BUSINESS UPGRADES INTERPRETER FOR CERTIFICATION AND LICENSURE FY04-05 OPERATING LUMP SUM APPROPRIATION DENTAL EXAMINERS, STATE BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION ECONOMIC SECURITY, DEPARTMENT OF ADMIN ADJUSTMENT DES OPERATING LUMP SUM ADMIN ADJUSTMENT INDEPENDENT LIVING REHABILITATION SERVICES ADMIN ADJUSTMENT JOBS ADMIN ADJUSTMENT REHABILITATION SERVICES ATTORNEY GENERAL LEGAL SERVICES DES OPERATING LUMP SUM DOMESTIC VIOLENCE PREVENTION HOME AND COMMUNITY SERVICES - STATE ONLY INDEPENDENT LIVING REHABILITATION SERVICES JOBS REHABILITATION SERVICES SWEEPS EDUCATION, BOARD OF OPERATING LUMP SUM EDUCATION, DEPARTMENT OF ACCOUNTABILITY-SCHOOL SAFETY-PROP 301 ACCOUNTABILITY AND ACHIEVEMENT TESTING-PROP 301 ACHIEVEMENT TESTING-PROP 301 ADDITIONAL SCHOOL DAYS-PROP 301 CHARACTER EDUCATION-PROP 301 FAILING SCHOOL TUTORING-PROP 301 OPERATING LUMP SUM APPROPRIATION-ADMIN PROFESSIONAL DEVELOPMENT COURSES SCHOOL ACCOUNTABILITY FUND-PROP 301 TEACHER CERTIFICATION ENVIRONMENTAL QUALITY, DEPARTMENT OF ADMIN ADJUSTMENT EMISSIONS CONTROL - CONTRACTOR PAYMENTS ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ADMIN ADJUSTMENT SAFE DRINKING WATER PROGRAM AIR QUALITY PROGRAM-CONTINUING AIR QUALITY PROGRAM-CONTINUING EMISSIONS CAP AND TRADING PROGRAM EMISSIONS CONTROL-CONTRACTOR PAYMENTS OPERATING LUMP SUM APPROPRIATION POLITICAL SUBDIVISION ASSISTANCE ROADSIDE DIESEL EMISSIONS TEST SAFE DRINKING WATER PROGRAM ACTUAL EXPENDITURE AMOUNTS 29,422 2,500,000 10,000,000 7,242,100 24,517,000 1,500,000 29,422 2,500,000 8,000,000 4,087,233 14,380,438 1,500,000 1,807,700 1,707,583 243,400 356,974 887,900 973,600 4,094,700 243,400 356,974 654,706 730,200 3,397,420 154,160 220,000 255,313 4,312,800 154,160 193,825 3,302,389 4,271 1,215,500 4,271 1,134,182 1,887,878 31,663 1,110,900 48,838 97,900 2,582,200 2,500,000 120,000 1,123,400 1,110,900 204,700 4,936,400 1,887,878 31,663 1,110,900 48,838 4,271 1,800,299 2,499,975 120,000 1,007,398 856,305 4,936,400 379,800 162,725 8,359,646 7,000,000 10,341,302 86,280,500 223,304 2,031,448 137,500 2,700,000 110,664 1,834,300 6,932,758 9,353,544 86,280,500 132,758 593,481 137,500 7,643 20,985 1,771,656 183,243 1,510,323 39,790 186,035 182,451 337,158 21,119,500 32,825,300 18,500 200,000 1,800,000 183,243 1,510,323 39,790 20,489,510 21,057,243 1,583,876 (continued) -181- STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2016 (Expressed in Dollars) FINAL BUDGET (Appropriations) SWEEPS UNDERGROUND STORAGE TANK APPEALS UST APPROPRIATION VISIBILITY INDEX DEVELOPMENT FINANCIAL INSTITUTIONS, DEPARTMENT OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION FUNERAL DIRECTORS AND EMBALMERS, STATE BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION GAME AND FISH DEPARTMENT, ARIZONA ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ADMIN ADJUSTMENT WATERCRAFT SAFETY EDUCATION PROGRAM BLACK CANYON DAM MODIFICATIONS BOAT SHADE CANOPIES BUILDING RENEWAL DAM MAINTENANCE GAME AND FISH FY 2016 PSPRS OPERATING LUMP SUM APPROPRIATION PERFORMANCE INCENTIVE PAY PROPERTY MAINTENANCE RADIO TOWER REGIONAL KINGMAN OFFICE REMODEL WATERCRAFT GRANT PROGRAM GAMING, DEPARTMENT OF ADDITIONAL OPERATING EXPENSES ADMIN ADJUSTMENT CASINO OPERATION CERTIFICATION ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ADMIN ADJUSTMENT PROBLEM GAMBLING CASINO OPERATION CERTIFICATION OPERATING LUMP SUM APPROPRIATION PROBLEM GAMBLING GOVERNOR, OFFICE OF THE OPERATING LUMP SUM APPROPRIATION HEALTH SERVICES, DEPARTMENT OF ADMIN ADJUSTMENT AGENCYWIDE OPERATING LUMP SUM APPN ADMIN ADJUSTMENT FOLIC ACID ADMIN ADJUSTMENT NEWBORN SCREENING PROGRAM ADMIN ADJUSTMENT RENAL DENTAL CARE AND NUTRITION SUPPLEMENT AGENCYWIDE OPERATING LUMP SUM APPROPRIATION ALZHEIMER DISEASE RESEARCH CRISIS SERVICES EMERGENCY MEDICAL SERVICES LOCAL ALLOCATION FOLIC ACID GENOMICS-BASED MEDICAL RESEARCH HIGH RISK PERINATAL SERVICES MEDICAID BEHAVIORAL HEALTH-TRADITIONAL NEWBORN SCREENING PROGRAM NURSING CARE SPECIAL PROJECTS OPERATING LUMP SUM APPROPRIATION RELIEF RENAL DENTAL CARE AND NUTRITION SUPPLEMENT HOMEOPATHIC AND INTEGRATED MEDICINE EXAMINERS, BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION HOUSING, ARIZONA DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION INDUSTRIAL COMMISSION OF ARIZONA ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION ACTUAL EXPENDITURE AMOUNTS 12,993,700 7,500 22,000 80,589 12,993,700 - 4,342 2,279,100 4,342 1,837,708 1,945 352,200 1,945 336,117 231,777 300 357,383 4,450 574,043 678,664 1,752,000 40,845,400 1,038,300 27,120 25,359 660,976 1,000,000 231,777 300 235,700 506,563 191,431 35,471,815 22,082 146,588 - 800,400 2,501 57,967 109,973 2,089,900 11,189,700 2,287,000 2,501 57,967 109,973 1,622,724 10,060,625 1,987,847 192,300 - 852,834 3,718 451,266 75,000 18,823,300 1,000,000 2,250,200 442,000 400,000 3,002,500 450,000 47,354,500 6,306,400 100,000 38,200 1,135 300,000 852,834 3,718 451,266 75,000 15,311,593 1,000,000 2,250,200 399,027 387,233 2,493,750 187,304 47,354,500 5,608,866 22,040 1,135 225,000 257 102,800 257 74,313 318,500 318,473 111,278 19,940,300 111,278 19,025,091 (continued) -182- STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2016 (Expressed in Dollars) FINAL BUDGET (Appropriations) JUVENILE CORRECTIONS, DEPARTMENT OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION LAND DEPARTMENT, STATE NATURAL RESOURCE CONSERVATION DISTRICTS MEDICAL EXAMINERS BOARD ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION CREDENTIALS VERIFICATION CONTRACT OPERATING LUMP SUM APPROPRIATION PERFORMANCE BASED INCENTIVE PROGRAM MINE INSPECTOR, STATE ADMIN ADJUSTMENT AGGREGATE MINED LAND RECLAMATION AGGREGATE MINED LAND RECLAMATION NATUROPATHIC PHYSICIANS MEDICAL BOARD ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION NAVIGABLE STREAM ADJUDICATION COMMISSION, ARIZONA ADMIN ADJUSTMENT LEGAL EXPENSES SUPPLEMENTAL OPERATING LUMP SUM APPROPRIATION NURSING CARE INSTITUTION ADMINISTRATORS AND ASSISTED LIVING FACILITY MANAGERS, BOARD OF EXAMINERS OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION NURSING, STATE BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION CERTIFIED NURSING PROGRAM OPERATING LUMP SUM APPROPRIATION OCCUPATIONAL THERAPY EXAMINERS, BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION OPTICIANS, STATE BOARD OF DISPENSING ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION OPTOMETRY, STATE BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION OSTEOPATHIC EXAMINERS, ARIZONA BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION PEST MANAGEMENT, OFFICE OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION PHARMACY, ARIZONA STATE BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ARIZONA 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 ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION PRIVATE POSTSECONDARY EDUCATION, STATE BOARD FOR ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION STUDENT TUITION RECOVERY PSYCHOLOGIST EXAMINERS, STATE BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION ACTUAL EXPENDITURE AMOUNTS 11,720 531,300 11,720 499,365 260,500 150,000 104,735 120,689 6,426,000 165,000 104,735 120,133 6,103,298 144,164 1,016 112,800 1,016 30,343 1,334 179,700 1,334 163,652 342,835 200,000 342,835 170,909 792 422,100 792 379,513 23,795 536,700 4,265,900 23,795 468,817 4,233,003 564 172,000 564 169,205 162 136,800 162 119,221 5,105 230,200 5,105 198,944 10,040 803,700 10,040 756,235 1,465 1,699,500 1,465 1,373,555 71,605 125,000 395,795 26,685 2,020,500 71,605 125,000 395,795 1,994,872 480,400 438,739 9,356 148,200 9,356 118,697 4,289 396,300 600,000 4,289 391,891 600,000 22,282 448,500 22,282 415,304 (continued) -183- STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2016 (Expressed in Dollars) FINAL BUDGET (Appropriations) PUBLIC SAFETY, DEPARTMENT OF ACTIC ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ADMIN ADJUSTMENT PUBLIC SAFETY EQUIPMENT SURCHARGE MICROWAVE COMMUNICATION SYSTEM UPGRADE MOTOR VEHICLE FUEL OPERATING LUMP SUM APPROPRIATION PUBLIC SAFETY EQUIPMENT PUBLIC SAFETY EQUIPMENT SURCHARGE SWEEPS RADIATION REGULATORY AGENCY ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION RESIDENTIAL UTILITY CONSUMER OFFICE ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION PROFESSIONAL WITNESSES RESPIRATORY CARE EXAMINERS, BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION REVENUE, DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION SUPREME COURT ADMIN ADJUSTMENT AUTOMATION ADMIN ADJUSTMENT CASE AND CASH MANAGEMENT SYSTEM ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ADMIN ADJUSTMENT STATE AID ADULT INTENSIVE PROBATION ADULT STANDARD PROBATION AUTOMATION CENTRALIZED SERVICE PAYMENTS COMMUNITY PUNISHMENT COURT APPOINTED SPECIAL ADVOCATE INTERSTATE COMPACT JUVENILE CRIME REDUCTION OPERATING LUMP SUM OPERATING LUMP SUM APPROPRIATION STATE AID SWEEPS TECHNICAL REGISTRATION, STATE BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION TREASURER, STATE LAW ENFORCEMENT AND BOAT SAFETY VETERANS' SERVICES, DEPARTMENT OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION VETERINARY MEDICAL EXAMINING BOARD, ARIZONA STATE OPERATING LUMP SUM APPROPRIATION WATER RESOURCES, DEPARTMENT OF ASSURED AND ADEQUATE WATER SUPPLY ADMIN OPERATING LUMP SUM OPERATING LUMP SUM APPROPRIATION WEIGHTS AND MEASURES, DEPARTMENT OF ADMIN ADJUSTMENT GENERAL SERVICES ADMIN ADJUSTMENT OXYGENATED FUEL ADMIN ADJUSTMENT VAPOR RECOVERY GENERAL SERVICES OXYGENATED FUEL VAPOR RECOVERY ACTUAL EXPENDITURE AMOUNTS 700,000 22,943 291,330 2,000,000 2,700 156,953,900 4,638,989 2,890,000 5,168,200 625,999 22,943 291,330 9,150 2,654 151,933,086 2,078,068 2,072,724 5,168,200 2,170 272,500 2,170 228,225 4,310 1,190,000 333,565 4,310 1,063,116 158,885 865 300,100 865 290,793 678,900 630,531 2,324 5,999 171,808 11,338 1,567,937 4,205,809 13,133,900 85,000 2,310,300 2,862,500 143,254 3,308,000 446,300 3,110,100 5,648,400 2,000,000 2,324 5,999 171,808 11,338 1,562,518 4,205,809 10,385,417 34,159 1,407,911 2,600,946 143,254 1,559,431 362,705 2,186,385 4,484,164 2,000,000 62,381 2,122,600 62,381 1,986,698 - 2,183,800 TOTAL NON-MAJOR SPECIAL REVENUE FUNDS BUDGETARY EXPENDITURES -184- $ 4,128 902,900 4,128 422,184 545,200 464,969 266,600 1,448,500 641,200 26,625 539,743 2,126 14,943 8,478 329,400 786,300 653,500 2,126 14,943 8,478 178,182 772,474 602,700 1,149,968,714 $ 990,703,347 STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES LAND ENDOWMENTS FUND FOR THE YEAR ENDED JUNE 30, 2016 (Expressed in Dollars) FINAL