STATE OF ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2017 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 ............................................................................................... 186 Non-major Debt Service Funds: Combining Balance Sheet ................................................................................................................................. Combining Statement of Revenues, Expenditures and Changes in Fund Balances .......................................... 188 189 Non-major Capital Projects Fund: Combining Balance Sheet ................................................................................................................................. Combining Statement of Revenues, Expenditures and Changes in Fund Balances ......................................... 192 193 Non-major Proprietary Funds: Non-major Enterprise Funds: Combining Statement of Net Position ............................................................................................................... Combining Statement of Revenues, Expenses and Changes in Fund Net Position ........................................... Combining Statement of Cash Flows ................................................................................................................ 196 200 202 Internal Service Funds: Combining Statement of Net Position ............................................................................................................... Combining Statement of Revenues, Expenses and Changes in Fund Net Position ........................................... Combining Statement of Cash Flows ................................................................................................................ 206 208 210 Fiduciary Funds: Pension and Other Employee Benefit Trust Funds: Combining Statement of Fiduciary Net Position............................................................................................... Combining Statement of Changes in Fiduciary Net Position ........................................................................... 214 216 Investment Trust Funds: Combining Statement of Fiduciary Net Position............................................................................................... Combining Statement of Changes in Fiduciary Net Position ........................................................................... 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 2014 and 2007 ........ 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 Seven 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 Gilbert Davidson Governor Chief of Operations and Interim Director ARIZONA DEPARTMENT OF ADMINISTRATION OFFICE OF THE DIRECTOR 100 NORTH FIFTEENTH AVENUE • SUITE 401 PHOENIX, ARIZONA 85007 (602) 542-1500 March 15, 2018 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, 2017. 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 State. All disclosures needed for the reader to gain a reasonable understanding of the State's financial activities have been included. U.S. generally accepted accounting principles (GAAP) require that management provides a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of the Management's Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The State's MD&A can be found immediately following the Independent Auditors' Report. INTERNAL CONTROLS T he State is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the State are protected from loss, theft, or misuse and to ensure that adequate accounting data is compiled to allow for the preparation of financial statements in conformity with U.S. GAAP. Internal accounting controls are designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that: (1) the cost of a control should not exceed the benefits likely to be derived and (2) the valuation of costs and benefits requires estimates and judgments by management. In the opinion of management, the State's internal controls are adequate to provide reasonable assurance that these objectives are met. INDEPENDENT AUDIT I n compliance with State statute, an annual financial audit of the financial reporting entity of the State is completed each year by the State of Arizona, Office of the Auditor General in conjunction with other audit firms. Their audit was conducted in accordance with U.S. generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Their report on the basic financial statements has been included in the financial section of this report. In addition, A.R.S. § 41-1279.03 requires at least a biennial single audit by the Office of the Auditor General. The Single Audit will be issued as a separate report at a later date. -1- FINANCIAL REPORTING ENTITY OF THE STATE T he accompanying CAFR includes all funds of the State (primary government), as well as its component units. Blended component units, although legally separate entities, are in substance part of a government's operations. Therefore, data from these units is combined with data of the primary government. Discretely presented component units are shown separately to emphasize that they are legally separate from the primary government and to differentiate their financial position and results of operations from those of the primary government. Discretely presented component units prepared in accordance with the Governmental Accounting Standards Board (GASB) are reported in a separate column in the government-wide financial statements. Discretely presented component units prepared in accordance with the Financial Accounting Standards Board are presented as separate financial statements immediately following the government-wide financial statements to emphasize that they are prepared in accordance with accounting standards other than those promulgated by the GASB. The criteria for inclusion in the financial reporting entity and presentation are defined by the Codification of Governmental Accounting and Financial Reporting Standards, issued by the GASB, (Section 2100). Note 1 of the Notes to the Financial Statements explains which component units are included in the financial reporting entity of the State. ARIZONA The State of Arizona was admitted to the Union as the 48th state in 1912. Arizona is the sixth largest state by area, with 113,909 square miles. Arizona is known for the Grand Canyon, one of the Seven Wonders of the World, and its cacti and other desert landscape. A number of national forests, four national parks, eighteen national monuments, and over 20 million acres of Native American reservations and tribal communities are located in Arizona. PROFILE OF THE GOVERNMENT T he State has three branches of government: Executive, Legislative, and Judicial. The Executive branch is headed by a Governor elected for a four-year term. Arizona's Legislative branch is bicameral, consisting of a thirty-member Senate and a sixty-member House of Representatives. Legislators are elected for two-year terms. The Judicial branch consists of the Arizona Supreme Court, Court of Appeals (with two divisions), Superior Court, justice of the peace courts, and municipal courts. The Superior Court, justice of the peace courts, and municipal courts are excluded from the financial reporting entity of the State as these entities do not meet GASB criteria for inclusion. The Supreme Court is the highest court in the State and is comprised of seven 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) $26 $25 $24 $23 $22 $21 $20 $19 $18 2013 2014 Revenues 2015 2016 2017 Expenditures The General Fund ended the June 30, 2017 fiscal year with a total fund balance of $34.4 million. This compares to the previous year’s total fund balance of $149.1 million. Graph 2 summarizes the General Fund Balance for the last five fiscal years: Graph 2 General Fund Balance for last 5 fiscal years (Dollars in millions) $500 $400 $300 $200 $100 $0 2013 2014 2015 -3- 2016 2017 ECONOMIC CONDITION AND OUTLOOK The 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) 2016 Q2 - 2018 Q2(a) 2.4% 3.9% 3.3% 3.3% 2.8% 2.7% 1.5% 1.0% 0.7% 0.5% 0.3% (1.1%) 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 a) 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(b) 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(c) 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 b) Estimated c) Projected MAJOR INITIATIVES The Major Initiatives for the year ended June 30, 2017, were as follows: • • Behavioral Health Services was transferred from the Department of Health Services to the Arizona Healthcare Cost Containment System, streamlining physical and behavioral healthcare to achieve greater coordination of services. An investment of $57 million was made to accelerate improvements to critical commerce transportation corridors; and an additional $30 million was directed to local government entities for transportation projects. -5- ARIZONA STATE GOVERNMENT ORGANIZATION ELECTORATE LEGISLATIVE BRANCH EXECUTIVE BRANCH JUDICIAL BRANCH STATE HOUSE OF REPRESENTATIVES* STATE SENATE* SUPREME COURT LEGISLATIVE COUNCIL AUDITOR GENERAL GOVERNOR* COURT OF APPEALS SUPERIOR COURTS MUNICIPAL COURTS JUSTICE OF THE PEACE COURTS* JOINT LEGISLATIVE BUDGET COMM. SECRETARY OF STATE* ATTORNEY GENERAL* STATE LIBRARY, ARCHIVES AND PUBLIC RECORDS DEPARTMENT OF LAW 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 BOARD OF REGENTS ARIZONA STATE UNIVERSITY NORTHERN ARIZONA UNIVERSITY *ELECTED OFFICIALS -8- OTHER BOARDS, COMMISSIONS, AND AGENCIES UNIVERSITY OF ARIZONA STATE OF ARIZONA PRINCIPAL STATE OFFICIALS JUNE 30, 2017 ELECTED OFFICIALS Douglas A. Ducey, Governor Diane Douglas, Superintendent of Public Instruction Senator Steve Yarbrough, President of the Senate Tom Forese, Chairman – Corporation Commission Representative J.D. Mesnard, Speaker of the House Bob Burns, Commissioner – Corporation Commission Michele Reagan, Secretary of State Andy Tobin, Commissioner – Corporation Commission Mark Brnovich, Attorney General Boyd Dunn, Commissioner – Corporation Commission Joe Hart, State Mine Inspector Justin Olson, Commissioner – Corporation Commission current Jeff DeWit, State Treasurer Doug Little, Commissioner – Corporation Commission through September, 2017 APPOINTED OFFICIALS Executive Officials Judicial Officials Gilbert Davidson, Chief of Operations and Interim Director – Department of Administration - current Scott Bales, Chief Justice – Supreme Court Legislative Officials Craig Brown, Director – Department of Administration through January, 2018 Charles L. Ryan, Director – Department of Corrections Michael Trailor, Director – Department of Economic Security 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 Greg McKay, Director – Department of Child Safety University Officials David Briant, Director – Department of Revenue Dr. Michael M. Crow, President – Arizona State University Frank Milstead, Director – Department of Public Safety Dr. Rita Cheng, President – Northern Arizona University Dr. Cara Christ, Director – Department of Health Services Dr. Robert C. Robbins, President – University of Arizona Tom Betlach, Director – Arizona Health Care Cost Containment System John Halikowski, Director – Department of Transportation -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, 2017, 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 certain 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 and deferred outflows of resources Revenues, additions, and other financing sources 62.29% 4.42% 1.04% 12.40% 35.79% 0.45% 0.27% 0.55% 0.92% 0.68% 0.01% 13.23% Aggregate discretely presented component units 97.56% 96.76% Fund statements Major funds: General fund Arizona Health Care Cost Containment System 40.03% 40.79% 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% 0.29% 0.18% 0.18% 68.63% 3.57% 0.70% 0.62% 13.67% 0.29% 5.39% 3.58% 5.58% 44.75% 2.41% 0.91% 0.47% 10.47% 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 discretely presented 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 Arizona State University 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, 2017, 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. 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 Pages Management’s discussion and analysis 21 - 33 Budgetary comparison schedules 143 - 155 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 156 - 158 Schedules of state pension contributions 163 - 165 159 - 160 161 - 162 Notes to required supplementary information 166 Single-employer OPEB plan funding progress 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 solely 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 the effectiveness of the State’s 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 March 15, 2018 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, 2017. 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 $26.4 billion (reported as net position). Of this amount, a deficit of $5.0 billion exists for unrestricted net position, $8.9 billion is restricted for specific purposes (restricted net position), and $22.5 billion is net investment in capital assets. • The State’s total net position increased in fiscal year 2017 by $1.7 billion. Net position of governmental activities increased by $1.3 billion, while net position of the business-type activities increased by $453.4 million. Fund Level: • As of the close of the fiscal year, the State’s governmental funds reported combined ending fund balances of $8.1 billion, an increase of $385.4 million from the beginning of the year. After accounting for non-spendable, restricted, and committed fund balances of $5.6 billion, $1.7 billion, and $1.1 billion, respectively, the State’s unassigned fund balance had a deficit of $277.0 million, or (3%) of combined fund balances. • As of the close of the fiscal year, unassigned fund balance for the General Fund had a deficit of $258.3 million, which is approximately (1%) of total General Fund expenditures. • The Land Endowments Fund reported fund balance at fiscal year-end of $5.6 billion, an increase of $487.9 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 $3.6 billion, an increase of $477.2 million during the year. Long-term Debt: • The State’s total long-term primary government debt decreased during the fiscal year to $9.4 billion, a decrease of $145.0 million or (2%). Changes during the year included the addition of revenue bonds and certificates of participation (COPs) of $802.0 million and $119.9 million, respectively. Also, the State retired $752.7 million of revenue bonds and $250.0 million of COPs. Included within the change of long-term primary government debt are increases and decreases in net issuance premiums of $200.6 million and $119.5 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 Arizona Finance Authority, the Arizona Power Authority, the Rio Nuevo Multipurpose Facilities District, the Arizona Commerce Authority, and the Arizona Public School Credit Enhancement 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 Enterprise Partners, 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. Notes to the financial statements begins 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, 2017 and 2016 (expressed in thousands) Governmental Activities 2017 2016 Current assets Capital assets Other non-current assets Total Assets $ 5,986,883 23,733,399 6,805,712 36,525,994 $ Business-type Activities 2017 2016 6,333,278 22,971,687 6,326,774 35,631,739 $ 2,098,043 5,379,401 2,957,568 10,435,012 $ 1,822,589 5,074,870 2,650,605 9,548,064 Primary Government Total 2017 2016 $ 8,084,926 29,112,800 9,763,280 46,961,006 $ 8,155,867 28,046,557 8,977,379 45,179,803 Deferred outflows of resources 1,016,987 711,744 398,068 290,441 1,415,055 1,002,185 Current liabilities Non-current liabilities Total Liabilities 4,818,837 9,657,803 14,476,640 4,926,872 9,807,941 14,734,813 876,041 5,859,774 6,735,815 884,383 5,398,775 6,283,158 5,694,878 15,517,577 21,212,455 5,811,255 15,206,716 21,017,971 400,593 235,358 402,452 327,227 803,045 562,585 20,583,563 7,424,033 (5,341,848) $ 22,665,748 19,722,730 6,856,271 (5,205,689) $ 21,373,312 1,879,901 1,445,218 369,694 $ 3,694,813 1,761,694 1,191,605 274,821 $ 3,228,120 22,463,464 8,869,251 (4,972,154) $ 26,360,561 21,484,424 8,047,876 (4,930,868) $ 24,601,432 Deferred inflows of resources Net position: Net investment in capital assets Restricted Unrestricted Total Net Position For the year ended June 30, 2017, the State’s combined net position totaled $26.4 billion, reflecting an increase of $1.7 billion during the current fiscal year. The largest portion of the State’s net position (85%) represents net investment in capital assets of $22.5 billion. Additions to land, roads, and bridges provided the majority of the governmental activities increase in net investment in capital assets of $860.8 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 $8.9 billion (34%) of resources that are subject to external restrictions on how they may be used. The governmental activities increase in restricted net position of $567.8 million is largely a result of an increase of $353.8 million in the amount restricted by the State’s Constitution for basic education funded by the Land Endowments Fund, an increase of $152.2 million in the amount restricted for capital projects, and an increase of $76.5 million in the amount restricted for health and welfare. The business-type activities increase in restricted net position of $253.6 million is primarily due to an increase of $234.9 million in the amount restricted for the Unemployment Compensation Fund. After accounting for the above net position restrictions, the State has a remaining deficit of $5.0 billion (19%) 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, 2017 and 2016 (expressed in thousands) Governmental Activities 2017 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 $ 1,229,794 Business-type Activities 2016 $ 2017 1,191,069 $ Primary Government Total 2016 4,170,205 $ 2017 3,987,187 $ 5,399,999 2016 $ 5,178,256 14,732,701 716,455 13,532,247 870,644 1,488,002 27,368 1,452,562 11,911 16,220,703 743,823 14,984,809 882,555 6,775,704 4,500,902 316,073 46,798 1,875,392 655,363 50,009 6,455,837 4,511,674 318,902 51,735 1,823,998 616,580 58,250 72,696 81,363 69,927 68,795 6,848,400 4,500,902 316,073 46,798 1,875,392 655,363 131,372 6,525,764 4,511,674 318,902 51,735 1,823,998 616,580 127,045 35,032 47,503 117,933 31,099,659 115,097 75,042 247,462 29,868,537 79,726 5,919,360 548 65,143 5,656,073 35,032 47,503 197,659 37,019,019 115,645 75,042 312,605 35,524,610 862,738 15,661,167 163,416 6,369,100 1,662,550 799,882 216,318 807,320 15,152,650 168,719 6,136,303 1,585,620 858,958 208,563 - - 862,738 15,661,167 163,416 6,369,100 1,662,550 799,882 216,318 807,320 15,152,650 168,719 6,136,303 1,585,620 858,958 208,563 3,349,498 193,099 29,277,768 3,176,183 210,326 28,304,642 4,893,271 1,105,470 5,998,741 4,637,567 1,014,941 5,652,508 3,349,498 193,099 4,893,271 1,105,470 35,276,509 3,176,183 210,326 4,637,567 1,014,941 33,957,150 1,821,891 1,563,895 (79,381) 3,565 1,742,510 1,567,460 (529,455) 1,292,436 21,373,312 (465,840) 1,098,055 20,275,257 3,276 529,455 453,350 3,241,463 3,694,813 5,472 465,840 474,877 2,753,243 3,276 5,472 1,572,932 23,028,500 22,665,748 $ 21,373,312 $ $ 3,228,120 $ 1,745,786 24,614,775 26,360,561 For additional information on the difference between fiscal year 2016 ending net position and fiscal year 2017 beginning net position, see Note 9.B. - 26 - $ 24,601,432 Change in Net Position Governmental Activities – Net Position increased by $1.3 billion from fiscal year 2016, or a 6% increase from fiscal year 2016. Reported sales tax revenues increased by $319.9 million, or 5%. The increase in sales tax collections generally reflects increased economic activity in the State during fiscal year 2017. Net taxable sales increased by 4% from fiscal year 2016, resulting in the increased reported sales tax revenue. The largest increases in net taxable sales during fiscal year 2017 were in retail sales, restaurants and bars, and contracting. The most notable change in revenues occurred within operating grants and contributions, as it increased by $1.2 billion (9%) over fiscal year 2016. This increase is largely attributable to the 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 73,146 members (4.0%) over fiscal year 2016. Adding to the increase in operating grants and contributions was an increase in the fair value of the Permanent Fund investment portfolio of $632.0 million during fiscal year 2017. The increase in health and welfare expenses of $508.5 million (3%) resulted mostly from the increased enrollment and the increase in rates and utilization for AHCCCS programs. The increase in education expenses of $232.8 million (4%) was largely due to increased enrollment growth and inflation. A comparison of the net cost (income) of services by function for the State’s governmental activities is shown below for fiscal years 2016 and 2017. 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 2017 2016 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 $ 862,738 15,661,167 163,416 6,369,100 1,662,550 799,882 216,318 3,349,498 193,099 $ 29,277,768 - 27 - $ 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 Net Cost (Income) of Services 2017 2016 $ 522,576 2,766,590 (25,448) 4,547,226 1,407,098 (222,178) 60,357 3,349,498 193,099 $ 12,598,818 $ 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 Expenses and Program Revenues Governmental Activities for Fiscal Year 2017 (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 $453.4 million from fiscal year 2016, or 14%. This increase is primarily due to increases in net position for the Universities and the Unemployment Compensation Fund of $260.0 million and $234.9 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 $191.5 million over fiscal year 2016 primarily due to an increase in net student tuition and fees revenue, largely as a result of increased - 28 - enrollment and modest increases in tuition and fee rates. Other increases included an increase in the endowment earnings on investments and an increase in State appropriation transfers from the General Fund. Universities’ operating expenses increased by $225.1 million over fiscal year 2016 primarily due to increases in expenses for instruction, academic support, and scholarships and fellowships and student services that largely reflect continued enrollment growth. Also, the Unemployment Compensation Fund’s unemployment assessment revenue increased by $13.0 million and cost of sales and benefits decreased by $19.8 million, as compared to the prior fiscal year, due to the decline in unemployment levels. In addition, unemployment assessment revenue of $495.9 million was higher than the cost of sales and benefits of $271.5 million during fiscal year 2017. A comparison of the net cost (income) of services by function for the State’s business-type activities is shown below for fiscal years 2016 and 2017. 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 2017 2016 Functions/Programs: Universities Other Total Business-type Activities $ 4,893,271 1,105,470 $ 5,998,741 $ 4,637,567 1,014,941 $ 5,652,508 Net Cost (Income) of Services 2017 2016 $ 682,202 (369,036) $ 313,166 $ 658,206 (457,358) $ 200,848 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, 2017, unassigned fund balance of the General Fund had a deficit of $258.3 million, while total fund balance closed the year at $34.4 million. As a measure of the General Fund’s liquidity, it may be useful to compare both unassigned fund balance and total fund balance to total fund expenditures and other financing uses. Unassigned fund balance represents a negative 1% of total expenditures and other financing uses, while total fund balance is less than 1% of the same amount. The fund balance of the State’s General Fund decreased $114.7 million during the fiscal year. Revenues exceeded expenditures by $521.5 million, before other financing sources and uses. However, other financing sources and uses more than offset this excess by $636.2 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 $808.8 million (3%) and expenditures increased by $1.0 billion (4%) from fiscal year 2016. Primary reasons for decreases in fund balance during the fiscal year are due to expenditure increases for health and welfare, education, and intergovernmental revenue sharing. Primary reasons for increases in fund balance during the fiscal year are increased collections of sales taxes and increased intergovernmental revenue, including federal funding received as a result of the AHCCCS implementation of the ACA. The significant 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 $79.3 million during fiscal year 2017. Although revenues exceeded expenditures by $346.9 million, transfers to non-major governmental funds of $273.9 million, to primarily pay debt service, largely offset this excess. Overall revenue decreased by $99.7 million (3%), however, expenditures also decreased by $129.8 million (5%), 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 2017, the Land Endowments Fund total fund balance increased $487.9 million. Endowment investments increased $484.8 million, at fiscal year end, mainly due to a net increase in the fair value of investments of $568.6 million, receipts from land sales of $179.0 million, and realized gains of $85.6 million. This was partially offset by increased distributions resulting from Proposition 123. Proprietary funds The business-type activities discussion for the fund level financial statements of the State’s enterprise funds provide the same type of information found in the government-wide financial analysis beginning on page 25. GENERAL FUND BUDGETARY HIGHLIGHTS During the fiscal year, the original budget was amended by various supplemental appropriations and appropriation revisions. Differences between the original budget and the final amended budget resulted in a $2.1 billion net increase in appropriations for the General Fund. Some of the significant changes in the General Fund appropriations were: 1. $641.8 million increase due to prior fiscal year obligations that were paid in the current fiscal year per A.R.S. § 35-191. 2. $998.5 million increase to the Department of Education’s original budget is primarily due to the basic state aid deferred payment from fiscal year 2016, which was appropriated as a supplemental appropriation in the fiscal year 2017 budget, as well as additional state aid funding. 3. $259.3 million increase to the AHCCCS’ original budget (after factoring in the prior fiscal year obligations that were paid in the current fiscal year) is primarily due to supplemental appropriation increases for voluntary payments from political subdivisions related to disproportionate share hospital and graduate medical education, Proposition 204 services, due to enrollment in excess of budgetary projections, and the KidsCare program. 4. $57.6 million increase to the Department of Economic Security’s (DES) original budget is primarily due to 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. The actual expenditures were less than the final budget by $1.2 billion. Of this amount, $92.6 million will continue as legislative multiple fiscal year spending authority for fiscal years 2018 and beyond, depending upon the budgetary guidelines of the Legislature. The remaining $1.1 billion represents the unused portion of the State’s legislatively authorized annual operating budget. Additional budgetary information can be found on pages 143-153 of this report. - 30 - CAPITAL ASSETS AND DEBT ADMINISTRATION Capital assets: The State’s investment in capital assets for its governmental and business-type activities as of June 30, 2017 totaled $29.1 billion, net of accumulated depreciation. The total primary government increase in capital assets for the current period was 4%, with a 3% increase in capital assets used for governmental activities and a 6% 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 ADOT started or completed roads and bridges totaling $772.6 million during the fiscal year. • The Universities’ additions to capital assets totaled $585.8 million and included increased investments in buildings to support instruction, research, and public service missions, as well as building renewal and other capital projects. 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, 2017 and 2016 are presented below (expressed in thousands): Land Buildings Improvements other than buildings Equipment Software and other intangibles Collections (non-depreciable) Infrastructure Construction in progress Development in progress Total Capital Assets Less: accumulated depreciation Total Capital Assets, Net Governmental Activities 2017 2016 $ 3,561,056 $ 3,380,840 2,493,812 2,423,465 Business-type Activities 2017 2016 $ 253,185 $ 238,533 6,367,954 6,043,615 Total 2017 2016 $ 3,814,241 $ 3,619,373 8,861,766 8,467,080 187,826 935,461 345,747 16,216,907 1,960,775 53,854 25,755,438 (2,022,039) $ 23,733,399 15,458 1,755,029 138,205 21,368 574,485 528,026 70,322 9,724,032 (4,344,631) $ 5,379,401 203,284 2,690,490 483,952 21,368 16,791,392 2,488,801 124,176 35,479,470 (6,366,670) $ 29,112,800 183,371 941,394 362,681 16,122,195 1,463,870 25,522 24,903,338 (1,931,651) $ 22,971,687 16,294 1,656,639 137,321 21,032 546,210 369,322 61,167 9,090,133 (4,015,263) $ 5,074,870 199,665 2,598,033 500,002 21,032 16,668,405 1,833,192 86,689 33,993,471 (5,946,914) $ 28,046,557 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 6,780 center lane miles of roads (21,532 travel lane miles) and 4,866 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 3.67 was achieved for fiscal year 2017. The State manages its bridges using the Bridge Management 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 1.6% of the bridges were so classified for fiscal year 2017. The State’s most notable and largest highway construction project to date was started during fiscal year 2016 and 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 $1.25 billion. Right-of-way cost estimates, not contractually committed, brings the total project cost estimate to $2.0 billion, not including financing costs. Actual costs incurred by the ADOT through June 30, 2017 for this project are $662.4 million. More detailed information regarding capital assets is on pages 93 and 94. - 31 - Long-term debt: The State issues no general obligation debt instruments. The Arizona Constitution, under Article 9, Section 5, provides that the State may contract debts not to exceed $350 thousand. This provision has been interpreted to restrict the State from pledging its credit as a sole payment for debts incurred for the operation of the State government. As a result, the State pledges either dedicated revenue streams or the constructed building or equipment acquired as security for the repayment of long-term debt instruments. Major long-term debt activity during the current fiscal year included the following: • The ADOT issued revenue refunding bonds for $312.9 million and grant anticipation refunding notes for $90.4 million to refinance existing debt to obtain debt service savings by taking advantage of lower market interest rates. • The Arizona Department of Administration issued COPs for $119.9 million to pay a portion of the purchase option price for a State prison that was under a capital lease agreement. • The Universities issued revenue bonds for $489.1 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, 2017 and 2016 (expressed in thousands) Revenue bonds Grant anticipation notes Certificates of participation Capital leases Total Governmental Activities 2017 2016 $ 2,640,330 $ 2,899,875 129,475 147,320 1,804,395 1,891,460 215,084 334,909 $ 4,789,284 $ 5,273,564 Business-type Activities 2017 2016 $ 3,010,525 $ 2,701,665 557,506 600,556 134,399 141,117 $ 3,702,430 $ 3,443,338 Total 2017 $ 5,650,855 $ 129,475 2,361,901 349,483 $ 8,491,714 $ 2016 5,601,540 147,320 2,492,016 476,026 8,716,902 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 the 2018 (quarter 2). The State’s fiscal year 2018 General Fund budget reflects projected growth in base revenues of 4.3%. The net revenues are projected to increase from $9.8 billion in fiscal year 2017 to $9.9 billion in fiscal year 2018. General Fund spending is projected to increase from $9.6 billion in fiscal year 2017 to $9.8 billion in fiscal year 2018. The budget includes increased spending for K-12 education changes, increases for School Facilities Board (SFB) spending, and increased spending for DES. The General Fund fiscal year 2018 cash balance is projected to be a $38 million balance. The enacted budget’s 3-year spending plan provides estimates of fiscal year 2019 and fiscal year 2020 spending. The fiscal year 2019 General Fund budget is forecasted to have revenues of $10.1 billion and expenditures of $10.0 billion, with a $58 million balance. After accounting for legislation enacted separately from the budget and technical adjustments, fiscal year 2019 revenues are projected to be $10.1 billion compared to spending of $10.0 billion. The fiscal year 2019 balance is estimated to be $52 million, including the $38 million fiscal year 2018 ending balance. The structural balance for fiscal year 2019 is estimated to be $80 million. The fiscal year 2019 spending projection includes statutory formula caseload growth and removal of fiscal year 2018 spending categorized as one-time in the fiscal year 2018 budget process. Fiscal year 2019 ongoing revenues are primarily based on the Executive growth rate of 4.1%, but also incorporate separately enacted tax law changes. It also reflects new one-time spending, including $56 million in one-time fiscal year - 32 - 2019 spending to complete SFB school construction projects started in fiscal year 2018 and start SFB projects projected to start in fiscal year 2019. The fiscal year 2020 General Fund budget is forecasted to have revenues of $10.5 billion and expenditures of $10.4 billion, with a $157 million balance. After accounting for separately enacted legislation and technical adjustments, fiscal year 2020 revenues are projected to be $10.5 billion compared to spending of $10.4 billion. The fiscal year 2020 budget is estimated to have a $122 million balance, including the $52 million fiscal year 2019 ending balance. The structural balance for fiscal year 2020 is estimated to be $15 million. The fiscal year 2020 spending includes statutory formula caseload growth and removal of one-time fiscal year 2019 spending. Fiscal year 2020 ongoing revenues reflect the Executive budget base growth rate of 4.5%, further adjusted for previously enacted tax law changes. It also reflects new one-time spending, including $42 million to complete SFB school construction projects projected to start in fiscal year 2019. 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, 2017 (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 Due from primary government 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 $ 4,131 - $ 337,953 571,469 $ 342,084 571,469 COMPONENT UNITS $ 28,324 - 3,109,126 208,159 3,317,285 537,280 401,466 85,287 - 59,951 5,555 429,071 - 461,417 90,842 429,071 - 953 7,847 94,108 2,721 2,882 232,713 51,200 65,705 18,377 18,179 2,098,043 682,937 158,481 110,517 402,581 1,072,935 136,265 243,532 31,341 34,169 8,084,926 7,845 59,797 13,064 3,150 600 658,860 28 4,483 4,511 - 1,067,431 42,119 3,349 - 315,065 464,372 1,067,431 357,184 3,349 464,372 11,965 16,927 1,641 42,633 62,441 5,587,711 - 32,004 1,679,928 448,048 13,668 74,637 62,441 1,679,928 6,035,759 13,668 766,201 98,371 635 21,765,336 872,901 22,638,237 19,140 1,968,063 30,539,111 4,506,500 8,336,969 6,474,563 38,876,080 34,093 948,973 36,525,994 10,435,012 46,961,006 1,607,833 877,206 139,781 - 304,754 77,935 15,379 - 1,181,960 217,716 15,379 - 473 53,617 20,648 1,016,987 398,068 1,415,055 74,738 588,829 155,760 107,635 169,868 (51,200) 1,007,230 136,265 243,532 12,964 15,990 5,986,883 The Notes to the Financial Statements are an integral part of this statement. (Continued) - 38 - STATE OF ARIZONA STATEMENT OF NET POSITION JUNE 30, 2017 (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 $ 597,622 786,417 85,287 16,339 427,568 1,449,373 555,297 3,150 101,901 69,184 574,757 151,942 4,818,837 $ 203,378 1,839 101,206 5,555 34 5 71,841 192,141 32,283 246,348 21,411 876,041 $ 801,000 1,839 887,623 90,842 16,339 427,602 1,449,378 627,138 3,150 294,042 101,467 821,105 173,353 5,694,878 COMPONENT UNITS $ 14,150 7,780 975 54,555 95 77,555 86,780 372,433 155,656 4,101,177 4,753,162 188,595 9,657,803 380,468 2,578 102,243 1,476,636 3,782,954 15,379 99,516 5,859,774 86,780 752,901 2,578 257,899 5,577,813 8,536,116 15,379 288,111 15,517,577 2,263 2,613 822,721 827,597 14,476,640 6,735,815 21,212,455 905,152 400,593 - 180,896 220,206 1,350 581,489 220,206 1,350 603 - 400,593 402,452 803,045 603 20,583,563 1,879,901 22,463,464 48,786 44,721 151,606 6,320 462,447 18,220 10,430 880,638 - 626,344 7,377 30,902 44,721 151,606 6,320 462,447 18,220 10,430 626,344 888,015 30,902 100,649 123,866 5,716,220 366,697 241,502 490,563 5,957,722 - 9,565 (5,341,848) 59,951 112,445 369,694 69,516 112,445 (4,972,154) 22,665,748 $ The Notes to the Financial Statements are an integral part of this statement. - 39 - 3,694,813 $ 26,360,561 572,308 15,085 39,988 $ 776,816 STATE OF ARIZONA STATEMENT OF FINANCIAL POSITION UNIVERSITIES - AFFILIATED COMPONENT UNITS JUNE 30, 2017 (Expressed in Thousands) ASSETS Cash and cash equivalent investments $ Receivables: Pledges receivable Other receivables Total receivables 207,602 43,207 250,809 Investments: Investments in securities Other investments Total investments 1,833,762 106,453 1,940,215 Net direct financing leases Property and equipment, net of accumulated depreciation Other assets 65,376 180,020 49,946 Total Assets 2,564,416 LIABILITIES Accounts payable and accrued liabilities Liability under endowment trust agreements Long-term debt Deferred revenue Other liabilities 27,474 370,729 346,626 25,418 41,838 Total Liabilities 812,085 NET ASSETS Permanently restricted Temporarily restricted Unrestricted Total Net Assets 78,050 1,073,379 560,982 117,970 $ 1,752,331 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, 2017 (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: Arizona Finance Authority Other Component Units Total Component Units 862,738 15,661,167 163,416 6,369,100 1,662,550 799,882 216,318 3,349,498 193,099 29,277,768 $ 4,893,271 1,105,470 5,998,741 195,805 447,334 170,043 65,033 126,365 149,297 75,917 1,229,794 $ 2,708,519 1,461,686 4,170,205 144,357 12,446,996 18,821 1,756,841 129,087 158,156 78,443 14,732,701 1,475,182 12,820 1,488,002 $ 35,276,509 $ 5,399,999 $ 16,220,703 $ 33,268 67,403 100,671 $ 27,328 36,124 63,452 $ 14,200 1,416 15,616 $ $ $ $ 27,368 27,368 $ 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. For beginning balance restatement detail, see Note 9. B. - 42 - 247 714,607 1,601 716,455 743,823 NET (EXPENSE) REVENUE AND CHANGES IN NET POSITION PRIMARY GOVERNMENT TOTAL GOVERNMENTAL BUSINESS-TYPE PRIMARY COMPONENT ACTIVITIES ACTIVITIES GOVERNMENT UNITS $ (522,576) (2,766,590) 25,448 (4,547,226) (1,407,098) 222,178 (60,357) (3,349,498) (193,099) (12,598,818) $ $ (12,598,818) (522,576) (2,766,590) 25,448 (4,547,226) (1,407,098) 222,178 (60,357) (3,349,498) (193,099) (12,598,818) (682,202) 369,036 (313,166) (682,202) 369,036 (313,166) (313,166) (12,911,984) $ 6,775,704 4,500,902 316,073 46,798 1,875,392 655,363 50,009 35,032 47,503 117,933 (529,455) 13,891,254 1,292,436 21,373,312 $ 22,665,748 $ 8,260 (29,863) (21,603) 72,696 81,363 79,726 3,276 529,455 6,848,400 4,500,902 316,073 46,798 1,875,392 655,363 131,372 35,032 47,503 197,659 3,276 - 1,145 6,560 224 61,518 827 - 766,516 453,350 3,241,463 14,657,770 1,745,786 24,614,775 70,274 48,671 728,145 3,694,813 $ 26,360,561 $ 776,816 - 43 - STATE OF ARIZONA STATEMENT OF ACTIVITIES UNIVERSITIES - AFFILIATED COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2017 (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 41,859 41,468 43,712 27,248 17,417 25,456 200,850 $ TEMPORARILY PERMANENTLY RESTRICTED RESTRICTED 153,202 $ 14 69,066 4,480 (176,558) TOTAL 52,425 $ 49,111 411 (24,292) 247,486 41,468 43,726 145,425 17,417 30,347 - 398,010 50,204 77,655 525,869 181,909 9,298 16,245 7,983 83,188 12,322 10,871 13,152 9,619 - - 181,909 9,298 16,245 7,983 83,188 12,322 10,871 13,152 9,619 Total Expenses 344,587 - - 344,587 Increase in Net Assets, before restructure transfer and loss 53,423 50,204 77,655 181,282 Restructure transfer Loss on bond refunding 24,655 (998) 289,496 - 432,262 - 746,413 (998) Increase in Net Assets 77,080 339,700 509,917 926,697 Net Assets - Beginning, as restated Transfers 40,646 244 222,841 (1,559) 562,147 1,315 825,634 - EXPENSES Program services: Payments to Universities Leasing related expenses Payments on behalf of Universities Other program services Management and general expenses Fundraising expenses Interest Depreciation and amortization Other expenses Net Assets - Ending $ 117,970 $ 560,982 $ 1,073,379 $ 1,752,331 The Notes to the Financial Statements are an integral part of this statement. For beginning balance restatement detail, see Note 16. J. - 44 - STATE OF ARIZONA BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2017 (Expressed in Thousands) TRANSPORTATION & AVIATION PLANNING, HIGHWAY LAND MAINTENANCE & ENDOWMENTS SAFETY FUND FUND GENERAL FUND ASSETS Cash Cash and pooled investments with State Treasurer Collateral investment pool Receivables, net of allowances: Taxes Interest Loans and notes Other Due from U.S. Government Due from local governments Due from others Due from other Funds Inventories, at cost Restricted assets: Cash Cash and pooled investments with State Treasurer Cash held by trustee Investments Securities held in escheat Endowment investments Other Total Assets $ $ LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES Liabilities: Accounts payable and other current liabilities $ Accrued liabilities Obligations under securities loan agreements Tax refunds payable Due to U.S. Government Due to local governments Due to component units 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 1,804 $ - $ 28 OTHER GOVERNMENTAL FUNDS $ 2,299 TOTAL $ 4,131 1,594,904 10,030 222,011 30 108,690 72,583 904,849 2,644 2,830,454 85,287 416,961 351 34,602 93,463 917,419 136,265 243,532 18,971 10,589 83,972 3,026 7,112 65,689 24,469 40 155,409 112,640 3,102 - 87,896 27,211 24,122 93,642 - 588,829 155,760 150,268 130,888 1,007,230 136,265 243,532 137,082 10,629 28 - - - 28 19,552 598 3,349 62,441 3,564,859 1,011,893 6,902 1,425,144 5,587,711 6,040,163 437,452 34,619 836 1,615,570 1,468,897 42,119 3,349 62,441 5,587,711 836 12,645,736 326,636 583,483 $ $ 76,383 10,515 $ $ 5,578 212 $ $ 53,568 66,133 $ $ 462,165 660,343 10,030 167 427,568 1,161,019 3,150 541,707 91,986 77,174 3,222,920 30 16,172 144,346 11,243 1,733 260,422 72,583 1 13,433 108,270 200,077 2,644 144,008 13,589 13,092 1,504 294,538 85,287 16,339 427,568 1,449,373 3,150 555,297 129,754 188,681 3,977,957 307,547 40,958 255,258 480 604,243 9,990 189,321 93,343 (258,262) 34,392 40 844,672 279,052 1,123,764 5,603,580 (18,752) 5,584,828 635,034 685,518 1,320,552 5,613,610 1,669,027 1,057,913 (277,014) 8,063,536 . $ 3,564,859 $ 1,425,144 The Notes to the Financial Statements are an integral part of this statement. - 45 - $ 6,040,163 $ 1,615,570 $ 12,645,736 STATE OF ARIZONA RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION JUNE 30, 2017 (Expressed in Thousands) Total fund balances - governmental funds $ 8,063,536 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. 