County Auditor Ross L. Tate, CMA, CIA, CGFM Project Team D. Eve Murillo, CPA, MBA, CFE Audit Manager Richard L. Chard, CPA Senior Auditor John Schulz, MPA Senior Auditor Patra E. Carroll Associate Auditor Kimmie Wong Associate Auditor Internal Audit Department 301 W Jefferson 10th Floor Phx AZ 85003 (602) 506-1585 Fax (602) 506-8957 August 21, 2001 Janice K. Brewer, Chairman, District IV Fulton Brock, Supervisor, District I Don Stapley, Supervisor, District II Andrew Kunasek, Supervisor, District III Mary Rose Wilcox, Supervisor, District V Internal Audit has completed a report on the financial condition of Maricopa County as of June 30, 2000. This work, which was part of our Board-approved audit plan, provides important information on County financial conditions and trends over the past five to ten years. Overall, the County’s financial condition and trends were favorable. The Board of Supervisors, Elected Officials, and County management should be commended for the many actions taken to achieve these results. Maintaining a balance between fiscal health and maximum service provision is a difficult task. We acknowledge that evaluating a jurisdiction’s financial condition is a complex process; many variables are difficult to isolate and quantify. I believe, however, that a routine assessment of the past heightens awareness and provides insight for the future. Additionally, a comparison to benchmarks broadens our perspective. This type of financial analysis alerts County officials to potential concerns, and facilitates the Board’s governance of Maricopa County. If you have any questions or wish to discuss anything presented in this report, please contact me at your convenience. Sincerely, Ross L. Tate County Auditor Executive Summary General Fund Balance Long Term Debt FY91 Per Citizen $140 FY92 FY93 $120 FY94 $100 FY95 Millions $80 FY96 $60 FY97 FY98 $40 FY99 $20 FY00 $0 0 25 50 75 100 125 150 FY96 175 The General Fund balance is 30 times larger than it was in fiscal year 1991. This favorable trend enables the County to complete major projects without incurring debt, and provides a reserve for the unexpected. FY98 FY99 FY00 Long-term debt continues to decrease, a favorable trend given that infrastructure is adequately maintained. In fiscal year 2000, the County’s long-term debt was one-fifth that of the average benchmark county. Liquidity Trend 4 3.5 3 2.5 2 1.5 1 0.5 0 FY97 Governmental Revenues Per Capita Ratio $450 $430 $410 $390 $370 FY96 FY97 General Fund FY98 FY99 FY00 Standard 1:1 Ratio $350 FY96 FY97 FY98 FY99 FY00 Liquidity is the ability to pay short-term debt. Experts recommend a liquidity ratio of at least one-to-one. Governmental Fund revenues increased only 9% between fiscal years 1991 and 2000. Slow revenue growth represents a lower tax burden. The County’s favorable liquidity ratio of 3.45 is significantly higher than the recommended standard. Experts warn, however, that service delivery could decrease if revenues don’t keep pace with population growth. Major Revenues Expenditures vs. Revenues $150 Millions $310 Property Tax Revenue $100 $290 $270 $50 $250 $0 FY FY FY FY FY FY FY FY 00 99 98 97 96 95 94 93 92 -$50 $210 91 Sales Tax Revenue FY FY $230 Millions -$100 $190 00 FY 99 FY 98 FY 97 FY 96 FY 95 FY 94 FY 93 FY 92 FY 91 FY Sales tax revenues increased 54% from fiscal year 1991 to 2000, while property tax revenues were the same (in 2000 dollars). This trend reveals the County’s increasing dependency on economy-reliant sales tax. Revenues exceeded expenditures by a good margin between fiscal years 1995 and 2000. (Planned large capital expenditures caused the dip in fiscal year 1997). However, expenditures exceeded revenues in the early 1990s, causing fiscal difficulties for the County. Maricopa Integrated Health System (MIHS) $60 $80 $25 Combined Unreserved Fund Equity $60 $40 $21 Net Income $17 $40 $20 $13 $20 $0 -$40 -$40 -$60 -$60 Millions FY00FY00 FY99FY99 FY98FY98 FY97FY97 FY96FY96 FY95FY95 FY94FY94 FY93FY93 -$20 FY92FY92 -$20 FY91FY9 1 $0 $9 Medical Center Health Plan (AHCCCS) Long Term Care (ALTCS) The health system’s combined unreserved fund equity improved by $52 million during fiscal years 1991 to 2000, and by $18M between fiscal years 1999 and 2000. $5 Forecasted $1 -$3 FY96 FY97 FY98 