BUDGET (Appropriations) CORRECTIONS, STATE DEPARTMENT OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION INMATE HEALTH CARE CONTRACTED SERVICES OPERATING LUMP SUM APPROPRIATION PRIVATE PRISON PER DIEM DEAF AND BLIND, ARIZONA SCHOOLS FOR THE ADMIN ADJUSTMENT PRESCHOOL-OUTREACH PROGRAMS PHOENIX DAY SCHOOL FOR THE DEAF PRESCHOOL-OUTREACH PROGRAMS TUCSON CAMPUS EDUCATION, DEPARTMENT OF BASIC STATE AID ENTITLEMENT HEALTH SERVICES, DEPARTMENT OF ADMIN ADJUSTMENT ARIZONA STATE HOSPITAL - OPERATING ARIZONA STATE HOSPITAL - OPERATING JUVENILE CORRECTIONS, DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION LAND DEPARTMENT, STATE ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ADMIN ADJUSTMENT SCANNING AND DIGITIZING TRUST RECORDS OPERATING LUMP SUM APPROPRIATION PIONEERS' HOME, ARIZONA ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ADMIN ADJUSTMENT PRESCRIPTION DRUGS OPERATING LUMP SUM APPROPRIATION PRESCRIPTION DRUGS TOTAL LAND ENDOWMENTS FUNDS BUDGETARY EXPENDITURES -185- ACTUAL EXPENDITURE AMOUNTS $ 18,736 1,500,000 361,200 979,200 115,049 5,382,944 2,877,198 3,761,258 219,440,500 64,956 650,000 2,000,100 29,351 48,042 3,764,900 104,270 9,002 6,004,900 200,000 $ 18,736 1,500,000 296,928 979,200 115,049 5,261,378 2,818,698 3,283,753 219,440,487 64,956 601,389 1,972,902 29,351 48,042 1,716,889 104,270 9,002 5,609,064 136,158 $ 247,311,606 $ 244,006,252 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, 2016 (Expressed in Thousands) DEPARTMENT OF TRANSPORTATION LOTTERY ASSETS Cash and pooled investments with State Treasurer Due from other Funds Restricted assets: Cash and pooled investments with State Treasurer Cash held by trustee Total Assets $ 3,751 $ - - SCHOOL FACILITIES DEBT INSTRUMENT CERTIFICATES OF PARTICIPATION $ 233 - 8,930 - $ 7,706 TOTAL 742 - $ 31,254 22,153 9,672 3,751 31,487 29,859 $ 3,751 $ 233 $ 16,636 $ 54,149 $ 74,769 $ - $ - $ 1,947 1,947 $ - $ 1,947 1,947 Fund Balances: Restricted $ 3,751 $ 233 $ 14,689 $ 54,149 $ 72,822 Total Liabilities and Fund Balances $ 3,751 $ 233 $ 16,636 $ 54,149 $ 74,769 LIABILITIES AND FUND BALANCES 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, 2016 (Expressed in Thousands) DEPARTMENT OF CERTIFICATES OF TRANSPORTATION PARTICIPATION LOTTERY REVENUES Sales taxes Earnings on investments Other Total Revenues $ EXPENDITURES Current: General government Debt service: Principal Interest and other fiscal charges Total Expenditures (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers in Refunding certificates of participation issued Payment to refunded certificates of participation escrow agent 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 - $ 754 20 774 $ 129 129 $ TOTAL 64,147 1,016 65,163 $ 64,147 1,770 149 66,066 - - 3,832 - 3,832 19,205 18,297 37,502 183,130 121,858 304,988 59,905 54,213 117,950 86,330 7,532 93,862 348,570 201,900 554,302 (37,502) (304,214) (117,821) (28,699) (488,236) 37,502 - 304,311 - 130,992 163,995 30,640 - 503,445 163,995 37,502 3,751 304,311 97 136 (126,596) (62,630) 25,435 131,196 13,375 1,314 30,640 1,941 52,208 (126,596) (62,630) 25,435 503,649 15,413 57,409 3,751 $ 233 - 189 - $ 14,689 $ 54,149 $ 72,822 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, 2016 (Expressed in Thousands) DEPARTMENT OF TRANSPORTATION FINANCED ASSETS Collateral investment pool Restricted assets: Cash and pooled investments with State Treasurer Total Assets LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and other current liabilities Accrued liabilities Obligations under securities loan agreements Total Liabilities $ 2,130 145,195 $ 147,325 $ 5,842 69 2,130 8,041 Fund Balances: Restricted Total Fund Balances $ 139,284 139,284 Total Fund Balances $ 147,325 - 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, 2016 (Expressed in Thousands) DEPARTMENT OF TRANSPORTATION FINANCED REVENUES Earnings on investments Total Revenues $ EXPENDITURES Current: Transportation Intergovernmental revenue sharing Capital outlay Total Expenditures (Deficiency) of Revenues Over Expenditures Fund Balances - Beginning Fund Balances - Ending 2,023 2,023 16,109 8 51,643 67,760 (65,737) 205,021 $ 139,284 - 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 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 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, 2016 (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 DEPARTMENT INDUSTRIES CORRECTIONAL GUARANTY FUNDS FOR THE BLIND $ 1,016 - $ 134 3,567 1,991 LOTTERY $ INDUSTRIES - $ 50 - 91,528 9,855 - - - - 202,468 - - - 203,618 1 1,595 73 8 1,900 145 9,280 12,697 4,842 109,067 5,618 3,887 135 19,545 68,991 - - - - - 9,575 - - 182 938 744 68,991 272,609 1,224 1,406 10,686 2,741 13,254 122,321 3,883 4,627 24,172 - 778 541 737 - 196 - HIGHWAY COLISEUM & $ INDUSTRIAL EXPANSION EXPOSITION COMMISSION UNEMPLOYMENT & EXTENSION CENTER SPECIAL FUND COMPENSATION LOAN PROGRAM 313 3,742 $ 23,330 1,220 $ 332,677 $ - - - OTHER $ TOTAL 9,054 $ 28,276 332,677 117,524 - - - 59,293 - 59,293 - 28,135 - - - - 28,135 202,468 4 4,059 1,631 1,239 55,555 95,957 11,027 439,661 59,293 3,030 167 12,251 95,957 1,632 35,210 73 175 10,629 280 912,329 - 263,494 - - - 332,485 - - - - - 9,575 70 2,996 - - 1,527 6,457 6,163 6,233 10,292 3,082 269,572 325,127 439,661 59,293 6,246 7,773 20,024 23,339 371,856 1,284,185 380 - - - 2,961 5,397 (Continued) - 197 - STATE OF ARIZONA COMBINING STATEMENT OF NET POSITION NON-MAJOR ENTERPRISE FUNDS JUNE 30, 2016 (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 DEPARTMENT INDUSTRIES CORRECTIONAL GUARANTY FUNDS FOR THE BLIND $ Noncurrent Liabilities: Accrued insurance losses Net OPEB obligation 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 (deficit) Total Net Position $ 12,805 12,805 $ 416 255 75 226 972 LOTTERY $ INDUSTRIES 7,017 41,067 3,500 60,133 209 111,926 $ 2,227 524 66 509 3,326 136,113 136,113 148,918 161 6,593 106 6,860 7,832 192 6,539 6,731 118,657 404 7,419 7,823 11,149 - 557 724 656 - 1,406 3,679 4,627 - - - - 123,691 - 1,669 123,691 $ - 198 - 3,075 (198) $ 3,481 8,477 $ 13,104 HIGHWAY COLISEUM & $ $ INDUSTRIAL EXPANSION EXPOSITION COMMISSION UNEMPLOYMENT & EXTENSION CENTER SPECIAL FUND COMPENSATION LOAN PROGRAM 137 109 9 141 396 $ 1,267 1,483 28,135 327 1 15,395 46,608 $ 3 34,654 35 13,139 385 48,216 $ - OTHER $ TOTAL 809 586 518 1,913 $ 11,876 1,483 36,128 28,135 327 35 54,206 3,500 60,519 150 28,200 1,603 226,162 73 3,002 3,075 3,471 216,227 216,227 262,835 48,216 - 634 19,156 19,790 21,703 352,340 1,464 42,709 106 396,619 622,781 276 - - - 1,691 3,904 6,233 6,078 - - 7,773 29,796 - - 391,445 - - 391,445 692 56,214 - 59,293 - 6,925 $ 62,292 $ 391,445 $ 59,293 - 199 - (8,182) $ (409) $ 59,293 123,691 58,672 662,897 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION NON-MAJOR ENTERPRISE FUNDS FOR THE YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) OPERATING REVENUES Sales and charges for services Unemployment assessments Workers' compensation assessments Intergovernmental Fines, forfeitures, and penalties Settlement income Other Total Operating Revenues $ OPERATING EXPENSES Cost of sales and benefits Personal services Contractual services Depreciation and amortization Insurance Other Total Operating Expenses Operating Income (Loss) INSURANCE ARIZONA ARIZONA DEPARTMENT INDUSTRIES CORRECTIONAL GUARANTY FUNDS FOR THE BLIND 2,139 2,139 $ 18,094 14 18,108 (89,458) 436 67 123 (88,832) 90,971 8,894 5,827 2,002 344 744 17,811 297 LOTTERY $ 870,946 194 871,140 INDUSTRIES $ 640,636 5,384 12,199 269 33 2,049 660,570 210,570 41,586 41,586 31,791 6,411 745 38,947 2,639 NON-OPERATING REVENUES (EXPENSES) Loss on sale of capital assets Investment income Other non-operating revenue Distributions Other non-operating expense Total Non-Operating Revenues (Expenses) Income (Loss) Before Contributions and Transfers Capital grants and contributions Transfers out 796 (290) 506 14 14 31 (15,002) (14,971) (27) 32 5 91,477 (58) 311 - 195,599 (190,827) 2,644 (1,500) Change in Net Position Total Net Position - Beginning, as restated 91,419 32,272 311 2,764 4,772 (1,291) Total Net Position - Ending $ 123,691 $ - 200 - 3,075 $ 3,481 1,144 11,960 $ 13,104 HIGHWAY COLISEUM & $ INDUSTRIAL EXPOSITION COMMISSION UNEMPLOYMENT & EXTENSION CENTER SPECIAL FUND COMPENSATION LOAN PROGRAM 12,493 36 12,529 $ 1,302 4,574 3,837 1,464 271 3,137 14,585 (2,056) 8 8 $ EXPANSION 3,928 609 4,537 $ 482,955 729 2,056 63 485,803 23,808 5,499 29,307 (24,770) 291,271 24 291,295 194,508 6,751 2,257 (3,183) 5,825 3,431 3,431 $ - 908,286 42,265 25,676 8,675 540 10,987 996,429 472,792 468,181 548 (216,592) (18,945) 81,237 193,775 197,670 (19,477) 78,770 $ 42 19,633 7,571 354 236 4,910 32,746 633 976,452 482,955 3,928 729 2,056 2,748 353 1,469,221 681 548 - (2,091) 9,016 391,445 $ (27) 11,671 2,257 (15,002) (3,510) (4,611) 523 (20,000) $ 33,333 46 33,379 48 48 197,939 (4,164) 62,292 TOTAL 560 (37) 523 (18,945) - $ $ - (2,048) (43) 6,925 OTHER 59,293 - 201 - 1,229 (1,638) $ (409) $ 252,137 410,760 662,897 STATE OF ARIZONA COMBINING STATEMENT OF CASH FLOWS NON-MAJOR ENTERPRISE FUNDS FOR THE YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Receipts from assessments Receipts from grants and contracts Receipts from settlement income Payments to suppliers, prize winners, claimants, or insurance companies Payments to employees Other receipts Net Cash Provided (Used) by Operating Activities INSURANCE DEPARTMENT GUARANTY FUNDS $ CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Distributions Transfers to other Funds Net Cash (Used) by Non-capital Financing Activities - $ 2,139 (13,386) (436) (11,683) (58) (58) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from sale of capital assets Receipts from grants and contributions Acquisition and construction of capital assets Net Cash Provided (Used) by Capital and Related Financing Activities 553,698 506 (541,903) 12,301 Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning, as restated 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 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 other Funds (Increase) decrease in inventories, at cost (Increase) decrease in other assets Decrease in deferred pension outflows of resources Increase (decrease) in accounts payable Increase in accrued liabilities (Decrease) in due to U.S. Government (Decrease) 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 Increase (decrease) in net pension liability Increase (decrease) in other liabilities (Decrease) in deferred pension inflows of resources Net Cash Provided (Used) by Operating Activities 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 560 590 ARIZONA CORRECTIONAL INDUSTRIES LOTTERY 17,446 $ (11,304) (6,217) 14 (61) - - 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 INDUSTRIES FOR THE BLIND 385,554 $ (161,145) (5,361) 219,048 42,321 (15,815) (21,369) 5,137 (14,944) (154,699) (169,643) (1,500) (1,500) (85) (85) (442) (442) 2 (1,112) (1,110) 14 14 18 18 32 32 48,981 42,547 2,559 7,346 (132) 5,690 $ 1,150 $ 5,558 $ 91,528 $ 9,905 $ 90,971 $ 297 $ 210,570 $ 2,639 - (102,654) $ (11,683) $ $ - $ (2,027) (2,027) $ $ - 202 - 344 - 269 - (622) 367 (17) 94 (14) 10 (26) 161 (65) 17 (607) 745 - (4,138) (59) 297 199 4,355 7,687 192 259 (583) 732 584 (85) 196 (63) 99 66 404 408 (18) (570) (61) $ 219,048 $ $ - $ - $ $ 5,137 (27) (27) COLISEUM & EXPOSITION CENTER $ $ $ INDUSTRIAL COMMISSION 12,441 $ (8,409) (4,575) 1,672 1,129 UNEMPLOYMENT COMPENSATION - $ 5,144 609 (16,264) 2,257 (8,254) (43) (43) - (479) (479) - HIGHWAY EXPANSION & EXTENSION LOAN PROGRAM - $ 484,087 729 (288,552) 2,095 198,359 (4,211) (4,211) 37 37 OTHER $ (20,000) (20,000) 33,105 $ (12,363) (18,386) 46 2,402 - 8 8 107,614 8,671 3,796 (118,492) 1,589 3,431 3,431 523 (1,900) (1,377) 50 50 615 3,440 (6,665) 59,350 197,579 135,098 (21,340) 80,633 2,456 6,598 4,055 $ (2,056) $ 1,464 1,636 52,685 2 548 (2,662) (2,112) 661,312 13,253 1,896 (660,395) 16,066 224,613 341,292 $ 332,677 $ 59,293 $ 9,054 $ 565,905 (24,770) $ 194,508 $ - $ 633 $ 472,792 5,499 295 (1) 99 65 42 (51) 73 122 (36) (228) 1,912 (3,658) (55) (68) 12,591 - - - 756 3,195 (51) (49) - 354 - 37 - 8,675 1,931 (176) (52) 1,320 396 81 634 719 26 (1,533) (1,537) (15) 892 195 1,908 1,081 11,114 (51) (55) (49) (79) (90,063) 1,464 1,443 (11) (3,521) $ 1,129 $ (8,254) $ 198,359 $ 37 $ 2,402 $ $ - $ - $ (3,249) (3,249) $ - $ - $ - $ $ $ 490,867 489,231 729 2,748 (527,238) (56,344) 6,121 406,114 (14,944) (180,511) (195,455) 548 (544) 4 - - TOTAL $ $ - 203 - $ 406,114 (27) (5,276) (5,303) 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. The Other Internal Service Funds consist of the Personnel Division Funds, the Information Technology Fund, the Special Services Fund, the Surplus Property Funds, the Legal Services Cost Allocation Fund, the Stimulus Statewide Administration Funds, and the Construction Insurance Fund. STATE OF ARIZONA COMBINING STATEMENT OF NET POSITION INTERNAL SERVICE FUNDS JUNE 30, 2016 (Expressed in Thousands) ASSETS Current Assets: Cash and pooled investments with State Treasurer Receivables, net of allowances: Other Due from U.S. Government Due from other Funds Inventories, at cost Other current assets Total Current Assets RISK TRANSPORTATION EMPLOYEE TELE- MANAGEMENT EQUIPMENT BENEFITS COMMUNICATION $ 76,707 $ 1,343 $ 314,574 $ 790 3,060 79,767 29 2,518 3,890 31,263 5,192 10,108 361,137 149 939 33 33 79,800 65,499 65,499 69,389 9 9 361,146 155 155 1,094 DEFERRED OUTFLOWS OF RESOURCES Related to pensions 1,836 1,437 378 164 LIABILITIES Current Liabilities: Accounts payable and other current liabilities Accrued liabilities Due to other Funds Current portion of accrued insurance losses Current portion of long-term debt Current portion of other long-term liabilities Total Current Liabilities 1,778 408 67,771 634 70,591 142 431 730 1,303 141,301 87 136 141,524 19 26 45 372,809 326 14,083 387,218 457,809 461 14,516 14,977 16,280 87 2,560 2,647 144,171 25 1,238 1,263 1,308 1,189 1,295 216 105 Noncurrent Assets: Capital assets: Buildings, equipment, and other depreciable, net of accumulated depreciation Total Noncurrent Assets Total Assets Noncurrent Liabilities: Accrued insurance losses Net OPEB obligation 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 33 (377,395) $ (377,362) 64,902 (11,651) $ 53,251 - 206 - 9 217,128 $ 217,137 155 (310) $ (155) $ AUTOMATION RETIREE MOTOR OPERATIONS SICK LEAVE POOL 14,418 $ $ 2,210 $ 21,148 TOTAL $ 435,114 925 1,501 1,537 18,381 3,924 874 13 8 5 3,110 80 2 34 21,264 33,320 5,192 1,516 2,560 14,710 492,412 4,755 4,755 23,136 3,924 11,382 11,382 14,492 602 602 21,866 82,435 82,435 574,847 1,288 - 106 1,955 7,164 407 210 907 472 1,996 11,114 11,114 319 18 459 39 835 275 389 33 773 1,470 144,241 1,569 33 67,771 1,366 13,898 228,878 212 9,295 2,313 11,820 13,816 3 145,922 145,925 157,039 14 846 983 1,843 2,678 279 14,791 15,070 16,540 372,809 1,407 57,329 3,296 145,922 580,763 809,641 785 - 71 1,252 4,913 11,382 467 602 5,427 4,755 5,068 $ 3,924 OTHER 9,823 (153,115) $ (153,115) $ 11,849 $ 6,029 - 207 - 81,838 (314,381) $ (232,543) STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION INTERNAL SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) OPERATING REVENUES Sales and charges for services Other Total Operating Revenues $ OPERATING EXPENSES Cost of sales and benefits Personal services Contractual services Depreciation and amortization Insurance Other Total Operating Expenses Operating Income (Loss) RISK TRANSPORTATION EMPLOYEE TELE- MANAGEMENT EQUIPMENT BENEFITS COMMUNICATION 100,938 1 100,939 24,721 12 24,733 10,769 25,829 58 38,684 850 76,190 24,749 NON-OPERATING REVENUES (EXPENSES) Gain on sale of capital assets Investment income Other non-operating revenue Interest expense Other non-operating expense Total Non-Operating Revenues (Expenses) Income (Loss) Before Contributions and Transfers Capital grants and contributions 21,141 - Transfers in Transfers out 1,962 (2,300) (3,608) (3,608) Change in Net Position Total Net Position - Beginning, as restated Total Net Position - Ending $ $ $ $ 1,763 1,763 10,252 13,782 374 18,008 2,779 45,195 (20,462) 863,647 2,375 1,957 7 6,464 813 875,263 (9,193) 21 957 363 2 13 86 1,442 321 952 13 262 (1) 1,226 (519) (519) 12 12 (19,236) 18,644 (9,712) - 333 - (4,354) (48) (14,066) 231,203 285 (440) - 20,803 (398,165) (592) 53,843 (377,362) $ 53,251 - 208 - 865,938 132 866,070 $ 217,137 $ (155) $ AUTOMATION RETIREE MOTOR OPERATIONS SICK LEAVE POOL 26,570 283 26,853 $ 7,252 6,753 1,598 1,528 344 1,466 18,941 7,912 - 7,663 - 1,213 - (5,707) - 1,956 7,867 9,823 $ 11,747 1,027 4 12,778 1,213 (249) (249) $ 13,991 13,991 $ OTHER 7,483 7,483 $ 3,643 340 83 3,140 498 664 8,368 (885) - (153,115) $ 11,849 $ $ 1,066,375 2,497 1,068,872 897,210 47,583 33,064 22,987 49,434 11,562 1,061,840 7,032 3 3 (847) 406 (441) 12,290 24,971 2,069 27,040 648 11,580 2,856 244 3,431 4,904 23,663 3,377 18 20 38 1,213 (154,328) TOTAL 970 16 294 (1) (4,376) (3,097) 3,380 - 3,935 19,050 (2,231) 1,962 (14,640) 1,149 4,880 10,307 (242,850) 6,029 - 209 - $ (232,543) STATE OF ARIZONA COMBINING STATEMENT OF CASH FLOWS INTERNAL SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2016 (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 from other Funds Transfers to other Funds Net Cash (Used) by Non-capital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from sale of capital assets 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 Net Cash Provided (Used) by Operating Activities SCHEDULE OF NONCASH INVESTING, CAPITAL AND NON-CAPITAL FINANCING ACTIVITIES Contribution of capital assets from other Funds Total Noncash Investing, Capital and Non-capital Financing Activities 25,290 $ (14,005) (13,937) 12 (2,640) TELECOMMUNICATION 835,154 $ (852,687) (2,875) 54 (519) (20,873) (4,354) (4,354) 1,763 (464) (839) 12 472 - (25) 2,244 262 - - - - - - - - - - 2,506 - 12 12 - (7,379) 84,086 (122) 1,465 $ 76,707 $ $ 24,749 $ $ EMPLOYEE BENEFITS 1,962 (2,300) (338) - Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning, as restated 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 (Increase) in due from U.S. Government Decrease in due from other Funds Decrease in inventories, at cost (Increase) decrease in other assets Decrease in deferred pension outflows of resources Increase (decrease) in accounts payable Increase (decrease) in accrued liabilities Increase (decrease) in due to other Funds Increase (decrease) in unearned revenue (Decrease) in accrued insurance losses Increase in net OPEB obligation Increase (decrease) in net pension liability Increase (decrease) in other liabilities (Decrease) in deferred pension inflows of resources 100,939 $ (92,612) (11,736) 1 (3,608) (7,016) (25) CASH FLOWS FROM INVESTING ACTIVITIES Interest and dividends from investments Net Cash Provided by Investing Activities Cash and Cash Equivalents - Ending TRANSPORTATION EQUIPMENT 1,343 (48) (48) 12 (169) (157) - (25,227) 339,801 $ (20,462) $ 314,574 267 523 $ 790 (9,193) $ 321 7 (519) 2 12 58 (3,608) 18,008 - 1 902 344 (3,542) 70 (7,800) (16,809) 326 (307) (73) (1,327) 11 162 428 (601) 57 (32) 461 499 (15) (1,156) (25,663) (5,192) (47) 116 20,234 26 87 (411) (14) (304) 32 19 1 25 195 (58) (77) (2,640) $ (20,873) $ 472 (7,016) $ $ - $ 18,644 $ - $ - $ - $ 18,644 $ - $ - - 210 - AUTOMATION OPERATIONS $ RETIREE SICK LEAVE 27,228 $ (9,776) (7,347) (249) 9,856 MOTOR POOL 13,991 $ (4) (1,024) (13,244) (281) OTHER 7,442 $ (4,997) (530) 20 1,935 TOTAL 32,771 $ (11,469) (10,943) 2,069 12,428 1,044,578 (986,014) (49,231) (13,244) 2,168 (4,376) (6,119) (5,707) (5,707) - (76) - 20 (1,710) (160) - (27) - (187) (898) - (414) - (1,312) (1,134) - (2,131) - - - 3,015 11,403 - (281) 4,205 (196) 2,406 $ 14,418 $ 3,924 $ $ 7,912 $ 1,213 $ 1,528 (89) - 9,856 $ (281) $ $ - $ - $ - $ - (9) 2,276 262 (1,989) (9) (950) 3 3 15 15 (19,732) 454,846 $ 21,148 $ 435,114 (885) $ 3,377 $ 7,032 244 - (332) 291 27 11 60 (174) 1 14 (157) (4) (104) $ 1,962 (14,640) (12,678) 10,191 10,957 3,140 47 3 (1,497) - 3 372 382 377 311 17 31 212 (304) (2) (894) 2,210 (2,231) (2,231) 22,987 (4,157) (25,978) (5,192) 8,461 257 1,306 1,799 16,458 (532) (7,767) (1) (16,809) 1,407 521 (890) (5,021) 2 7,798 68 58 442 211 (704) 33 279 1,006 773 (1,159) 1,935 $ 12,428 $ (6,119) $ 406 $ - $ 19,050 $ 406 $ - $ 19,050 - 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, 2016 (Expressed in Thousands) PENSION TRUST FUNDS ASRS ASSETS Cash $ Receivables, net of allowances: Accrued interest and dividends Securities sold Futures contracts receivable Contributions Court fees Due from other Funds Other PSPRS 9,696 $ 228,924 EORP $ CORP 11,656 $ AOC 45,599 $ 12,870 48,138 822,847 26,916 64,542 2,967 606 5,321 18,218 6,977 17,495 254 871 582 739 1,044 1,076 3,683 1,289 79 304 1,040 1,011 22 966,016 48,011 3,490 6,127 2,377 Investments, at fair value: Short-term investments Fixed income securities Corporate stocks Multi-asset Real assets Real estate Private equity Private credit Collateral investment pool Other investments 828,304 8,934,482 17,932,143 976,903 3,217,229 275,684 