MARICOPA COUNTY CITIZENS FINANCIAL CONDITION REPORT FISCAL YEAR ENDED JUNE 30, 2016 Maricopa County Shows Continual Strength in Fiscal Year 2016 Highlights Our Fiscal Year (FY) 2016 Citizens Financial Condition Report highlights the financial strength of the County and provides information on key financial indicators. Maricopa County . . .  Is the fourth most populous county in the U.S.  Has a fiscally conservative management Introduction 2 Profile 3 Economics 4 General Fund & Liquidity 5 Liabilities 6 Revenues 7 Property Taxes 8 Expenditures 9 County Services 10 Retirement Plans 12 Recognition 13 Maricopa County Internal Audit 301 W. Jefferson St., Suite 660 Phoenix, AZ 85003 (602) 506-1585 www.maricopa.gov/internalaudit philosophy.  Has low long-term liabilities.  Has received strong credit ratings from Standard & Poor’s and Fitch.  Has had a slight increase in property values and tax revenues.  Spends considerably less on delivering services than benchmark counties.  Contributes to four employee retirement plans with funding levels ranging from 78% to 38%. INTRODUCTION About this Report For FY 2016, we highlight the financial strength of Maricopa County’s General Fund and other Governmental Funds through graphic displays of key financial ratios, trends, and comparisons. In spite of national and local economic challenges in recent years, the County has been able to pay cash for many capital projects without incurring liabilities. Prior year General Fund balances were budgeted to be built up and then spent down as capital projects were completed. This is reflected in the five-year chart on page five. In addition, we provide updated information on the state pension plans covering County employees. Public pension funds are experiencing fiscal challenges due to investment losses in previous years, planned benefit payments, actuarial methods and assumptions used in projections, and insufficient employee and employer contribution rates. Methodology Our primary information sources were the audited Comprehensive Annual Financial Reports (CAFR) issued by Maricopa County and 10 national benchmark counties. Other sources include: Arizona State Retirement System, Public Safety Personnel Retirement System, Corrections Officer Retirement Plan, and Elected Officials Retirement Plan CAFRs and actuarial reports; U.S. Census Bureau; Governmental Accounting Standards Board; International City/County Managers Association; Government Finance Officers Association; Maricopa County’s Strategic Plans (budget documents); and correspondence with internal and external staff. Benchmarks were chosen from western U.S. counties that share Maricopa’s attributes of large geographic size and the existence of at least one major urban center. Below are the benchmark counties used in this report. Benchmarks · King · Multnomah · Santa Clara Orange · San Diego · · Salt Lake · Clark · Riverside · Maricopa · Clark · Pima Harris Maricopa County Internal Audit · 2 County Population Metro Area Clark 2,147,641 Las Vegas, NV Harris 4,538,028 Houston, TX King 2,117,125 Seattle, WA Multnomah 777,490 Orange 3,183,011 Santa Ana/Anaheim, CA Pima 1,016,743 Tucson, AZ Riverside 2,347,828 Riverside, CA Salt Lake 1,107,314 Salt Lake City, UT San Diego 3,288,612 San Diego, CA Santa Clara 1,927,888 San Jose, CA Portland, OR FY 2016 Citizens Financial Condition Report PROFILE Maricopa County District 2 Established in 1871, Maricopa was the fifth county to be formed in what was then the Arizona Territory. District 4 District 3 The County is governed by an elected Board of Supervisors representing five districts. District 1 District 5 Size Maricopa County is located in the south-central area of the State of Arizona. At 9,224 square miles, Maricopa County is larger than many states, including Connecticut, Delaware, Hawaii, Massachusetts, New Hampshire, New Jersey, and Rhode Island. Population Largest U.S. Counties (population in millions) Maricopa County is the fourth most populous county in the nation. 10.3 Approximately 60% of the state’s total population resides within the County, which includes the cities of Phoenix, Mesa, Chandler, Gilbert, Glendale, Scottsdale, Tempe, and others. During the recent recession, Maricopa’s population declined from a high of 4.1 million in 2009 to 3.8 million in 2011. Current estimates report a population of 4.2 million. 