FY99 FY00 FY01 FY02 The Health System projects net income will decrease by $15.8 million (87%) in fiscal year 2001. This negative trend is primarily due to decreases in Long Term Care membership and an increase in bad debt expense at the Medical Center. Table of Contents General Fund 1 Long Term Debt 3 Revenues 4 Expenditures 8 Health System 9 Economic Trends 11 Appendix 14 FYOO Financial Condition Report Maricopa County Internal Audit 1 General Fund Balance The General Fund Size Compared to Other County Funds Capital Projec ts 27% The General Fund contains all County departments except those with legally restricted revenue sources. (For example, Animal Care & Control Services' revenues (license fees, etc.) are restricted to animal care, and reported in a separate fund.) Fund balance is the difference between what the County owns (assets) & what the County owes (liabilities). Some General Fund balance is "reserved" for specific uses. However, remaining dollars are "unreserved", and can be used to fund additional operations at the discretion of County leadership. Large fund balances enable the County to complete major projects without incurring debt and provide a cushion for unexpected expenses and downturns in the economy. General Fund 28% MIHS + Solid Waste 20% Spec ial Revenue 25% Maricopa General Fund Balance as a Percent of Revenues Compared to Benchmark Counties 25% 20% General Fund Balance (Millions) 15% FY91 10% FY92 FY93 5% FY94 FY95 0% FY96 FY91 Maricopa FY94 FY97 FY00 Avg of 10 Other Counties FY97 Maricopa’s General Fund Balance as a percent of revenues doubled in FY96-FY00. FY98 FY99 FY00 0 25 50 75 100 125 150 175 The General Fund balance is 30 times larger in FY00 than FY91. Maricopa’s unreserved General Fund balance has steadily grown because financing sources exceeded financing uses (see page 7), and budgets provided for future capital outlay. Maricopa’s FY00 performance outpaced the benchmarks’ performance significantly. General Fund Liquidity Maricopa Liquidity Compared to 9 Benchmark Counties’ Average An excess of cash and short-term investments is favorable. Experts recommend a one-to-one ratio. The chart below shows Maricopa’s strong five year liquidity trend. FY96 FY97 Maricopa Maricopa’s Five Year Liquidity Trend FY98 FY99 FY00 Avg 9 Other Counties (Harris Excluded) Maricopa has twice the ability to pay current bills as the average benchmark. Ratio Ratio 4 3.5 3 2.5 1.5 1 0.5 Ratio 1.5 0 FY96 FY97 General Fund FY98 FY99 FY00 Standard 1:1 Ratio Maricopa’s FY97-FY00 liquidity fluctuation was caused by timing differences in Stadium District revenues & expenditures. 1 0.5 0 FY96 Maricopa has $3.45 in cash for every $1 in current bills. FY97 Maricopa County FY98 FY99 FY00 Avg: 9 Other Counties Internal IOU’s are monies owed to the General Fund by other funds (the Medical Center, etc.). Comparing the two charts above shows that Maricopa’s strong liquidity is dependent upon repayment of these IOU’s (more so than the benchmarks). However, Maricopa has an additional $45M available in an FY01 Capital Project fund. FYOO Financial Condition Report Maricopa’s Liquidity Compared to 9 Benchmarks After Deducting Internal IOU’s 2 Maricopa County Internal Audit Liquidity is the ability to pay short-term debt. Low or declining liquidity may signal debt over-extension. 4 3.5 3 2.5 2 1.5 1 0.5 0 2 $700 • $500 $400 $300 $200 Long-term debt takes many forms: Bonds, Capital Leases, Certificates of Participation, Special Assessments, and Employee Compensation Payables. Long-term debt decreases are considered favorable providing infrastructure is adequately maintained. Maricopa Long Term Debt per Citizen FY96—FY00 (adjusted for inflation) $140 Maricopa FY00 FY99 FY98 FY97 FY96 Maricopa’s long-term debt per capita is far below the benchmark average and has contributed to bond rating upgrades. • Debt is commonly used to pay for capital improvements. • Debt should not increase faster than the County’s tax base, extend past the financed facility’s useful life, or jeopardize credit ratings. • Debt should not be used to balance the budget or result in payment amounts that overburden operations. $100 $60 Average of 10 Other Counties • $120 $80 FY95 $0 FY94 $100 FY93 • $600 Governments borrow money over long periods of time to