498,479 358,515 1,720,722 538,038 576,694 572,200 919,062 619,479 296,477 470,887 17,133 82,233 25,713 27,560 27,345 44,256 29,271 14,169 22,504 72,481 347,880 108,776 116,591 115,682 186,863 124,186 59,939 95,200 20,457 98,183 30,700 32,906 32,649 52,739 35,049 16,917 26,868 Total investments 32,663,224 6,072,074 290,184 1,227,598 346,468 - 3,216 222 441 125 33,638,936 6,352,225 305,552 1,279,765 361,840 - 705 35 145 41 20,607 454,264 476 8,100 1,771 388 7,126 1,640 2,012 463 275,684 14,799 13,791 - 296,448 4,962 14,167 243 59,931 1,021 16,914 288 779,145 309,986 16,569 69,718 19,677 - 467 23 96 27 32,859,791 - 6,042,477 - 288,995 - 1,210,096 - 342,177 - Total receivables 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 Futures 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 $ 32,859,791 $ 6,042,477 $ - 214 - 288,995 $ 1,210,096 $ 342,177 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 $ $ $ 421 $ 7 11,167 $ 809 $ 3,705 $ 305 TOTAL $ 325,159 2,103 35,291 1,054 960 7,774 8,530 461 3,050 4,932 264 906 46 - 19 66 - 87 300 4 - 7 25 30 - 57,573 883,247 27,970 75,902 739 13,791 32,708 55,712 8,443 1,216 85 391 62 1,091,930 139,781 386,882 779,855 41,770 138,990 11,805 21,768 2,838 52,519 117,412 22,198 3,314 17,822 85,539 26,746 28,668 28,445 31,468 45,014 14,738 23,408 1,291 6,198 1,938 2,077 2,061 2,280 3,261 1,068 1,696 5,913 28,380 8,874 9,511 9,437 10,440 14,934 4,890 7,766 487 2,337 731 783 777 860 1,230 403 640 970,923 9,867,982 21,200,882 1,760,189 794,790 4,167,013 1,247,968 872,424 696,090 1,172,530 1,520,851 198,281 301,848 21,870 100,145 8,248 42,750,791 - - - - - - 4,004 1,576,984 206,731 314,231 22,764 104,241 8,615 44,171,884 - - - - - - 926 886 19,593 337 - 372 27 123 10 33,215 484,980 11,805 633 - - 14,767 - 1,070 - 4,899 - 403 - 696,088 15,432 13,791 6,514 32,917 337 15,139 1,097 5,022 413 1,250,020 - - - - - - 613 1,544,067 206,394 299,092 21,667 99,219 8,202 40,743,536 2,178,641 1,544,067 $ 206,394 $ 299,092 $ 21,667 - 215 - $ 99,219 $ 8,202 $ 42,922,177 STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET POSITION PENSION AND OTHER EMPLOYEE BENEFIT TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) PENSION TRUST FUNDS ASRS ADDITIONS: Member contributions Employer contributions Non-employer entity contributions Member purchase of service credit Court fees $ Investment income: Net increase (decrease) in fair value of investments Interest income Dividends Other investment income Securities lending income Total investment income (loss) Less investment expenses: Investment activity expenses Securities lending expenses Net investment income (loss) 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 Net Position - Ending $ PSPRS 1,036,714 1,015,974 23,765 - $ EORP 169,470 564,862 17,316 12,540 - $ CORP 7,731 15,636 5,000 96 8,580 $ AOC 42,540 90,241 299 - $ 9,230 21,038 61 - (43,278) 127,317 264,844 22,063 2,281 38,935 1,014 110 1,879 4,784 454 7,740 1,336 127 2,161 34,513 71,958 3,469 14,226 3,972 8,040 391,436 2,179 137,416 105 6,577 433 27,637 121 7,717 167,472 1,058 222,906 101,454 326 35,636 5,080 16 1,481 20,194 65 7,378 5,638 18 2,061 1,701 688 180 320 563 2,301,060 800,512 38,704 140,778 32,953 2,804,531 - 810,653 - 58,003 - 104,815 - 22,136 - 258,315 22,965 1,104 17,427 5,184 540 84 249 41 28,990 1,061 1,375 2,466 299 184 3,086,915 833,804 58,377 136,241 25,085 (785,855) 33,645,646 (33,292) 6,075,769 (19,673) 308,668 4,537 1,205,559 7,868 334,309 32,859,791 $ 6,042,477 $ - 216 - 288,995 $ 1,210,096 $ 342,177 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 $ 46,046 - $ $ 4,195 - $ - $ 412 - $ 932 - TOTAL $ 1,276,675 1,770,498 22,316 36,761 8,580 501 5,487 11,417 (196) 2 - 1,091 113 1,926 75 8 139 397 38 642 31 3 50 (12,182) 135,940 329,733 1,490 19 3,559 257 1,180 93 134,736 347 19,242 (175) 108 6,797 8 487 36 2,293 3 180 11,380 599,607 7,172 46 12,024 212 (387) 5,018 16 1,763 376 1 110 1,675 5 613 132 48 314,423 1,551 283,633 8,455 - - - - - 11,907 66,525 21,765 5,958 110 1,025 980 3,410,370 94,754 - 60,065 - 15,289 1,022 3,339 388 3,954,957 20,038 999 - 2,298 281 255 - 19 - 88 - 7 - 307,282 33,424 3,525 95,753 62,644 15,544 1,041 3,427 395 4,319,226 (40,879) 247,273 (9,586) 308,678 (931) 22,598 (29,228) 1,573,295 $ 10,990 11,162 - SUPPLEMENT FUND SUPPLEMENT FUND SUPPLEMENT FUND SUPPLEMENT FUND 1,544,067 $ 206,394 $ 299,092 $ 21,667 - 217 - (2,402) 101,621 $ 99,219 585 7,617 $ 8,202 (826,415) (82,441) 43,831,033 $ 42,922,177 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, 2016 (Expressed in Thousands) LOCAL CENTRAL ASSETS Cash and pooled investments with State Treasurer LOCAL LOCAL GOVERNMENT INVESTMENT ARIZONA LOCAL GOVERNMENT GOVERNMENT 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 - MEDIUM-TERM $ - $ - $ 5,497 $ - 917 69 788 469 263 Investments, at fair value: Fixed income securities Collateral investment pool Total investments 340,075 1,407 341,482 1,046,658 1,046,658 248,417 3,700 252,117 1,198,247 76,332 1,274,579 132,909 132,909 Total Assets 342,399 1,046,727 252,905 1,280,545 133,172 15 54 11 58 6 1,407 - 3,700 76,332 - 1,422 54 3,711 76,390 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) 340,977 $ 338,379 $ 1.01 1,046,673 $ 1,046,673 $ 1.00 - 220 - 249,194 $ 240,136 $ 1.04 1,204,155 $ 1,204,155 $ 1.00 133,166 131,167 $ 1.02 LEHMAN BROTHERS POOL $ $ TOTAL 326 5,823 - 2,506 1,763 1,763 2,968,069 81,439 3,049,508 2,089 3,057,837 - 144 - 81,439 - 81,583 2,089 20,179 $ $ $ 2,976,254 2,980,689 0.10 - 221 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET POSITION INVESTMENT TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2016 (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 675 4,915 23 5,613 $ (14) $ 3,573 3,559 868 3,570 18 4,456 $ INVESTMENT 105 2,927 15 3,047 $ 379 1,947 1 2,327 Less: Investment activity expenses 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 175 618 135 558 74 20 5,418 2,941 15 4,306 12 2,477 1 2,252 78,058 4,269 (51,773) - 2,477,362 2,954 (2,488,153) 1,001 21,938 3,040 (28,948) - 30,554 (6,836) (3,970) Total Additions 35,972 (3,895) DEDUCTIONS: Dividends to investors 5,418 5,418 Total Deductions Change in net position held in trust for pool participants Net Position - Beginning Net Position - Ending 30,554 310,423 $ 340,977 6,377 1,367 (9,044) - 141,160 (1,300) 336 143,637 952 2,941 4,306 2,477 2,252 2,941 4,306 2,477 2,252 (6,836) 1,053,509 $ 1,684,226 2,372 (1,545,438) - 1,046,673 - 222 - (3,970) 253,164 $ 249,194 141,160 1,062,995 $ 1,204,155 (1,300) 134,466 $ 133,166 LEHMAN BROTHERS POOL $ TOTAL 853 853 $ - 1,560 853 48 18,247 (1,001) 4,267,961 14,002 (4,123,356) - (1,001) 158,607 (148) 176,854 - 17,394 - 17,394 (148) 2,237 $ 2,866 16,932 57 19,855 2,089 159,460 2,816,794 $ 2,976,254 - 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, 2016 (Expressed in Thousands) TREASURER CUSTODIAL SECURITIES FUND ASSETS Cash Cash and pooled investments with State Treasurer Receivables, net of allowances: Accrued interest Other Short-term investments Due from others Custodial securities in safekeeping Other assets $ - OTHER TREASURER FUNDS $ OTHER FUNDS - $ 25,166 TOTAL $ 25,166 - 12,179 52,612 64,791 776,127 - - 1 2 1,343 82,032 6,333 1,508 1 2 1,343 82,032 782,460 1,508 Total Assets $ 776,127 $ 12,179 $ 168,997 $ 957,303 LIABILITIES Due to local governments Due to others $ 776,127 $ 230 11,949 $ 10,154 158,843 $ 10,384 946,919 $ 776,127 $ 12,179 $ 168,997 $ 957,303 Total Liabilities - 227 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUNDS FOR THE YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) BALANCE JULY 1, 2015 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 Receivables, net of allowances: Accrued interest ADDITIONS BALANCE JUNE 30, 2016 DELETIONS $ 3,965,606 $ 721,463 $ 3,910,942 $ 776,127 $ 3,965,606 $ 721,463 $ 3,910,942 $ 776,127 $ 3,965,606 $ 721,463 $ 3,910,942 $ 776,127 $ 3,965,606 $ 721,463 $ 3,910,942 $ 776,127 $ 15,628 $ 97,157 $ 100,606 $ 12,179 5 - 5 - Total Assets $ 15,633 $ 97,157 $ 100,611 $ 12,179 Liabilities: Due to local governments Due to others $ 4,221 11,412 $ 110,785 31,230 $ 114,776 30,693 $ 230 11,949 $ 15,633 $ 142,015 $ 145,469 $ 12,179 $ 19,143 90,316 1,572 $ 761,354 285,629 - $ 755,331 323,333 1,572 $ 25,166 52,612 - Total Liabilities OTHER FUNDS Assets: Cash Cash and pooled investments with State Treasurer Collateral investment pool Receivables, net of allowances: Accrued interest Other Short-term investments 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 38 6,258 83,132 5,993 1,649 1 5 1,343 82,032 6,333 1,508 38 3 6,258 83,132 5,993 1,649 1 2 1,343 82,032 6,333 1,508 $ 208,101 $ 1,138,205 $ 1,177,309 $ 168,997 $ 1,572 11,221 195,308 $ 109,167 1,141,113 $ 1,572 110,234 1,177,578 $ 10,154 158,843 $ 208,101 $ 1,250,280 $ 1,289,384 $ 168,997 (Continued) - 228 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUNDS FOR THE YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) BALANCE JULY 1, 2015 COMBINED TOTAL ALL AGENCY FUNDS Assets: Cash Cash and pooled investments with State Treasurer Collateral investment pool Receivables, net of allowances: Accrued interest Other Short-term investments Due from others Custodial securities in safekeeping Other assets Total Assets $ 19,143 105,944 1,572 ADDITIONS $ 43 6,258 83,132 3,971,599 1,649 761,354 382,786 - BALANCE JUNE 30, 2016 DELETIONS $ 1 5 1,343 82,032 727,796 1,508 755,331 423,939 1,572 $ 43 3 6,258 83,132 3,916,935 1,649 25,166 64,791 1 2 1,343 82,032 782,460 1,508 $ 4,189,340 $ 1,956,825 $ 5,188,862 $ 957,303 loan agreements Due to local governments Due to others $ 1,572 15,442 4,172,326 $ 219,952 1,893,806 $ 1,572 225,010 5,119,213 $ 10,384 946,919 Total Liabilities $ 4,189,340 $ 2,113,758 $ 5,345,795 $ 957,303 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, 2016 (Expressed in Thousands) ARIZONA POWER AUTHORITY ASSETS Current Assets: Cash Cash and pooled investments with State Treasurer 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 5,973 5,417 $ 15,608 - $ 1,406 - ARIZONA COMMERCE AUTHORITY $ TOTAL 12,348 61,182 - $ 27,956 68,561 5,417 2,989 960 15,339 3,968 443 20,019 8 1,414 2,529 4,254 9 80,322 3,968 8 2,529 7,243 1,412 117,094 7,766 613 13,952 16,103 - 11,965 - 8,438 - 11,965 13,952 7,766 24,541 613 - 8,530 - - 8,530 114 8,493 29,795 68,380 11,965 543 8,981 30,452 97,819 23,832 88,399 13,379 89,303 214,913 72 21,584 7,621 - - - 72 7,621 21,584 Total Deferred Outflows of Resources 21,656 7,621 - - 29,277 LIABILITIES Current Liabilities: Accounts payable and other current