35(3$5('%< ),1$1&,$/0$1$*(0(17 6(59,&(6 Arizona Department of Transportation Comprehensive Annual Financial Report For the fiscal year ended June 30, 1998 Table of Contents Exhibit INTRODUCTORY SECTION Letter of Transmittal List of Principal Officials Organizational Chart i-xvi xvii xviii FINANCIAL SECTION Report of Independent Auditors General Purpose Financial Statements Combined Balance Sheet - All Fund Types and Account Groups Combined Statement of Revenues, Expenditures and Changes in Fund Balances - All Governmental Fund Types and Expendable Trust Funds Combined Statement of Revenues and Expenditures - Budget and Actual (Budget Basis) - Budgeted Special Revenue Funds Combined Statement of Revenues, Expenses and Changes in Retained Earnings - All Proprietary Fund Types Combined Statement of Cash Flows - All Proprietary Fund Types Notes to Financial Statements Combining and Individual Fund and Account Group Financial Statements and Schedules: Special Revenue Funds Combining Balance Sheet Combining Statement of Revenues, Expenditures and Changes in Fund Balances Combining Schedule of Revenues and Expenditures - Budget and Actual (Budget Basis) Debt Service Funds Combining Balance Sheet Combining Statement of Revenues, Expenditures and Changes in Fund Balances Capital Projects Fund Comparative Balance Sheets Comparative Statements of Revenues, Expenditures and Changes in Fund Balances Enterprise Fund Comparative Balance Sheets Comparative Statements of Revenues, Expenses and Changes in Retained Earnings Comparative Statements of Cash Flows Cover Photography by Richard Strange Page 1 1 2-5 2 6 3 7 4 5 8 9 10-30 A-1 31-32 A-2 33-36 A-3 37-40 B-1 41 B-2 42 C-1 43 C-2 44 D-1 45 D-2 D-3 46 47 Arizona Department of Transportation Comprehensive Annual Financial Report For the fiscal year ended June 30, 1998 Table of Contents (continued) Exhibit Internal Service Funds Combining Balance Sheet Combining Statement of Revenues, Expenses and Changes in Retained Earnings Combining Statement of Cash Flows Page E-1 48 E-2 E-3 49 50 Trust and Agency Funds Combining Balance Sheet Combining Statement of Revenues, Expenditures and Changes in Fund Balances Expendable Trust Funds Combining Statement of Changes in Assets and Liabilities - Agency Funds F-1 51-52 F-2 F-3 53 54-57 General Fixed Assets Account Group Comparative Schedules of General Fixed Assets - By Source Schedule of General Fixed Assets - By Function and Activity Schedule of Changes in General Fixed Assets - By Function and Activity G-1 G-2 G-3 58 59 60 General Long-Term Debt Account Group Schedule of Debt Service Requirements H 61-63 Table STATISTICAL SECTION Governmental and Expendable Trust Fund Expenditures Governmental and Expendable Trust Fund Revenues Expenditures of Federal Awards Fuel Tax Rates Highway User Revenue Fund Collections Highway User Revenue Fund Distributions Highway User Revenue Fund Series Bond Coverage Regional Area Road Fund Series Bond Coverage Total Public Road Mileage By Highway Class and Governmental Ownership Acknowledgments I II III IV V VI VII VIII IX 64 65 66 67 68 69 70 71 72 73 December 4, 1998 The Honorable Jane D. Hull, Governor of the State of Arizona, Members of the Legislature, and Citizens of the State of Arizona: The Arizona Department of Transportation (Department) is pleased to submit the comprehensive annual financial report of the Arizona Department of Transportation, for the Fiscal Year ended June 30, 1998. Responsibility for both the accuracy of the data and the completeness and fairness of the presentation, including all disclosures, rests with the Department. To the best of our knowledge and belief, the enclosed data is accurate in all material respects and is reported in a manner designed to present fairly the financial position and results of operations of the various funds and account groups. All disclosures necessary to enable the reader to gain an understanding of the Department’s financial activities have been included. for the annual update of the five-year highway and airport construction program and awards contracts each month for highway projects. The Board also has authority for the issuance of highway revenue and transportation excise tax bonds and approval of privatization agreements for toll facilities. The Department was established by the State Legislature in July 1974 by combining the former Arizona Highway Department (originally established in 1927) and the State Department of Aeronautics (originally established in 1962). The Department is not legally separate from the State of Arizona’s primary government. The Department’s mission is to provide a transportation system, together with the means of revenue collection, licensing and safety programs, which meets the needs of the citizens of Arizona. It serves as the State’s public agency to plan, develop, maintain and operate facilities for the efficient movement of people and goods by surface and air throughout the State. The Department has statutory responsibility for carrying out its programs under Arizona Revised Statutes, Titles 18, 28, 35 and 41. w The Department receives guidance in capital planning and program development from a seven-member Transportation Board of the State of Arizona Department of Transportation (Transportation Board) appointed by the Governor. The Board is responsible The Department is structured into three major organizational units: Intermodal Transportation Division (ITD), Motor Vehicle Division (MVD), and Transportation Services Group (TSG). The Department employs 4,723 persons. The Department’s customers include: key responsibilities to its Planning, designing, constructing, and maintaining a state wide transportation system. w Providing title, registration, and licensing services. w Providing revenue collection and distribution for both highway user and aviation-related taxes and fees. To meet the needs of its customers, the Department’s responsibilities are carried out at locations throughout the State. Most administrative activities are headquartered in or near the Capitol Complex in Phoenix. Transportation Services Group (TSG) includes a range of support services for the Department’s core business functions. Field activities for the Motor Vehicle Division are carried out statewide including 22 Ports-of-Entry around the State’s borders, and 70 Driver’s License/Title and Registration Offices. The Intermodal Transportation Division services its customers through 10 District Offices located throughout the State. These District Offices are responsible for all construction and maintenance activities for the State highway system. Senate Bill 1144 eliminated the weight-distance tax on October 1, 1997, and replaced it with a new Motor Carrier Fee and higher registration fees. Due to the Year 2000 issue, three states were unable to program Arizona’s higher registration fees which deferred an estimated $12 million in motor carrier fees and apportioned registration fees into Fiscal Years 1999 and 2000. The comprehensive annual financial report is presented in three sections: Introductory, Financial, and Statistical. The Introductory Section includes this letter of transmittal, a list of principal officials and the Department’s organizational chart. The Financial Section includes the report of the independent auditors, general purpose financial statements and notes, and the combining and individual fund and account group financial statements. The Statistical Section includes additional financial information and transportation data presented on a multi-year comparative basis. Senate Bill 1398 changed the point of taxation on gasoline and use fuel from the distributor to the supplier on January 1, 1998. This change resulted in a one-time loss of an estimated $7.4 million due to distributors having tax-paid fuel in inventory. This bill also eliminated, on October 1, 1997, the $.08 per gallon “surcharge” on use fuel purchased by “use class” vehicles and implemented a $.09 per gallon increase at the pump for “use class” vehicles. The objectives of this comprehensive annual financial report are to provide data relative to the financial position of the Department in conformity with generally accepted accounting principles and to include the required financial audits of the State Highway Fund and the remaining funds. The vehicle license revenues experienced a one-time loss of $8 million due to a change in revenue recognition procedures in November 1997. Without this change, VLT collections would have reached the estimated level for the year. In addition, a new “staggered registration” procedure implemented by MVD impacted VLT, registration, and motor carrier revenues. This report includes all funds and account groups used to record the financial activity of the Department. The activities of the State Highway Fund (construction and debt service), the Maricopa Regional Area Road Fund, Bond Funds, and other funds that show the “pass-through” of state and federal monies are reflected in this report. Excluding the non-economic factors that led to the decrease in HURF, Arizona economic indicators sustained above average growth rates in Fiscal Year 1998. The main economic variables contributing to HURF are population, personal income and wage and salary employment. ECONOMIC CONDITIONS AND OUTLOOK For the Year Ended The Department’s two main funding sources, the Highway User Revenue Fund (HURF) and the Maricopa County Transportation Excise Tax, produced mixed results during Fiscal Year 1998. Arizona’s population has grown at an average annual rate of 3.2 percent since 1990, reaching an estimated 4.7 million in July 1998. Arizona continues to rank as one of the fastest growing states. The economic wealth of Arizona has also increased with personal income growing at an annual average rate of 7.7 percent since 1990 compared to 5.4 percent for the United States. Over the 1990-1998 period, Arizona’s wage and salary employment has grown by 4.5 percent, creating an average of 70,000 jobs each year. For Fiscal Year 1998, HURF collections totaled $887.5 million, a decrease of 1.1 percent from the Fiscal Year 1997 revenue level. The HURF revenues finished the year 4.1 percent below the estimate. The only major revenue category to post a gain was Use Fuel Tax. Fiscal Year 1998 saw a continued strong Arizona economy; however, significant legislative and procedural changes contributed to the decline in HURF revenues. Senate Bill (SB) 1144 and SB 1398 impacted the fuel tax, motor carrier fee, and apportioned registration fee categories, while the procedural changes impacted the Vehicle License Tax (VLT), motor carrier, and registration categories. The second significant funding source for the Department is the Maricopa County Transportation Excise Tax, which funds the Maricopa County Regional Freeway System. The Transportation Excise Tax, with receipts deposited into the Maricopa County Regional Area Road Fund (RARF), is applied to business activity in Maricopa County, including retail sales, contracting, utilities, rental of real and ii forecasts for Fiscal Year 1999 are based on the November 1997 Official Forecasts which are currently in the process of being updated. It is anticipated that the updated revenue forecasts will reflect higher growth rates, given the continued strength of the economy statewide as well as regionally. personal property, restaurant and bar receipts, and other smaller activities. For Fiscal Year 1998, the Maricopa County Transportation Excise Tax collections totaled $209.3 million on a cash basis, an increase of 8.8 percent over the Fiscal Year 1997 collections level. The Transportation Excise tax tracked 2.1 percent above the forecast for the year. Since 1990, the Maricopa County Transportation Excise Tax collections have grown by an average annual growth rate of 8.3 percent. The outlook for Fiscal Year 1999 remains positive with some moderation in Arizona economic indicators anticipated. Even with the moderated growth, Arizona will continue to rank among the top ranked states in both population and job gains. The Arizona population is expected to grow by 2.6 percent in Fiscal Year 1999, compared to 2.8 percent in Fiscal Year 1998. Personal income is projected to grow by 7.1 percent in Fiscal Year 1999, a slight decrease from the 7.5 percent gain in Fiscal Year 1998. The main driver behind the strong Arizona economy is the growth in new jobs. Arizona wage and salary employment growth is estimated at 3.7 percent for Fiscal Year 1999, down slightly from 4.3 percent in Fiscal Year 1998. The revenue categories leading the growth for the Transportation Excise Tax collections in Fiscal Year 1998 were retail sales, contracting, and rental of personal property. Retail sales, the largest revenue category, posted an 8.1 percent increase over the Fiscal Year 1997 revenue level. The strength in retail sales was centered in apparel and accessory stores, motor vehicle dealers, and miscellaneous automotive, motorcycle and boat sales. Contracting revenues, the second largest category, generated a 13.6 percent increase over Fiscal Year 1997. The home construction sector remained strong while a majority of the growth moved into the commercial and industrial sectors. Rental of personal property receipts for Fiscal Year 1998 increased 14.5 percent over the Fiscal Year 1997. This category has benefited from increased personal income and a strong demand for leased motor vehicles. The Maricopa County economic outlook for Fiscal Year 1999 remains somewhat stronger than for the state as a whole, but moderate compared to Fiscal Year 1998. Population growth in Maricopa County is projected at 2.7 percent in Fiscal Year 1999, compared to 3.0 percent in Fiscal Year 1998. Personal income is expected to grow by 6.9 percent in Fiscal Year 1999, down from 7.5 percent in Fiscal Year 1998. Construction employment is projected to decrease by 1.0 percent in Fiscal Year 1999, comparing favorably to the 3.2 percent decrease in Fiscal Year 1998. Growth in contracting activity is expected to decline over the next year or two, while the remaining revenue categories should experience above average growth during Fiscal Year 1999. For the Future The Department estimates HURF collections in Fiscal Year 1999 will reach $939.9 million, an increase of 5.9 percent over Fiscal Year 1998 collections. The HURF average compound growth rate for Fiscal Years 1987-1998 is 3.9 percent. Landmark Federal transportation legislation was enacted into law on June 9, 1998, providing Arizona funding through FY 2003 under a multi-year authorization bill. This measure, the Transportation Equity Act for the 21st Century (TEA-21), provides a record level of investment for transportation infrastructure. Under TEA-21, Arizona is expected to receive $2.4 billion over the Fiscal Year 1998-2003 period. On an annual basis, the Department expects to receive an average of $318 million per year in Federal highway funding with an additional $90 million allocated to local governments. The TEA-21 funding level for Arizona is estimated to be around 60 percent higher than the average Arizona received The distribution of HURF collections in Fiscal Year 1999 is estimated to be as follows: State Highway Fund $465.8 million; Arizona’s cities and towns $281.3 million; Arizona’s counties $175.3 million; Department of Public Safety $12.5 million; Williams Gateway Authority $4 million, and Economic Strength Project Fund $1 million. In addition, the Department’s share of the non-HURF portion of the Vehicle License Tax is estimated at $20.1 million. The Department also estimates total collections for the Transportation Excise Tax to reach $213.4 million, an increase of 2.0 percent over the Fiscal Year 1998 collections level. It should be noted that both the HURF and the Transportation Excise Tax iii under the previous Federal Transportation Act (ISTEA). MAJOR INITIATIVES For the Year Ended Investment in transportation infrastructure will continue to play an important role in the strengthening of the Arizona economy in the 21st Century. Investment in transportation infrastructure ultimately contributes to higher productivity and income. In order to optimize dollars for construction, the Department is focusing on implementation of several new financial mechanisms. These initiatives include a State Infrastructure Bank, Grant Anticipation Notes, and leasing of right-of-way to third parties. During Fiscal Year 1998, the Department continued to make significant progress in delivering quality products and services to Arizona residents and visitors. Highlighted below are the Department’s most notable achievements. During Fiscal Year 1998, a total of $889 million was obligated for highway construction, the highest level ever attained. This total included $250 million for Maricopa Regional Freeway System projects, $206 million for other projects in Maricopa County, and $433 million for work statewide. At the end of Fiscal Year 1998, the Department had $1.1 billion in highway construction work underway, a continuing record level of activity. In developing the State’s transportation plans and budgets, the goal is to produce a balanced program that maximizes the investment of transportation dollars, while meeting priority needs, both in the construction and operations area. The Department has developed and implemented a strategic approach to transportation financial planning which is linked to the budget to ensure that the resources necessary to implement the plan are allocated in accordance with priorities reflected in the plan. The Regional Freeway Program continues to reflect significant advances. This program, which was accelerated in 1995 as part of a comprehensive transportation initiative launched by the Governor, is ahead of schedule for the completion of 107 miles of freeways in Maricopa County (often referred to as the Valley) by the year 2007. With 11 new miles of freeway opening in the Valley in Fiscal Year 1998, the program is moving full speed ahead. At the end of Fiscal Year 1998, the Department had $456 million in freeway construction contracts underway in Maricopa County. The framework for strategic financial planning encompasses the use of enhanced tools, models and techniques, including cash flow models, statistical and econometric models, and bond optimization modeling. Life cycle management and risk analysis are enhancements that have significantly strengthened the planning process, further ensuring that programs remain in fiscal balance. As part of the Department’s congestion management program for the Valley, a 12.5 mile extension of the freeway management system (FMS) was opened in the Spring of 1998 on the Red Mountain, Squaw Peak and Hohokam Freeways. The expansion links to the existing system on I-10 and I-17 will cover over 41 miles of freeway in the Phoenix area. The FMS uses loop detectors, closed-circuit television cameras, variable message signs and ramp meters. The Department’s use of advanced technology through its FMS has improved incident detection and emergency response. Plans are being designed to extend FMS to 36 miles of the Black Canyon, Red Mountain, Price and Pima Freeways. Through strategic planning, the Department integrates the needs of the projected budgets for operations, the Five Year Highway and Aviation Construction Programs, and Land, Building and Improvements (Facilities) into a composite plan for operating within the constraints of a dedicated, but limited, revenue stream. This planning process involves the evaluation of alternatives to ensure the efficient and effective use of limited resources. The product of this process is a deliverable plan of transportation improvements that is fiscally conservative. iv A $4.7 million project to reconstruct two miles of the westbound frontage road on I-10 between Ruthrauff and Miracle Mile roads on Tucson’s north side was started in early September 1998. The project is the second in a series of frontage road projects that eventually will provide two-lane, continuous one-way frontage roads on both sides of I-10 from Ruthrauff Road to the I-10/I-19 interchange, a distance of about eight miles. rehabilitation, and reconstruction of all aircraft parking aprons. The final touches have been put on widening 34 miles of SR 69 between I-17 and Prescott, providing a fourlane divided highway for motorists traveling to the rapidly growing seat of Yavapai County. To maximize aviation resources, the Department continued the airport loan program. This program enables the Board to make loans to airports to expedite construction projects to advance revenueproducing projects ineligible for Federal and State assistance under the airport grant program and to assist airport owners with matching other airport grants. Currently, airport loans total $7.5 million. Aircraft registrations in Arizona totaled 5,553 in Fiscal Year 1998. Aircraft registration revenue collected in Fiscal Year 1998 was $1.9 million. Another major source of aviation revenue in Fiscal Year 1998 came from airline flight property taxes of $17.7 million. Twenty miles of I-40 were resurfaced in the Holbrook area during Fiscal Year 1998 at a cost of $9.3 million, providing a smoother surface for motorists traveling across northern Arizona. The Department is making significant strides toward becoming Year 2000 (Y2K) compliant. By the Fall of 1998, the Department will have brought all of its mission critical systems into Year 2000 compliance. The Department also has a major PC upgrade underway including migrating all Microsoft Mail users to Exchange/Outlook and upgrading PCs that are not Y2K compliant. These efforts will continue until October of 1999. This upgrade includes MVD's Digital Drivers License system, which is being moved from an OS/2 environment to Windows NT. In June 1998, the Transportation Board approved a $3.2 billion Five Year Highway Construction Program for Fiscal Years 1999 through 2003, which provides funding for highway facilities throughout the State. The Five Year program includes approximately $933 million for freeway and expressway construction in Maricopa County funded in large part from the Maricopa County Regional Area Road Fund; $1 billion for new construction and widening projects on the National Highway System statewide; $532 million for resurfacing projects on both the National Highway System and statewide system; and $603 million for minor projects on the statewide system. In Fiscal Year 1998, an extensive outreach program with meetings statewide was launched to obtain feedback from employees on a “shared vision” for the agency. The Department also embarked on a comprehensive strategic planning effort, adopting an integrated planning methodology which brings a results oriented approach to implementation of the Department’s new strategic plan. Focus, alignment, and accountability are the guiding principles for this new initiative. The Board also adopted a Five Year $320 million Statewide Airport Development Program that includes 661 projects at general aviation and air carrier airports located throughout the state. During Fiscal Year 1998, the Department awarded grants totaling $24.3 million to help finance projects at 80 airports. The projects included pavement construction and preservation, lighting aids, security fencing, land acquisition and master planning. Since the Department became the first State agency ever to win a “Pioneer Award for Quality” on October 3, 1995, the quality initiative has continued. Through this initiative, the Department has been developing a more systematic approach to process improvement. The Department is using State quality award criteria based on the nationally recognized Malcolm Baldrige criteria to perform annual assessments. Emphasis is placed on improving business processes through cross-functional teams and a high level of employee involvement. The state-owned Grand Canyon National Park Airport remained the third busiest air carrier airport in the State with 194,615 takeoffs and landings and with 1,231,050 passengers enplaning and deplaning. The airport has been owned by the State since its construction in 1965. Grand Canyon Airport revenue for Fiscal Year 1998 amounted to $1.5 million. A $12 million construction project was completed at the Grand Canyon Airport during Fiscal Year 1998. This multi-phased project included water supply/distribution systems, runway and taxiway v The Motor Vehicle Division’s Third Party Program continues to expand, in line with the strategic direction