finance assets that serve citizens for many years, i.e., buildings, road improvements, and stadiums. FY92 • FY91 FYOO Financial Condition Report Maricopa County Internal Audit 3 Maricopa Per Person Long Term Debt Compared to Benchmarks Long Term Debt $40 $20 $0 FY96 FY97 FY98 FY99 FY00 Note: Stadium and Housing debt are not included in the graph above. Maricopa’s FY00 long term debt is one fifth the size of the benchmark average. Bank One Ballpark GOVERNMENTAL REVENUES FYOO Financial Condition Report Maricopa County Internal Audit 4 Governmental Revenue Maricopa’s Three Largest Revenues Millions • Governmental Fund revenues include the General Fund, Special Revenue Funds, Debt Service Fund, and Capital Projects Fund. $1000 $800 $600 $400 $200 • Maricopa’s FY98 Governmental Fund revenues were high relative to other years because major league stadium construction revenues reached their peak in FY98. • FY99 revenues showed a marked decrease because Stadium tax revenues matured and ended. • Small revenue increases, like Maricopa’s, represent a lower tax burden. Some experts caution that per person revenues must increase to keep pace with service delivery expectations, assure long term financial health, and avoid short-term borrowing. Maricopa Per Person Governmental Revenues $0 91 19 FY P ro p T a x e s 00 20 FY C h g s fo r S v c s . In te rg o v m n tl • The chart above shows that Charges for Services and Intergovernmental Revenues increased in actual (uninflated) dollars between FY91 and FY00. • The chart below shows that the County’s proportionate reliance on Intergovernmental Revenue has increased, while Charges for Services have remained flat. • Page 5 shows Intergovernmental and Charges for Services composition. Maricopa’s reliance on an external revenue source (sales tax) increased. Revenues: Relative Size Then & Now $450 FY1991 $430 Prop Taxes 26% Chgs for Svs. 36% $410 $390 $370 $350 FY96 FY97 FY98 FY99 Intrgvmntl 38% FY00 Chgs for Svs. 36% Maricopa’s Governmental Fund revenues per capita increased 9% between FY91 and FY00 (adjusted for inflation). FY2000 Prop Taxes 17% Intrgvmntl 47% Revenue Composition Fee-Generating Services • Intergovernmental revenue consists of monies received from other governmental entities (federal, state and local). It’s often earmarked for specific programs. Other 35% O ther For example, the Arizona Department of Health gives Maricopa grant monies to operate the Tobacco Use Prevention Program. • Court Fees Court Fees 17% 17% Special S pecial Law Enforcement Law 5% For example, the Department of Revenue collects sales taxes and distributes a large portion to the counties based upon a statutory formula. Enforce ment 5% Jail Tax 12% Intergovernmental revenue is one of Maricopa’s largest revenue sources. e 9% 10% SStreet treet Lighting Assessment Lighting 7% Assess 7% The chart above shows the services Maricopa provides on a fee-for-service basis. • Generally, charges are assessed for services affecting a small segment of Maricopa citizenry. FYOO Financial Condition Report Highway Veh. Lic. User Tax 10% 12% Sales Tax 39% Car C ar Rental Re ntal SurSucharge rcha rg 9% Probation Probation Service SFees vcFees 10% • $783 Million Grants 27% 17% 35% Intergovernmental revenue includes taxes collected by the State of Arizona and distributed to Maricopa and other entities. Intergovernmental Revenue Recording ReFees cordin g17% Fees Maricopa County Internal Audit $62 Million 5 FYOO Financial Condition Report Revenue Trends Maricopa’s Reliance on Sales Tax Revenues Increases 46% • • • Sales taxes are collected and distributed by a separate governmental entity, AZ State Department of Revenue, and are therefore outside County control. Maricopa’s increasing reliance on sales tax revenue creates vulnerability to economic forces such as sales tax revenue declines caused by economic recession. Maricopa has more control over property tax revenue through setting rates (within constitutional limits). Although taxpayers may view lower property taxes as favorable, an increased dependence on sales tax may be considered unfavorable. Two Major Revenues in 2000 Dollars 45% 44% 43% 42% 41% 40% FY96 • Sales taxes are vulnerable to external economic forces and increasing Internet sales pose a threat to sales tax