23,647,078 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. 604,243 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. (363,983) The allocation of the internal service fund accumulated net gain results in an amount due to business-type activities, which is not reported in the governmental funds. (59,466) 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 139,781 865,941 1,005,722 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 Notes payable Premium on debt Compensated absences Pollution remediation obligations Accrued relocation costs Claims and judgments (153,177) (4,046,033) (2,640,330) (129,475) (1,804,395) (23,786) (212,818) (22,179) (516,456) (140,303) (6,523) (31,863) (11,265) (9,738,603) 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. (100,818) Deferred inflows of resources related to pensions are applicable to future reporting periods and, therefore, are not reported in the governmental funds. (391,961) Net position of governmental activities $ The Notes to the Financial Statements are an integral part of this statement. - 46 - 22,665,748 STATE OF ARIZONA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2017 (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 Certificates of participation issued Refunding bonds issued Refunding GANs issued Payment to refunded bond escrow agent Payment to refunded GAN escrow agent Premium on debt issued Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ AVIATION PLANNING, HIGHWAY LAND MAINTENANCE & ENDOWMENTS SAFETY FUND FUND OTHER GOVERNMENTAL FUNDS $ $ 5,855,752 4,473,790 63,128 36,433 7,627 544,762 13,759,678 134,804 37,130 125,645 29,140 6,483 101,522 91,093 25,266,987 274,553 10,365 1,715,843 832,094 130,422 3,298 19,148 1,852 2,987,575 $ 2,590 528,661 23,202 179,028 17,718 751,199 602,379 252,945 151,922 110,601 195,552 306,051 292,049 70,628 61,104 107,021 82,827 56,566 2,289,645 TOTAL $ 6,732,684 4,473,790 316,073 46,798 1,875,392 655,363 14,787,324 573,867 292,049 639,717 229,099 136,161 89,310 101,522 179,028 167,229 31,295,406 661,456 15,096,388 40,468 5,328,993 1,175,700 28,773 56,927 2,037,292 697,201 1,312,164 6,918 220,812 4,834 2,748 - 125,828 710,209 119,894 814,211 306,647 6,055 138,892 42 787,284 15,813,515 160,362 6,364,016 1,487,181 732,029 198,567 3,349,498 154,154 40,339 124,965 24,745,455 20,328 770 610,202 2,640,665 58 235,370 465,297 188,823 158,985 3,034,883 639,779 229,932 894,210 30,656,373 521,532 346,910 515,829 (745,238) 246,779 (922,658) 39,656 (636,223) (114,691) 149,083 4,991 (273,873) 1,294 (267,588) 79,322 1,044,442 (27,929) (27,929) 487,900 5,096,928 614,471 (79,071) 3,592 119,880 312,900 90,410 (389,350) (112,128) 117,390 678,094 (67,144) 1,387,696 34,392 $ 1,123,764 The Notes to the Financial Statements are an integral part of this statement. - 47 - $ 5,584,828 $ 1,320,552 639,033 866,241 (1,303,531) 1,294 43,248 119,880 312,900 90,410 (389,350) (112,128) 117,390 (253,646) 385,387 7,678,149 $ 8,063,536 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, 2017 (Expressed in Thousands) Net change in fund balances - total governmental funds $ 385,387 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 894,210 Infrastructure adjustment (44,694) Depreciation expense (134,821) 714,695 The net expense of the internal service funds allocable to governmental activities is included in the Statement of Activities. (107,611) 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 43,020 Income taxes 27,112 Tobacco settlement (10,500) Operating grants (148,209) Capital grants 40,669 Other revenue (1,060) (48,968) 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 2017, mortgage payments received exceeded gains resulting from current year land sales. In addition, accrued interest on land sales contracts is reported as revenues in the Statement of Activities but are not reported as revenues in the governmental funds. Excess of mortgage receipts over gain on sale of land Accrued interest on land sales' contracts (131,525) (15,258) (146,783) 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 2017 274,029 Pension expense and pension-related grant expense (419,765) The Notes to the Financial Statements are an integral part of this statement. (145,736) (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, 2017 (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 192,022 Compensated absences 22,412 Pollution remediation obligations 18,637 Interest on long-term obligations (1,260) OPEB obligations (65,501) Other expenses (4,006) 162,304 Bond proceeds provide current financial resources to the governmental funds; however, issuing debt increases long-term liabilities in the Statement of Net Position. In the current period, proceeds were received from: Refunding bonds issued (312,900) Refunding GANs issued (90,410) Certificates of participation issued (119,880) Premium on debt issued (117,390) (640,580) 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 639,779 Payment to refunded bond escrow agent 389,350 Payment to refunded GAN escrow agent 112,128 Debt premium/discount amortization 53,048 Amortization of deferred losses on refundings (14,955) 1,179,350 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 (43,248) Internal service funds vehicle purchases financed by governmental fund leases (16,374) Change in net position of governmental activities (59,622) $ The Notes to the Financial Statements are an integral part of this statement. - 49 - 1,292,436 STATE OF ARIZONA STATEMENT OF NET POSITION PROPRIETARY FUNDS JUNE 30, 2017 (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 $ 319,985 99,207 $ 17,968 571,469 108,952 $ 337,953 571,469 208,159 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS $ 278,672 228,636 59,951 5,555 200,435 59,951 5,555 429,071 - 991 2,882 206,412 65,705 39,927 7,695 18,013 989,453 94,108 1,730 26,301 177 10,682 166 1,097,494 94,108 2,721 2,882 232,713 65,705 40,104 18,377 18,179 2,086,947 38,980 1,711 2,335 15,154 336,852 4,483 315,065 464,372 - 4,483 315,065 464,372 - 32,004 1,325,839 448,048 4,190 354,089 9,478 32,004 1,679,928 448,048 13,668 - 867,042 5,859 872,901 - 4,484,095 7,945,138 8,934,591 22,405 391,831 1,489,325 4,506,500 8,336,969 10,423,916 86,321 86,321 423,173 296,871 77,935 15,379 390,185 7,883 7,883 304,754 77,935 15,379 398,068 11,265 11,265 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, 2017 (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 Due to U.S. Government Due to local governments Due to others 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 $ 191,473 64,136 25,123 191,991 246,348 19,752 738,823 $ 11,905 1,839 37,070 5,555 34 5 46,718 48,370 150 32,283 1,659 185,588 $ 203,378 1,839 101,206 5,555 34 5 71,841 48,370 192,141 32,283 246,348 21,411 924,411 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS $ 124,191 1,471 773 69,184 917 13,723 210,259 2,578 99,684 1,434,814 3,782,954 15,379 99,495 5,434,904 6,173,727 380,468 2,559 41,822 21 424,870 610,458 380,468 2,578 102,243 1,476,636 3,782,954 15,379 99,516 5,859,774 6,784,185 372,433 2,479 55,144 1,349 148,125 579,530 789,789 174,259 220,206 1,350 395,815 6,637 6,637 180,896 220,206 1,350 402,452 8,632 8,632 1,851,637 28,264 1,879,901 86,321 7,377 30,902 626,344 - 626,344 7,377 30,902 - 366,697 241,502 - 366,697 241,502 - 257,119 59,951 112,445 53,109 59,951 112,445 310,228 2,755,234 $ 880,113 $ Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds. Net position of business-type activities 59,466 $ The Notes to the Financial Statements are an integral part of this statement. - 51 - 3,635,347 3,694,813 (450,304) $ (363,983) STATE OF ARIZONA STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2017 (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 $648,333 Auxiliary enterprises, net of scholarship allowances of $29,710 Educational department Other Unemployment assessments Workers' compensation assessments Intergovernmental Nongovernmental grants and contracts Fines, forfeitures, and penalties Settlement income Other Total Operating Revenues $ OPERATING EXPENSES Cost of sales and benefits Scholarships and fellowships Personal services Contractual services Depreciation and amortization Insurance Other Total Operating Expenses Operating Income (Loss) NON-OPERATING REVENUES (EXPENSES) Share of State sales tax revenues Intergovernmental Gifts and donations Gain (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 Change in Net Position Total Net Position - Beginning, as restated Total Net Position - Ending 2,142,483 $ $ 2,142,483 $ - 432,740 133,296 552,624 263,263 57,921 3,582,327 957,531 495,927 486 4,451 1,896 5,846 1,554 1,467,691 432,740 133,296 957,531 495,927 486 557,075 263,263 1,896 5,846 59,475 5,050,018 1,014,722 3,675 1,018,397 1,276,192 280,070 2,859,069 297,969 4,713,300 (1,130,973) 1,002,853 40,885 28,764 2,623 541 10,774 1,086,440 381,251 2,279,045 280,070 2,899,954 28,764 300,592 541 10,774 5,799,740 (749,722) 896,272 42,759 35,473 17,648 65,240 12,972 1,070,364 (51,967) 72,696 322,002 309,959 (53) 47,243 27,334 17,747 (148,532) (7,610) 640,786 64 42,489 2,493 (15,029) (4,001) 26,016 72,696 322,002 309,959 11 89,732 27,334 20,240 (15,029) (148,532) (11,611) 666,802 1,222 30 35 (9,831) (8,544) (490,187) 27,368 3,276 719,506 - 407,267 (190,051) (82,920) 27,368 3,276 719,506 (190,051) (60,511) 21,236 19 (92,184) 259,963 2,495,271 $ - GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS 2,755,234 217,216 662,897 $ 880,113 477,179 3,158,168 $ 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 $ 3,635,347 (131,440) (232,543) $ (363,983) 477,179 (23,829) 453,350 The Notes to the Financial Statements are an integral part of this statement. For beginning balance restatement detail, see Note 9. A. - 52 - (This page intentionally left blank) STATE OF ARIZONA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2017 (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 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 2,113,431 $ 491,431 498,665 - $ 491,431 498,665 2,113,431 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS $ - 433,471 - 433,471 - 123,285 823,264 6,813 - 4,451 5,846 123,285 827,715 6,813 5,846 1,014,103 - (1,250,678) (2,760,783) (286,366) (7,070) 53,112 (751,521) (528,741) (56,141) 5,578 421,089 (1,779,419) (2,816,924) (286,366) (7,070) 58,690 (330,432) (1,011,146) (44,803) (15,400) 3,434 (9,692) (63,504) 177,620 72,465 1,696,395 642,165 (186,049) (1,054,348) 12,087 (15,029) (205,323) - 177,620 72,465 1,696,395 642,165 (186,049) (1,054,348) (15,029) (205,323) 12,087 19 (92,184) - 1,360,335 (220,352) 1,139,983 (92,165) 246 495,428 18,950 41,544 52,375 (605,541) 94 (2,205) 340 2,502 495,428 18,950 41,544 52,375 (607,746) (834) (154,366) - (154,366) (139) (158,041) - (158,041) (2,331) (311,516) (802) (309,405) The Notes to the Financial Statements are an integral part of this statement. (2,111) (Continued) - 54 - STATE OF ARIZONA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2017 (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 506,110 40,980 506,607 19,098 1,012,717 60,078 29 (750,397) (203,307) (22,580) (503,761) (636) (22,580) (1,254,158) (203,943) 29 Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning, as restated 96,102 642,638 197,990 565,905 294,092 1,208,543 Cash and Cash Equivalents - Ending RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation and amortization Provision for uncollectible accounts Miscellaneous income (expense) Net changes in assets, deferred outflows of resources, liabilities, and deferred inflows of resources: (Increase) decrease in receivables, net of allowances Decrease in due from U.S. Government (Increase) in due from other Funds (Increase) decrease in inventories, at cost (Increase) decrease in other assets (Increase) in deferred pension outflows of resources Increase (decrease) in accounts payable Increase (decrease) in accrued liabilities (Decrease) in due to U.S. Government Increase (decrease) in due to other Funds (Decrease) in due to others Increase in unearned revenue Increase in accrued insurance losses Increase in net OPEB obligation Increase (decrease) in net pension liability Increase (decrease) in other liabilities Increase in deferred pension inflows of resources Net Cash Provided (Used) by Operating Activities SCHEDULE OF NONCASH INVESTING, CAPITAL AND NON-CAPITAL FINANCING ACTIVITIES Contribution of capital assets from other Funds Gifts and conveyances of capital assets (Loss) on disposal of capital assets, net Increase in fair value of investments Increase in fair value of investments held by trustee Amortization of bond discount Amortization of bond premium Amortization of refunding loss Refinancing long-term debt Total Noncash Investing, Capital and Non-capital Financing Activities $ 738,740 $ 763,895 $ $ (1,130,973) $ 381,251 $ 1,502,635 (156,442) 435,114 $ (749,722) $ 278,672 (51,967) 297,969 (7,510) 2,623 32 928 300,592 32 (6,582) 17,648 (9,754) (12,875) 411 (3,494) (123,773) 20,949 9,623 16,003 43,852 77,248 61,049 10,260 73 (2) (52) 179 (2,486) (238) (5,511) (1) (1) (1,033) 32,211 1,095 (887) (85) 2,733 (2,615) 73 (2) 359 (3,315) (126,259) 20,711 4,112 (1) (1) (1,033) 16,003 32,211 44,947 76,361 (85) 63,782 (5,660) 5,192 (195) 224 (444) (4,101) (20,049) (98) 28 1,037 1,073 (2,185) 2,028 3,719 $ (751,521) $ 421,089 $ (330,432) $ (63,504) $ - $ 242 (6,716) 5,810 29,042 (3,192) 22,549 (10,426) 88,690 19,119 - $ - $ 242 (6,716) 24,929 29,042 (3,192) 22,549 (10,426) 88,690 21,236 - $ 125,999 19,119 $ 145,118 21,236 $ The Notes to the Financial Statements are an integral part of this statement. For beginning balance restatement detail, see Note 9. A. - 55 - $ STATE OF ARIZONA STATEMENT OF FIDUCIARY NET POSITION FIDUCIARY FUNDS JUNE 30, 2017 PENSION AND OTHER (Expressed in Thousands) EMPLOYEE BENEFIT TRUST FUNDS ASSETS Cash Cash and pooled investments with State Treasurer $ Receivables, net of allowances: Accrued interest and dividends Securities sold Futures contracts Contributions Court fees Due from other Funds Other Total receivables 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 Total investments Due from others Custodial securities in safekeeping Prepaid benefits Property and equipment, net of accumulated depreciation Total Assets DEFERRED OUTFLOWS OF RESOURCES Related to pensions 286,048 INVESTMENT AGENCY TRUST FUNDS FUNDS $ - $ 10,752 - 2,150 78,437 57,736 23,831 19,698 84,296 775 41,445 19,867 247,648 2,207 2,207 2 7 9 859,724 10,583,952 24,476,517 1,907,369 937,158 4,271,890 1,288,392 1,185,235 794,155 1,294,056 47,598,448 3,268,819 664 3,269,483 - 243,283 - 81,500 564,406 - 3,811 - - 48,379,238 3,273,840 735,104 1,684 - - 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 59,454 28,221 - 4,649 165 - 794,155 14,473 41,445 7,083 664 - 10,475 724,629 - Total Liabilities 944,831 5,478 735,104 876 - - 45,084,197 2,351,018 - 3,268,362 - DEFERRED INFLOWS OF RESOURCES Related to pensions NET POSITION Held in trust for: Pension benefits Other post-employment benefits Pool participants Total Net Position $ 47,435,215 $ 3,268,362 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, 2017 (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 $ 1,318,588 1,891,398 22,420 32,223 8,647 $ - Investment income: Net increase (decrease) in fair value of investments Interest income Dividends Other investment income Securities lending income Total investment income 5,327,332 130,551 318,346 95,031 10,434 5,881,694 (5,518) 26,578 154 21,214 Less investment expenses: Investment activity expenses Securities lending expenses Net investment income 263,801 1,817 5,616,076 1,748 103 19,363 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 $ 4,830,719 23,946 (4,563,115) - 291,550 2,240 - 8,891,592 310,913 3,923,190 117,109 - 295,124 39,791 3,340 18,805 - 4,378,554 18,805 4,340,661 172,377 42,922,177 292,108 2,976,254 47,435,215 $ 3,268,362 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, 2017 (Expressed in Thousands) ARIZONA 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: Interest Loans and notes Other Due from primary government 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 OTHER COMPONENT UNITS 358,230 953 - $ 28,324 179,050 7,847 TOTAL $ 28,324 537,280 953 7,847 7,845 58,456 5,762 431,246 1,341 7,302 3,150 600 227,614 7,845 59,797 13,064 3,150 600 658,860 11,965 751,950 98,371 - 16,927 1,641 14,251 635 11,965 16,927 1,641 766,201 98,371 635 - 19,140 19,140 862,286 34,093 86,687 34,093 948,973 1,293,532 314,301 1,607,833 339 46,842 - 134 6,775 20,648 473 53,617 20,648 47,181 27,557 74,738 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, 2017 (Expressed in Thousands) ARIZONA FINANCE AUTHORITY LIABILITIES Current Liabilities: Accounts payable and other current liabilities Accrued liabilities Unearned revenue Current portion of long-term debt Current portion of other long-term liabilities Total Current Liabilities $ OTHER COMPONENT UNITS 7,129 41,025 95 48,249 $ 14,150 651 975 13,530 29,306 TOTAL $ 14,150 7,780 975 54,555 95 77,555 Noncurrent Liabilities: Unearned revenue Net pension liability Long-term debt Total Noncurrent Liabilities 2,263 1,872 652,453 656,588 741 170,268 171,009 2,263 2,613 822,721 827,597 Total Liabilities 704,837 200,315 905,152 326 277 603 - 48,786 48,786 83,439 551,431 680 17,210 20,877 15,085 39,308 100,649 572,308 15,085 39,988 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 $ 635,550 The Notes to the Financial Statements are an integral part of this statement. - 59 - $ 141,266 $ 776,816 STATE OF ARIZONA COMBINING STATEMENT OF ACTIVITIES COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2017 (Expressed in Thousands) PROGRAM REVENUES OPERATING EXPENSES FUNCTIONS/PROGRAMS Arizona Finance Authority Other Component Units Total CHARGES FOR GRANTS AND SERVICES CONTRIBUTIONS $ 33,268 67,403 $ 27,328 36,124 $ 14,200 1,416 $ 100,671 $ 63,452 $ 15,616 General Revenues: Taxes: 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 - NET (EXPENSE) REVENUE AND CHANGES IN NET POSITION $ ARIZONA OTHER FINANCE COMPONENT AUTHORITY UNITS 8,260 - $ 5,421 13,681 621,869 $ 635,550 $ TOTAL - $ (29,863) 8,260 (29,863) 1,145 1,139 224 61,518 827 34,990 106,276 1,145 6,560 224 61,518 827 48,671 728,145 141,266 $ 776,816 - 61 - STATE OF ARIZONA COMBINING STATEMENT OF FINANCIAL POSITION UNIVERSITIES - AFFILIATED COMPONENT UNITS JUNE 30, 2017 (Expressed in Thousands) ARIZONA STATE UNIVERSITY ENTERPRISE PARTNERS ASSETS Cash and cash equivalent investments $ 13,414 UNIVERSITY OF ARIZONA FOUNDATION ARIZONA CAPITAL FACILITIES FINANCE CORPORATION $ $ 29,420 2,234 OTHER COMPONENT UNITS $ 32,982 TOTAL $ 78,050 Receivables: Pledges receivable, net of allowances Other receivables Total receivables 137,597 7,756 145,353 18,159 18,159 117 117 51,846 35,334 87,180 207,602 43,207 250,809 Investments: Investments in securities Other investments Total investments 781,227 92,054 873,281 837,568 837,568 16,923 16,923 198,044 14,399 212,443 1,833,762 106,453 1,940,215 21,930 - 38,557 4,889 65,376 13,522 29,797 2,190 10,566 132,334 10 31,974 9,573 180,020 49,946 1,097,297 897,903 190,175 379,041 2,564,416 11,950 3,273 7,715 4,536 27,474 130,118 99,855 27,445 208,899 7,692 236,602 - 31,712 10,169 25,418 6,701 370,729 346,626 25,418 41,838 269,368 219,864 244,317 78,536 812,085 451,095 312,010 64,824 538,649 124,381 15,009 (54,142) 83,635 124,591 92,279 1,073,379 560,982 117,970 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 $ 827,929 $ 678,039 The Notes to the Financial Statements are an integral part of this statement. - 62 - $ (54,142) $ 300,505 $ 1,752,331 STATE OF ARIZONA COMBINING STATEMENT OF ACTIVITIES UNIVERSITIES - AFFILIATED COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2017 (Expressed in Thousands) ARIZONA STATE UNIVERSITY ENTERPRISE PARTNERS REVENUES Contributions Rental revenue Sales and services Net investment income Grants and aid Other revenues $ Total Revenues 128,720 1,560 23,759 67,407 4,699 ARIZONA CAPITAL FACILITIES FINANCE CORPORATION UNIVERSITY OF ARIZONA FOUNDATION $ 80,672 4,361 54,024 9,439 $ 14,189 9,789 50 8,003 OTHER COMPONENT UNITS $ TOTAL 38,094 25,719 5,817 23,944 17,417 8,206 $ 247,486 41,468 43,726 145,425 17,417 30,347 226,145 148,496 32,031 119,197 525,869 102,058 32,795 1,551 558 7,667 60,992 11,205 5,997 7,608 - 5,243 9,031 9,074 11,788 48 13,616 9,298 5,040 7,983 35,365 4,714 246 806 1,904 181,909 9,298 16,245 7,983 83,188 12,322 10,871 13,152 9,619 144,629 85,802 35,184 78,972 344,587 81,516 62,694 (3,153) 40,225 181,282 Restructure transfer Loss on bond refunding 746,413 - - (998) - Increase (decrease) in Net Assets 827,929 62,694 (4,151) 40,225 926,697 - 615,345 (49,991) 260,280 825,634 (54,142) $ 300,505 EXPENSES Program services: Payments to Universities Leasing related expenses Payments on behalf of Universities Other program services Management and general expenses Fundraising expenses Interest Depreciation and amortization Other expenses Total Expenses Increase (decrease) in Net Assets, before restructure transfer and loss Net Assets - Beginning, as restated Net Assets - Ending $ 827,929 $ 678,039 $ The Notes to the Financial Statements are an integral part of this statement. For beginning balance restatement detail, see Note 16. J. - 63 - 746,413 (998) $ 1,752,331 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 and Change in Reporting Entity ------------------------------- 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 -------- 83 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 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 --------------------------- 110 A. Revenue Bonds ------------------------------- 110 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 91 91 92 92 Note 4. Capital Assets --------------------------------------------- 93 Note 5. Pension Benefits ------------------------------------------ 94 A. Arizona State Retirement System --------------- 95 B. Public Safety Personnel Retirement System and Corrections Officer Retirement Plan ----- 98 C. Elected Officials’ Retirement Plan --------------104 Note 6. Other Post-Employment Benefits ----------------------108 A. Plan Description ------------------------------------108 B. Summary of Significant Accounting Policies ---------------------------------------------108 - 64 - Note 15. Subsequent Events --------------------------------- 130 Note 16. Discretely Presented Component Unit Disclosures --------------------------------------- 130 A. Summary of Significant Accounting Policies --------------------------------------- 130 B. Deposits and Investments ------------------- 132 C. Program Loans -------------------------------- 134 D. Pledges Receivable -------------------------- 135 E. Direct Financing Lease Agreements ------ 135 F. Capital Assets --------------------------------- 136 G. Long-Term Obligations --------------------- 136 H. Tax Abatements ------------------------------ 138 I. Conduit Debt ---------------------------------- 138 J. Accounting Changes-------------------------- 139 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 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), the Thunderbird School of Global Management (Thunderbird), and the Arizona State University Athletic Facilities District (ASUAFD) are 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 Thunderbird primarily exists to benefit the Arizona State University (ASU) by providing a framework for global education programming. The ASUAFD was formed pursuant to the provisions of Arizona Revised Statutes (A.R.S.) Title 48, Chapter 26 and supports the ASU’s efforts to construct, reconstruct, finance, furnish, maintain, and improve intercollegiate athletic facilities located on the ASU’s property, including utilities, roads, parking areas or buildings necessary for full use of the athletic facilities. 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 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 - 65 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 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 of Trustees and 232 local boards according to the provisions of A.R.S. Title 38, Chapter 5, Article 4. The Board of Trustees, which was restructured in fiscal year 2017 from a seven-member board appointed by the Governor to a nine-member board, serve a fixed five-year term. Two board members are appointed by the President of the Senate, two are appointed by the Speaker of the House of Representatives, and five are appointed by the Governor. The State has the ability to impose its will on the PSPRS as the State Legislature can modify the plan design and benefits. Each eligible group participating in the system has a five-member local board. In general, all members serve a fixed four-year term. Complete financial statements may be obtained from the PSPRS’s administrative office at 3010 East Camelback Road, Suite 200, Phoenix, AZ 85016-4416, (602) 255-5575, or its website at www.psprs.com. The Elected Officials’ Retirement Plan (EORP) is a cost-sharing, multiple-employer public employee retirement plan that benefits elected officials and judges of certain state, county, and local governments who were members of the plan on December 31, 2013, and remain in the plan. 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 850164416, (602) 255-5575, or its website at www.psprs.com. The Corrections Officer Retirement Plan (CORP) is a multiple-employer public employee retirement plan that benefits prison and jail employees of certain state, county, and local governments. CORP includes a cost-sharing multiple-employer plan for Administrative Office of the Courts (AOC) probation officers and an agent multiple-employer plan for all other members. The Board of Trustees of the PSPRS, 27 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: Arizona Finance Authority (AFA) – In the Fifty-second Legislature - Second Regular Session (2016), the State Legislature passed into law House Bill 2666 (HB2666) that established the AFA. The AFA was created to provide a one-stop shop for financing, supporting expanding and relocating businesses, communities’ infrastructure needs, and first-time homebuyers. The Water Infrastructure Finance Authority (WIFA), the Greater Arizona Development Authority (GADA), and the Arizona Industrial Development Authority (AIDA) are established in the AFA by HB2666 for this purpose. Also enacted by this law, the powers, duties, and responsibilities of the Arizona Health Facilities Authority, the Arizona Housing Finance Authority, and the Arizona International Development Authority succeed to the AIDA. The AFA is governed by a five-member board of directors that also governs the AFA’s WIFA, GADA, and AIDA. Members are appointed by the Governor and serve at the pleasure of the Governor; thus, the State has the ability to impose its will on AFA. The AFA’s 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 AFA’s 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 AFA’s GADA provides cost-effective access to capital for local communities, certain special districts, and tribal governments for public infrastructure projects. The AFA’s AIDA provides cost-effective capital for private borrowers by reducing their financing costs through the issuance of tax-exempt bonds. Complete financial statements for AFA’s WIFA and GADA may be obtained from the administrative office at 100 North 15th Avenue, Suite 103, Phoenix, AZ 85007, (602) 364-1323. - 66 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 Non-major Component Units: 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 A.R.S. § 42-5031, 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. 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 118 North 7th Avenue, Suite 400, Phoenix, AZ 85007, (602) 845-1200. Arizona Public School Credit Enhancement (APSCE) – The APSCE was established to assist achievement district schools in obtaining more favorable financing by guaranteeing the payment of principal and interest on guaranteed financings issued by or on behalf of achievement district schools. The APSCE is governed by a three-member board of directors that is established by A.R.S. § 15-2152 and consists of the Governor (or designee), State Treasurer (or designee), and the director of the Department of Administration (or designee). A financial benefit/burden relationship exists between the State and APSCE as monies were appropriated by the State Legislature for partial capitalization of its fund. Separate financial statements are not prepared for the APSCE. 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 the ASU Preparatory Academy, Inc. (ASU Prep), and Campus Research Corporation (CRC). 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 Enterprise Partners (ASUEP) – The ASUEP’s resources are disbursed at the discretion of the ASUEP’s independent board of directors, in accordance with donor directions and the ASUEP policy. The directors of the ASUEP make all decisions regarding the ASUEP’s business affairs, including distributions made to the ASU. The economic resources held by the ASUEP are significant to the ASU and are entirely for the benefit of the ASU. Additional information can be found within Note 16.J. 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. - 67 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 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) and Sun Angel Foundation – These two 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 two component units are significant to the ASU and are entirely for the benefit of the ASU. Additional information can be found within Note 16.J. 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. ASU Preparatory Academy, Inc. (ASU Prep) – The ASU Prep prepares Arizona K-12 students for success with a universityembedded 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. - 68 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 Complete financial statements for each of the aforementioned component units, except for the U of A Foundation and the ASUAFD, may be obtained as follows: ASUEP, ACFFC, ASU Alumni Association, Sun Angel Foundation, ASU Research Park, 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 NAU Foundation and NACFFC – Northern Arizona University, Comptroller's Office, P.O. Box 4069, Flagstaff, AZ 86011 The financial statements of the ASUAFD are not available as of June 30, 2017, as there was no financial activity. 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 Office, 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 organization described below is not included in the State’s financial statements. 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. 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. 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. - 69 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 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, 2017 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, 2017 • 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, 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, 2017. Sales and motor vehicle and fuel tax receivables represent amounts that are earned by the State in the fiscal period ended June 30, 2017, 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. 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 - 72 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 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, websites, 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 the 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. The 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, 2017 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 obligations 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, 2017 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, and 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, 2017 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, 2017, was $461.4 million. Q. NEW ACCOUNTING PRONOUNCEMENTS AND CHANGE IN REPORTING ENTITY GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, establishes financial reporting standards for state and local governmental Other Postemployment Benefits (OPEB) plans, defined benefit OPEB plans and defined contribution OPEB plans that are administered through trusts or equivalent arrangements. This Statement is effective for financial statements for fiscal years beginning after June 15, 2016. The State has implemented the requirements of this standard. GASB Statement No. 77, Tax Abatement Disclosures. This Statement establishes standards for disclosing tax abatement agreements that reduce the reporting entity’s tax revenues. This Statement is effective for financial statements for fiscal years beginning after December 15, 2015. The State has implemented the requirements of this standard. GASB Statement No. 78, Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans. This Statement addresses an issue regarding the scope and applicability of Statement No. 68, Accounting and Financial Reporting for Pensions. This Statement is effective for financial statements for fiscal years beginning after December 15, 2015. The implementation of this standard had no effect on the financial statements. GASB Statement No. 80, Blending Requirements for Certain Component Units – an amendment of GASB Statement No. 14. This Statement provides guidance to improve financial reporting by clarifying the financial statement presentation requirements for certain component units by establishing additional blending requirements. This Statement is effective for financial statements for fiscal years beginning after June 15, 2016. The implementation of this standard had no effect on the financial statements. GASB Statement No. 82, Pension Issues – an Amendment of GASB Statements No. 67, No. 68, and No. 73. This Statement enhances consistency in the application of financial reporting requirements to certain pension issues. Certain provisions of this Statement are effective for the fiscal year beginning after June 15, 2016, with the remainder effective for the fiscal year beginning on or after June 15, 2017. The State has implemented the requirements of this standard. As discussed earlier in Note 1.A, the AFA’s WIFA, GADA, and AIDA are reported in the State’s financial statements as a major component unit under the AFA. In the prior year, the WIFA was reported solely as a major component unit, the GADA was a nonmajor component unit, and the Arizona Health Facilities Authority, the Arizona Housing Finance Authority, and the Arizona International Development Authority that succeed to the AIDA were related organizations. 