Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 1999 Prepared by: Financial Management Services Arizona Department of Transportation Comprehensive Annual Financial Report For the fiscal year ended June 30, 1999 Table of Contents Exhibit Page INTRODUCTORY SECTION Letter of Transmittal List of Principal Officials Organizational Chart i-xiii xiv xv FINANCIAL SECTION Report of Independent Auditors General Purpose Financial Statements Combined Balance Sheet - All Fund Types and Account Groups 2-5 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 Required Supplementary Information – Year 2000 Issue 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 Internal Service Funds Combining Balance Sheet 1 1 2 6 3 7 4 5 8 9 10-30 31 A-1 32-33 A-2 34-37 A-3 38-41 B-1 42 B-2 43 C-1 44 C-2 45 D-1 46 D-2 D-3 47 48 E-1 49 Arizona Department of Transportation Comprehensive Annual Financial Report For the fiscal year ended June 30, 1999 Table of Contents (continued) Exhibit Combining Statement of Revenues, Expenses and Changes in Retained Earnings Combining Statement of Cash Flows Page E-2 E-3 50 51 F-1 52-53 F-2 F-3 54 55-58 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 59 60 61 General Long-Term Debt Account Group Schedule of Debt Service Requirements H Trust and Agency Funds Combining Balance Sheet Comparative Statements of Revenues, Expenditures and Changes in Fund Balances Expendable Trust Fund Combining Statement of Changes in Assets and Liabilities - Agency Funds 62-64 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 65 66 67 68 69 70 71 72 73 74 November 30, 1999 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, 1999. 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. awards contracts each month for highway projects. The Transportation Board also has authority for the issuance of highway revenue and transportation excise tax bonds, grant anticipation notes 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 Transportation Board is responsible for the annual update of the fiveyear highway and airport construction program and The Department is structured into five major organizational units: Intermodal Transportation Division, Motor Vehicle Division, Aeronautics Division, Transportation Planning Division and Transportation Services Group. The Department employs approximately 4,700 persons. The Department’s customers include: w w key responsibilities to its Planning, designing, constructing, and maintaining a statewide transportation system. Providing title, registration, and licensing services. 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 65 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. 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, notes, required supplementary information 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. certain Motor Vehicle Division (MVD) revenue acceleration programs including registration compliance and biennial registration. Arizona’s population has grown at an average annual rate of 3.1 percent since 1990, reaching an estimated 4.8 million by July 1999. Arizona continues to rank as one of the fastest growing states in the nation. The economic wealth of Arizona has also increased with personal income growing at an annual average rate of 7.5 percent since 1990 compared to 5.3 percent for the United States. Arizona wage and salary employment has grown by 4.5 percent creating an average of 70,000 jobs each year for the same time period. 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 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 personal property, restaurant and bar receipts, and other smaller activities. 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. Maricopa County Transportation Excise Tax collections totaled $229.5 million during FY 1999, an increase of 9.7 percent over the Fiscal Year 1998 collections. The tax tracked 1.1 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 8.4 percent. 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 showed strong growth during Fiscal Year 1999. For the Future Fiscal Year 1999 HURF collections were a $95.3 million increase over last year’s collections. With total collections of $982.8 million, the increase over last year is a 10.7 percent increase. Results exceeded the forecast of $939.9 million by 4.6 percent. All the major revenue categories exceeded the estimate except Motor Carrier and Registration. The Department forecasts HURF collections will reach the $1 billion milestone forecast in FY 2000, with the forecast totaling $1,022.7 million. This amount represents a 4.1 percent increase over the Fiscal Year 1999 revenue level. The HURF average annual compound growth rate for Fiscal Years 1990 through 1999 has been 4.5 percent. Fiscal Year 1999 saw a continued strong Arizona economy along with positive impacts from Fiscal Year 1997 legislative changes (Senate Bill 1144 and Senate Bill 1398). Arizona continued to rank high in population, personal income and employment growth. These factors contributed to sharp increases in Gas Tax and Use Fuel Tax collections. The Vehicle License Tax (VLT) posted strong gains over Fiscal Year 1998 revenue levels due to strong economy factors and The distribution of HURF collections in Fiscal Year 2000 is estimated to be as follows: State Highway Fund $509.4 million; Arizona cities and towns $307.7 million; Arizona counties $191.7 million; Department of Public Safety $12.5 million; Prescott Regional Transportation Center $0.4 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 $22.4 million. ii 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. Transportation Excise Tax collections for Fiscal Year 2000 are projected to be $246.6 million, an increase of 7.5 percent over Fiscal Year 1999. The outlook for Fiscal Year 2000 remains positive with some moderation in Arizona’s economic indicators. The Transportation Excise Tax average annual compound growth rate for Fiscal Years 1990 through 1999 has been 8.4 percent. MAJOR INITIATIVES For the Year Ended Landmark Federal transportation legislation was enacted into law on June 9, 1998, providing Arizona funding through Fiscal Year 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 $2.5 billion over the Fiscal Year 1998-2003 period. On an annual basis, the Department expects to receive an average of $315 million per year in Federal highway apportionments with an additional $98 million allocated to local governments. The TEA-21 funding level for Arizona is estimated to be approximately 63 percent higher than the average Arizona received under the previous Federal Transportation Act (ISTEA). During Fiscal Year 1999, 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 1999, a total of $969 million was obligated for highway construction, the highest level ever attained. This total included $408 million for Maricopa Regional Freeway System projects, $46 million for other projects in Maricopa County, and $515 million for work statewide. At the end of Fiscal Year 1999, the Department had $1.0 billion in highway construction work underway, a continuing record level of activity. The Regional Freeway Program in Maricopa County that was redefined in 1995 to complete 107 miles of freeways by 2006 has been advanced and expanded to include 37 additional miles on the Santan and Red Mountain freeways, previously shown in the Long Range Plan. Under the “2007 Acceleration Plan,” 156 miles of new freeways are planned to be opened by the end of 2007. Currently 56 miles have been opened to traffic and 30 more miles are under construction. The acceleration is being accomplished through the use of two new financing techniques, Grant Anticipation Notes and Board Funding Obligations. 