collectibility. • Maricopa uses a local economist's forecast to monitor the impact of economic and t echnologi cal t rends , i ncl ud in g e-commerce, on the County's sales tax revenues. $190 00 FY 99 FY 98 FY 97 FY 96 FY 95 FY 94 FY 93 FY 92 FY Maricopa County Internal Audit $210 91 FY 6 $270 Sales Tax Revenue Sales tax revenues increased by 54% (FY91 - FY00), while property tax revenues were the same in FY00 as in FY91 (in 2000 dollars). FY00 Sales tax revenues make up 46% of Maricopa's FY00 General Fund revenues, a 28% increase over FY91. This indicates an increasingly heavy reliance upon an “elastic” economy- dependent revenue. Property Tax Revenue $230 FY99 • $310 $250 FY98 Sales Tax Revenues as a % of Total General Fund Revenues (Millions) $290 FY97 Governmental Revenue Forecasting The Widening Gap: Market vs. Assessed Per Person Property Values $120 $100 $80 The graph below shows how much General Fund revenues exceeded or fell below revenue estimates. Maricopa revenues have surpassed budget targets by larger and larger amounts. Since 1994, General Fund revenues have consistently exceeded estimates. FY00 revenues were $34 million more than the forecast. Early 1990’s revenue shortfalls contributed to financial difficulties the County experienced at that time. (See Appendix A5 for more detail.) • A changing economy, inefficient revenue collection, inaccurate estimates, or conservative budget estimates are the most common causes of budget-to-actual variances. $40 $20 $0 FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 On a per person basis, market values increased 5% (FY91 to FY00) while assessed values decreased by 7%. Property tax revenues have not benefited from the rise in market values because these revenues are calculated using assessed values and a relatively stable tax rate. (See property tax revenue trend on page 6.) Note: Assessed and market values are in 2000 dollars. General Fund Sources vs. Uses Variance $40 $30 Revenues surpass or fall below budget estimates $20 FY00 FY99 FY98 FY97 FY96 FY95 FY94 -$10 $20 FY93 $0 FY92 In Millions Millions $30 $10 FY91 Millions Millions $40 -$20 $10 $0 ($10) FY00 FY99 FY98 FY97 FY96 FY95 FY94 FY93 FY92 FY91 ($20) Chart above includes property, sales tax, and vehicle license tax revenues. “Sources" are revenues and other inflows such as debt issuance and transfers in from other funds. "Uses" are expenditures and other outflows such as transfers to other funds. In FY91-94, uses outpaced sources, resulting in lower fund balances (see pg. 1, Unreserved Fund Balance). Sources exceeded uses during FY96 - FY00 by a healthy margin. Total sources decreased slightly more than uses between FY99 and FY00 because of changing levels of capital financing, capital expenditures, and treatment of disproportionate share. FYOO Financial Condition Report • $60 Maricopa County Internal Audit $140 7 EXPENDITURES Expenditures Hywys, Culture/ Rec, Educ, Debt Svc, + Cap't Projects 18% General Gov't 6% Health, Welfare, Sanitation 51% Public Safety 25% Percent of Total Expenditures Health, Welfare, & Sanitation $842 51% Public Safety $422.5 25% Capital Projects $181 11% General Government $91 6% $55.5 3% Debt Service $32 2% Education $18 1% Culture, Recreation $15 1% $1,657 100% Highways, Streets TOTAL Gap between Total County Revenues & Expenditures (Millions) $150 Revenues exceeded Expenditures $100 $50 $0 00 FY 99 FY 98 FY 97 FY 96 95 FY FY 94 FY 93 FY 92 FY 91 FY -$50 Expenditures exceeded Revenues -$100 Revenues exceeded expenditures by a healthy margin in FY95-FY00 except for FY97 when large planned capital project expenditures (including Stadium) caused a negative variance. In the early 1990’s , expenditures exceeded revenues and resulted in County fiscal difficulties. FYOO Financial Condition Report Health and Welfare per capita expenditures decreased by 7% between FY91 and FY00 as adjusted for inflation. FY00 Expenditures (Millions) Category Maricopa County Internal Audit How Maricopa spends its Resources: Total County FY00 Expenditures 8 MARICOPA INTEGRATED HEALTH SYSTEM MIHS Fund Equities MIHS Combined Unreserved Fund Equity Millions $55 MIHS combined unreserved fund equity improved by $52 million between FY91 and FY00. During the most recent year (FY99 to FY00) MIHS combined unreserved