5.2 4.5 Los Cook, Angeles, Illinois California 4.2 3.3 Harris, Maricopa, San Texas Arizona Diego, California Board of Supervisors District 1 District 2 Denny Barney Steve Chucri District 3 Andrew Kunasek Bill Gates District 4 District 5 Clint L. Hickman Steve Gallardo (Jan. 2017) Maricopa County Internal Audit 3 FY 2016 Citizens Financial Condition Report ECONOMICS ECONOMICS Unemployment Maricopa's Unemployment Rate Maricopa County’s unemployment rate has generally remained below national and Arizona rates. Starting in 2009, unemployment increased significantly. By 2016, Maricopa’s unemployment rate was 5.3%, continuing a gradual reversal from its high of 9.6% in 2010. The current data shows Maricopa’s unemployment is higher than the national rate, but is lower than the Arizona rate. 10.0% 5.3% 5.0% 0.0% 2008 2010 2012 2014 2016 Arizona (FY16 - 5.8%) U.S. (FY16 - 4.9%) Maricopa (FY16 - 5.3%) Economic Activity Maricopa County has a variety of employers within its boundaries, with the majority being government, healthcare, retail, financial, technology, and service industries. Principal Employers State of Arizona 50,816 Banner Health 35,406 Wal-Mart Stores 32,373 Fry’s Food Stores 17,286 City of Phoenix 14,585 Wells Fargo 14,480 Maricopa County 13,567 Arizona State University 12,676 Dignity Health 12,100 University of Arizona 11,442 Total for Principal Employers Total Employment Nine of the top ten principal property taxpayers are public utilities. Tourism has long been an important part of the regional economy. The “Valley of the Sun” is a popular winter retreat because of its climate and cultural activities. Maricopa County is the home of the Cactus League (which hosts spring training for 15 of the 30 major league baseball teams), and 5 major league sports teams (MLB Diamondbacks, NBA Suns, WNBA Mercury, NFL Cardinals, and NHL Coyotes). 214,731 1,917,400 Principal Property Taxpayers Percent of Total County Assessed Property Tax Value Arizona Public Service Company 3.12% Southwest Gas Corporation 0.44% Qwest Corporation 0.41% Southern California Edison 0.38% El Paso Electric Company 0.35% Wal-Mart Stores 0.27% Arizona Solar One LLC 0.23% AT&T 0.22% Public Service Company of New Mexico 0.20% Sundevil Power Holdings, LLC 0.19% Maricopa County Internal Audit Tourism is important to the regional economy 4 FY 2016 Citizens Financial Condition Report GENERAL FUND & LIQUIDITY GENERAL FUND & LIQUIDITY General Fund Spendable Balance Increased General Fund The General Fund comprises all financial transactions not required to be accounted for in special purpose funds. General Fund Spendable Balance (millions) $283 Non-Spendable and Spendable Amounts The General Fund balance is classified as spendable or non-spendable. The non-spendable fund balance comprises non-cash assets, such as inventories and other amounts that must remain legally intact. The spendable fund balance is generally available for use in the following year. However, certain laws and contracts impose restrictions on how the funds are used. In addition, the Board of Supervisors may commit portions of the fund for specific purposes. County management reports that $134 million of the FY 2016 spendable balance was assigned and budgeted to be spent in FY 2017. Over the years, Maricopa County has used the spendable balance to finance capital projects. $121 FY12 FY13 Maricopa County’s spendable fund balance as a percent of revenues has declined since FY 2012. The decline reflects amounts Maricopa used to fund capital projects. The balance increased slightly for FY 2016 but is still lower than the benchmark average. FY14 $148 $99 FY15 FY16 General Fund Spendable Balance as a Percent of Revenues 24.7% 25.7% General Fund Spendable Balance as a Percent of Revenues $259 FY12 24.2% 11.3% 8.6% FY14 FY15 FY13 Maricopa County 12.1% FY16 Benchmark Average General Fund Liquidity Ratio Liquidity Decreased in Accordance with Planned Expenditures 6.7 General Fund Liquidity Ratio The liquidity ratio compares current assets and liabilities. It is a measure of the County’s ability to pay for current obligations. Maricopa County continues to maintain a sufficient liquidity ratio of 2.0 to 1. This means that $2 is available in cash for every $1 in current liabilities. Maricopa County Internal Audit 2.6 3.6 1.9 FY12 FY13 Maricopa County 5 FY14 1.2 FY15 2.0 FY16 Benchmark Average FY 2016 Citizens Financial Condition Report LIABILITIES LIABILITIES Long-Term Liabilities Per Person is Low Maricopa County has low long-term liabilities when compared with benchmark counties. The low liability level is the result of a conservative financing policy. The FY 2016 County long-term liabilities, excluding pension