to focus on customer service and promote competitive government by teaming with public and private contractors to provide certain MVD services. For example, the Arizona Automobile Dealers Association (AADA) now processes vehicle titles and mails license plates to new car owners for dealers who choose to sign on with the AADA third party program. Contractors such as the Sears Driving School and the Western Truck School give driver’s license tests. The Motor Vehicle Division and IBM are partners in an agreement that allows IBM to provide some MVD services by telephone or on the Internet. During Fiscal Year 1998, the percentage of MVD business being performed by third party providers increased to 12 percent During Fiscal Year 1998, the Department received the Investment Policy Certification Award from the Municipal Treasurers’ Association of the United States and Canada. This first time award is for success in developing a comprehensive written investment policy which meets the criteria of the Investment Policy Certification Program. A significant milestone was reached in Fiscal Year 1998 for Arizona’s newly established State Infrastructure Bank (SIB) program. The Transportation Board on March 20, 1998, approved the first two SIB loans, totaling $50 million, to advance critical segments of the Regional Freeway System. The first loan for $26 million was to fund the construction of the Price Freeway from Warner to Frye Roads. The second loan, in the amount of $24 million, accelerated the design and right of way of the Gilbert-Country Club section of the Red Mountain Freeway. Significant process improvements in the Motor Vehicle Division are benefiting customers. Most MVD customers who are renewing their vehicle registrations by mail are receiving them back in their mailboxes within five days. To improve turnaround time, MVD has staggered the mailing of registration packets to spread out the heavy volume of renewals returned in the first few days of each month. About 50 percent of vehicle owners still do over-the-counter renewals. MVD is working to encourage even more customers to renew by mail, thereby avoiding a trip to a MVD office. During Fiscal Year 1998, MVD expanded the number of call centers, improving overall telephone wait time. Also in the 1998 legislative session, comprehensive state SIB legislation (HB 2488) was passed. Arizona’s SIB under the provisions of HB 2488, is now designated as the Highway Expansion and Extension Loan Program. The Arizona Highways Magazine received numerous prestigious awards during Fiscal Year 1998. The most notable awards included: the Maggie Awards for Best Regional and State Magazine; the Best Overall Design for a Consumer Magazine from the Western Publishers Association; a Gold Award for Overall Design for Magazines without Advertising from the International Regional Magazine Association; and a Gold Award for Magazine Color Photo Illustration of a Travel Article from the Society of American Travel Writers Foundation. The most important new law (SB 1144) to affect highway user taxation in Arizona is the repeal of the weight-distance tax on motor carriers, which went into effect on October 1, 1997. The replacement fee structure included a new annual motor carrier registration fee, combined with increases in the highway use fee, the use fuel tax rate, and the singletrip permit fee for commercial vehicles. Also effective in Fiscal Year 1998 was SB 1398 which moved the collection of fuel taxes from the distributor level to the supplier and the legal incidence of the tax to the ultimate consumer, thereby reducing tax evasion. These legislative initiatives were developed with the goal to maintain overall revenue neutrality in Arizona. The legislative-authorized Incentive Pay Program reflected increased participation by Department employees in Fiscal Year 1998. By the year end, around 1400 employees were participating in the program, earning incentive pay up $100 a month. This program focuses on improving productivity, enhancing service delivery, and reducing costs. With the growing public demand for information and services through the Internet, Web sites have become an important way for government agencies to provide information to their customers and partners. The ADOT Internet site, www.dot.state.az.us, continues to be a favorable site of Web surfers and those making transportation-related inquiries. The site includes MVD Service Arizona, Arizona Highways Online, Arizona Freeway Management’s TrailMaster site and other pertinent Department information. ADOT is currently working to add applications that provide up-to-date project information. Also under development is the ADOT Intranet (ADOTNet), a centralized, on-line area to view, retrieve, and post data for employee access. vi Incentive pay is tied to reaching agreed upon performance standards and is awarded in graduated steps depending on how much of each standard is achieved. The program, which was launched in MVD four years ago, has been expanded to include Procurement, Equipment Services, Highway Maintenance, and Highway Construction. workforce with the skill sets to meet the changing needs of the Department. Innovative Financing With the significant gap that exists in Arizona between transportation needs and existing revenues, the Department is continuing to explore and implement appropriate innovative financing and privatization concepts to enhance funding. The State Infrastructure Bank initiative, now designated as the Highway Expansion and Extension Loan Program, will be expanded during Fiscal Year 1999. An extensive outreach program to local governments is planned. Also, under the direction of a new Advisory Committee, additional loans will be made for highway improvements statewide. The Department’s Partnering Program continues to be the benchmark for Departments of Transportation across the country. Through partnering, construction completion schedules have been measurably improved, the incidence of claims and litigation substantially reduced, and millions of taxpayer dollars saved. Since supplier partnering has been in place, there have been virtually no unresolved claims or litigation against the Department. During Fiscal Year 1998, the Department launched the AzTech Intelligent Transportation System (ITS) Model Deployment Initiative (MDI), a seven-year plan to develop an integrated intelligent transportation system for the Phoenix metropolitan area. The estimated project cost totals $15 million of which fifty percent, or $7.5 million, will be Federally funded. The objectives of the AzTech project are to integrate the existing intelligent transportation system infrastructure into a regional system; establish a regional integrated traveler-information system; and expand the transportation management system for the Phoenix metropolitan area. Once complete, the system will serve approximately 97 percent of the State’s population. The Department will move forward with the development of a Grant Anticipation Note (GAN) Program. This new financing mechanism will enable the Department to accelerate Federally funded projects. In cooperation with the Maricopa Association of Governments, a Value Lane feasibility study for the Phoenix area will be conducted during Fiscal Year 1999. This study will evaluate the potential of converting HOV lanes to tolled lanes. The Department will continue to explore other innovative financing opportunities with the Federal Highway Administration, including the new Transportation Infrastructure Financing Innovation Act (TIFIA) mechanism authorized under TEA-21. For the Future As Arizona approaches the 21st Century, increasing demands will be placed on the State’s transportation infrastructure and support services, in response to an expanding population base. The Department will be challenged to maintain existing facilities, meet the demand for new or upgraded roadways, and provide needed services for its citizens. Given increasing requirements in an environment of constrained revenues, one of the Department’s key strategies will focus on optimizing resources through process improvements, encouraging more competitive business practices, and leveraging existing revenues. Innovative financing and public-private partnerships will continue to play a key role in maximizing resources to better meet transportation needs. Another key strategy will be workforce development to ensure that the Department retains a high performing In line with the Department’s strategy to optimize resources, the Department continues to evaluate opportunities to lease highway rights-of-way. The Department expects to expand the number of agreements with wireless telecommunications providers to establish cellular tower sites along the State’s highways. In exchange for leasing these sites, the providers are either making annual cash payments or providing Intelligent Transportation Infrastructure equipment and services to the Department. Future opportunities could include a shared resource partnership for a statewide fiber optics network. Phoenix Area Freeways Transportation serves a vital strategic role in regional development. A safe and efficient transportation system can further economic growth, enhance vii competitiveness in the global marketplace, and provide a better quality of life for the citizens of the region. Improved or new transportation facilities often serve as a catalyst in business location decisions. Over the ten year period from Fiscal Year 1986 to 1997, ADOT spent $4.4 billion in Maricopa County, of which $2.6 billion represented new urban freeway construction in the Phoenix area, financed largely with the 1985 voter approved ½ cent sales tax. This investment has been a powerful engine for economic growth in the region. more than $180 million to build Loop 202 to Bush Highway to serve the rapidly growing communities of the East Valley. Between 1998 and 2006, the Department will spend an additional $1.2 billion to build new freeways and improve existing highways in the Phoenix area. Planned construction is highlighted below: Agua Fria Freeway (Loop 101) Squaw Peak Freeway (SR 51) By the Spring of 1999, the Squaw Peak Freeway will be open to Bell Road, bringing the total number of open miles on this facility to eight. The remaining two miles are scheduled for completion by 2006. The northwest Valley has seen major strides toward the completion of the Agua Fria Freeway. In fall of 1996, five new miles of the Loop 101 from 75th Avenue to 27th Avenue were opened to traffic. The west half of the Loop 101/I-17 interchange was completed in early 1998. The residents of the growing West Valley suburbs now have direct freeway access to downtown Phoenix. By the end of the year 2000, the Department will have spent more than $135 million to finish the Agua Fria Freeway Loop, making the connection complete from I-17 to I-10. Pima Freeway (Loop 101) Pima Freeway from Loop 202 to McDonald Drive is open and construction is underway on the freeway north to Princess Drive, north of Bell Road. Motorists will be able to access the Pima Freeway at Shea Boulevard near the end of 1999. In the next four years, the Department will spend over $100 million to extend the Pima Freeway across the northern edge of the Valley, linking it with Interstate 17 and the Agua Fria Freeway. Design Build Contracting Price Freeway (Loop 101) In the year ahead, the Department is expected to show exceptional progress in advancing projects through Design-Build contracting. Legislation passed in 1996 authorized two design-build projects as part of a pilot program. The first design-build project to be awarded by the Department is the I-10/Cortaro Road Interchange reconstruction project in Pima Country. This $3 million project will be completed in September 1998, approximately three months earlier than under a conventional approach. The second design-build project to add an HOV lane on I-17 between Thomas and Dunlap Roads will be awarded in November 1998. The estimated cost of this project is $70 million. As the Price Freeway moves south, East Valley motorists will have even more choices. This north-south route will be the city of Chandler’s first freeway, giving this growing community direct access to the Regional Freeway System. Two projects between Guadalupe and Frye Roads are now under construction with completion estimated near the end of 2000. The Price Freeway interchange with the Santan Freeway (Loop 101) is expected to be completed by late 2005. Red Mountain Freeway (Loop 202) Legislation passed in Fiscal Year 1998 expanded the Department’s authorized design-build projects from two to five. The first of the newly authorized projects will be advanced in Fiscal Year 1999. This project estimated to cost $41.5 million will convert 13.5 miles of two-way roadway to a four lane divided highway from Bullhead City to Kingman. The Red Mountain Freeway continues to reach farther into the East Valley. Also known as the Loop 202, this freeway is a popular alternative to the Superstition Freeway (US 60). In August 1998, the Red Mountain Freeway opened to County Club Drive (SR87), making it easier for motorists to reach the State’s rim country. Over the next eight years, the Department will spend viii In the year ahead, as part of a regional Intelligent Transportation System in the Phoenix metropolitan area, a new Web site, www.etaktraffic.com, will soon feature a fee-based service that will allow Valley commuters needing relief from traffic delays to receive the latest traffic information to avoid backs-ups. CANAMEX Corridor The CANAMEX Corridor is strategic trade corridor located in the western region of North America linking western Mexico to western Canada through the states of Arizona, Nevada, Utah, Idaho, and Montana with Arizona serving as the major gateway to Mexico. A newly appointed Task Force of the Governor is charged with developing a comprehensive strategic plan for the development of the corridor within Arizona. The Department is participating in this initiative and will have a lead role in development of the needed transportation improvements to promote access and enhance the Corridor’s competitiveness. Travelers can now get traffic and weather information from Ecotek interactive kiosks at 16 locations in the Valley. Nine additional kiosks will be installed in late 1998 at Valley malls and transit centers in Phoenix, Scottsdale and Tempe. AzTech plans to have over 60 kiosks in use by the end of Fiscal Year 1999. Transit agencies are using ITS technology to improve operations, update bus schedules and provide information to passengers. AzTech installed global positioning systems on 94 buses to track them as they travel the Valley. An electronic sign at the transit center in downtown Phoenix informs passengers when their bus will arrive based on traffic conditions. Additional signs will be installed at transit centers in Mesa and Tempe during Fiscal Year 1999. New Hoover Dam By-Pass Bridge In partnership with the Nevada Department of Transportation, the Department is moving forward with plans for a new bridge across the Colorado River, south of the existing bridge across the Hoover Dam. This new bridge is viewed as a critical link in the CANAMEX corridor. The estimated cost is between $180–$220 million, depending on the alignment selected. A financial feasibility study will be conducted during Fiscal Year 1999 to determine the optimum funding plan. Under TEA-21, Arizona will receive $41 million in Federal apportionments for this project. Customer Service Looking ahead to Fiscal Year 1999, the Motor Vehicle Division will be launching a major public relations and advertising campaign to inform customers of alternatives to renewing auto registrations at MVD offices, including renewal by mail, by telephone and on the Internet. As an incentive to use these alternative registration options, IBM, under its partnership agreement with MVD, will be waiving their convenience fee for customers who access MVD products and services through the Internet, the telephone system and self-service automated teller machines (ATMs). Technology Technology offers significant promise for transportation in Arizona to improve the system, increase capacity, and provide the traveling public information to save time and enhance safety. The Department continues to make major strides in the Intelligent Transportation Systems (ITS) arena. ITS is the application of computers, electronics, control systems, communication technologies, and management strategies to transportation systems in an integrated manner, to increase safety and efficiency of the surface transportation system. FINANCIAL INFORMATION Department management is responsible for establishing and maintaining internal controls designed to ensure that the assets of the Department are protected from loss, theft, or misuse, and to ensure that adequate accounting data are compiled to allow for the preparation of financial statements in conformity with generally accepted accounting principles (GAAP) as applied to governmental units. The internal 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 Over the past two years, the Department, under its AzTech, initiative has installed new technologies in the Valley to detail current traffic conditions, ease congestion, alert drivers to delays, and improve public transit operations. Commuters can now get current traffic information through radio, the Internet, cellular phones, cable television, interactive kiosks and hand-held computers ix increases or decreases in relation to prior year’s amounts. should not exceed the benefits likely to be derived; and 2) the valuation of costs and benefits requires estimates and judgments by Department management. Operating revenues from all governmental funds totaled $1,034.5 million during the Fiscal Year 1998, a decrease of 3.5 percent from the preceding year. The decreases in revenues can be attributed to decrease in the following major sources: fuel and motor carrier taxes, intergovernmental revenues, and transfers from other state funds. As was explained in the Economic Conditions and Outlook section, some of these changes can be attributed to the way we do business. The Department’s internal control includes both automated controls, which are an integral component of the financial accounting system, and comprehensive policies and procedures. In addition, the Department’s Office of Audit and Analysis is an independent unit that reviews accounting controls and performs operational audits of the various divisions and units of the Department. In order to provide accurate, reliable, and timely financial information, accounting policies, procedures, and systems are monitored on an ongoing basis and revised, as needed, to meet Department requirements. The Department upgraded its on-line accounting system July 1, 1998. This new system is Year 2000 compliant. The increase in the vehicle registration, title, license and related fees was mainly due to the implementation of SB 1144, which sharply increased apportioned registration fees for motor carriers. However, as stated earlier in the Economic Conditions and Outlook section, the Department had planned on receiving even higher revenues, but approximately $12 million was deferred to Fiscal Years 1999 and 2000. General Government Functions The following two schedules present a summary of All Governmental Fund Types and Expendable Trust Funds, which includes the Special Revenue Funds, Debt Service Funds, Capital Project Funds, and Expendable Trust Funds revenues and expenditures, respectively, for Fiscal Year 1998, and the amount and percent of On the graphical presentation, the Other category includes interest, other, and transfers from other state funds. The following is a summary of the Department’s governmental fund revenues. x Schedule 1 Summary Statement of Revenues All Governmental Fund Types and Expendable Trust Funds Fiscal years ended June 30, 1998 and 1997 (Expressed in Millions) Percent Revenues Fuel and Motor Carrier Taxes $ Increase Increase 1998 Percent 1997 Percent from from Amount of Total Amount of Total Prior Year Prior Year 273.8 26.5% $ 288.9 26.9% $ <15.1> <5.2%> Vehicle Registration, Title, 210.3 20.3% 198.0 18.5% 12.3 6.2% Intergovernmental Revenue License and Related Fees 284.0 27.5% 305.4 28.5% <21.4> <7.0%> Transportation Excise Tax <0.7%> 192.5 18.6% 193.8 18.1% <1.3> Interest 34.4 3.3% 33.2 3.1% 1.2 3.6% Other 31.0 3.0% 37.3 3.5% <6.3> <16.9%> <7.3> <46.2%> <37.9> <3.5%> Transfers from Other State Funds Total Revenues $ 8.5 0.8% 1,034.5 100.0% $ 15.8 1.5% 1,072.4 100.0% $ Summary State me nt of R e ve nue s 350 300 Millions of Dollars 250 200 150 100 50 0 O t h er Veh icle Regist rat io n Fees an d P erm it s T ran sp o rt at io n E x cise T ax 1997 1998 xi In t ergo v ern m en t al Rev en ue Fuel an d M o t o r Carrier T ax es balance for governmental funds decreased by $89.1 million or 14.6 percent to $522.9 million. The following is a summary of Governmental and Expendable Trust Funds expenditures. Governmental and Expendable Trust Funds expenditures totaled $1,124.2 million during Fiscal Year 1998, an $85.5 million increase from the previous year. The largest increase in expenditures was $68.1 million for capital outlay. The total fund Schedule 2 Summary Statement of Expenditures All Governmental Fund Types and Expendable Trust Funds Fiscal years ended June 30, 1998 and 1997 (Expressed in Millions) 1998 Amount Expenditures Appropriated by Legislature (Operating) Administration Highway Highway Maintenance Motor Vehicle Division Aeronautics Division Other $ Total Appropriated Reimbursements & Other Debt service: Principal Interest Capital Outlay Not Appropriated by Legislature Total Expenditures $ Percent of Total 43.9 41.4 76.6 63.1 9.4 1.2 3.9% 3.7% 6.8% 5.6% 0.8% 0.1% 235.6 61.1 1997 Amount $ Percent of Total 44.0 40.2 70.3 30.2 1.4 1.6 4.2% 3.9% 6.8% 2.9% 0.1% 0.2% 21.0% 5.4% 187.7 49.2 126.1 73.8 616.3 11.3 11.2% 6.6% 54.8% 1.0% 1,124.2 100.0% $ Percent Increase from Prior Year Increase from Prior Year $ <0.1> 1.2 6.3 32.9 8.0 <0.4> <0.2%> 3.0% 9.0% 108.9% 571.4% <25.0%> 18.1% 4.7% 47.9 11.9 25.5% 24.2% 129.0 81.4 548.2 43.2 12.4% 7.8% 52.8% 4.2% <2.9> <7.6> 68.1 <31.9> <2.2%> <9.3%> 12.4% <73.8%> 1,038.7 100.0% 85.5 8.2% $ S u m m ary S tate m e n t o f E x p e n d itu re s 600 525 Millions of Dollars 450 375 300 225 150 75 0 T o t a l A p p r o p r ia t e d R e m ibur se m e n t & O t h er D e bt Se r v ic e P r in ic p a l 1997 xii 1998 D e bt Se r v ic e I n t e r e st C a p it a l O ut la y The Five-Year Highway and Aviation Construction Programs are included in the Capital Improvements Appropriations bill, as a lump-sum budget without identifying individual projects. In the Land, Building and Improvements portion of that bill, each separate building project is often identified for control purposes. Budgetary Controls The Department employs a significant number of tools and techniques in its budgetary control process. Arizona Revised Statutes, Title 35-113 outlines the Department’s basic budgetary responsibilities. During the 1998 legislative session, the annual operating budget requirement was changed to a two-year budget submitted each odd-numbered year. The first twoyear budget will be submitted in 1999 for Fiscal Years 2000 and 2001. The annual capital improvement plan, which contains proposals for State spending on land acquisition, capital projects, energy systems, energy management systems and building renewal for the building system, was changed to a two-year budget submitted each even-numbered year. The Department is considered as a separate building system. Amendments to the approved appropriations require legislative approval. Expenditures may not legally exceed these budgeted appropriations. The Governor’s Office of Strategic Planning and Budgeting may transfer spending authority between and within programs if spending authority is appropriated to the agency by programs. The amount transferred from or into a program shall not exceed ten percent of the original appropriation unless otherwise provided by law. Each Fiscal Year shall be delineated separately. When the Legislature convenes in even-numbered years, the Governor may submit to the Legislature any proposed revisions to the enacted operating budgets for the current and ensuing Fiscal Years. The plan shall include an estimate of all available monies and revenues and an explanation for any changes to the enacted budgets. The budgets are