fund equity increased by $18 million. The most notable change in equity was an $87 million improvement between FY94 and FY00—a 200% increase. $80 ($45) AHCCCS • Without this $34M transfer, the Medical Center's FY00 accumulated deficit would have been ($34M) instead of $0, and the ALTCS unreserved fund equity would have been $79M instead of $45M. • Since FY96, the Health Plan & ALTCS have shown strong unreserved fund equity, while the Medical Center has not ended a year with a positive unreserved fund equity balance. $40 FY00 FY99 FY98 FY97 FY96 FY95 FY94 FY93 FY92 FY91 -$20 -$40 -$60 The graphFY1991 above combines the following During to FY2000, MIHS’ comfund equities: bined fund balance improved by $18 million.• However, Medical Center during the most recent year (FY1999 to FY2000), the combined fund • Maricopa Health Plan balance dipped $16M. The most notable Acuteimprovement care) change was (AHCCCS the $87million between FY1994 • Long Termand CareFY1999. Program (ALTCS). Medical Center In FY00, ALTCS transferred $34M to the Medical Center via the General Fund. $60 $0 ALTCS • Millions $20 FY00 ($25) Note: The charts show an FY00 CAFR restatement: the $34M Medical Center increase reclassified from contributed capital to unreserved retained earning. MIHS’ two primary Health plans show strong fund equity, while the Medical Center shows a weak fund equity position. FYOO Financial Condition Report MIHS Combined Unreserved Fund Equity FY99 ($5) FY98 $15 FY97 • $35 FY96 • Maricopa County Internal Audit MIHS Unreserved Fund Equity Components 9 10 MIHS Combined Net Income Enrollment for Two MIHS Health Plans shown in Member Months (Millions) $20 $15 $10 FY02 FY01 FY00 FY99 FY98 FY97 $0 FY96 $5 FY01 & FY02 are Projected 575 500 425 350 275 200 125 50 (Thousands) FY 96 FY 97 FY 98 FY 99 FY 00 FY 01 FY 02 FY01 & FY02 are Projected AHCCCS MIHS projects a $15.8 M (87%) combined net income decrease (FY00 to FY01) primarily due to a decrease in Long Term Care Program (ALTCS) membership and an increase in Medical Center bad debt expense. MIHS Component Net Income (Millions) (FY01 & 02 projected) $30 $25 ALTCS MIHS’ two largest health plans are AHCCCS and ALTCS. MIHS forecasts ALTCS member month decreases (FY01-FY02) resulting from AZ opening the ALTCS contract to other program providers. The graph above shows FY96-FY00 actual member month data, and FY01-02 MIHS projections. The term “member months” represents a total number of members enrolled by month. Recent MIHS ALTCS Market Share Decreases $20 $15 $10 100% $5 80% FY02 FY01 FY00 FY99 FY98 FY97 ($5) FY96 $0 ($10) 60% 40% ($15) Health Plan + Non AHCCCS Health Plans Medical Center ALTCS FY01 projected income compared to a 3 year average (FY98-00), shows: • Medical Center: $5M (61%) decrease • Long Term Care: $9M (43%) decrease • AHCCCS Health Plan and non-AHCCCS plans (combined): $160K (5%) decrease. 20% 0% 0 /0 05 0 /0 04 0 /0 03 0 /0 02 0 /0 01 9 /9 12 9 /9 11 9 /9 10 9 /9 09 Maricopa County Internal Audit FYOO Financial Condition Report MIHS Income and Long Term Care Maricopa Mercy Care Life Mark ALTCS enrollment figures for three of the largest providers are compiled by Arizona AHCCCS. The chart above shows that Maricopa’s market share has been reduced by 20%. ECONOMIC TRENDS Maricopa Population History and Projections 5,000,000 4,500,000 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 Maricopa Construction Permits (Thousands) Commercial # Units Residential Permits 2019 2017 2015 2013 2011 2009 2007 2005 • Population increases contribute to revenue growth and pressure for more services. • Commercial building units grew 183%, while residential permits grew 148% over the same period (FY90-FY99). • In contrast, Maricopa's population grew 35% (FY90-FY99). • Residential permits growth reflects the significant population increases. • Permit growth indicates future property tax revenue growth. FY99 FY98 FY97 FY96 FY95 FY94 FY93 FY92 FY91 55 50 45 40 35 30 25 20 15 10 5 0 2003 2001 1999 1997 1995 1993 0 1991 500,000 FY90 FYOO Financial Condition Report Maricopa County Internal Audit 11 Population and Housing Permits Population growth results in construction growth and property tax revenue growth. Residential construction has steadily increased. Residential construction increases cause Maricopa leaders to consider: • Do service costs for new residents equal corresponding new revenues? • Is business activity growth proportional to residential development? • Which services will be impacted by construction growth? Job Growth FY96—FY00 (Thousands) Unemployment and Labor Force Maricopa's unemployment rate has remained below the national and AZ rates since 1991 Between FY91 & FY00 Maricopa’s unemployment rate dropped by 47 % while AZ’s dropped 19% and the US rate dropped 41%. 