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 - 76 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 denominated, commercial paper issued by entities which are U.S. dollar denominated, bankers acceptances, collateralized repurchase agreements, money market mutual funds, exchange traded funds, equities, and other securities. The State Treasurer is not allowed to invest in foreign investments unless the investment is denominated in U.S. dollars. The State Treasurer maintains external investment pools [the Local Government Investment Pool (LGIP), Local Government Investment Pool - FF&C, Local Government Investment Pool – Medium Term, and Local Government Investment Pool – Medium Term FF&C]. The pools are not required to register (and are not registered) with the Securities and Exchange Commission under the 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 $1.2 million was received as payout of funds being held by the Indenture Trustee for Lehman Brothers securities, with $1.1 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, 2017, the carry or cost basis and the fair value for the Lehman Brothers Pool were $23.4 million and $2.1 million, respectively. There was a distribution in January 2017, 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 fair 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 - 77 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 time of purchase, except that no more than 20% of the combined assets of the system or other plans that the board manages shall be invested in foreign securities, based on the cost value of the stocks irrespective of capital appreciation, or 5) an exchange traded fund that is recommended by the chief investment officer of the system, that is registered under the Investment Company Act of 1940, and that is both traded on a public exchange and based on a publicly recognized index. Not more than 5% of the combined assets of the system or other plans that the board manages shall be invested in corporate stock issued by any one corporation, other than corporate stock issued by corporations chartered by the U.S. government or corporate stock issued by a bank or insurance company. Not more than 5% of the voting stock of any one corporation shall be owned by the system and other plans that the board administers, except that this limitation does not apply to membership interests in limited liability companies. The Arizona Board of Regents (ABOR) governs the investment policies of the Universities. The Universities are generally limited to investing their pooled operating funds in collateralized certificates of deposit and repurchase agreements, U.S. Treasury securities, Federal agency securities, investment grade corporate bonds, or in the LGIP administered by the State Treasurer. Investment of capital project funds is also governed by the financing indenture agreements. For endowment investments, ABOR policy dictates that these funds are to be invested under the direction of an investment committee designated by the president of each university. The investment committee is responsible for advising on the definition, development, and implementation of investment objectives, policies, and restrictions. However, if donors restrict the investments, ABOR policy requires the University to invest those funds separately as directed by the donor, and the individual endowments bear all changes in value. Per A.R.S. § 23-1065, the Commission’s investment committee is responsible for prescribing investment policies and supervising the investment activities of the Commission. The Commission requires that their investment policy be responsive to the unpredictable nature of the incidence and severity of claims, the long periods over which losses may be paid, and the effect on 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, 2017, the State had $80.9 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 - 78 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 State Treasurer’s policy provides either maturity or duration limitations for the various investment pools. The interest rate risk inherent in the portfolio is monitored monthly by measuring the weighted average maturity and/or duration. The ASU’s policies do not limit the overall maturity of the investments held by the operating and endowment funds; however, the operating fund investment policy includes guidelines addressing diversification and liquidity. The capital projects fund’s portfolio is not limited as to the overall maturity of its investments, with the funds invested per the financing indentures to coincide with capital spending needs and debt service requirements, which are typically less than three years, with the additional limitation that certificates of deposit and commercial paper have maximum maturities of 360 days and 270 days, respectively. The Commission approves and contracts with different investment managers of fixed income securities in order to manage the exposure to interest rate risk with each different manager focusing on different goals of yield periods or duration of maturities of their particular portion of the investment pool. The IDGF’s investment policy requires that the maximum final maturity on an individual investment is 4 years or less. 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, 2017 (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 $ 365,031 107,050 139,562 1,398,670 2,237,873 287,837 615,500 2,120,617 1,195,230 467,530 1,002,546 225,885 2,540,162 52,068 Weighted Average Maturity (in years) 2.43 0.12 29.27 0.10 2.88 7.37 0.07 0.01 16.98 19.38 1.14 1.15 1.40 2.84 $ 12,755,561 3.78 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, 2017 (expressed in thousands): Investment Type Asset backed securities Commercial mortgage backed securities Corporate bonds Government bonds Government mortgage backed securities Total - 79 - Fair Value 9,996 38,257 1,475,726 702,967 469,753 $ 2,696,699 $ Effective Duration (in years) 2.70 6.80 5.00 6.50 2.60 4.99 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 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. 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, 2017 (expressed in thousands): Investment Type Certificates of deposit (negotiable) Commercial paper Corporate notes & bonds Government bonds Money market mutual funds U.S. agency securities U.S. Treasury securities Other Total Fair Value $ 34,081 28,494 1,046,420 Less than 1 $ 13,135 28,494 82,565 1-5 $ 19,980 419,543 1,730 117,178 220,890 125,489 5,416 80 117,178 77,510 79,932 - 1,650 113,221 45,411 1,896 $ 1,579,698 $ 398,894 $ 601,701 Investment Maturities (in years) 6-10 11-15 16-20 $ 966 $ - $ 53,812 1,121 153 22,633 146 3,370 $ 80,927 150 $ More than 20 $ 489,226 547 - 1,271 $ 6,979 - 700 $ 496,205 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, 2017 (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 $ 712,678 $ Other 175,679 $ Total - $ 888,357 54,292 - - 54,292 126,572 1,662,760 - 1,789,332 64,275 95,716 100,154 - 100,154 159,991 1,934,155 $ 100,154 $ 2,992,126 $ 957,817 $ 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. - 80 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 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 Standard and Poor’s (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. 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 BBB- 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, 2017. 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 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 D $ - A-1 $ 56,866 Not Rated $ 1,412 - - - 80,000 9,821 - - - - 1,427,164 10,325 - 1,504,694 56,665 1,116,765 58,333 323,751 12,664 533,529 19,548 157,696 5,019 100 - 504,672 168 434,094 9,641 11,284 10,766 3,718 250 - - 732,549 - - - - - - - 129 935,000 - 935,000 - - - - - - - 1,183,578 1,215,910 71,276 66,530 - 1,181,062 1,149,380 797 1,101 - - - - - 2,516 69,378 $12,415,324 $1,493,416 $4,927,895 $1,575,795 $1,188,726 $347,181 $556,795 $162,965 $1,564,130 $598,421 Fair Value $ 341,218 AAA $ 277,588 A 1,695 BBB $ 2,344 122,867 - 31,047 1,999 - 177,819 1,427,164 167,494 - - - 4,760,019 978,042 98,384 150,871 520,428 674,774 469,753 - 732,678 $ AA 1,313 $ 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 - 81 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 agency of the State, and pre-refunded municipal bonds issued by any entity that are invested in obligations issued or guaranteed by the U.S. government or any of its agencies, sponsored agencies, corporations, sponsored corporations or instrumentalities. The PSPRS’, the EORP’s, and the CORP’s investment policies state that no more than 5% of the Fund or its fixed income portfolio at fair value shall be invested in bonds issued by any one institution, agency, or corporation other than bonds issued as direct obligations of, and fully guaranteed by, the U.S. Government. The IDGF’s investment policies state that no more than 5% of its investment portfolio or $5 million, whichever is less, shall be invested with any one issuer, with the exception of the U.S. government, its agencies, or instrumentalities. At June 30, 2017, more than 5% of the primary government’s total investments are in Federal National Mortgage Association (fair value of $758.4 million, or 5.6%). 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, 2017 (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 Indian Rupee 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 Uae Dirham Total Foreign Currency Risk by Investment Type at Fair Value Other Short Term Equities Investments Total $ 121 $ 106,808 $ $ 106,929 92 58,908 59,000 1,518 560,541 26,525 588,584 181 83,746 83,927 28 5,135 5,163 757 757 15 336 351 108 72,112 72,220 3,584 1,118,874 275,608 1,398,066 348 228,835 229,183 27 6,011 6,038 3,004 138,029 141,033 51 30,512 30,563 3,840 638,228 642,068 34 9,347 9,381 127 26,670 11,441 38,238 97 5,612 5,709 2,000 73,067 75,067 62 2,142 2,204 127 37,292 37,419 11 11,915 11,926 25 2,744 2,769 (224) 1,643 1,419 223 18,775 18,998 42 48,514 48,556 888 116,619 117,507 (3) 69,008 69,005 233 199,140 199,373 768 24,335 25,103 21 7,261 7,282 (191) 6,463 6,272 $ 17,157 $ - 82 - 3,709,379 $ 313,574 $ 4,040,110 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 G. 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; • 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, 2017, 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 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 June 30, 2017 $ 349,563 107,050 130,122 1,398,670 1,862,707 3,491,799 280,633 181,999 2,120,617 85,951 1,195,230 467,530 874,015 225,885 2,364,627 15,690 15,152,088 $ 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) $ - $ 349,563 $ 107,050 130,122 1,398,670 1,862,707 3,491,799 280,633 17,483 164,516 2,120,617 85,951 1,195,230 467,530 874,015 225,885 193,508 2,171,119 13,792 1,898 $ 3,716,582 $ 11,435,506 $ - 20,905 7,057 27,962 15,180,050 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. - 83 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 b. Investments Measured at the NAV The investments held at June 30, 2017, 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 $ 20,905 7,057 $ 27,962 2. Universities a. Investments Classified in Fair Value Hierarchy Unfunded Commitments - Redemption Frequency (if Currently Eligible) N/A N/A Redemption Notice Period N/A N/A The investments held by the Universities at June 30, 2017, 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 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 Other 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, 2017 $ 15,468 34,081 9,440 28,494 923,002 4,385 44,841 2,944 8,934 550,550 622 55,520 341,895 301,024 50,170 2,371,370 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) $ $ 15,468 $ 34,081 9,440 28,494 922,594 408 3,392 510 483 44,841 2,944 8,934 379,712 170,838 622 55,520 341,895 301,024 50,170 $ 782,705 $ 1,532,254 $ 56,411 130,118 31,380 255,306 185,657 8,428 610,889 $ 2,940 2,940 2,985,199 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 - 84 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 fair value of equities is 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. 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, 2017, valued using the NAV per share were as follows (expressed in thousands): Investments Measured at the NAV Equity mutual funds Total Fair Value $ 2,940 $ 2,940 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, 2017 3. Retirement Systems a. Investments Classified in Fair Value Hierarchy The investments held by the ASRS, PSPRS, CORP, and EORP at June 30, 2017, 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 Government bonds Government mortgage backed securities Opportunistic equity Real estate U.S. equities Non-U.S. equities 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, 2017 $ 9,996 38,257 1,484,742 1,200,061 469,753 195,924 46,321 10,860,843 3,529,038 17,834,935 $ 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) $ - $ 9,996 $ 38,257 1,484,742 710,835 489,226 469,753 195,924 46,321 10,493,211 641 366,991 3,377,606 5,003 146,429 $ 14,066,741 $ 2,719,227 $ 1,048,967 284,129 1,663 6,433,590 2,073,714 1,129,766 20,131 187,489 777,603 374,101 1,446,410 288,904 1,185,233 3,861,018 4,456,608 937,158 860,554 3,344,884 446,675 28,109,630 859,728 794,155 47,598,448 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, 2017 b. Investments Measured at the NAV The investments held by the ASRS, PSPRS, CORP, and EORP at June 30, 2017, 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 $ 284,129 1,663 6,433,590 2,073,714 1,129,766 20,131 187,489 777,603 374,101 1,446,410 288,904 1,185,233 3,861,018 4,456,608 937,158 860,554 3,344,884 446,675 $ 28,109,630 Unfunded Commitments $ 85,206 888,000 206,000 561,306 2,036,000 2,372,467 412,022 680,745 1,955,000 $ 9,196,746 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 partnership, 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, 2017 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 cash collateral held related to securities lending activities is reported based on the cash deposit value of the collateral held, which approximates fair value. Accordingly, securities lending cash collateral held is not categorized within the fair value level hierarchy. 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, Northern Trust Company. 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. 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 65 days, as of June 30, 2017. Cash open collateral is invested in a short-term investment pool, the NILAP fund, which had an interest sensitivity of 28 days, as of June 30, 2017. There were no violations of legal or contractual provisions, no borrower or lending agent default losses known to the securities lending agent. There are no dividends or coupon payments owing on securities lent. Securities lending earnings are credited to participating clients on approximately the fifteenth day of the following month. Indemnification deals with the situation in which a client’s securities are not returned due to the insolvency of a borrower and Northern Trust has failed to live up to its contractual responsibilities relating to the lending of those securities. Northern Trust’s responsibilities include performing appropriate borrower and collateral investment credit analyses, demanding adequate types and levels of collateral, and complying with applicable Department of Labor and Federal Financial Institutions Examinations Council regulations concerning securities lending. The fair value at June 30, 2017, for loaned securities collateralized by cash and non-cash collateral was $5.4 million and $7.6 million, respectively. As part of the securities lending transactions, The Northern Trust Company received cash and non-cash collateral valued at $5.6 million and $7.7 million, respectively, at June 30, 2017. 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, 2017, the Commission had $5.6 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, c) money market mutual funds, d) commercial paper, e) certificates of deposit, and f) bank notes. The ASRS records the reinvested cash collateral as an asset, and the cash collateral received as an obligation, for securities on loan on - 88 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 the Statement of Fiduciary Net Position. The maturities of the investments are closely matched to those of the security loans to avoid interest rate exposure. The ASRS receives a spread for its lending activities. The obligation for securities on loan is recorded as a liability because the ASRS must return the cash collateral to the borrower upon expiration of the loan. At June 30, 2017, the fair value of securities on loan was $1.6 billion; of which $169.1 million were cash collateralized loans. Cash of $174.1 million received as collateral for securities loaned was reinvested and had a net position value of $174.1 million, as of June 30, 2017. The securities lending payable at June 30, 2017, was $174.1 million. The ASRS does not have the ability to pledge or sell the collateral unless there is a borrower default. There are no statutory restrictions 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, 2017, the fair values of securities on loan for the PSPRS, the EORP, and the CORP were $462.8 million, $20.8 million, and $121.1 million, respectively. At June 30, 2017, the fair value of the associated collateral for the PSPRS, the EORP, and the CORP were $474.5 million, $21.3 million, and $124.1 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, 2017, the cost and fair value of securities on loan were $518.0 million and $548.4 million, respectively. The associated fair value of the invested collateral was $560.7 million, of which $86.0 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, 2017, the State Treasurer had $86.0 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 - $ 1,073,884 292,939,186 170,527,277 $ 464,540,347 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 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, 2017, classified by type, and the changes in fair value of derivative instruments for the year then ended as reported in the June 30, 2017 financial statements are as follows (expressed in thousands): Investment Derivatives Commodity futures long Commodity futures short Fixed income futures long Fixed income futures short Foreign currency forwards Index futures long Rights Warrants Total Investment Derivatives by Type Changes in Fair Value (1) Classification Amount (2) Net (decrease) in fair value of investments $ (368) Net (decrease) in fair value of investments (10,143) Net (decrease) in fair value of investments (6,763) Net increase in fair value of investments 224 Net (decrease) in fair value of investments (2) Net increase in fair value of investments 24,450 Net increase in fair value of investments 730 Net (decrease) in fair value of investments (1,476) $ 6,652 Fair Value at June 30, 2017 Classification Amount Notional Not applicable $ $ 588,410 Not applicable (166,163) Not applicable 20,931 Not applicable (48,706) Futures receivable Not applicable 74,967 Equity securities 426 426 Equity securities 792 792 $ 1,218 $ 470,657 (1) Excludes futures margin payments. (2) Negative values refer to losses. The fair value of derivative instruments reported by the ASRS is based on quoted market prices off national exchanges. The fair value of foreign currency forward contracts is based on mathematical models and is valued using a pricing service, which uses published Reuter’s foreign currency rates as the primary source for the calculation. 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. - 90 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 As of June 30, 2017, investing activity in derivative instruments were exchange traded futures contracts. The ASRS did not have any over-the-counter investment derivative instruments as of June 30, 2017. Accordingly, the ASRS was not exposed to loss in case of default of all counterparties of over-the-counter positions as of June 30, 2017. 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, 2017, for the year then ended, as reported in the June 30, 2017 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 $ - $ 3,766 3,317 5,835 8,013 $ - $ 20,931 $ - $ (48,706) $ - $ (48,706) FIXED INCOME FUTURES LONG ADI0RY5B0 ADI0T9TV3 ADI0TFNP8 ADI0VF3N2 N/A N/A N/A N/A US 10YR NOTE (CBT) SEP 17 US ULTRA BOND (CBT) SEP 17 US 2YR NOTE (CBT) SEP 17 US 5YR NOTE (CBT) SEP 17 Total Fixed Income Futures Long FIXED INCOME FUTURES SHORT ADI0RY5B0 N/A US 10YR NOTE (CBT) SEP 17 Total Fixed Income Futures Short The ASRS did not hold foreign currency forward contracts and future contracts as of June 30, 2017, 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. NOTE 3. RECEIVABLES/UNAVAILABLE REVENUE/UNEARNED REVENUE A. TAXES RECEIVABLE At June 30, 2017, 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 General Fund $ 541,843 193,763 7,751 - Transportation & Aviation Planning, Highway Maintenance & Safety Fund $ 83,972 - Non-major Governmental Funds $ 61,393 20,550 5,953 743,357 (326,396) 416,961 83,972 83,972 87,896 87,896 $ $ - 91 - $ Non-major Enterprise Government-wide Funds Total $ $ 603,236 193,763 83,972 28,301 94,108 94,108 5,953 $ 94,108 94,108 $ 1,009,333 (326,396) 682,937 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 B. UNAVAILABLE REVENUE At June 30, 2017, the components of unavailable revenue for governmental funds were as follows (expressed in thousands): General Fund Unavailable Revenue for Governmental Funds: Delinquent sales tax Delinquent 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 C. $ $ Transportation & Aviation Planning, Highway Maintenance & Safety Fund 134,196 10,379 39,500 4,289 82,087 35,483 1,613 $ 307,547 $ Land Endowments Fund - $ 40,669 289 Other Governmental Funds - $ - 252,323 2,935 - 40,958 $ Total Governmental Funds $ 134,196 10,379 39,500 4,289 122,756 35,483 252,323 2,935 2,382 $ 604,243 480 255,258 $ 480 UNEARNED REVENUE At June 30, 2017, 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 51,771 291 21,487 599 219 $ 2,807 - Total Unearned Revenue $ 51,771 3,098 21,487 599 219 1,733 - 1,733 24,297 83,973 108,270 616 801 87 $ 101,901 86,780 616 801 87 188,681 Current $ 76,808 9,513 101,225 1,017 3,428 150 $ 192,141 - 92 - Noncurrent $ $ STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 NOTE 4. CAPITAL ASSETS Capital asset activities for the fiscal year ended June 30, 2017, were as follows (expressed in thousands): Primary Government Beginning Balance Additions Retirements Adjustments & Reclassifications $ $ $ Ending Balance Governmental Activities: Non-depreciable capital assets: Land Construction in progress Development in progress Infrastructure Total Non-depreciable Capital Assets $ 3,380,840 1,463,870 25,522 16,095,093 20,965,325 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 $ 201,635 586,064 42,389 9,602 839,690 (38,824) (1,293) (20,459) (3,956) (64,532) 17,405 (87,866) 6,402 88,912 24,853 $ 3,561,056 1,960,775 53,854 16,189,651 21,765,336 2,423,465 183,371 941,394 362,681 27,102 53,346 3,922 68,181 49 - (2,146) (55,249) (13) - 19,147 533 (18,865) (16,970) 154 2,493,812 187,826 935,461 345,747 27,256 3,938,013 125,498 (57,408) (16,001) 3,990,102 (948,424) (120,026) (646,300) (203,451) (13,450) (64,133) (7,498) (63,453) (16,936) (449) 509 50,889 (1) - (336) 80 4,581 6,361 (2) (1,012,384) (127,444) (654,283) (214,027) (13,901) (1,931,651) (152,469) 51,397 10,684 (2,022,039) 2,006,362 (26,971) (6,011) (5,317) 1,968,063 19,536 $ 23,733,399 22,971,687 $ Beginning Balance (as restated) 812,719 Additions $ (70,543) $ Retirements Adjustments & Reclassifications $ $ Ending Balance Business-type Activities: Non-depreciable capital assets: Land Construction in progress Development in progress Collections $ 239,353 369,378 61,167 21,311 $ 13,832 332,275 9,155 57 (107) - (173,520) - $ 253,185 528,026 70,322 21,368 Total Non-depreciable Capital Assets 691,209 355,319 (107) (173,520) 872,901 Depreciable capital assets: Buildings Improvements other than buildings Equipment Software and other intangibles Infrastructure 6,102,377 16,294 1,683,694 137,321 551,980 108,551 167 107,022 884 16,208 (9,074) (129) (35,567) (588) 166,100 (874) (120) 6,885 6,367,954 15,458 1,755,029 138,205 574,485 Total Depreciable Capital Assets 8,491,666 232,832 (45,358) 171,991 8,851,131 Less accumulated depreciation for: Buildings Improvements other than buildings Equipment Software and other intangibles Infrastructure (2,442,534) (15,493) (1,288,010) (97,352) (239,280) (178,621) (286) (93,003) (10,343) (18,339) 5,091 129 32,947 146 (790) 1,000 105 2 (2,616,854) (14,650) (1,347,961) (107,695) (257,471) Total Accumulated Depreciation Total Depreciable Capital Assets, Net (4,082,669) 4,408,997 (300,592) (67,760) 38,313 (7,045) 317 172,308 (4,344,631) 4,506,500 5,100,206 $ 287,559 (1,212) $ 5,379,401 Total Business-type Activities Capital Assets, Net $ For beginning balance restatement detail, see Note 9. B. - 93 - $ (7,152) $ STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 Depreciation expense was charged to governmental functions as follows (expressed in thousands): General government $ 25,769 Health and welfare 25,298 Inspection and regulation Education 658 1,959 Protection and safety 62,668 Transportation 26,953 Natural resources 9,164 Total Governmental Activities $ 152,469 Depreciation expense was charged to business-type activities as follows (expressed in thousands): Universities $ 297,969 Other 2,623 Total Business-type Activities $ 300,592 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, 2017, were as follows (expressed in thousands): Beginning balance Increases Decreases Ending balance Governmental Activities $ 3,836,769 1,259,738 (995,330) $ 4,101,177 Business-type Activities $ 1,397,355 331,332 (252,051) $ 1,476,636 For the year ended June 30, 2017, the State recognized pension expense for all plans to which it contributes of $573.0 million and $15.4 million of grant expense for EORP. Also, the State reported $269.9 million of pension contributions as expenditures in the governmental funds related to all pension plans to which it contributes and $4.2 million of grant expenditures related to EORP. - 94 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 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, 2017, statute required active ASRS members to contribute at the actuarially determined rate of 11.34 percent of the members’ annual covered payroll, and statute required the State to contribute at the actuarially determined rate of 10.78 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, 2017, were $224.8 million. During fiscal year 2017, the State paid for ASRS pension contributions as follows: 70.22 percent from the General Fund, 14.72 percent from major funds, and 15.06 percent from other funds. Pension Liability—At June 30, 2017, the State reported a liability of $3.5 billion for its proportionate share of the ASRS’ net pension liability. The net pension liability was measured as of June 30, 2016. 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, 2015, to the measurement date of June 30, 2016. The total pension liability as of June 30, 2016, reflects a change in actuarial assumption for a decrease in loads for future potential permanent benefit increases. 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, 2016. The State’s proportion measured as of June 30, 2016, was 21.75 percent, which was an increase of .08 percent from its proportion measured as of June 30, 2015. - 95 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 Pension Expense and Deferred Outflows/Inflows of Resources—For the year ended June 30, 2017, the State recognized pension expense for ASRS of $224.0 million. At June 30, 2017, 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 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 $ Deferred Inflows of Resources 21,333 - $ 241,499 185,735 380,425 - 88,366 51,752 224,788 $ 714,912 $ 478,986 The $224.8 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, 2018. 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 2018 2019 2020 2021 $ (136,683) (114,678) 155,830 106,669 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, 2015 June 30, 2016 Entry age normal 8% 3–6.75% 3% Included 1994 GAM Scale BB 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, 2012. - 96 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 The long-term expected rate of return on ASRS pension plan investments was determined to be 8.75 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: Asset Class Equity Fixed Income Real Estate Multi-Asset Commodities Total Target Allocation 58% 25% 10% 5% 2% 100% Long-Term Expected Arithmetic Real Rate of Return 6.73% 3.70% 4.25% 3.41% 3.84% 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 8.75 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 $4,476,196 Current Discount Rate (8%) $3,510,533 1% Increase (9%) $2,736,282 Pension Plan Fiduciary Net Position—Detailed information about the pension plan’s fiduciary net position is available in the separately issued ASRS financial report. - 97 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 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 - 98 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 Initial Membership Date: Before January 1, 2012 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, 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, 2017, the following employees were covered by the agent pension plans’ benefit terms: PSPRS PSA Retirees or beneficiaries currently receiving benefits Inactive employees entitled to but not yet receiving benefits Active employees Total - 99 - CORP DCA 1,314 3,012 158 1,030 2,502 1,209 7,922 12,143 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 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, 2017, are indicated below. Rates are a percentage of active members’ annual covered payroll. PSPRS PSA 11.65% 77.96% Active members - Pension State - Pension CORP DCA 8.41% 18.74% In addition, statute required the State to contribute at the actuarially determined rate indicated below 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. PSPRS PSA 64.72% Pension CORP DCA 12.10% The State’s contributions to the pension plan for the year ended June 30, 2017, were (expressed in thousands): PSPRS CORP PSA DCA $ 60,271 $ 62,909 Pension contributions made During fiscal year 2017, the State paid for PSPRS and CORP pension contributions as follows: 58.26 percent from the General Fund and 41.74 percent from other funds. Pension Liability—At June 30, 2017, the State reported the following net pension liabilities (expressed in thousands): Net Pension Liability $ 763,250 738,891 PSPRS - PSA CORP - DCA The net pension liabilities were measured as of June 30, 2016, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The total pension liabilities as of June 30, 2016, reflect the following changes of benefit terms and actuarial assumptions. • In May 2016, voters approved Proposition 124 that authorized certain statutory adjustments to PSPRS’ automatic cost-ofliving 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. • Laws 2016, Chapter 2, changed the benefit formula and contribution requirements for members hired on or after July 1, 2017. • The investment rate of return actuarial assumption was decreased from 7.85 percent to 7.50 percent for PSPRS and CORP plans. The net pension liabilities measured as of June 30, 2017, will reflect changes of actuarial assumptions based on the results of an actuarial experience study for the 5-year period ended June 30, 2016. The change in the State’s net pension liabilities as a result of these changes is not known. - 100 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 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, 2016 Entry age normal 7.50% 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, 2016 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 PSPRS and CORP pension plan investments was determined to be 7.50 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 arithmetic 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 Arithmetic 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 following discount rates were used to measure the total pension liabilities: Discount rates Changes from prior year PSPRS PSA 7.50% CORP DCA 7.50% (0.35) (0.35) The projection of cash flows used to determine the PSPRS – PSA and CORP – DCA 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 the actuarially determined contribution rate and the member rate. Based on those assumptions, the PSPRS – PSA 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 for this plan to determine the total pension liability. However, based on the above assumptions, the CORP – DCA 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 this plan, the long-term expected rate of return on pension plan investments of 7.50 percent was applied to periods of projected benefit payments through the year ended June 30, 2115. A municipal bond rate of 2.85 percent obtained from the Federal Reserve as of June 30, 2016, was applied to periods of projected benefit payments after June 30, 2115. - 101 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 Changes in the Net Pension Liability (expressed in thousands): PSPRS - PSA Balances at June 30, 2016 Changes for the year: Service cost Interest on the total pension liability Changes of benefit terms Differences between expected and actual experience in the measurement of the pension liability Changes of assumptions or other inputs Contributions – employer Contributions – employee Net investment income Benefit payments, including refunds of employee contributions Administrative expense Other changes Net changes Balances at June 30, 2017 CORP - DCA Balances at June 30, 2016 Changes for the year: Service cost Interest on the total pension liability Changes of benefit terms Differences between expected and actual experience in the measurement of the pension liability Changes of assumptions or other inputs Contributions – employer Contributions – employee Net investment income Benefit payments, including refunds of employee contributions Administrative expense Other changes Net changes Balances at June 30, 2017 Increase (Decrease) Total Plan Net Pension Fiduciary Pension Net Position Liability Liability (a) (b) (a) – (b) $ 1,028,687 $ 348,114 $ 680,573 14,131 78,000 27,674 - 14,131 78,000 27,674 (9,237) 35,783 - 52,115 9,334 1,963 (9,237) 35,783 (52,115) (9,334) (1,963) (84,231) 62,120 $ 1,090,807 (84,231) (283) 545 (20,557) $ 327,557 283 (545) 82,677 $ 763,250 Increase (Decrease) Total Plan Net Pension Fiduciary Pension Net Position Liability Liability (a) (b) (a) – (b) $ 1,436,586 $ 788,928 $ 647,658 47,529 111,087 2,464 - 47,529 111,087 2,464 (36,180) 58,949 - 60,984 27,824 4,831 (36,180) 58,949 (60,984) (27,824) (4,831) (90,460) 93,389 $ 1,529,975 (90,460) (683) (340) 2,156 $ 791,084 683 340 91,233 $ 738,891 - 102 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 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 7.50 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 (6.50 percent) or 1 percentage point higher (8.50 percent) than the current rate (expressed in thousands): 1% Decrease (6.50%) PSPRS - PSA Net pension liability CORP - DCA Net pension liability Current Discount Rate (7.50%) 1% Increase (8.50%) $ 887,674 $ 763,250 $ 659,351 $ 935,903 $ 738,891 $ 576,205 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, 2017, the State recognized the following pension expense (expressed in thousands): Pension Expense $ 115,786 102,018 PSPRS - PSA CORP - DCA Deferred Outflows/Inflows of Resources—At June 30, 2017, 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 - 103 - Deferred Deferred Outflows Inflows of Resources of Resources $ 61,844 $ 11,771 - 20,558 - 60,271 $ 142,673 $ 11,771 Deferred Deferred Outflows Inflows of Resources of Resources $ 109,031 $ 51,227 - 48,762 - 62,909 $ 220,702 $ 51,227 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 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, 2018. 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 2018 2019 2020 2021 2022 C. PSPRS PSA $ 32,019 18,079 13,256 7,277 - CORP DCA $ 29,564 29,564 33,193 11,655 2,590 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: Initial Membership Date: Before January 1, 2012 On or after 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 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, the Legislature may enact permanent one-time benefit increases after a Joint Legislative Budget Committee analysis of the increase’s effects of the plan. - 104 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 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, 2017, 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, 2017, were $7.6 million, including $4.2 million related to State support, as a nonemployer contributing entity. During fiscal year 2017, the State paid for EORP pension contributions as follows: 97.70 percent from the General Fund and 2.30 percent from other funds. In addition, during fiscal year 2017, the State, as a nonemployer contributing entity, paid for EORP pension contributions as follows: 100.00 percent from the General Fund. Pension Liability—At June 30, 2017, 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 $ 174,204 131,871 $ 306,075 The net pension liability was measured as of June 30, 2016, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The total pension liability as of June 30, 2016, reflects a decrease in the investment rate of return actuarial assumption from 7.85 percent to 7.50 percent. 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, 2016. The State’s proportion measured as of June 30, 2016, was 18.44 percent, which was a decrease of .23 from its proportion measured as of June 30, 2015. The State’s proportion, as a nonemployer contributing entity, measured as of June 30, 2016, was 13.96 percent, which was a decrease of 5.37 from its proportion measured as of June 30, 2015. The collective net pension liability measured as of June 30, 2017, will reflect changes of actuarial assumptions based on the results of an actuarial experience study for the 5-year period ended June 30, 2016. The change in the State’s proportionate share of the collective net pension liability as a result of these changes is not known. - 105 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 Pension Expense, Grant Expense, and Deferred Outflows/Inflows of Resources—For the year ended June 30, 2017, the State recognized pension expense for EORP of $38.6 million and revenue of $1.6 million for the designated court fees. In addition, the State recognized grant expense of $15.4 million, as a result of its requirement to contribute to EORP as a nonemployer contributing entity. At June 30, 2017, 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, as a nonemployer The State contributing entity Deferred Deferred Deferred Deferred Outflows Inflows Outflows Inflows of Resources of Resources 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 $ $ 19,559 $ 3,276 - $ 14,805 $ 2,480 - 4,035 - 3,055 - 4,383 4,629 265 20,473 7,905 4,171 $ 22,296 $ 22,953 3,389 31,366 $ 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, 2018. 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 2018 2019 2020 2021 The State $ 13,518 4,279 1,466 809 The State, as a nonemployer contributing entity $ (4,421) (2,128) 1,110 611 Actuarial Assumptions—The significant actuarial assumptions used to measure the total pension liability are as follows: Actuarial valuation date Actuarial cost method Investment rate of return Projected salary increases Inflation Permanent benefit increase Mortality rates June 30, 2016 Entry age normal 7.50% 4.25% 4.00% Included RP-2000 mortality table projected to 2025 with projection scale AA Actuarial assumptions used in the June 30, 2016, valuation were based on the results of an actuarial experience study for the 5-year period ended June 30, 2011. - 106 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 The long-term expected rate of return on EORP pension plan investments was determined to be 7.50 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 arithmetic 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 Arithmetic 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, 2016, the discount rate used to measure the EORP total pension liability was 3.68 percent, which was a decrease of 1.18 from the discount rate used as of June 30, 2015. 