HIGHWAY EXPANSION AND EXTENSION LOAN PROGRAM FUND FINANCIAL STATEMENTS FOR FISCAL YEAR ENDING JUNE 30, 2001 Deloitte & Touche LLP Suite 1200 2901 North Central Avenue Phoenix, Arizona 85012-2799 Tel: (602) 234-5100 Fax: (602) 234-5186 www.us.deloitte.com INDEPENDENT AUDITORS' REPORT Transportation Board of the State of Arizona Arizona Department of Transportation We have audited the accompanying balance sheet of the Highway Expansion and Extension Loan Program Fund (the "Fund") of the Arizona Department of Transportation ("ADOT") as of June 30,2001, and the related statement of revenues, expenditures, and changes in fund balance for the year then ended. These financial statements are the responsibility of ADOT's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides a reasonable basis for our opinion. As discussed in Note 1, the financial statements referred to above present only the Fund and are not intended to present fairly the financial position and results of operations of ADOT in conformity with accounting principles generally accepted in the United States of America. 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, 2001, and the results of its operations for the year then ended in conformity with accounting principles generally accepted in the United States of America. December 3, 2001 Arizona Department of Transportation Highway Expansion and Extension Loan Program Fund Balance Sheet June 30, 2001 (With comparative totals at June 30, 2000) 2001 Assets and other debits Cash and cash equivalent on deposit with the State Treasurer (Note 2) Receivables: Loan (Note 3) Accrued interest Due from other Arizona Department of Transportation funds Due from other Arizona counties, cities and other state agencies Total assets and other debits Liabilities and fund balance Accrued payroll and other accrued expenditures Due to Arizona Department of Transportation funds Due to Arizona counties, cites, and other state agencies Advances from other Arizona Department of Transportation funds (Note 5) Total liabilities Fund balance - reserved for loans and other financial assistance Total liabilities and fund balances The accompanying notes are an integral part of these financial statements. 2000 $ 163,414,888 $ 116,479,199 36,795,608 751,385 241,301 310,947 60,022,019 2,050,507 9,119 16,588 $ 201,514,129 $ 178,577,432 $ 8,164 100,715,414 $ 1,389,051 101,679,790 20,000,000 120,723,578 80,790,551 $ 201,514,129 20,000,000 123,068,841 55,508,591 $ 178,577,432 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, 2001 (With comparative totals for the fiscal year ended June 30, 2000) 2001 Revenues: Federal grants and reimbursements Investment interest Interest on loans receivable State match Total revenues $ 6,493,500 2,903,764 9,397,264 2000 $ 6,561,311 3,780,802 1,591,725 396,600 12,330,438 Expenditures: Interest Administrative Investment management fee Total expenditures 5,267,763 153,197 83,395 5,504,355 1,679,790 1,387 68,210 1,749,387 Excess of revenues over expenditures 3,892,909 10,581,051 Other financing sources: Operating transfers in Operating transfers out Total other financing sources 21,389,051 21,389,051 <1,389,051> <1,389,051> Excess of revenues and other financing sources over expenditures 25,281,960 9,192,000 Fund balance, July 1 Fund balance, June 30 55,508,591 80,790,551 46,316,591 55,508,591 $ 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, 2001 NOTE 1-SUMMAR Y 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 (FHW A), 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 in the United States of America (GAAP) as applicable to governmental units. 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 POLICES - Continued Fund accounting The operations of the Fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund balance, revenues, and expenditures. Government resources are allocated to and accounted for based upon the purposes for which they are to be spent and the means by which spending activities are controlled. The various transactions are accounted for in one fund type as follows: GOVERNMENTAL FUNDS ยท Special Revenue Fund -The Special Revenue Fund receives monies from the FHWA along with applicable State matching funds, State Transportation Board Funding Obligations, direct State appropriations and other lawfully available sources. The Transportation Board may use monies in the Fund to make eligible project loans or provide other financial assistance to qualified borrowers, subsidize interest rates, provide other forms and methods of financial assistance, and pay the costs to administer the Fund. Basis of accounting The modified accrual basis of accounting is followed for reporting purposes. Under the modified accrual basis of accounting, expenditures are recorded when the related liability is incurred and revenues are recorded when susceptible to accrual (i.e., when they become both measurable and available). "Measurable" means the amount of the transaction can be determined and "available" means collectible within the current period or soon enough thereafter to pay liabilities of the current period. Those revenues susceptible to accrual are Federal grants and reimbursements, State match and interest. Budgets and budgetary accounting The expenditures of the Fund are not governed by appropriations of the State legislature and therefore are not subject to the limitations of a legally adopted budget. Encumbrance accounting Encumbrance accounting, under which purchase orders, contracts, and other commitments for the expenditure of monies are recorded in order to reserve that portion of the applicable fund balance, is used by the Fund as a budgetary control mechanism. However, outstanding encumbrances lapse at year end. Accordingly, no reserve for encumbrances is reflected in the accompanying financial statements. 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. All 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 30,2001, as follows: PROJECT SPONSOR LOAN DATE INTEREST RATE* Town of Chino Valley 3/17/2000 4.50% City of Sierra Vista 7/21/2000 ADOT AUTHORIZED LOAN AMOUNT $ FINAL MATURITY DRAWS TO DATE $ 300.000 OUTSTANDING LOAN BALANCE 300,000 Jan-05 $ 230,000 4.00% 1,970,000 Jun-03 1,970,000 1,455,000 2/18/2000 2.93% 5,664,000 Oct-01 4,618,717 4,618,717 La Paz County 12/18/2000 2.93% 2,000,000 Jan-04 1,448,568 1,448,568 ADOT 5/19/2000 3.46% 5,707,000 Jun-05 1,678.299 1,678,299 ADOT 1/19/2001 2.93% 8,400,000 Jan-03 891,005 891,005 Town of Taylor 5/18/2001 3.42% 1,000,000 Jun-05 1,000,000 1,000,000 Santa Cruz County 1/19/2001 3.42% 1,150,000 Jan-05 - - ADOT 3/16/2001 To be Determined 1,000,000 Jun-04 - - City of Yuma 4/20/2001 To be Determined 1,000,000 Jul-06 - - ADOT 5/18/2001 To be Determined 41,900,000 Jul-05 - - Town of Payson 6/15/2001 To be Determined 1,100,000 Jul-06 - - City of Yuma 6/15/2001 To be Determined 2,000,000 Jul-06 - - City of Mesa 3/20/1998 4.41% 24,000,000 Oct-01 24,000,000 24,000,000 City of Chandler 3/20/1998 3.59% 26,000,000 Jul-02 26,000,000 1,309.254 ADOT 11/15/1999 3.92% 100,000,000 Jun-01 ADOT / City of Phoenix 11/17/2000 To be Determined 22,500,000 Jun-05 - - City of Tucson 3/17/2000 4.50% 2,000,000 Jan-05 2,000,000 - ADOT 5/19/2000 To be Determined 5.285,000 Jun-05 - - City of Tucson 6/15/2001 To be Determined 4,500,000 Jan-06 - - Totals $ 257,476,000 90,324,139 $ 154,230,728 164,765 $ * 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 36,795,608 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. NOTE5-ADVANCES Senate Bill 1201 authorized the transfer of $20,000,000 from the State Highway Fund in fiscal year 2000. This amount is shown as Advances to other Arizona Department of Transportation funds in the State Highway Fund and Advances from other Arizona Department of Transportation funds in the Highway Expansion and Extension Loan Program Fund. The advance is due no later than December 31,2008.