100 80 60 40 20 5.0% 4.0% Svc. & Misc. Trade Construction Fin, Ins, & Real Est. 6.0% Trans, Comm, & Pub. Util. Gov't 0 Mfg. Unemployment Rate Comparison Maricopa’s low unemployment rate contributes to fiscal health. 3.0% 2.0% 1.0% 0.0% FY96 FY97 U.S. FY98 Arizona FY99 FY00 Maricopa Job Growth (Percent) FY96—FY00 6% 5% Maricopa Jobs By Category FY00 Manufacturing 4% 3% Government 2% 34% Trans, Comm, & Public Utilities Trade Service & Misc. Svc. & Misc. 5% 0% Trade 8% 12% Construction 7% Construction Fin, Ins, & Real Est. 10% 1% Trans, Comm, & Pub. Util. Finance, Ins, & Real Estate Gov't 24% FYOO Financial Condition Report Maricopa's FY00 rate was only 56% of the US rate, and 59% of the AZ rate. Mfg. • 120 Maricopa County Internal Audit • 140 12 13 Number of Employees Per Thousand Citizens 7 6 5 4 3 2 1 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 The number of County employees per citizen decreased 21% between 1995 and 2000. The Number of Citizens Each Employee Serves 225 200 175 20 00 19 99 19 98 19 97 19 96 19 95 19 94 19 93 19 92 150 19 91 Maricopa County Internal Audit FYOO Financial Condition Report Employee Data APPENDIX Maricopa County Internal Audit FYOO Financial Condition Report Definition A1 Financial Condition is defined as a local government’s ability to finance services on a continuing basis. A county in good financial condition can sustain existing services to the public, withstand economic slumps, and meet the demands of changing service needs. Objectives, Scope, and Methodology The objective of this report is to evaluate the financial condition of Maricopa County using key indicators. The selected indicators were derived from authoritative sources on evaluating governmental entity financial conditions, and judged to be the most indicative of a county’s overall financial health. Ten benchmark counties’ and Maricopa County’s audited financial statements were used as primary sources of data for this report. The benchmark counties are: ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾ Clark Harris King Multnomah Orange Pima San Diego Santa Clara Salt Lake Los Angeles (Las Vegas, NV) (Houston, TX) (Seattle, WA) (Portland, OR) (Santa Ana, CA) (Tucson, AZ) (San Diego, CA) (San Jose, CA) (Salt Lake City, UT) (Los Angeles, CA) Other sources include the Governmental Accounting Standards Board (GASB), the International City/County Managers Association (ICMA), ASU Center for Business Research, Arizona Department of Economic Security Research Administration, Arizona Department of Revenue Econometrics Unit, Maricopa County’s Strategic Plans (budgetary documents), and Auditor General Reports. The focus of the analysis was on the General Fund, but does include other funds when the General Fund is affected by the other fund(s), or when an overall County trend is examined. When pertinent, each section and graph presented define the fund(s) included in the analysis. Trend analysis is used in this report. Trend analysis involves examining financial indicators’ historical data over several years. A trend is defined as the direction the data is moving over a threeto-five year period. Fiscal years are identified as “FY96” (fiscal year ending June 30, 1996). Numbers are referred to as “actual,” otherwise as “adjusted for inflation”, “constant”, or “real” (e.g., “2000 dollars”). An “actual” number is the amount originally published in the CAFR. An “adjusted for inflation” or “constant” number has been adjusted to the purchasing power of a 2000 dollar. The adjustment for inflation was made according to the “U.S. Consumer Price Index—All Items.” Benchmark Comparisons- Los Angeles Multnomah San Diego Santa Clara King Orange Harris Salt Lake FY00 Population Comparison 4 3 2 1 Multnomah Pima Salt Lake Clark Santa Clara