prepared on a cash basis except that liabilities (encumbrances) incurred before the end of the Fiscal Year and paid within the next calendar month are charged against that prior Fiscal Year’s budget. With a few exceptions, such as the capital budgets and highway maintenance, State appropriations typically lapse at year end. The Department relies on the Arizona Financial Information System (AFIS) to control total expenditures by appropriation. In addition, the Department utilizes several control features in its internal Transportation Accounting System (TRACS) to ensure budgetary compliance and management control. These features include: encumbrance and pre-encumbrance capabilities, monthly or quarterly allotment controls, appropriation allocation and control capabilities to the expense budget and organization level, and management control reports from the expense budget/organizational unit level, with summary reporting capabilities by program, division, or appropriation. The Director of the Department is responsible for developing a strategic plan for the entire Department and for developing a list of programs within the Department. The plan shall extend to the current Fiscal Year and the two ensuing Fiscal Years and shall contain a mission statement, goals, objectives and performance measures for the Department as a whole. Each program included on the list shall include its mission statement, goals, performance measures that emphasize results and budgetary data for the current and prior Fiscal Years. The budgetary data shall include funding amounts, regardless of source. Budgets are submitted to the Governor in accordance with State law. The appropriations are legally enacted after approval by the Governor and the Legislature. After passage by the Legislature, the appropriation bills are sent to the Governor for approval and signature. Upon receipt of the operating budget appropriations bill, allocations are made to organizational levels within each division, including changes necessitated by gains, losses or transfers of positions. The result is a detailed operating budget which guides the divisions and programs in their financial operation. A legal limitation is not adopted for capital outlay highway construction, capital outlay - contracts payable and certain transportation operating expenditures of the State Highway and State Aviation Funds, the other special revenue funds and all of the debt service funds, capital project funds, proprietary funds and fiduciary funds. The Department monitors expenditures for such items without legal limitations through an internal budgetary process and the fiveyear construction program developed by the Transportation Board. xiii Strength Project Fund, the Privilege Tax Fund and the Special Organization Plates Clearing Fund. In addition, the Department’s Office of Budget and Strategic Planning personnel perform expenditure projection analyses of all appropriated and nonappropriated funds on a monthly basis. These analyses utilize financial and management reports from both AFIS and TRACS to project total year-end expenditures by organizational unit and highlight potential problem areas. The Arizona State Retirement System Board administers the Arizona State Retirement Plan (Plan), a cost sharing multi-employer public employee retirement system, for the benefit of Arizona employees and employees of certain other governmental entities. Plan provisions, including death, disability, and retirement benefits, are established by State statute. Substantially all employees of the Department are covered by the Plan. The Department’s total payroll for Fiscal Year 1998 was $132 million. The Plan is funded through payroll deductions from employees’ gross earnings and amounts contributed by the Department. Retirement benefits are obligations of the Plan and not of the Department. The Arizona Revised Statutes provide statutory authority for employee and employer contributions. The employee and employer contribution rate for the year ended June 30, 1998, was actuarially computed to be 3.54 percent of covered payroll by an actuarial valuation performed at June 30, 1996. The contribution requirement for Fiscal Year 1998 was $4.7 million by both the employees and the Department. Proprietary Operations Proprietary funds are used to account for the Department’s on-going organizations and activities that are similar to those often found in the private sector. All assets, liabilities, equities, revenues, expenses, and transfers relating to the Department’s business and quasi business activities where net income and capital maintenance are measured - are accounted for through proprietary funds. The measurement focus is on determination of net income, financial position, and cash flows. An enterprise fund is used to account for operations that are financed and operated in a manner similar to private business enterprises — where the intent of the Department is that the costs (including depreciation) of providing goods or services to the general public on a continuing basis be financed from sales or other revenues. The only enterprise fund of the Department is the Arizona Highways Magazine Fund. Debt Administration As of June 30, 1998, the Department had $1.26 billion in outstanding bonds payable. This total included $163.3 million in Highway Revenue Bonds (commonly known as HURF bonds) secured by a first lien pledge against the Department’s share of the highway user revenues and $404.9 million in subordinated bonds. In addition, there is $263.5 million in Transportation Excise Tax Bonds (commonly known as RARF bonds) secured by a first lien pledge against the revenues flowing into the Maricopa Regional Area Road Fund, and $425.5 million in subordinate Transportation Excise Tax Bonds secured by a second-lien pledge against revenues flowing into the Maricopa Regional Area Road Fund. Internal service funds are used to account for the financing of goods or services provided by one department or agency to other departments or agencies, or to other governments, on a costreimbursement basis. Internal service funds of the Department include the Equipment Revolving Fund and the Warehouse Revolving Fund. Fiduciary Funds Fiduciary funds are used to account for assets held by the Department in a trustee capacity or as an agent for individuals, private organizations, other governmental units, and/or other funds. Trust and Agency Funds include expendable trust funds and agency funds. Expendable trust funds are accounted for in essentially the same manner as governmental funds and include the Bridge Construction Fund, the Davis-Monthan Runway Extension Fund, and the Local Agency Deposits Fund. Agency funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. The Agency Funds of the Department include the Motor Vehicle Division Clearing Fund, the Highway User Revenue Fund, the Underground Storage Tank Fund, the Highway Property Rentals - 24 Percent Fund, the Highway Trust Right-of-Way Fund, the Economic The bonds have been sold in 15 separate issues between 1986 and 1995. All bonds issued to date are scheduled to mature not later than July 1, 2011. The bonds are obligations of the Transportation Board and are not obligations of the State of Arizona. They do not constitute a legal debt of the State, and payment is not enforceable from any revenue other than Highway User Revenues or Maricopa Transportation Excise Taxes. Of the $2.87 billion total in bonds issued between 1986 and 1995, $1.03 billion, or approximately 36 xiv percent, have been refunding issues to lower debt service costs. These efforts have resulted in cumulative savings of $55.4 million in current dollar debt service costs and $37.9 million on a present value basis. These savings provide additional dollars for highway construction. annual Investment Planning and Monitoring Report has been developed, including yearly objectives and strategies for key performance areas. The emphasis of the Investment Program has focused on maintaining 99 percent of cash invested, thereby maximizing the investment yield. The senior lien HURF bonds have been rated Aa/AAA by Moody’s Investors Service and Standard & Poor’s Corporation (S&P), respectively. The Department is one of only two state transportation issuers whose highway bonds are rated AAA by S&P. The Department’s subordinate lien HURF bonds have been rated Aa/AA. The RARF senior lien bonds are rated AA2/AA-, while the RARF subordinate bonds are rated A1/A-. Risk Management The Department continues to place emphasis in the area of risk management in order to control exposure and losses. The Office of Risk Management is responsible for the coordination of all activities necessary within the Department, and, in conjunction with the State’s Risk Management Division and Attorney General’s Office, to investigate and defend the Department from all losses arising from tort liability claims. The Department has taken further steps to strengthen its collision investigation and litigation investigation programs through the consolidation of all claims in the Office of Risk Management. Cash Management During Fiscal Year 1998, the Department earned $34.4 million in interest from its investment program. The interest was earned from investing 99.4 percent of the Department’s $580 million average cash balance during the year. An average yield of 5.5 percent was received on the Department’s investments during Fiscal Year 1998. The State has a self-insured retention worker’s compensation program. The Department’s Safety Office has increased its emphasis on training, accident investigation, and hazardous materials to minimize exposure and injury to employees. The Cash Management Unit has responsibility for the Department’s investment program in cooperation with the State Treasurer’s Office. The Cash Management Unit processes investment transactions through the State Treasurer’s Office by informing the Treasurer of the amount available to invest and the desired maturity date. The State Treasurer is responsible for purchasing and selling investment securities in the market and administering the collateral for the Department’s investments. The Department prepares cash flow forecasts, develops cash strategies, forecasts interest rates and market conditions, and conducts cash management studies to improve collection, deposit, disbursement, and fund transfer procedures. The Department has first dollar replacement value on real property coverage for all losses exceeding $100. Loss control programs have been effective at keeping losses under control. OTHER INFORMATION Independent Audit Arizona Revised Statutes, Title 41-1279.03, requires the State Auditor General to “conduct or cause to be conducted at least biennial financial and compliance audits of financial transactions and accounts kept by or for all state agencies subject to the Single Audit Act of 1984 (P.L. 98-502). The audits shall be conducted in accordance with generally accepted governmental auditing standards and, accordingly, shall include tests of the accounting records and other auditing procedures as may be considered necessary in the circumstances. The audits shall include the issuance of suitable reports required by the Single Audit Act Amendments of 1996 (P.L. 98-502).” It is the policy of the Department, in cooperation with the State Treasurer’s Office, to invest public funds for maximum return, while maintaining the safety of investment principal and adequate liquidity to meet cash flow requirements in conformity with State statutes governing investment of the Department funds. This investment policy applies to all financial assets administered by the Department under statutory authority. In fulfillment of this requirement, the Department contracts with an independent public accounting firm to perform an annual audit of the Department and submit a “comprehensive financial report of all funds for the preceding year including a report by the independent public accounting firm attesting that the The investment program has grown from a total of six funds in 1980 to 31 funds currently invested. The system has been computerized and several daily and monthly monitoring reports have been completed. An xv several occasions in the past. The U.S. DOT auditors typically rely on the Department’s internal audit staff in determining the scope of their review. These reviews are in addition to the comprehensive review of the Department’s internal control previously mentioned. financial statements present fairly the financial position of the Department in conformity with generally accepted accounting principles.” Independent audits have been conducted on an annual basis since the Department’s formation in 1974. For Fiscal Year 1998, the accounting firm of Ernst & Young LLP conducted the Department’s financial audit and Single Audit as required by the Arizona Revised Statutes, Title 41-1279.03. Awards The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the Arizona Department of Transportation for its comprehensive annual financial report for the Fiscal Year ended June 30, 1997. The Certificate of Achievement is a prestigious national award recognizing conformance with the highest standards for preparation of state and local government financial reports. Ernst & Young LLP considered internal control in order to determine auditing procedures for the purpose of expressing an opinion on the general purpose financial statements and not to provide assurance on internal control. The consideration of internal control would not necessarily disclose all matters in internal control that might be material weaknesses under standards established by the American Institute of Certified Public Accountants. However, Ernst & Young LLP noted no matters involving internal control and its operation which they consider to be material weaknesses. In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized comprehensive annual financial report, whose contents conform to program standards. The comprehensive annual financial report must satisfy both generally accepted accounting principles and applicable legal requirements. Single Audit The Department is required to undergo an annual Single Audit in accordance with the provisions of the Single Audit Act Amendments of 1996 and the U.S. Office of Management and Budget Circular A-133, “Audits of States, Local Governments and Non-Profit Organizations.” The Department is also included in the Single Audit of the State for the Fiscal Year ended June 30, 1998. The Department’s Single Audit for Fiscal Year 1998 has been completed and the reports are available upon request. A Certificate of Achievement is valid for a period of one year only. The Department has received a Certificate of Achievement for the last eight consecutive years ended June 30, 1997. We believe our current report continues to conform to the Certificate of Achievement program requirements, and we are submitting it to the GFOA. Acknowledgments We wish to express our sincere appreciation to the many individuals whose dedicated efforts have made this report possible. A special note of thanks is extended to the staff of the Fiscal Operations and Resource Management whose commitment, professionalism, and dedicated efforts contributed to the timely preparation of the Fiscal Year 1998 comprehensive annual financial report. A requirement of the Single Audit is to ensure that adequate internal control is in place and that the Department is in compliance with applicable Federal laws and regulations. The internal control has been reviewed by the United States Department of Transportation’s (U.S. DOT) Inspector General on Sincerely, Mary E. Peters, Director Arizona Department of Transportation Suzanne H. Sale, Chief Financial Officer Financial Management Services xvi Arizona Department of Transportation List of Principal Officials Mary E. Peters Director Edward D. Wright Deputy Director Sam Maroufkhani Chief of Staff Thomas G. Schmitt State Engineer Intermodal Transportation Division Russell K. Pearce Assistant Director Motor Vehicle Division Suzanne H. Sale Chief Financial Officer Arizona State Transportation Board Jack F. Husted, Chairperson John I. Hudson, Vice Chairperson F. Rockne Arnett Katie Dusenberry Jerry C. Williams Ingo Radicke Burton S. Kruglick xvii District Five District Six District One District Two District Three District Four At Large ARIZONA DEPARTMENT OF TRANSPORTATION CITIZENS GOVERNOR STATE TRANSPORTATION BOARD ADOT DIRECTOR ADOT DEPUTY DIRECTOR INTERMODAL TRANSPORATION DIVISION MOTOR VEHICLE DIVISION CHIEF OF STAFF TRANSPORTATION SERVICES GROUP xviii Arizona Department of Transportation Combined Balance Sheet - All Fund Types and Account Groups June 30, 1998 (With comparative totals at June 30, 1997) Governmental Fund Types Special Revenue Proprietary Fund Types Debt Service Internal Service Enterprise Assets and other debits Assets: Cash and cash equivalents on deposit with the State Treasurer Receivables (net of allowance for uncollectibles): Subscriptions Notes Accrued interest Taxes and fees Other Due from U.S. Government for reimbursable construction costs Due from other Arizona Department of Transportation funds (Note 6) Due from Arizona counties, cities and other state agencies Inventories Prepaid items Land held for future highway use Fixed assets - net of accumulated depreciation (Note 7) $ 413,593,153 $ 25,312,879 $ 4,480,074 $ 3,366,795 15,335,744 5,543,277 6,086,061 2,652,390 - 185,854 86,042 410,549 59,089 127,022 28,756,975 - - - 79,016,288 - - 1,963,009 18,107,227 4,249,661 - - 2,771,895 321,228 - 114,164 2,371,219 - - - 2,834,434 37,001,177 - - - - - - - - Other debits: Amount available in debt service funds for retirement of general long-term debt Amount to be provided for retirement of general long-term debt Total assets and other debits $ 570,688,386 The notes to the financial statements are an integral part of this statement. 2 $ 27,965,269 $ 11,090,076 $ 45,002,475 Exhibit 1 Fiduciary Fund Types Trust and Agency $ $ Totals (Memorandum Only) Account Groups General Long-Term Debt General Fixed Assets 74,603,768 $ - $ 1998 - $ 521,356,669 1997 $ 613,007,464 544,859 136,304,460 640,457 - - 185,854 15,335,744 8,885,657 136,304,460 7,264,089 174,041 15,577,217 7,847,634 118,064,264 6,047,025 2,290,938 - - 31,047,913 24,395,458 33,649,083 - - 114,628,380 123,880,549 489,516 - - - 18,710,907 9,392,775 321,228 - 36,939,791 9,828,934 276,558 151,131 - 182,505,056 - 222,340,667 202,192,464 - - 27,965,269 27,965,269 35,074,587 - - 1,239,003,546 1,239,003,546 1,354,613,504 248,523,081 $ 182,505,056 $ 1,266,968,815 $ 2,352,743,158 $ 2,548,070,621 (Continued) 3 Arizona Department of Transportation Combined Balance Sheet - All Fund Types and Account Groups June 30, 1998 (With comparative totals at June 30, 1997) Governmental Fund Types Special Revenue Proprietary Fund Types Debt Service Internal Service Enterprise Liabilities, equity and other credits Liabilities: Construction contracts payable Accounts payable Accrued payroll and other accrued expenditures/expenses Due to U.S. Government Due to other Arizona Department of Transportation funds (Note 6) Due to Department of Public Safety Due to Arizona counties, cities and other state agencies Deferred revenue Surety and rental deposits Bonds payable (Note 9) Contracts and capital leases payable (Note 9) Long-term accrued vacation leave (Note 1) Total liabilities $ Equity and other credits: State Highway Fund contribution Investment in general fixed assets Retained earnings: Reserved for replacement of equipment Unreserved Fund balances: Reserved for: Bridge construction Airport runway extension Highway construction Inventories Land held for future highway use Unreserved, undesignated Total equity and other credits Total liabilities, equity and other credits $ 44,873,314 21,194,028 $ - $ 187,687 $ 802,088 8,134,034 - - 235,381 - 827,901 - 2,718,189 - - 2,311 - - 1,849,074 78,768,639 - 4,366,877 4,792,256 1,629,989 - - 2,038,698 - 6,106,640 - - - 4,259,122 9,985,210 27,280,636 36,455,326 4,249,661 451,214,760 491,919,747 27,965,269 27,965,269 6,297,820 43,372,486 570,688,386 The notes to the financial statements are an integral part of this statement. 4 $ 27,965,269 $ 11,090,076 $ 45,002,475 Exhibit 1 Fiduciary Fund Types Trust and Agency $ $ Totals (Memorandum Only) Account Groups General Long-Term Debt General Fixed Assets 2,749,215 6,032,197 $ - $ 1998 - $ 47,622,529 28,216,000 1997 $ 42,999,187 14,326,465 - - - 9,197,316 - 10,183,005 4,358,530 111,907,880 1,562,500 - - 114,628,380 1,562,500 123,880,549 1,875,000 121,084,805 2,287,641 245,624,238 - 1,257,155,705 1,908,665 7,904,445 1,266,968,815 122,933,879 4,366,877 2,287,641 1,257,155,705 1,908,665 7,904,445 1,597,783,937 128,298,764 4,364,571 2,444,174 1,379,835,799 2,310,454 7,541,838 1,722,418,336 - 182,505,056 - 8,145,338 182,505,056 8,145,338 163,461,473 - - - 9,985,210 31,539,758 9,985,210 32,134,953 2,898,843 2,898,843 182,505,056 - 39,354,169 4,249,661 479,180,029 754,959,221 1,737,431 6,600,000 112,166,356 4,828,964 151,131 486,441,429 825,652,285 248,523,081 $ 182,505,056 $ 1,266,968,815 5 $ 2,352,743,158 $ 2,548,070,621 Exhibit 2 Arizona Department of Transportation Combined Statement of Revenues, Expenditures and Changes in Fund Balances All Governmental Fund Types and Expendable Trust Funds For the fiscal year ended June 30, 1998 (With comparative totals for the fiscal year ended June 30, 1997) Governmental Fund Types Special Debt Revenue Service Revenues: Transportation excise tax Vehicle registration, title, license and related fees Fuel and motor carrier taxes and fees Reimbursements of construction expenditures federal aid Other federal grants and reimbursements Reimbursements from Arizona counties, cities and other state agencies State appropriations Distributions from agency funds Interest Other Total revenues $ 192,518,877 210,369,491 273,805,897 $ - Fiduciary Fund Types Expendable Trust Capital Projects $ - $ Totals (Memorandum Only) 1998 - $ 192,518,877 210,369,491 273,805,897 1997 $ 193,755,881 198,001,560 288,878,476 237,435,162 20,135,794 - - 26,411,442 - 263,846,604 20,135,794 268,239,163 37,198,464 2,876,353 615,900 27,564,137 30,915,930 996,237,541 6,817,499 6,817,499 - 1,812,709 3,200,000 51,660 31,475,811 4,689,062 3,815,900 34,381,636 30,967,590 1,034,530,851 8,347,123 6,735,800 770,150 33,238,498 37,266,168 1,072,431,283 235,571,745 11,294,362 - - - 235,571,745 11,294,362 187,674,263 43,145,597 566,394,266 - 3,792,977 32,767,897 602,955,140 540,203,165 12,810,323 537,526 - - - 12,810,323 537,526 7,875,823 169,596 15,000,000 - - - 15,000,000 19,600,000 800,000 6,364,000 - - - 800,000 6,364,000 574,000 - Expenditures: Current: Transportation - appropriated by State legislature Transportation - not appropriated by State legislature Capital outlay: Highway construction Land, buildings and improvements appropriated by State legislature Contracts and capital leases payable Arizona Department of Public Safety distributions appropriated by State legislature Arizona Department of Emergency and Military Affairs distributions - appropriated by State legislature Year 2000 computer projects Debt service: Principal Interest Distributions to Arizona counties, cities and other state agencies Distributions to agency funds Other Total expenditures - 126,170,000 73,777,474 - - 126,170,000 73,777,474 129,050,373 81,395,372 29,017,595 877,789,817 110,843 200,058,317 821 3,793,798 9,800,000 42,567,897 38,817,595 111,664 1,124,209,829 24,513,677 4,358,530 190,486 1,038,750,882 Excess of revenues over expenditures 118,447,724 <193,240,818> <3,793,798> <11,092,086> Other financing sources : Proceeds from contracts and capital leases payable Operating transfers in Operating transfers out: Debt service Other Total other financing sources Excess of revenues and other financing sources over expenditures and other financing uses Fund balances, July 1 Fund balances, June 30 537,526 8,564,954 $ 191,417,408 - <71> <89,678,978> 33,680,401 537,526 199,982,291 169,596 205,907,311 <191,417,408> <2,831,788> <185,146,716> <5,285,908> 186,131,500 <79,536> <79,536> <367,651> <367,722> <191,417,408> <8,564,883> 537,526 <202,178,149> <3,729,162> 169,596 <66,698,992> <7,109,318> <3,873,334> <11,459,808> <89,141,452> 33,849,997 558,618,739 491,919,747 $ 35,074,587 27,965,269 The notes to the financial statements are an integral part of this statement. 