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 7.50 percent was applied to periods of projected benefit payments through the year ended June 30, 2027. A municipal bond rate of 2.85 percent obtained from the 20-year Bond Buyer Index, as published by the Federal Reserve as of June 30, 2016, was applied to periods of projected benefit payments after June 30, 2027. 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 3.68 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 (2.68 percent) or 1 percentage point higher (4.68 percent) than the current rate (expressed in thousands): 1% Decrease (2.68%) State’s proportionate share of the net pension liability State’s proportionate share of the net pension liability, as a nonemployer contributing entity Current Discount Rate (3.68%) 1% Increase (4.68%) $202,782 $174,204 $150,349 153,504 131,871 113,812 Pension Plan Fiduciary Net Position—Detailed information about the pension plan’s fiduciary net position is available in the separately issued EORP financial report. - 107 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 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. 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. 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, 2017, the plan had 56,628 active employees and 7,573 retirees and dependents receiving benefits. ADOA does not issue a separate, publicly available financial report. B. SUMMARY OF SIGNIFICANT ACCCOUNTING POLICIES Cost-sharing plan For the ASRS HBS and LTD plans, contributions are recognized as revenues when due, pursuant to statutory and contractual requirements. Benefits and refunds are recognized when due and payable and expenses are recorded when the corresponding liabilities are incurred, regardless of when contributions are received or payments are made. Administrative expenses are recognized when incurred. - 108 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 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, 2017, active ASRS members and the State were each required by statute to contribute at the actuarially determined rate of 0.14% of the members' annual covered payroll for LTD. In addition, the State also contributed 0.56% for the HBS. The State's contributions for LTD to the ASRS for the years ended June 30, 2017, 2016, and 2015 were $2.9 million, $2.4 million, and $2.4 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, 2017, 2016, and 2015 were $11.6 million, $10.1 million, and $11.6 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, 2017, 2016, and 2015 were $29.1 million, $24.3 million, and $14.4 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, 2017, 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 $ 143,439 4,392 (7,253) 140,578 (29,058) 111,520 146,379 $ 257,899 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 6/30/2017 6/30/2016 6/30/2015 Annual OPEB Costs $140,578 142,897 22,977 Percentage of Annual OPEB Cost Contributed 20.7% 17.0% 62.7% - 109 - Net OPEB Obligation $ 257,899 146,379 27,780 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 E. 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 3.0% 0.0% 3.0% none 7.0% initial 4.5% ultimate level dollar, open 30 years NOTE 7. LONG-TERM OBLIGATIONS A. REVENUE BONDS Governmental Activities 1. Department of Administration The State has pledged portions of its revenues towards the payment of debt service on the State Lottery Revenue Bonds Series 2010A. These bonds provide additional working capital to the State to pay appropriated expenditures of the State’s General Fund. The bonds are payable solely from and secured by pledged revenues consisting of, until July 1, 2012, amounts distributable to the State’s General Fund from the State Lottery pursuant to Lottery law, and from and after July 1, 2012, all Lottery revenues deposited to the Lottery Fund net of operating expenses of the Lottery. At June 30, 2017, pledged revenues totaled $193.3 million, of which 17.5% ($33.8 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 $450.0 million. - 110 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 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 $1.5 billion. On October 6, 2016, the ADOT issued $203.1 million of Highway Revenue Refunding Bonds, Series 2016, with an interest rate of 5.0% and serial maturities ranging from 2026 to 2036. Net proceeds amounted to $256.2 million, after receipt of $54.1 million of original issue premium, and payment of $968 thousand of issuance costs and underwriter’s discount. The net proceeds were used to refund, in advance of maturity, portions of the outstanding Series 2011A and Series 2013A Highway Revenue Bonds. The advance-refunding resulted in a debt service savings of $21.8 million, and a net present value economic gain of $17.6 million (difference between the present values of the old and new debt service payments). The advance-refunding also resulted in a difference between the reacquisition price and the net carrying amount of the refunded debt of $28.4 million. This difference, reported as a deferred outflow of resources, is being amortized to interest expense on a straight-line basis through fiscal year 2036. 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 $1.4 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 $2.1 billion. Principal and interest paid for the current year and total pledged revenues were $143.3 million and $611.0 million, respectively. The annual principal and interest payments on the bonds required 23.5% 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 $717.2 million. On October 6, 2016, the ADOT issued $109.9 million of Transportation Excise Tax Revenue Refunding Bonds, Series 2016, with an interest rate of 5.0% and serial maturities ranging from 2020 to 2025. Net proceeds amounted to $133.1 million, after receipt of $23.9 million of original issue premium, and payment of $648 thousand of issuance costs and underwriter’s discount. The net proceeds were used to refund, in advance of maturity, portions of the outstanding Series 2009, Series 2010, and Series 2011 Transportation Excise Tax Revenue Bonds. The advance-refunding resulted in a debt service savings of $8.2 million, and a net present value economic gain of $7.6 million (difference between the present values of the old and new debt service payments). The advance-refunding also resulted in a difference between the reacquisition price and the net carrying amount of the refunded debt of $4.8 million. This difference, reported as a deferred outflow of resources, is being amortized to interest expense on a straight-line basis through fiscal year 2025. The ADOT has pledged future transportation excise taxes to repay $643.3 million in outstanding Transportation Excise Tax Revenue Bonds issued since 2009. 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 $791.6 million. Principal and interest paid for the current year and total pledged revenues were $100.8 million and $274.6 million, respectively. The annual principal and interest payments on the bonds required 36.7% of the pledged revenues. In the current and prior fiscal years, the ADOT refinanced various bond issues through 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, 2017 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, 2017. 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, 2017, pledged revenues totaled $751.7 million, of which 11.6% ($87.5 million) was required to cover current year debt service. Future pledged revenues required to pay all future debt service on these bonds through final maturity of July 1, 2020 are $235.7 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 October 4, 2016, the U of A sold System Revenue Refunding Bonds Series 2016A (2016A Bonds) for $44.175 million and System Revenue Bonds Series 2016B (2016B Green Bonds) for $142.390 million dated November 8, 2016 as described in the following table. The purpose of issuing the 2016B as Green Bonds is to allow investors to invest directly in projects which the U of A has identified as promoting environmental sustainability on the U of A’s campus. Series 2016A $ 2016B $ Amount 39,310,000 4,865,000 76,435,000 32,685,000 33,270,000 Description Serial Bonds Term Bonds Serial Bonds Term Bonds Term Bonds Interest Rate Range 3.00-5.00% 4.00% 4.00-5.00% 4.00-5.00% 4.00-5.00% Maturity Dates 2017-2036 June 1, 2040 2020-2038 June 1, 2042 June 1, 2046 The 2016A Bonds with maturity on or after June 1, 2027, are subject to optional redemption without premium. The 2016A Bonds with maturity on June 1, 2040 are subject to mandatory redemption without premium. The 2016A Bonds sold at a premium of $6.537 million. The U of A realized net proceeds of $50.421 million after payment of $291 thousand for issuance costs and underwriter discounts. The net proceeds were used i) to purchase and renovate a real property near the University’s campus, ii) to pay off a capital lease associated with buildings at the U of A’s Phoenix Biomedical Campus, and iii) to refund in advance of maturity the remaining portion of the System Revenue Bonds Series 2007 totaling $1.095 million and a portion of the System Bond - 112 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 Series 2008A and 2012A totaling $4.940 million and $9.650 million, respectively. The advance refunding generated a net present value economic gain of $1.100 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 annual debt service by an average of $56 thousand. The advance refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $2.597 million. This difference, reported in the accompanying financial statements as a deferred outflow of resources, is being amortized to interest expense through the year 2040 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 $16.540 million. Accordingly, the trust account assets and liability for these defeased bonds are not included in the accompanying financial statements. The 2016B Green Bonds with maturity on or after June 1, 2027, are subject to optional redemption without premium. The 2016B Green Bonds with maturity on June 1, 2042 and 2046 are subject to mandatory redemption without premium. The 2016B Green Bonds sold at a premium of $23.469 million. The U of A realized net proceeds of $165.000 million after payment of $859 thousand for issuance costs and underwriter discounts. The net proceeds were used to finance the Health Sciences Innovation Building project. In fiscal year 2015, the U of A refunded, in advance of maturity, a portion of outstanding System Revenue Bonds Series 2008A. At June 30, 2017, the outstanding principal balance of the refunded bonds was $13.270 million, which will be paid by investments held in an irrevocable trust with fair value of $13.761 million. Accordingly, the trust account assets and liability for these defeased bonds are not included in the accompanying financial statements. In fiscal year 2016, the U of A refunded, in advance of maturity, a portion of outstanding System Revenue Bonds Series 2008A and 2009A. At June 30, 2017, the outstanding principal balance of the refunded bonds was $174.600 million, which will be paid by investments held in an irrevocable trust with a fair value of $186.028 million. Accordingly, the trust account assets and liability for these defeased bonds are not included in the accompanying financial statements. The U of A’s outstanding 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 6.9% reduction (totaling $109 thousand) in the federal interest subsidy for the August 1, 2017 debt service payment and a 6.6% reduction (totaling $205 thousand) in the federal interest subsidy for the February 1 and August 1, 2018 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, 2017. 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, 2017, pledged revenues totaled $1.26 billion, of which 6.5% ($82.5 million) was required to cover current year debt service. Future annual principal and interest payments on the bonds are expected to require approximately 5% of pledged revenues. Future pledged revenues required to pay all remaining debt service for the bonds through final maturity of August 1, 2048 are $1.86 billion. b. Northern Arizona University On March 14, 2017, the NAU sold $33.340 million of Lease Revenue Refunding Bonds Series 2017 with an interest rate of 2.9%. Refunded bonds total $31.335 million of the 2008 Pine Ridge Village/Campus Heights Lease Revenue Bonds for maturities from June 1, 2017 to June 1, 2033. The refunding set aside $33.036 million that purchased Treasury Notes that matured between 5/31/2017 and 5/31/2018. The present value of refunded debt prior to 3/14/2017 was $46.219 million and the net present value of savings was $3.061 million. The advanced refunding decreases the NAU’s debt service by an average of $1.496 million annually for fiscal years 6/30/2017 through 6/30/2018 and decreases debt service by an average of $8 thousand annually for fiscal years 6/30/2019 through 6/30/2033. On March 9, 2017, the NAU sold $42.970 million of System Revenue and Refunding Bonds Series 2017 with an interest rate of 2.9%. System Revenue Refunding Bonds Series 2006 refunded bonds total $41.670 million with maturity dates of June 1, 2017 to June 1, 2034. The refunding was a private placement with JP Morgan Chase. The refunding set aside $42.653 million into Global - 113 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 Proceeds Escrow that matured 6/1/2017. The present value of prior refunded debt was $62.233 million and the net present value of savings was $5.480 million. The advanced refunding decreases the NAU’s debt service by an average of $1.869 million annually for fiscal years 6/30/2017 through 6/30/2019 and decreases debt service by an average of $3 thousand annually for fiscal years 6/30/2020 through 6/30/2034. 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. As of June 30, 2017, $63.750 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 2017, the Federal Government reduced federal direct payment claims filed between October 1, 2016 and September 30, 2017 by 6.9% due to the federal budget sequestration resulting in a $257 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. 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, 2017. 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 $272 million for the prior five years. For fiscal year 2017, pledged revenues totaled $313 million, of which 10.2% ($31.9 million) was required to cover current year debt service. Future annual principal and interest payments on the bonds are expected to require approximately 8.8% of pledged revenues. Future pledged revenues required to pay all remaining related debt service for the bonds through final maturity of June 1, 2044 is $745.3 million. c. Arizona State University As of June 30, 2017, the ASU had issued a combination of fixed and variable rate bonds, of which $1.4 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, 2017 totaled $117.6 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 and subordinate bonds outstanding at June 30, 2017. 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, 2017, pledged revenues totaled $1.6 billion, of which 5.6 percent ($86.1 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 $2.3 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, 2017 totaled $4.2 million with annual debt service payments of approximately $1.2 million through July 1, 2021. - 114 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 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 August 2016, the ASU issued $226.2 million of system revenue bonds, Series 2016B/C, with an average maturity of 18.7 years and an average interest rate of 3.25%. The bonds were issued to fund Phase 3 of the Sun Devil Stadium Renovation project, the construction of Biodesign C and Student Pavilion buildings, and various infrastructure and research projects. 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 2017, the ASU received Federal Direct Payments totaling $3.6 million, net of a $300 thousand or 6.9 % reduction due to the federal budget sequestration. For accounting purposes, any direct payments received from the U.S. Treasury are recorded as nonoperating revenue. The ASU has two series of variable rate demand system revenue refunding bonds outstanding, Series 2008A and Series 2008B, totaling $85.9 million with final maturities of July 1, 2034. The interest rate in effect on June 30, 2017 was 0.88 percent for the Series 2008A bonds and 0.88 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. As of May 4, 2016, 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, 2017 totaled $65.2 million. 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 $85.4 million notional amount at June 30, 2017 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, 2017 was 0.91 percent. At June 30, 2017, 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 (0.91) 3.00 0.88 3.88 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. - 115 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 As of June 30, 2017, 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, 2017. 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, 2017, the swap had a fair value of $(15.4) million, which represents the cost to the ASU to terminate the swap. The June 30, 2016 fair value was $(23.2) million. The fair value was developed by an independent third party, with no vested interest in the transaction, using the zero-coupon discounting method. This method calculates the future payments required by the swap, assuming the current forward rates implied by the yield curve are the market's best estimate of future spot interest rates. These payments are then discounted using the spot rates implied by the current yield curve for a hypothetical zero-coupon rate bond due on the date of each future net settlement on the swaps. In accordance with GASB 53, as amended by GASB 63, the fair value of the ASU's hedging derivative instrument is reported on the statement of net position as a deferred outflow of resources (interest rate swap) and a liability (derivative instrument - interest rate swap). Summary of Revenue Bonds The following schedule summarizes revenue bonds outstanding at June 30, 2017 (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 2009-2017 2003-2013 2010 2018-2038 2018-2020 2018-2029 1.63-5.00% 0.35-5.00% 3.25-5.00% 2004-2017 2018-2049 0.88-6.64% Outstanding Balance at June 30, 2017 $ 2,078,935 227,785 333,610 3,010,525 Principal and interest debt service payments on revenue bonds outstanding at June 30, 2017 are as follows (expressed in thousands): Annual Debt Service Governmental Activities Fiscal Year 2018 2019 2020 2021 2022 2023-2027 2028-2032 2033-2037 2038-2042 2043-2047 2048-2049 Total B. Total Principal $ 268,565 234,145 242,365 187,050 196,405 861,810 459,975 169,135 20,880 $ 2,640,330 Total Interest $ 120,349 111,387 102,901 93,644 84,294 274,333 106,461 26,233 1,044 $ 920,646 Business-type Activities Total $ 388,914 345,532 345,266 280,694 280,699 1,136,143 566,436 195,368 21,924 $ 3,560,976 Total Principal $ 83,825 88,805 105,655 105,785 110,605 632,455 629,110 536,175 420,665 280,285 17,160 $ 3,010,525 Total Interest $ 142,025 138,748 134,697 129,999 125,039 537,550 381,749 241,654 118,638 29,430 452 $ 1,979,981 Net Payments (Receipts) on Swap Agreement $ 2,472 2,376 2,276 2,171 2,060 8,434 4,706 617 $ 25,112 Total 228,322 229,929 242,628 237,955 237,704 1,178,439 1,015,565 778,446 539,303 309,715 17,612 $ 5,015,618 $ 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 $147.3 million. - 116 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 On October 6, 2016, the ADOT issued $90.4 million of Grant Anticipation Refunding Notes, Series 2016, with an interest rate of 5.0% and serial maturities ranging from 2021 to 2026. Net proceeds amounted to $112.1 million, after receipt of $22.2 million of original issue premium, and payment of $522 thousand of issuance costs and underwriter’s discount. The net proceeds were used to refund, in advance of maturity, portions of the outstanding Series 2011A GANs. The advance-refunding resulted in a debt service savings of $10.7 million, and a net present value economic gain of $9.8 million (difference between the present values of the old and new debt service payments). The advance-refunding also resulted in a difference between the reacquisition price and the net carrying amount of the refunded debt of $11.0 million. This difference, reported as a deferred outflow of resources, is being amortized to interest expense on a straight-line basis through fiscal year 2026. In the current and prior fiscal years, the ADOT refinanced various GAN issues through 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 $129.5 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 $163.4 million. Principal and interest paid for the current year and total pledged revenues were $17.6 million and $718.1 million, respectively. The annual principal and interest payments on the GANs required 2.5% of the pledged revenues. 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 Outstanding Balance at June 30, 2017 2011-2017 2018-2026 4.00-5.00% $ 129,475 Future debt service principal and interest payments on Grant Anticipation Notes issues for fiscal years ended June 30 are summarized below (expressed in thousands): Annual Debt Service Fiscal Year 2018 Governmental Activities Total Total Principal Interest $ $ 6,422 $ 18,747 2019 12,925 5,824 18,749 2020 13,545 5,206 18,751 2021 13,330 4,531 17,861 2022 14,000 3,868 17,868 2023-2026 Total C. 12,325 Total Debt Service 63,350 $ 129,475 8,112 $ 33,963 71,462 $ 163,438 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 - 117 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 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 October 12, 2016, the State issued COPs Series 2016 (2016 COPs) for $119.9 million. The 2016 COPs include serial certificates with interest rates ranging from 2.00% to 5.00% and maturity dates from 2017 to 2025. The 2016 COPs are subject to extraordinary redemption prior to maturity pursuant to the debt documents. The State realized net proceeds from the 2016 COPs of $136.1 million after receipt of $17.1 million of original issue premium and payment of $845 thousand for underwriters’ discount and issuance costs. The net proceeds were used to pay a portion of the purchase option price for the Department of Correction’s Kingman Prison. In prior fiscal years, the State refinanced various COPs through advance-refunding arrangements. Under the terms of the refundings, sufficient assets to pay all principal, redemption premiums, if any, and interest on the refunded COPs have been placed in irrevocable trust accounts at commercial banks and invested in U.S. securities which, together with interest earned thereon, will provide amounts sufficient for future payment of principal and interest of the issues refunded. The assets, liabilities, and financial transactions of these trust accounts and the liability for these legally defeased COPs are not reflected in the accompanying financial statements. 2. School Facilities Board The SFB Series 2010 COPs are not subject to mandatory sinking fund prepayment. However, as a means to provide a source of funds that will be available to pay the principal with respect to the Series 2010 COPs at maturity, the lease agreement with the trustee for the 2010 COPs will provide for mandatory sinking fund payments to be made as part of the base rent due under the lease. The SFB Series 2010 COPs are subject to extraordinary mandatory prepayment from unexpended proceeds pursuant to the debt documents. On February 6, 2014, the SFB redeemed $9.5 million of the Series 2010 COPs pursuant to the extraordinary mandatory prepayment provisions in the debt documents. Beginning August 15, 2012, annual deposits to the sinking fund were scheduled to be made on August 15 of each year through August 15, 2027, at which time, the accumulated balance (including investment earnings and losses) in the sinking fund will be sufficient to retire the Series 2010 COPs on their stated maturity date of September 1, 2027. The sinking fund deposit requirements were adjusted to reflect the extraordinary mandatory prepayment redemption which occurred on February 6, 2014. All proceeds received from the issuance of the Series 2010 COPs have been expended as of June 30, 2015. As a result, the extraordinary mandatory prepayment discussed above no longer applies. All other prepayment provisions remain in force pursuant to the debt documents. In 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. 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. Accordingly, the trust account assets and liability for the defeased COPs are not included in the accompanying financial statements. - 118 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 c. Arizona State University At June 30, 2017, 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, 2017 totaled $7.6 million. A summary of the COPs issued as of June 30, 2017 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 Kingman Prison 2016 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 Issue Date Final Maturity 2008 2010 2010 2013 2016 2017 2028 2030 2030 2029 2028 2025 2009 2011 2011 2011 2011 2014 2014 2014 2014 2014 2016 2019 2020 2020 2020 2028 2020 2020 2018 2019 2020 2024 Total Governmental Activities Project Business-type Activities: Arizona State University: 2002 Certificates of Participation 2006 Certificates of Participation 2006 Refunding Certificates of Participation 2011A Mercado Refunding Certificates of Participation 2013 A/B Refunding Certificates of Participation 2014 A/B Refunding Certificates of Participation University of Arizona: Fixed Student Union 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: 2013 Refunding Certificates of Participation 2015 Refunding Certificates of Participation Original Amount Issued $ 238,990 709,090 289,705 62,630 163,995 119,880 Outstanding Balance $ 580,035 11,100 10,000 37,685 91,325 29,945 49,605 110,695 60,390 55,040 263,545 $ 2,883,655 Original Amount Issued $ Interest Rates 43,360 570,630 231,470 36,840 158,075 113,030 4.00 – 5.00% 3.75 – 5.25 3.00 – 5.00 3.00 – 5.00 3.00 – 5.00 2.00 – 5.00 85,190 11,100 10,000 37,685 81,820 4,700 17,205 89,850 37,575 18,030 257,835 4.63 – 5.75 3.00 – 3.50 3.00 – 5.00 3.00 – 5.00 6.00 5.00 5.00 1.47 2.08 2.38 2.35 – 5.00 1,804,395 Issue Date Final Maturity 2002 2006 2007 2011 2013 2015 2019 2031 2027 2025 2027 2031 1999 2006 2007 2012 2012 2012 2015 2015 2020 2031 2031 2022 2023 2031 2025 2025 21,607 18,240 93,045 10,190 20,600 124,940 89,470 13,810 266 12,790 65,950 6,065 14,450 115,670 73,885 13,100 5.13 4.15 – 5.00 4.00 – 4.50 2.48 – 3.42 4.00 – 5.00 3.00 – 5.00 5.00 1.35 – 3.09 2013 2015 2031 2031 36,005 18,825 790,002 35,990 17,050 557,506 4.78 4.92 $ 103,800 15,810 65,890 8,465 64,780 84,525 $ Total Business-type Activities - 119 - Outstanding Balance $ $ 200 10,845 50,025 5,630 62,620 72,970 Interest Rates 4.76% 4.53 4.15 4.27 3.09 3.04 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 Principal and interest debt service requirements on COPs outstanding at June 30, 2017 are as follows (expressed in thousands): Annual Debt Service Governmental Activities Business-type Activities Fiscal Year Total Principal Total Interest Total Amount Required 2018 $ $ $ 219,170 79,680 298,850 Total Principal $ 48,460 Total Amount Required Total Interest $ 24,196 $ 72,656 2019 191,545 72,075 263,620 51,085 22,130 73,215 2020 194,345 63,933 258,278 53,256 19,899 73,155 2021 136,970 56,223 193,193 50,215 17,379 67,594 2022 144,075 49,200 193,275 50,780 14,907 65,687 2023-2027 580,955 152,678 733,633 181,750 44,773 226,523 2028-2031 Total $ 337,335 21,154 358,489 1,804,395 $ 494,943 $ 2,299,338 121,960 $ 557,506 10,689 $ 153,973 132,649 $ 771,479 D. LEASES 1. Leases The State has entered into capital lease agreements for the acquisition of buildings and equipment. Capital lease assets and liabilities are reported on the government-wide Statement of Net Position. A lease is reported as a capital lease if one or more of the following criteria are met: • Title to or ownership of the asset is transferred to the State at the end of the lease. • The lease contains a bargain purchase option. • 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, 2017 are summarized below (expressed in thousands): Total minimum lease payments Less: amount representing interest Annual Debt Service Governmental Business-type Activities Activities $ 29,910 $ 11,315 27,992 11,075 25,577 11,041 21,743 11,048 18,252 10,945 62,160 55,321 47,350 49,801 12,116 23,733 2,352 4,261 245,100 190,892 (30,016) (56,493) Present Value of Net Minimum Lease Payments $ Fiscal Year 2018 2019 2020 2021 2022 2023-2027 2028-2032 2033-2037 2038-2042 2043-2072 - 120 - 215,084 $ 134,399 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 2. Capital Assets Financed through Capital Leases The following table summarizes the historical costs of assets acquired under capital leases (expressed in thousands): Governmental Activities Land Buildings Software Equipment $ 10 221,048 3,579 92,652 317,289 (68,738) Business-type Activities $ 8,241 196,832 982 206,055 (55,450) $ 248,551 $ Less: accumulated depreciation Carrying Value 150,605 E. COMPENSATED ABSENCES Compensated absences are paid from various funds in the same proportion that those funds pay payroll costs. The compensated absence liability attributable to governmental activities will be liquidated primarily by the General Fund. During fiscal year 2017, the State paid for compensated absences as follows: 78.13% from the General Fund, 15.59% from other funds, and 6.28% from other major funds. - 121 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 F. CHANGES IN LONG-TERM OBLIGATIONS The following is a summary of changes in Long-term Obligations (expressed in thousands): Balance July 1, 2016 Decreases Balance June 30, 2017 Due Within One Year $ $ $ Increases 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 2,899,875 $ 312,900 (572,445) 2,640,330 268,565 $ 2,371,765 147,320 90,410 (108,255) 129,475 12,325 117,150 1,891,460 119,880 (206,945) 1,804,395 219,170 1,585,225 334,909 59,622 (179,447) 215,084 25,013 190,071 176 - (176) - - - 22,179 - - 22,179 - 22,179 492,349 117,390 (93,283) 516,456 49,684 466,772 5,788,268 700,202 (1,160,551) 5,327,919 574,757 4,753,162 322,255 177,038 (197,142) 302,151 147,990 154,161 25,160 - (18,637) 6,523 3,952 2,571 - 31,863 - 31,863 - 31,863 347,415 208,901 (215,779) 340,537 151,942 188,595 Other Long-term Liabilities: Compensated absences Pollution remediation obligations Accrued relocation costs Total Other Long-term Liabilities Total Long-term Obligations $ 6,135,683 $ 909,103 $ (1,376,330) $ 5,668,456 $ 726,699 $ 4,941,757 $ 2,701,665 $ 489,105 $ (180,245) $ 3,010,525 $ 166,690 $ 2,843,835 Business-type Activities: Long-term Debt: Revenue bonds Certificates of participation 600,556 - (43,050) 557,506 48,460 509,046 Capital leases 141,117 562 (7,280) 134,399 5,752 128,647 2,114 - (654) 1,460 692 768 Installment purchase contracts Premiums and discounts on debt 268,474 83,160 (26,222) 325,412 24,754 300,658 3,713,926 572,827 (257,451) 4,029,302 246,348 3,782,954 Compensated absences 97,382 110,251 (105,630) 102,003 17,661 84,342 U of A capital commitments 22,424 - (3,500) 18,924 3,750 15,174 119,806 110,251 (109,130) 120,927 21,411 99,516 Total Long-term Debt Other Long-term Liabilities: Total Other Long-term Liabilities Total Long-term Obligations $ 3,833,732 $ 683,078 $ (366,581) $ 4,150,229 $ 267,759 $ 3,882,470 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 $2.266 million of capital leases and $161.848 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. - 122 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 NOTE 8. INTERFUND TRANSACTIONS INTERFUND BALANCES AND TRANSFERS Interfund Receivables/Payables Interfund balances as of June 30, 2017 are as follows (expressed in thousands): General Fund Due From General Fund Transportation & Aviation Planning, Highway Maintenance & Safety Fund Land Endowments Fund Non-Major Governmental Funds Non-Major Enterprise Funds Internal Service Funds Total Due From Due To Transportation & Aviation Planning, Non-Major Highway Maintenance Governmental Universities & Safety Fund Funds Fund $ - 4,393 35 11,736 2,782 25 $ 18,971 $ 23,757 $ 712 24,469 $ 66,719 $ 6,673 13,398 1,191 5,661 93,642 Non-Major Enterprise Fund $ - $ 39,927 39,927 $ $ Internal Service Funds - $ 177 177 1,510 $ $ Total Due To 91,986 11,243 13,433 165 13,092 48,370 36 773 1,711 $ 178,897 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, 2017 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 $ - 2,125 71,805 81,607 91,242 $ 246,779 $ 4,676 $ 315 4,991 $ 238,384 $ 679,579 $ 273,873 25,804 6,951 68,517 942 614,471 $ 39,927 719,506 Internal Service Funds Total Transfers Out $ 19 $ 922,658 $ 273,873 27,929 79,071 190,051 92,184 19 $ 1,585,766 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, 2017 NOTE 9. ACCOUNTING CHANGES A. FUND FINANCIAL STATEMENTS Net Position has been restated as follows (expressed in thousands): Net Position, as previously reported Change in reporting entity Net Position, as restated Proprietary Funds Universities $ 2,481,928 13,343 $ 2,495,271 B. GOVERNMENT-WIDE FINANCIAL STATEMENTS Government-wide Net Position has been restated as follows (expressed in thousands): Net Position, as previously reported Change in reporting entity Net Position, as restated Business-type Activities $ 3,228,120 13,343 $ 3,241,463 Change in Reporting Entity Beginning net position for the Universities has been restated due to a change in reporting entity. The Thunderbird, previously reported as a discrete component unit of the State affiliated with the Universities, is blended with the Universities financial statements. This resulted in an increase of $13.3 million to beginning net position. In the restatement of net position, is the original Thunderbird beginning net asset balance of $30.3 million less the estimation of the ASU’s equity interest in the Thunderbird of $17.0 million. For fiscal year 2017, it was determined that the Thunderbird primarily exists to benefit the ASU by providing a framework for global education programming. Additional information can be found within Note 16.J. - 124 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 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, 2017 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 $ $ Transportation & Aviation Planning, Highway Maintenance & Safety Fund 9,990 - $ 40 - Land Endowments Fund Non-Major Governmental Funds $ $ 5,603,580 - Total $ 10,030 5,603,580 10,775 127,874 4,320 4,958 18,220 2,123 21,051 844,672 - - 33,946 43,487 2,000 456,588 8,307 88,263 2,443 - 44,721 171,361 6,320 461,546 18,220 10,430 88,263 847,115 21,051 12,121 1,004 18,131 20,685 41,402 (258,262) 34,392 279,052 1,123,764 (18,752) 5,584,828 147,813 232,134 146,279 78,588 80,704 1,320,552 147,813 244,255 147,283 18,131 78,588 279,052 101,389 41,402 (277,014) 8,063,536 $ $ $ $ NOTE 11. DEFICIT NET POSITION The Risk Management Fund (RMF), an internal service fund, reported a deficit net position of $376.9 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 $156.6 million deficit net position is primarily due to the above funding mechanism. The Telecommunication Fund, an internal service fund, reported a deficit of $427 thousand as a result of recognition of net pension liability. - 125 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 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, 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, 2017, the U of A has made cash contributions of $18.2 million toward the project’s initial construction costs and subsequent contributions of services and materials of $3.2 million, which were recorded as non-current investments on the Statement of Net Position. The U of A’s financial interest represents its future viewing/observation rights. As of December 31, 2007, the assets had been substantially completed and the telescope entered the commissioning phase. During calendar year 2007, the telescope became operational for research purposes; thus, depreciation of the property and equipment has commenced. The U of A recorded its proportionate share of the use of the viewing/observation rights, $1.5 million in calendar year 2017, as a reduction in its investment. At June 30, 2017, the investment totaled $12.5 million. According to the most recent audited financial statements of the LBT for the year ended December 31, 2016, assets, liabilities, revenues, and expenses totaled $125.0 million, $3.0 million, $15.0 million, and $19.0 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 fourteen 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 $18.9 million related to the GMT as of June 30, 2017 are reported in Note 7.F. The U of A has contributed a total of $41.1 million as of June 30, 2017. 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, 2017, the U of A has received contractual payments related to the project from the GMTO and related partners totaling $61.5 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, 2017 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. 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 or calendar year 2017. Assessment revenues recorded on the financial statements for fiscal year 2017 are for calendar year 2015 assessments. AMI Risk Consultants, Inc. was retained to evaluate the medical and compensation related liabilities of the Special Fund as of June 30, 2017. The total estimated loss reserve of $263.9 million increased by 13.9%, or $32.3 million, over the prior year estimated loss reserve of $231.6 million. The total Compensation reserve increased $47.9 million. During fiscal year 2016, older Compensation reserves were closed out prior to the implementation of a new software program and during fiscal year 2017 more accurate Compensation reserves were established. This increase was offset somewhat by a $10.7 million decrease in the Uninsured reserves, due to strengthened reserving practices for “lifetime” claims, and a $5.4 million decrease in Medical Pre-1973 reserves due to the decrease in reported reserves and the elimination of “incurred but not reported” claims. There were no other major shifts in any of the other award categories. A confidence level of 80 percent was used in calculating medical and compensation related liabilities. A confidence level of 80 percent indicates a confidence that the estimated liability will be adequate to cover actual costs 80 out of 100 years. The reserves are discounted at an assumed rate of .17% percent for the compensation benefits and zero percent for the medical benefits. For medical benefits, it is assumed that the inflation in medical costs will equal the investment return earned by the Special Fund on those reserves. The Special Fund has filed proofs of claim with 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 - 127 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 for insurance carrier insolvencies that the Special Fund was responsible for prior to July 1, 2015. Effective July 1, 2015, the responsibility for insolvent carriers was transferred to the Department of Insurance Guaranty Fund. 