liabilities Accrued liabilities Current portion of long-term debt Total Current Liabilities 2,316 458 5,905 8,679 4,983 49 6,940 11,972 4 4 1,267 1,267 8,566 511 12,845 21,922 Noncurrent Liabilities: Net pension liability Long-term debt Total Noncurrent Liabilities 923 32,806 33,729 68,685 68,685 - - 923 101,491 102,414 Total Liabilities 42,408 80,657 4 1,267 124,336 203 - - - 203 114 33,924 - 543 34,581 11,965 1,410 26,501 13,058 47,934 34,719 26,501 13,058 10,792 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 Loss on debt refundings 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 13,182 (10,419) $ 2,877 9,572 (28,133) $ - 232 - 15,363 $ 13,375 $ 88,036 $ 119,651 (This page intentionally left blank) STATE OF ARIZONA COMBINING STATEMENT OF ACTIVITIES NON-MAJOR COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) PROGRAM REVENUES OPERATING EXPENSES FUNCTIONS/PROGRAMS Arizona Power Authority $ Rio Nuevo $ 8,640 Greater Arizona Development Authority Arizona Commerce Authority Total 26,483 $ CHARGES FOR GRANTS AND SERVICES CONTRIBUTIONS 27,239 $ 1,384 - 47 - - 129,374 1,121 2,345 164,544 $ 29,744 $ 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 Net Position - Ending - 234 - 2,345 NET (EXPENSE) REVENUE AND CHANGES IN NET POSITION ARIZONA GREATER AZ ARIZONA POWER DEVELOPMENT COMMERCE AUTHORITY AUTHORITY AUTHORITY $ RIO NUEVO 756 $ - $ - $ (7,256) - $ - TOTAL - $ - - - - - - (125,908) (125,908) 21 6 783 2,094 12,443 21 4,378 9,586 5,777 136 89 13,286 3,892 1,361 50 32,462 (88,143) 176,179 12,443 3,892 1,539 50 32,462 4,384 (77,685) 197,336 2,877 $ 15,363 (47) 756 (7,256) $ 13,375 - $ - 235 - 88,036 (47) $ 119,651 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 in support of various athletic programs. Sun Angel Endowment receives funds primarily through donations, with the annual earnings being used for programs in 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, which are used to promote the welfare of the ASU and its alumni. 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, 2016 (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 $ 1,211 SUN ANGEL FOUNDATION SUN ANGEL ENDOWMENT THUNDERBIRD SCHOOL OF GLOBAL MANAGEMENT $ $ $ 3,687 207 5,600 ARIZONA STATE UNIVERSITY RESEARCH PARK, INC. ARIZONA STATE UNIVERSITY ALUMNI ASSOCIATION $ $ 2,464 920 7,643 637 8,280 36,887 5,468 42,355 - 6,490 6,490 25,689 25,689 20 860 880 140,181 13,142 153,323 - 6,389 442 6,831 - 1,237 1,237 15,033 15,033 5,598 - - - - - 288 13 240 32 25,057 1,326 5,035 2,354 97 168,700 46,295 7,070 38,473 36,779 16,930 109 6,060 12 1,410 536 66 28,837 5,503 2,393 - 2,000 1,411 5,309 5,200 13,017 1,684 35 15 36,842 6,060 2,012 8,130 20,437 116 72,624 49,179 10,055 39,567 668 1,842 836 2,380 16 30,327 16,342 965 15,849 131,858 $ 40,235 $ - 238 - 5,058 $ 30,343 $ 16,342 $ 16,814 DOWNTOWN PHOENIX STUDENT HOUSING $ $ 1,644 ARIZONA STATE UNIVERSITY PREPARATORY ACADEMY, INC. $ UNIVERSITY OF ARIZONA LAW COLLEGE ASSOCIATION 6,254 $ 396 UNIVERSITY OF ARIZONA CAMPUS RESEARCH CORPORATION UNIVERSITY OF ARIZONA ALUMNI ASSOCIATION $ $ 5,267 1,178 UNIVERSITY OF ARIZONA ELLER EXECUTIVE EDUCATION $ TOTAL 328 $ 29,156 239 239 7,853 757 8,610 610 94 704 1,010 1,010 86 2,717 2,803 69 69 53,099 44,030 97,129 14,416 14,416 - 10,540 162 10,702 - 6,960 6,960 - 194,756 13,746 208,502 - - - - - - 5,598 90,317 5,293 346 680 7 21,189 4,296 116 54 - 142,073 14,667 111,909 15,890 11,809 31,762 11,111 397 497,125 19,828 1,555 102 1,224 287 70 31,259 138,404 26 362 46 76 - - 4,239 3,195 571 16 4,321 - 236 - 28,837 147,905 27,820 12,334 158,620 1,677 102 9,229 4,624 306 248,155 (46,711) 10,644 3,569 5,383 3,683 2,641 22,533 6,487 18 73 79,849 104,908 64,213 (46,711) $ 14,213 $ 11,707 $ 22,533 - 239 - $ 6,487 $ 91 $ 248,970 STATE OF ARIZONA COMBINING STATEMENT OF ACTIVITIES NON-MAJOR UNIVERSITIES - AFFILIATED COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2016 (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 Net Assets - Beginning Net Assets - Ending $ 15,516 (2,947) 2,942 SUN ANGEL FOUNDATION SUN ANGEL ENDOWMENT $ $ 29,114 530 23 78 (104) 1 THUNDERBIRD SCHOOL OF GLOBAL MANAGEMENT $ 554 21,662 (4) (28) ARIZONA STATE UNIVERSITY RESEARCH PARK, INC. ARIZONA STATE UNIVERSITY ALUMNI ASSOCIATION $ $ 9,580 2 67 2,610 2,309 (655) 1,401 15,511 29,745 (103) 22,184 9,649 5,665 8,320 551 4,103 212 - 15,511 1,314 6,473 131 123 - 23,494 23,069 - 2,684 1,050 247 408 150 5,128 301 13,186 23,298 254 46,563 4,539 5,429 2,325 6,447 (357) (24,379) 5,110 236 129,533 33,788 54,722 11,232 16,578 131,858 $ 40,235 5,415 $ - 240 - 5,058 $ 30,343 $ 16,342 $ 16,814 DOWNTOWN PHOENIX STUDENT HOUSING $ $ 11,067 1 - ARIZONA STATE UNIVERSITY PREPARATORY ACADEMY, INC. $ 11,997 1,293 17,344 227 UNIVERSITY OF ARIZONA LAW COLLEGE ASSOCIATION $ 1,706 174 189 UNIVERSITY OF ARIZONA CAMPUS RESEARCH CORPORATION UNIVERSITY OF ARIZONA ALUMNI ASSOCIATION $ $ 13,624 7 226 228 1,178 7 2,307 UNIVERSITY OF ARIZONA ELLER EXECUTIVE EDUCATION $ 1,244 - TOTAL $ 61,725 34,271 28,216 (3,496) 17,344 7,410 11,068 30,861 2,069 13,857 3,720 1,244 145,470 3,045 7,167 4,021 847 20,237 95 - 3,028 - 9,524 1,507 - 3,095 806 237 - 323 820 311 - 42,012 9,524 6,943 8,320 57,149 4,340 7,537 4,736 7,771 15,080 20,332 3,028 11,031 4,138 1,454 148,332 (4,012) 10,529 (42,699) 3,684 (46,711) $ 14,213 (959) 2,826 12,666 $ 11,707 (418) 19,707 $ 22,533 - 241 - (210) 6,905 $ 6,487 (2,862) 301 $ 91 251,832 $ 248,970 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 through 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 through 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 through 21 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 22 and 23 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 24 through 26 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, 2016 (Expressed in Thousands) Fiscal Year 2016 GOVERNMENTAL ACTIVITIES: Net investment in capital assets (5,8) Restricted (3) Unrestricted (6,8) Total Governmental Activities Net Position BUSINESS-TYPE ACTIVITIES: Net investment in capital assets (4,8,9) Restricted (7) Unrestricted (2,4,6,8,9) Total Business-type Activities Net Position PRIMARY GOVERNMENT: Net investment in capital assets (4,5,9) Restricted (3,7) Unrestricted (2,4,6,8,9) Total Primary Government Net Position $ 19,722,730 $ 6,856,271 (5,205,689) $ 21,373,312 $ $ 2015, as 2014, as 2013, as 2012, as restated restated restated restated 18,790,889 $ 7,170,289 (5,685,921) 18,053,540 $ 6,829,299 (5,841,106) 17,410,055 $ 6,116,083 (2,527,441) 16,940,512 5,447,576 (3,351,315) $ 20,275,257 $ 19,041,733 $ 20,998,697 $ 19,036,773 1,761,694 1,191,605 274,821 $ 1,642,507 895,616 215,120 $ 1,581,436 $ 723,590 (51,586) 1,526,777 531,972 1,049,391 $ 1,483,416 496,444 810,810 3,228,120 $ 2,753,243 $ 2,253,440 3,108,140 $ 2,790,670 $ $ 21,484,424 $ 8,047,876 (4,930,868) 20,433,396 $ 8,065,905 (5,470,801) 19,634,976 $ 7,552,889 (5,892,692) 18,936,832 $ 6,648,055 (1,478,050) $ 24,601,432 23,028,500 21,295,173 24,106,837 $ $ $ $ (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 discrete 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 Fund. (8) Fiscal year 2015 net investment in capital assets and unrestricted net position was restated due to the fund reclassification of the Arizona Highways Magazine Fund. (9) Fiscal year 2015 net investment in capital assets and unrestricted net position for the Universities was restated due to the implementation of GASB Statement No. 72. - 246 - 18,423,928 5,944,020 (2,540,505) 21,827,443 Fiscal Year 2007, as 2011 2010 2009 2008 restated $ 16,326,569 $ 5,125,527 (4,243,824) 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 $ 17,208,272 $ 16,231,055 $ 16,100,685 $ 18,412,986 $ 18,848,863 $ 1,397,683 501,437 695,862 $ 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 $ 2,594,982 $ 2,479,186 $ 2,790,965 $ 3,157,221 $ 3,057,545 $ 17,724,252 $ 5,626,964 (3,547,962) 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 $ 19,803,254 18,710,241 18,891,650 21,570,207 21,906,408 $ $ $ $ - 247 - STATE OF ARIZONA SCHEDULE 2 CHANGES IN NET POSITION (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) Fiscal Year 2016 EXPENSES Governmental Activities: General government Health and welfare (6) Inspection and regulation Education Protection and safety Transportation Natural resources Intergovernmental revenue sharing Interest on long-term debt Total Governmental Activities Expenses $ Business-type Activities: Universities (5) Unemployment Compensation (3) Industrial Commission Special Fund (7) Lottery (3) Other Total Business-type Activities Expenses Total Primary Government Expenses (6) 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 (3) Other activities Operating grants and contributions Capital grants and contributions Total Business-type Activities Program Revenues Total Primary Government Program Revenues 807,320 15,152,650 168,719 6,136,303 1,585,620 858,958 208,563 3,176,183 210,326 28,304,642 2015 $ 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 4,637,567 1,014,941 5,652,508 2014 (8) $ 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 3,629,568 1,069,531 83,290 496,830 113,347 5,392,566 $ 33,957,150 $ 32,416,226 $ 29,969,609 $ 29,195,634 $ 28,936,617 $ 196,179 166,075 143,697 685,118 13,532,247 870,644 $ 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 $ 15,593,960 15,030,281 13,656,439 13,091,702 12,983,544 2,519,048 1,468,139 1,452,562 11,911 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 5,451,660 5,013,290 4,766,525 4,767,876 4,742,768 21,045,620 $ 20,043,571 $ 18,422,964 $ 17,859,578 $ 17,726,312 NET (EXPENSE) REVENUE Governmental activities Business-type activities $ (12,710,682) $ (200,848) (11,966,203) $ (406,452) (11,067,923) $ (478,722) (10,847,357) $ (488,699) (10,560,507) (649,798) Total Primary Government Net (Expense) $ (12,911,530) $ (12,372,655) $ (11,546,645) $ (11,336,056) $ (11,210,305) - 248 - Fiscal Year 2007, as 2011 $ 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 2010 $ 3,533,977 1,655,364 27,196 439,069 115,442 5,771,048 941,813 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 restated $ 3,227,481 356,333 14,824 372,740 162,300 4,133,678 802,659 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 $ 30,032,054 $ 30,962,661 $ 29,605,560 $ 28,063,203 $ 25,759,623 $ 191,738 149,890 114,453 381,633 12,580,013 745,559 $ 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 $ 14,163,286 15,188,803 11,980,673 10,533,375 9,688,617 1,601,077 583,537 560,502 2,212,673 14,799 