6 $ 3,873,334 - $ 14,358,651 2,898,843 $ 611,925,311 522,783,859 $ 578,075,314 611,925,311 Exhibit 3 Arizona Department of Transportation Combined Statement of Revenues and Expenditures - Budget and Actual (Budget Basis) Budgeted Special Revenue Funds For the fiscal year ended June 30, 1998 Special Revenue Funds Budget Revenues: Vehicle registration, title, license and related fees Fuel and motor carrier taxes and fees Interest Flight property tax Grand Canyon Airport Other Total revenues $ 174,171,800 298,355,500 2,132,800 8,900,000 1,661,000 6,000 485,227,100 Expenditures appropriated by State legislature in 1998 budget: Transportation: Administration Highway Highway Maintenance Motor Vehicle Division Aeronautics Division Air Quality Program General Fund Program Total transportation Capital outlay - land, buildings and improvements: Highway Aviation Arizona Department of Public Safety transfers Arizona Department of Emergency and Military Affairs transfers Year 2000 Projects Expenditures appropriated by State legislature by carryover of previous years' unexpended budgets Total expenditures Excess of revenues over expenditures $ Variance Favorable Actual Non-GAAP $ 190,667,476 256,653,060 2,690,233 7,582,939 1,345,633 87,727 459,027,068 $ 16,495,676 <41,702,440> 557,433 <1,317,061> <315,367> 81,727 <26,200,032> 43,546,100 40,954,000 78,489,176 62,682,700 1,658,100 37,900 78,000 43,196,572 40,776,217 76,598,085 62,297,819 1,614,317 37,875 76,568 349,528 177,783 1,891,091 384,881 43,783 25 1,432 227,445,976 224,597,453 2,848,523 21,290,934 68,869 12,796,632 68,396 8,494,302 473 15,000,000 15,000,000 - 800,000 6,364,000 800,000 6,364,000 - 1,937,171 272,906,950 1,040,279 260,666,760 896,892 12,240,190 212,320,150 The notes to the financial statements are an integral part of this statement. 7 $ 198,360,308 $ <13,959,842> Exhibit 4 Arizona Department of Transportation Combined Statement of Revenues, Expenses and Changes in Retained Earnings All Proprietary Fund Types For the fiscal year ended June 30, 1998 (With comparative totals for the fiscal year ended June 30, 1997) Totals (Memorandum Only) 1998 1997 Proprietary Fund Types Enterprise Internal Service Operating revenues: Equipment rentals Warehouse supply billings Equipment sales Magazine sales Sales of related products List rentals Other Total operating revenues $ Operating expenses: Equipment operations Warehouse operations Cost of sales General and administrative Depreciation Total operating expenses $ 9,664,662 1,251,233 164,547 11,080,442 Operating income Non-operating revenues : Interest Loss on sale/disposal of fixed assets Total non-operating revenues Income before charge related to change in the fixed asset capitalization threshold Charge related to change in the fixed asset capitalization threshold (Note 1) Net income Retained earnings, July 1 Retained earnings, June 30 6,041,695 4,443,666 73,258 349,277 10,907,896 $ 24,246,642 56,555 227,707 3,143,816 27,674,720 $ 21,743,066 99,446 6,584,576 28,427,088 24,246,642 56,555 227,707 6,041,695 4,443,666 73,258 3,493,093 38,582,616 $ 21,743,066 99,446 9,664,662 1,251,233 6,749,123 39,507,530 23,294,346 13,992 311,433 6,032,128 4,543,047 67,189 3,932,608 38,194,743 20,404,660 8,406 9,760,534 1,500,278 6,394,408 38,068,286 <172,546> <752,368> <924,914> 126,457 288,379 223,246 511,625 634,394 <4,900> 283,479 <177,006> 46,240 <181,906> 329,719 <170,362> 464,032 110,933 <706,128> <595,195> 590,489 110,933 <706,128> <595,195> 4,148,189 4,259,122 $ The notes to the financial statements are an integral part of this statement. 8 37,971,974 37,265,846 $ 42,120,163 41,524,968 <1,510,599> <920,110> $ 43,040,273 42,120,163 Exhibit 5 Arizona Department of Transportation Combined Statement of Cash Flows All Proprietary Fund Types For the fiscal year ended June 30, 1998 (With comparative totals for the fiscal year ended June 30, 1997) Totals (Memorandum Only) 1998 1997 Proprietary Fund Types Enterprise Internal Service Cash flows from operating activities: Operating income Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation Changes in assets and liabilities: Due from other Arizona Department of Transportation funds Due from other state agencies Other receivables Inventories Prepaid expenses Accounts payable Accrued payroll and other accrued expenses Due to other Arizona Department of Transportation funds Deferred revenue Net cash provided by operating activities $ <752,368> $ <924,914> $ 6,584,576 6,749,123 <117,659> <122,079> <44,670> <357,573> <229,610> 29,510 <35,906> <21,065> 305,204 <229,610> 29,510 <153,565> <143,144> <44,670> <52,369> 405,280 111,020 187,995 143,597 <19,464> 291,444 21,742 29,377 51,119 65,302 <15,354> 2,306 <8,644> - <23,998> 2,306 <1,005> <149,435> 164,547 Cash flows from capital and related financing activities: Acquisition of fixed assets Proceeds from sale of fixed assets Net cash used for capital and related financing activities Cash flows from investing activities: Interest Net cash provided by investing activities 6,394,408 5,901,074 5,259,788 7,555,599 <934,081> - <7,538,697> 437,129 <8,472,778> 437,129 <10,323,771> 390,329 <934,081> <7,101,568> <8,035,649> <9,933,442> 215,223 215,223 <1,287,340> $ 126,457 <641,286> 288,027 288,027 Net decrease in cash and cash equivalents Cash and cash equivalents, July 1 Cash and cash equivalents, June 30 <172,546> $ 5,767,414 4,480,074 <985,271> $ The notes to the financial statements are an integral part of this statement. 9 503,250 503,250 4,352,066 3,366,795 <2,272,611> $ 10,119,480 7,846,869 634,952 634,952 <1,742,891> 11,862,371 $ 10,119,480 Arizona Department of Transportation Notes to Financial Statements June 30, 1998 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reporting entity Fund accounting The Arizona Department of Transportation (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 a sevenmember Transportation Board of the State of Arizona Department of Transportation (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 accounts of the Department are organized on the basis of funds and account groups, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures or expenses, as appropriate. Government resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. The various funds of the Department are grouped, in the financial statements, into six fund types and two account groups within four categories as follows: The Department is responsible for the construction and maintenance of all State highways. The Department cooperates with the various cities and counties within the State in the construction and maintenance of State roads and with the Federal Highway Administration in the construction and maintenance of interstate highways. Assistance in the development of local airports, registering motor vehicles and aircraft, licensing drivers and the publishing of the Arizona Highways Magazine are also responsibilities of the Department. GOVERNMENTAL FUNDS Governmental funds are those through which most governmental functions typically are financed. The acquisition, use, and balances of the Department’s expendable financial resources and the related current liabilities, except those accounted for in proprietary funds, are accounted for through governmental funds (special revenue, debt service, and capital projects). All governmental funds are accounted for using a current financial resources measurement focus. The Division of Finance of the Arizona Department of Administration controls expenditures and adherence to annual budgets. The State Treasurer controls the cash balances of the Department. Governmental funds are, in essence, accounting segregations of financial resources. Expendable assets are assigned to the various governmental funds according to the purposes for which they may or must be used; current liabilities are assigned to the fund from which they are to be paid; and the difference between governmental fund assets and liabilities, the fund equity, is referred to as “Fund Balance.” The general purpose financial statements of the Department have been prepared in conformity with generally accepted accounting principles (GAAP) as applicable to governmental units. The more significant of the Department’s accounting policies are described below. 10 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1998 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Regional Area Road Bond Proceeds Fund, which accounts for the issuance and use of the proceeds from the State of Arizona transportation excise tax revenue bonds. Special Revenue Funds - Special revenue funds, excluding the State Highway Fund, are used to account for the proceeds of specific revenue sources (other than expendable trusts or major capital projects) that are legally restricted to expenditures for specified purposes. The State Highway Fund is used to account for all financial transactions applicable to the general operations of the Department, including road and bridge repairs, maintenance and construction, planning and development, engineering, and administration. Revenues are received from the following primary sources: fuel and motor carrier taxes and fees; vehicle registration, title, licenses and related fees; and Federal grants. Other special revenue funds of the Department include the State Aviation Fund, Abandoned Vehicle Fund, Dealer Enforcement Revolving Fund, Safety Enforcement and Transportation Infrastructure Fund, Maricopa Regional Area Road Construction Fund, Motor Carrier Safety Revolving Fund, Motor Vehicle Liability Insurance Enforcement Fund, and Vehicle Inspection and Title Enforcement Fund. PROPRIETARY FUNDS Proprietary funds are used to account for the Department’s on-going organizations and activities that are similar to those often found in the private sector. All assets, liabilities, equities, revenues, expenses, and transfers relating to the Department’s business and quasi-business activities, where net income and capital maintenance are measured, are accounted for through proprietary funds. The measurement focus is on determination of net income, financial position and cash flows. Enterprise Fund - An enterprise fund is used to account for operations that are financed and operated in a manner similar to private business enterprises, where the intent of the Department is that the costs (including depreciation) of providing goods and/or services to the general public on a continuing basis be financed from sales or other revenues. The only enterprise fund of the Department is the Arizona Highways Magazine Fund. The fund publishes a monthly magazine, Arizona Highways Magazine, as well as a number of books and sells several related products. Debt Service Funds - Debt service funds are used to account for the accumulation of resources for, and the payment of, general long-term debt principal, interest, and related costs. Debt service funds include the Highway Improvement Bond Principal Redemption and Interest Fund which accounts for the State of Arizona highway improvement bonds and revenue bonds, and the Maricopa Regional Area Road Bond Fund which accounts for the State of Arizona transportation excise tax revenue bonds. Internal Service Funds - Internal service funds are used to account for the financing of goods or services provided by one department or agency to other departments or agencies of the Department, or to other governments, on a costreimbursement basis. Internal service funds of the Department include the Equipment Capital Projects Fund – The capital projects fund is used to account for financial resources to be used for the acquisition or construction of major capital facilities (other than those financed by proprietary funds and trust funds). The capital projects fund of the Department is the Maricopa 11 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1998 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revolving Fund and the Warehouse Revolving Fund. for in the General Fixed Assets Account Group rather than in governmental funds. FIDUCIARY FUNDS General Long-Term Debt - Long-term liabilities expected to be financed from governmental funds are accounted for in the General Long-Term Debt Account Group. Fiduciary funds are used to account for assets held by the Department in a trustee capacity or as an agent for individuals, private organizations, other governmental units, and/or other funds. Expendable trust funds are accounted for using a current financial resources measurement focus. Basis of accounting The modified accrual basis of accounting is used for all governmental fund types, expendable trust funds and agency funds. Under the modified accrual basis of accounting, revenues are recognized 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 be used to pay liabilities of the current period. Trust and Agency Funds - These funds include expendable trust funds and agency funds. Expendable trust funds are accounted for in essentially the same manner as governmental funds and include the Bridge Construction Fund, the Davis-Monthan Runway Extension Fund and the Local Agency Deposits Fund. Agency funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. The Agency Funds of the Department include the Motor Vehicle Division Clearing Fund, Highway User Revenue Fund, Underground Storage Tank Fund, Highway Property Rentals 24 Percent Fund, Highway Trust Right-of-Way Fund, Economic Strength Project Fund, Privilege Tax Fund and the Special Organization Plates Clearing Fund. The Special Organization Plates Clearing Fund is not disclosed as there were no activities in the current fiscal year. Expenditures are recorded when the related fund liability is incurred. Principal and interest on general long-term debt are recorded as fund liabilities when due. Reimbursements of construction expenditures, due primarily from the Federal government on a percentage of costs incurred basis, are recognized when the related obligation is incurred. Those revenues susceptible to accrual are Federal grants, reimbursable county, city and other state agency construction costs incurred by the Department. Federal grant monies are received after the incurrence of qualifying expenditures. As a result, the Federal share of all qualifying goods or services received or performed prior to year end has been accrued. ACCOUNT GROUPS Account groups are used to establish accounting control and accountability for the Department’s general fixed assets and unmatured principal of its general long-term debt. All proprietary funds are accounted for using the accrual basis of accounting. Under this basis, revenues are recorded when they are earned and expenses are recorded when incurred. General Fixed Assets - Fixed assets used in governmental fund type operations are accounted 12 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1998 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Budgets and budgetary accounting For financial reporting purposes, the accompanying financial statements present the legally adopted budget for those operations subject to legislative appropriations. Annual budgets for the operating expenditures and capital outlay - land, building and improvements of the State Highway Fund and the Aviation Fund and annual budgets for certain operating expenditures of the Abandoned Vehicle Fund, the Dealer Enforcement Revolving Fund and the Safety Enforcement and Transportation Infrastructure Fund are submitted to the Governor in accordance with State law. The budgets are legally enacted as appropriations after approval by the Legislature and signature by the Governor. The legal level of control is at the division level and expenditure budgets are appropriated using a lump sum format with special line items. Expenditure details for personal services, employee related expenditures and other operating expenditures are specifically budgeted within most divisions. In certain divisions, other specific programs are budgeted in addition to these three categories. A legal limitation is not adopted for capital outlay highway construction, capital outlay - contracts payable and certain transportation operating expenditures of the State Highway Fund and the State Aviation Fund, the other special revenue funds, the debt service funds, capital projects fund, proprietary funds and fiduciary funds. The Department monitors expenditures for such items without legal limitations through an internal budgetary process and the five-year construction program developed by the Transportation Board. 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 Department as a budgetary control mechanism. However, outstanding encumbrances lapse at year-end. Accordingly, no reserve for encumbrances is reflected in the accompanying financial statements. Amendments to the approved appropriations require Legislative approval; however, budget transfers of personal services, employee related expenditures or other operating expenditures may be made between divisions, except for the Motor Vehicle Division. These budget transfers are requested by a division’s budget staff and are approved by the Department’s Budget Office. Expenditures may not legally exceed these budgeted appropriations. Revenue budgets are developed internally by the Department and are not a part of the appropriation process. Budgets are prepared on the cash basis except that liabilities incurred before the end of the fiscal year and paid within the next calendar month are charged against the prior fiscal year’s budget. All other State appropriations lapse at year end. 13 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1998 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Change in accounting policy revenue bond issues. These funds may be invested in obligations of the U.S. Government. Effective July 1, 1996, the State of Arizona changed its fixed asset capitalization threshold from $1,000 to $5,000. In order to be consistent with the State of Arizona, the Department also changed its fixed asset capitalization policy. All fixed assets must be capitalized if the cost is greater than or equal to $5,000. The charge related to this change in capitalization threshold is recorded in the enterprise fund for $113,222 and the internal service funds for $1,397,377 in fiscal year 1997. For purposes of the statement of cash flows, cash equivalents are defined as short-term, highly liquid investments (investments with original maturities of three months or less). The Department’s investments are included in the State investment pool and these investments are not shown in the Department’s name. Therefore, the Department presents its equity in the internal pool as required in GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools. Application of FASB pronouncements to proprietary activities Inventories The Department has elected, in accordance with Governmental Accounting Standards Board (GASB) Statement No. 20, not to apply Financial Accounting Standards Board (FASB) Statements and Interpretations issued after November 30, 1989. The State Highway Fund inventory is valued at cost, which approximates market, using the first-in, firstout (FIFO) method. This inventory is accounted for using the consumption method. Under this method, inventories are recorded as expenditures as they are used. Cash and cash equivalents The Department’s 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 Department’s name. 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 market. Proprietary fund inventories are stated at the lower of cost or market. Cost of enterprise fund inventories consisting of resale products and supplies are generally determined by moving average cost and specific identification methods, respectively. Costs of internal service funds’ inventories (consisting of vehicle parts and supplies, fuels and lubricants, and other supplies) are determined by moving average cost methods. Fixed assets State statutes require the State Treasurer to maintain separate investment accounts for the portions of the Highway Improvement Bond Principal Redemption and Interest Fund relating to the highway revenue bond issues and the Maricopa Regional Area Road Bond Fund relating to the transportation excise tax General fixed assets purchased are recorded as expenditures in the governmental funds and capitalized at cost in the General Fixed Assets Account Group. Land is recorded primarily at cost. If cost is not determinable based on previously 14 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1998 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) the case of Capital Appreciation bonds. These bonds are initially recorded net of their discount. The discount is amortized over the life of the issue using the effective interest method. All costs related to bond issuance are recorded as expenditures under Debt Service in the appropriate fund as incurred. acquired property, estimated cost is used. Other general fixed assets are stated at either actual or estimated costs. Contributed fixed assets are recorded in the General Fixed Assets Account Group at estimated fair value on the date received. Public domain (infrastructure) general fixed assets consisting of roads and bridges are not capitalized, as these assets are immovable and of value only to the government. No depreciation is provided on general fixed assets. Deferred revenue Deferred revenue relates to unearned subscription income associated with the enterprise fund. Unearned subscription income is recorded when subscription orders are received and is amortized into income over the terms of the related subscriptions. Costs associated with the procurement of subscriptions are expensed in the year incurred. Property and equipment of the proprietary funds are stated at cost, or estimated historical cost if original cost is not available; and, if donated, are stated at estimated fair value on the date received. Depreciation is provided using the straight-line method based on estimated useful lives as follows: Long-term obligations Buildings Building improvements Furniture and fixtures Mobile equipment Shop tools, office and computer equipment and software 40 years 20 years 5 years 3-15 years Long-term debt is recognized as a liability of a governmental fund when due. For other long-term obligations, only that portion expected to be financed from expendable available financial resources is reported as a liability of a governmental fund. The remaining portion of such obligations is reported in the General Long-Term Debt Account Group. 