King San Diego Orange Maricopa Harris 0 FYOO Financial Condition Report Millions Pima Maricopa 70% 60% 50% 40% 30% 20% 10% 0% Clark Population Growth Rates Between FY91-FY00 Maricopa County Internal Audit The graphs below show key characteristics for ten sister counties as compared to Maricopa County (Los Angeles excluded from some views). Population growth rates and numbers are based on 2000 U.S. Census data. A2 A3 Pima Salt Lake F Y 0 0 T o ta l G o v e r n m e n ta l R e v e n u e M illio n s Pima $3000 Multnomah $2500 Orange $2000 Harris $1500 Maricopa $1000 Los Angeles $500 $0 Clark San Diego A p p r o x im a t e S q u a r e M ile a g e Salt Lake 1 0 ,0 0 0 9 ,0 0 0 8 ,0 0 0 7 ,0 0 0 6 ,0 0 0 5 ,0 0 0 4 ,0 0 0 3 ,0 0 0 2 ,0 0 0 1 ,0 0 0 0 Clark F Y 1 9 9 9 A v e r a g e A n n u a l C it iz e n P a y Clark $ 7 0 ,0 0 0 Santa Clara Maricopa $ 6 0 ,0 0 0 King Harris Multnomah $ 5 0 ,0 0 0 King San Diego $ 4 0 ,0 0 0 Orange $ 3 0 ,0 0 0 Los Angeles $ 2 0 ,0 0 0 King $ 1 0 ,0 0 0 Pima Multnomah Salt Lake Santa Clara Harris San Diego Maricopa Orange $0 Santa Clara FYOO Financial Condition Report Maricopa County Internal Audit Liquidity The following graph presents the alternative view that conforms to the ICMA recommended formula (cash and short-term investments divided by short-term liabilities). This view depicts the effect that “Amounts Due From Other Funds” has on the liquidity ratio. It may also present a more realistic measure of liquidity as the Medical Center has a multi-year history of cash deficits. GASB 34 states that effective FY02, “...if repayment is not expected within a reasonable time, the interfund balances should be reduced and the amount that is not expected to be repaid should be reported as a transfer from the fund that made the loan to the fund that received the loan.” It is the position of County Financial Management that the Health System should be viewed as a single enterprise when determining its fiscal relationship to the General Fund, and could therefore eliminate the necessity for such a transaction when GASB 34 is implemented. Note that Maricopa County’s liquidity ratio fell under the ICMA’s recommended 1:1 ratio in FY99 using the ICMA formula, but came in slightly over the recommended ratio in FY00. It is notable that a greater portion of Maricopa’s General Fund cash equivalents consist of “Amounts Due From Other Funds” than the benchmark average. However, Maricopa had additional FY01 monies ($45M) available in a Capital Project fund. Ratio 1.5 1 0.5 0 FY96 FY97 Maricopa County FY98 FY99 FY00 FYOO Financial Condition Report Maricopa’s Liquidity Compared to 9 Benchmarks After Deducting Internal IOU’s Maricopa County Internal Audit The International City/County Management Association (ICMA) recommends a formula for calculating liquidity that divides cash and short-term investments by current liabilities. On page 2 of this report, we present liquidity ratios that include “Amounts Due From Other Funds” as well as cash and short-term investments in the numerator of the equation. These amounts are largely comprised of General Fund cash that was reclassified to cover cash deficits of the Medical Center. Such a view implies that these cash deficits will ultimately be repaid. Avg 9 Other Counties A4 P r o p e r t y T a x B u d g e t t o A c tu a l V a r ia n c e ( M illio n s ) 00 FY 99 FY 98 FY 97 FY 96 FY 95 FY 94 FY 93 FY 92 FY $20 $15 $10 $5 $0 -$ 5 -$ 1 0 -$ 1 5 91 FY FYOO Financial Condition Report Revenue Forecasting The following charts show variances between budgeted General Fund major revenues and the revenues actually received. VLT revenue forecasting difficulty has increased because consumers may now choose between annual and bi-annual registration. S a le s T a x B u d g e t t o A c t u a l V a r ia n c e ( M illio n s ) $20 $10 $0 00 FY 99 FY 98 FY 97 FY 96 FY 95 FY 94 FY 93 FY -$ 2 0 V L T B u d g e t to A c tu a l V a r ia n c e ( M illio n s ) $15 $10 $5 $0 00 FY 99 FY 98 FY 97 FY 96 FY 95 FY 94 FY 93 FY 92 FY -$ 1 0 91 FY -$ 5 -$ 1 5 A5 92 FY -$ 1 0 91 FY Maricopa County Internal Audit $30 Maricopa Taxable Property in 2000 Dollars vs. Tax Rate B illio n s $20 1 .7 0 T o ta l M a ric o p a P ro p e rty T a x R a te $18 1 .6 0 $16 $14 1 .5 0 $12 1 .4 0 $10 $8 1 .3 0 $6 1 .2 0 $4 $2 