HELP Financial Statement Fiscal Year Ended June 30, 2000 Ernst & Young LLP Ernst & Young Tower One Renaissance Square 2 North Central Avenue Suite 2300 Phoenix, Arizona 85004 Phone: (602) 322-3000 www.ey.com REPORT OF INDEPENDENT AUDITORS Transportation Board of the State of Arizona Arizona Department of Transportation We have audited the accompanying balance sheets of the Highway Expansion and Extension Loan Program Fund of the Arizona Department of Transportation as of June 30, 2000 and 1999, and the related statements of revenues, expenditures and changes in fund balance for the years then ended. These financial statements are the responsibility of the Arizona Department of Transportation' s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 1, the financial statements of the Highway Expansion and Extension Loan Program Fund are intended to present the financial position and results of operations of only the fund of the Arizona Department of Transportation that is attributable to the transactions of the Highway Expansion and Extension Loan Program Fund. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Highway Expansion and Extension Loan Program Fund of the Arizona Department of Transportation, as of June 30, 2000 and 1999, and the results of its operations for the years then ended in conformity with generally accepted accounting principles. October 13, 2000 Ernst & Young LLP is a member of Ernst & Young International, Ltd. Arizona Department of Transportation Highway Expansion and Extension Loan Program Fund Balance Sheet June 30, 2000 (With comparative totals at June 30, 1999) 1999 2000 Assets and other debits Cash and cash equivalent on deposit with the State Treasurer (Note 2) $ 116,479,199 Receivables: Loan (Note 3) 60,022,019 Accrued interest 2,050,507 Due from other Arizona Department of Transportation funds 9,119 16,588 Due from other Arizona counties, cities and other state agencies Total assets and other debits Liabilities and fund balance Due to Arizona Department of Transportation funds Due to Arizona counties, cites, and other state agencies Advances from other Arizona Department of Transportation funds 178,577,432 $ $ 1,389,051 101,679,790 $ $ 46,316,591 - 20,000,000 - 123,068,841 - 55,508,591 Fund balance - reserved for loans and other financial assistance 37,600,370 7,796,171 420,050 500,000 - $ Total liabilities Total liabilities and fund balances $ 178,577,432 The accompanying notes are an integral part of these financial statements. 46,316,591 $ 46,316,591 Arizona Department of Transportation Highway Expansion and Extension Loan Program Fund Statement of Revenue, Expenditures and Changes in Fund Balance For the fiscal year ended June 30, 2000 (With comparative totals for the fiscal year ended June 30, 1999) 2000 Revenues: Federal grants and reimbursements Investment interest Interest on loans receivable State match Total revenues $ 6,561,311 3,780,802 1,591,725 396,600 12,330,438 Expenditures: Interest expense Administrative Investment management fee Total expenditures 1999 $ 5,567,176 2,661,772 28,798 24,794 8,282,540 1,679,790 1,387 68,210 1,749,387 864 31,838 32,702 10,581,051 8,249,838 <1,389,051> 1,389,051 38,066,753 <38,066,753> Excess of revenues and other financing sources over expenditures 9,192,000 46,316,591 Fund balance, July 1 Fund balance, June 30 46,316,591 55,508,591 46,316,591 Excess of revenues over expenditures Other financing sources: Operating transfers in Operating transfers out Total other financing sources $ The accompanying notes are an integral part of these financial statements. $ Arizona Department of Transportation Highway Expansion and Extension Loan Program Fund Notes to Financial Statements June 30, 2000 NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Arizona Department of Transportation (Department) was authorized in 1996 to administer a State Infrastructure Bank under a cooperative agreement with the Federal Highway Administration (FHWA), pursuant to Section 350 of the National Highway System Designation Act of 1995. The Highway Extension and Expansion Loan Program (HELP) was authorized to be established as Arizona's State Infrastructure Bank under Arizona Revised Statute, Title 28, Chapter 21, Article 5. The HELP Fund (Fund) was initially capitalized with grants from FHWA and State matching funds. HELP is administered by a seven member advisory committee. The members serve staggered four year terms and shall not serve more than two consecutive terms. The committee is charged with developing an application form for financial assistance, reviewing requests for loans and financial assistance, making recommendations to the Transportation Board of the State of Arizona Department of Transportation (Transportation Board) and submitting an annual report to the Governor and State Legislature. Qualified borrowers, which include any political subdivision, the State or its agencies or Indian tribes, may submit loan applications to HELP for eligible projects. The Transportation Board may make loans or provide other financial assistance to qualified borrowers, including the Department, from monies in the Fund for eligible projects, enter into a loan repayment agreement with an entity, apply for, accept and administer grants and other financial assistance from the United States and from other public and private sources that are made for deposit in the Fund. HELP does not increase the Transportation Board's bonding authority. The Department is a department of the State of Arizona and is not legally separate. The Department has no component units. The Director of the Department serves as the Chief Administrative Officer and is directly responsible to the Governor. The Governor appoints the seven-member Transportation Board, which has responsibility for establishing a complete system of State highway routes and distributing monies for local airport facilities' projects through a grant program. The Financial Services Division of the Arizona Department of Administration controls expenditures and adherence to annual budgets. The State Treasurer invests the cash balances of the Department. The