5 years The cost of additions, improvements, and renewals which substantially extend the useful life of a particular asset are capitalized in the property accounts. Repairs and maintenance expenditures are charged to operations as incurred. The cost and related accumulated depreciation of assets sold or otherwise disposed of are eliminated from the property accounts and any resultant gain or loss is recognized as revenue or loss. Compensated absences Employees are permitted to accumulate sick leave in accordance with the policies of the State of Arizona. This policy allows a retiring employee to be paid a total of $750 for any accumulated unpaid sick leave in excess of 1,000 hours. An accrual for vested unpaid sick leave has been made and is included under the caption “Accrued payroll and other accrued expenditures/expenses.” No accrual for the nonvested accumulated unpaid sick leave is reflected in the combined financial statements. As of June 30, 1998, employees had accumulated $25,111,018 of nonvested unpaid sick leave. Bond premiums, discounts and issuance costs Premiums or discounts on bond issuances are netted against the bond proceeds in the capital projects fund. The bonds are recorded at their face value in the General Long-Term Debt Account Group, except in 15 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1998 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) claims processing and treasury services) without cost from other Arizona state agencies. Employees are allowed to accumulate up to 240 hours of vacation leave (320 hours for exempt employees) which is paid when vacation is taken or upon termination of employment at the individual’s current rate of pay. An accrual for vacation leave has been made and the current portion is included under the caption “Accrued payroll and other accrued expenditures/expenses.” For governmental funds, the portion of vacation normally taken in the first sixty days of the next fiscal year is recorded as a current liability. The amount of long-term accrued vested vacation leave recorded in the General Long-Term Debt Account Group represents that portion which is not expected to be liquidated with expendable available financial resources. For proprietary funds, all of the outstanding vacation accrual is recorded as a current liability. The Arizona Highways Magazine Fund provides promotional magazines to other Arizona state agencies without charge. Transactions between funds Transactions which would be treated as revenue, expenditures, or expenses if they involved organizations external to the governmental unit are accounted for as revenue, expenditures, or expenses in the funds involved. Transactions which constitute reimbursements to a fund for expenditures or expenses initially made from that fund which are applicable to another fund are recorded as expenditures or expenses in the reimbursing fund and as reductions of expenditures or expenses in the fund that is reimbursed. Fund equity Reserves represent those portions of fund equity not appropriated for expenditure or legally segregated for a specific future use. Designated fund balances represent tentative plans for future use of financial resources. There were no designated fund balances at June 30, 1998. Nonrecurring or nonroutine transfers of equity between funds are treated as residual equity transfers and are reported as additions to or deductions from the fund balance of governmental funds. Residual equity transfers to proprietary funds are treated as contributed capital, and such transfers from proprietary funds are reported as reductions of retained earnings or contributed capital as is appropriate in the circumstances. All other transactions are treated as operating transfers and are included in the results of operations of both governmental and proprietary funds. The Department has reserved $9,985,210 of the Equipment Revolving Fund retained earnings. This reserve is comprised of $7,829,167 for replacement of fleet equipment and $2,156,043 for replacement of two airplanes. Administrative expenditures Certain services, including accounting and investment services and claims, are furnished to certain funds by various other funds of the Department without charge. The Department renders certain services (primarily administrative services as trustee or agent) to counties and cities of Arizona as well as to other agencies of the State of Arizona, the costs of which are accounted for in the State Highway Fund, a special revenue fund. No charges are made for these services. The Department receives certain services (primarily Operations of the internal service funds are conducted in facilities recorded in the General Fixed Assets Account Group, the costs of which are accounted for in the State Highway Fund, a special revenue fund of 16 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1998 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) reported in the financial statements and accompanying notes. Actual results could differ from those estimates. the Department. The internal service fund pay the costs of repairs and maintenance of those facilities, but no rental charges are made to the funds for the use thereof. Memorandum and comparative totals Loan losses and revenue Total columns for 1998 and 1997 included in the accompanying combined financial statements are captioned memorandum only to indicate they are presented only to facilitate financial analysis. The information in the columns is not intended to present financial position, results of operations or cash flows of its proprietary fund types in conformity with GAAP. This information is not comparable to a consolidation and interfund eliminations have not been made in the aggregation of the information. Each mortgage loan is analyzed on an individual basis to determine a reserve for loan losses based on delinquency. Interest revenue is recognized when received and is included under the caption “Interest revenue.” Use of estimates The preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts NOTE 2. BUDGET BASIS OF ACCOUNTING a meaningful comparison of actual results with the budget. The adjustments required to convert the revenues and expenditures for the budgeted special revenue funds from the GAAP basis to the budgetary basis consist of accrual to cash basis adjustments and the exclusion of funds not budgeted through legislative appropriation. The Department prepares its annual budget on a basis which differs from GAAP. The budget and the actual results of transactions are presented in accordance with the Department’s method (budget basis) in the Combined Statement of Revenues and Expenditures - Budget and Actual (Budget Basis) Budgeted Special Revenue Funds in order to provide 17 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1998 NOTE 2. BUDGET BASIS OF ACCOUNTING (Continued) Adjustments necessary to convert the excess of revenues and other financing sources over expenditures and other financing uses for the year ended June 30, 1998, on a GAAP basis to budget basis is as follows: Special Revenue Funds Excess of revenues and other financing sources over expenditures and other financing uses — GAAP basis Basis differences Net increase in accounts payable, accrued payroll and other accruals not recognized as expenditures on budget basis Net increase in receivables related to fuel and motor carrier taxes and fees , vehicle registration, title, license, and related fees not recognized as revenue on budget basis Total basis differences Perspective differences Revenues and other financing sources not recognized on budget basis: Motor vehicle tax Motor vehicle registration Motor vehicle driver’s licenses Other title certificates and permits Reimbursements of construction expenditures - federal aid Other federal grants and reimbursements Reimbursements from Arizona counties, cities, and other state agencies State appropriations Interest Other Proceeds from contracts and capital leases payable Operating transfers in Expenditures and other financing uses not recognized on budget basis: Transportation - not appropriated by State legislature Capital outlay - highway construction Capital outlay - contracts and capital leases payable Distributions to Arizona counties, cities and other state agencies Other operating transfers out Total perspective differences Entity differences Deficiency of revenues under expenditures for funds for which no annual budgets are prepared Excess of revenues over expenditures — budget basis 18 $ <66,698,992> 8,881,110 <35,503,307> <26,622,197> <222,144> <32,384> <8,832> <2,298> <237,435,162> <8,285,562> 1,282,262 <615,900> <18,231,397> <11,973,538> <537,526> <11,346,000> 11,294,362 490,890,429 537,526 22,006,260 68,872,251 306,192,347 <14,510,850> $ 198,360,308 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1998 NOTE 2. BUDGET BASIS OF ACCOUNTING (Continued) Throughout the fiscal year, the Legislature may revise the budget. The following schedule reflects the original budgeted expenditures, subject to legislative limitations and cumulative revisions during the current fiscal year: Special Revenue Funds Original Budget Cumulative Revisions Revised Budget $ 257,308,335 15,598,615 $ 272,906,950 NOTE 3. SECURITIES HELD IN LIEU OF RETENTION securities aggregating $9,736,642, $6,063,693 and $284,915 in lieu of contractor retentions for construction in the special revenue funds, capital projects funds, and expendable trust funds, respectively. Additional securities aggregating $40,449 were on deposit but not assigned to a specific project. These additional securities are not reflected in the accompanying financial statements. In accordance with Arizona law, a contractor may assign to the Department, in lieu of contract retention, time certificates of deposit in federally insured banks licensed by the State of Arizona or securities of the United States of America, the State of Arizona, its counties, municipalities and school districts or deposits in savings and loan institutions authorized to transact business in the State of Arizona. At June 30, 1998, the Trustee held assignment on NOTE 4. RESTRICTION OF USE OF THE STATE HIGHWAY FUND CASH highways which are included in the regional transportation plan of counties with populations in excess of 400,000 (Maricopa and Pima counties). At June 30, 1998, approximately $36,500,000, including interest, of the fund balance was reserved representing such unspent monies. Effective July 1, 1981, State law required accumulation of at least 15 percent, which in fiscal year 1996 was modified to 12.6 percent, of the revenues allocated each year to the State Highway Fund (special revenue fund) from the Highway User Revenue Fund (agency fund) for the design, purchase of right-of-way or construction of controlled-access 19 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1998 NOTE 5. NOTES RECEIVABLE purposes. The loans were made at a fixed rate and mature ten years from the date of origination. Notes receivable represent real estate mortgage loans made to individuals purchasing homes previously owned by the Department for highway construction NOTE 6. INTERFUND RECEIVABLES AND PAYABLES A summary of interfund receivables and payables at June 30, 1998, follows: Interfund Receivables Special Revenue Funds: State Highway Fund: Due from Highway User Revenue Fund for taxes and fees Other Total State Highway Fund State Aviation Fund Abandoned Vehicle Fund Dealer Enforcement Revolving Fund Safety Enforcement and Transportation Infrastructure Fund Motor Carrier Safety Revolving Fund Motor Vehicle Liability Insurance Enforcement Fund Vehicle Inspection and Title Enforcement Fund Total Special Revenue Funds Enterprise Fund Arizona Highways Magazine Fund Internal Service Fund Equipment Revolving Fund Agency Funds: Motor Vehicle Division Clearing Fund Highway User Revenue Fund Underground Storage Tank Fund Total Agency Funds Total All Funds 20 Interfund Payables $ 72,986,379 $ 5,544,854 78,531,233 155,999 12,230 125,646 <500> 119,580 72,100 2,005,645 2,005,645 8,505 388,464 306,615 5,523 3,437 79,016,288 2,718,189 - 2,311 1,963,009 - 31,294,446 2,354,637 33,649,083 38,921,501 72,986,379 111,907,880 $ 114,628,380 $ 114,628,380 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1998 NOTE 7. FIXED ASSETS A summary of changes in general fixed assets follows: Balance July 1, 1997 Additions Balance June 30, 1998 Disposals Land Buildings and improvements Improvements other than buildings Machinery and equipment $ 8,512,113 94,167,234 20,433,741 40,348,385 $ 273,572 8,078,918 9,826,513 4,513,740 $ 128,000 132,759 116,980 3,271,421 $ 8,657,685 102,113,393 30,143,274 41,590,704 Total General Fixed Assets $ 163,461,473 $ 22,692,743 $ 3,649,160 $ 182,505,056 A summary of proprietary fund fixed assets at June 30, 1998, follows: Enterprise Fund Land Buildings Furniture and fixtures Shop tools, office and computer equipment and software Mobile equipment Construction in progress $ 7,900 981,157 333,020 1,835,244 10,059 1,843,918 Internal Service Funds $ 5,011,298 <2,176,864> Less accumulated depreciation Total Proprietary Fund Fixed Assets $ 21 2,834,434 2,053,856 94,575,796 96,629,652 <59,628,475> $ 37,001,177 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1998 NOTE 8. FUND EQUITY Fund equity for the proprietary funds consists of the following: Enterprise Fund: Arizona Highways Magazine Fund Contributed Retained Totals Capital Earnings 1998 Balance, July 1, 1997 Net income Balance, June 30, 1998 $ 2,038,698 $ 2,038,698 22 $ 4,148,189 110,933 $ 4,259,122 $ 6,186,887 110,933 $ 6,297,820 1997 $ 6,261,627 <74,740> $ 6,186,887 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1998 NOTE 8. FUND EQUITY (Continued) Internal Service Funds: Equipment Revolving Fund Contributed Capital Reserved Retained Earnings Unreserved Retained Earnings Balance, July 1, 1997 Net loss $ 5,793,237 - $ 9,985,210 - $ 28,029,650 $ 43,808,097 <679,108> <679,108> Balance, June 30, 1998 $ 5,793,237 $ 9,985,210 $ 27,350,542 Total Fund Equity $ 43,128,989 Warehouse Revolving Fund Contributed Capital Retained Earnings Total Fund Equity Balance, July 1, 1997 Net loss $ 313,403 - $ <42,886> $ <27,020> 270,517 <27,020> Balance, June 30, 1998 $ 313,403 $ <69,906> $ 243,497 Totals Internal Service Funds 1998 1997 Balance, July 1, 1997 Net loss $ 44,078,614 $ 44,923,984 <845,370> <706,128> Balance, June 30, 1998 $ 43,372,486 $ 44,078,614 capital represents contributions from the State Highway Fund of $38,698 and $2,000,000 during 1991 and 1990, respectively. Balances remaining in the Fund at the end of the fiscal year do not revert to the State of Arizona General Fund or the State Highway Fund. Arizona Revised Statutes, Section 28-7315, established an Arizona Highways Magazine Fund. The Fund consists of monies appropriated by the Legislature from the State Highway Fund, a special revenue fund, not to exceed $500,000 annually, in addition to all Arizona Highways Magazine revenues received less expenses. The balance of contributed 23 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1998 NOTE 9. GENERAL LONG-TERM DEBT The following is a summary of changes in general long-term debt for the fiscal year ended June 30, 1998: Balance July 1, 1997 Bonds: Highway Revenue Bonds: 1987 1990 1991 Series A, Subordinated 1992 Series A, Subordinated, Refunding 1992 Series B, Subordinated 1993 Series, Refunding 1993 Series A, Subordinated, Refunding 1993 Series B, Subordinated, Refunding Transportation Excise Tax Revenue Bonds 1987 Series A 1988 Series A, Capital Appreciation 1989 Series A, Subordinated 1991 Series A 1992 Series A, Refunding 1992 Series B 1993 Series, Subordinated 1995 Series A, Subordinated 1995 Series B, Subordinated, Refunding Total Bonds Payable Other long-term liabilities: Contracts and capital leases payable Long-term accrued vacation leave Total General Long-Term Debt $ 8,785,000 30,790,000 21,905,000 Additions $ - Amortization of Discount Retirements $ 8,785,000 4,805,000 - $ - Balance June 30, 1998 $ 25,985,000 21,905,000 72,300,000 36,560,000 164,160,000 - 905,000 26,880,000 - 71,395,000 36,560,000 137,280,000 242,055,000 - 2,030,000 - 240,025,000 35,000,000 - - - 35,000,000 18,270,000 - 18,270,000 - - 46,645,799 - - 3,489,906 50,135,705 98,895,000 16,955,000 183,645,000 20,760,000 146,695,000 115,420,000 - 22,185,000 3,855,000 1,945,000 2,160,000 7,900,000 12,135,000 - 76,710,000 13,100,000 181,700,000 18,600,000 138,795,000 103,285,000 120,995,000 - 14,315,000 - 106,680,000 1,379,835,799 - 126,170,000 3,489,906 1,257,155,705 2,310,454 537,526 939,315 - 1,908,665 7,541,838 $ 1,389,688,091 362,607 $ 900,133 $ 127,109,315 $ 3,489,906 7,904,445 $ 1,266,968,815 24 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1998 NOTE 9. GENERAL LONG-TERM DEBT (Continued) Bonds payable $21,500,000 in 2002 through 2004 with the balance of $8,500,000 due in 2005. Bonds payable at June 30, 1998, are comprised of the following individual issues: Bonds payable are due in varying annual principal amounts plus varying semiannual interest amounts, except for the 1988 Series A Capital Appreciation Bonds which are due in annual installments of Issue State of Arizona Highway Revenue Bonds: 1990 1991 Series A, Subordinated 1992 Series A, Subordinated, Refunding 1992 Series B, Subordinated 1993 Series, Refunding 1993 Series A, Subordinated, Refunding 1993 Series B, Subordinated, Refunding Interest Rates Final Maturity Date 6.8% 6.3% - 8.8% 5.9% - 6.1% 6.1% - 8.0% 4.5% - 5.3% 4.1% - 6.0% 5.1% - 6.0% 7/1/01 7/1/04 7/1/01 7/1/06 7/1/09 7/1/11 7/1/11 Balance at June 30, 1998 $ Total Highway Revenue Bonds 25,985,000 21,905,000 71,395,000 36,560,000 137,280,000 240,025,000 35,000,000 568,150,000 State of Arizona Transportation Excise Tax Revenue Bonds: 1988 Series A Capital Appreciation Bonds (maturity value of $73,000,000) 1989 Series A, Subordinated 1991 Series A 1992 Series A, Refunding 1992 Series B 1993 Series, Subordinated 1995 Series A, Subordinated 1995 Series B, Subordinated, Refunding 7.3% - 7.5% 6.9% - 7.0% 6.0% - 6.1% 5.0% - 5.8% 5.0% - 5.8% 4.0% - 5.6% 4.4% - 6.5% 4.4% - 6.5% 7/1/05 7/1/01 7/1/01 7/1/05 7/1/05 7/1/05 7/1/05 7/1/05 50,135,705 76,710,000 13,100,000 181,700,000 18,600,000 138,795,000 103,285,000 106,680,000 Total Transportation Excise Tax Revenue Bonds 689,005,705 Total Bonds Payable $ 1,257,155,705.00 Maricopa County. The 1989 Series A Bonds, the 1993 Series Bonds and the 1995 Series A and B Bonds are subordinate to the other senior Transportation Excise Tax Revenue Bonds. The Transportation Board may issue additional subordinated Transportation Excise Tax Revenue Bonds as long as the amount of transportation excise tax (plus any other monies deposited during the period) deposited with the Maricopa Regional Area Road Fund in any 12 consecutive months out of the 18 months prior to the issuance date of the proposed bonds is not less than 120 percent of the greatest The Highway Revenue Bonds are secured by a prior lien on and a first pledge of motor vehicle and related fuel fees and taxes of the State Highway Fund, a special revenue fund. Arizona Revised Statutes prohibit the total principal amount of Arizona Highway Revenue Bonds, excluding refunded bonds, to exceed $800,000,000 unless the additional amount is authorized by the Legislature. The Transportation Excise Tax Revenue Bonds are secured by transportation excise taxes collected by the Arizona Department of Revenue on behalf of 25 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1998 NOTE 9. GENERAL LONG-TERM DEBT (Continued) adopted by the Transportation Board on September 22, 1988, gives the Transportation Board the option, which it has elected, of acquiring debt service reserve insurance policies in lieu of the debt service reserve requirement. Accordingly, no debt service reserve is reflected in the accompanying financial statements. The policies (aggregating $70,063,698 at June 30, 1998) were issued by Financial Guaranty Insurance Company, except for the 1989 Series A Subordinated Bonds and the 1993 Series Subordinated Bonds policies, which were issued by Municipal Bond Investors Assurance Corporation, and the 1995 Series A and Series B Subordinated Bonds policies which were issued by AMBAC Indemnity Corporation. These policies are noncancelable and insure payment, up to the policy amount, of the bond interest on their respective payment dates. The policies shall terminate on the earlier of July 1, 2005, or the date when no respective bonds are outstanding under the bond resolution. The premiums on these insurance policies are recorded as expenditures in the year of payment. Combined adjusted aggregate debt service for all senior and subordinated bonds in the current or future bond year, including any proposed bonds. The Transportation Board may issue additional senior Transportation Excise Tax Bonds if the above condition is met and also if the amount of transportation excise tax (plus any other monies deposited during the period) deposited for the same period is not less than 200 percent of the greatest adjusted aggregate debt service for all senior bonds. Bonds aggregating approximately $441,390,000 are subject to redemption prior to their maturity dates, at the option of the Transportation Board, in whole at any time, or in part at various interest payment dates. These bonds may be redeemed at various redemption prices ranging from 100 percent to 102 percent of principal, plus accrued interest to the date fixed for redemption. Bonds aggregating approximately $838,630,000 are not subject to redemption prior to maturity. The carrying basis of the 1988 Series A Capital Appreciation Bonds increases as a result of accretion of the original issuance discount. At June 30, 1998, the carrying basis was $50,135,705. At maturity on July 1, 2005, the carrying basis will equal the maturity amount of $73,000,000. The Bond Resolution adopted by the Transportation Board on July 25, 1986, established a debt service reserve requirement equal to the maximum annual interest due in the current year or future years on any series of outstanding Transportation Excise Tax Revenue Bonds. The Second Supplemental Transportation Excise Tax Revenue Bond Resolution 26 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1998 NOTE 9. GENERAL LONG-TERM DEBT (Continued) Future debt service requirements of bonds outstanding at June 30, 1998, are as follows: Fiscal Year 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Transportation Excise Tax Revenue Bonds Principal Interest Highway Revenue Bonds Principal Interest $ 43,805,000 45,730,000 47,665,000 33,340,000 34,950,000 37,090,000 39,305,000 41,505,000 43,840,000 46,035,000 48,680,000 51,685,000 54,520,000 $ 568,150,000 $ 31,090,116 28,672,710 26,049,996 23,279,078 21,656,768 19,516,190 17,306,544 15,102,204 12,770,796 10,575,076 7,936,164 5,458,950 2,624,700 $ 222,039,292 $ 87,665,000 92,500,000 97,770,000 102,820,000 104,270,000 110,060,000 116,785,000 $ Total Principal 35,625,180 30,812,511 25,554,193 20,019,253 15,349,893 11,083,160 6,147,226 - - - - 131,470,000 138,230,000 145,435,000 136,160,000 139,220,000 147,150,000 156,090,000 41,505,000 43,840,000 46,035,000 48,680,000 51,685,000 54,520,000 $ 711,870,000 $ 144,591,416 $ 1,280,020,000 - - - - - - - - $ Interest $ 66,715,296 59,485,221 51,604,189 43,298,331 37,006,661 30,599,350 23,453,770 15,102,204 12,770,796 10,575,076 7,936,164 5,458,950 2,624,700 $ 366,630,708 Refunding bonds 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 defeased bonds are not reflected in the financial statements of the Department. In prior years, the Transportation Board refinanced various bond issues through advance refunding arrangements. Under the terms of the refunding bond issues, sufficient assets to pay all principal 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, 27 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1998 NOTE 9. GENERAL LONG-TERM DEBT (Continued) Refunded bonds of the Department outstanding at June 30, 1998, are as follows: Balance Outstanding Type Original Issue Date 1986 1987 1990 1991 Series A, Subordinated 1992 Series B, Subordinated 1986 Series A 1987 Series A 1988 Series A: Current Interest Capital Appreciation 1989 Series A, Subordinated 1991 Series A Highway Revenue Bonds Highway Revenue Bonds Highway Revenue Bonds Highway Revenue Bonds Highway Revenue Bonds Transportation Excise Tax Revenue Bonds Transportation Excise Tax Revenue Bonds $ Transportation Excise Tax Revenue Bonds Transportation Excise Tax Revenue Bonds Transportation Excise Tax Revenue Bonds Transportation Excise Tax Revenue Bonds Total refunded bonds outstanding 94,360,000 41,545,000 141,260,000 149,235,000 52,350,000 60,220,000 62,915,000 96,290,000 7,764,354 126,465,000 19,645,000 $ 852,049,354 Contracts and capital leases payable three year lease with a two year lease extension. The lease obligation is recorded at the present value of minimum lease payments and is reduced by the principal portion of the monthly installments paid. At June 30, 1998, remaining annual fiscal payments for the contracts and capital lease payable were as follows: Data processing and other equipment totaling $624,758 acquired through purchase contracts are recorded in the General Fixed Assets Account Group. Payments are due in monthly installments through February 2003 with interest rates ranging from 5.19 percent to 12.41 percent. In November 1995, the Department entered into a capital lease to acquire a new central processing unit for $4.1 million. The terms of the lease provide for a 1999 $ 974,933 2000 681,520 2001 266,978 2002 53,138 2003 36,985 Total payments 2,013,554 Less interest <104,889> Total outstanding 28 $ 1,908,665 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1998 NOTE 10. OPERATING LEASES Various funds also rent mobile equipment from the Equipment Revolving Fund on an as-needed basis. Rental expense/expenditure for mobile equipment for the year ended June 30, 1998, is as follows: The Department leases data processing and other equipment and certain facilities from various lessors. The principal leases are for a one-year term, renewable annually. Total rental expenditures (excluding interfund transactions) for the year ended June 30, 1998, approximated $2,418,000. State Highway Fund Arizona Highways Magazine Fund Other Total operating leases $ 24,113,127 28,298 105,217 $ 24,246,642 NOTE 11. RETIREMENT PLANS Central Avenue, P. O. Box 33910, Phoenix, Arizona 85067-3910 or by calling (602) 240-2000 or (800) 621-3778. The Arizona State Retirement System Board administers the Arizona State Retirement Plan (Plan), a cost sharing multi-employer defined benefit pension plan, for the benefit of Arizona employees and employees of certain other governmental entities. Plan provisions, including death, disability, and retirement benefits, are established by State statute. Substantially all employees of the Department are covered by the Plan. Arizona Revised Statues provide statutory authority for employee and employer contributions. The employee and employer contribution rate for the year ended June 30, 1998, was computed to be 3.54 percent of covered payroll by an actuarial valuation performed at June 30, 1996. Contributions for the years ended June 30, 1996, 1997 and 1998 were $4,550,515, $4,600,690 and $4,668,911, respectively for both the employees and the Department, which were equal to the required contributions for each year. The Arizona State Retirement System (System) issues a Comprehensive Annual Financial Report that includes financial statements and required supplementary information. The most recent report may be obtained by writing the System, 3300 North NOTE 12. CONTINGENT LIABILITIES Risk management insurance losses would be covered by the self-insurance program. Accordingly, the Department has no risk of loss beyond adjustments to future years’ premium payments to the State’s self-insurance program. All estimated losses for unsettled claims and actions of the State are determined on an actuarial basis and are included in the State of Arizona’s Comprehensive Annual Financial Report. The Department is exposed to various risks of loss related to torts; thefts of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The Department is a participant in the State’s self-insurance program, and, in the opinion of the Department’s management, any unfavorable outcomes from these claims and actions 29 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1998 NOTE 12. CONTINGENT LIABILITIES (Continued) Grants Certain customers have made claims with respect to claiming refunds for prior year taxes paid. The Department is in the process of determining the nature and extent of these claims. No litigation has commenced at this time, however, if the Department does not prevail, the amount of refunds could be significant. 