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, 2016 and June 30, 2017 (expressed in thousands): Fiscal Year Risk Management Fund: 2016 2017 B. Beginning Balance $ 457,389 440,580 Current Year Claims and Changes in Estimates $ 65,607 74,501 Claims Payments $ (82,416) (73,464) Ending Balance $ 440,580 441,617 Industrial Commission Special Fund: 2016 2017 219,031 231,622 23,808 44,434 (11,217) (12,163) 231,622 263,893 Insurance Department Guaranty Funds: 2016 2017 251,572 148,918 (90,780) 13,176 (11,874) (13,236) 148,918 148,858 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 $159.5 million at June 30, 2017. - 128 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 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 $1.4 billion (net of refunds issued) has been collected since the inception of the fund. The State is also holding securities valued at $40.8 million and mutual funds valued at $21.6 million. In accordance with A.R.S. § 44-313 and A.R.S. § 44-314, for fiscal year 2017, $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, $48.8 million was deposited in the General Fund, and $1.3 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, 2017, $538.6 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 $2.3 billion at June 30, 2017. In fiscal year 2017, the ADOT significantly changed its methodology for disclosing commitments. Roadway area designations have been replaced with classifying commitments first by segregating between local government assistance and State Highway construction and related phases commitments, and then further classifying commitments by phase of constructions, as presented in the following table (expressed in thousands): Local government assistance State highways Construction Design Right of way Utilities Planning and research Other Total Remaining Commitments $ 208,480 $ 1,387,506 162,218 219,769 43,431 58,150 254,278 2,333,832 Additionally, in prior fiscal years, only certain construction commitments were presented. Beginning in fiscal year 2017, all construction related commitments are being disclosed. As a result of expanding the ADOT’s commitments disclosure beyond the construction phase, outstanding commitments increased by approximately $867.5 million compared to fiscal year 2016. F. ARIZONA STATE LOTTERY Winners are offered the option of cash or 30-year annuity 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 $51.5 million at June 30, 2017. Approximately $47.5 million of the total aggregate future payments at June 30, 2017 relate to annuities purchased from five separate insurance companies, of which approximately $22.3 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 $101.5 million in the fund statements and the government-wide statements in fiscal year 2017. Future settlement payments are subject to several adjustments, but the amounts are not presently determinable. - 129 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 These adjustments include a volume adjustment, which could reflect any decreasing cigarette production under a formula that also takes into account increased operating income from sales. Other factors that might affect the amounts of future payments include ongoing and future litigation against the tobacco industry and the future financial health of the tobacco manufacturers. Because the net realizable value of the future settlement payments is not measurable and there is no obligation for the tobacco companies to make settlement payments until cigarettes are shipped, the State did not record a receivable for the future payments related to cigarette sales after June 30, 2017. NOTE 15. SUBSEQUENT EVENTS In December 2017, the ASU issued $52.9 million in System Revenue Bonds, Series 2017A (Series 2017A Bonds), $140.9 million in System Revenue Refunding Bonds, Series 2017B (Series 2017B Bonds), and $6.1 million in System Revenue Refunding Bonds, Series 2017C (Series 2017C Bonds). The Series 2017A Bonds include serial bonds with interest rates of 5.00% and maturity dates ranging from 2019 to 2038 and were issued for the following projects: (1) renovations to research laboratories, classrooms, buildings and other infrastructure on all of the ASU’s campuses, (2) renovations of Armstrong Hall and the Ross-Blakley Library on the Tempe, Arizona campus, and (3) pay costs of issuance. The Series 2017B Bonds include both serial and term bonds with interest rates of 5.00% and maturity dates ranging from 2018 to 2043 and were issued to: (1) refund, in advance of maturity, the Series 2009A, Series 2010C, Series 2012A, and Series 2013A bonds, and (2) pay costs of issuance. The Series 2017C Bonds include serial bonds with interest rates ranging from 1.74% to 3.39% and maturity dates ranging from 2018 to 2036 and were issued to: (1) refund, in advance of maturity, the Series 2007B bonds, and (2) pay costs of issuance. Prior to their stated maturity dates pursuant to the debt documents, the Series 2017A Bonds are subject to optional redemption, the Series 2017B Bonds are subject to optional and mandatory redemption, and the Series 2017C Bonds are subject to mandatory redemption. In February 2018, the U of A issued $94.0 million in System Revenue Bonds, Series 2018A (Series 2018A Bonds), and $16.8 million in System Revenue Bonds, Series 2018B (Series 2018B Bonds). The Series 2018A Bonds include serial and term bonds with interest rates ranging from 3.25% to 5.00% and maturity dates ranging from 2019 to 2043 and were issued for the following projects: (1) the Honors College Community Support and Auxiliary Services Project, (2) the Intercollegiate Athletics Project, and (3) pay costs of issuance. The Series 2018B Bonds include serial and term bonds with interest rates ranging from 3.00% to 5.00% and maturity dates ranging from 2019 to 2043 and were issued for the following: (1) the Building 90 Deferred Maintenance Project, and (2) pay costs of issuance. The Series 2018A and the Series 2018B 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. A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Measurement Focus and Basis of Accounting The State's component units and component units affiliated with the Universities are presented using the economic resources measurement focus and the accrual basis of accounting. 2. Net Assets Component units affiliated with the Universities classify net assets, revenues, expenses, gains and losses based on the existence or absence of donor-imposed restrictions. Accordingly, the net assets of the component units affiliated with the Universities and changes therein are classified and reported as follows: • Unrestricted net assets include assets and contributions that are not restricted by donors or for which such restrictions have expired. • Temporarily restricted net assets include contributions for which donor imposed restrictions have not been met (either by the passage of time or by actions of the Foundations), charitable remainder unitrusts, pooled income funds, gift annuities, and pledges receivable for which the ultimate purpose of the proceeds is not permanently restricted. 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. - 130 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 • 3. 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. 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 $339.0 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. 4. 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. 5. 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. 6. 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. 7. 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. 8. Endowments The management of the ASUEP 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 ASUEP 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 ASUEP 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 ASUEP investment policies are reviewed periodically. The longterm 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. - 131 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 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 7.9% with a standard deviation of 15.3% over a 20 year period. 9. Use of Estimates The preparation of the Universities-affiliated component units' financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. B. DEPOSITS AND INVESTMENTS 1. Component Units a. Deposits and Investment Policies The investments of the AFA’s 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 AFA’s 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 AFA’s 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 AFA’s WIFA does not have a formal policy regarding interest rate risk. The following table presents the interest rate risk for the AFA’s WIFA utilizing the segmented time distribution method as of June 30, 2017 (expressed in thousands): Investment Type Guaranteed investment contracts Money market mutual funds U.S. Treasury securities Total Fair Value $ 54,458 953 43,913 Less than 1 $ 38,477 953 33,874 Investment Maturities (in years) 1-5 6-10 More than 10 $ - $ - $ 15,981 1,064 8,975 $ $ $ 99,324 73,304 - 132 - - $ 1,064 $ 24,956 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 d. 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 AFA’s 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 AFA’s 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, 2017 (expressed in thousands): Investment Type Guaranteed investment contracts Money market mutual funds Total e. $ Fair Value 54,458 953 $ 55,411 $ AAA 953 $ Unrated 54,458 - $ 953 $ 54,458 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 AFA’s WIFA’s investment policy contains no limitations on the amount that can be invested in any one issuer. At June 30, 2017, investments in any one issuer, that were more than 5% of the AFA’s WIFA’s total investments are in Bayerische Landesbank (fair value of $38.5 million, or 8.4%). f. Fair Value Measurement The AFA’s WIFA’s investments at June 30, 2017, categorized within the fair value hierarchy established by U.S. GAAP, were as follows (expressed in thousands): Investment by Fair Value Level U.S. Treasury securities Total June 30, 2017 $ 43,913 $ 43,913 Fair Value Measurement Using Quoted Prices Significant In Active Other Significant Markets for Observable Unobservable Identical Assets Inputs Inputs (Level 1) (Level 2) (Level 3) $ $ 43,913 $ $ - $ 43,913 $ - Investments categorized as Level 2 are valued using significant other observable inputs. In addition, the AFA’s WIFA had $953 thousand invested in money market funds as well as $54.5 million in guaranteed investment contracts that were recorded at cost. 2. Universities-Affiliated Component Units a. Investment Summary The investments held by the ASUEP and the U of A Foundation at June 30, 2017, were as follows (expressed in thousands): Investment Type 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 - 133 - Fair Value 49,965 764,149 256,381 289,064 351,290 $ 1,710,849 $ STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 b. Investments Classified in Fair Value Hierarchy The investments held by the ASUEP and the U of A Foundation at June 30, 2017, categorized within the fair value hierarchy, were as follows (expressed in thousands): Investments by Fair Value Level 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 Total investments by fair value level Investments Measured at the NAV ASUEP Domestic/international equity securities and mutual funds ASUEP U.S. fixed income obligations and mutual funds ASUEP Other investments Total investments measured at the NAV Total investments measured at fair value June 30, 2017 $ 49,965 650,474 250,554 289,064 373,766 1,613,823 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) $ 49,937 $ $ 28 396,200 254,274 242,622 7,932 52,153 236,911 84,887 288,879 $ 825,799 $ $ 788,024 113,675 5,827 8,264 127,766 1,741,589 $ 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 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. The ASUEP also had liabilities at fair value totaling $154,191, including $7,432 in unrealized swap liability valued using level 2 valuation techniques, and $146,759 in assets held for others valued using level 3 valuation techniques. c. Investments Measured at the NAV The investments held by the ASUEP at June 30, 2017, valued using the NAV per share were as follows (expressed in thousands): Investments Measured at the NAV ASUEP Domestic/international equity securities and mutual funds ASUEP U.S. fixed income obligations and mutual funds ASUEP Other investments Total C. Fair Value $ 113,675 5,827 8,264 $ 127,766 Unfunded Commitments - Redemption Frequency (if Currently Eligible) N/A N/A N/A Redemption Notice Period N/A N/A N/A PROGRAM LOANS The AFA’s 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 2017 are as follows (expressed in thousands): Clean Water Fund Drinking Water Fund Total Beginning Balance $ 534,867 380,797 $ 915,664 Increases $ 5,219 12,677 $ 17,896 - 134 - Decreases $ (72,097) (51,057) $ (123,154) Ending Balance $ 467,989 342,417 $ 810,406 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 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 AFA’s WIFA to the borrowers and interest on the reserve accrues to the borrowers. As of June 30, 2017, the debt service reserve was $69 thousand and $2.2 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 ASUEP’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 ASUEP’s collection history and is recorded as a reduction to contribution support and revenue and an increase in the allowance for uncollectible pledges. Pledges receivable, as of June 30, 2017, 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. ASUEP ASU Enterprise Partners $ 196,284 (15,165) (43,522) $ 137,597 The ASUEP leases a portion of the Fulton Center building (the ASUEP’s headquarters) to the ASU under a direct financing lease. At the end of lease, the ASUEP and affiliates will gift their portion of the building to the ASU and the ASU will receive title to the building. The ASUEP’s net investment in this direct financing lease at June 30, 2017 is $21.9 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 $28.1 million at June 30, 2017. 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 July 7, 2016 to change the annual renewal period through June 30, 2039 to correspond with the maturity of the Hassayampa 2016 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 and 2016 Bonds maturity schedules. The ACFFC's net investment in the McAllister (HAV) direct financing lease is $10.5 million at June 30, 2017. - 135 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 F. CAPITAL ASSETS Capital assets for the ACFFC for the fiscal year ended June 30, 2017 include the following (expressed in thousands): Buildings and improvements Furniture, fixtures, and equipment Total cost or donated value Less: Accumulated Depreciation Total Property and Equipment, Net G. LONG-TERM OBLIGATIONS 1. Component Units a. Summary of Revenue Bonds $ $ ACFFC 174,046 79,027 253,073 (120,739) 132,334 AFA’s WIFA bonds are callable and interest is payable semiannually. The bonds are special obligations of AFA’s WIFA payable solely from and secured by the AFA’s WIFA assets. The obligations are not obligations, general, specific, or otherwise, of the State or any other political subdivision, thereof, other than the AFA’s WIFA. On December 4, 2014, AFA’s 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. The amount outstanding of the defeased bonds, as of June 30, 2017, was $325.3 million. In June 2017, AFA’s WIFA defeased $12.4 million of Water Quality Revenue Bonds, series 2009A using their own resources. Sufficient assets to pay principal of $12.4 million and interest of $503 thousand 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. The interest paid on the defeasance is included in expenses in the accompanying financial statements. The amount of the defeased bonds, as of June 30, 2017, was $12.4 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 AFA’s WIFA by the State Treasurer and all pledged loans. The following schedule summarizes AFA’s WIFA revenue bonds outstanding at June 30, 2017 (expressed in thousands): Dates Issued 2006-2015 Revenue Bonds Outstanding Maturity Dates 2018-2031 Interest Rates 0.20-5.00% Outstanding Balance at June 30, 2017 $ 606,270 Principal and interest debt service payments on AFA’s WIFA revenue bonds outstanding at June 30, 2017 are as follows (expressed in thousands): Annual Debt Service Fiscal Year 2018 2019 2020 2021 2022 2023-2027 2028-2031 Total Principal 41,025 40,760 49,725 51,900 53,105 247,810 121,945 $ 606,270 $ Interest $ 27,447 25,810 23,774 21,327 18,769 55,346 8,466 $ 180,939 - 136 - Total $ $ 68,472 66,570 73,499 73,227 71,874 303,156 130,411 787,209 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 b. Changes in Long-Term Obligations The following is a summary of changes in long-term obligations for AFA’s WIFA (expressed in thousands): Balance July 1, 2016 Long-term Debt: Revenue bonds Revenue bond premium Total Long-term Debt $ 656,060 90,485 746,545 Other Long-term Liabilities: Compensated absences Total Other Long-term Liabilities Total Long-term Obligations 2. $ 88 88 $ Decreases Balance June 30, 2017 Due Within One Year Due Thereafter - $ (49,790) (3,277) (53,067) $ 606,270 87,208 693,478 $ 41,025 41,025 $ 565,245 87,208 652,453 78 78 (71) (71) 95 95 95 95 - 78 $ (53,138) $ 693,573 $ 41,120 $ 652,453 Increases 746,633 $ Universities-Affiliated Component Units A summary of bonds payable as of June 30, 2017 include the following (expressed in thousands): Final Maturity Amount ASU Enterprise Partners: Series 2014A Tax-Exempt Lease Revenue Bonds 2035 Series 2014B Taxable Lease Revenue Bonds 2019 3,610 Series 2014A Revenue Refunding Bonds 2034 38,600 Series 2004A Variable Rate Revenue Bonds 2034 22,420 Series 2004B Variable Rate Revenue Bonds 2022 Unamortized Bond Discount $ 31,390 5,200 (1,365) ACFFC: Series 2011 Tax-Exempt Revenue Refunding Bonds 2018 5,830 Series 2009 Revenue Bonds 2024 26,785 Series 2009A Lease Revenue Refunding Bonds 2034 22,955 Series 2009B Lease Revenue Refunding Bonds 2022 5,455 Series 2008 Revenue Bonds 2028 12,030 Series 2008 Revenue Refunding Bonds 2019 6,380 Series 2008 Variable Rate Demand Revenue Refunding Bonds 2030 32,410 Series 2016 Tax-Exempt Revenue Refunding Bonds 2039 118,050 Unamortized Loan Costs (2,904) Deferred Cost of Refunding (16,374) Unamortized Bond Premium 25,985 Scheduled future maturities of Universities-affiliated component units' bonds payable are as follows (expressed in thousands): Fiscal Year 2018 ASU Enterprise Partners $ 3,680 ACFFC $ 10,985 2019 3,845 11,715 2020 4,035 9,345 2021 4,215 9,535 2022 4,395 10,190 Thereafter Total 79,685 $ 99,855 - 137 - 184,832 $ 236,602 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 H. TAX ABATEMENTS The Rio Nuevo receives tax increment financing from state sales tax revenue that can be used to enter into tax abatement agreements with local developers for the purpose of attracting or retaining businesses and new development within the Rio Nuevo District. As of June 30, 2017, the Rio Nuevo has approved the following tax abatement agreements over $5.0 million; however, no state sales tax revenue was provided to the developers relating to these agreements as of June 30, 2017. In May 2014, the Rio Nuevo board of directors (Board) allocated $4.3 million to the purchase of the garage component of a proposed new downtown hotel (AC Marriott). As of June 30, 2016, the Rio Nuevo had expended $10 thousand on the project. In June 2017, the purchase contract was terminated, and the Rio Nuevo and the developer entered into a modified agreement. Under the modified agreement, the Rio Nuevo will have no ownership interest in the garage; instead, the developer will receive the gross state sales tax proceeds received by the Rio Nuevo on the hotel property and certain retail facilities that the developer will renovate, improve and refurbish. The developer shall receive 100% of the gross state sales tax revenue through July 1, 2025, and 50% thereafter, until the maximum of $7.8 million is reached. As of June 30, 2017, construction on the hotel and improvements to the retail facilities were still in progress. In May 2017, the Board also approved re-structuring the purchase/lease option for three historic buildings and two additional properties with tax abatement incentives under which the developer will receive 100% of the gross state sales tax proceeds received by the Rio Nuevo through July 1, 2025, and 50% thereafter, until the maximum abatement is reached. The combined proposed cap on the abatements for these properties is $10.6 million. I. CONDUIT DEBT The purpose of the AFA’s AIDA is to provide a cost-effective mechanism through which private borrowers can seek financing from private sources through either a private placement or public offering of taxable or tax-exempt bonds issued by the AFA’s AIDA. The primary use of funds has been for hospital facilities and charter school projects. Although bonds are issued in the name of the AFA’s AIDA, loans funded through the bonds are solely the obligation of the underlying borrowers and are documented by loan repayment agreements. The AFA’s AIDA 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. At June 30, 2017, the outstanding face value of all bonds of the AFA’s AIDA was $4.5 billion. The purpose of the AFA’s GADA is to provide cost-effective capital for local communities, certain special districts, and tribal governments for public infrastructure projects. The 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 AFA’s GADA from its 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 bonds. In previous years, the State appropriated a total of $20.0 million to the AFA’s GADA for the express purpose of securing bonds. Although issued in the name of the AFA’s GADA, loans funded through the bonds are solely the obligation of the underlying borrowers and are documented by loan repayment agreements. Pursuant to A.R.S. § 41-2259, the 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, 2017, the total outstanding face value of all bonds issued by the AFA’s GADA was $164.5 million. - 138 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 J. ACCOUNTING CHANGES Net Assets has been restated for the Universities-Affiliated Component Units as follows (expressed in thousands): Net Assets, as previously reported Change in reporting entity Net Assets, as restated Universities – Affiliated Component Units $ 1,560,737 (735,103) $ 825,634 Change in Reporting Entity As described in Note 9, the ASU evaluated the affiliation between the Thunderbird and the ASU and determined that the Thunderbird should be blended for fiscal year 2017. This resulted in a $30.3 million decrease to beginning net assets. In September 2015, the ASU Foundation board of directors approved a corporate entity restructure, where a new entity, the ASUEP, was created to be a parent and holding company of the ASU Foundation and four other affiliated organizations. The ASUEP began operations on July 1, 2016, and is the sole member of each of these five affiliates and their subsidiaries. The ASUEP is an Arizona nonprofit corporation and a 501(c)(3) tax-exempt organization. This corporate restructure resulted in a $746.4 million decrease to beginning net assets. However, the net impact of the restructuring did not result in any economic gain or loss and did not impact the ending net assets as all assets were transferred. Effective July 1, 2016, the ASU Foundation assigned its interest in various assets and liabilities to the ASUEP or to an affiliate of the ASUEP. The Downtown Phoenix Student Housing, LLC, previously reported as a discrete component unit of the State affiliated with the Universities, was removed from the reporting entity. It was determined that the nature and significance of the financial relationship are such that it does not meet the criteria for inclusion. Elimination of the Downtown Phoenix Student Housing, LLC, resulted in a $46.7 million increase to beginning net assets. In December 2011, the Sun Angel Endowment entered into a contingent plan of merger with the Sun Angel Foundation and the ABOR for and on behalf of the ASU, in which, upon satisfaction of certain conditions, the Sun Angel Endowment would merge into the Sun Angel Foundation and the Sun Angel Foundation would continue as the surviving corporation. During the fiscal year ended June 30, 2017, all transactions were completed to liquidate and transfer assets from the Sun Angel Endowment to the Sun Angel Foundation and the Sun Angel Endowment was removed from the reporting entity. The Sun Angel Endowment merger with the Sun Angel Foundation resulted in a $5.1 million decrease to beginning net assets. However, it did not result in an economic gain or loss and did not impact ending net assets as all assets were transferred. - 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, 2017 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) ADMINISTRATION, ARIZONA DEPARTMENT OF 500 BED MAXIMUM SECURITY ADMIN ADJUSTMENT AFIS COLLECTIONS ADMIN ADJUSTMENT AFIS REPLACEMENT ERP ADMIN ADJUSTMENT AUTOMATION AND INFORMATION TECH PROJECTS ADMIN ADJUSTMENT E LICENSING DEQ ADMIN ADJUSTMENT GOVERNMENT TRANSFORMATION OFFICE ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ADMIN ADJUSTMENT UTILITIES ADULT INFORMATION MANAGEMENT SYSTEM AFIS COLLECTIONS AFIS REPLACEMENT ERP AUTOMATION AND INFORMATION TECH PROJECTS BUILDING RENEWAL BUILDING RENEWAL COSF BUILDING RENEWAL COST BUILDING RENEWAL GF CAPITOL MALL SECURITY SYSTEM CHILDRENS INFORMATION LIBRARY CHILDRENS INFORMATION LIBRARY AND DATA SOURCE SYSTEM AT DCS 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 MAINTENANCE OF ESSENTIAL COUNTY SERVICES OPERATING LUMP SUM APPROPRIATION RELOCATION REPLACE E-PROCUREMENT SYSTEM REPLACE TAX ACCOUNTING SYSTEM FEASIBILITY STUDY SOUTHWEST DEFENSE CONTRACTS STATE FED SECURITY IT STANDARDS DES STUDENT LONGITUDINAL DATA SYSTEM SWEEPS THIRD PARTY IT CONSOLIDATION ASSESSMENT 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 DES ELIGIBILITY 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 RURAL HOSPITAL REIMBURSEMENT ADMIN ADJUSTMENT TRADITIONAL MEDICAID SERVICES ALTCS SERVICES BHS PROPOSITION 204 ADMIN $ The Notes to Required Supplementary Information are an integral part of this schedule. 1,368,029 8,000,000 9,406,300 3,165,784 12,798,400 384,976 25,229,542 4,073,452 15,987,588 13,648 4,581,600 60,105,600 24,011,800 332,755 5,500,500 500,000 1,000,000 8,000,000 24,202,500 96,719 9,000,000 1,000,000 25,000 1,294,700 7,300,000 5,731,100 800,000 8,275,600 2,000,000 FINAL BUDGET (Appropriations) $ 1,368,029 307,539 1,328,519 1,095,497 1,930,000 43,507 1,408,732 625,264 11,390,888 9,406,300 6,851,523 15,704,712 384,976 25,229,542 4,073,452 15,987,588 13,648 9,268,600 6,103,000 60,105,600 24,011,800 332,755 5,500,500 3,071,945 500,000 1,000,000 8,000,000 23,619,055 96,719 9,000,000 1,000,000 25,000 1,743,322 7,300,000 5,731,100 800,000 8,275,600 2,000,000 ACTUAL EXPENDITURE AMOUNTS $ 307,539 1,328,519 1,095,497 1,930,000 43,507 1,408,732 625,264 7,390,888 9,295,409 3,025,378 7,458,155 245,908 14,746,041 4,026,110 9,355,494 13,648 3,687,000 60,105,600 24,011,800 5,500,500 1,070,000 500,000 956,708 8,000,000 21,348,816 78,765 204,840 25,000 7,300,000 5,731,100 750,000 6,141,048 - 861,700 860,500 860,500 128,500 23,300 65,000 8,781,200 23,200 18,101 100,963 128,500 23,300 65,000 198,434 8,724,300 23,200 18,101 100,963 128,429 23,300 50,350 198,434 8,621,694 23,200 456,023,100 1,400,165,200 5,832,000 430,324,100 21,162,234 20,062,555 11,971,686 162,157 18,521,934 5,051,100 4,586,417 2,121,007 5,823,821 73,509,921 661,390 172,693,512 1,362,188,100 - 425,979,767 21,162,234 20,062,555 11,971,686 162,157 18,521,934 5,051,100 4,586,417 2,121,007 5,823,821 73,509,921 661,390 172,693,512 1,307,516,937 (continued) -143- STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2017 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) CHILDRENS REHABILITATIVE SERVICES CHIP - SERVICES CRISIS SERVICES DES ELIGIBILITY DISPROPORTIONATE SHARE PAYMENTS DSH - VOLUNTARY GRADUATE MEDICAL EDUCATION MEDICAID BEHAVIORAL HEALTH ADULT EXPANSION SERVICES MEDICAID BEHAVIORAL HEALTH CMDP MEDICAID BEHAVIORAL HEALTH PROPOSITION 204 SERVICES MEDICAID BEHAVIORAL HEALTH TRADITIONAL SERVICES NON MEDICAID SERIOUSLY MENTALLY ILL SERVICES OPERATING LUMP SUM APPROPRIATION PROP 204 AHCCCS ADMINISTRATION PROP 204 DES ELIGIBILITY PROPOSITION 204 SERVICES RURAL HOSPITAL REIMBURSEMENT SAFETY NET CARE POOL SUPPORTED HOUSING SWEEPS 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 - POLYTECHNIC SCHOOL OF CIVIC AND ECONOMIC THOUGHT AND LEADERSHIP ATTORNEY GENERAL - DEPARTMENT OF LAW ADMIN ADJUSTMENT CAPITAL POSTCONVICTION PROSECUTION ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ADMIN ADJUSTMENT SOUTHERN ARIZONA DRUG ENFORCEMENT ADMIN ADJUSTMENT STATE GRAND JURY ADMIN ADJUSTMENT TOBACCO ENFORCEMENT CAPITAL POSTCONVICTION PROSECUTION INTERNET CRIMES AGAINST CHILDREN ENFORCEMENT LEGAL ARIZONA WORKERS ACT 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 INTERNET CRIMES AGAINST CHILDREN 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 ACTUAL EXPENDITURE AMOUNTS 275,375,700 1,955,000 14,141,100 54,874,500 5,087,100 19,896,000 162,992,600 77,702,300 208,027,400 612,844,800 924,662,300 78,846,900 91,439,300 6,832,800 38,358,700 2,531,620,500 22,650,000 137,000,000 5,324,800 3,898,755,100 280,814,200 61,180,800 14,141,100 92,874,500 5,087,100 43,896,000 288,712,950 80,960,800 177,266,400 723,910,100 1,121,705,400 78,846,900 102,048,900 18,666,600 44,358,700 2,447,461,700 22,650,000 137,000,000 5,324,800 30,000,000 3,720,262,000 265,087,448 23,747,747 14,082,429 73,700,922 4,202,300 23,553,767 224,475,695 78,821,613 172,511,172 720,697,332 1,115,036,837 78,680,865 90,679,603 15,098,806 39,238,752 2,421,639,543 22,650,000 96,756,841 5,237,844 30,000,000 3,523,847,213 2,791,900 13,492,100 214,019,600 21,574,400 29,176,300 3,000,000 2,800,400 14,337,000 216,241,200 21,606,100 29,222,600 10,273,300 917,000 3,000,000 2,800,400 14,337,000 216,241,200 21,606,100 29,222,600 10,273,285 917,000 3,000,000 799,400 3,050,000 100,000 4,725 37,646,200 1,200,000 180,600 84,900 116 131,998 251 1,415 12 795,700 3,050,000 100,000 89,725 37,485,100 1,193,000 180,100 84,400 116 131,998 251 1,415 12 677,013 728,702 83,115 36,776,013 1,192,881 173,955 15,879 74,449 23,494,907 74,449 23,428,107 17,936,113 1,194,100 13,044 1,185,200 13,044 997,371 18,351,857 691,446 5,223,700 5,947,698 24,123 242,633 98,431 7,886,865 4,137 205,173 21,071 5,803,870 18,100,668 765,422 1,135,809 18,351,857 691,446 5,223,700 5,947,698 24,123 242,633 98,431 7,886,865 4,137 205,173 21,071 5,803,870 18,100,668 765,422 1,135,809 - The Notes to Required Supplementary Information are an integral part of this schedule. FINAL BUDGET (Appropriations) (continued) -144- STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2017 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) ADMIN ADJUSTMENT DCS RECORDS RETENTION STAFF ADMIN ADJUSTMENT DCS RETENTION PAY ADMIN ADJUSTMENT DCS TRAINING RESOURCES ADMIN ADJUSTMENT EMERGENCY AND RESIDENTIAL PLACEMENT BACKLOG PRIVATIZATION DCS ADOPTION SERVICES DCS ATTORNEY GENERAL LEGAL SERVICES DCS CASEWORKERS DCS CHILD CARE SUBSIDY DCS FOSTER CARE PLACEMENT DCS GENERAL COUNSEL DCS GRANDPARENT STIPENDS DCS INDEPENDENT LIVING MAINTENANCE DCS IN-HOME MITIGATION DCS INSPECTIONS BUREAU DCS NEW CASE AIDES DCS OFFICE OF CHILD WELFARE INVESTIGATIONS DCS OPERATING LUMP SUM DCS OUT-OF-HOME SUPPORT SERVICES DCS OVERTIME DCS PERMANENT GUARDIAN SUBSIDY DCS PREVENTIVE SERVICES 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 DIVISION DATABASE REPLACEMENT 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 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 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 OPPORTUNITY, OFFICE OF OPERATING LUMP SUM APPROPRIATION ACTUAL EXPENDITURE AMOUNTS 5,400,000 225,698,100 25,588,700 100,992,100 45,159,400 65,595,500 156,100 1,000,000 4,660,000 27,528,800 2,486,500 3,077,700 10,706,700 116,103,100 198,272,500 8,400,000 12,516,900 15,148,300 595,600 1,707,000 5,150,000 98,900,100 53,791 110,262 3,665,603 13,622,658 5,400,000 229,394,100 25,416,800 100,410,600 48,920,400 61,795,500 155,500 541,000 3,955,000 28,418,800 2,470,100 3,060,600 10,611,100 115,797,300 193,621,500 8,370,000 11,684,900 15,148,300 592,900 1,707,000 5,150,000 101,000,100 53,791 110,262 3,665,603 13,622,658 1,000,428 208,941,558 25,321,439 88,741,390 39,624,866 51,002,613 130,172 523,405 3,917,727 20,023,990 2,172,454 509,422 7,814,273 99,840,748 131,878,921 5,307,321 10,699,402 13,394,142 540,278 895,275 4,340,245 92,758,227 125,000 2,935 125,000 2,935 119,922 2,000,000 664,300 47,510 767 2,000,000 661,500 47,510 767 250,000 656,566 - 71,056 361,019 10,527,476 135,637,100 776,276,900 143,120,900 1,500 8,262,364 6,235,093 413,065 71,056 361,019 10,527,476 131,137,100 781,494,200 137,120,900 6,946 1,500 8,262,364 6,235,093 413,065 15,723 4,783 5,527,850 128,832,125 771,758,901 131,091,409 6,946 1,500 10,011,100 17,418 9,948,900 17,418 9,876,442 4,336,300 4,331,500 4,328,776 4,152,100 3,806,700 2,172,100 821,900 738,000 9,905,600 3,573 367,697 54,474 166 13 526,312 4,234,545 4,066,860 2,149,367 63,298 738,000 10,126,030 3,573 367,697 54,474 166 13 526,312 4,195,805 3,460,255 2,116,947 61,037 507,280 9,826,849 525,545 508,668 - 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, 2017 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) ECONOMIC SECURITY, DEPARTMENT OF ACHIEVING A BETTER LIFE EXPERIENCE ACT PROGRAM ADMIN ADJUSTMENT ADULT SERVICES ADMIN ADJUSTMENT ATTORNEY GENERAL LEGAL SERVICES ADMIN ADJUSTMENT AZ TRAINING PROGRAM COOLIDGE-TITLE XIX ADMIN ADJUSTMENT CASE MANAGEMENT-STATE ONLY ADMIN ADJUSTMENT CASE MANAGEMENT-TITLE XIX ADMIN ADJUSTMENT CHILD CARE SUBSIDY 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 DDD OPERATING LUMP SUM ADMIN ADJUSTMENT DES OPERATING LUMP SUM ADMIN ADJUSTMENT DOMESTIC VIOLENCE PREVENTION ADMIN ADJUSTMENT HOME AND COMMUNITY BASED SERVICES - STATE ONLY ADMIN ADJUSTMENT HOME AND COMMUNITY BASED SERVICES - TITLE XIX 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 SWEEPS ADMIN ADJUSTMENT WORKFORCE INVESTMENT ACT SERVICES ADULT SERVICES ATTORNEY GENERAL LEGAL SERVICES AZ TRAINING PROGRAM COOLIDGE-TITLE XIX CASE MANAGEMENT-STATE ONLY CASE MANAGEMENT-TITLE XIX CHILD CARE SUBSIDY COMMUNITY AND EMERGENCY SERVICES COORDINATED HOMELESS PROGRAM COORDINATED HUNGER COUNTY PARTICIPATION 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 SERVICES INSTITUTIONAL SERVICES-TITLE XIX JOBS LOAN FOR REIMBURSEMENT GRANTS MEDICAL CLAWBACK MEDICAL SERVICES-TITLE XIX REHABILITATION SERVICES STATE FUNDED LONG-TERM CARE SERVICES SWEEPS 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 FORMULA COSTS ADDITIONAL FUNDING ADDITIONAL STATE AID - 1 PERCENT CAP ADDITIONAL STATE AID TO SCHOOLS ADMIN ADJUSTMENT OTHER STATE AID TO DISTRICTS ADMIN ADJUSTMENT SPECIAL EDUCATION FUND ADMIN ADJUSTMENT TRIBAL COLLEGE DUAL ENROLLMENT PROGRAM FUND ADULT EDUCATION ALTERNATIVE TEACHER DEVELOPMENT PROGRAM The Notes to Required Supplementary Information are an integral part of this schedule. FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 7,924,100 10,969,700 20,701,600 3,912,700 72,751,700 98,396,600 3,724,000 2,522,600 1,754,600 8,740,200 64,342,800 155,118,800 10,003,700 16,793,400 1,300,998,400 166,000 29,600,300 11,894,700 3,370,600 216,503,300 6,594,400 26,554,000 157,400 27,736,400 4,680,300 51,654,600 240,000 1,026,133 272,038 1,078,643 126,794 107,468 8,570,770 292,991 186,320 318,762 941,451 21,000,000 8,218,962 8,784,947 623,812 3,578,955 58,985,431 2,686,711 2,388,492 3,162,023 417,595 2,451,806 24,052,425 11,780,926 7,924,100 10,898,800 23,589,500 3,893,700 78,885,900 98,396,600 3,724,000 2,522,600 1,754,600 8,740,200 74,792,900 154,693,300 10,003,700 17,220,400 1,304,489,900 166,000 32,571,800 11,894,700 25,000,000 3,370,600 222,966,400 6,594,400 26,559,600 157,400 27,736,400 4,680,300 51,654,600 1,026,133 272,038 1,078,643 126,794 107,468 8,570,770 292,991 186,320 318,762 941,451 21,000,000 8,218,962 8,784,947 623,812 3,578,955 58,985,431 2,686,711 2,388,492 3,162,023 417,595 2,451,806 24,052,425 11,780,926 5,961,340 9,367,680 20,143,046 3,699,891 66,567,493 79,166,157 3,080,638 2,425,779 1,592,919 4,177,347 56,980,570 124,286,824 9,452,417 15,527,866 1,162,220,467 83,716 29,518,286 8,651,786 3,370,600 219,581,796 4,988,449 24,316,237 157,400 26,814,249 3,676,230 42,853,915 1,325,200 82,879 1,094,000 82,879 842,226 9,422,400 7,380,300 391,456,100 4,500,000 500,000 9,420,800 17,081,200 50,000,000 7,380,300 391,456,100 212,672 15,400 108,737 4,498,200 500,000 9,420,800 17,081,200 50,000,000 7,380,300 389,850,403 212,672 15,400 108,737 4,498,200 500,000 (continued) -146- STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2017 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) ARIZONA STRUCTURED ENGLISH IMMERSION BASIC STATE AID DEFERRED PAYMENT BASIC STATE AID ENTITLEMENT CODE WRITERS INITIATIVE PILOT PROGRAM CURRENT YEAR FUNDING BACKFILL EMPOWERMENT SCHOLARSHIP ACCOUNT ENGLISH LEARNER ADMINISTRATION ENGLISH LEARNER TEACHER FORMER DISTRICT-SPONSORED CHARTER SCHOOLS GEOGRAPHIC LITERACY JTED SOFT CAPITAL AND EQUIPMENT OPERATING LUMP SUM APPROPRIATION - ADMIN OPERATING LUMP SUM APPROPRIATION-ST BD OTHER STATE AID TO DISTRICTS SCHOOL SAFETY PROGRAM SPECIAL EDUCATION FUND STATE BLOCK GRT FOR VOCATIONAL EDUCATION SWEEPS TECH-BASED LANGUAGE DEVELOPMENT TRIBAL COLLEGE DUAL ENROLLMENT PROGRAM FUND EMERGENCY AND MILITARY AFFAIRS, DEPARTMENT OF ADEM MATCHING FUND ADMIN ADJUSTMENT ADMINISTRATION ADMINISTRATION DISASTER DECLARATION EMERGENCY MANAGEMENT FEDRUARY 2005 WINTER STORMS HAZARD MATERIAL CONTINGENCY JANUARY 2010 WINTER STORM MILITARY AFFAIRS MILITARY AFFAIRS COMMISSION SCHULTZ FIRE POST-FIRE FLOOD SERVICE CONTRACTS ENVIRONMENTAL QUALITY, DEPARTMENT OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION SWEEPS 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 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 FORESTER, OFFICE OF THE STATE ADMIN ADJUSTMENT HAZARDOUS VEGETATION REMOVAL ADMIN ADJUSTMENT INMATE FIRE CREWS ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ENVIRONMENTAL COUNTY GRANTS FIRE SUPPRESSION SLI GENERAL FUND TRSF TO FIRE SUPPRESSION HAZARDOUS VEGETATION REMOVAL INMATE FIRE CREWS ONE TIME EQUIPMENT OPERATING LUMP SUM APPROPRIATION STATE FIRE MARSHAL STATE FIRE SCHOOL GAMING, DEPARTMENT OF ARIZONA BREEDERS AWARD COUNTY FAIR LIVESTOCK AND AGRICULTURAL ACTUAL EXPENDITURE AMOUNTS 4,960,400 2,573,336,300 31,000,000 16,420 6,507,900 238,363 1,148,000 100,000 1,000,000 9,538,400 983,900 5,018,008 32,242,100 11,560,900 25,900 546,800 250,000 4,960,400 930,727,700 2,573,336,300 500,000 31,000,000 16,420 6,495,000 238,363 1,148,000 100,000 1,000,000 9,471,800 231,200 983,900 5,017,108 32,242,100 11,576,300 25,900 546,800 250,000 4,960,400 930,727,700 2,569,714,915 500,000 31,000,000 16,420 6,495,000 238,363 1,148,000 100,000 1,000,000 9,470,600 231,200 4,113,895 32,242,100 11,576,300 25,900 314,538 14,255 1,540,900 1,819,200 2,082,086 727,300 49,785 1,897 40,484 1,324,400 64,059 64,261 2,445,283 1,540,900 12,416 1,812,500 5,782,086 727,300 49,785 1,897 40,484 1,324,400 154,059 64,261 2,445,283 1,540,900 12,416 1,804,203 4,000,000 727,300 40,484 1,323,814 60,317 64,261 1,214,673 13,506,500 38,900 173,262 13,508,000 38,900 173,262 661,364 