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 4,972,588 4,765,435 3,454,597 3,062,345 2,961,815 19,135,874 $ 19,954,238 $ 15,435,270 $ 13,595,720 $ 12,650,432 $ (10,097,720) $ (798,460) (9,701,524) (1,306,899) $ (12,680,290) (1,490,000) $ (13,396,150) (1,071,333) $ (12,298,442) (810,749) $ (10,896,180) $ (11,008,423) $ (14,170,290) $ (14,467,483) $ (13,109,191) (Continued) - 249 - STATE OF ARIZONA SCHEDULE 2 CHANGES IN NET POSITION (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) Fiscal Year 2016 GENERAL REVENUES AND OTHER CHANGES IN NET POSITION Governmental Activities: Taxes: Sales Income Tobacco Property Motor vehicle and fuel Other Unrestricted investment earnings (2) Unrestricted grants and contributions Miscellaneous general revenues (4) 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 2015 (8) 2014 (8) 2013, as 2012, as restated restated 6,455,837 $ 4,511,674 318,902 51,735 1,823,998 616,580 58,250 115,097 247,462 75,042 (465,840) 13,808,737 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 69,927 68,795 548 65,143 5,472 465,840 675,725 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 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 55,309 49,501 3,468 155,757 3,270 576,846 844,151 Total Primary Government $ 14,484,462 $ 14,048,132 $ 13,103,081 $ 13,615,450 $ 13,233,159 CHANGE IN NET POSITION Governmental activities Business-type activities $ 1,098,055 474,877 $ 1,233,123 442,354 $ 1,195,427 361,009 $ 1,961,924 317,470 $ 1,828,501 194,353 Total Primary Government $ 1,572,932 $ 1,675,477 $ 1,556,436 $ 2,279,394 $ 2,022,854 (1) This schedule reports using the accrual basis of accounting. (2) 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. (3) For fiscal year 2013, Unemployment Compensation and Lottery changed from major to non-major funds. (4) Fiscal year 2012 miscellaneous general revenues was restated as a result of an agency fund being reclassified to a special revenue fund. (5) Fiscal year 2013 expenses for the Universities were restated as a result of GASB Statement No. 65 to expense debt issuance costs. (6) For fiscal year 2015, Health and Welfare expenses continue to climb as a result of enrollment increases. (7) For fiscal year 2015, Industrial Commission Special Fund changed from a major to a non-major fund. (8) Historical data has not been restated for footnote items (5) - (9) in Schedule 1. - 250 - Fiscal Year 2007, as 2011 $ 2010 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 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 52,913 68,401 50,510 3,656 3,884 734,892 914,256 52,318 70,766 52,072 3,020 7,080 809,864 995,120 $ 11,989,193 $ $ 977,217 115,796 $ $ 1,093,013 $ 2009 $ 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 $ 72,945 39,763 64,564 3,927 (20,100) 15,475 994,435 1,171,009 $ 11,491,733 $ 130,370 (311,779) $ (2,312,301) (366,256) $ (181,409) $ (2,678,557) $ 10,827,014 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 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 $ 15,116,528 (435,877) 99,676 $ 1,676,389 330,948 (336,201) $ 2,007,337 14,131,282 - 251 - STATE OF ARIZONA SCHEDULE 3 FUND BALANCES, GOVERNMENTAL FUNDS (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) Fiscal Year 2015, as 2016 GENERAL FUND: Reserved for: Budget stabilization fund School facilities improvements Continuing appropriations Other fund balance reservations Unreserved Nonspendable (2) Restricted (2) Committed (2) Unassigned (2,4) 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 (2,5) Total All Other Governmental Funds 2012, as restated 2014 $ - $ 9,669 91,833 126,484 (78,903) $ 149,083 $ 24,852 $ 24,589 $ - $ - $ - 5,124,432 1,488,010 937,949 (21,325) $ 7,529,066 - $ 9,168 241,919 99,145 (325,380) 2013 5,181,556 1,573,453 825,740 (27,562) $ 7,553,187 - $ 9,600 124,390 79,837 (189,238) 844 192,187 73,237 156,935 $ 891 246,977 109,469 (437,035) $ 423,203 $ (79,698) $ - $ 4,878,682 1,741,674 734,446 (29,744) $ 7,325,058 4,160,485 1,860,872 661,110 (26,266) $ 6,656,201 (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. (4) Fiscal year 2015 unassigned fund balance was restated as a result of funds being reclassified from the General Fund to Other Internal Service Funds. (5) Fiscal year 2015 unassigned fund balance was restated due to the fund reclassification of the Arizona Highways Magazine Fund. - 252 - restated 3,472,005 1,762,356 514,085 (33,861) $ 5,714,585 Fiscal Year 2010, as 2011 2007, as restated (2) 2009 2008 restated $ - $ 716 317,471 141,183 (1,162,531) - $ 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 - $ (703,161) $ (746,998) $ (978,278) $ 361,622 $ 1,923,099 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 $ - $ 3,244,080 1,531,992 452,447 (39,009) $ 5,189,510 809,497 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 $ - 253 - 4,376,955 STATE OF ARIZONA SCHEDULE 4 CHANGES IN FUND BALANCES, GOVERNMENTAL FUNDS (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) Fiscal Year 2012, as 2016 REVENUES Taxes: Sales Income Tobacco Property Motor vehicle and fuel Other Intergovernmental Licenses, fees, and permits Hospital and nursing facility assessments Earnings (loss) on investments (2) Sales and charges for services (4) Fines, forfeitures, and penalties Gaming Tobacco settlement Proceeds from sale of trust land (3) Other (5) Total Revenues EXPENDITURES Current: General government (4) 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 $ 6,450,967 4,513,219 318,902 51,735 1,823,998 616,580 14,166,387 542,064 299,608 175,444 188,667 159,647 91,748 98,907 91,022 264,474 29,853,369 2015 (6) $ 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 2014 $ 5,933,824 4,012,603 314,313 41,215 1,650,579 547,481 11,752,711 475,833 91,578 739,859 185,682 171,161 86,326 100,765 86,319 208,858 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 25,969,821 714,313 15,074,454 165,009 6,132,751 1,456,651 815,811 189,614 3,176,183 843,159 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 2,473,535 517,389 249,704 814,002 29,305,881 560,497 270,872 783,926 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 24,627,809 547,488 775,384 616,984 1,616,154 1,342,012 - 254 - Fiscal Year 2010, as 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 2007, as restated $ 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 $ 2009 2008 restated 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 $ 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 23,975,378 933,313 12,818,468 153,718 5,467,695 1,288,577 820,417 191,429 2,459,934 923,977 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 2,863,218 383,591 357,754 824,417 25,699,313 288,172 286,027 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 (2,314,174) (1,037,268) 860,909 (817,147) 919,866 (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, 2016 (Expressed in Thousands) Fiscal Year 2012, as 2016 OTHER FINANCING SOURCES (USES) Transfers in Transfers out Proceeds from sale of trust land (3) 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 (6) 914,817 (1,367,979) 856,446 (1,392,301) 259 1,203 3,579 (62,630) - 1,025 783 754,285 (900,813) - 427,540 - (422,841) 58,933 (447,378) $ 100,110 149,554 (530,762) $ 244,622 2.7% 3.0% $ 2014 2013 904,261 (1,397,332) 900 782,420 (1,256,408) 1,636 821,072 (1,323,778) 1,815 113,914 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) 270,243 $ 1,444,517 3.2% (1) This schedule reports using the modified accrual basis of accounting. (2) 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. (3) In fiscal year 2009, "Proceeds from sale of trust land" was moved from "Other financing sources (uses)" to "Revenues." (4) In fiscal year 2010, amounts were restated as a result of implementing GASB Statement No. 54. (5) Fiscal year 2012 other revenues was restated as a result of an agency fund being reclassified to a special revenue fund. (6) Historical data has not been restated for footnote items (4) - (5) in Schedule 3. - 256 - restated 3.1% 90,753 (193,474) $ 1,148,538 3.1% Fiscal Year 2010, as 2011 862,040 (1,574,406) 3,712 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 4,583 11,113 180,000 158,585 187,836 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 48,972 261,220 150,110 42,291 (161,972) $ 2007, as restated 698,937 3.0% $ 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% - 257 - 910,605 (1,784,833) 199,089 10,162 132,985 325,000 26,201 (180,791) 739,075 1.9% STATE OF ARIZONA SCHEDULE 5 NET TAXABLE SALES BY CLASSIFICATION (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) Fiscal Year 2016 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) $ $ 2015 56,139 154,947 607,840 10,031,989 2,306,786 2,577 105,270 236,324 12,715,254 1,342,700 2 3,689,976 9,601,228 61,614,309 160,125 2,819,143 (503) 5,703,365 38,945 111,186,416 5.60% 2014 2013 2012 2011 $ 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 $ 108,244,360 $ 103,747,606 $ 98,276,129 $ 94,275,888 $ 89,266,927 5.60% 5.60% 6.60% 6.60% 6.60% (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 2007 through 2010, and 2014 through 2016. The sales tax rate was 6.6% for fiscal years 2011 through 2013. For fiscal years 2007 through 2016, 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 2007 through 2010 and 2014 through 2016. 