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 Department expects such amounts, if any, to be immaterial. Additionally, an outside contractor has sued the State for $3.5 million in unpaid billings plus future profits related to services provided in connection with the Enterprise project. The State has filed a counterclaim for $100 million, most of which represents increased tax revenue that was expected to result from the Enterprise project. Claims The Department has a variety of claims pending against it that arose during the normal course of its activities. Management of the Department believes, based on the advice of legal counsel, that losses, if any, resulting from settlement of these claims will not have a material effect on the financial position of the Department’s fund types. Commitments under construction contracts The Department’s outstanding commitments under contruction contracts were approximately $462,205,000 at June 30, 1998. NOTE 13. Year 2000 (Unaudited) modifications to existing software and conversions to new software, the Year 2000 issue will not pose significant operational problems for its computer systems. The Department is working to resolve the potential impact of the Year 2000 issue as it relates to the ability of the Department’s computerized information systems to accurately process information that may be date-sensitive. Any of the Department’s programs that recognize a date using “00” as the year 1900 rather than the year 2000 could result in errors or system failures. The Department utilizes a number of computer programs across its entire operations. To address its Year 2000 issue, the Department has determined the following stages are necessary to complete its Year 2000 project: awareness, assessment, remediation, and validation/testing. The Department has completed the awareness and assessment stages and is close to completing the remediation stage. Most of the financial systems have completed the validation/testing stage. The Department presently believes that, with The Department currently estimates the costs of becoming Year 2000 compliant will not be material and will not have a material adverse financial risk. To assure that this does not occur, the Department plans to devote all resources required to resolve any significant Year 2000 issue in a timely manner. The costs of the project and the timing of the Department’s completion of its Year 2000 project are based on management’s best estimates, which are derived utilizing numerous assumptions of future events, including the continued availability of certain resources and other factors. However, there can be 30 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1998 NOTE 13. Year 2000 (Unaudited – Continued) the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes and similar uncertainties no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, NOTE 14. SUBSEQUENT EVENT Transportation Excise Tax Revenue Bonds (Refunded Bonds). State and Local Government securities were purchased with these proceeds and were deposited in an irrevocable trust with an escrow agent to provide for the partial future debt service payments on the above-referenced bonds. As a result, the Refunded Bonds will be considered defeased and the liability for these bonds will be removed from the General Long-Term Debt Account Group. The Department advance refunded the Refunded Bonds to reduce its total debt service payments over the next three years by $737,678 and to obtain an economic gain (difference between the present values of the debt service payments on the old and new debt) of $711,337. On July 16, 1998, the Department issued $174,545,000 in Transportation Excise Tax Revenue Bonds (1998 Series A) to (i) advance refund portions of the Transportation Board’s outstanding Subordinated Bonds, (ii) finance the acquisition of land and the design and construction of certain controlled access highways within Maricopa County, Arizona and (iii) pay costs of issuing the 1998 Series Bonds. The 1998 Series A Bonds are due July 1, 1999 through 2005. Net proceeds totaled $177,826,259 (after receipt of $4,359,207 of reoffering premium and payment of $1,077,948 in underwriting fees). Net proceeds of $28,713,866 were used to advance refund $27,390,000 of the 1989 Series A, Subordinated 31 Special Revenue Funds The State Highway Fund is used to account for all financial transactions applicable to the general operations of the department. The fund receives money from the Highway User Revenue Fund for vehicle registration, title, license and related fees and fuel and motor carrier taxes. Reimbursement for certain construction expenditures are received from the federal government, Arizona cities and counties, and other state agencies. The fund also receives interest income and other revenues. The fund disburses money primarily for the engineering, construction, improvement and maintenance of state highways, parts of highways forming state routes and highways under cooperative agreements with the United States. The State Aviation Fund is appropriated by the legislature and receives monies from aviation gasoline taxes, sale of abandoned or seized aircraft, flight property taxes and the operation of certain airports. The State Aviation Fund monies are used to build and maintain airport facilities. The Abandoned Vehicle Fund receives fees collected from individuals who have abandoned their vehicles on state roads or highways, which are used to cover the cost of removing these vehicles from state roads or highways. The Dealer Enforcement Revolving Fund is supported from license fees collected from the motor vehicle brokers, which are used to administer issuance of broker licenses. The Safety Enforcement and Transportation Infrastructure Fund is appropriated by the legislature and receives monies from the registration of vehicles of nonresidents for enforcement of vehicle safety requirements, maintenance of transportation facilities and upgrades of transportation facilities, including roads, streets, and highways, approved by the Transportation Board within twenty-five miles of the border between Arizona and Mexico. The Maricopa Regional Area Road Construction Fund receives Maricopa County transportation excise tax monies collected by the Department of Revenue. These are used for the construction of state highways within Maricopa County. The Motor Carrier Safety Revolving Fund receives fees to administer and enforce the rules governing the safety operations of motor carriers, shippers and vehicles transporting hazardous materials, substances or waste. The Motor Vehicle Liability Insurance Enforcement Fund receives fees and interest to administer the State's Mandatory Liability Insurance Program. license plates no longer readable. The Vehicle Inspection and Title Enforcement Fund are monies for continuing appropriation to be used to defray the cost of investigations involving certificates of title, licensing fraud, registration enforcement and other enforcement related issues. Arizona Department of Transportation Special Revenue Funds Combining Balance Sheet For the fiscal year ended June 30, 1998 (With comparative totals at June 30, 1997) Budgeted State Highway Fund Assets Cash and cash equivalents on deposit with the State Treasurer Receivables: Notes Accrued interest Other Due from U.S. Government for reimbursable construction costs Due from other Arizona Department of Transportation funds Due from Arizona counties, cities and other state agencies Inventories Land held for future highway use Total assets Liabilities and fund balances Liabilities: Construction contracts payable Accounts payable Accrued payroll and other accrued expenditures Due to other Arizona Department of Transportation funds Due to Arizona counties, cities and other state agencies Total liabilities Fund balances: Reserved for highway construction Reserved for inventories Reserved for land held for future highway use Unreserved, undesignated Total fund balances Total liabilities and fund balances $ $ $ $ Safety Enforcement Dealer and Enforcement Transportation Revolving Infrastructure Fund Fund Maricopa Regional Area Road Construction Fund State Aviation Fund Abandoned Vehicle Fund 32,883,209 $ 416,581 $ 339,446 3,914,892 5,251,647 7,545,549 620,843 74,941 - - 13,621 - 7,790,195 993,921 759,473 28,609,364 - - - - 147,611 78,531,233 155,999 12,230 - 125,646 - 131,136 4,249,661 365,745,501 41,280,541 $ 428,811 $ 339,446 $ 1,717,739 17,976,091 159,647,318 $ $ $ 245,057,568 36,142,407 16,105,991 $ $ $ 73,976 28,683 23,453 $ 1,578,472 127,160 $ $ $ 131,980,027 8,730,907 4,706,332 8,243,886 47,762 11,664 9,378 24,194 3,565 2,005,645 8,505 388,464 306,615 5,523 - 685,504 63,183,433 1,163,570 1,293,813 428,811 339,446 156,877 13,440,804 36,455,326 4,249,661 - - - - - 261,857,081 302,562,068 365,745,501 39,986,728 39,986,728 41,280,541 $ 428,811 $ 339,446 1,560,862 1,560,862 1,717,739 146,206,514 146,206,514 159,647,318 $ 31 $ $ Exhibit A-1 Motor Carrier Safety Revolving Fund $ 76,507 Motor Vehicle Vehicle Liability Inspection Insurance and Title Enforcement Enforcement Fund Fund $ $ 384,504 - - - 15,335,744 5,543,277 6,086,061 15,577,217 4,829,065 5,603,934 - - - 28,756,975 19,088,864 119,580 72,100 79,016,288 83,338,642 996,419 $ 456,604 $ 18,107,227 4,249,661 570,688,386 36,469,590 4,828,964 151,131 627,516,979 $ 127,106 $ $ 76,007 - $ $ - $ <96,353> 1,327 $ <110,062> 44,873,314 21,194,028 $ $ $ 457,629,572 37,662,932 11,398,335 8,134,034 9,170,842 2,718,189 7,786,860 1,849,074 78,768,639 2,879,271 68,898,240 - - - 30,753 - - - 36,455,326 4,249,661 106,145,136 4,828,964 76,007 76,007 76,007 965,666 965,666 996,419 561,902 561,902 $ 456,604 451,214,760 491,919,747 570,688,386 151,131 447,493,508 558,618,739 627,516,979 $ 3,437 413,593,153 1997 876,839 <500> $ Totals 1998 <105,298> $ $ 32 Arizona Department of Transportation Special Revenue Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances For the fiscal year ended June 30, 1998 (With comparative totals for the fiscal year ended June 30, 1997) Budgeted State Highway Fund Revenues: Transportation excise tax Vehicle registration, title, license and related fees Fuel and motor carrier taxes and fees Reimbursement of construction expenditures - federal aid Other federal grants and reimbursements Reimbursements from Arizona counties, cities and other state agencies State appropriations Distributions from agency funds Interest Flight property tax Grand Canyon Airport Application fees Other Total revenues Expenditures: Current: Transportation - appropriated by State legislature: Administration Highway Highway Maintenance Motor Vehicle Division Aeronautics Division Other Total Transportation - appropriated by State legislature Transportation - not appropriated by State legislature Capital outlay: Highway construction Land, buildings and improvements - appropriated by State legislature Contracts and capital leases payable Arizona Department of Public Safety distributions - appropriated by State legislature $ State Aviation Fund - $ Abandoned Vehicle Fund - $ - Dealer Enforcement Revolving Fund $ - Safety Enforcement and Transportation Infrastructure Fund $ - 202,922,683 273,324,962 2,003,996 480,935 - 294,575 - 3,354,262 - 237,435,162 5,906,042 2,379,520 - - - <1,282,262> 615,900 18,231,397 18,252,104 755,405,988 2,599,137 7,582,939 1,348,951 77,932 16,473,410 646,320 646,320 17,285 311,860 110,156 29,068 2,831 3,496,317 43,913,778 41,381,128 76,596,858 59,615,121 1,213,926 9,409,728 - 444,207 - 304,992 - 1,693,809 - 222,720,811 9,409,728 444,207 304,992 1,693,809 11,294,362 - - - - 486,532,116 - - - - 12,741,927 68,396 - - - 537,526 - - - - 15,000,000 - - - - 33 Exhibit A-2 Maricopa Regional Area Road Construction Fund $ 192,518,877 Motor Carrier Safety Revolving Fund Motor Vehicle Liability Insurance Enforcement Fund $ $ - - Vehicle Inspection and Title Enforcement Fund $ Totals 1998 - $ 192,518,877 1997 $ 193,755,881 - 46,883 - 941,863 - 805,229 - 210,369,491 273,805,897 198,001,560 288,878,476 11,850,232 - - - 237,435,162 20,135,794 232,953,274 37,198,464 4,048,459 6,687,250 3,004,853 218,109,671 46,883 941,863 805,229 2,876,353 615,900 27,564,137 7,582,939 1,348,951 21,984,040 996,237,541 6,165,551 2,435,800 770,150 23,056,675 17,679,764 1,515,414 188,033 17,882,957 1,020,481,999 - 11,514 - 550,913 - 435,771 - 43,913,778 41,381,128 76,596,858 63,056,327 9,409,728 1,213,926 43,980,838 40,230,216 70,336,393 30,147,164 1,425,298 1,554,354 - 11,514 550,913 435,771 235,571,745 187,674,263 - - - - 11,294,362 43,145,597 79,862,150 - - - 566,394,266 403,485,720 - - - - 12,810,323 7,875,823 - - - - 537,526 169,596 - - - - 15,000,000 19,600,000 (Continued) 34 Arizona Department of Transportation Special Revenue Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances For the fiscal year ended June 30, 1998 (With comparative totals for the fiscal year ended June 30, 1997) Budgeted State Highway Fund Arizona Department of Emergency and Military Affairs distributions appropriated by State Legislature Year 2000 computer projects Principal Distributions to Arizona counties, cities and other state agencies Distributions to agency funds Total expenditures Excess of revenues over expenditures State Aviation Fund Abandoned Vehicle Fund Dealer Enforcement Revolving Fund Safety Enforcement and Transportation Infrastructure Fund 800,000 6,364,000 - - - - - 755,990,742 21,256,260 30,734,384 444,207 304,992 750,000 2,443,809 <14,260,974> 202,113 6,868 1,052,508 - - - <584,754> Other financing sources : Proceeds from contracts and capital leases payable Operating transfers in Operating transfers out: Debt service Other Total other financing sources <72,535,839> 488 <66,930,391> <2,254> <2,254> <388,252> <388,252> <304,706> <304,706> - Excess of revenues and other financing sources over expenditures and other financing uses <67,515,145> <14,263,228> <186,139> <297,838> 1,052,508 Fund balances, July 1 Fund balances, June 30 537,526 5,067,434 $ 370,077,213 302,562,068 - 54,249,956 $ 39,986,728 35 $ 186,139 - $ 297,838 - $ 508,354 1,560,862 Exhibit A-2 Maricopa Regional Area Road Construction Fund Motor Carrier Safety Revolving Fund Vehicle Inspection and Title Enforcement Fund Totals 1998 1997 - - - - 800,000 6,364,000 - 574,000 10,065,373 6,883,299 86,745,449 20,300 31,814 550,913 107,736 543,507 29,017,595 877,789,817 23,965,275 4,358,530 700,914,177 131,364,222 15,069 390,950 261,722 118,447,724 319,567,822 3,497,520 - - - 537,526 8,564,954 169,596 3,893,629 - - - <191,417,408> <2,831,788> <185,146,716> <202,013,657> <2,864,264> <200,814,696> 15,069 390,950 261,722 <66,698,992> 118,753,126 <118,881,569> <2,137,064> <117,521,113> 13,843,109 $ Motor Vehicle Liability Insurance Enforcement Fund 132,363,405 146,206,514 $ 60,938 76,007 $ 574,716 965,666 $ 300,180 561,902 $ 36 558,618,739 491,919,747 $ 439,865,613 558,618,739 Exhibit A-3 Arizona Department of Transportation Special Revenue Funds Combining Schedule of Revenues and Expenditures - Budget and Actual (Budget Basis) For the fiscal year ended June 30, 1998 State Aviation Fund State Highway Fund Actual Non-GAAP Budget Revenues: Vehicle registration, title, license and related fees Fuel and motor carrier taxes and fees Interest Flight property tax Grand Canyon Airport Other Total revenues Expenditures appropriated by State legislature in 1998 budget: Administration: Personal services Employee related expenditures Other operating expenditures Risk management premiums Total Administration Highway: Personal services Employee related expenditures Other operating expenditures Radio communication Total Highway Highway Maintenance: Personal services Employee related expenditures Other operating expenditures Highway Maintenance (nonreverting balance forward) Total Highway Maintenance Motor Vehicle Division: Personal services Employee related expenditures Other operating expenditures License plates and tabs Medical advisory board Traffic ticket enforcement assistance (nonreverting balance forward) Abandoned Vehicle Total Motor Vehicle Division Air Quality Program: Personal services Employee related expenditures Other operating expenditures Total Air Quality Program $ 168,540,500 297,780,500 466,321,000 $ 185,036,412 256,167,727 441,204,139 Variance Favorable $ 16,495,912 <41,612,773> <25,116,861> Budget $ Variance Favorable Actual Non-GAAP 2,073,000 575,000 2,115,000 8,900,000 1,661,000 6,000 15,330,000 $ 2,051,541 485,333 2,648,305 7,582,939 1,345,633 84,896 14,198,647 $ <21,459> <89,667> 533,305 <1,317,061> <315,367> 78,896 <1,131,353> 17,158,400 3,740,800 14,380,900 8,266,000 43,546,100 17,155,751 3,740,447 14,034,374 8,266,000 43,196,572 2,649 353 346,526 349,528 - - - 27,633,600 6,105,900 6,808,600 405,900 40,954,000 27,633,011 6,105,898 6,633,736 403,572 40,776,217 589 2 174,864 2,328 177,783 - - - 23,982,500 6,213,600 46,366,600 24,011,451 6,235,145 44,490,056 <28,951> <21,545> 1,876,544 1,926,476 78,489,176 1,861,433 76,598,085 65,043 1,891,091 - - - 32,985,300 8,514,500 16,334,100 1,275,300 1,020,000 32,980,367 8,514,327 15,799,604 1,262,212 989,969 4,933 173 534,496 13,088 30,031 - - - 50,000 60,179,200 59,546,479 50,000 632,721 - - - 28,600 8,700 600 37,900 29,876 7,399 600 37,875 - - - <1,276> 1,301 25 37 Exhibit A-3 Arizona Department of Transportation Special Revenue Funds Combining Schedule of Revenues and Expenditures - Budget and Actual (Budget Basis) For the fiscal year ended June 30, 1998 State Aviation Fund State Highway Fund Actual Non-GAAP Budget State General Fund Program: Public transit: Personal services Employee related expenditures Other operating expenditures Other transit planning Total State General Fund Program Aeronautics Division: Personal services Employee related expenditures Other operating expenditures Reimbursement to State Highway Fund Total Aeronautics Division Capital outlay - land, buildings and improvements Arizona Department of Public Safety transfers Arizona Department of Emergency and Military Affairs transfers Year 2000 computer projects Expenditures appropriated by State legislature by carryover of previous years’ unexpended budgets Total expenditures Excess of revenues over expenditures $ Variance Favorable 46,200 12,800 2,200 16,800 78,000 44,027 12,301 3,513 16,727 76,568 - - - Budget - - - - 789,200 192,800 666,100 784,477 186,320 641,266 4,723 6,480 24,834 - - 10,000 1,658,100 2,254 1,614,317 7,746 43,783 21,290,934 12,796,632 8,494,302 68,869 68,396 473 15,000,000 15,000,000 - - - - 800,000 6,364,000 800,000 6,364,000 - - - - 1,128,401 267,867,711 601,787 255,794,215 526,614 12,073,496 172,382 1,899,351 206 1,682,919 172,176 216,432 198,453,289 $ 185,409,924 2,173 499 <1,313> 73 1,432 Variance Favorable Actual Non-GAAP $ 38 <13,043,365> $ 13,430,649 $ 12,515,728 $ <914,921> Abandoned Vehicle Fund Actual Non-GAAP Budget Revenues: Vehicle registration, title, license and related fees Fuel and motor carrier taxes and fees Interest Flight property tax Grand Canyon Airport Other Total revenues Expenditures appropriated by State legislature in 1998 budget: Administration: Personal services Employee related expenditures Other operating expenditures Risk management premiums Total Administration Highway: Personal services Employee related expenditures Other operating expenditures Radio communication Total Highway Highway Maintenance: Personal services Employee related expenditures Other operating expenditures Highway Maintenance (nonreverting balance forward) Total Highway Maintenance Motor Vehicle Division: Personal services Employee related expenditures Other operating expenditures License plates and tabs Medical advisory board Traffic ticket enforcement assistance (nonreverting balance forward) Abandoned Vehicle Total Motor Vehicle Division Air Quality Program: Personal services Employee related expenditures Other operating expenditures Total Air Quality Program $ Variance Favorable 761,000 761,000 $ - $ <761,000> $ <761,000> Dealer Enforcement Revolving Fund Variance Actual Favorable Budget Non-GAAP 247,300 17,800 265,100 $ 297,752 18,963 316,715 $ 50,452 1,163 51,615 - - - - - - - - - - - - - - - - - - - - - - - - - - - 154,400 33,400 92,900 - 150,908 32,802 82,750 - 3,492 598 10,150 - 463,800 463,800 446,838 446,838 16,962 16,962 280,700 266,460 14,240 - - - - - - 39 Exhibit A-3 Safety Enforcement and Transportatio Infrastructure Fund Variance Actual Favorable Budget Non-GAAP $ 2,550,000 2,550,000 $ 3,281,771 22,965 2,831 3,307,567 $ 731,771 22,965 2,831 757,567 Totals Budget $ 174,171,800 298,355,500 2,132,800 8,900,000 1,661,000 6,000 485,227,100 Variance Favorable Actual Non-GAAP $ 190,667,476 256,653,060 2,690,233 7,582,939 1,345,633 87,727 459,027,068 $ 16,495,676 <41,702,440> 557,433 <1,317,061> <315,367> 81,727 <26,200,032> - - - 17,158,400 3,740,800 14,380,900 8,266,000 43,546,100 17,155,751 3,740,447 14,034,374 8,266,000 43,196,572 2,649 353 346,526 349,528 - - - 27,633,600 6,105,900 6,808,600 405,900 40,954,000 27,633,011 6,105,898 6,633,736 403,572 40,776,217 589 2 174,864 2,328 177,783 - - - 23,982,500 6,213,600 46,366,600 24,011,451 6,235,145 44,490,056 <28,951> <21,545> 1,876,544 - - - 1,926,476 78,489,176 1,861,433 76,598,085 65,043 1,891,091 272,300 75,200 1,411,500 - 271,532 74,695 1,691,815 - 768 505 <280,315> - 33,412,000 8,623,100 17,838,500 1,275,300 1,020,000 33,402,807 8,621,824 17,574,169 1,262,212 989,969 9,193 1,276 264,331 13,088 30,031 1,759,000 2,038,042 <279,042> 50,000 463,800 62,682,700 446,838 62,297,819 50,000 16,962 384,881 - - 28,600 8,700 600 37,900 29,876 7,399 600 37,875 - <1,276> 1,301 25 (Continued) Abandoned Vehicle Fund Actual Non-GAAP Budget State General Fund Program: Public transit: Personal services Employee related expenditures Other operating expenditures Other transit planning Total State General Fund Program Aeronautics Division: Personal services Employee related expenditures Other operating expenditures Reimbursement to State Highway Fund Total Aeronautics Division Capital outlay - land, buildings and improvements Arizona Department of Public Safety transfers Arizona Department of Emergency and Military Affairs transfers Year 2000 computer projects Expenditures appropriated by State legislature by carryover of previous years’ unexpended budgets Total expenditures Excess of revenues over expenditures $ Dealer Enforcement Revolving Fund Variance Actual Favorable Budget Non-GAAP Variance Favorable - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2,766 466,566 446,838 2,766 19,728 42,925 323,625 38,286 304,746 4,639 18,879 294,434 $ <446,838> $ 40 <741,272> $ <58,525> $ 11,969 $ 70,494 Exhibit A-3 Safety Enforcement and Transportatio Infrastructure Fund Variance Actual Favorable Budget Non-GAAP $ Totals Variance Favorable Actual Non-GAAP Budget - - - 46,200 12,800 2,200 16,800 78,000 44,027 12,301 3,513 16,727 76,568 2,173 499 <1,313> 73 1,432 - - - 789,200 192,800 666,100 784,477 186,320 641,266 4,723 6,480 24,834 - - - 10,000 1,658,100 2,254 1,614,317 7,746 43,783 - - - 21,359,803 12,865,028 8,494,775 - - - 15,000,000 15,000,000 - - - - 800,000 6,364,000 800,000 6,364,000 - 590,697 2,349,697 400,000 2,438,042 1,937,171 272,906,950 1,040,279 260,666,760 896,892 12,240,190 200,303 $ 869,525 190,697 <88,345> $ 669,222 $ 212,320,150 $ 198,360,308 $ <13,959,842> Debt Service Funds The Highway Improvement Bond Principal Redemption and Interest Fund administers the payment of principal and interest on the 1986 Series, 1987 Series and 1990 Series State of Arizona Highway Revenue Bond issues, the 1991 Series A and 1992 Series B State of Arizona Subordinated Highway Revenue Bond issues, the 1993 Series State of Arizona Highway Revenue Refunding Bond issue and the 1992 Series A, 1993 Series A and 1993 Series B State of Arizona Subordinated Highway Revenue Refunding Bond issues. The Maricopa Regional Area Road Bond Fund administers the payment of principal and interest on the 1986 Series A, 1987 Series A, 1988 Series A, 1991 Series A, 1992 Series A Refunding and 1992 Series B Transportation Board of the State of Arizona Transportation Excise Tax Revenue Bond issues, the 1989 Series A Transportation Board of the State of Arizona Subordinated Transportation Excise Tax Revenue Bond issue, the 1993 Series and 1995 Series A Transportation Board of the State of Arizona Subordinated Transportation Excise Tax Revenue Bond issues and the 1995 Series B Transportation Board of the State of Arizona Subordinated Transportation Excise Tax Revenue Refunding Bond issue. Exhibit B-1 Arizona Department of Transportation Debt Service Funds Combining Balance Sheet June 30, 1998 (With comparative totals at June 30, 1997) Highway Improvement Bond Principal Redemption and Interest Fund Assets Cash and cash equivalents on deposit with the State Treasurer Accrued interest receivable Total assets $ 490,408 885,394 1,375,802 Fund balances Unreserved, undesignated Total fund balances $ 1,375,802 1,375,802 $ Maricopa Regional Area Road Bond Fund $ 41 $ 24,822,471 1,766,996 26,589,467 $ 26,589,467 26,589,467 Totals 1998 $ $ 25,312,879 2,652,390 27,965,269 $ 27,965,269 27,965,269 1997 $ $ 32,863,123 2,211,464 35,074,587 $ 35,074,587 35,074,587 Exhibit B-2 Arizona Department of Transportation Debt Service Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances For the fiscal year ended June 30, 1998 (With comparative totals for the fiscal year ended June 30, 1997) Revenues: Interest Highway Improvement Bond Principal Redemption and Interest Fund Maricopa Regional Area Road Bond Fund $ $ Expenditures: Debt service: Principal Interest Other Total expenditures 2,094,165 4,723,334 Totals 1998 $ 6,817,499 1997 $ 6,375,889 43,405,000 33,265,949 35,006 76,705,955 82,765,000 40,511,525 75,837 123,352,362 126,170,000 73,777,474 110,843 200,058,317 118,985,000 81,395,372 113,003 200,493,375 <74,611,790> <118,629,028> <193,240,818> <194,117,486> Other financing sources : Operating transfers in Operating transfers out Total other financing sources 72,535,839 <1,867,507> 70,668,332 118,881,569 <3,418,401> 115,463,168 191,417,408 <5,285,908> 186,131,500 202,013,657 202,013,657 Excess of revenues and other financing sources over expenditures and other financing uses <3,943,458> <3,165,860> <7,109,318> 7,896,171 5,319,260 1,375,802 29,755,327 26,589,467 35,074,587 27,965,269 27,178,416 35,074,587 Deficiency of revenues under expenditures Fund balances, July 1 Fund balances, June 30 $ $ 42 $ $ Capital Project Fund The Maricopa Regional Area Road Bond Proceeds Funds is used to administer bond proceeds from the 1992 Series B and the 1993 Series Transportation Board of the State of Arizona Subordinated Transportation Excise Tax Revenue Bond issue. These monies are spent on the construction of state highways within Maricopa County. Exhibit C-1 Arizona Department of Transportation Maricopa Regional Area Road Bond Proceeds Fund Capital Projects Fund Comparative Balance Sheets June 30, 1998 and 1997 1998 Assets Cash and cash equivalents on deposit with the State Treasurer Accrued interest receivable Total assets $ $ Liabilities and fund balances Liabilities: Accounts payable Due to other Arizona Department of Transportation funds Total liabilities $ Fund balances - unreserved, undesignated Total liabilities and fund balances $ 43 1997 - $ 3,662,512 211,082 $ 3,873,594 - $ - 3,873,334 $ 3,873,594 21 239 260 Exhibit C-2 Arizona Department of Transportation Maricopa Regional Area Road Bond Proceeds Fund Capital Projects Fund Comparative Statements of Revenues, Expenditures and Changes in Fund Balances For the fiscal years ended June 30, 1998 and 1997 1998 Revenues: Interest $ 1997 - $ 3,805,934 3,792,977 821 3,793,798 95,832,292 77,483 95,909,775 <3,793,798> <92,103,841> <79,536> <79,536> <864,898> <864,898> Excess of revenues and other financing sources over expenditures and other financing uses <3,873,334> <92,968,739> Fund balances, July 1 Fund balances, June 30 3,873,334 $ - 96,842,073 $ 3,873,334 Expenditures: Capital outlay - highway construction Other Total expenditures Deficiency of revenues under expenditures Other financing sources : Operating transfers out Total other financing sources 44 Enterprise Fund The Arizona Highways Magazine Fund publishes and markets the Arizona Highways Magazine and various other products that promote the State of Arizona. Exhibit D-1 Arizona Department of Transportation Arizona Highways Magazine Fund Comparative Balance Sheets June 30, 1998 and 1997 1998 Assets Current assets: Cash and cash equivalents on deposit with the State Treasurer Subscriptions receivable, less allowance for doubtful accounts of $7,300 in 1998 and 1997 Accrued interest receivable Accounts receivable - retail/commercial, less allowance for returns of $10,000 in 1998 and 1997 Inventories Prepaid expenses Total current assets Fixed assets, net of accumulated depreciation Total assets $ $ Liabilities and fund equity Current liabilities: Accounts payable Accrued payroll and other accrued expenses Due to other Arizona Department of Transportation funds Deferred revenue - unearned subscription revenue Total current liabilities $ Fund equity: Contributed capital Retained earnings Total fund equity 4,480,074 1997 $ 185,854 86,042 174,041 85,690 410,549 2,771,895 321,228 8,255,642 304,703 2,649,816 276,558 2,834,434 11,090,076 187,687 235,381 2,311 4,366,877 4,792,256 9,258,222 $ $ $ 45 11,090,076 2,069,800 11,328,022 545,260 213,639 17,665 4,364,571 5,141,135 2,038,698 4,259,122 6,297,820 Total liabilities and fund equity 5,767,414 2,038,698 4,148,189 $ 6,186,887 11,328,022 Exhibit D-2 Arizona Department of Transportation Arizona Highways Magazine Fund Comparative Statements of Revenues, Expenses and Changes in Retained Earnings For the fiscal years ended June 30, 1998 and 1997 Operating revenues: Magazine sales Sales of related products List rentals Other Total operating revenues Operating expenses: Publication and promotional costs Salaries and wages Employee benefits Shipping and postage Supplies Equipment rental Temporary help, professional and outside services Repairs and maintenance Travel Write-off of uncollectible accounts Other Depreciation Total operating expenses Operating loss 1998 1997 $ 6,041,695 4,443,666 73,258 349,277 10,907,896 $ 6,032,128 4,543,047 67,189 503,998 11,146,362 5,520,288 1,893,191 438,237 1,812,946 120,699 89,585 537,018 76,228 26,324 31,919 369,460 164,547 11,080,442 5,724,650 1,716,751 436,345 1,882,788 262,808 90,747 638,878 63,709 28,909 53,308 361,919 191,235 11,452,047 <172,546> <305,685> Non-operating revenues : Interest Loss on disposal of fixed assets Total non-operating revenues 288,379 <4,900> 283,479 347,652 <3,485> Income before charge related to change in the fixed asset capitalization threshold 110,933 38,482 Charge related to change in the fixed asset capitalization threshold Net income Retained earnings, July 1 Retained earnings, June 30 - <113,222> 110,933 <74,740> 4,148,189 $ 4,259,122 46 344,167 4,222,929 $ 4,148,189 Exhibit D-3 Arizona Department of Transportation Arizona Highways Magazine Fund Comparative Statements of Cash Flows For the fiscal years ended June 30, 1998 and 1997 1998 Cash flows from operating activities: Operating loss Adjustments to reconcile operating loss to net cash provided by operating activities: Depreciation Changes in current assets and liabilities: Accounts receivable Inventories Prepaid expenses Accounts payable Accrued payroll and other accrued expenses Due to other Arizona Department of Transportation funds Deferred revenue Total adjustments Net cash provided by operating activities Cash flows from capital and related financing activities: Acquisition of fixed assets Net cash used for capital and related financing activities Cash flows from investing activities: Interest Net cash provided by investing activities Net increase in cash and cash equivalents $ <172,546> <305,685> 191,235 <117,659> <122,079> <44,670> <357,573> 21,742 <15,354> 2,306 <468,740> 219,325 69,923 <19,464> 372,847 12,753 661 <149,435> <641,286> 392,160 <934,081> <934,081> <983,842> 288,027 288,027 331,011 5,767,414 $ 4,480,074 47 $ 164,547 <1,287,340> Cash and cash equivalents, July 1 Cash and cash equivalents, June 30 1997 697,845 <983,842> 331,011 <260,671> 6,028,085 $ 5,767,414 Internal Service Funds The Equipment Revolving Fund purchases and maintains equipment and materials to be used by other funds. The Warehouse Revolving Fund administers the purchase, storage and distribution of forms and computer parts for other funds. Exhibit E-1 Arizona Department of Transportation Internal Service Funds Combining Balance Sheet June 30, 1998 (With comparative totals at June 30, 1997) Assets Current assets: Cash and cash equivalents on deposit with the State Treasurer Receivables: Accrued interest Other Due from other Arizona Department of Transportation funds Due from other state agencies Inventories Total current assets Fixed assets, net of accumulated depreciation Total assets Liabilities and fund equity Liabilities: Accounts payable Accrued payroll and other accrued expenses Due to other Arizona Department of Transportation funds Total liabilities Fund equity: Contributed capital Retained earnings : Reserved for replacement of equipment Unreserved Total fund equity Total liabilities and fund equity Equipment Revolving Fund Warehouse Revolving Fund $ $ 3,097,003 269,792 Totals 1998 $ 3,366,795 1997 $ 4,352,066 56,335 127,022 2,754 - 59,089 127,022 51,066 91,116 1,963,009 114,164 2,369,068 7,726,601 2,151 274,697 1,963,009 114,164 2,371,219 8,001,298 1,733,399 143,674 2,350,154 8,721,475 $ 37,001,177 44,727,778 $ 274,697 $ 37,001,177 45,002,475 $ 36,661,191 45,382,666 $ 770,888 $ 31,200 $ 802,088 $ 496,884 $ 827,901 - 827,901 798,524 1,598,789 31,200 1,629,989 8,644 1,304,052 5,793,237 313,403 6,106,640 6,106,640 9,985,210 27,350,542 43,128,989 44,727,778 <69,906> 243,497 274,697 9,985,210 27,280,636 43,372,486 45,002,475 9,985,210 27,986,764 44,078,614 45,382,666 $ 48 $ $ Exhibit E-2 Arizona Department of Transportation Internal Service Funds Combining Statement of Revenues, Expenses and Changes in Retained Earnings For the fiscal year ended June 30, 1998 (With comparative totals for the fiscal year ended June 30, 1997) Operating revenues: Equipment rentals Warehouse supply billings Equipment sales Other Total operating revenues Equipment Revolving Fund Warehouse Revolving Fund $ $ Operating expenses: Equipment maintenance Fuel and lubricants Salaries and related benefits Supplies Professional and outside services Equipment rental Insurance Travel Other Materials issued Depreciation Total operating expenses 6,632,791 3,915,320 8,560,062 193,767 518,214 29,801 780,347 119,389 993,375 6,584,576 28,327,642 Operating income Non-operating revenues : Interest Loss on disposal of fixed assets Total non-operating revenues Income before charge related to change in the fixed asset capitalization threshold Charge related to change in the fixed asset capitalization threshold Net income Retained earnings , July 1 Retained earnings , June 30 24,246,642 227,707 3,143,816 27,618,165 $ 56,555 56,555 Totals 1998 $ 207 99,239 99,446 24,246,642 56,555 227,707 3,143,816 27,674,720 1997 $ 6,632,791 3,915,320 8,560,062 193,767 518,421 29,801 780,347 119,389 993,375 99,239 6,584,576 28,427,088 23,294,346 13,992 311,433 3,428,610 27,048,381 6,030,436 3,577,537 8,112,514 187,348 341,547 77,621 889,264 101,642 1,086,941 8,216 6,203,173 26,616,239 <709,477> <42,891> <752,368> 432,142 207,375 <177,006> 30,369 15,871 15,871 223,246 <177,006> 46,240 286,742 <166,877> 119,865 <679,108> <27,020> <706,128> 552,007 <679,108> <27,020> <706,128> 38,014,860 37,335,752 49 $ <42,886> <69,906> $ 37,971,974 37,265,846 <1,397,377> <845,370> $ 38,817,344 37,971,974 Exhibit E-3 Arizona Department of Transportation Internal Service Funds Combining Statement of Cash Flows For the fiscal year ended June 30, 1998 (With comparative totals for the fiscal year ended June 30, 1997) Equipment Revolving Fund Cash flows from operating activities: Operating income Adjustments to reconcile operating income to net cash provided by operating activities Depreciation Changes in assets and liabilities: Due from other Arizona Department of Transportation funds Due from other state agencies Other receivables Inventories Accounts payable Accrued payroll and other accrued expenses Due to other Arizona Department of Transportation funds Total adjustments Net cash provided by operating activities $ Cash flows from investing activities: Interest Net cash provided by investing activities Net increase in cash and cash equivalents Cash and cash equivalents, July 1 Cash and cash equivalents, June 30 <709,477> $ 6,584,576 Cash flows from capital and related financing activities: Acquisition of fixed assets Proceeds from sale of fixed assets Net cash used for capital and related financing activities $ Totals Warehouse Revolving Fund 1998 <42,891> $ - 1997 <752,368> $ 6,584,576 432,142 6,203,173 <229,610> 29,510 <40,368> <23,664> 274,004 29,377 4,462 2,599 31,200 - <229,610> 29,510 <35,906> <21,065> 305,204 29,377 405,280 111,020 <31,330> 73,674 <81,403> 52,549 <8,644> 6,615,181 38,261 <8,644> 6,653,442 <1,666> 6,731,297 5,905,704 <4,630> 5,901,074 7,163,439 <7,538,697> 437,129 - <7,538,697> 437,129 <9,339,929> 390,329 <7,101,568> - <7,101,568> <8,949,600> 200,494 200,494 14,729 14,729 215,223 215,223 <995,370> 10,099 <985,271> 4,092,373 3,097,003 50 $ 259,693 269,792 $ 4,352,066 3,366,795 303,941 303,941 <1,482,220> $ 5,834,286 4,352,066 Fiduciary Funds Expendable Trust Funds The Bridge Construction Fund is used to disburse State General Fund appropriations to county flood districts for the construction and repair of bridges. The Davis-Monthan Runway Extension Fund is used to disburse State General Fund appropriations to assist in land acquisition and clearance and in roadway relocation for extension of the Davis-Monthan air force base runway. The Local Agency Deposits Fund receives monies from the U.S. Government and local agencies for the payment of local agency sponsored county secondary road construction projects. Agency Funds The Motor Vehicle Division Clearing Fund accounts for the collection and disbursement of all Motor Vehicle Division revenues. The Highway User Revenue Fund collects motor vehicle and liquid use fuel taxes and receives certain Motor Vehicle Division revenues from the Motor Vehicle Division Clearing Fund. These monies are distributed to the State Highway Fund, the Department of Public Safety, the Arizona State Parks, the Border Patrol, the Economic Strength Project Fund, and various cities and counties. The Underground Storage Tank Fund receives certain Motor Vehicle Division revenues for distribution to the Department of Environmental Quality. The Highway Property Rentals 24 Percent Fund collects 24 percent of the Department's rental income from condemned properties for distribution to the local county. The Highway Trust Right-of-Way Fund is used to administer federal monies to acquire rightof-way access for future federal construction projects. The Economic Strength Project Fund collects monies from the Highway User Revenue Fund for use on approved economic strength projects recommended by the Commerce and Economic Development Commission. The Privilege Tax Fund collects monies from renters of properties previously acquired by the Department for use in future highway development. Monies collected are distributed to the Department of Revenue. Arizona Department of Transportation Trust and Agency Funds Combining Balance Sheet June 30, 1998 (With comparative totals at June 30, 1997) Assets Cash and cash equivalents on deposit with the State Treasurer: Restricted Unrestricted Receivables: Accrued interest Taxes and fees Other Due from U.S. Government for reimbursable construction costs Due from other Arizona Department of Transportation funds Due from Arizona counties, cities and other state agencies Total assets Liabilities and fund balances Liabilities: Construction contracts payable Accounts payable Due to U.S. Government Due to other Arizona Department of Transportation funds Due to Arizona Department of Public Safety Due to Arizona counties, cities and other state agencies Surety and rental deposits Total liabilities Fund balances: Reserved for bridge construction Reserved for airport runway extension Reserved for highway construction Total fund balances Total liabilities and fund balances Expendable Trust Funds Davis-Monthan Bridge Runway Local Agency Construction Extension Deposits Agency Funds Motor Vehicle Division Highway Clearing User Revenue $ 1,737,431 - $ $ - $ 2,818,644 - - - 615,391 65,105,510 - 518,670 71,198,868 - - - 2,290,938 - - - - - - 31,294,446 - 376,534 $ 6,101,507 - $ 2,749,215 453,449 - - - - 38,921,501 72,986,379 - - - - 1,562,500 - - - 41,101,983 2,287,641 72,886,262 - 1,737,431 - 3,202,664 86,091,447 147,435,141 $ 1,737,431 - 2,898,843 2,898,843 $ 6,101,507 86,091,447 147,435,141 $ 1,737,431 $ $ $ 1,737,431 - $ 51 $ $ $ 20,985,937 86,091,447 3,780,322 - $ $ $ $ 44,310,175 112,982 147,435,141 - Exhibit F-1 Agency Funds Underground Storage Tank Highway Property Rentals - 24% Highway Trust Right-of-Way $ $ $ 260,888 - 2,509,439 Economic Strength Project Privilege Tax - $ 1,907,121 - $ 74,133 - Totals 1998 $ 6,798,217 67,805,551 1997 $ 17,151,625 91,581,152 7,833 - 25,066 - 18,356 - 82 - 544,859 136,304,460 640,457 459,267 118,064,264 47,272 - - - - - 2,290,938 5,306,594 2,354,637 - - - - 33,649,083 38,808,508 - $ 1,925,477 $ 74,215 $ - $ $ $ $ 2,623,358 $ $ $ 60,995 - 2,534,505 - $ $ - - 489,516 248,523,081 2,749,215 6,032,197 - $ $ 326,527 271,745,209 5,336,255 1,885,965 4,358,530 - - - - - 111,907,880 116,067,141 - - - - - 1,562,500 1,875,000 2,562,363 - 2,534,505 - - 1,925,477 - 74,215 - 121,084,805 2,287,641 125,419,493 2,444,174 2,623,358 2,534,505 - 1,925,477 74,215 245,624,238 257,386,558 $ 2,623,358 2,534,505 - $ 1,925,477 $ 74,215 2,898,843 2,898,843 248,523,081 1,737,431 6,600,000 6,021,220 14,358,651 271,745,209 $ $ 52 $ $ Exhibit F-2 Arizona Department of Transportation Expendable Trust Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances For the fiscal year ended June 30, 1998 (With comparative totals for the fiscal year ended June 30, 1997) Revenues: Reimbursements of construction expenditures - federal aid Reimbursements from Arizona counties, cities and other state agencies State appropriations Other Total revenues Bridge Construction Fund Davis-Monthan Runway Extension Fund Local Agency Deposits Fund 1998 1997 $ $ - $ 26,411,442 $ 26,411,442 $ 35,285,889 - 3,200,000 3,200,000 1,812,709 51,660 28,275,811 1,812,709 3,200,000 51,660 31,475,811 2,181,572 4,300,000 41,767,461 1,737,431 1,737,431 9,800,000 9,800,000 31,030,466 31,030,466 32,767,897 9,800,000 9,800,000 40,885,153 548,402 548,402 <1,737,431> <6,600,000> <2,754,655> <11,092,086> 41,219,059 <71> <367,651> <367,722> <71> <367,651> <367,722> <3,122,377> <11,459,808> Expenditures: Capital outlay - highway construction Distributions to other state agencies Total expenditures Excess of revenues over expenditures Other financing sources : Operating transfers in Operating transfers out Total other financing sources - Excess of revenues over expenditures and other financing sources Fund balances, July 1 Fund balances, June 30 - - <1,737,431> $ 1,737,431 - <6,600,000> $ 6,600,000 - 53 $ 6,021,220 2,898,843 Totals $ 14,358,651 2,898,843 25 <164,492> <164,467> 41,054,592 14,189,212 $ 55,243,804 Exhibit F-3 Arizona Department of Transportation Agency Funds Combining Statement of Changes in Assets and Liabilities For the fiscal year ended June 30, 1998 Balance July 1, 1997 Motor Vehicle Division Clearing Fund Assets: Cash and cash equivalents on deposit with the State Treasurer, unrestricted Taxes and fees receivable Due from Arizona counties, cities and other state agencies Total assets Liabilities: Accounts payable Due to other Arizona Department of Transportation funds Due to Arizona counties, cities and other state agencies Surety and rental deposits Total liabilities Highway User Revenue Fund Assets: Cash and cash equivalents on deposit with the State Treasurer, unrestricted Accrued interest receivable Taxes and fees receivable Due from other Arizona Department of Transportation funds Due from Arizona counties, cities and other state agencies Total assets Liabilities: Due to other Arizona Department of Transportation funds Due to Arizona Department of Public Safety Due to Arizona counties, cities and other state agencies Total liabilities Additions $ 9,964,657 68,678,157 $ 829,267,956 825,637,096 $ 78,642,814 $ $ 1,765,276 $ - $ $ $ $ $ 818,246,676 829,209,743 1,654,963,264 $ 33,635,052 $ 58,212 Balance June 30, 1998 $ 20,985,937 65,105,510 1,647,514,631 $ 86,091,447 31,620,006 $ 3,780,322 58,212 - 36,954,832 391,351,514 389,384,845 38,921,501 37,478,532 2,444,174 78,642,814 400,698,586 10,156 825,695,308 397,075,135 166,689 818,246,675 41,101,983 2,287,641 86,091,447 $ 79,127,466 441,044 49,385,863 $ 30,853,468 $ Deletions 864,952,693 1,959,597 567,132,380 $ $ 318,075,594 115,348 159,923,189 $ 79,112,142 1,875,000 $ 78,936,047 159,923,189 $ 114,364 1,752,234,628 436,882,352 14,687,500 435,712,083 887,281,935 899,769,984 1,881,971 545,319,375 $ $ 317,634,616 $ $ $ 116,730 1,764,722,676 443,008,115 15,000,000 441,761,868 899,769,983 44,310,175 518,670 71,198,868 31,294,446 $ $ $ 112,982 147,435,141 72,986,379 1,562,500 72,886,262 147,435,141 (Continued) 54 Exhibit F-3 Arizona Department of Transportation Agency Funds Combining Statement of Changes in Assets and Liabilities For the fiscal year ended June 30, 1998 Balance July 1, 1997 Underground Storage Tank Fund Assets: Cash and cash equivalents on deposit with the State Treasurer, restricted Accrued interest receivable Due from other Arizona Department of Transportation funds Total assets Liabilities: Accounts payable Due to Arizona counties, cities and other state agencies Total liabilities Highway Property Rentals - 24% Fund Assets: Cash and cash equivalents on deposit with the State Treasurer, unrestricted Accounts receivable Total assets Liabilities: Accounts payable Due to Arizona counties, cities and other state agencies Total liabilities Highway Trust Right-of-Way Fund Assets: Cash and cash equivalents on deposit with the State Treasurer, restricted Due from U. S. Government for reimbursable construction costs Due from other Arizona Department of Transportation funds Total assets Liabilities: Due to U.S. Government Due to other Arizona Department of Transportation funds Total liabilities Additions $ 1,068,973 5,946 $ $ 25,905,167 34,531 4,671,429 $ 26,713,252 32,644 $ 50,570,348 $ $ 109,305 $ 928,733 $ 4,562,124 4,671,429 $ 23,736,448 24,665,181 3,596,510 $ Balance June 30, 1998 Deletions $ 260,888 7,833 52,618,419 $ 2,623,358 $ 977,043 $ 60,995 $ 25,736,209 