liabilities, were $94 per person. Bond rating firms Standard & Poor’s and Fitch have rated general obligation bonds as “AAA” (implied) and revenue bonds as “AA+”. The general obligation “AAA” rating is the highest possible and is “implied” since no general obligation bonds are outstanding. Counties with higher liabilities may provide services such as airports and utilities that Maricopa County does not provide. Some of these counties may provide municipal services that are offered by incorporated cities in Maricopa County. These differences may impact comparative liability levels. Total Long-Term Liabilities Per Person $1,362 $400 $480 $612 $680 $1,388 $1,531 $1,633 $1,730 $1,784 $922 Long-Term Liabilities per Person Pension Liability per Person Long-Term Liabilities Long-term liabilities and obligations are financial commitments expected to be paid in future years. These include certificates of participation, revenue bonds, housing authority loans, special assessment liabilities with government commitment, claims and judgments, liabilities incurred but not reported, and landfill closure and post-closure liabilities. Pension Liabilities Maricopa County implemented changes required by the Governmental Accounting Standards Board regarding pension reporting. These changes included standards for measuring and recognizing net pension liabilities, and expenditures related to pension benefits provided through retirement plans. Pension liability represents the difference between the payments due to retirees, less the actual amount of funds on hand to make those payments. Therefore, an unfunded pension liability indicates that future benefit obligations to retirees are greater than the assets on hand to make those payments. Maricopa County’s FY 2016 pension liabilities of $386 per person are low when compared to the benchmark average of $604 per person. Some of these counties may have differences in pension plans that may impact comparative pension liability levels. Maricopa County Internal Audit 6 FY 2016 Citizens Financial Condition Report REVENUES REVENUES Sources of County Funds Governmental Funds Revenues (millions) Other Most of Maricopa County’s revenues come from County and state shared taxes (75%). State shared taxes (39%) include Sales Tax, Vehicle License Tax, and Highway Users Tax. County taxes (36%) include General Property Tax, Jail Tax, and Rental Car Tax. Other Governmental revenues (12%) include federal and state grants. Other $28 (1%) State Shared Taxes $757 (39%) Expenditures Exceed Revenues The excess of expenditures over revenues from FY 2012 through FY 2016 reflect building construction, technology improvements, and other capital costs that were paid from prior years’ savings. FY 2016 expenditures also increased due to salary and benefit costs. Governments $225 (12%) Charges for Services $169 (9%) County Taxes $701 (36%) Governmental Revenues & Expenditures (billions) $1.82 $1.88 $1.80 $1.83 FY12 FY13 $1.87 $1.84 Non-Property Tax Revenues are Improving FY14 $671 $1.98 FY15 FY16 Expenditures Sales, Vehicle License, and Jail Taxes (millions) $718 $761 $800 $146 $140 $640 $118 $125 $145 $122 $136 $157 $127 $400 $419 $448 $476 $497 FY14 FY15 FY12 FY13 Sales Tax Maricopa County Internal Audit $1.91 $1.95 $1.75 Revenues In FY 2016, non-property tax revenues increased over those of the prior four years. Revenues have increased $160 million since FY 2012 as a result of an improving economy. Licenses & Permits $48 (2%) Fines & Forfeits $25 (1%) 7 $134 Vehicle License Tax FY16 Jail Tax FY 2016 Citizens Financial Condition Report PROPERTY TAXES PROPERTY TAXES Most Property Tax Dollars Go to Schools Property taxes are a major source of revenue for Maricopa County local governments. Property taxes from many jurisdictions are combined into an annual bill that is payable in two installments. The Maricopa County Assessor determines the assessed value of property. Each unit of local government then applies a tax rate to the assessed value to calculate taxes due. Property tax bills are then prepared and collected by the County Treasurer. All Property Taxes (millions) Maricopa County $540 (13%) Schools & Community Colleges $2,939 (69%) Cities, Towns, Special Districts $774 (18%) FY 2016 property taxes totaling $4.2 billion were distributed to Maricopa County, schools, cities, towns, and special districts. Maricopa County received 13% of each property tax dollar. Schools and community colleges received 69%. Cities, towns, and special districts received 18%. Distribution of