38,900 189,000 80 189,100 80 186,953 642,800 25,723 643,000 25,723 549,630 956,000 952,600 746,579 2,995,400 12,241 2,978,200 12,241 2,912,785 149 149 250,000 1,000,000 1,350,000 691,000 302,500 2,953,000 747,300 172,700 632,061 61,000 139,130 250,000 1,000,000 3,000,000 1,350,000 686,200 302,500 2,939,400 742,600 172,100 632,061 61,000 139,130 250,000 1,000,000 3,000,000 855,074 605,220 302,500 2,894,333 669,949 169,912 1,779,500 200,000 1,779,500 200,000 1,779,500 - The Notes to Required Supplementary Information are an integral part of this schedule. FINAL BUDGET (Appropriations) (continued) -147- STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2017 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) GENERAL ACCOUNTING OFFICE ADMIN ADJUSTMENT GENERAL FUND TRANSFERS EQUALIZATION AID - COCHISE EQUALIZATION AID - GRAHAM EQUALIZATION AID - NAVAJO GENERAL FUND TRANSFERS 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 GOVERNOR, OFFICE OF THE OPERATING LUMP SUM APPROPRIATION - OSPB OPERATING LUMP SUM APPROPRIATION HEALTH SERVICES, DEPARTMENT OF ADMIN ADJUSTMENT AGENCYWIDE OPERATING LUMP SUM APPROPRIATION 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 CRISIS SERVICES ADMIN ADJUSTMENT HIGH RISK PERINATAL SERVICES 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 SUP ASH-RESTORATION TO COMPETENCY BREAST AND CERVICAL CANCER SCREENING COUNTY TUBERCULOSIS PROVIDER CARE - CTL HIGH RISK PERINATAL SERVICES MIDDLE AND HIGH SCHOOL PREVENTION ED PRG NON RENAL DISEASE MANAGEMENT PEDIATRIC NEUROLOGICAL AUTOIMMUNE DISORDERS POISON CONTROL CENTER FUNDING REG HA DEISPENSERS - AUDIOL PATHOL RELIEF SWEEPS TANF PERINATAL SERVICES HISTORICAL SOCIETY OF ARIZONA, PRESCOTT ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ACTUAL EXPENDITURE AMOUNTS 4,878,400 14,695,800 6,081,500 7,874,377 4,670,000 1,756,400 315,200 2,249,700 1,315,000 1,606,000 1,724,700 81,200 800,200 2,690,100 1,273,800 1,008,200 418,000 142,500 595,200 505,200 353,700 96,500 774,400 61,400 864,000 11,881,600 - 300,000 4,878,400 14,695,800 6,081,500 7,874,377 4,670,000 1,756,400 315,200 2,249,700 1,315,000 1,606,000 1,724,700 81,200 800,200 2,690,100 1,273,800 1,008,200 418,000 142,500 595,200 505,200 353,700 96,500 774,400 61,400 864,000 11,881,600 181,766 300,000 4,878,400 14,695,800 6,081,500 7,874,377 4,670,000 1,756,400 315,200 2,249,700 1,315,000 1,606,000 1,724,700 81,200 800,200 2,690,100 1,273,800 1,008,200 418,000 142,500 595,200 505,200 353,700 96,500 774,400 61,400 864,000 11,881,600 181,766 2,655,438 7,746,361 2,655,438 7,707,261 2,229,291 6,724,911 105,200 30,329,400 1,000,000 125,000 60,131,500 9,684,900 398,060 900,000 1,369,400 590,700 2,093,400 9,739 198,000 990,000 62,243 3,822,600 47,270 1,449,346 5,647 1,586,482 546,253 322,739 49,903 215,046 194,387 567,509 151,404 161,828 117,543 105,200 30,245,600 1,000,000 125,000 59,835,600 9,639,100 398,060 900,000 1,369,400 590,700 2,093,400 9,739 198,000 250,000 990,000 62,243 2,914 3,822,600 47,270 1,449,346 5,647 1,586,482 546,253 322,739 49,903 215,046 194,387 567,509 151,404 161,828 117,543 105,200 28,941,403 963,257 125,000 56,834,252 8,996,934 574,456 896,082 500,270 1,856,788 83,390 990,000 2,914 3,822,600 - 18,380 18,380 - The Notes to Required Supplementary Information are an integral part of this schedule. FINAL BUDGET (Appropriations) (continued) -148- STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2017 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) 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 HOUSING, ARIZONA DEPARTMENT OF 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 INDUSTRIAL COMMISSION OF ARIZONA OCCUPATIONAL SAFETY AND HEALTH 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 STREAMBED NAVIGABILITY LITIGATION LEGISLATIVE COUNCIL OMBUDSMAN-CITIZENS AID OFFICE OPERATING LUMP SUM APPROPRIATION LIQUOR, LICENSES, AND CONTROL, DEPARTMENT OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ANNUAL REVERSION PER ARS 4-120C LICENSING SYSTEM - REPLACEMENT OPERATING LUMP SUM APPROPRIATION SWEEPS MEDICAL STUDENT LOANS, BOARD OF MEDICAL STUDENT FINANCIAL ASSIST 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 ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION 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 ACTUAL EXPENDITURE AMOUNTS 825,800 824,500 805,934 428,300 66,000 2,118,500 544,400 428,300 66,000 2,114,100 542,800 428,300 66,000 2,114,100 542,800 20,352,621 20,264,621 13,316,630 814,800 811,400 811,400 86,918 1,115,300 20,876 86,918 1,115,300 20,876 86,918 945,908 57,400 313 57,500 313 56,666 - 8,293 - 5,856,000 38,277 5,824,300 38,277 5,039,835 5,852,069 5,849,469 2,309,524 37,345,300 670,979 37,028,600 670,979 34,967,401 769,900 500,000 389,500 11,173,200 220,000 15,128 994,400 500,000 389,500 11,112,000 220,000 15,128 994,356 389,500 10,633,192 12,729 997,231 13,780,450 994,239 13,765,542 810,626 5,885,767 821,198 3,017,600 500 58,646 200,160 821,198 3,007,400 500 58,646 200,160 595,002 3,004,422 500 656,355 656,355 194,700 1,020,500 194,700 586 15,142 1,017,800 159,896 586 15,142 996,817 126,600 4,756 124,000 4,756 122,144 3,066,600 88,102,000 2,290,600 3,000,000 3,065,900 88,623,700 4,246,800 2,290,600 3,000,000 3,065,900 88,623,700 4,246,800 2,290,600 8,293 5,396 The Notes to Required Supplementary Information are an integral part of this schedule. FINAL BUDGET (Appropriations) 493 679,476 5,396 - 493 679,476 - (continued) -149- STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2017 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) KARTCHNER CAVERNS STATE PARK OPERATING LUMP SUM APPROPRIATION SPRF BSF STATE PARKS CAPITAL IMPROVEMENT SPRF CH 117 TRANSFER TO AZ TRAIL FUND SPRF FY17 FEDERAL CONTINGENCY SPRF FY17 SUPPLEMENT MAJOR MAINTENANCE SWEEPS POSTSECONDARY EDUCATION, COMMISSION FOR ARIZONA COLLEGE AND CAREER GUIDE AZ MINORITY ED POLICY ANALYSIS CENTER LEVERAGING EDUCATIONAL ASSISTANCE PARTNERSHIP MATH AND SCIENCE TEACHER INITIATIVE OPERATING LUMP SUM APPROPRIATION SWEEPS TWELVE PLUS PARTNERSHIP PUBLIC SAFETY, DEPARTMENT OF ACTIC ADMIN ADJUSTMENT ACTIC ADMIN ADJUSTMENT GIITEM BORDER STRIKE TASK FORCE LOCAL SUPPORT BORDER STRIKE TASK FORCE ONE-TIME BORDER STRIKE TASK FORCE ONGOING CIVIL AIR PATROL GIITEM GIITEM IMPACT APPROPRIATION GIITEM SUBACCOUNT MICROWAVE COMMUNICATION SYSTEM UPGRADE MOTOR VEHICLE FUEL OPERATING LUMP SUM APPROPRIATION SEXUAL ASSAULT KIT TESTING SWEEPS RADIATION REGULATORY AGENCY ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION NUCLEAR EMERGENCY MANAGEMENT FUND OPERATING LUMP SUM APPROPRIATION SWEEPS REAL ESTATE DEPARTMENT, STATE ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION REGENTS, ARIZONA BOARD OF ARIZONA TEACHERS INCENTIVE PROGRAM AZ TRANSFER ARTICULATION SUPPORT SYSTEM CAPITAL IMPROVEMENT OPERATING LUMP SUM APPROPRIATION PERFORMANCE FUNDING STUDENT FINANCIAL ASSISTANCE WESTERN INTERSTATE COMMISSION OFFICE WICHE STUDENT SUBSIDIES REVENUE, DEPARTMENT OF ADMIN ADJUSTMENT BRITS OPERATIONAL SUPPORT ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION BRITS OPERATIONAL SUPPORT INCOME TAX FRAUD PREVENTION OPERATING LUMP SUM APPROPRIATION SWEEPS TPT SIMPLIFICATION UNCLAIMED PROPERTY ADMINISTRATION-AUDIT SCHOOL FACILITIES BOARD ADMIN ADJUSTMENT ACCESS OUR BEST PUBLIC SCHOOLS FUNDING ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION BUILDING RENEWAL GRANT NEW SCHOOL CONSTRUCTION NEW SCHOOL FACILITIES DEBT SERVICE OPERATING LUMP SUM APPROPRIATION PUBLIC SCHOOL CREDIT ENHANCEMENT TRANSACTION COSTS The Notes to Required Supplementary Information are an integral part of this schedule. FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 2,232,000 10,622,800 3,688,401 150,000 1,500,000 115,100 2,226,300 10,656,835 3,688,401 150,000 1,500,000 1,500,000 115,100 1,951,480 9,700,447 503,712 150,000 625,874 115,100 21,300 100,000 2,319,500 176,000 184,300 500 130,500 21,300 100,000 2,319,500 176,000 183,600 500 130,500 5,432 24,494 2,319,500 176,000 138,163 500 8,660 750,000 1,261,700 14,600,000 6,778,800 150,000 22,629,000 2,942,626 2,390,000 2,100 4,384,200 71,751,200 500,000 3,600 750,000 195,870 274,146 1,261,700 14,600,000 6,778,800 150,000 22,584,300 2,942,626 2,390,000 2,100 4,384,200 71,588,100 500,000 3,600 578,308 195,870 274,146 766,415 10,332,612 6,480,075 150,000 21,881,874 2,436,451 2,227,438 (724) 3,338,932 71,588,100 499,727 3,600 1,354,000 14,300 2,241 789,663 1,349,900 14,300 2,241 789,663 1,328,121 14,300 3,004,000 109,931 2,994,900 109,931 2,344,319 90,000 213,700 19,000,000 2,352,500 5,000,000 10,041,200 141,000 4,090,000 90,000 213,700 19,000,000 2,352,500 5,000,000 10,041,200 145,000 4,086,000 90,000 213,700 19,000,000 2,352,458 5,000,000 10,041,200 145,000 4,086,000 7,538,900 3,150,000 63,015,400 1,062,100 990,600 1,218,500 82,930 1,029,229 7,497,500 3,150,000 62,718,500 1,062,100 970,400 1,918,500 82,930 1,029,229 7,312,677 2,827,927 59,205,152 1,062,100 872,758 1,747,596 31,667,900 24,253,200 170,006,600 1,672,500 - 23,900,000 32,716 31,667,900 24,253,200 170,006,600 1,666,700 500,000 23,900,000 32,716 31,667,900 24,253,200 170,006,600 1,502,248 500,000 (continued) -150- STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2017 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) SECRETARY OF STATE ADMIN ADJUSTMENT ELECTION SERVICES ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION BUILDING RENOVATION AND CODE COMPLIANCE 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 CENTRALIZED SERVICE PAYMENTS ADMIN ADJUSTMENT DOMESTIC RELATIONS ADMIN ADJUSTMENT FOSTER CARE REVIEW BOARD ADMIN ADJUSTMENT JUDICIAL NOMINATION - PERFORMANCE REVIEW ADMIN ADJUSTMENT OPERATING LUMP SUM ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ADULT INTENSIVE PROBATION ADULT STANDARD PROBATION AUTOMATION CENTRALIZED SERVICE PAYMENTS COMMISSION ON JUDICIAL CONDUCT COUNTY REIMBURSEMENTS DEPENDENCY SURGE 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 WAAS UPGRADE TAX APPEALS, STATE BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION TOURISM, OFFICE OF TOURISM FUND DEPOSIT TRANSPORTATION, DEPARTMENT OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION HURF TO GENERAL FUND INTERSTATE 10 PROJECTS NAVAJO NATION TRANSPORTATION PROJECT OPERATING LUMP SUM APPROPRIATION SR189 CONSTRUCTION PROJECTS TREASURER, STATE ADMIN ADJUSTMENT JUSTICE OF THE PEACE SALARIES ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION BUDGET STABILIZATION INTEREST TRANSFERS COM COL REIMBURSEMENT ARS 15-1469-01 CORPORATE INCOME TAX TRANSFER JUSTICE OF THE PEACE SALARIES OPERATING LUMP SUM APPROPRIATION SWEEPS UNIVERSITY OF ARIZONA AGRICULTURE The Notes to Required Supplementary Information are an integral part of this schedule. FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 102,797 3,390,800 9,300,000 5,158,426 901,635 11,609,300 97,000 4,238,540 403,105 102,797 2,678,800 9,300,000 5,158,026 901,635 12,282,400 97,000 4,238,540 403,105 2,356,717 6,255,647 1,054,656 673,207 11,995,853 97,000 44,419 10,342,975 44,419 10,277,575 8,905,630 8,831,700 13,090,100 6,884,800 3,008,100 505,000 187,900 3,000,000 621,000 1,054,922 3,212,300 334,700 8,288,500 413,500 8,157,800 500,000 5,612,400 3,700,600 19,960,900 437,600 3,879,400 10,396,900 160,000 948,700 84,071 10,345 7,963 353 6,649 52,809 9,184,073 13,392,500 6,849,400 3,008,100 498,600 187,900 3,000,000 613,400 1,054,922 3,178,500 334,700 8,288,500 409,100 8,157,800 500,000 5,285,024 3,373,203 19,960,900 437,600 3,879,400 10,294,800 160,000 948,700 84,071 10,345 7,963 353 6,649 52,809 9,184,073 13,392,500 5,861,540 2,904,458 495,495 187,900 1,229,565 610,752 993,600 3,177,533 331,992 8,071,818 408,632 8,157,800 500,000 5,285,024 3,373,203 19,960,900 437,382 3,875,496 10,101,843 144,403 948,700 266,400 483 266,600 483 266,563 7,110,400 7,112,000 7,112,000 30,000,000 1,500,000 50,400 25,000,000 687 30,000,000 30,000,000 1,500,000 50,400 25,000,000 687 30,000,000 1,500,000 49,778 - 1,500,000 1,205,100 2,848,100 13,000 193,177 36,927 1,500,000 2,730,600 2,823,600 1,205,100 2,834,300 13,000 193,177 36,927 1,500,000 2,730,600 2,823,600 889,294 2,789,370 13,000 28,240,300 31,111,746 31,111,746 (continued) -151- STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2017 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) 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 ASVH FLAGSTAFF CONSTRUCTION MILTARY FAMILY RELIEF FUND OPERATING LUMP SUM APPROPRIATION VETERANS BENEFIT COUNSELING WATER RESOURCES, DEPARTMENT OF ADJUDICATION SUPPORT ADMIN ADJUSTMENT ASSURED - ADEQUATE WATER SUPPLY ADMIN ADMIN ADJUSTMENT AUTOMATED GROUNDWATER MONITORING ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION 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 FINAL BUDGET (Appropriations) 14,317,700 350,500 8,484,400 2,500,000 450,600 34,838,000 124,420,900 22,667,200 2,482,200 1,838,500 14,598,584 356,300 8,689,595 2,500,000 440,100 40,775,352 116,608,800 23,256,200 13,978,400 3,507,023 1,669,000 14,598,584 356,300 8,689,595 2,500,000 440,100 40,775,352 116,608,800 23,256,200 13,978,400 3,507,023 1,669,000 928,000 9,200,000 10,000,000 15,291 2,316,100 2,833,700 10,090 18,787 15,125 924,200 9,200,000 10,000,000 15,291 2,308,800 2,821,100 10,090 18,787 15,125 913,889 2,272,431 2,690,557 1,251,800 1,716,600 409,400 408,300 1,518,708 7,352,500 1,164,500 1,247,800 100 17,397 195,687 4,367 1,711,000 408,700 406,900 1,518,708 7,326,500 1,161,700 1,245,537 100 17,397 195,687 4,367 1,628,865 234,220 396,671 34,130 6,948,377 1,084,273 785 785 - TOTAL GENERAL FUND BUDGETARY EXPENDITURES $ The Notes to Required Supplementary Information are an integral part of this schedule -152- ACTUAL EXPENDITURE AMOUNTS 20,390,506,600 $ 22,448,739,014 $ 21,212,181,140 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, 2017 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) TRANSPORTATION, DEPARTMENT OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION AIRPORT PLANNING AND DEVELOPMENT ATTORNEY GENERAL LEGAL SERVICES BUILDING RENEWAL DE ICER BUILDINGS FRAUD INVESTIGATION HIGHWAY MAINTENANCE HIGHWAY CONSTRUCTION/REPAIR DISTRIBUTION MOTOR VEHICLE LIABILITY ENFORCEMENT FUND TRANSFER NEW THIRD PARTY FUNDING OPERATING LUMP SUM APPROPRIATION PHOENIX AREA FREEWAY LIGHTING RELIEF STATEWIDE DRAINAGE STRUCTURES STATEWIDE HIGHWAY CONSTRUCTION SWEEPS VEHICLE WASH SYSTEM TOTAL TRANSPORTATION AND AVIATION PLANNING, HIGHWAY MAINTENANCE AND SAFETY FUND BUDGETARY EXPENDITURES FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS $ 36,567,757 3,577,700 6,912,621 2,268,877 767,000 151,563,352 1,100,000 631,800 205,281,200 1,500,000 4,300,000 489,062,381 4,554,300 11,692,805 $ 4,883,363 36,567,757 3,577,700 6,912,621 2,268,877 767,000 151,563,352 3,185,200 1,100,000 629,600 203,967,400 1,500,000 6,407 4,300,000 489,062,381 4,554,300 8,507,605 $ 4,883,363 18,832,948 3,477,700 3,992,199 1,871,487 744,275 143,375,358 1,100,000 555,107 199,050,617 1,499,837 6,407 4,300,000 154,289,245 4,554,300 4,202,627 $ 919,779,793 $ 923,353,563 $ 546,735,470 The Notes to Required Supplementary Information are an integral part of this schedule -153- STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION – BUDGETARY COMPARISON SCHEDULES JUNE 30, 2017 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, 2016 that affect available appropriations during fiscal year 2017. The final budget represents any appropriation bills passed during fiscal year 2017 for fiscal year 2017 plus the original budget. Appropriation bills passed after the end of fiscal year 2017 for fiscal year 2017 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 $ 21,212,181 $ 546,735 Differences – budget to GAAP: Increase in unpaid incurred expenditures from fiscal year end 2016 to fiscal year end 2017. 148,406 503,638 25,619 - Distributions to counties and cities of sales taxes are recognized as expenditures on the modified accrual basis, but have no effect on budgetary expenditures. 1,352,210 - 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. 685,082 - Capital leases and installment purchase contracts initiated during the fiscal year, which are not reported in budgetary expenditures. 39,656 - Programs which are not controlled by legislative appropriations but have disbursed cash or incurred obligations during fiscal year 2017. 2,204,959 1,864,165 Transfers to other funds are outflows of budgetary resources but are not expenditures for financial reporting purposes. (922,658) (273,873) Increase in unpaid payroll expenditures from fiscal year end 2016 to fiscal year end 2017. For budgetary reporting, final June 2016 payroll expenditures were charged to fiscal year 2017 budget and final June 2017 payroll expenditures were charged to fiscal year 2018 budget. Total expenditures, as reported on the Statement of Revenues, Expenditures and Changes in Fund Balances $ 24,745,455 $ There were no expenditures in excess of appropriations or allotments in the individual budget accounts for the year. - 154 - 2,640,665 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION – BUDGETARY COMPARISON SCHEDULES JUNE 30, 2017 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 typically permitted to transfer funding between line items with ADOA approval but without further Legislative Branch review. Footnotes may require Joint Legislative Budget Committee review, however, prior to transfers between certain line items. During the fiscal year, $2.1 billion in supplemental appropriations, net of mid-year reversions and adjustments, were provided to the General Fund. The Transportation and Aviation Planning, Highway Maintenance and Safety Fund appropriations increased by $3.6 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, 2017 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 6,780 center lane miles (21,532 travel lane miles) of roads and 4,866 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 2017 and beyond was adopted by the Transportation Board on June 17, 2016. 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, 2017 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 2017, an overall rating of 3.67 was achieved, as shown in the following graph: Condition Levels - Roads 5 PSR 4 3 Actual 2 Goal 1 0 2013 2014 2015 2016 2017 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 2013 through 2017 were as follows: Fiscal Year 2013 2014 2015 2016 2017 Estimated Expenditures (in millions) $276.3 $271.2 $249.5 $272.0 $322.4 Actual Expenditures (in millions) $291.3 $287.2 $300.6 $317.0 $186.4 Bridges The State’s bridge assets constitute a significant portion of all infrastructure assets in Arizona. As of June 30, 2017, the State owned and maintained 4,866 bridges with an approximate total deck area of 48,863,940 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 AASHTO’s Bridge Management System (BMS). This system is used to efficiently manage the bridge inventory through storing all bridge related data - 157 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2017 and assisting bridge engineers in arriving at appropriate bridge preservation decisions. Also, BMS is used for reporting bridge inventory and condition, on an annual 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 2017, 1.6% of bridges maintained by the states were classified as Poor. 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 55% of the bridges in the State were constructed prior to the 1970s while only 16% 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 2013 through 2017 were as follows: Fiscal Year 2013 2014 2015 2016 2017 Estimated Expenditures (in millions) $14.7 $21.2 $13.7 $11.6 $28.8 - 158 - Actual Expenditures (in millions) $10.7 $20.5 $21.9 $39.8 $23.4 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 THREE FISCAL YEARS (1) JUNE 30, 2017 (Expressed in Thousands) State's proportion of the net pension liability State's proportionate share of the net pension liability State's covered payroll State's proportionate share of the net pension liability as a percentage of its covered payroll Plan fiduciary net position as a percentage of the total pension liability Reporting Fiscal Year (measurement date) 2017 2016 (2016) (2015) 21.75% 21.67% $ $ 2015 (2014) 21.36% 3,510,533 $ 2,039,238 $ 3,375,283 $ 1,999,691 $ 172.15% 168.79% 163.01% 67.06% 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 - 3,160,809 1,939,038 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 THREE FISCAL YEARS (1) JUNE 30, 2017 (Expressed in Thousands) Reporting Fiscal Year (measurement date) State's proportion of the net pension liability State's proportionate share of the net pension liability State's covered payroll State's proportionate share of the net pension liability as a percentage of its covered payroll Plan fiduciary net position as a percentage of the total pension liability 2017 (2016) 18.44% $ $ 2016 (2015) 18.67% 174,204 $ 12,794 $ 145,898 $ 12,987 $ 2015 (2014) 18.16% 121,797 12,604 1,361.61% 1,123.42% 966.34% 23.42% 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 THREE FISCAL YEARS (1) JUNE 30, 2017 (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) 2017 2016 (2016) (2015) 13.96% 19.33% $ 131,871 $ 151,048 $ 23.42% 28.32% (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 - 2015 (2014) 19.20% 128,776 31.91% 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 THREE FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2017 (Expressed in Thousands) Reporting Fiscal Year (measurement date) 2017 (2016) 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 (2) Contributions - employee (2) 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 $ 2016 (2015), as restated 2015 (2014), as restated 14,131 $ 78,000 27,674 13,258 $ 77,421 - 13,111 66,664 23,768 (9,237) 35,783 (6,328) - (3,711) 107,172 (84,231) 62,120 1,028,687 (70,586) 13,765 1,014,922 (69,497) 137,507 877,415 $ 1,090,807 $ 1,028,687 $ 1,014,922 $ 52,115 $ 9,334 1,963 36,889 $ 7,857 12,867 31,458 7,587 46,223 (84,231) (283) 545 (20,557) 348,114 (70,586) (317) 150 (13,140) 361,254 (69,497) (372) 393 15,792 345,462 Plan fiduciary net position - ending (b) $ 327,557 $ 348,114 $ 361,254 State's net pension liability - ending (a) - (b) $ 763,250 $ 680,573 $ 653,668 Plan fiduciary net position as a percentage of the total pension liability Covered payroll (2) State's net pension liability as a percentage of covered payroll (2) $ 30.03% 68,573 $ 33.84% 66,707 $ 1,113.05% 1,020.24% (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) Due to the implementation of GASB Statement No. 82, fiscal years 2015 through 2016 were restated for the classification of employer-paid member contributions. The Notes to Required Supplementary Information are an integral part of this schedule. - 161 - 35.59% 63,334 1,032.10% 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 THREE FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2017 (Expressed in Thousands) Reporting Fiscal Year (measurement date) 2017 (2016) 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 $ 2016 (2015) 2015 (2014) 47,529 $ 111,087 2,464 47,131 $ 108,123 - 48,061 92,486 21,354 (36,180) 58,949 (30,179) - (3,818) 125,557 (90,460) 93,389 1,436,586 (84,586) 40,489 1,396,097 (83,365) 200,275 1,195,822 $ 1,529,975 $ 1,436,586 $ 1,396,097 $ 60,984 $ 27,824 4,831 43,105 $ 27,734 28,414 40,166 27,722 96,216 (90,460) (683) (340) 2,156 788,928 (84,586) (704) (1,040) 12,923 776,005 (83,365) (757) (446) 79,536 696,469 Plan fiduciary net position - ending (b) $ 791,084 $ 788,928 $ 776,005 State's net pension liability - ending (a) - (b) $ 738,891 $ 647,658 $ 620,092 Plan fiduciary net position as a percentage of the total pension liability Covered payroll State's net pension liability as a percentage of covered payroll $ 51.71% 330,538 $ 54.92% 327,798 $ 55.58% 326,819 223.54% 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 FOUR FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2017 (Expressed in Thousands) Fiscal Year 2017 2016 224,788 $ 2015 Statutorily required contribution State's contributions in relation to the statutorily required contribution $ State's contribution deficiency (excess) $ - $ - $ - $ - State's covered payroll State's contributions as a percentage of covered payroll $ 2,087,717 $ 2,039,238 $ 1,999,691 $ 1,939,038 224,788 10.77% 220,982 $ 2014 220,982 10.84% (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 - 217,388 $ 217,388 10.87% 206,040 206,040 10.63% STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF STATE PENSION CONTRIBUTIONS ELECTED OFFICIALS' RETIREMENT PLAN FOR THE LAST FOUR FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2017 (Expressed in Thousands) Fiscal Year 2017 2016 3,389 $ 2015 3,805 Statutorily required contribution (2) State's contributions in relation to the statutorily required contribution (2) $ State's contribution deficiency (excess) $ - $ - $ - $ - State's covered payroll State's contributions as a percentage of covered payroll $ 10,895 $ 12,794 $ 12,987 $ 12,604 3,389 $ 2014 3,928 3,805 31.11% $ 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 FOUR FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2017 (Expressed in Thousands) Fiscal Year 2017 Statutorily required contribution (2) State's contributions in relation to the statutorily required contribution (2) $ State's contribution deficiency (excess) $ 2016 4,171 $ 4,171 - 2015 4,078 $ 4,078 $ - 2014 4,066 4,066 $ (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 4,092 $ - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF STATE PENSION CONTRIBUTIONS PSPRS DEPARTMENT OF PUBLIC SAFETY FOR THE LAST FOUR FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2017 (Expressed in Thousands) Fiscal Year 2016, as restated 2017 60,271 $ 2015, as restated Actuarially determined contribution State's contributions in relation to the actuarially determined contribution (2) $ State's contribution deficiency (excess) $ - $ - $ - $ - State's covered payroll (2) State's contributions as a percentage of covered payroll (2) $ 77,310 $ 68,573 $ 66,707 $ 63,334 60,271 52,115 $ 2014, as restated 36,889 52,115 77.96% $ 36,889 76.00% 31,458 31,458 55.30% 49.67% (1) The State implemented GASB 68 in fiscal year 2015. Therefore, ten years of data is not available, but will be accumulated over time. (2) Due to the implementation of GASB Statement No. 82, fiscal years 2014 through 2016 were restated for the classification of employer-paid member 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 CORP DEPARTMENT OF CORRECTIONS FOR THE LAST FOUR FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2017 (Expressed in Thousands) Fiscal Year 2017 2016 62,909 $ 2015 Actuarially determined contribution State's contributions in relation to the actuarially determined contribution $ State's contribution deficiency (excess) $ - $ - $ - $ - State's covered payroll State's contributions as a percentage of covered payroll $ 335,694 $ 330,538 $ 327,798 $ 326,819 62,909 18.74% 60,984 $ 2014 60,984 (1) The State implemented GASB 68 in fiscal year 2015. Therefore, ten years of data is not available, but will be accumulated over time. - 165 - $ 43,105 18.45% The Notes to Required Supplementary Information are an integral part of this schedule. 43,105 13.15% 40,166 40,166 12.29% STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION – PENSION PLAN SCHEDULES JUNE 30, 2017 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 2015 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 21 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, 2017 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, 2017 (Expressed in Thousands) SPECIAL REVENUE FUNDS 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 Cash held by trustee Other Total Assets LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES Liabilities: Accounts payable and other current liabilities Accrued liabilities Obligations under securities loan agreements Due to local governments Due to others Due to other Funds Unearned revenue Total Liabilities $ $ - $ TOTAL - $ 2,299 900,949 2,644 3,900 - - 904,849 2,644 87,896 27,211 24,122 89,891 3,751 - 87,896 27,211 24,122 93,642 383,802 261 836 46,254 34,358 - 7,396 - 437,452 34,619 836 $ 1,519,911 $ 88,263 $ 7,396 $ 1,615,570 $ 48,615 66,133 $ - $ 4,953 - $ 53,568 66,133 Deferred Inflows of Resources: Unavailable revenue Fund Balances: Restricted Committed Total Fund Balances Total Liabilities, Deferred Inflows of Resources, and Fund Balances 2,299 CAPITAL PROJECTS FUNDS DEBT SERVICE FUNDS $ 2,644 144,008 13,589 13,092 1,504 289,585 - 4,953 2,644 144,008 13,589 13,092 1,504 294,538 480 - - 480 544,328 685,518 1,229,846 88,263 88,263 2,443 2,443 635,034 685,518 1,320,552 1,519,911 $ 88,263 - 172 - $ 7,396 $ 1,615,570 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2017 (Expressed in Thousands) SPECIAL REVENUE FUNDS REVENUES Taxes: Sales Tobacco 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 (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers in Transfers out Capital lease and installment purchase contracts Certificates of participation issued Refunding GANs issued Refunding bonds issued Payment to refunded bond escrow agent Payment to refunded GANs escrow agent Premium on debt issued Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ 538,236 252,945 151,922 110,601 195,552 306,051 292,049 68,601 61,104 107,021 82,827 56,427 2,223,336 DEBT SERVICE FUNDS $ 64,143 1,315 139 65,597 CAPITAL PROJECTS FUNDS $ 712 712 TOTAL $ 602,379 252,945 151,922 110,601 195,552 306,051 292,049 70,628 61,104 107,021 82,827 56,566 2,289,645 122,196 710,209 119,894 814,211 306,647 138,892 - 3,632 - 6,055 42 125,828 710,209 119,894 814,211 306,647 6,055 138,892 42 2,782 1,609 27,529 2,243,969 462,515 187,214 653,361 131,456 137,553 465,297 188,823 158,985 3,034,883 (20,633) (587,764) (136,841) (745,238) 145,330 (74,033) 3,592 74,889 54,256 1,175,590 469,141 (5,038) 119,880 90,410 312,900 (389,350) (112,128) 117,390 603,205 15,441 72,822 (136,841) 139,284 614,471 (79,071) 3,592 119,880 90,410 312,900 (389,350) (112,128) 117,390 678,094 (67,144) 1,387,696 1,229,846 $ 88,263 - 173 - $ 2,443 $ 1,320,552 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, 2017 (Expressed in Thousands) PUBLIC SAFETY & CORRECTIONAL ENVIRONMENTAL PROGRAMS PROTECTION ASSETS Cash Cash and pooled investments with State Treasurer Collateral investment pool Receivables, net of allowances: Taxes Other Due from U.S. Government Due from other Funds Restricted assets: Cash and pooled investments with State Treasurer Cash held by trustee Other Total Assets LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES Liabilities: Accounts payable and other current liabilities Accrued liabilities Obligations under securities loan agreements Due to local governments Due to others Due to other Funds Unearned revenue Total Liabilities $ $ - $ - TOBACCO TAX & HEALTHCARE $ - JUDICIAL & LEGAL SERVICES $ REGULATING & LICENSING - $ 16 112,414 - 131,488 - 156,797 - 10,949 2,644 94,173 - 171,257 - 5,673 1 6,202 270 136 6,793 6,980 7,783 24,122 4,989 16,242 486 5 1,213 4,236 - 836 - 798 - 383,004 - - - $ 127,379 $ 138,687 $ 201,469 $ 413,325 $ 95,391 $ 175,509 $ 25,182 8,826 $ 3,720 778 $ 8,175 48,523 $ 5,407 569 $ 1,422 1,160 $ 1,755 3,574 Deferred Inflows of Resources: Unavailable revenue Fund Balances: Restricted Committed Total Fund Balances Total Liabilities, Deferred Inflows of Resources, and Fund Balances 2,253 HEALTHCARE & SOCIAL SERVICES $ 34,008 275 87 4,860 2,052 616 59,366 2,644 12,977 3,531 25,128 181 2,763 417 7,234 801 13,781 - - 480 - - - 93,371 93,371 133,827 133,827 43,487 98,136 141,623 388,197 388,197 7,360 85,268 92,628 2,000 159,728 161,728 127,379 $ 138,687 - 176 - $ 201,469 $ 413,325 $ 95,391 $ 175,509 GROUNDWATER STATE PARKS BUSINESS EDUCATIONAL PROTECTION & PROGRAMS CONSERVATION DEVELOPMENT DEVELOPMENT GAME & FISH $ 30 $ - $ - $ - $ - CLEAN ELECTIONS SYSTEM $ - TOTAL $ 2,299 57,326 - 14,792 - 34,658 - 71,207 - 19,222 - 26,666 - 900,949 2,644 1,912 - 158 - 58,731 13,136 70,050 - 2 - 87,896 27,211 24,122 89,891 261 - - - - - - 383,802 261 836 $ 59,529 $ 14,950 $ 34,658 $ 213,124 $ 19,222 $ 26,668 $ 1,519,911 $ 1,706 2,104 $ 510 220 $ 21 139 $ 553 172 $ 111 39 $ 53 29 $ 48,615 66,133 $ 3,810 730 14 174 144,008 144,733 150 82 2,644 144,008 13,589 13,092 1,504 289,585 - - - - - - 480 8,307 47,412 55,719 14,220 14,220 34,484 34,484 68,391 68,391 19,072 19,072 26,586 26,586 544,328 685,518 1,229,846 59,529 $ 14,950 $ 34,658 $ 213,124 $ - 177 - 19,222 $ 26,668 $ 1,519,911 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2017 (Expressed in Thousands) REVENUES Taxes: Sales Tobacco Motor vehicle and fuel Other Intergovernmental Licenses, fees, and permits Hospital and nursing facility assessments Earnings on investments Sales and charges for services Fines, forfeitures, and penalties Gaming Other Total Revenues PUBLIC SAFETY & HEALTHCARE CORRECTIONAL ENVIRONMENTAL & SOCIAL PROGRAMS PROTECTION SERVICES TOBACCO TAX & HEALTHCARE $ $ EXPENDITURES Current: General government Health and welfare Inspection and regulation Education Protection and safety Natural resources Debt service: Principal Interest and other fiscal charges Capital outlay Total Expenditures Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers in Transfers out Capital lease and installment purchase contracts Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending 18,316 6,635 106,349 60,694 21,306 26,741 447 16,486 54,647 1,003 312,624 $ $ 4,486 8,126 2,086 132,612 37,213 292,049 487 2,786 6,948 22,670 10,632 520,095 238,184 447 2,701 516 241,848 $ 1,271 25,726 1,315 690 35,034 709 64,745 REGULATING & LICENSING $ 49,907 51 97,287 350 3,508 2,456 7,251 1,590 162,400 29,852 306,647 30,085 851 86,405 1,384 388 3,289 507,124 - 622 108,622 138,013 - 65,363 11 - 2,234 8,058 118,499 - 1,482 93 16,972 385,131 152 89,180 388 510,801 247,257 581 65,955 415 129,206 (72,507) 4,724 9,294 (5,409) (1,210) 33,194 96,665 (34,899) 3,084 (774) 16,536 (7,053) 7,845 (991) 1,270 (6,261) 2,491 (13,228) (4,991) (6,201) 98,829 (10,737) 22,457 139,271 3,592 65,358 (7,149) 100,520 $ 2,487 32,447 16 57,147 1,220 462 125 93,904 JUDICIAL & LEGAL SERVICES 93,371 2,310 7,034 126,793 $ 133,827 - 178 - 9,483 18,777 122,846 $ 141,623 6,854 1,445 386,752 $ 388,197 $ 92,628 $ 161,728 GAME & FISH $ 992 36,727 41,096 489 3,356 198 6,489 1,242 90,589 GROUNDWATER STATE PARKS BUSINESS EDUCATIONAL PROTECTION & PROGRAMS CONSERVATION DEVELOPMENT DEVELOPMENT $ $ 2,023 8,424 225 2,112 9 14,048 26,841 $ 512,947 200 1,099 3,787 61,047 32,163 46,417 13,250 670,910 $ 7,014 177 3 13,057 20,251 $ 7,267 176 7,443 TOTAL $ 538,236 252,945 151,922 110,601 195,552 306,051 292,049 68,601 61,104 107,021 82,827 56,427 2,223,336 78,022 9,720 13,393 34 - 676,164 - 20,677 6,592 - 122,196 710,209 119,894 814,211 306,647 138,892 1,300 1,516 7,774 88,612 1,026 10,746 211 13,638 10 676,174 20,677 6,592 2,782 1,609 27,529 2,243,969 1,977 940 13,203 10,520 (9,729) (113) (512) (113) 827 13,393 (512) 12,691 21,793 791 2,768 52,951 $ 9,848 1,616 143 79 11,686 CLEAN ELECTIONS SYSTEM 55,719 $ 14,220 $ 34,484 (5,264) (426) 851 (20,633) 6,539 (430) 380 (43) - 145,330 (74,033) 337 (89) 19,161 851 25,735 6,109 845 67,546 $ 68,391 $ - 179 - 19,072 $ 26,586 3,592 74,889 54,256 1,175,590 $ 1,229,846 STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2017 (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 ANNUAL LEAVE PAYOUT OPERATING LUMP SUM APPROPRIATION ADMINISTRATION, ARIZONA DEPARTMENT OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION SWEEPS AGRICULTURE, ARIZONA DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION SWEEPS AHCCCS - ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ACA ADULT EXPANSION ADMIN ADJUSTMENT ALTCS SERVICES ADMIN ADJUSTMENT PROPOSITION 204 SERVICES ALTCS SERVICES CRISIS SERVICES MEDICAID BEHAVIORAL HEALTH ADULT EXPANSION SERVICES MEDICAID BEHAVIORAL HEALTH TRADITIONAL 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 FEDERALISM UNIT ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ADMIN ADJUSTMENT TOBACCO ENFORCEMENT FEDERALISM UNIT NATIONAL MORTGAGE SETTLEMENT OPERATING LUMP SUM APPROPRIATION SWEEPS TOBACCO ENFORCEMENT VICTIMS RIGHTS AUTOMOBILE THEFT AUTHORITY AUTOMOBILE THEFT AUTHORITY GRANTS OPERATING LUMP SUM APPROPRIATION REIMBURSABLE PROGRAMS SWEEPS BARBERS, BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION SWEEPS BEHAVIORAL HEALTH EXAMINERS, BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION SWEEPS BOARD OF MASSAGE THERAPY ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION CHILD SAFETY, DEPARTMENT OF DCS - CASEWORKERS DCS IN-HOME MITIGATION CHIROPRACTIC EXAMINERS, STATE BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION SWEEPS $ 18,901 1,937,000 ACTUAL EXPENDITURE AMOUNTS $ 18,901 1,521,691 4,726 13,200 165,300 4,726 13,200 145,995 95,406 1,497,700 800 95,406 828,859 800 3,129,900 13,500 1,369,678 13,500 6,078,800 12,552,023 23,682,771 77,000,000 2,250,200 182,700 35,565,800 246,067,600 37,432,400 6,074,782 12,552,023 23,682,771 76,307,185 2,250,200 182,700 35,176,146 229,779,208 36,866,554 2,237 119,100 2,237 110,612 1,262 46,204 1,169 995,600 19,576,672 10,938,000 67,600 731,600 3,758,900 1,262 46,204 1,169 775,445 2,344,326 9,441,783 67,600 148,442 3,609,669 4,607,700 637,800 50,000 500 4,605,057 621,983 500 1,413 370,700 300 1,413 302,784 300 13,749 1,759,100 100 13,749 1,542,029 100 4,174 470,100 4,174 413,680 207,100 1,459,300 642,657 2,587 451,100 200 2,587 451,076 200 (continued) -180- STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2017 (Expressed in Dollars) FINAL BUDGET (Appropriations) CONTRACTORS, REGISTRAR OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OFFICE OF ADMINISTRATIVE HEARINGS COSTS OPERATING LUMP SUM APPROPRIATION SWEEPS CORPORATION COMMISSION ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ANNUAL REVERSION ANNUAL REVERSION PUBLIC ACCESS FUND CORPORATION FILINGS, SAME DAY SERVICE INVESTIGATE-PROSECUTE SECUR FRD OPERATING LUMP SUM APPROPRIATION UTILITY, AUDIT, STUDY, INVEST, HEAR CORRECTIONS, STATE DEPARTMENT OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ADMIN ADJUSTMENT PRIVATE PRISON PER DIEM CASH TRANSFER TO BUILDING RENEWAL FUND INMATE HEALTH CARE CONTRACTED SERVICES OPERATING LUMP SUM APPROPRIATION PRIVATE PRISON PER DIEM RADIO EQUIPMENT SWEEPS COSMETOLOGY, BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION SWEEPS CRIMINAL JUSTICE COMMISSION, ARIZONA ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ADMIN ADJUSTMENT STATE AID TO COUNTY ATTORNEYS ADMIN ADJUSTMENT VICTIM COMPENSATION - ASSISTANCE OPERATING LUMP SUM APPROPRIATION STATE AID TO COUNTY ATTORNEYS SWEEPS VICTIM COMPENSATION - ASSISTANCE DEAF AND HARD OF HEARING, COMMISSION FOR THE ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION INTERPRETER CERTIFICATE AND LICENSURE OPERATING LUMP SUM APPROPRIATION SWEEPS DENTAL EXAMINERS, STATE BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION SWEEPS ECONOMIC SECURITY, DEPARTMENT OF ADMIN ADJUSTMENT ATTORNEY GENERAL LEGAL SERVICES ADMIN ADJUSTMENT DES OPERATING LUMP SUM ADMIN ADJUSTMENT DOMESTIC VIOLENCE PREVENTION ADMIN ADJUSTMENT INDEPENDENT LIVING REHABILITATION SVCS ADMIN ADJUSTMENT JOBS ADMIN ADJUSTMENT REHABILITATION SERVICES ADULT 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 STATE FUNDED LONG-TERM CARE SERVICES SWEEPS ACTUAL EXPENDITURE AMOUNTS 26,551 1,017,600 11,147,800 67,000 26,551 508,800 8,182,336 67,000 117,491 2,179,410 1,364,432 397,300 165,599 25,498,400 1,475,812 117,491 2,179,410 1,364,432 139,090 25,030,778 703,211 2,396,183 8,597,422 2,500,000 10,000,000 7,242,600 24,517,000 2,800,000 33,000 2,396,183 8,597,422 2,500,000 5,022,006 3,085,852 