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 2007 and 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 2016 and prior. - 258 - Fiscal Year 2010 2009 2008 $ 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 $ 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 $ $ 87,428,683 $ 96,321,552 $ 5.60% 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% $ $ 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% - 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 2016 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 Personal property rentals Contracting Retail MRRA amount (3) 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 Other Education tax (2) Total $ $ Fiscal Year 2007 Tax Percentage Tax Percentage Collections of Total Collections of Total 2,807 4,842 15,196 501,599 115,339 129 5,263 11,816 635,763 67,135 184,499 480,061 3,080,715 8,006 155,053 (15) 1,947 283,352 (291) 4,291 805 67 $ 457 5 645,012 0.05 % 0.08 0.24 8.09 1.86 0.08 0.19 10.25 1.08 2.97 7.74 49.65 0.13 2.50 0.03 4.57 0.07 0.01 0.01 10.40 6,203,853 100.00 % $ (1,257) 7,979 43,549 11 430,153 175,521 939 6,478 19,870 480,515 54,256 196,194 1,118,584 2,747,814 132,476 32 605 302,256 129 1 4,857 906 9 (266) 666,184 6,387,795 (0.02) % 0.12 0.68 6.73 2.75 0.01 0.10 0.31 7.52 0.85 3.07 17.52 43.03 2.07 0.01 4.73 0.08 0.01 10.43 100.00 % (1) Effective November 1, 2006 these rates were repealed. (2) 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. (3) MRRA - Maintenance, Repair, Replacement or Alteration projects Source: Arizona Department of Revenue Annual Reports for fiscal years 2016 and 2007. - 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 2015 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) $ $ 2014 1,324,383 483,310 1,541,128 1,624,649 9,472,084 14,323,048 9,067,724 13,873,666 5,769,951 4,213,446 13,176,494 4,887,441 14,255,813 3,265,879 11,411,531 3,073,425 22,422,958 2,166,361 7,073,784 $ 2013 1,173,073 457,748 1,569,601 1,647,974 9,202,800 13,922,558 8,767,402 13,274,669 5,300,791 4,009,064 12,179,439 4,346,143 13,520,247 3,195,110 10,777,735 3,039,213 21,264,826 2,157,676 6,535,218 $ 2012 1,312,963 418,125 1,525,571 1,565,076 8,790,400 13,508,342 8,547,831 12,253,411 4,979,371 3,504,838 11,671,079 3,863,961 12,947,459 2,935,527 10,163,430 2,880,938 20,594,056 1,925,711 6,516,177 $ 2011 838,149 420,191 1,495,055 1,533,360 8,003,318 13,443,386 8,733,631 12,199,851 4,946,749 3,055,255 10,799,241 2,531,787 12,599,318 2,608,755 9,340,137 2,940,193 20,050,230 1,764,728 6,221,565 $ 2010 986,598 411,590 1,259,935 1,576,104 7,947,236 12,554,687 8,170,692 11,661,215 4,728,582 2,900,083 9,972,362 1,863,755 12,402,658 2,346,356 8,991,287 2,723,794 19,524,082 1,465,553 5,783,947 $ 537,775 406,597 1,057,660 1,517,087 7,825,408 12,151,178 7,861,596 11,080,426 4,426,693 2,909,306 9,604,969 1,488,411 11,636,612 2,279,559 8,747,337 2,566,829 18,762,745 1,380,524 5,473,932 6,678,618 6,442,474 5,973,996 5,897,588 5,437,293 5,175,265 30,593,497 86,661,942 29,889,478 83,058,606 29,631,725 76,671,517 29,431,030 77,366,788 29,046,914 74,084,162 28,808,332 69,354,364 267,361,132 1.48% $ 255,731,845 $ 242,181,504 1.47% 1.43% $ 236,220,305 $ 225,838,885 1.44% (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 2006 through 2014 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 - 1.37% $ 215,052,605 1.33% Calendar Year Ended December 31 2009 $ $ 2008 415,586 396,382 1,125,533 1,549,132 9,444,991 12,112,335 8,005,507 11,472,010 4,439,809 3,181,570 9,474,862 1,738,997 11,922,372 2,426,188 9,054,684 2,313,146 18,025,043 1,358,286 5,578,026 $ 2007 660,325 380,207 1,523,010 1,611,124 12,482,901 13,616,693 8,607,556 11,802,395 4,703,944 3,312,488 9,604,128 3,116,008 12,953,739 2,599,223 9,775,205 2,047,406 17,449,539 1,425,950 6,117,394 $ 2006 837,247 429,782 1,222,918 1,492,136 15,102,178 13,810,086 8,655,055 12,757,932 4,940,699 3,174,455 10,362,834 3,389,489 12,386,226 2,495,921 9,737,604 1,814,239 15,885,446 1,481,767 6,406,030 $ 709,433 426,383 972,449 1,370,412 15,883,558 13,401,375 7,795,662 12,917,548 4,685,722 3,101,111 10,245,182 4,163,954 11,328,537 2,118,419 9,390,418 1,668,433 14,536,049 1,547,598 6,031,787 5,141,183 5,259,542 5,480,994 5,288,770 28,547,342 66,335,245 28,488,923 66,780,185 26,957,426 61,682,882 25,039,926 56,618,001 214,058,229 1.13% $ 224,317,885 1.15% $ 220,503,346 1.55% $ 209,240,727 1.75% - 263 - STATE OF ARIZONA SCHEDULE 8 PERSONAL INCOME TAX RATES FOR THE LAST TEN CALENDAR YEARS (Expressed in Thousands) Calendar Year Ended December 31 2015 AVERAGE EFFECTIVE RATE (3) Personal Income Tax Revenue (1) Personal Income (2) Average Effective Rate (3) $ 2014 3,968,883 267,361,132 1.48% TAX RATES ON THE PORTION OF TAXABLE INCOME IN RANGES (4) $0 - $10 $10 - $25 $25 - $50 $50 - $150 ` $150 and over $ 2013 3,761,764 255,731,845 1.47% 2.59% 2.88% 3.36% 4.24% 4.54% 2.59% 2.88% 3.36% 4.24% 4.54% $ 2012 3,463,266 242,181,504 1.43% $ 2.59% 2.88% 3.36% 4.24% 4.54% 2011 3,398,902 236,220,305 1.44% $ 3,099,177 225,838,885 1.37% 2.59% 2.88% 3.36% 4.24% 4.54% 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 2006 through 2014 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 2013 AND 2006 (1) (Expressed in Thousands, Except Number of Filers) Taxable Year Ended December 31, 2013 FEDERAL ADJUSTED GROSS INCOME LEVEL (3) $50 and under $50 - $100 $100 - $500 $500 and over Total Number of Percentage Filers of Total 1,885,150 572,525 342,317 14,442 2,814,434 66.98% 20.34% 12.16% 0.52% 100.00% Percentage Liability (2) $ $ 457,028 747,422 1,426,799 724,929 3,356,178 of Total 13.62% 22.27% 42.51% 21.60% 100.00% (1) The taxable year 2013 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 2013, filed from January 2014 forward (or 2006, filed from January 2007 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 2010 $ 2009 2,870,565 215,052,605 1.33% 2.59% 2.88% 3.36% 4.24% 4.54% $ 2008 2,423,215 214,058,229 1.13% $ 2.59% 2.88% 3.36% 4.24% 4.54% 2007 2,575,453 224,317,885 1.15% 2.59% 2.88% 3.36% 4.24% 4.54% $ 2006 3,414,304 220,503,346 1.55% 2.59% 2.88% 3.36% 4.24% 4.54% Taxable Year Ended December 31, 2006 Number of Percentage Filers of Total 1,756,430 549,506 275,381 18,582 2,599,899 67.56% 21.14% 10.59% 0.71% 100.00% Percentage Liability (2) $ $ 471,328 716,077 1,206,579 1,293,229 3,687,213 of Total 12.78% 19.42% 32.72% 35.08% 100.00% - 265 - $ 3,666,923 209,240,727 1.75% 2.73% 3.04% 3.55% 4.48% 4.79% STATE OF ARIZONA SCHEDULE 10 RATIOS OF OUTSTANDING DEBT BY TYPE FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2016 (Expressed in Thousands, Except Amount of Debt per Capita) Fiscal Year 2014, as 2016 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 2,899,875 147,320 1,891,460 334,909 176 22,179 492,349 5,788,268 $ 2,701,665 600,556 141,117 2,114 268,474 3,713,926 $ Debt as a Percentage of Personal Income (1) Amount of Debt per Capita (1) 2015 9,502,194 1,392 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 $ 3.6% $ 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 $ 4.1% $ 1,514 2012 3,606,720 $ 296,240 2,360,595 360,316 105,817 474,747 (19,945) 7,184,490 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 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 10,355,167 $ 4.4% $ 2011 1,580 10,206,168 $ 4.5% $ 1,578 4.7% $ Note: Details regarding the State's outstanding debt can be found in the notes to the financial statements. (1) See Schedule 22 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 2016 contains data for the calendar year ending December 31, 2015. (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 - 10,088,915 1,574 Fiscal Year $ $ 2010 2009 2008 2007 3,522,605 $ 304,480 2,571,125 412,919 901 60,712 334,721 (5,197) 7,202,266 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 1,692,825 840,719 171,448 13,043 360 39,705 (23,100) 2,735,000 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 9,937,266 $ 4.6% $ 1,567 8,115,545 $ 3.6% $ 1,292 6,713,979 $ 3.0% $ 1,089 6,030,273 2.9% $ 1,000 - 267 - STATE OF ARIZONA SCHEDULE 11 LEGAL DEBT MARGIN INFORMATION ARIZONA STATE UNIVERSITY FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2016 (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 68,867 4.80 % 2015 2016 $ 2,044,231 2,152,083 $ 163,538 172,167 $ 106,300 103,300 $ 57,238 5.20 % 2014 1,844,828 147,586 107,000 40,586 5.80 % 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 2007 2,017,544 1,880,769 161,404 150,462 115,000 97,800 46,404 52,662 5.70 % 5.20 % (1) For fiscal years 2007 through 2016, 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, and 2018-2020 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. STATE OF ARIZONA SCHEDULE 12 LEGAL DEBT MARGIN INFORMATION UNIVERSITY OF ARIZONA FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2016 (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 2016 60,867 4.80 % 2015 $ 1,902,083 1,856,098 $ 152,167 148,488 $ 91,300 76,100 $ 72,388 4.10 2014 1,739,216 139,137 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 2009 2008 2007 1,817,647 1,681,818 1,681,132 1,657,971 145,412 134,545 134,491 132,638 92,700 92,500 89,100 114,400 52,712 42,045 45,391 18,238 5.10 5.50 5.30 6.90 (1) For fiscal years 2007 through 2016, 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, and 2018-2020 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 NORTHERN ARIZONA UNIVERSITY FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2016 (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 2016 $ 534,694 $ 42,776 $ 26,200 $ 16,576 4.90 % 18,374 4.43 2015 514,673 41,174 22,800 2014 485,265 38,821 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) For fiscal years 2007 through 2016, 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, and 2018-2020 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. STATE OF ARIZONA SCHEDULE 14 PLEDGED-REVENUE COVERAGE ARIZONA TRANSPORTATION BOARD HIGHWAY REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) Fiscal Year 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 $ (1), (2) Pledged Revenue 589,476 566,352 537,768 512,971 392,648 504,175 502,874 509,183 658,616 635,140 $ Principal 70,195 61,660 58,485 60,540 67,885 71,770 68,140 64,190 60,645 57,825 Debt Service Interest $ 74,248 75,937 80,495 78,198 71,113 83,960 87,661 89,825 75,538 73,785 $ Total 144,443 137,597 138,980 138,738 138,998 155,730 155,801 154,015 136,183 131,610 Coverage 4.1 4.1 3.9 3.7 2.8 3.2 3.2 3.3 4.8 4.8 (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. - 269 - STATE OF ARIZONA SCHEDULE 15 PLEDGED-REVENUE COVERAGE ARIZONA TRANSPORTATION BOARD TRANSPORTATION EXCISE TAX REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) (1) Fiscal Year 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 Pledged $ Revenue 262,971 254,871 243,786 227,800 216,281 206,545 199,672 219,165 253,742 262,264 Debt Service $ Principal 65,585 70,940 58,600 55,870 55,460 45,970 33,315 13,825 19,045 - $ Interest 38,001 32,652 44,988 47,721 48,129 42,496 38,225 17,193 10,673 - $ Total 103,586 103,592 103,588 103,591 103,589 88,466 71,540 31,018 29,718 - Coverage 2.5 2.5 2.4 2.2 2.1 2.3 2.8 7.1 8.5 N/A (1) The Bonds are secured by transportation excise taxes collected by the Arizona Department of Revenue on behalf of Maricopa County. STATE OF ARIZONA SCHEDULE 16 PLEDGED-REVENUE COVERAGE SCHOOL FACILITIES BOARD STATE SCHOOL IMPROVEMENT REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) (1) Fiscal Year 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 (2) Pledged $ Revenue 645,012 626,401 601,854 567,824 542,395 514,346 504,391 558,900 645,828 666,184 Debt Service $ Principal 59,800 57,920 46,720 43,680 41,405 39,215 37,230 35,420 33,810 31,055 $ Interest 4,417 6,274 9,575 13,487 22,804 25,088 27,074 28,885 30,498 31,893 $ Total 64,217 64,194 