1 .1 0 T o Total t a l A sAssessed s e s s e d P Property r o p e r t y VValues a l u e s ((Secured S e c u re d & & Unsecured) U n s e c u re d ) $0 FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 1 .0 0 FY00 Maricopa vs. Other AZ Counties Primary Tax Rates 3 .0 Maricopa County Internal Audit Maricopa Taxable Property Compared to Tax Rate Maricopa’s total taxable property assessed value (in constant 2000 dollars) declined from FY90 through FY95. After FY95, there has been an upswing in these values during a period of flat tax rates. The upswing in values is attributable to economic growth and a related increase in newly assessable properties. This increase in values has a positive effect on property tax revenues. 2 .5 1 .5 1 .0 0 .5 0 .0 T Y 9 1 T Y 9 2 T Y 9 3 T Y 9 4 T Y 9 5 M a r ic o p a 5 .0 T Y 9 6 T Y 9 7 T Y 9 8 T Y 9 9 T Y 0 0 A v e . O t h e r A Z C o u n t ie s Maricopa vs. All Other AZ Counties Primary + Secondary Tax Rates 4 .5 4 .0 3 .5 3 .0 2 .5 2 .0 1 .5 1 .0 T Y 9 1 T Y 9 2 T Y 9 3 M a r ic o p a T Y 9 4 T Y 9 5 T Y 9 6 T Y 9 7 T Y 9 8 T Y 9 9 FYOO Financial Condition Report 2 .0 T Y 0 0 A v e . O th e r A Z C o u n tie s A6 FYOO Financial Condition Report Maricopa County Internal Audit A7 Financial Recovery is Reflected in the County’s Bond Ratings The County’s financial position declined in the early 1990’s. The County responded by restructuring its finances. Since June 1994, the County’s bond rating has steadily improved. The following table illustrates the County’s bond ratings from 1981 through May, 2000: Moody’s Effective Aa-1 Upgrade Aug. 1981 Aa Downgrade Jul. 1993 A-3 Downgrade Jun. 1994 A-2 Upgrade Mar. 1997 A-1 Upgrade Nov. 1998 Aa-3 Upgrade May 2000 Fitch IBCA AA New Rating Effective Date Apr. 2000 What do the Moody’s Ratings Mean? According to Moody’s, a rating helps investors determine the relative likelihood that they might lose money on a given fixed-income investment. Obligations that extend longer that one-year are rated Aaa through C. Moody’s Aaa represents the highest quality, meaning that the obligation ranks highest in terms of investor safety. A C rating is the lowest level of credit quality. Investments rated Baa and above are considered “investment grade.” Those rated Ba and below are considered “speculative grade”. The numerical indicators further modify credit risk within each rating. A modifier of 1 indicates that the issue ranks in the higher end of its generic rating, while a modifier of 3 indicates that the issue ranks in the lower end of its generic rating1. The table presented above shows that Maricopa County’s Long-term bonds, rated Aa-3 by Moody’s, are considered high-grade bonds1. Maricopa County’s trend since June 1994 has been one of improving ratings. In announcing its rating upgrade, Moody’s referred to improvement in the county’s financial condition, conservative fiscal strategies, elimination of non-service support for the county hospital, and the county’s low debt position.1 What does the Fitch IBCA Rating Mean? According to Fitch IBCA, credit ratings are an opinion on the ability of an entity to meet its financial commitments. These credit ratings are used by investors as indications of the likelihood of getting their money back in accordance with the terms on which they invested. “Investmentgrade” ratings (international long-term ‘AAA’ ‘BBB’ categories) indicate a relatively low probability of default, while those in the “speculative” or “noninvestment grade” categories (international long-term ‘BB’ ‘D’) either signal a higher probability of default or that a default has already occurred. Ratings imply no specific prediction of default probability. However, for example, it is relevant to note that over the long term, defaults on ‘AAA’ rated U. S. corporate bonds have averaged less than 0.10% per annum, while the equivalent rate for ‘BBB’ rated bonds was 0.35%, and for ‘B’ rated bonds, 3.0%.2 1 Moody’s Investor Service “Rating Actions, May 27, 2000“, How to Use Ratings” and “Rating Definitions” [Online].Available: http://www.Moodys.com.html. 2 Fitch IBCA “Rating Definitions” [Online]. Available: http://www.Fitchibca.com.html 301 W. Jefferson Suite 1090 Phoenix, AZ 85003 Telephone: (602)506-1585 Facsimile: (602)506-8957 E-Mail: jsimpson@maricopa.gov