the County’s Property Tax for FY 2016 (millions) Maricopa County’s operating taxes of $471 million is still below FY 2012 operating taxes of $478 million. County Operating $ 471 Flood Control District $ 50 Library District $ 19 County Total $ 540 Assessed Property Values Have Increased Slightly Since FY 2014 Maricopa County controls tax rates for its general operating, flood control, and library funds. Total direct property tax rates ranged from 1.47% in FY 2012 to 1.58% in FY 2016. Assessed values declined $4 billion between FY 2012 and FY 2016. Although several factors determine property taxes, declining market values and legislative changes were major factors in reducing property values in previous years. Property values have increased slightly since FY 2014; however, values are still below FY 2012 figures. Maricopa County Internal Audit Maricopa County Total Assessed Property Valuations (billions) $39 $34 FY12 8 FY13 $32 FY14 $35 $35 FY15 FY16 FY 2016 Citizens Financial Condition Report EXPENDITURES EXPENDITURES $478 Spent Per Person Expenditures Per Person Maricopa County has practiced conservative fiscal policies. Total FY 2016 expenditures for all governmental funds was $478 per person. The per person average for 10 benchmark counties was $1,133. Differences between the benchmark averages and Maricopa County may occur because of the following reasons:  Proportion of residents living in incorporated cities  Significantly higher cost of living along the west coast  Population density and size  Political influences  Services provided Maricopa County provides a wide variety of direct services to its residents and visitors. Services include public safety, health and welfare, transportation, culture and recreation, and education. $1,027 $473 $465 FY12 FY13 Maricopa County Education $7 (1%) $1,089 $1,061 FY14 $471 $1,133 $478 FY15 FY16 Benchmark Average Expenditures Per Person by Spending Category $478 Public Safety $248 (52%) Capital Outlay $57 (12%) As shown on the following pages, Maricopa County delivers services at significantly lower costs in comparison to benchmark averages. $1,000 $483 General Government $36 (8%) Debt Service $6 (1%) County Services $1,200 $1,031 Highways & Streets $13 Health, (3%) Welfare & Sanitation $101 (21%) Culture & Recreation $10 (2%) Changes in Expenditures by Category (millions) $1,029 $800 $600 $420 $400 $236 $150 $200 $94 $54 $0 Public Safety Health, Welfare, & Sanitation Capital Outlay FY14 Maricopa County Internal Audit FY15 9 General Government Highway and Streets Other FY16 FY 2016 Citizens Financial Condition Report County Services County Services Public Safety Sheriff Helicopter Total Expenditures $ 1,028,863,167 Expenditures per Person $ 248 Benchmark Average Expenditures per Person $ 371      Regional Court Center    Public Fiduciary  Adult and Juvenile Probation Services Adult and Juvenile Public Defense Services County Attorney (prosecutes criminals) Flood Control (operates and maintains flood control structures and implements other flood hazard controls) Medical Examiner (conducts public inquiries into sudden or unnatural deaths) Planning and Development (regulates development and land use activity for unincorporated areas within the County) Public Fiduciary (provides personal, legal, and financial management for vulnerable adults) Sheriff (runs County jail system, investigates crimes, conducts patrols, and provides victim and community outreach) Superior and Justice Courts Health, Welfare, and Sanitation Environmental Services Total Expenditures $ 420,071,249 Expenditures per Person $ 101 Benchmark Average Expenditures per Person $ 398   Animal Care & Control     Human Services Maricopa County Internal Audit Air Quality (analyzes and monitors air quality, enforces compliance with air quality standards, and manages carpool programs) Animal Care and Control (captures and shelters stray animals and conducts adoptions) Environmental Services (issues food permits, inspects restaurants, and provides vector control) Human Services (provides emergency food and housing, job training, and Head Start education programs) Public Health (provides health clinics, immunizations, and nutrition services) Waste Resources and Recycling (manages tire recycling and oversees landfill operations) 10 FY 2016 Citizens Financial Condition Report County Services County Services General Government Total Expenditures $ 150,486,509 Expenditures per Person $ 36 Benchmark Average Expenditures per Person $ 110       Board of Supervisors Assessor (determines property valuations for taxes) Board of Supervisors (authorizes County budgets, policies, and procedures) County Administration Internal Audit (conducts performance and compliance reviews of County operations) Recorder and Elections (stores public records, registers voters, and conducts elections) Treasurer (provides banking services to the County, school districts, and special districts; collects property taxes) Elections Property Appraisals Culture, Recreation, and Education Total Expenditures $ 69,896,174 Expenditures per Person $ 17 Benchmark Average Expenditures per Person $ 52    Library District (runs 18 library branches) Parks and Recreation (maintains 10 regional parks) Education Service (provides financial and support services to school districts) Highways and Streets Gateway Airport Library Total Expenditures $ 53,598,284 Expenditures per Person $ 13 Benchmark Average Expenditures per Person $ 75  Buckeye Hills Shooting Range Transportation (plans, builds, and maintains roads and monitors regional traffic flows) Transportation Maricopa County Internal Audit 11 FY 2016 Citizens Financial Condition Report RETIREMENT PLANS RETIREMENT PLANS Retirement Plans Remain Underfunded The County contributes to four retirement plans: (1) the Arizona State Retirement System, (2) the Public Safety Personnel Retirement System, (3) the Corrections Officer Retirement Plan, and (4) the Elected Officials Retirement Plan. The plans provide retirement, long-term disability, and health insurance premium benefits as established by state statute. Each is a multi-employer plan administered independently of Maricopa County. Maricopa County and its employees contribute to the plans in accordance with plan requirements. In FY 2016, Maricopa County contributed $104 million to the four retirement plans. County contributions and the number of employee members are summarized below. A key measure of a retirement plan’s health is its funding ratio, derived by comparing assets to liabilities. A pension plan whose assets equal its liabilities is 100% funded, or fully funded. A plan with assets that are less than its liabilities is considered to be underfunded, or in a deficit position. However, the financial health of a pension plan depends on many factors in addition to funded status. Maricopa County is responsible for its portion of various plans funding deficits. The County and its employees are affected by contribution rates that may adjust to compensate for investment returns and operating cash flows. The following graph summarizes funding level trends over ten years. Retirement Plans Funded Status FY 2007 - FY 2016 100% 100% 78% 80% 57% 60% 46% 38% 40% 20% 0% Arizona State Maricopa County Internal Audit Public Safety Corrections Officer 12 Elected Officials FY 2016 Citizens Financial Condition Report RECOGNITION RECOGNITION Recognition for Popular Annual Financial Reporting The Government Finance Officers Association of the United States and Canada has given the Award for Outstanding Achievement in Popular Annual Financial Reporting to Maricopa County for its Popular Annual Financial Report for the fiscal year ended June 30, 2015. A Popular Annual Financial Report takes information from the CAFR and presents it in a way that is creative and easy to understand for the general public. The Award for Outstanding Achievement in Popular Annual Financial Reporting is a prestigious national award recognizing conformance with the highest standards for preparation of state and local government popular reports. Project Team Members Stella Fusaro, Audit Manager, CIA, CGAP, CFE, CRMA Christina Black, Audit Supervisor, CIA, CGAP, CRMA Kenton Schaben, Senior Auditor, CFE Maricopa County Internal Audit Department The County Auditor reports directly to the Maricopa County Board of Supervisors, with an advisory reporting relationship to the Maricopa County Citizen’s Audit Advisory Committee. The Mission of the Internal Audit Department is to provide objective information on the County’s system of internal controls to the Board of Supervisors so they can make informed decisions and protect the interests of County citizens. Maricopa County CAFR Maricopa County’s FY 2016 CAFR and prior year CAFRs are available by visiting the Maricopa County Department of Finance website at: www.maricopa.gov/Archive.aspx?AMID=67. These CAFRs will provide additional detail on the content presented in this report. Maricopa County Internal Audit 13 FY FY2016 2014Citizens CitizensFinancial Financial Condition Report