56,295 57,167 64,209 64,303 64,304 64,305 64,308 62,948 Coverage 10.04 9.76 10.69 9.93 8.45 8.00 7.84 8.69 10.04 10.58 (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. - 270 - STATE OF ARIZONA SCHEDULE 17 PLEDGED-REVENUE COVERAGE SCHOOL FACILITIES BOARD STATE SCHOOL TRUST REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) (1) Fiscal Pledged Year 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 Revenue 43,506 53,241 57,345 49,645 39,155 42,191 38,147 72,263 72,263 72,263 $ Debt Service Principal $ 20,180 19,380 19,275 18,315 17,400 16,535 15,710 15,105 14,470 13,980 $ Interest 3,115 3,911 4,971 5,933 6,846 7,714 8,539 9,143 8,400 11,524 $ Total 23,295 23,291 24,246 24,248 24,246 24,249 24,249 24,248 22,870 25,504 Coverage 1.87 2.29 2.37 2.05 1.61 1.74 1.57 2.98 3.16 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. STATE OF ARIZONA SCHEDULE 18 PLEDGED-REVENUE COVERAGE LOTTERY REVENUE BONDS FOR THE LAST SIX FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) Debt Service (2) Fiscal Pledged Year Revenue 2016 $ 200,769 Principal $ Interest 19,205 $ 18,297 Total $ Coverage 37,502 5.35 2015 172,108 18,305 19,194 37,499 4.59 2014 174,374 17,445 20,055 37,500 4.65 2013 174,373 16,790 20,710 37,500 4.65 2012 96,200 - 20,709 20,709 4.65 2011 96,200 - 21,630 21,630 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. - 271 - STATE OF ARIZONA SCHEDULE 19 PLEDGED-REVENUE COVERAGE ARIZONA STATE UNIVERSITY REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) Debt Service (1) Fiscal Pledged Year Revenue 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 $ 1,450,651 1,300,624 1,161,306 1,047,661 977,828 876,770 782,727 702,797 638,707 580,102 Net Payments (Receipts) On Principal $ 40,155 45,650 44,770 33,965 31,215 28,595 26,975 21,555 19,135 17,125 Interest $ 47,148 50,246 43,623 41,477 39,560 35,051 33,003 21,896 16,682 21,339 Swap Agreements $ 2,991 3,393 3,507 3,631 3,612 3,791 3,716 3,692 2,448 186 Total $ Coverage 90,294 99,289 91,900 79,073 74,387 67,437 63,694 47,143 38,265 38,650 16.07 13.10 12.64 13.25 13.15 13.00 12.29 14.91 16.69 15.01 (1) Pledged revenues include student tuition and fees, auxiliary enterprises revenue, investment income, and indirect cost recovery revenue. STATE OF ARIZONA SCHEDULE 20 PLEDGED-REVENUE COVERAGE UNIVERSITY OF ARIZONA REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) (1) Fiscal Year 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 $ (1), (2) Direct Net Revenue Gross Operating Available for Revenues 1,684,171 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 $ Expenses 1,451,735 1,374,458 1,261,247 1,199,559 1,126,649 1,056,408 962,469 911,440 1,005,572 899,084 Debt Service $ 232,436 193,401 138,848 156,919 99,578 158,654 165,622 132,914 108,382 83,475 Debt Service $ Principal 25,205 21,575 22,600 21,895 17,375 24,720 23,860 22,725 21,235 17,440 $ Interest 45,534 37,732 38,250 34,556 31,480 28,571 24,593 15,437 14,978 14,166 (1) Gross Revenues and Direct Operating Expenses include current operating unrestricted funds only since these are the funds that are pledged for debt service payments under the System Revenue Bond Indentures. Also excluded from expenses is interest, depreciation, and amortization. (2) 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. - 272 - $ Total 70,739 59,307 60,850 56,451 48,855 53,291 48,453 38,162 36,213 31,606 Coverage 3.29 3.26 2.28 2.78 2.04 2.98 3.42 3.48 2.99 2.64 STATE OF ARIZONA SCHEDULE 21 PLEDGED-REVENUE COVERAGE NORTHERN ARIZONA UNIVERSITY REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2016 (Expressed in Thousands) (1), (2), (3) Fiscal Gross Year 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 $ Revenues 323,986 303,860 283,468 263,733 246,098 220,538 198,197 164,877 143,733 136,100 Debt Service $ Principal 6,500 6,500 6,615 6,610 5,835 24,310 6,545 6,570 10,455 9,610 $ Interest 23,149 20,310 17,305 15,474 15,028 14,712 10,912 7,383 6,628 5,943 $ Total 29,649 26,810 23,920 22,084 20,863 39,022 17,457 13,953 17,083 15,553 Coverage 10.93 11.33 11.85 11.94 11.80 5.65 11.35 11.82 8.41 8.75 (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. STATE OF ARIZONA SCHEDULE 22 DEMOGRAPHIC AND ECONOMIC STATISTICS FOR THE LAST TEN CALENDAR YEARS Calendar Personal Per Capita Year Ended Income (3) Personal (2) Unemployment (in thousands) Income Rate (4) December 31 Population (1,3) 2015 6,828,065 2014 6,728,783 2013 $ 267,361,132 $ 39,156 5.5 255,731,845 38,006 6.2 6,630,799 242,181,504 36,524 7.0 2012 6,553,262 236,220,305 36,046 7.7 2011 6,468,732 225,838,885 34,912 8.5 2010 6,408,208 215,052,605 33,559 9.6 2009 6,343,154 214,058,229 33,746 10.6 2008 6,280,362 224,317,885 35,717 7.8 2007 6,167,681 220,503,346 35,751 4.2 2006 6,029,141 209,240,727 34,705 3.6 (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). - 273 - (This page intentionally left blank) STATE OF ARIZONA SCHEDULE 23 PRINCIPAL EMPLOYERS CURRENT YEAR AND NINE YEARS AGO Employer State of Arizona Banner Health Wal-Mart Stores, Inc. Fry's Food Stores City of Phoenix Wells Fargo Maricopa County Dignity Health Intel Corp. HonorHealth U.S. Postal Service Raytheon Co. Total Calendar Year Ended December 31, 2015 Full-Time Percentage Equivalent of Total State Employees Rank Employment 50,816 1 1.61 % 35,406 2 1.12 32,373 3 1.03 17,286 4 0.55 14,585 5 0.46 14,480 6 0.46 13,567 7 0.43 12,100 8 0.39 11,300 9 0.36 10,500 10 0.33 212,413 6.74 (1) The 10th rank is not available. Source: Phoenix Business Journal, Book of Lists 2016 and 2007 for employers. - 275 - % Calendar Year Ended December 31, 2006 Full-Time Percentage Equivalent of Total State Employees Rank (1) Employment 49,305 1 1.65 % 16,400 3 0.55 28,800 2 0.96 11,780 7 0.40 14,166 4 0.47 11,800 6 0.40 13,274 5 0.44 11,000 8 0.37 10,750 9 0.36 167,275 5.60 % STATE OF ARIZONA SCHEDULE 24 STATE EMPLOYEES BY FUNCTION (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2016 FULL-TIME EQUIVALENT EMPLOYEES General government: Lottery Arizona State Retirement System Department of Revenue All other Health and welfare: Department of Economic Security Department of Child Safety 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 2016 2015 2014 2013 2012 2011 98.8 250.9 880.8 2,331.6 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 4,147.7 3,057.1 2,214.3 1,176.7 961.6 1,656.4 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 15,635.7 843.9 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 9,534.0 738.5 1,907.7 98.6 4,548.0 733.5 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 50,815.8 50,480.7 48,909.6 49,278.4 49,847.1 48,698.0 (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 due to the result of a division within the Department of Economic Security being established as the Department of Child Safety. Source: The Executive Budget (Detail). Includes only those positions funded by appropriated funds approved in the Executive Budget. - 276 - Fiscal Year 2010 2009 2008 2007 104.0 236.0 863.0 2,746.5 110.0 236.0 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 4,201.0 1,484.0 1,538.6 966.5 1,820.7 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 15,664.5 972.4 17,353.5 1,003.4 17,138.8 1,001.4 16,975.0 969.0 9,755.9 1,050.7 2,099.8 118.4 4,548.0 956.7 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 49,126.7 52,420.2 51,904.3 51,060.8 - 277 - STATE OF ARIZONA SCHEDULE 25 OPERATING INDICATORS BY FUNCTION FOR THE LAST TEN FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2016 2016 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) 2015 2012 2011 2010 5.9 5.7 5.7 5.5 5.4 5.4 5.2 1,849,578 1,709,550 1,508,690 1,318,650 1,314,210 1,392,810 1,392,420 N/A 27,272 32,888 39,050 39,194 44,842 82,127 N/A 1,027,845 1,070,674 1,116,068 1,123,068 1,049,522 986,413 65.0 3.1 65.4 3.2 70.6 3.5 66.5 3.4 67.9 3.5 66.4 3.5 75.2 3.7 1,105,592 1,098,701 1,084,276 1,077,703 1,066,740 1,062,200 1,068,987 19,280,016 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 7,694,309 4,979,520 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 1,241,977 726,285 822,923 848,617 815,488 826,385 874,442 158,681 148,819 141,264 136,884 134,051 129,653 122,734 223,141 229,770 257,951 261,418 288,097 311,472 363,189 1,982 111 1,599 125 1,303 170 1,618 136 1,365 125 882 132 1,781 128 N/A 42,902 7,970,946 5,083,085 N/A $ Fiscal Year 2013 2014 870.9 $ - 750.0 $ - 723.9 $ - 692.9 6,370 $ 646.7 $ 7,080 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 2016 contains data for the calendar year ending December 31, 2015. 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 2016 contains data from the October 1, 2015 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. (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 2016 contains data for the calendar year ending December 31, 2015. (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 2016 contains data for the fall 2015 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 - 583.5 8,260 $ 551.5 10,760 Fiscal Year 2008 2009 $ 2007 5.7 5.6 5.5 1,282,910 1,136,585 1,075,125 83,969 80,221 82,408 752,772 600,549 537,072 84.0 3.9 101.8 4.6 99.4 4.6 1,062,618 1,132,963 1,106,207 21,987,920 39,628 21,881,034 38,897 20,282,212 37,088 6,692,834 1,246,358 6,733,610 1,200,227 6,608,726 1,266,973 874,363 896,143 940,223 118,743 113,092 110,580 396,755 226,772 185,397 2,244 103 2,748 118 3,265 133 484.5 14,560 $ 472.9 21,646 $ 462.2 26,914 - 279 - STATE OF ARIZONA SCHEDULE 26 CAPITAL ASSET STATISTICS BY FUNCTION FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2016 Fiscal Year 2016 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) 2015 2014 2013 2012 2011 2010 10 10 10 10 10 10 10 6,822 4,858 6,800 4,798 6,800 4,787 6,751 4,754 6,751 4,754 6,722 4,741 6,789 4,700 9,216,213 9,217,704 9,223,617 9,223,873 9,302,256 9,252,495 9,258,071 1,268 44,665 1,258 46,054 1,212 44,658 1,705 41,141 1,711 39,933 1,740 37,967 1,737 37,589 Note: No capital asset indicators are available for the general government, health and welfare, inspection and regulation, education, and other 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 2009 2008 2007 10 10 10 6,753 4,648 6,785 4,637 6,817 4,648 9,259,296 9,260,253 9,262,781 1,670 37,186 1,669 36,000 1,663 34,946 - 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 Neil Broadstock, MBA, CPA, CMA, CGFM Tami Schuler, MEd Christopher Lesure, MBA, CPA Sonseeahray Thayer KaNeisha Harris, MBA Chris Freitag, CPA Jared Mazza, MBA, CGFM Celine Baker, MA, CPA 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.