financial statements present only the funds comprising the Fund and are not intended to present fairly the financial position or results of operations of the Department. The accounting policies of the Department conform to generally accepted accounting principles as applicable to governments. The following is a summary of the more significant policies: Arizona Department of Transportation Highway Expansion and Extension Loan Program Fund Notes to Financial Statements June 30, 2000 NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Arizona Department of Transportation (Department) was authorized in 1996 to administer a State Infrastructure Bank under a cooperative agreement with the Federal Highway Administration (FHWA), pursuant to Section 350 of the National Highway System Designation Act of 1995. The Highway Extension and Expansion Loan Program (HELP) was authorized to be established as Arizona's State Infrastructure Bank under Arizona Revised Statute, Title 28, Chapter 21, Article 5. The HELP Fund (Fund) was initially capitalized with grants from FHWA and State matching funds. HELP is administered by a seven member advisory committee. The members serve staggered four year terms and shall not serve more than two consecutive terms. The committee is charged with developing an application form for financial assistance, reviewing requests for loans and financial assistance, making recommendations to the Transportation Board of the State of Arizona Department of Transportation (Transportation Board) and submitting an annual report to the Governor and State Legislature. Qualified borrowers, which include any political subdivision, the State or its agencies or Indian tribes, may submit loan applications to HELP for eligible projects. The Transportation Board may make loans or provide other financial assistance to qualified borrowers, including the Department, from monies in the Fund for eligible projects, enter into a loan repayment agreement with an entity, apply for, accept and administer grants and other financial assistance from the United States and from other public and private sources that are made for deposit in the Fund. HELP does not increase the Transportation Board's bonding authority. The Department is a department of the State of Arizona and is not legally separate. The Department has no component units. The Director of the Department serves as the Chief Administrative Officer and is directly responsible to the Governor. The Governor appoints the seven-member Transportation Board, which has responsibility for establishing a complete system of State highway routes and distributing monies for local airport facilities' projects through a grant program. The Financial Services Division of the Arizona Department of Administration controls expenditures and adherence to annual budgets. The State Treasurer invests the cash balances of the Department. The financial statements present only the funds comprising the Fund and are not intended to present fairly the financial position or results of operations of the Department. The accounting policies of the Department conform to generally accepted accounting principles as applicable to governments. The following is a summary of the more significant policies: Arizona Department of Transportation Highway Expansion and Extension Loan Program Fund Notes to Financial Statements (continued) NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Transactions between Departmental Funds Transactions that would be treated as revenues or expenditures if they involved organizations external to the governmental unit are accounted for as revenues or expenditures in the funds involved. Transactions which constitute reimbursements of a fund for expenditures initially made from that fund, which are properly applicable to another fund, are recorded as expenditures in the reimbursing fund and as reductions of the expenditures in the fund that is reimbursed. Use of Estimates The preparation of these financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. NOTE 2-CASH AND CASH EQUIVALENTS The cash and cash equivalents balance is on deposit with the State Treasurer for pooled investment purposes and is not evidenced by securities that exist in physical or book entry form in the Fund's name. Cash equivalents are defined as short-term, highly liquid investments (investments with original maturities of three months or less). All investments are carried in the name of the State of Arizona. State statutes require the State Treasurer to invest these pooled funds in collateralized time certificates of deposit, repurchase agreements, or obligations of the U.S. Government. Ali investments are carried at cost, which approximates fair value. Arizona Department of Transportation Highway Expansion and Extension Loan Program Fund Notes to Financial Statements (continued) NOTE 3-LOAN RECEIVABLES Loan receivables represent loans made pursuant to Loan Repayment Agreements. Twenty such agreements have been authorized as of June 30,2000, as follows: PROJECT BORROWER SPONSOR LOAN DATE INTEREST AUTHORIZED RATE* LOAN AMOUNT FINAL DRAWS TO MATURITY DATE OUTSTANDING LOAN BALANCE ADOT Chandler 3/20/1998 3.59% 26,000,000 Jul-02 $24,690,739 $15,950.937 ADOT Mesa 3/20/1998 * 24,000,000 Oct-01 - - 3.92% 100,000,000 Jun-01 41,771,082 41,771,082 ADOT MAG-ROW 11/18/1999 City of Tucson Tucson 3/17/2000 4.50% 2,000,000 Jan-05 2,000,000 2,000,000 Town of Chino Valley Chino Valley 3/17/2000 4.50% 300,000 Jan-05 300.000 300,000 ADOT SR 260 2/18/2000 * 5,664,000 Oct-01 - - ADOT Various Statewide 5/19/2000 * 5,707,000 2001 - - ADOT Various Pima County 5/19/2000 * 5.285,000 2001 - - $68,761,821 $60,022,019 Totals $168,956,000 * Interest Rate will be determined on the date of the first draw. NOTE 4-CONTINGENT LIABILITIES Amounts received or receivable from grant agencies are subject to audit and adjustment by grantor agencies, principally the Federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures which may be disallowed by the grantor cannot be determined at this time although the Fund expects such amounts, if any, to be immaterial.