13,922,230 2,728,042 33,000 44,379 1,805,200 4,600 44,379 1,773,879 4,600 14,019 204,250 253,784 1,251,100 973,700 4,900 4,220,600 14,019 204,250 253,784 1,080,061 727,805 4,900 3,230,382 325,517 255,313 4,309,500 37,500 325,517 3,040,189 37,500 5,852 1,214,500 8,500 5,852 1,092,522 8,500 193 421,283 25 97,475 254,595 204,700 700,000 97,800 4,567,500 4,000,000 120,000 1,123,400 1,110,900 654,700 600,000 1,308,000 193 421,283 25 97,475 254,595 204,700 518,963 2,805 3,883,217 3,423,672 88,227 1,062,798 1,110,900 294,110 600,000 1,308,000 (continued) -181- STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2017 (Expressed in Dollars) FINAL BUDGET (Appropriations) EDUCATION, DEPARTMENT OF ACCOUNTABILITY-SCHOOL SAFETY - 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 OPERATING LUMP SUM APPROPRIATION - ST BD SCHOOL ACCOUNTABILITY FUND - PROP 301 SWEEPS TEACHER CERTIFICATION ENVIRONMENTAL QUALITY, DEPARTMENT OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ADMIN ADJUSTMENT SAFE DRINKING WATER PROGRAM AIR QUALITY PROGRAM - CONTINUING AIR QUALITY PROGRAMS WQARF TRANSFERS EMISSIONS CAP AND TRADING PROGRAM EMISSIONS CONTROL - CONTRACTOR PAYMENTS OPERATING LUMP SUM APPROPRIATION POLITICAL SUBDIVISION ASSISTANCE ROADSIDE DIESEL EMISSIONS TEST SAFE DRINKING WATER PROGRAM SWEEPS UNDERGROUND STORAGE TANK APPEALS VISIBILITY INDEX DEVELOPMENT FINANCIAL INSTITUTIONS, DEPARTMENT OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION REAL ESTATE APPRAISAL FUNERAL DIRECTORS AND EMBALMERS, STATE BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION SWEEPS GAME AND FISH DEPARTMENT, ARIZONA ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION BLACK CANYON DAM MODIFICATIONS BOAT SHADE CANOPIES BUILDING RENEWAL CAPITAL IMPROVEMENTS DAM MAINTENANCE GAME AND FISH FY 2016 PSPRS OPERATING LUMP SUM APPROPRIATION PERFORMANCE INCENTIVE PAY PROPERTY MAINTENANCE RADIO TOWER REGIONAL KINGMAN OFFICE REMODEL SWEEPS WATERCRAFT BOAT STRUCTURES WATERCRAFT GRANT PROGRAM GAMING, DEPARTMENT OF ADDITIONAL OPERATING EXPENSES CASINO OPERATION CERTIFICATION DIVISION OF RACING - LUMP SUM OPERATING LUMP SUM APPROPRIATION PROBLEM GAMBLING SWEEPS GOVERNOR, OFFICE OF THE OPERATING LUMP SUM APPROPRIATION HEALTH SERVICES, DEPARTMENT OF ADMIN ADJUSTMENT AGENCYWIDE OPERATING LUMP SUM APPROPRIATION ACTUAL EXPENDITURE AMOUNTS 9,226,888 14,987,758 86,280,500 290,547 2,937,967 2,834,800 379,800 89,679 10,600 1,828,100 6,698,511 6,258,315 86,280,500 241,386 2,064,199 357,204 225,576 89,679 10,600 1,480,853 632,016 11,449 368,486 7,125,000 337,158 21,119,500 32,782,400 18,500 200,000 1,800,000 105,900 7,500 80,589 632,016 11,449 7,125,000 20,762,285 21,229,002 1,108,726 105,900 - 6,908 1,453,000 815,100 6,908 1,428,311 538,696 7,455 373,300 100 7,455 362,165 100 1,062,973 121,683 4,450 597,480 3,867,000 487,234 1,752,000 41,238,600 1,038,300 5,038 331,359 514,388 470,700 874,900 1,000,000 1,062,973 32,160 527,765 748,728 94,567 34,098,093 212,128 470,700 46,074 - 800,400 2,081,800 2,886,000 8,263,500 2,287,000 88,000 372,318 1,488,596 2,067,074 7,216,472 2,264,808 88,000 192,300 682,283 682,283 (continued) -182- STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2017 (Expressed in Dollars) FINAL BUDGET (Appropriations) ADMIN ADJUSTMENT EMERGENCY MEDICAL SERVICES LOCAL ALLOCATION ADMIN ADJUSTMENT FOLIC ACID ADMIN ADJUSTMENT HIGH RISK PERINATAL SERVICES ADMIN ADJUSTMENT NEWBORN SCREENING PROGRAM ADMIN ADJUSTMENT RENAL DENTAL CARE AND NUTRITION SUPPLEMENT AGENCYWIDE OPERATING LUMP SUM APPROPRIATION ALZHEIMER'S DISEASE RESEARCH ALZHEIMER'S DISEASE RESEARCH ONE-TIME ALLOCATION EMERGENCY MEDICAL SERVICES LOCAL ALLOCATION FOLIC ACID GENOMICS-BASED MEDICAL RESEARCH HIGH RISK PERINATAL SERVICES NEWBORN SCREENING PROGRAM NURSING CARE SPECIAL PROJECTS RENAL DENTAL CARE AND NUTRITION SUPPLEMENT SWEEPS 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 SWEEPS JUVENILE CORRECTIONS, DEPARTMENT OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION BUILDING RENEWAL OPERATING LUMP SUM APPROPRIATION SWEEPS LAND DEPARTMENT, STATE NATURAL RESOURCE CONSERVATION DISTRICTS LEGISLATIVE COUNCIL TELECOMMUNICATION FUND FOR THE DEAF MEDICAL EXAMINERS BOARD ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION MEDICAL BOARD LICENSURE COMPACT OPERATING LUMP SUM APPROPRIATION PERFORMANCE BASED INCENTIVE PROGRAM SWEEPS MINE INSPECTOR, STATE ADMIN ADJUSTMENT AGGREGATE MINED LAND RECLAMATION AGGREGATE MINED LAND RECLAMATION SWEEPS NATUROPATHIC PHYSICIANS MEDICAL BOARD ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION NAVIGABLE STREAM ADJUDICATION COMMISSION, ARIZONA ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION 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 CERTIFIED NURSING PROGRAM ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION CERTIFIED NURSING PROGRAM OPERATING LUMP SUM APPROPRIATION SWEEPS ACTUAL EXPENDITURE AMOUNTS 42,973 12,717 74,090 211,538 75,000 18,807,600 1,000,000 1,000,000 442,000 400,000 2,508,750 450,000 6,697,300 100,000 300,000 74,600 42,973 12,717 74,090 211,538 75,000 15,939,120 1,000,000 1,000,000 442,000 362,381 2,000,000 323,413 6,366,029 22,667 225,000 74,600 304 103,000 304 65,526 318,500 318,500 91,754 19,881,300 159,600 91,754 18,292,205 159,600 14,675 1,100,000 531,500 3,200 14,675 323,725 515,979 3,200 260,600 147,500 250,000 - 73,809 50,000 6,413,600 180,000 96,500 73,809 5,838,058 149,875 96,500 1,589 112,900 1,000 1,589 20,638 1,000 727 184,200 727 162,317 25,488 200,000 25,488 185,201 13,327 445,400 13,327 370,714 365 16,769 536,700 4,248,100 10,500 365 16,769 536,700 4,238,891 10,500 (continued) -183- STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2017 (Expressed in Dollars) FINAL BUDGET (Appropriations) 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 PARENTS COMMISSION ON DRUG EDUCATION AND PREVENTION, ARIZONA PARENTS COMM ON MIDDLE AND HIGH SCHOOL PREVENTION EDUCATION PEST MANAGEMENT, OFFICE OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION PHARMACY, ARIZONA STATE BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION AZ POISON AND DRUG INFORMATION CENTER CONTROLLED SUB PRESCRIP MONITORING PRGRM ONE TIME FUNDING LEAVE PAYOUT OPERATING LUMP SUM APPROPRIATION SWEEPS PHYSICAL THERAPY EXAMINERS, BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION SWEEPS PODIATRY EXAMINERS, STATE BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION PRIVATE POSTSECONDARY EDUCATION, STATE BOARD FOR OPERATING LUMP SUM APPROPRIATION PSYCHOLOGIST EXAMINERS, STATE BOARD OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION SWEEPS PUBLIC SAFETY, DEPARTMENT OF ACTIC ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ADMIN ADJUSTMENT PUBLIC SAFETY EQUIPMENT SURCHARGE BORDER STRIKE TASK FORCE ONE-TIME LAW ENFORCEMENT OFFICER VIRTUAL TRAINING 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 SWEEPS 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 ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ACTUAL EXPENDITURE AMOUNTS 1,176 170,700 1,176 161,213 17,106 140,000 17,106 119,374 5,516 210,100 5,516 203,408 25,254 940,500 25,254 847,584 300,000 - 2,819 2,819 12,192 200,000 395,795 46,685 2,115,200 300 12,192 200,000 395,795 2,071,008 300 1,071 484,200 200 1,071 437,886 200 18,177 148,400 18,177 135,524 396,100 361,315 9,029 475,400 1,200 9,029 428,820 1,200 700,000 119,788 7,121 4,000,000 2,100,000 1,990,850 393,000 157,514,700 3,760,921 2,890,000 18,600 561,904 119,788 7,121 4,000,000 291,499 725,325 295,325 154,392,430 3,101,746 2,783,388 18,600 20,265 271,600 4,900 20,265 249,314 4,900 2,139 1,186,400 319,680 2,139 1,066,237 230,949 7,531 300,300 7,531 297,776 320 320 (continued) -184- STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2017 (Expressed in Dollars) FINAL BUDGET (Appropriations) OPERATING LUMP SUM APPROPRIATION SWEEPS SUPREME COURT ADMIN ADJUSTMENT CENTRALIZED SERVICE PAYMENTS 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 FELONY PRETRIAL INTERVENTION PROGRAM INTERSTATE COMPACT JUVENILE CRIME REDUCTION JUVENILE STANDARD PROBATION 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 SWEEPS TREASURER, STATE LAW ENFORCEMENT AND BOATING SAFETY DIST VETERANS' SERVICES, DEPARTMENT OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION SWEEPS VETERINARY MEDICAL EXAMINING BOARD, ARIZONA STATE ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION SWEEPS WATER RESOURCES, DEPARTMENT OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ASSURED - ADEQUATE WATER SUPPLY ADMIN OPERATING LUMP SUM APPROPRIATION ACTUAL EXPENDITURE AMOUNTS 678,300 100 619,921 100 2,589 101,167 65,892 1,535,200 3,774,100 13,128,300 449,900 2,310,300 2,862,900 250,000 92,800 3,308,000 150,000 333,000 3,120,600 5,648,500 750,000 2,589 101,167 65,892 1,020,933 3,670,888 9,838,534 1,316,251 2,799,758 250,000 92,800 598,084 293,525 2,168,273 4,162,179 750,000 10,950 2,916,400 3,200 10,950 2,261,753 3,200 2,183,800 TOTAL NON-MAJOR SPECIAL REVENUE FUNDS BUDGETARY EXPENDITURES -185- $ - 62 899,200 4,700 62 302,725 4,700 31,910 651,900 3,800 31,910 502,977 3,800 212 266,300 1,852,800 212 608,600 1,179,092,859 $ 1,027,217,145 STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES LAND ENDOWMENTS FUND FOR THE YEAR ENDED JUNE 30, 2017 (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 SWEEPS DEAF AND BLIND, ARIZONA SCHOOLS FOR THE ADMIN ADJUSTMENT PRESCHOOL-OUTREACH PROGRAMS ADMIN ADJUSTMENT TUCSON CAMPUS PHOENIX DAY SCHOOL FOR THE DEAF PRESCHOOL-OUTREACH PROGRAMS SWEEPS TUCSON CAMPUS EDUCATION, DEPARTMENT OF BASIC STATE AID ENTITLEMENT HEALTH SERVICES, DEPARTMENT OF ADMIN ADJUSTMENT ARIZONA STATE HOSPITAL - OPERATING ARIZONA STATE HOSPITAL - OPERATING SWEEPS JUVENILE CORRECTIONS, DEPARTMENT OF ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION SWEEPS LAND DEPARTMENT, STATE ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION LEGAL SERVICES OPERATING LUMP SUM APPROPRIATION SWEEPS PIONEERS' HOME, ARIZONA ADMIN ADJUSTMENT OPERATING LUMP SUM APPROPRIATION ADMIN ADJUSTMENT PRESCRIPTION DRUGS OPERATING LUMP SUM APPROPRIATION PRESCRIPTION DRUGS SWEEPS $ TOTAL LAND ENDOWMENTS FUNDS BUDGETARY EXPENDITURES $ -186- 61,579 1,500,000 361,600 979,200 2,916,300 ACTUAL EXPENDITURE AMOUNTS $ 61,579 1,125,000 334,545 979,200 2,916,300 20,861 152,125 5,635,535 2,056,122 600 3,986,043 20,861 152,125 5,633,616 1,962,160 600 3,869,335 219,804,200 219,804,200 48,611 880,100 25,500 48,611 738,767 25,500 27,198 2,000,100 6,000 27,198 1,963,632 6,000 43,067 225,000 4,036,500 47,800 43,067 2,632,585 47,800 46,910 12,112 5,974,600 200,000 2,000 46,910 12,112 5,886,188 142,762 2,000 251,049,663 $ 248,482,653 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 Department of Administration Debt Instrument 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 previous issuances. The School Facilities Debt Instrument Fund administers the payment of principal and interest on revenue bonds and certificates of participation issued by the State of Arizona’s School Facilities Board and the retirement of previous issuances. STATE OF ARIZONA COMBINING BALANCE SHEET NON-MAJOR DEBT SERVICE FUNDS JUNE 30, 2017 (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 FUND BALANCES Fund Balances: Restricted Total Liabilities and Fund Balances $ DEPARTMENT OF ADMINISTRATION DEBT INSTRUMENT 3,751 $ - - $ 13,462 - 2,768 - SCHOOL FACILITIES DEBT INSTRUMENT $ 7,806 1,132 - TOTAL $ 32,792 26,552 3,900 3,751 46,254 34,358 $ 3,751 $ 13,462 $ 10,574 $ 60,476 $ 88,263 $ 3,751 $ 13,462 $ 10,574 $ 60,476 $ 88,263 $ 3,751 $ 13,462 $ 10,574 $ 60,476 $ 88,263 - 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, 2017 (Expressed in Thousands) DEPARTMENT OF TRANSPORTATION 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 Transfers out Certificates of participation issued Refunding GANs issued Refunding bonds issued Payment to refunded bond escrow agent Payment to refunded GANs escrow agent Premium on debt issued Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ - $ 924 924 DEPARTMENT OF ADMINISTRATION DEBT INSTRUMENT $ 2 139 141 SCHOOL FACILITIES DEBT INSTRUMENT $ TOTAL 64,143 389 64,532 $ 64,143 1,315 139 65,597 - - 3,632 - 3,632 20,065 17,437 37,502 154,120 109,585 263,705 206,910 54,103 264,645 81,420 6,089 87,509 462,515 187,214 653,361 (37,502) (262,781) (264,504) (22,977) (587,764) 37,502 37,502 3,751 273,873 90,410 312,900 (389,350) (112,128) 100,305 276,010 13,229 233 128,462 (5,038) 119,880 17,085 260,389 (4,115) 14,689 29,304 29,304 6,327 54,149 469,141 (5,038) 119,880 90,410 312,900 (389,350) (112,128) 117,390 603,205 15,441 72,822 3,751 $ 13,462 - 189 - $ 10,574 $ 60,476 $ 88,263 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, 2017 (Expressed in Thousands) DEPARTMENT OF TRANSPORTATION FINANCED ASSETS Restricted assets: Cash and pooled investments with State Treasurer $ 7,396 $ 7,396 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and other current liabilities $ Total Liabilities 4,953 4,953 Total Assets Fund Balances: Restricted Total Fund Balances $ 2,443 2,443 Total Liabilities and Fund Balances $ 7,396 - 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, 2017 (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 712 712 6,055 42 131,456 137,553 (136,841) 139,284 $ 2,443 - 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, 2017 (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 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 $ 496 - $ 3,287 - LOTTERY $ INDUSTRIES - $ 182 - 132 1,163 75,604 12,348 - - - - 200,435 - - - 201,063 2 2,464 2,106 16 9,038 5,372 4,182 85,158 5,412 4,394 150 22,486 60,240 - - - - - 9,478 - - 182 938 692 60,240 261,303 914 1,096 10,134 2,741 13,157 98,315 4,741 5,433 27,919 - 1,092 1,020 1,370 - 196 - HIGHWAY COLISEUM & $ INDUSTRIAL EXPANSION EXPOSITION COMMISSION UNEMPLOYMENT & EXTENSION CENTER SPECIAL FUND COMPENSATION LOAN PROGRAM 212 5,221 $ 13,791 - $ 571,469 $ - OTHER $ TOTAL - $ 17,968 571,469 2,154 - - 12,330 108,952 - - - 59,951 - 59,951 - 5,555 - - - - 5,555 200,435 7 5,440 1,728 796 24,024 94,108 9,282 674,859 59,951 2,968 177 15,475 94,108 1,730 26,301 177 10,682 166 1,097,494 - 293,849 - - - 354,089 - - - - - 9,478 70 2,997 - - 980 5,859 4,851 4,921 10,361 2,683 299,529 323,553 674,859 59,951 6,475 7,455 22,930 22,405 391,831 1,489,325 756 - - - 3,645 7,883 (Continued) - 197 - STATE OF ARIZONA COMBINING STATEMENT OF NET POSITION NON-MAJOR ENTERPRISE FUNDS JUNE 30, 2017 (Expressed in Thousands) LIABILITIES Current Liabilities: Accounts payable and other current liabilities Payable for securities purchased Accrued liabilities Obligations under securities loan agreements Due to U.S. Government Due to local governments Due to others 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 $ 12,665 12,665 $ 210 265 84 193 752 LOTTERY $ INDUSTRIES 5,815 5 34,612 47,398 265 88,095 $ 3,253 601 66 586 4,506 136,193 136,193 148,858 281 5,727 21 6,029 6,781 335 5,751 6,086 94,181 706 7,592 8,298 12,804 - 697 1,475 1,083 - 1,096 3,679 5,433 - - - - 112,445 - 2,652 - 9,969 112,445 $ - 198 - 3,748 $ 3,679 $ 15,402 HIGHWAY COLISEUM & $ $ INDUSTRIAL EXPANSION EXPOSITION COMMISSION UNEMPLOYMENT & EXTENSION CENTER SPECIAL FUND COMPENSATION LOAN PROGRAM 355 104 165 624 $ 1,559 1,839 5,555 19,618 28,571 $ 4 35,399 34 12,106 972 48,515 $ - OTHER $ TOTAL 709 701 450 1,860 $ 11,905 1,839 37,070 5,555 34 5 46,718 48,370 150 32,283 1,659 185,588 128 3,335 3,463 4,087 244,275 244,275 272,846 48,515 - 1,109 19,417 20,526 22,386 380,468 2,559 41,822 21 424,870 610,458 418 - - - 2,964 6,637 4,921 5,680 - - 7,455 28,264 - - 626,344 - - 626,344 1,691 45,027 - 59,951 - 6,612 $ 50,707 $ 626,344 $ 59,951 - 199 - (6,230) $ 1,225 59,951 112,445 53,109 $ 880,113 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION NON-MAJOR ENTERPRISE FUNDS FOR THE YEAR ENDED JUNE 30, 2017 (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 INSURANCE ARIZONA ARIZONA DEPARTMENT INDUSTRIES CORRECTIONAL GUARANTY FUNDS FOR THE BLIND $ 3,169 3,169 OPERATING EXPENSES Cost of sales and benefits Personal services Contractual services Depreciation and amortization Insurance Other Total Operating Expenses Operating Income (Loss) 14,592 439 70 169 15,270 (12,101) NON-OPERATING REVENUES (EXPENSES) Gain on sale of capital assets Investment income Other non-operating revenue Distributions Other non-operating expense Total Non-Operating Revenues (Expenses) Income (Loss) Before Transfers Transfers out 1,157 (302) 855 (11,246) - Change in Net Position Total Net Position - Beginning (11,246) 123,691 Total Net Position - Ending $ 112,445 $ 15,166 262 15,428 LOTTERY $ 6,735 4,774 2,357 310 609 14,785 643 38 38 681 (8) 673 3,075 $ 3,748 - 200 - 852,006 1,190 853,196 INDUSTRIES $ 632,457 4,880 14,767 292 33 2,683 655,112 198,084 31,967 6,554 895 39,416 4,191 213 (15,029) (14,816) 183,268 (183,070) 64 43 107 4,298 (2,000) 198 3,481 $ 43,607 43,607 3,679 2,298 13,104 $ 15,402 HIGHWAY COLISEUM & $ $ INDUSTRIAL EXPANSION EXPOSITION COMMISSION UNEMPLOYMENT & EXTENSION CENTER SPECIAL FUND COMPENSATION LOAN PROGRAM 12,895 1 55 12,951 $ 486 2,677 3,163 $ 495,927 4,451 1,895 6 502,279 1,113 4,847 3,438 280 271 3,295 13,244 (293) 44,434 477 44,911 (41,748) 271,519 23 271,542 230,737 18 18 (275) (38) 31,894 2,123 (3,699) 30,318 (11,430) (155) 8,369 370 8,739 239,476 (4,577) (313) 6,925 (11,585) 62,292 234,899 391,445 6,612 $ 50,707 $ 626,344 $ - OTHER $ - $ 33,857 41 33,898 TOTAL $ 36 19,391 8,132 369 237 3,995 32,160 1,738 957,531 495,927 486 4,451 1,896 5,846 1,554 1,467,691 1,002,853 40,885 28,764 2,623 541 10,774 1,086,440 381,251 658 658 658 - 99 99 1,837 (203) 64 42,489 2,493 (15,029) (4,001) 26,016 407,267 (190,051) 658 59,293 1,634 (409) 217,216 662,897 59,951 $ - 201 - 1,225 $ 880,113 STATE OF ARIZONA COMBINING STATEMENT OF CASH FLOWS NON-MAJOR ENTERPRISE FUNDS FOR THE YEAR ENDED JUNE 30, 2017 INSURANCE (Expressed in Thousands) DEPARTMENT GUARANTY FUNDS 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 $ 3,169 ARIZONA INDUSTRIES FOR THE BLIND $ 14,387 - (14,891) (439) (12,161) ARIZONA CORRECTIONAL INDUSTRIES LOTTERY $ 387,146 - $ 43,105 - (9,984) (5,802) 262 (1,137) (183,422) (5,282) 198,442 (14,959) (21,925) 6,221 CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Distributions Transfers to other Funds Net Cash (Used) by Non-capital Financing Activities - (8) (15,029) (199,301) (2,000) - (8) (214,330) (2,000) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from sale of capital assets Acquisition and construction of capital assets Net Cash (Used) by Capital and Related Financing Activities - - (236) 94 (1,732) - - (236) (1,638) 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 397,859 855 37 200 42 (387,075) 11,639 37 200 42 Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning (522) 1,150 Cash and Cash Equivalents - Ending Reconciliation of operating income (loss) to net cash provided (used) by operating activities: Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation and amortization Provision for uncollectible accounts Miscellaneous income (expense) Net changes in assets, deferred outflows of resources, liabilities, and deferred inflows of resources: (Increase) decrease in receivables, net of allowances Decrease in due from U.S. Government (Increase) decrease in due from other Funds (Increase) decrease in inventories, at cost (Increase) decrease in other assets (Increase) in deferred pension outflows of resources Increase (decrease) in accounts payable Increase (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 Increase (decrease) in accrued insurance losses Increase in net OPEB obligation Increase (decrease) in net pension liability Increase (decrease) in other liabilities Increase in deferred pension inflows of resources Net Cash Provided (Used) by Operating Activities SCHEDULE OF NONCASH INVESTING, CAPITAL AND NON-CAPITAL FINANCING ACTIVITIES Increase (decrease) in fair value of investments Total Noncash Investing, Capital and Non-capital Financing Activities (1,108) 5,558 (15,924) 91,528 2,625 9,905 $ 628 $ 4,450 $ 75,604 $ 12,530 $ (12,101) $ 643 $ 198,084 $ 4,191 310 - - 292 - (60) - (869) 73 8 (206) 129 (314) (206) 10 9 120 (866) (118) 140 $ (12,161) $ (1,137) $ $ (2,563) $ - $ (2,563) $ - - 202 - 895 32 - 7,315 661 64 (479) (1,147) (6,454) 143 (788) 751 174 (507) (14) (633) 1,026 78 302 173 77 427 198,442 $ 6,221 $ - $ - $ - $ - COLISEUM & EXPOSITION CENTER $ $ $ INDUSTRIAL COMMISSION SPECIAL FUND 12,884 - $ UNEMPLOYMENT COMPENSATION 144 2,677 $ 498,521 4,451 - HIGHWAY EXPANSION & EXTENSION LOAN PROGRAM $ - OTHER $ TOTAL 33,909 - $ 491,431 498,665 4,451 5,846 (7,899) (4,674) 1,273 1,584 (14,278) 2,124 (9,333) (270,808) 1,878 234,042 - (12,500) (18,019) 41 3,431 (528,741) (56,141) 5,578 421,089 (38) (155) (3,618) - (203) (15,029) (205,323) (38) (155) (3,618) - (203) (220,352) (186) - - - (51) 94 (2,205) (186) - - - (51) (2,111) 18 108,748 8,821 8,368 658 99 506,607 19,098 18 (22,580) (116,686) (21,697) 8,368 658 99 (22,580) (503,761) (636) 1,378 4,055 (31,185) 52,685 238,792 332,677 658 59,293 3,276 9,054 5,433 (293) 197,990 565,905 $ 21,500 $ 571,469 $ 59,951 $ 12,330 $ 763,895 $ (41,748) $ 230,737 $ - $ 1,738 $ 381,251 280 1,218 477 (290) (3) (376) 218 (5) (9) 55 333 24 142 - (13) (29) (1) 32,271 - 3,594 745 (1) (1,033) - - 369 - 2,623 32 928 - 62 (10) (684) (100) 115 475 261 (68) 1,273 10,260 73 (2) (52) 179 (2,486) (238) (5,511) (1) (1) (1,033) 32,211 1,095 (887) (85) 2,733 $ 1,584 $ (9,333) $ 234,042 $ - $ 3,431 $ 421,089 $ - $ 21,682 $ - $ - $ - $ 19,119 $ - $ 21,682 $ - $ - $ - $ 19,119 - 203 - 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, 2017 (Expressed in Thousands) ASSETS Current Assets: Cash and pooled investments with State Treasurer Receivables, net of allowances: Other Due from other Funds Inventories, at cost Other current assets Total Current Assets RISK TRANSPORTATION EMPLOYEE TELE- MANAGEMENT EQUIPMENT BENEFITS COMMUNICATION $ 77,926 $ 3,038 $ 152,768 $ 1,098 4,052 81,978 1,832 2,275 7,145 35,083 11,096 198,947 146 1,244 6 6 81,984 70,340 70,340 77,485 4 4 198,951 149 149 1,393 DEFERRED OUTFLOWS OF RESOURCES Related to pensions 3,542 2,534 566 198 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 2,627 468 69,184 620 72,899 176 712 654 1,542 119,190 98 163 119,451 738 27 765 372,433 570 14,528 387,531 460,430 827 14,364 15,191 16,733 151 2,754 2,905 122,356 43 1,031 1,074 1,839 2,036 2,173 478 179 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 6 (376,946) $ (376,940) 70,340 (9,227) $ 61,113 - 206 - 4 76,679 $ 76,683 149 (576) $ (427) RETIREE $ AUTOMATION ACCUMULATED MOTOR OPERATIONS SICK LEAVE POOL 14,810 $ $ 2,296 $ 23,911 TOTAL $ 278,672 947 1,663 17,420 2,825 690 11 30 6 3,033 282 37 30 24,260 38,980 1,711 2,335 15,154 336,852 5,313 5,313 22,733 2,825 10,112 10,112 13,145 397 397 24,657 86,321 86,321 423,173 1,554 - 123 2,748 11,265 519 244 36 889 282 1,970 11,333 11,333 407 19 26 452 710 439 25 28 645 1,847 124,191 1,471 773 69,184 917 13,723 210,259 370 8,654 1,308 10,332 12,302 6 148,125 148,131 159,464 24 621 645 1,097 488 13,192 41 13,721 15,568 372,433 2,479 55,144 1,349 148,125 579,530 789,789 1,501 - 108 2,157 8,632 10,112 1,951 397 9,283 5,313 5,171 $ 2,825 OTHER 10,484 (156,639) $ (156,639) $ 12,063 $ 9,680 - 207 - 86,321 (450,304) $ (363,983) STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION INTERNAL SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2017 (Expressed in Thousands) OPERATING REVENUES Sales and charges for services Other Total Operating Revenues RISK TRANSPORTATION EMPLOYEE TELE- MANAGEMENT EQUIPMENT BENEFITS COMMUNICATION $ OPERATING EXPENSES Cost of sales and benefits Personal services Contractual services Depreciation and amortization Insurance Other Total Operating Expenses Operating Income (Loss) $ 11,692 25,926 27 57,467 1,185 96,297 3,509 NON-OPERATING REVENUES (EXPENSES) Gain (loss) on sale of capital assets Investment income Other non-operating revenue Other non-operating expense Total Non-Operating Revenues (Expenses) Income (Loss) Before Contributions and Transfers Capital grants and contributions Transfers in Transfers out 25,635 254 25,889 812,756 54 812,810 $ 853,650 3,389 1,687 5 5,660 885 865,276 (52,466) 963 24 987 1,423 1,423 2 623 657 80 11 306 1,679 (256) (8,916) (8,916) 10 10 (10,532) 18,394 - (61,382) (79,072) (246) (26) 422 (377,362) 7,862 53,251 (140,454) 217,137 (272) (155) (376,940) $ 61,113 2,852 (2,430) $ $ 11,174 11,620 785 12,802 1,027 37,408 (11,519) 1 (658) (657) Change in Net Position Total Net Position - Beginning Total Net Position - Ending 99,806 99,806 - 208 - $ 76,683 $ (427) RETIREE $ AUTOMATION ACCUMULATED MOTOR OPERATIONS SICK LEAVE POOL 28,736 1 28,737 $ 10,027 5,224 1,919 1,759 123 3,178 22,230 6,507 - 6,514 2,321 19 (8,193) (3,524) - 661 9,823 10,484 $ 17,822 79 5 17,906 (3,524) (2) 9 7 $ 14,382 14,382 $ OTHER 6,992 2 6,994 $ 3,597 328 128 2,761 493 244 7,551 (557) (296) 521 (11) 214 11,849 (156,639) $ 12,063 24,992 3,364 28,356 $ 9,804 4,366 214 1,486 6,147 22,017 6,339 261 261 (3,524) (153,115) TOTAL $ 1,014,722 3,675 1,018,397 896,272 42,759 35,473 17,648 65,240 12,972 1,070,364 (51,967) 6 15 (257) (236) 1,222 30 35 (9,831) (8,544) 6,103 (2,452) (60,511) 21,236 19 (92,184) 3,651 6,029 (131,440) (232,543) 9,680 $ - 209 - (363,983) STATE OF ARIZONA COMBINING STATEMENT OF CASH FLOWS INTERNAL SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2017 (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 TRANSPORTATION EQUIPMENT 99,806 $ (83,684) (11,816) 1 (658) 3,649 (2,430) (2,430) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from sale of capital assets Acquisition and construction of capital assets Interest paid on capital debt, installment purchase contracts, and capital leases Principal paid on capital debt, installment purchase contracts, and capital leases Net Cash Provided (Used) by Capital and Related Financing Activities EMPLOYEE BENEFITS 23,832 $ (12,827) (12,013) 254 (754) - - TELECOMMUNICATION 814,172 $ (884,980) (3,019) 9 (8,916) (82,734) (79,072) (79,072) 2,468 (42) 1,426 (257) (771) 398 (26) (26) - 10 (74) - - - - - - - - - 2,426 - CASH FLOWS FROM INVESTING ACTIVITIES Interest and dividends from investments Net Cash Provided by Investing Activities - 23 23 - Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning 1,219 76,707 1,695 1,343 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) decrease in receivables, net of allowances Decrease in due from U.S. Government (Increase) decrease in due from other Funds (Increase) decrease in inventories, at cost (Increase) decrease in other assets (Increase) in deferred pension outflows of resources Increase (decrease) in accounts payable Increase (decrease) in accrued liabilities Increase (decrease) in due to other Funds Increase in accrued insurance losses Increase in net OPEB obligation Increase (decrease) in net pension liability Increase (decrease) in other liabilities Increase in deferred pension inflows of resources Net Cash Provided (Used) by Operating Activities SCHEDULE OF NONCASH INVESTING, CAPITAL AND NON-CAPITAL FINANCING ACTIVITIES Contribution of capital assets from other Funds Total Noncash Investing, Capital and Non-capital Financing Activities $ 77,926 $ $ 3,509 $ 27 (657) (992) (1,706) 849 60 1,037 244 445 (14) 847 3,038 (64) - (161,806) 314,574 $ (11,519) $ 152,768 308 790 $ (52,466) $ 1,098 (256) 12,802 - 5 (8,916) 80 - (1,803) 242 (1,097) (141) (255) 367 (152) (76) 878 (3,820) 5,192 (988) (188) (22,111) 11 64 194 27 262 3 (34) 719 1 18 (207) 74 398 3,649 $ $ - $ 18,394 $ - $ - $ - $ 18,394 $ - $ - - 210 - (754) $ (82,734) $ $ RETIREE ACCUMULATED SICK LEAVE AUTOMATION OPERATIONS $ 28,552 $ (13,490) (5,413) 3 (118) 9,534 19 (8,193) (8,174) MOTOR POOL 14,382 $ (5) (76) (15,400) (1,099) OTHER 7,178 $ (4,406) (535) 31 2,268 TOTAL 24,755 $ (11,497) (11,160) 3,136 5,234 1,014,103 (1,011,146) (44,803) (15,400) 3,434 (9,692) (63,504) - (11) (11) (2,452) (2,452) 19 (92,184) (92,165) - (709) 15 (9) 2,502 (834) (115) - (20) (4) (139) (862) - (1,442) (27) (2,331) (968) - (2,171) (25) (802) - 6 6 29 29 86 2,210 2,763 21,148 9 - - - 392 14,418 (1,099) 3,924 $ 14,810 $ $ 6,507 $ 2,825 $ (3,524) $ 1,759 (44) - (22) (162) 1,537 (266) 112 34 36 158 (641) (190) 716 3 2,422 - 9,534 $ $ 2,321 $ - $ 2,321 $ - $ 23,911 $ 278,672 (557) $ 6,339 $ (51,967) 2,761 20 184 2 (22) (1) (17) 88 1 10 (225) (13) 37 (1,099) $ $ 2,296 (156,442) 435,114 214 (157) 17,648 (9,754) (202) (35) 4 (793) 435 50 (8) 209 (1,599) (128) 905 (5,660) 5,192 (195) 224 (444) (4,101) (20,049) (98) 28 1,037 1,073 (2,185) 2,028 3,719 2,268 $ 5,234 $ (63,504) $ 521 $ - $ 21,236 $ 521 $ - $ 21,236 - 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, 2017 (Expressed in Thousands) PENSION TRUST FUNDS ASRS ASSETS Cash $ Receivables, net of allowances: Accrued interest and dividends Securities sold Futures contracts Contributions Court fees Due from other Funds Other PSPRS 17,595 $ EORP 197,850 $ CORP 8,725 $ AOC 37,591 $ 10,808 46,644 18,691 18,875 62,279 14,407 695 6,621 3,162 13,482 12,151 289 138 617 775 1,056 1,320 630 5,063 143 380 181 1,025 41 161,591 35,416 2,875 7,156 1,627 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 711,904 9,608,295 20,697,992 1,082,577 3,249,557 166,870 538,133 369,902 2,020,820 568,330 684,944 628,956 941,651 866,256 453,149 534,125 16,160 88,283 24,828 29,923 27,477 41,138 37,844 19,797 23,334 73,759 402,956 113,326 136,579 125,415 187,767 172,733 90,359 106,506 21,207 115,854 32,582 39,268 36,058 53,985 49,663 25,979 30,621 Total investments 36,055,328 7,068,133 308,784 1,409,400 405,217 236,676 - - - - - 3,069 215 409 118 36,471,190 7,304,468 320,599 1,454,556 417,770 - 1,289 58 262 75 25,011 21,333 834 4,355 2,278 190 9,024 868 2,594 250 166,870 13,869 41,351 - 453,149 5,421 19,797 244 90,359 1,101 25,979 317 268,434 463,759 22,509 101,352 29,140 - 671 30 136 39 36,202,756 - 6,841,327 - 298,118 - 1,353,330 - 388,666 - Total receivables Prepaid benefits 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 Held in trust for: Pension benefits Other post-employment benefits Total Net Position $ 36,202,756 $ 6,841,327 $ - 214 - 298,118 $ 1,353,330 $ 388,666 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 $ $ $ 767 $ 4 8,842 $ 637 $ 2,963 $ 266 TOTAL $ 286,048 2,033 815 823 1,128 23,604 - 564 3,434 5,778 312 149 90 - 23 11 - 105 50 19 3 9 4 29 - 57,736 23,831 19,698 84,296 775 41,445 19,867 28,403 9,776 551 34 177 42 247,648 144,553 418,824 902,221 47,189 141,648 7,274 23,457 3,267 50,722 111,365 20,131 1,663 17,451 95,336 26,812 32,313 29,672 44,424 40,867 21,378 25,198 1,258 6,871 1,933 2,329 2,139 3,202 2,946 1,541 1,816 5,849 31,952 8,986 10,830 9,945 14,889 13,697 7,165 8,445 525 2,867 806 972 892 1,336 1,229 643 758 859,724 10,583,952 24,476,517 1,907,369 937,158 4,271,890 1,288,392 1,185,235 794,155 1,294,056 1,685,166 187,148 333,451 24,035 111,758 10,028 47,598,448 6,607 - - - - - 243,283 - - - - - - 3,811 1,720,943 196,928 342,844 24,706 114,898 10,336 48,379,238 - - - - - - 1,684 19,483 930 230 - 205 15 69 6 59,454 28,221 7,274 604 94 - - 21,378 - 1,541 - 7,165 - 643 - 794,155 14,473 41,445 7,083 28,385 230 21,583 1,556 7,234 649 944,831 - - - - - - 876 1,692,558 196,698 321,261 23,150 107,664 9,687 45,084,197 2,351,018 1,692,558 $ 196,698 $ 321,261 $ 23,150 - 215 - $ 107,664 $ 9,687 $ 47,435,215 STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET POSITION PENSION AND OTHER EMPLOYEE BENEFIT TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2017 (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 in fair value of investments Interest income Dividends Other investment income Securities lending income Total investment income Less investment expenses: Investment activity expenses Securities lending expenses Net investment income Other additions Total Additions DEDUCTIONS: Retirement, disability, and survivor benefits Health insurance subsidy Refunds to withdrawing members, including interest Administrative expense Other deductions Total Deductions Change in net position restricted for: Pension benefits Other post-employment benefits Net Position - Beginning Net Position - Ending $ PSPRS 1,079,257 1,053,198 14,109 - $ 167,118 634,457 17,420 15,861 - EORP $ CORP 6,827 15,444 5,000 1,310 8,647 $ AOC 42,652 92,650 805 - $ 9,392 22,484 138 - 4,199,730 124,957 244,085 674,708 110 46,549 30,460 8 2,077 133,505 20 9,218 38,053 6 2,627 32,998 44,300 1,987 8,762 2,497 5,163 4,606,933 3,691 769,358 164 34,696 731 152,236 208 43,391 199,540 451 4,406,942 40,509 984 727,865 1,815 44 32,837 8,033 195 144,008 2,290 56 41,045 540 743 69 790 98 6,554,046 1,563,464 70,134 280,905 73,157 2,931,860 - 740,192 - 60,453 - 109,513 - 24,647 - 249,547 27,895 1,779 17,580 6,460 382 264 274 20 26,093 1,278 787 1,640 367 14 3,211,081 764,614 61,011 137,671 26,668 3,342,965 32,859,791 798,850 6,042,477 9,123 288,995 143,234 1,210,096 46,489 342,177 36,202,756 $ 6,841,327 $ - 216 - 298,118 $ 1,353,330 $ 388,666 OTHER EMPLOYEE BENEFIT TRUST FUNDS ASRS ASRS PSPRS EORP CORP AOC HEALTH BENEFIT LONG-TERM HEALTH BENEFIT HEALTH BENEFIT HEALTH BENEFIT HEALTH BENEFIT SUPPLEMENT FUND DISABILITY FUND $ 53,914 - $ $ 4,249 - $ - $ 467 - $ 929 - TOTAL $ 1,318,588 1,891,398 22,420 32,223 8,647 182,577 5,427 10,608 22,162 15 1 32,061 5 2,212 2,365 1 161 10,780 2 744 931 64 5,327,332 130,551 318,346 1,434 26 2,104 154 708 61 95,031 225 200,271 22,204 175 36,557 13 2,694 59 12,293 5 1,061 10,434 5,881,694 8,660 20 191,591 183 22,021 1,925 47 34,585 141 3 2,550 649 16 11,628 56 1 1,004 263,801 1,817 5,616,076 - - - - - - 2,240 245,505 48,969 38,834 2,550 12,095 1,933 8,891,592 95,720 56,525 - 16,359 1,043 3,548 439 3,923,190 117,109 1,294 - 1,782 358 306 - 24 - 102 - 9 - 295,124 39,791 3,340 97,014 58,665 16,665 1,067 3,650 448 4,378,554 (9,696) 206,394 22,169 299,092 1,483 21,667 8,445 99,219 1,485 8,202 4,340,661 172,377 42,922,177 148,491 1,544,067 $ 13,342 13,606 - SUPPLEMENT FUND SUPPLEMENT FUND SUPPLEMENT FUND SUPPLEMENT FUND 1,692,558 $ 196,698 $ 321,261 $ 23,150 - 217 - $ 107,664 $ 9,687 $ 47,435,215 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 – 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 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 – 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, 2017 (Expressed in Thousands) LOCAL CENTRAL ASSETS Cash and pooled investments with State Treasurer LOCAL LOCAL GOVERNMENT ARIZONA LOCAL GOVERNMENT GOVERNMENT INVESTMENT WATER GOVERNMENT INVESTMENT INVESTMENT POOL - CONSERVATION INVESTMENT POOL - POOL - MEDIUM-TERM DISTRICT POOL FF&C $ Receivables, net of allowances: Accrued interest and dividends - $ 1,167 $ MEDIUM-TERM - $ 983 FF&C $ - 885 192 30 865 235 Investments, at fair value: Fixed income securities Collateral investment pool Total investments 365,768 93 365,861 1,115,505 1,115,505 1,322,570 1,322,570 326,612 571 327,183 136,595 136,595 Total Assets 366,746 1,116,864 1,322,600 329,031 136,830 16 66 62 4,649 15 6 93 - - 571 - 109 66 62 5,235 6 LIABILITIES Payable for securities purchased 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) 366,637 $ 366,079 $ 1.00 1,116,798 $ 1,116,798 $ 1.00 - 220 - 1,322,538 $ 1,322,538 $ 1.00 323,796 $ 313,222 $ 1.03 136,824 136,034 $ 1.01 LEHMAN BROTHERS POOL $ $ TOTAL - 2,150 - 2,207 1,769 1,769 3,268,819 664 3,269,483 1,769 3,273,840 - 4,649 165 - 664 - 5,478 1,769 19,301 $ $ $ 3,268,362 3,273,972 0.09 - 221 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET POSITION INVESTMENT TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2017 (Expressed in Thousands) LOCAL ADDITIONS: Investment income: Net increase (decrease) in fair value of investments Interest income Securities lending income Total investment income $ LOCAL GOVERNMENT INVESTMENT CENTRAL LOCAL LOCAL GOVERNMENT ARIZONA WATER GOVERNMENT GOVERNMENT INVESTMENT POOL - CONSERVATION INVESTMENT INVESTMENT POOL - MEDIUM-TERM DISTRICT POOL POOL - FF&C MEDIUM-TERM FF&C (2,213) $ 5,444 11 3,242 (6) $ 8,487 4 8,485 (310) $ 6,389 121 6,200 (1,944) $ 4,288 11 2,355 (1,603) 1,970 7 374 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 700 634 151 73 11 3,041 1 7,784 75 5,491 10 2,194 6 295 78,125 5,090 (57,555) - Total Additions DEDUCTIONS: Dividends to investors Total Deductions Change in net position held in trust for pool participants Net Position - Beginning Net Position - Ending 190 $ 2,795,054 7,796 (2,733,603) 878 1,864,591 5,758 (1,751,966) - 79,302 3,771 (8,471) - 13,647 1,531 (11,520) - 25,660 70,125 118,383 74,602 3,658 28,701 77,909 123,874 76,796 3,953 3,041 7,784 5,491 2,194 295 3,041 7,784 5,491 2,194 295 25,660 340,977 70,125 1,046,673 118,383 1,204,155 74,602 249,194 3,658 133,166 366,637 $ 1,116,798 - 222 - $ 1,322,538 $ 323,796 $ 136,824 LEHMAN BROTHERS POOL $ TOTAL 558 558 $ - 1,748 558 103 19,363 (878) 4,830,719 23,946 (4,563,115) - (878) 291,550 (320) 310,913 - 18,805 - 18,805 (320) 2,089 $ (5,518) 26,578 154 21,214 1,769 292,108 2,976,254 $ 3,268,362 - 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, 2017 (Expressed in Thousands) TREASURER CUSTODIAL SECURITIES FUND ASSETS Cash Cash and pooled investments with State Treasurer Receivables, net of allowances: Accrued interest Other Due from others Custodial securities in safekeeping $ - OTHER TREASURER FUNDS $ OTHER FUNDS 3 $ 10,749 TOTAL $ 10,752 - 14,200 64,237 78,437 558,176 - 2 7 81,500 6,230 2 7 81,500 564,406 Total Assets $ 558,176 $ 14,203 $ 162,725 $ 735,104 LIABILITIES Due to local governments Due to others $ 558,176 $ 267 13,936 $ 10,208 152,517 $ 10,475 724,629 $ 558,176 $ 14,203 $ 162,725 $ 735,104 Total Liabilities - 227 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUNDS FOR THE YEAR ENDED JUNE 30, 2017 (Expressed in Thousands) BALANCE JULY 1, 2016 TREASURER CUSTODIAL SECURITIES FUND Assets: Custodial securities in safekeeping ADDITIONS BALANCE JUNE 30, 2017 DELETIONS $ 776,127 $ 348,010 $ 565,961 $ 558,176 $ 776,127 $ 348,010 $ 565,961 $ 558,176 $ 776,127 $ 348,010 $ 565,961 $ 558,176 $ 776,127 $ 348,010 $ 565,961 $ 558,176 $ 12,179 $ 3 137,876 $ 135,855 $ 3 14,200 Total Assets $ 12,179 $ 137,879 $ 135,855 $ 14,203 Liabilities: Due to local governments Due to others $ 230 11,949 $ 123,747 45,319 $ 123,710 43,332 $ 267 13,936 $ 12,179 $ 169,066 $ 167,042 $ 14,203 $ 25,166 52,612 $ 745,384 175,555 $ 759,801 163,930 $ 10,749 64,237 Total Assets Liabilities: Due to others Total Liabilities OTHER TREASURER FUNDS Assets: Cash Cash and pooled investments with State Treasurer Total Liabilities OTHER FUNDS 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 1 2 1,343 82,032 6,333 1,508 1 124 81,500 6,230 - 119 1,343 82,032 6,333 1,508 2 7 81,500 6,230 - Total Assets $ 168,997 $ 1,008,794 $ 1,015,066 $ 162,725 Liabilities: Due to local governments Due to others $ 10,154 158,843 $ 101,666 1,085,067 $ 101,612 1,091,393 $ 10,208 152,517 $ 168,997 $ 1,186,733 $ 1,193,005 $ 162,725 Total Liabilities (Continued) - 228 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUNDS FOR THE YEAR ENDED JUNE 30, 2017 (Expressed in Thousands) BALANCE JULY 1, 2016 COMBINED TOTAL ALL AGENCY FUNDS 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 $ 25,166 64,791 ADDITIONS $ 1 2 1,343 82,032 782,460 1,508 745,387 313,431 BALANCE JUNE 30, 2017 DELETIONS $ 1 124 81,500 354,240 - 759,801 299,785 $ 119 1,343 82,032 572,294 1,508 10,752 78,437 2 7 81,500 564,406 - Total Assets $ 957,303 $ 1,494,683 $ 1,716,882 $ 735,104 Liabilities: Due to local governments Due to others $ 10,384 946,919 $ 225,413 1,478,396 $ 225,322 1,700,686 $ 10,475 724,629 $ 957,303 $ 1,703,809 $ 1,926,008 $ 735,104 Total Liabilities - 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 Arizona Public School Credit Enhancement program assists achievement district schools in obtaining more favorable financing by guaranteeing the payment of principal and interest on guaranteed financings issued by or on behalf of achievement district schools. 