26,713,252 $ 2,562,363 2,623,358 24,630,650 $ $ 2,489,029 36,371 2,525,400 $ 25,872,523 $ $ 508,672 497,367 1,006,039 - $ $ 2,525,400 2,525,400 $ - 2,354,637 $ $ 488,262 508,672 996,934 $ 2,509,439 25,066 2,534,505 1,475 $ 1,475 $ - $ 495,893 497,368 $ 486,788 488,263 $ 2,534,505 2,534,505 $ - $ - $ - - - - - $ 4,358,530 4,358,530 $ - $ 4,358,530 4,358,530 $ - $ 4,358,530 $ - $ 4,358,530 $ - $ 4,358,530 $ - $ 4,358,530 $ (Continued) 55 Exhibit F-3 Arizona Department of Transportation Agency Funds Combining Statement of Changes in Assets and Liabilities For the fiscal year ended June 30, 1998 Balance July 1, 1997 Economic Strength Project Fund Assets: Cash and cash equivalents on deposit with the State Treasurer, restricted Accrued interest receivable Due from other Arizona Department of Transportation funds Total assets Liabilities: Due to Arizona counties, cities and other state agencies Total liabilities Privilege Tax Fund Assets: Cash and cash equivalents on deposit with the State Treasurer, restricted Taxes and fees receivable Total assets Liabilities: Accounts payable Due to Arizona counties, cities and other state agencies Total liabilities Additions $ 1,829,108 12,277 $ Balance June 30, 1998 Deletions $ 1,106,065 112,144 $ 1,028,052 106,065 1,841,385 $ 2,218,209 $ $ $ 1,841,385 1,841,385 $ 1,112,144 $ 1,112,144 $ $ $ 75,761 244 76,005 $ - $ $ 76,005 76,005 $ - $ 1,907,121 18,356 2,134,117 $ 1,925,477 $ 1,028,052 $ 1,925,477 $ 1,028,052 $ 1,925,477 $ $ 74,133 82 74,215 $ - $ 74,215 1,000,000 $ 424 <1,722> <1,298> 1 1,000,000 $ $ $ 1 $ 68 <1,723> <1,722> 2,052 <1,560> 492 - 67 74,215 (Continued) 56 Exhibit F-3 Arizona Department of Transportation Agency Funds Combining Statement of Changes in Assets and Liabilities For the fiscal year ended June 30, 1998 Balance July 1, 1997 Total - All Agency Funds Assets: Cash and cash equivalents on deposit with the State Treasurer: Restricted Unrestricted Receivables: Accrued interest Taxes and fees Other Due from U.S. Government for reimbursable construction costs Due from other Arizona Department of Transportation funds Due from Arizona counties, cities and other state agencies Total assets Liabilities: Accounts payable Due to U.S. Government Due to other Arizona Department of Transportation funds Due to Arizona Department of Public Safety Due to Arizona counties, cities and other state agencies Surety and rental deposits Total liabilities $ Additions 2,973,842 91,581,152 $ 27,011,656 1,694,729,321 $ 27,743,356 1,718,504,922 $ 2,242,142 67,805,551 459,267 118,064,264 36,371 2,106,272 1,392,767,754 497,367 2,020,680 1,374,527,558 508,672 544,859 136,304,460 25,066 - - - - 38,808,508 343,706,244 348,865,669 33,649,083 115,348 $ 252,038,752 $ $ 1,874,581 4,358,530 $ $ Balance June 30, 1998 Deletions 172,576 3,460,991,190 34,565,261 - $ $ 174,942 3,472,345,799 32,598,525 4,358,530 $ $ 112,982 240,684,143 3,841,317 - 116,066,974 1,875,000 828,233,866 14,687,500 832,392,960 15,000,000 111,907,880 1,562,500 125,419,493 2,444,174 252,038,752 861,753,431 10,156 866,088,119 166,689 121,084,805 2,287,641 $ 57 1,739,250,214 $ 1,750,604,823 $ 240,684,143 General Fixed Assets Account Group Fixed assets used in governmental fund type operations are accounted for in the General Fixed Assets Account Group, rather than in individual funds. Public domain (infrastructure) assets consisting of certain improvements other than buildings (including roads, bridges, lighting systems, and similar assets) are not reported in the General Fixed Assets Account Group. Exhibit G-1 Arizona Department of Transportation Comparative Schedules of General Fixed Assets By Source June 30, 1998 and 1997 1998 General fixed assets Land Buildings and improvements Improvements other than buildings Machinery and equipment Total general fixed assets $ Investment in general fixed assets by source Assets acquired prior to fiscal year 1992 (1) Assets acquired subsequent to fiscal year 1990 Special revenue funds Proprietary funds Third-party financing Total investment in general fixed assets $ 8,512,113 94,167,234 20,433,741 40,348,385 $ 8,657,685 102,113,393 30,143,274 41,590,704 182,505,056 $ 163,461,473 $ 81,167,572 $ 83,056,490 $ 93,906,117 1,118,755 6,312,612 182,505,056 $ 72,680,497 833,265 6,891,221 163,461,473 (1) Breakdown of assets by source is not available prior to fiscal year 1992. 58 1997 Exhibit G-2 Arizona Department of Transportation Schedule of General Fixed Assets - By Function and Activity June 30, 1998 Function and Activity Beginning balance of assets acquired prior to fiscal year 1991 at July 1, 1991 Disposal of assets acquired prior to fiscal year 1991 (1) Land $ $ <128,000> Remaining assets acquired prior to fiscal year 1991 Net assets acquired subsequent to fiscal year 1990: Administration Aeronautics Division Motor Vehicle Division Highway: Highway development Highway construction Transportation planning and research Materials engineering Traffic engineering Administrative and other services Highway Maintenance Total general fixed assets 5,894,839 Buildings and Improvements $ 57,116,541 Improvements Other Than Buildings Machinery and Equipment $ $ <132,759> 14,031,551 <84,000> 6,013,559 Total $ 83,056,490 <1,544,159> <1,888,918> 5,766,839 56,983,782 13,947,551 4,469,400 81,167,572 1,735,923 6,474,304 170,101 19,487,755 1,037,549 5,411,371 1,903,706 13,260,264 734,959 8,484,242 20,772,117 6,316,431 31,611,626 1,154,923 8,657,685 175,085 697,911 24,968 3,494,128 1,126,965 7,270,579 6,207,815 102,113,393 239,843 121,106 25,550 37,242 510,991 6,908,365 30,143,274 2,358,911 4,146,030 1,109,674 1,188,286 2,431,460 1,302,653 2,104,825 41,590,704 2,533,996 5,083,784 1,255,748 4,707,964 3,595,667 9,084,223 16,375,928 182,505,056 $ (1) Breakdown of assets by function and activity is not available prior to fiscal year 1991. 59 $ $ $ Exhibit G-3 Arizona Department of Transportation Schedule of Changes in General Fixed Assets - By Function and Activity For the fiscal year ended June 30, 1998 Function and Activity Assets acquired prior to fiscal year 1991 (1) Administration Aeronautics Division Motor Vehicle Division Highway: Highway development Highway construction Transportation planning and research Materials engineering Traffic engineering Administrative and other services Highway Maintenance Total general fixed assets General Fixed Assets July 1, 1997 $ $ Additions 83,056,490 $ Deductions General Fixed Assets June 30, 1998 - $ <1,888,918> 19,935,629 821,708 24,880,371 2,337,549 5,505,462 6,773,230 <1,501,061> <10,739> <41,975> 20,772,117 6,316,431 31,611,626 2,299,707 4,665,006 1,046,195 4,051,388 3,626,210 7,564,092 11,514,677 163,461,473 285,398 430,828 224,883 656,576 58,683 1,525,380 4,894,754 $ 22,692,743 <51,109> <12,050> <15,330> <89,226> <5,249> <33,503> $ <3,649,160> 2,533,996 5,083,784 1,255,748 4,707,964 3,595,667 9,084,223 16,375,928 182,505,056 (1) Breakdown of assets by function and activity is not available prior to fiscal year 1991. 60 $ $ 81,167,572 General Long-Term Debt Account Group All long-term liabilities that are not presented as liabilities of a specific fund are accounted for in the General Long-Term Debt Account Group. This represents the noncurrent debt obligation of the Department. Exhibit H Arizona Department of Transportation Schedule of Debt Service Requirements June 30, 1998 Highway Revenue Bonds 1990 Bonds Fiscal Year 1999 2000 2001 Principal $ 8,425,000 8,495,000 9,065,000 $ 25,985,000 Interest $ $ 1,753,988 1,185,300 611,888 3,551,176 Subordinated Highway Revenue Bonds Fiscal 1991 Series A Bonds Year 1999 2000 2001 2002 2003 2004 2005 2006 Principal $ 10,495,000 11,410,000 $ 21,905,000 1992 Series A Refunding Bonds Interest $ $ 1,631,438 1,631,438 1,631,438 1,631,438 1,631,438 713,126 8,870,316 Principal $ $ 22,430,000 23,760,000 25,205,000 71,395,000 1992 Series B Bonds Interest $ $ 4,286,476 2,963,106 1,537,506 8,787,088 Principal $ $ Interest 5,990,000 6,870,000 7,300,000 7,885,000 8,515,000 36,560,000 $ $ 2,687,330 2,687,330 2,687,330 2,687,330 2,321,940 1,896,000 1,312,000 681,200 16,960,460 Highway Revenue Bonds Fiscal 1993 Series Refunding Bonds Year 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Principal $ 1,470,000 11,550,000 11,385,000 13,380,000 1,000,000 16,760,000 17,600,000 14,820,000 15,605,000 16,425,000 17,285,000 $ 137,280,000 1993 Series A and B Subordinated, Refunding Bonds Interest $ 6,965,422 6,899,274 6,356,422 5,821,328 5,179,088 5,129,088 4,291,088 3,367,088 2,589,038 1,769,776 907,464 $ 49,275,076 Principal $ $ 11,480,000 1,925,000 2,010,000 13,970,000 16,585,000 1,620,000 13,820,000 18,170,000 28,235,000 29,610,000 31,395,000 51,685,000 54,520,000 275,025,000 61 Total Interest $ 13,765,462 13,306,262 13,225,412 13,138,982 12,524,302 11,777,976 11,703,456 11,053,916 10,181,758 8,805,300 7,028,700 5,458,950 2,624,700 $ 134,595,176 Principal $ $ 43,805,000 45,730,000 47,665,000 33,340,000 34,950,000 37,090,000 39,305,000 41,505,000 43,840,000 46,035,000 48,680,000 51,685,000 54,520,000 568,150,000 Interest $ 31,090,116 28,672,710 26,049,996 23,279,078 21,656,768 19,516,190 17,306,544 15,102,204 12,770,796 10,575,076 7,936,164 5,458,950 2,624,700 $ 222,039,292 (Continued) Exhibit H Arizona Department of Transportation Schedule of Debt Service Requirements June 30, 1998 Transportation Excise Tax Revenue Bonds 1988 Series A Capital Appreciation Bonds Fiscal Year 1999 2000 2001 2002 2003 2004 2005 Principal $ 21,500,000 21,500,000 21,500,000 8,500,000 $ 73,000,000 1989 Series A Subordinated Bonds Interest $ Principal - $ $ $ 23,700,000 25,620,000 27,390,000 76,710,000 1991 Series A Bonds Interest $ 5,346,000 3,710,700 1,917,300 $ 10,974,000 Principal $ $ Interest 4,100,000 4,360,000 4,640,000 13,100,000 $ $ 789,750 545,800 284,200 1,619,750 Transportation Excise Tax Revenue Bonds Fiscal 1992 Series A Refunding Bonds Year Principal 1999 2000 2001 2002 2003 2004 2005 $ 16,515,000 38,165,000 40,170,000 110,000 23,240,000 24,545,000 38,955,000 $ 181,700,000 1992 Series B Bonds Interest Principal $ 9,938,250 9,112,500 7,127,920 4,958,740 4,952,690 3,651,250 2,239,913 $ 41,981,263 $ $ 2,265,000 2,380,000 2,500,000 2,635,000 2,780,000 2,935,000 3,105,000 18,600,000 1993 Series Subordinated Bonds Interest $ $ 1,019,915 906,665 782,905 647,905 502,980 347,300 178,538 4,386,208 Principal $ $ Interest 8,200,000 8,530,000 8,890,000 30,835,000 31,180,000 32,335,000 18,825,000 138,795,000 $ $ 6,579,465 6,251,465 5,893,205 5,502,045 3,775,285 2,372,185 884,775 31,258,425 Transportation Excise Tax Revenue Bonds 1995 Series B Subordinated Refunding Bonds Fiscal 1995 Series A Subordinated Bonds Year Principal 1999 2000 2001 2002 2003 2004 2005 $ 12,645,000 13,200,000 13,925,000 14,555,000 15,355,000 16,275,000 17,330,000 $ 103,285,000 Interest $ 5,725,344 5,172,125 4,446,125 3,819,500 3,018,975 2,097,675 1,039,800 $ 25,319,544 Principal $ $ 20,240,000 245,000 255,000 33,185,000 10,215,000 12,470,000 30,070,000 106,680,000 Total Interest $ 6,226,456 5,113,256 5,102,538 5,091,063 3,099,963 2,614,750 1,804,200 $ 29,052,226 Principal $ $ 87,665,000 92,500,000 97,770,000 102,820,000 104,270,000 110,060,000 116,785,000 711,870,000 Interest $ 35,625,180 30,812,511 25,554,193 20,019,253 15,349,893 11,083,160 6,147,226 $ 144,591,416 (Continued) 62 Exhibit H Arizona Department of Transportation Schedule of Debt Service Requirements June 30, 1998 Fiscal Total Bonds Year 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Principal Interest 131,470,000 138,230,000 145,435,000 136,160,000 139,220,000 147,150,000 156,090,000 41,505,000 43,840,000 46,035,000 48,680,000 51,685,000 54,520,000 $ 1,280,020,000 $ 66,715,296 59,485,221 51,604,189 43,298,331 37,006,661 30,599,350 23,453,770 15,102,204 12,770,796 10,575,076 7,936,164 5,458,950 2,624,700 $ 366,630,708 $ 63 Total $ 198,185,296 197,715,221 197,039,189 179,458,331 176,226,661 177,749,350 179,543,770 56,607,204 56,610,796 56,610,076 56,616,164 57,143,950 57,144,700 $ 1,646,650,708 Table I Arizona Department of Transportation Governmental and Expendable Trust Fund Expenditures For the fiscal year ended June 30 (Thousands of Dollars) Fiscal Year Administration /4 Highway /5 Motor Vehicle Division 1998 $ 43,914 43,981 $ 41,381 40,230 $ 63,056 30,147 Administrative Services /1 Highway Division /2 Motor Vehicle Division $ 108,670 108,495 104,288 111,188 105,725 107,434 100,226 97,543 $ 33,486 35,221 27,992 30,776 29,588 29,312 29,865 26,862 1997 1996 1995 1994 1993 1992 1991 1990 1989 $ 36,406 36,933 45,363 38,473 34,620 32,685 31,117 29,409 Highway Maintenance Highway Construction Aviation Debt Service Other /6 Total $ $ 602,955 540,203 $ 30,734 18,975 $ 199,948 210,446 $ 65,625 84,433 $ 1,124,210 1,038,751 Highway Construction Aviation Debt Service Other /3 Total $ 555,087 418,601 481,538 446,676 450,793 569,343 843,711 653,730 $ 11,107 9,239 13,579 17,279 17,406 12,046 6,069 3,596 $ 200,364 182,554 181,519 168,684 159,096 149,049 134,658 97,956 $ 87,960 57,757 78,254 66,274 65,679 66,778 35,978 18,610 $ 1,036,294 852,181 936,001 882,939 866,954 970,364 1,185,050 931,267 76,597 70,336 Transportation Planning $ 3,214 3,381 3,468 3,589 4,047 3,717 3,426 3,561 SOURCE: General Purpose Financial Statements - fiscal years 1989 through 1998 NOTES: /1 Includes the Department's Risk Management Premium. /2 Includes Highway Maintenance. /3 Includes Reimbursements, Transfers, Director's Office, Highway Safety Office, and Land, Buildings & Improvements. /4 Includes the Director's Office, Financial Management (formerly Administrative) Services, Transportation Support Services and the Department's Risk Management Premium. /5 Includes Transportation Planning. /6 Includes Transportation not appropriated, Land, Building & Improvements, Leases Payable and Transfers. Total Expenditures $1,200,000 Thousands of Dollars $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 1989 1990 1991 1992 1993 1994 Fiscal Year 64 1995 1996 1997 1998 Table II Arizona Department of Transportation Governmental and Expendable Trust Fund Revenues For the fiscal year ended June 30 (Thousands of Dollars) Fiscal Year 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 Motor Fuel Tax $ 273,806 288,878 291,000 293,870 280,394 264,307 261,678 256,521 225,737 230,575 Reg., Fees, Permits, Expenditures Service of Federal Investment Charges Awards Earnings $210,370 $ 283,982 $ 34,382 198,002 305,438 33,238 171,823 268,605 29,603 133,689 225,607 22,340 117,412 261,000 14,229 102,524 183,407 18,560 89,261 174,683 22,422 99,389 191,899 31,799 109,159 189,955 51,651 101,218 181,072 47,729 Other $223,486 231,792 228,698 190,498 177,561 153,333 138,097 132,707 125,970 139,821 Reimbursements $ 8,505 15,083 32,711 17,808 13,130 22,604 18,513 12,632 20,485 4,030 Total $ 1,034,531 1,072,431 1,022,440 883,812 863,726 744,735 704,654 724,947 722,957 704,445 /1 /1 /1 /1 SOURCE: General Purpose Financial Statements - Fiscal Years 1989 through 1998 NOTE: /1 Method of accounting for taxpayer assessed revenues has been changed due to the adoption of GASB Statement No. 22 during fiscal year 1995. Total Revenues $1,200,000 Thousands of Dollars $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 1989 1990 1991 1992 1993 1994 Fiscal Year 65 1995 1996 1997 1998 Table III Arizona Department of Transportation Expenditures of Federal Awards /2 For the fiscal year ended June 30 (Thousands of Dollars) FAA $ 2,379 91 506 849 129 3,208 4,369 1,642 164 7 SOURCE: $ FRA 14 130 499 475 437 441 12 59 55 FTA $ 3,392 2,508 3,552 1,687 3,448 1,715 1,097 559 1,563 821 NHTSA $ 49 55 54 39 50 FHWA $ 278,148 302,633 261,820 221,818 256,986 177,968 169,151 189,698 188,130 180,139 BLM $ BIA 28 20 - $ 76 2,228 750 - Total $ 283,982 305,438 268,605 225,607 261,000 183,407 174,683 191,899 189,955 181,072 Single Audit Reports - fiscal years 1989 through 1998 NOTES: /1 Includes all governmental and expendable trust funds. /2 Federal Aviation Administration (FAA); Federal Railroad Administration (FRA); Federal Transit Administration (FTA) - previously Urban Mass Transit Administration (UMTA); National Highway Transportation Safety Administration (NHTSA); Federal HighwayAdministration (FHWA); Bureau of Land Management (BLM); and Bureau of Indian Affairs (BIA). Total Expenditures of Federal Awards $350,000 $300,000 $250,000 Thousand of Dollars Fiscal Year 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 $200,000 $150,000 $100,000 $50,000 $0 1989 1990 1991 1992 1993 1994 Fiscal Year 66 1995 1996 1997 1998 Table IV Arizona Department of Transportation Fuel Tax Rates For the fiscal year ended June 30 (Cents per Gallon) Fiscal Year 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 Effective Date 12/31/97 10/1/90 9/1/88 Gasoline Tax 18 18 18 18 18 18 18 18 17 17 SOURCE: Arizona Revised Statutes 28-5606, 28-5708 NOTE: Gasohol is currently taxed at the same rate as gasoline and use fuel. Use fuel is primarily diesel fuel. 67 Use Fuel Tax 27 18 18 18 18 18 18 18 17 17 Table V Arizona Department of Transportation Highway User Revenue Fund Collections For the fiscal year ended June 30 (Thousands of Dollars) Fiscal Year Motor Veh. Fuel Tax Revenue Motor Veh. Reg. Fee Revenues Motor Carrier Tax Revenues Motor Veh. Operators' License Fees and Other Fees 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 $ 508,544 488,701 473,741 451,089 422,556 387,235 369,789 362,018 339,116 336,898 $ 109,445 101,528 97,601 86,159 83,826 80,717 74,180 75,657 88,536 80,338 $ $ 56,123 90,186 85,433 92,103 118,530 120,303 109,573 108,655 104,343 104,709 Motor Veh. Excess License License and (In Lieu) Tax Sales Tax Revenues Revenues 36,426 41,294 42,654 39,238 37,161 24,161 25,507 24,033 25,474 23,402 $ 176,950 175,253 160,145 131,562 113,990 105,027 96,146 92,826 91,390 80,125 $ 16,632 15,198 13,789 Total Deposited To Arizona Hwy. User Rev. Fund Total Distributed To Arizona Hwy. Fund $ 887,488 896,962 859,574 800,151 776,063 717,443 675,195 679,821 664,057 646,485 $ 440,101 443,623 429,826 399,605 385,844 355,304 339,807 346,867 329,698 /1 320,821 SOURCES: Highway User Revenue Fund Schedule 1 Summary For Revenue Collected Monthly Reports MV675577-1 and MV 675580-01 fiscal years 1993 through 1998; Highway User Revenue Fund Report (Budgetary Basis) - fiscal years 1989 through 1998. NOTE: Total for fiscal year 1989 includes a legal settlement of $7,224. Highway User Revenue Fund Collections $900,000 $800,000 Thousands of Dollars $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $1989 1990 1991 1992 1993 1994 1995 1996 Fiscal Year Deposited in HURF 68 Distributed to Highway Fund 1997 1998 Table VI Arizona Department of Transportation Highway User Revenue Fund Distributions For the fiscal year ended June 30 (Thousands of Dollars) Arizona Fiscal Highway Year Fund /3 1998 $ 435,882 1997 444,927 1996 429,171 1995 412,206 1994 406,376 1993 355,304 1992 339,807 1991 346,867 1990 329,698 1989 320,821 Cities and Towns $ 263,220 268,696 256,901 244,512 205,479 210,531 201,394 208,708 209,767 204,112 Counties $ 163,973 167,350 152,571 145,349 134,511 124,468 119,068 123,746 124,092 121,052 Department of Public Safety /1 $ 14,688 17,188 19,688 20,000 24,925 24,928 12,453 - Economic Strength Project Fund $ 1,000 1,000 1,000 1,000 1,000 1,000 1,000 500 500 500 Other /2 $ 8,519 9,289 9,304 9,084 532 1,212 1,473 - Total $ 887,282 908,450 868,635 832,151 772,823 717,443 675,195 679,821 664,057 646,485 The Highway User Revenue Fund receives certain Motor Vehicle Division revenues from the Motor Vehicle Division Clearing Fund. These monies are distributed to the State Highway Fund and various counties and cities, based on statutory formulas. SOURCES: Highway User Revenue Fund Schedule 1 Summary for Revenue Collected Monthly Reports MV675580-01 fiscal years 1993 through 1998 (adjusted for accrual basis in years 1994 through 1998); Highway User Revenue Fund Report (Budgetary Basis) - fiscal years 1988 through 1992. NOTES: /1 DPS did not receive funding from HURF in fiscal years 1988 through 1991 in accordance with ARS 28-6537. /2 Appropriation to the Motor Vehicle Division for funding of mandatory insurance enforcement administration for fiscal years 1992 through 1994. In fiscal years 1995 through 1998, an appropriation for Arizona State Parks is included. /3 In fiscal year 1995, HB 2431 authorized the transfer of $1 million for border transportation projects. 69 Table VII Arizona Department of Transportation Bond Coverage Highway User Revenue Fund Series For the fiscal year ended June 30 (Thousands of Dollars) Fiscal Year 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 Principal $ 43,405 40,970 38,430 36,330 33,425 27,865 26,185 24,690 23,340 22,120 Interest $33,266 36,148 38,770 40,974 44,037 48,289 39,957 36,743 26,609 27,993 Total $76,671 77,118 77,200 77,304 77,462 76,154 66,142 61,433 49,949 50,113 Revenue $440,101 443,623 429,826 399,605 385,844 355,304 339,807 346,867 329,698 320,821 Coverage 5.7 5.8 5.6 5.2 5.0 4.7 5.1 5.6 6.6 6.4 SOURCES: Highway User Revenue Fund Schedule 1 Summary For Revenue Collected Monthly Reports MV675577-1 fiscal years 1993 through 1998; Highway User Revenue Fund Report (Budgetary Basis) - fiscal years 1989 through 1992; Debt Service Funds - fiscal years 1989 through 1998 Highway User Revenue Fund Series Bond Coverage $450,000 $400,000 Thousands of Dollars $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 1989 1990 1991 1992 1993 1994 1995 Fiscal Year REVENUE DEBT SERVICE 70 1996 1997 1998 Table VIII Arizona Department of Transportation Bond Coverage Regional Area Road Fund Series For the fiscal year ended June 30 (Thousands of Dollars) Fiscal Year 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 Principal $ 82,765 78,015 76,955 57,930 54,710 45,650 38,410 34,480 34,485 18,240 Interest $40,512 45,248 46,209 47,320 49,347 46,880 54,544 53,136 50,224 29,604 Total $123,277 123,263 123,164 105,250 104,057 92,530 92,954 87,616 84,709 47,844 Revenue $192,519 193,756 179,533 161,761 142,846 127,273 116,497 113,335 110,801 106,250 Coverage 1.6 1.6 1.5 1.5 1.4 1.4 1.3 1.3 1.3 2.2 SOURCES: Taxable Sales and Collections By Class Within County Monthly SR2712-04 Report - fiscal years 1993 through 1998; Maricopa County Regional Area Road Fund Report (RARF Revenue), Regional Area Road Fund Bond Payment Schedule (Bond Payments), and Debt Service Funds - fiscal years 1988 through 1998. NOTE: Bond coverage ratio is based upon total Maricopa Transportation Excise Tax collections. RARF bonds were first issued in fiscal year 1987. Regional Area Road Fund Series Bond Coverage $200,000 $180,000 Thousands Dollars $160,000 $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0 1989 1990 1991 1992 1993 1994 1995 Fiscal Year REVENUE DEBT SERVICE 71 1996 1997 1998 Table IX Arizona Department of Transportation Total Public Road Mileages By Highway Class and Governmental Ownership For the calendar year ended December 31, 1997 (With comparative totals for the calendar year ended December 31, 1996) (In Miles) TOTAL FUNCTIONAL CLASSIFICATION STATE COUNTY MUNICIPAL FEDERAL 1997 1996 RURAL: Interstate Freeway Principal Arterial Minor Arterial Major Collector Minor Collector Local TOTAL RURAL 996 1,118 1,134 1,861 374 9 5,492 45 100 1,587 1,118 14,209 17,059 14 23 216 52 1,510 1,815 9 841 756 12,446 14,052 996 1,186 1,257 4,505 2,300 28,174 38,418 996 1,185 1,258 4,506 2,301 28,415 38,661 URBAN: Interstate Freeway Urban Expressway Principal Arterial Minor Arterial Urban Collector Local TOTAL URBAN 173 86 271 129 5 664 1 105 277 508 963 1,854 9 652 864 1,220 11,981 14,726 5 16 30 51 173 96 1,028 1,275 1,749 12,974 17,295 172 91 1,028 1,275 1,749 11,920 16,235 1,255 2,652 2,240 9 6,156 1 527 3,213 15,172 18,913 9 1,553 1,488 13,491 16,541 14 1,613 12,476 14,103 1,265 4,746 8,554 41,148 55,713 1,258 4,746 8,556 40,335 54,895 STATEWIDE COMPOSITE: Freeways and Expressways Arterials Collectors Locals TOTAL STATEWIDE Source: Arizona's Highway Performance Monitoring System (HPMS); 1997 & 1996 Data 72 ACKNOWLEDGMENTS The Comprehensive Annual Financial Report was prepared by the Financial Management Services, Fiscal Operations: Craig Rudolphy, MBA, CGFM, CPA Theresa Simms, MBA, CGFM, CPA Patricia Markiw, CPA Janet Gafford Janet E. Hastings Richard Gromoll Lawrence H. Ehrke. Jr. Special acknowledgment goes to: All Financial Management Services staff whose cooperation and hard work contributed to the compilation of financial information that appears in this report. A special thank you to Dave McDarby of the Intermodal Transportation Division for his graphic design of the cover and divider pages.