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, 2017 (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: Loans and notes Other Due from primary government Other current assets Total Current Assets $ ARIZONA PUBLIC SCHOOL CREDIT ENHANCEMENT RIO NUEVO 6,205 7,847 $ 9,212 - $ 103,798 - ARIZONA COMMERCE AUTHORITY $ TOTAL 19,112 69,047 - $ 28,324 179,050 7,847 6,097 545 20,694 803 3,150 46 13,211 103,798 1,341 402 9 89,911 1,341 7,302 3,150 600 227,614 1,641 635 16,927 8,903 - - 5,348 - 16,927 1,641 14,251 635 - 19,140 - - 19,140 107 2,383 33,352 78,322 - 634 5,982 34,093 86,687 23,077 91,533 103,798 95,893 314,301 134 20,648 6,775 - - - 134 6,775 20,648 Total Deferred Outflows of Resources 20,782 6,775 - - 27,557 LIABILITIES Current Liabilities: Accounts payable and other current liabilities Accrued liabilities Unearned revenue Current portion of long-term debt Total Current Liabilities 5,629 381 6,220 12,230 8,274 37 7,310 15,621 - 247 233 975 1,455 14,150 651 975 13,530 29,306 Noncurrent Liabilities: Net pension liability Long-term debt Total Noncurrent Liabilities 741 26,568 27,309 63,700 63,700 80,000 80,000 - 741 170,268 171,009 Total Liabilities 39,539 79,321 80,000 1,455 200,315 277 - - - 277 107 48,045 - 634 48,786 23,798 20,877 15,085 57,842 17,210 20,877 15,085 39,308 Noncurrent Assets: Restricted assets: 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 (deficit) Total Net Position 8,286 (4,350) $ 4,043 8,924 (37,982) $ 18,987 - 232 - $ 23,798 $ 94,438 $ 141,266 (This page intentionally left blank) STATE OF ARIZONA COMBINING STATEMENT OF ACTIVITIES NON-MAJOR COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2017 (Expressed in Thousands) PROGRAM REVENUES OPERATING EXPENSES FUNCTIONS/PROGRAMS Arizona Power Authority Rio Nuevo Arizona Public School Credit Enhancement Arizona Commerce Authority Total CHARGES FOR GRANTS AND SERVICES CONTRIBUTIONS $ 32,263 10,080 25,060 $ 33,377 1,401 1,346 $ 1,416 $ 67,403 $ 36,124 $ 1,416 General Revenues: Taxes: 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 - NET (EXPENSE) REVENUE AND CHANGES IN NET POSITION ARIZONA ARIZONA PUBLIC ARIZONA POWER SCHOOL CREDIT COMMERCE ENHANCEMENT AUTHORITY AUTHORITY $ RIO NUEVO 1,114 - $ 52 1,166 2,877 $ 4,043 - $ (8,679) - 45 12,065 193 3,624 15,363 $ 18,987 - $ (102) 23,900 23,798 $ 23,798 TOTAL - $ (22,298) 1,145 1,144 224 25,553 634 6,402 88,036 $ - 235 - 94,438 1,114 (8,679) (22,298) 1,145 1,139 224 61,518 827 34,990 106,276 $ 141,266 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 the ASU Preparatory Academy, Inc. (ASU Prep) and the Campus Research Corporation (CRC). 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. Sun Angel Foundation receives funds primarily through donations, and contributes funds to the ASU in support of various athletic programs. 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. 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, 2017 (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 Total Net Assets $ 2,391 SUN ANGEL FOUNDATION ARIZONA STATE UNIVERSITY RESEARCH PARK, INC. ARIZONA STATE UNIVERSITY ALUMNI ASSOCIATION $ $ $ 7,728 2,856 1,323 8,773 219 8,992 36,534 526 37,060 29,982 29,982 7 141 148 169,303 13,857 183,160 - - 16,786 16,786 4,889 - - - 95 9 176 5,955 2,274 66 199,527 44,973 41,067 18,323 187 222 170 69 31,712 5,537 4,583 - 4,145 12,951 1,792 8 13 42,019 222 19,058 90 78,031 69,074 10,403 43,186 1,565 22,009 236 17,997 157,508 $ - 238 - 44,751 $ 22,009 $ 18,233 ARIZONA STATE UNIVERSITY PREPARATORY ACADEMY, INC. $ $ UNIVERSITY OF ARIZONA LAW COLLEGE ASSOCIATION 4,524 $ 313 UNIVERSITY OF ARIZONA CAMPUS RESEARCH CORPORATION UNIVERSITY OF ARIZONA ALUMNI ASSOCIATION $ $ 5,918 7,785 UNIVERSITY OF ARIZONA ELLER EXECUTIVE EDUCATION $ TOTAL 144 $ 32,982 5,927 550 6,477 570 92 662 1,524 1,524 35 2,141 2,176 159 159 51,846 35,334 87,180 - 11,518 169 11,687 - 437 373 810 - 198,044 14,399 212,443 - - - - - 4,889 1,423 71 7 24,485 6,848 102 36 - 31,974 9,573 12,495 12,669 38,775 10,909 303 379,041 1,539 23 2,079 207 40 4,536 66 - - 6,015 2,961 313 9 3,760 - 135 - 31,712 10,169 25,418 6,701 1,605 23 11,368 3,976 175 78,536 8,188 2,702 5,604 3,907 3,135 27,407 6,933 128 83,635 124,591 92,279 10,890 $ 12,646 $ 27,407 $ - 239 - 6,933 $ 128 $ 300,505 STATE OF ARIZONA COMBINING STATEMENT OF ACTIVITIES NON-MAJOR UNIVERSITIES - AFFILIATED COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2017 (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, as restated Net Assets - Ending $ 14,373 20,187 4,175 SUN ANGEL FOUNDATION ARIZONA STATE UNIVERSITY RESEARCH PARK, INC. ARIZONA STATE UNIVERSITY ALUMNI ASSOCIATION $ $ $ 17,065 217 34 390 10,235 1 106 2,623 2,076 1,897 282 38,735 17,706 10,342 6,878 7,983 548 4,341 213 - 10,673 1,051 1,466 2,792 1,128 246 359 150 5,171 288 13,085 13,190 4,675 5,459 25,650 4,516 5,667 1,419 131,858 40,235 16,342 16,814 157,508 $ 44,751 - 240 - $ 22,009 $ 18,233 ARIZONA STATE UNIVERSITY PREPARATORY ACADEMY, INC. $ 2,699 1,403 17,417 104 UNIVERSITY OF ARIZONA LAW COLLEGE ASSOCIATION $ UNIVERSITY OF ARIZONA ALUMNI ASSOCIATION $ $ 15,484 11 131 204 850 625 2,540 UNIVERSITY OF ARIZONA ELLER EXECUTIVE EDUCATION $ 1,271 - TOTAL $ 38,094 25,719 5,817 23,944 17,417 8,206 21,623 2,797 15,626 4,219 1,271 119,197 24,712 234 - 1,562 170 126 - 9,298 1,454 - 2,727 799 247 - 151 751 332 - 13,616 9,298 5,040 7,983 35,365 4,714 246 806 1,904 24,946 1,858 10,752 3,773 1,234 78,972 939 4,874 446 37 40,225 11,707 22,533 6,487 91 260,280 (3,323) 14,213 $ 1,130 1,189 478 UNIVERSITY OF ARIZONA CAMPUS RESEARCH CORPORATION 10,890 $ 12,646 $ 27,407 $ - 241 - 6,933 $ 128 $ 300,505 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, 2017 (Expressed in Thousands) Fiscal Year 2017 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 (2,4,6,8,9,10) Total Business-type Activities Net Position PRIMARY GOVERNMENT: Net investment in capital assets (4,5,9) Restricted (3,7) Unrestricted (2,4,6,8,9,10) Total Primary Government Net Position $ 20,583,563 $ 7,424,033 (5,341,848) $ 22,665,748 $ $ 2016, as 2015, as 2014, as 2013, as restated restated restated restated 19,722,730 $ 6,856,271 (5,205,689) 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) $ 21,373,312 $ 20,275,257 $ 19,041,733 $ 20,998,697 1,879,901 1,445,218 369,694 $ 1,761,694 1,191,605 288,164 $ 1,642,507 895,616 215,120 $ 1,581,436 $ 723,590 (51,586) 1,526,777 531,972 1,049,391 3,694,813 $ 3,241,463 $ 2,753,243 $ 2,253,440 3,108,140 $ $ 22,463,464 $ 8,869,251 (4,972,154) 21,484,424 $ 8,047,876 (4,917,525) 20,433,396 $ 8,065,905 (5,470,801) 19,634,976 $ 7,552,889 (5,892,692) $ 26,360,561 24,614,775 23,028,500 21,295,173 $ $ $ $ 18,936,832 6,648,055 (1,478,050) 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. (10) Fiscal year 2016 unrestricted net position for the Universities was restated due to the reclassification of Thunderbird School of Global Management from a discrete non-major university component unit to a blended university component unit. - 246 - Fiscal Year 2012, as restated 2011 2010 2009 2008 $ 16,940,512 $ 5,447,576 (3,351,315) 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) $ 19,036,773 $ 17,208,272 $ 16,231,055 $ 16,100,685 $ 18,412,986 $ 1,483,416 496,444 810,810 $ 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 $ 2,790,670 $ 2,594,982 $ 2,479,186 $ 2,790,965 $ 3,157,221 $ 18,423,928 $ 5,944,020 (2,540,505) 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) $ 21,827,443 19,803,254 18,710,241 18,891,650 21,570,207 $ $ $ $ - 247 - STATE OF ARIZONA SCHEDULE 2 CHANGES IN NET POSITION (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2017 (Expressed in Thousands) Fiscal Year 2013, as 2017 EXPENSES Governmental Activities: General government Health and welfare (5) 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 (4) Unemployment Compensation (2) Industrial Commission Special Fund (6) Lottery (2) Other Total Business-type Activities Expenses Total Primary Government Expenses (5) 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 (2) Other activities Operating grants and contributions Capital grants and contributions Total Business-type Activities Program Revenues Total Primary Government Program Revenues 862,738 15,661,167 163,416 6,369,100 1,662,550 799,882 216,318 3,349,498 193,099 29,277,768 2016 (7) $ 4,893,271 1,105,470 5,998,741 807,320 15,152,650 168,719 6,136,303 1,585,620 858,958 208,563 3,176,183 210,326 28,304,642 2015 (7) $ 4,637,567 1,014,941 5,652,508 923,659 14,296,714 159,874 5,859,267 1,568,732 786,028 204,939 2,966,400 230,871 26,996,484 2014 (7) $ 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 restated $ 4,078,053 36,895 1,130,299 5,245,247 836,431 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 $ 35,276,509 $ 33,957,150 $ 32,416,226 $ 29,969,609 $ 29,195,634 $ 195,805 170,043 149,297 714,649 14,732,701 716,455 $ 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 $ 16,678,950 15,593,960 15,030,281 13,656,439 13,091,702 2,708,519 1,461,686 1,488,002 27,368 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 5,685,575 5,451,660 5,013,290 4,766,525 4,767,876 22,364,525 $ 21,045,620 $ 20,043,571 $ 18,422,964 $ 17,859,578 NET (EXPENSE) REVENUE Governmental activities Business-type activities $ (12,598,818) $ (313,166) (12,710,682) $ (200,848) (11,966,203) $ (406,452) (11,067,923) $ (478,722) (10,847,357) (488,699) Total Primary Government Net (Expense) $ (12,911,984) $ (12,911,530) $ (12,372,655) $ (11,546,645) $ (11,336,056) - 248 - Fiscal Year 2012, as restated $ 840,189 11,992,408 151,937 5,331,848 1,380,999 808,967 213,339 2,473,881 350,483 23,544,051 2011 $ 3,629,568 1,069,531 83,290 496,830 113,347 5,392,566 929,107 12,558,119 149,649 5,467,543 1,299,205 857,194 196,210 2,462,178 341,801 24,261,006 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 3,227,481 356,333 14,824 372,740 162,300 4,133,678 $ 28,936,617 $ 30,032,054 $ 30,962,661 $ 29,605,560 $ 28,063,203 $ 189,175 150,557 108,877 398,893 11,357,470 778,572 $ 191,738 149,890 114,453 381,633 12,580,013 745,559 $ 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 $ 12,983,544 14,163,286 15,188,803 11,980,673 10,533,375 1,752,509 646,675 584,240 1,705,773 53,571 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 4,742,768 4,972,588 4,765,435 3,454,597 3,062,345 17,726,312 $ 19,135,874 $ 19,954,238 $ 15,435,270 $ 13,595,720 $ (10,560,507) $ (649,798) (10,097,720) (798,460) $ (9,701,524) (1,306,899) $ (12,680,290) (1,490,000) $ (13,396,150) (1,071,333) $ (11,210,305) $ (10,896,180) $ (11,008,423) $ (14,170,290) $ (14,467,483) (Continued) - 249 - STATE OF ARIZONA SCHEDULE 2 CHANGES IN NET POSITION (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2017 (Expressed in Thousands) Fiscal Year 2013, as 2017 GENERAL REVENUES AND OTHER CHANGES IN NET POSITION Governmental Activities: Taxes: Sales Income Tobacco Property Motor vehicle and fuel Other Unrestricted investment earnings Unrestricted grants and contributions Gain (loss) on sale of trust land Miscellaneous general revenues (3) 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 2016 (7) 2015 (7) 2014 (7) restated 6,775,704 $ 4,500,902 316,073 46,798 1,875,392 655,363 50,009 35,032 47,503 117,933 (529,455) 13,891,254 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 6,290,950 $ 4,430,602 314,522 52,241 1,694,779 560,920 87,115 39,847 97,231 232,658 (601,539) 13,199,326 5,948,055 $ 3,963,197 314,313 41,215 1,650,579 547,481 79,215 37,926 83,695 176,035 (578,361) 12,263,350 72,696 81,363 79,726 3,276 529,455 766,516 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 6,518,480 3,974,998 316,050 27,429 1,592,911 531,186 18,705 45,746 174,095 144,403 (534,722) 12,809,281 57,490 62,017 5 148,743 3,192 534,722 806,169 Total Primary Government $ 14,657,770 $ 14,484,462 $ 14,048,132 $ 13,103,081 $ 13,615,450 CHANGE IN NET POSITION Governmental activities Business-type activities $ 1,292,436 453,350 $ 1,098,055 474,877 $ 1,233,123 442,354 $ 1,195,427 361,009 $ 1,961,924 317,470 Total Primary Government $ 1,745,786 $ 1,572,932 $ 1,675,477 $ 1,556,436 $ 2,279,394 (1) (2) (3) (4) (5) (6) (7) This schedule reports using the accrual basis of accounting. For fiscal year 2013, Unemployment Compensation and Lottery changed from major to non-major funds. Fiscal year 2012 miscellaneous general revenues was restated as a result of an agency fund being reclassified to a special revenue fund. Fiscal year 2013 expenses for the Universities were restated as a result of GASB Statement No. 65 to expense debt issuance costs. For fiscal year 2015, Health and Welfare expenses continue to climb as a result of enrollment increases. For fiscal year 2015, Industrial Commission Special Fund changed from a major to a non-major fund. Historical data has not been restated for footnote items (5) - (10) in Schedule 1. - 250 - Fiscal Year 2012, as restated $ 2011 6,296,151 $ 3,706,698 317,369 30,656 1,581,909 522,510 79,190 40,678 125,479 265,214 (576,846) 12,389,008 55,309 49,501 3,468 155,757 3,270 576,846 844,151 5,942,250 3,366,783 320,657 32,038 1,565,525 550,430 29,183 16,468 (154,359) 140,854 (734,892) 11,074,937 2010 $ 52,913 68,401 50,510 3,656 3,884 734,892 914,256 5,029,050 2,809,995 332,893 31,417 1,583,790 535,435 37,665 13,213 64,005 204,295 (809,864) 9,831,894 2009 $ 52,318 70,766 52,072 3,020 7,080 809,864 995,120 $ 13,233,159 $ 11,989,193 $ $ 1,828,501 194,353 $ 977,217 115,796 $ $ 2,022,854 $ 1,093,013 $ 10,827,014 5,442,563 3,126,076 370,073 32,564 1,643,276 574,030 92,957 12,440 (165,696) 222,712 (983,006) 10,367,989 2008 $ 58,528 22,450 45,786 4,014 7,240 2,720 983,006 1,123,744 6,270,419 4,205,426 413,333 36,732 1,800,920 559,440 243,160 13,574 196,953 214,751 (994,435) 12,960,273 72,945 39,763 64,564 3,927 (20,100) 15,475 994,435 1,171,009 $ 11,491,733 $ 130,370 (311,779) $ (2,312,301) (366,256) $ (435,877) 99,676 (181,409) $ (2,678,557) $ (336,201) - 251 - 14,131,282 STATE OF ARIZONA SCHEDULE 3 FUND BALANCES, GOVERNMENTAL FUNDS (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2017 (Expressed in Thousands) Fiscal Year 2015, as 2017 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 $ 2016 - $ 9,990 189,321 93,343 (258,262) restated - $ 9,669 91,833 126,484 (78,903) 2014 - $ 9,168 241,919 99,145 (325,380) 2013 - $ 9,600 124,390 79,837 (189,238) 844 192,187 73,237 156,935 $ 34,392 $ 149,083 $ 24,852 $ 24,589 $ 423,203 $ - $ - $ - $ - $ - 5,603,620 1,479,706 964,570 (18,752) $ 8,029,144 5,124,432 1,488,010 937,949 (21,325) $ 7,529,066 5,181,556 1,573,453 825,740 (27,562) $ 7,553,187 4,878,682 1,741,674 734,446 (29,744) $ 7,325,058 (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 - 4,160,485 1,860,872 661,110 (26,266) $ 6,656,201 Fiscal Year 2012, as 2010, as restated 2011 restated (2) 2009 2008 $ - $ 891 246,977 109,469 (437,035) - $ 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 - $ (79,698) $ (703,161) $ (746,998) $ (978,278) $ 361,622 $ - $ 3,472,005 1,762,356 514,085 (33,861) $ 5,714,585 - $ 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 1,253,202 238,985 2,544,365 143,785 35,236 27,132 919,679 - $ - 253 - 5,162,384 STATE OF ARIZONA SCHEDULE 4 CHANGES IN FUND BALANCES, GOVERNMENTAL FUNDS (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2017 (Expressed in Thousands) 2017 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 $ 6,732,684 4,473,790 316,073 46,798 1,875,392 655,363 14,787,324 573,867 292,049 639,717 229,099 136,161 89,310 101,522 179,028 167,229 31,295,406 Fiscal Year 2016 $ 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 26,596,084 787,284 15,813,515 160,362 6,364,016 1,487,181 732,029 198,567 3,349,498 714,313 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 2,685,168 639,779 229,932 894,210 30,656,373 517,389 249,704 814,002 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 24,979,930 639,033 547,488 775,384 616,984 1,616,154 - 254 - Fiscal Year 2012, as 2010, as restated $ 6,312,870 3,715,082 317,369 30,656 1,581,909 522,510 11,843,908 477,344 190,055 188,806 168,240 85,535 101,067 137,405 297,065 25,969,821 2011 $ 5,971,141 3,398,972 320,657 32,038 1,565,525 550,430 13,019,744 452,629 438,068 186,325 184,950 80,455 99,130 95,500 164,658 26,560,222 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 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 24,155,284 838,776 12,029,530 153,947 5,332,141 1,351,251 745,306 202,677 2,473,535 933,313 12,818,468 153,718 5,467,695 1,288,577 820,417 191,429 2,459,934 923,977 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 3,026,563 386,027 344,903 769,716 24,627,809 383,591 357,754 824,417 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 1,342,012 860,909 (2,314,174) (1,037,268) (817,147) (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, 2017 (Expressed in Thousands) 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 Bonds issued Certificates of participation issued Grant anticipation notes issued Refunding bonds issued Refunding certificates of participation issued Refunding grant anticipation notes issued Payment to refunded bond escrow agent Payment to refunded certificates of participation escrow agent Payment to refunded grant anticipation notes escrow agent Premium on debt issued Total Other Financing Sources (Uses) NET CHANGE IN FUND BALANCES DEBT SERVICE AS A PERCENTAGE OF NONCAPITAL EXPENDITURES 2017 2016 866,241 (1,303,531) 1,294 914,817 (1,367,979) 1,203 43,248 119,880 312,900 (422,841) (112,128) 117,390 (253,646) 2.9% 856,446 (1,392,301) 259 427,540 (62,630) - 385,387 2015 (6) 3,579 - 90,410 (389,350) $ Fiscal Year $ 100,110 2.7% 904,261 (1,397,332) 900 782,420 (1,256,408) 1,636 113,914 29,130 - 15,158 51,550 194,295 837,340 (900,813) 305,675 - 62,630 (954,372) (310,059) (42,096) 6,770 (346,741) 136,210 (171,637) 149,554 (530,762) $ 2013 1,025 783 754,285 - 58,933 (447,378) 2014 244,622 $ 270,243 3.0% (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. (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 - 3.2% $ 1,444,517 3.1% Fiscal Year 2012, as 2010, as restated 2011 821,072 (1,323,778) 1,815 862,040 (1,574,406) 3,712 8,166 9,541 259,460 455,900 43,825 (560,228) 90,753 (193,474) $ 1,148,538 3.1% restated 1,106,250 (1,872,212) 3,088 2008 1,248,267 (2,168,964) 2,127 897,771 (1,874,084) 249,970 28,233 4,583 11,113 180,000 150,110 158,585 - 187,836 32,628 425,420 998,795 - 4,056 23,139 621,050 580,035 55,420 - - - - - - - - 77,709 959,514 70,083 435,213 48,972 261,220 42,291 (161,972) $ 2009 698,937 3.0% $ 142,367 2.3% $ (1,878,961) $ 1.9% - 257 - 23,556 19,529 563,950 238,990 68,000 82,880 (86,547) (776,048) 2.0% STATE OF ARIZONA SCHEDULE 5 NET TAXABLE SALES BY CLASSIFICATION (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2017 (Expressed in Thousands) Fiscal Year 2017 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 (7) Hotel/motel Rental occupancy tax (6) Use tax Use tax-utilities Membership camping (6) Total Direct sales tax rate (4) 2016 $ 39,944 140,648 735,086 9,920,286 2,000,877 22,117 87,179 237,887 13,571,567 1,323,661 50 3,947,160 10,252,613 63,922,406 155,624 3,058,663 6,069,074 34,764 - $ $ 115,519,606 $ 5.60% 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 2014 2013 2012 $ 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 - $ 108,244,360 $ 103,747,606 $ 98,276,129 $ 94,275,888 5.60% 5.60% 5.60% 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 2008 through 2010, and 2014 through 2017. The sales tax rate was 6.6% for fiscal years 2011 through 2013. For fiscal years 2008 through 2017, 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 2008 through 2010 and 2014 through 2017. 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) Effective November 1, 2006, membership camping and rental occupancy were repealed. (7) MRRA - Maintenance, Repair, Replacement or Alteration projects Source: Arizona Department of Revenue Annual Reports for fiscal years 2017 and prior. - 258 - Fiscal Year 2011 2010 2009 2008 $ 41,555 96,514 1,609,451 9,394,361 2,853,538 1,908 98,343 266,564 9,311,826 994,092 2 3,056,386 8,983,261 45,898,838 2,039,283 43 4,610,921 10,040 1 $ 41,990 102,900 1,164,231 9,354,244 3,618,208 1,640 103,681 236,985 9,020,795 1,051,919 141 3,127,828 9,311,612 42,913,933 1,949,718 (62) 5,464,504 (35,594) 10 $ 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 $ $ 89,266,927 $ 87,428,683 $ 96,321,552 $ 6.60% 5.60% 5.60% 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% - 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 2017 CLASSIFICATION Transporting Non-metal mining, oil and gas Mining severance Timbering severance - other (1) Utilities Communications Private car and pipelines Publishing Job Printing Restaurants and bars Amusements Commercial lease 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 2008 Tax Percentage Tax Percentage Collections of Total Collections of Total 1,997 4,395 18,377 496,014 100,044 1,106 4,359 11,894 678,578 66,183 2 197,358 512,631 3,196,120 7,781 168,226 1,738 300,977 493 3,634 636 80 $ 401 4 670,788 0.03 % 0.07 0.29 7.70 1.55 0.02 0.07 0.18 10.53 1.03 3.06 7.95 49.59 0.12 2.61 0.03 4.67 0.01 0.06 0.01 0.01 10.41 6,443,816 100.00 % $ 2,418 6,761 43,752 5 461,455 183,289 800 6,125 19,528 482,664 57,247 (17) 199,569 1,006,520 2,628,261 132,163 (80) 623 340,535 562 3 4,636 1,045 (2) (246) 645,828 6,223,444 0.04 % 0.11 0.70 7.41 2.95 0.01 0.10 0.31 7.76 0.92 3.21 16.17 42.23 2.12 0.01 5.47 0.01 0.07 0.02 10.38 100.00 % (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 2017 and 2008. - 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 2016 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) $ $ 2015 1,470,281 544,389 1,556,389 1,788,954 10,622,652 15,145,697 9,382,681 13,949,120 6,045,689 4,463,174 14,104,304 5,229,291 14,973,895 3,285,975 11,702,382 3,128,728 23,656,476 2,334,454 7,412,941 $ 2014 1,201,310 507,578 1,580,868 1,637,943 9,689,258 14,535,076 9,112,987 13,577,514 5,721,874 4,259,273 13,135,651 4,852,420 14,269,427 3,256,235 11,284,715 3,100,056 22,351,321 2,157,327 7,073,431 $ 2013 934,340 457,211 1,556,979 1,650,735 9,243,613 13,905,694 8,750,289 13,259,756 5,319,313 3,998,716 12,099,445 4,313,306 13,519,269 3,183,119 10,760,825 2,992,470 21,267,944 2,186,768 6,563,175 $ 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 $ 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 6,903,052 6,685,309 6,445,786 5,973,996 5,897,588 5,437,293 31,343,793 91,075,720 30,795,390 89,473,316 29,890,058 83,397,554 29,631,725 76,671,517 29,431,030 77,366,788 29,046,914 74,084,162 280,120,037 1.47% $ 270,258,279 $ 1.47% 255,696,365 1.47% $ 242,181,504 $ 236,220,305 1.43% (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 2014 and 2015 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 - 1.44% $ 225,838,885 1.37% Calendar Year Ended December 31 2010 $ $ 2009 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 $ 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 $ 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 5,175,265 5,141,183 5,259,542 5,480,994 28,808,332 69,354,364 28,547,342 66,335,245 28,488,923 66,780,185 26,957,426 61,682,882 215,052,605 1.33% $ 214,058,229 1.13% $ 224,317,885 1.15% $ 220,503,346 1.55% - 263 - STATE OF ARIZONA SCHEDULE 8 PERSONAL INCOME TAX RATES FOR THE LAST TEN CALENDAR YEARS (Expressed in Thousands) Calendar Year Ended December 31 2016 AVERAGE EFFECTIVE RATE (3) Personal Income Tax Revenue (1) Personal Income (2) Average Effective Rate (3) TAX RATES ON THE PORTION OF TAXABLE INCOME IN RANGES (4) $0 - $10 $10 - $25 $25 - $50 $50 - $150 ` $150 and over $ 2015 4,131,621 280,120,037 1.47% 2.59% 2.88% 3.36% 4.24% 4.54% $ 2014 3,968,883 270,258,279 1.47% $ 2.59% 2.88% 3.36% 4.24% 4.54% 2013 3,761,764 255,696,365 1.47% $ 2012 3,463,266 242,181,504 1.43% 2.59% 2.88% 3.36% 4.24% 4.54% 2.59% 2.88% 3.36% 4.24% 4.54% $ 3,398,902 236,220,305 1.44% 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 2014 and 2015 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 2014 AND 2007 (1) (Expressed in Thousands, Except Number of Filers) Taxable Year Ended December 31, 2014 FEDERAL ADJUSTED GROSS INCOME LEVEL (3) $50 and under $50 - $100 $100 - $500 $500 and over Total Number of Percentage Filers of Total 1,919,465 593,107 376,474 17,551 2,906,597 66.04% 20.41% 12.95% 0.60% 100.00% Percentage Liability (2) $ $ 474,454 775,765 1,590,334 924,491 3,765,044 of Total 12.60% 20.60% 42.24% 24.56% 100.00% (1) The taxable year 2014 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 2014, filed from January 2015 forward (or 2007, filed from January 2008 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 2011 $ 2010 3,099,177 225,838,885 1.37% 2.59% 2.88% 3.36% 4.24% 4.54% $ 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% Taxable Year Ended December 31, 2007 Number of Percentage Filers of Total 1,778,062 555,092 285,248 16,045 2,634,447 67.49% 21.07% 10.83% 0.61% 100.00% Percentage Liability (2) $ $ 438,462 673,036 1,136,240 996,710 3,244,448 of Total 13.51% 20.74% 35.02% 30.73% 100.00% - 265 - $ 3,414,304 220,503,346 1.55% 2.59% 2.88% 3.36% 4.24% 4.54% STATE OF ARIZONA SCHEDULE 10 RATIOS OF OUTSTANDING DEBT BY TYPE FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2017 (Expressed in Thousands, Except Amount of Debt per Capita) Fiscal Year 2014, as 2017 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 2,640,330 129,475 1,804,395 215,084 22,179 516,456 5,327,919 $ 3,010,525 557,506 134,399 1,460 325,412 4,029,302 $ Debt as a Percentage of Personal Income (1) Amount of Debt per Capita (1) 2016 9,357,221 1,350 2,899,875 147,320 1,891,460 334,909 176 22,179 492,349 5,788,268 $ $ 9,502,194 1,394 $ 2,675,430 637,986 168,960 2,805 231,178 3,716,359 $ 10,006,384 3.5% $ restated 3,141,190 194,670 2,030,805 408,784 349 22,179 492,048 6,290,025 2,701,665 600,556 141,117 2,114 268,474 3,713,926 3.3% $ 2015 1,489 $ 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% $ 1,516 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 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 10,355,167 $ 4.4% $ 1,581 4.5% $ 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 - 10,206,168 1,578 Fiscal Year $ $ 2011 2010 2009 2008 3,529,115 $ 392,495 2,611,255 400,540 245 59,891 342,602 (1,221) 7,334,922 3,522,605 $ 304,480 2,571,125 412,919 901 60,712 334,721 (5,197) 7,202,266 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 1,742,125 812,706 167,841 10,511 292 41,393 (20,875) 2,753,993 1,692,825 840,719 171,448 13,043 360 39,705 (23,100) 2,735,000 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 10,088,915 $ 4.7% $ 1,574 9,937,266 $ 4.6% $ 1,567 8,115,545 $ 3.6% $ 1,292 6,713,979 3.0% $ 1,089 - 267 - STATE OF ARIZONA SCHEDULE 11 LEGAL DEBT MARGIN INFORMATION ARIZONA STATE UNIVERSITY FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2017 (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 2017 83,209 4.40 % 2016 $ 2,311,364 2,152,083 $ 184,909 172,167 $ 101,700 103,300 $ 68,867 4.80 2015 2,044,231 163,538 106,300 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 2008 1,865,385 2,017,544 149,231 161,404 97,000 115,000 52,231 46,404 5.20 5.70 (1) For fiscal years 2008 through 2017, projections are based upon the University's fiscal years 2010-2012, 2011-2013, 2012-2014 2013-2015, 2014-2016, 2015-2017, 2016-2018, 2017-2019, 2018-2020, and 2019-2021 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, 2017 (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 2017 58,620 5.00 % 2016 $ 1,954,000 1,902,083 $ 156,320 152,167 $ 97,700 91,300 $ 60,867 4.80 2015 1,856,098 148,488 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 2010 2009 2008 1,556,364 1,817,647 1,681,818 1,681,132 124,509 145,412 134,545 134,491 85,600 92,700 92,500 89,100 38,909 52,712 42,045 45,391 5.50 5.10 5.50 5.30 (1) For fiscal years 2008 through 2017, projections are based upon the University's fiscal years 2010-2012, 2011-2013, 2012-2014, 2013-2015, 2014-2016, 2015-2017, 2016-2018, 2017-2019, 2018-2020, and 2019-2021 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, 2017 (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 2017 18,887 4.70 % 2016 $ 572,340 534,694 $ 45,787 42,776 $ 26,900 26,200 $ 16,576 4.90 2015 514,673 41,174 22,800 18,374 4.43 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 2008 419,448 430,360 33,556 34,429 28,900 27,500 4,656 6,929 6.89 6.39 (1) For fiscal years 2008 through 2017, projections are based upon the University's fiscal years 2010-2012, 2011-2013, 2012-2014, 2013-2015, 2014-2016, 2015-2017, 2016-2018, 2017-2019, 2018-2020, and 2019-2021 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, 2017 (Expressed in Thousands) Fiscal Year 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 $ (1), (2) Pledged Revenue 610,998 589,476 566,352 537,768 512,971 392,648 504,175 502,874 509,183 658,616 $ Principal 74,855 70,195 61,660 58,485 60,540 67,885 71,770 68,140 64,190 60,645 Debt Service Interest $ 68,419 74,248 75,937 80,495 78,198 71,113 83,960 87,661 89,825 75,538 $ Total 143,274 144,443 137,597 138,980 138,738 138,998 155,730 155,801 154,015 136,183 Coverage 4.26 4.08 4.12 3.87 3.70 2.82 3.24 3.23 3.31 4.84 (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, 2017 (Expressed in Thousands) (1) Fiscal Pledged Year 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 Revenue $ 274,553 262,971 254,871 243,786 227,800 216,281 206,545 199,672 219,165 253,742 Debt Service Principal $ 67,495 65,585 70,940 58,600 55,870 55,460 45,970 33,315 13,825 19,045 $ Interest 33,257 38,001 32,652 44,988 47,721 48,129 42,496 38,225 17,193 10,673 $ Total 100,752 103,586 103,592 103,588 103,591 103,589 88,466 71,540 31,018 29,718 Coverage 2.73 2.54 2.46 2.35 2.20 2.09 2.33 2.79 7.07 8.54 (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, 2017 (Expressed in Thousands) (1) Fiscal Pledged Year 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 Revenue 670,788 645,012 626,401 601,854 567,824 542,395 514,346 504,391 558,900 645,828 $ (2) Debt Service Principal $ 60,290 59,800 57,920 46,720 43,680 41,405 39,215 37,230 35,420 33,810 $ Interest 3,923 4,417 6,274 9,575 13,487 22,804 25,088 27,074 28,885 30,498 $ Total 64,213 64,217 64,194 56,295 57,167 64,209 64,303 64,304 64,305 64,308 Coverage 10.45 10.04 9.76 10.69 9.93 8.45 8.00 7.84 8.69 10.04 (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 $1,538 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, 2017 (Expressed in Thousands) (1) Fiscal Pledged Year 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 Revenue $ 72,263 43,506 53,241 57,345 49,645 39,155 42,191 38,147 72,263 72,263 Debt Service Principal $ 21,130 20,180 19,380 19,275 18,315 17,400 16,535 15,710 15,105 14,470 $ Interest 2,166 3,115 3,911 4,971 5,933 6,846 7,714 8,539 9,143 8,400 $ Total 23,296 23,295 23,291 24,246 24,248 24,246 24,249 24,249 24,248 22,870 Coverage 3.10 1.87 2.29 2.37 2.05 1.61 1.74 1.57 2.98 3.16 (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 SEVEN FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2017 (Expressed in Thousands) (2) Fiscal Pledged Year Revenue 2017 2016 $ 193,255 Debt Service Principal $ 200,769 Interest 20,065 19,205 $ 17,437 18,297 Total $ Coverage 37,502 5.15 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 16,790 2013 174,373 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, 2017 (Expressed in Thousands) Debt Service Fiscal Year 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 (1) Net Payments Pledged (Receipts) On Revenue $ 1,555,687 1,450,651 1,300,624 1,161,306 1,047,661 977,828 876,770 782,727 702,797 638,707 Principal $ 30,185 40,155 45,650 44,770 33,965 31,215 28,595 26,975 21,555 19,135 Interest $ 57,740 47,148 50,246 43,623 41,477 39,560 35,051 33,003 21,896 16,682 Total Swap Agreements $ 2,472 2,991 3,393 3,507 3,631 3,612 3,791 3,716 3,692 2,448 $ Coverage 90,397 90,294 99,289 91,900 79,073 74,387 67,437 63,694 47,143 38,265 17.21 16.07 13.10 12.64 13.25 13.15 13.00 12.29 14.91 16.69 (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, 2017 (Expressed in Thousands) (1) Fiscal Year 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 $ (1), (2) Direct Net Revenue Gross Operating Available for Revenues 1,721,399 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 $ Expenses 1,490,565 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 Debt Service $ 230,834 232,436 193,401 138,848 156,919 99,578 158,654 165,622 132,914 108,382 Debt Service $ Principal 33,080 25,205 21,575 22,600 21,895 17,375 24,720 23,860 22,725 21,235 $ Interest 49,394 45,534 37,732 38,250 34,556 31,480 28,571 24,593 15,437 14,978 $ (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 82,474 70,739 59,307 60,850 56,451 48,855 53,291 48,453 38,162 36,213 Coverage 2.80 3.29 3.26 2.28 2.78 2.04 2.98 3.42 3.48 2.99 STATE OF ARIZONA SCHEDULE 21 PLEDGED-REVENUE COVERAGE NORTHERN ARIZONA UNIVERSITY REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2017 (Expressed in Thousands) (1), (2), (3) Fiscal Year 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 Gross $ Revenues 345,708 323,986 303,860 283,468 263,733 246,098 220,538 198,197 164,877 143,733 Debt Service $ Principal 11,790 6,500 6,500 6,615 6,610 5,835 24,310 6,545 6,570 10,455 Interest 22,831 23,149 20,310 17,305 15,474 15,028 14,712 10,912 7,383 6,628 $ $ Total 34,621 29,649 26,810 23,920 22,084 20,863 39,022 17,457 13,953 17,083 Coverage 9.99 10.93 11.33 11.85 11.94 11.80 5.65 11.35 11.82 8.41 (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 2016 Population (1,3) $ 6,931,071 $ 280,120,037 $ 40,415 4.7 2015 6,817,565 270,258,279 39,641 5.4 2014 6,719,993 255,696,365 38,050 6.1 2013 6,624,617 242,181,504 36,558 7.0 2012 6,549,634 236,220,305 36,066 7.7 2011 6,467,163 225,838,885 34,921 8.5 2010 6,408,312 215,052,605 33,558 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 (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 Wells Fargo City of Phoenix U.S. Postal Service Intel Corp. Dignity Health HonorHealth Maricopa County Raytheon Co. Calendar Year Ended December 31, 2016 Full-Time Percentage Equivalent of Total State Employees Rank Employment 42,687 1 1.32 % 40,226 2 1.24 34,350 3 1.06 18,870 4 0.58 14,860 5 0.46 14,421 6 0.44 13,509 7 0.42 11,000 8 0.34 10,584 9 0.33 10,500 10 0.32 211,007 6.51 (1) The 10th rank is not available. Source: Phoenix Business Journal, Book of Lists 2017 and 2008 for employers. - 275 - % Calendar Year Ended December 31, 2007 Full-Time Percentage Equivalent of Total State Employees Rank (1) Employment 50,079 1 1.65 % 17,020 3 0.56 30,174 2 1.00 11,780 7 0.39 14,000 6 0.46 14,453 4 0.48 11,000 9 0.36 14,057 5 0.46 11,184 8 0.35 173,747 5.71 % STATE OF ARIZONA SCHEDULE 24 STATE EMPLOYEES BY FUNCTION (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2017 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 2017 2016 2015 2014 2013 2012 98.8 250.9 880.8 2,280.4 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 4,218.0 3,057.1 2,326.3 1,036.5 961.6 1,651.4 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 16,721.0 843.9 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 9,540.0 738.5 1,908.7 98.6 4,552.0 733.5 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 51,898.0 50,815.8 50,480.7 48,909.6 49,278.4 49,847.1 (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 2011 2010 2009 2008 104.0 236.0 935.0 2,646.5 104.0 236.0 863.0 2,746.5 110.0 236.0 1,164.0 2,989.2 110.0 235.0 1,164.0 2,999.2 3,726.0 1,423.0 1,513.3 954.5 1,807.7 4,201.0 1,484.0 1,538.6 966.5 1,820.7 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 15,754.2 896.0 15,664.5 972.4 17,353.5 1,003.4 17,138.8 1,001.4 10,015.2 1,001.7 2,081.8 117.9 4,548.0 937.2 9,755.9 1,050.7 2,099.8 118.4 4,548.0 956.7 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 48,698.0 49,126.7 52,420.2 51,904.3 - 277 - STATE OF ARIZONA SCHEDULE 25 OPERATING INDICATORS BY FUNCTION FOR THE LAST TEN FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2017 2017 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 Transportation: Number of registered vehicles (5) Number of driver licenses issued (6) Natural resources: Game and Fish Department's license and tag sales (7) Universities: University full-time equivalent students (8) 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 (9) 2016 2013 2012 2011 6.0 5.9 5.7 5.7 5.5 5.4 5.4 1,922,724 1,849,578 1,709,550 1,508,690 1,318,650 1,314,210 1,392,810 N/A 22,171 27,272 32,888 39,050 39,194 44,842 N/A 980,536 1,027,845 1,070,674 1,116,068 1,123,068 1,049,522 64.4 3.1 65.0 3.1 65.4 3.2 70.6 3.5 66.5 3.4 67.9 3.5 66.4 3.5 1,110,425 1,105,592 1,098,701 1,084,276 1,077,703 1,066,740 1,062,200 18,771,511 42,200 19,843,962 42,902 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 8,247,514 5,165,719 7,970,946 5,083,085 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 1,196,675 524,781 726,285 822,923 848,617 815,488 826,385 165,536 158,681 148,819 141,264 136,884 134,051 129,653 223,084 223,141 229,770 257,951 261,418 288,097 311,472 1,112 65 1,982 111 1,599 125 1,303 170 1,618 136 1,365 125 882 132 N/A $ Fiscal Year 2014 2015 852.0 $ - 870.9 $ - 750.0 $ - 723.9 $ - 692.9 $ 6,370 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 2017 contains data for the calendar year ending December 31, 2016. 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 2017 contains data from the October 1, 2016 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) Count represents the total number of vehicles registered as of the end of the fiscal year. (6) Through fiscal year 2014, count represents the number of driver licenses issued during that fiscal year, beginning July 1 and ending June 30. Beginning fiscal year 2015, count represents the total number of driver licenses. (7) 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 2017 contains data for the calendar year ending December 31, 2016. Beginning fiscal year 2016, total number of tag sales was not available. (8) 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 2017 contains data for the fall 2016 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. (9) 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 - 646.7 7,080 $ 583.5 8,260 Fiscal Year 2009 2010 $ 2008 5.2 5.7 5.6 1,392,420 1,282,910 1,136,585 82,127 83,969 80,221 986,413 752,772 600,549 75.2 3.7 84.0 3.9 101.8 4.6 1,068,987 1,062,618 1,132,963 21,275,292 40,477 21,987,920 39,628 21,881,034 38,897 6,740,536 1,241,977 6,692,834 1,246,358 6,733,610 1,200,227 874,442 874,363 896,143 122,734 118,743 113,092 363,189 396,755 226,772 1,781 128 2,244 103 2,748 118 551.5 10,760 $ 484.5 14,560 $ 472.9 21,646 - 279 - STATE OF ARIZONA SCHEDULE 26 CAPITAL ASSET STATISTICS BY FUNCTION FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2017 Fiscal Year 2017 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) 2016 2015 2014 2013 2012 2011 10 10 10 10 10 10 10 6,780 4,810 6,822 4,858 6,800 4,798 6,800 4,787 6,751 4,754 6,751 4,754 6,722 4,741 9,215,795 9,216,213 9,217,704 9,223,617 9,223,873 9,302,256 9,252,495 1,267 47,437 1,268 44,665 1,258 46,054 1,212 44,658 1,705 41,141 1,711 39,933 1,740 37,967 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 2010 2009 2008 10 10 10 6,789 4,700 6,753 4,648 6,785 4,637 9,258,071 9,259,296 9,260,253 1,737 37,589 1,670 37,186 1,669 36,000 - 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 Brian A. St. Andre Samantha M. Bierl, MAcc 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.