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 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. Construction is underway to expand the Department’s Freeway Management System on 24 miles of Interstate 17, Squaw Peak Freeway (SR 51), Red Mountain Freeway (Loop 202) and the Price Freeway (Loop 101). The 24 mile expansion will be completed in 2000 and link to the existing freeway network that already covers 42 miles of Valley freeways. The network of traffic sensors, electronic signs, computers, communications equipment, cameras and people monitor traffic conditions and notify response teams of accidents. A freeway management system on Interstate 10 and Interstate 19 in Tucson is being designed with construction to start in the Spring of 2000. When the Tucson system comes online in mid- Through strategic planning, the Department integrates the needs of 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 iii 2001, it will be linked to the Valley’s system. The Department’s freeway management system also is expanding to rural areas with the design and installation of 17 variable message signs on rural highways over the next two years. The message signs will join an existing network of seven signs installed on rural highways to warn drivers of road conditions and incidents. mission critical systems, PCs, networks and mainframe into Year 2000 compliance. As the public demand for information and services online continues to grow, the Department Web site at www.dot.state.az.us receives over 150,000 hits a week while providing government agencies, customers and partners current transportation related information. Arizona Highways magazine, current freeway construction alerts and updates and online vehicle registration through ServiceArizona are just a sampling of the variety of pertinent Department information that visitors to the site will find. In January 1999, ADOTNet (the Intranet site) was released, providing a centralized source of information that has enhanced the internal exchange among employees and generated a more collaborative work environment. Some of the projects under development include applications to provide contractors with up-to-date project information as well as creating several additional areas within the Department. In June 1999, the Transportation Board approved a $4.3 billion Five-Year Highway Construction Program for Fiscal Years 2000 through 2004, which provides funding for highway facilities throughout the State. The Five-Year program includes approximately: $1,598 million for freeway and expressway construction in Maricopa County funded in large part from the Maricopa County Regional Area Road Fund; $1,778 million for system improvements; $660 million for system preservation, and $241 million for system management on both the National Highway System and statewide system. The Transportation Board also adopted a Five-Year $293 million Statewide Airport Development Program that includes 504 projects at general aviation and air carrier airports located throughout the state. During Fiscal Year 1999, the Department awarded grants totaling $19.9 million to help finance projects at 35 airports. The projects included pavement construction and preservation, lighting aids, security fencing, land acquisition and master planning. 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 partnering with public and private sector contractors to provide certain MVD services. By the end of Fiscal Year 1999 there were 42 third party companies providing title and registration services at a rate of approximately 50,000 transactions per month. Other third parties are performing inspections on out-of-state vehicles transferring titles to Arizona, administering driver license exams and processing driver license applications. Overall, third parties were performing 20 percent of MVD’s business by the end of the Fiscal Year. The state-owned Grand Canyon National Park Airport remained the third busiest air carrier airport in the State with 170,193 takeoffs and landings and with 1,091,285 passengers enplaning and deplaning. The airport has been owned by the State since its construction in 1965. Grand Canyon Airport revenue for Fiscal Year 1999 amounted to $1 million. A $0.7 million construction project was completed at the Grand Canyon Airport during Fiscal Year 1999. This project included a water supply/distribution system. On May 12, 1999, Governor Hull signed House Bill 2374 which creates an Airport Authority for the Grand Canyon National Park Airport and brings to completion 35 years of operation by the Aeronautics Division of the Arizona Department of Transportation. The transition date was October 1, 1999. In addition, nearly 30,000 vehicle owners per month are renewing their vehicle registration on the Internet or by interactive voice response (IVR) on the telephone with the Division’s electronic service delivery system, ServiceArizona. This system has won industry awards and national recognition for its innovative use of technology to improve customer service. MVD is working to encourage even more customers to renew by mail, Internet, and IVR thereby avoiding a trip to a MVD office. During Fiscal Year 1999, MVD expanded the number of call centers, improving overall telephone wait time. The Department has made significant progress to become Year 2000 (Y2K) compliant. By November 1999, the Department will have brought all of its iv For the Future tax. This investment has been a powerful engine for economic growth in the region. 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 workforce with the skill sets to meet the changing needs of the Department. Between 2000 and 2007, the Department will spend an additional $1.6 billion to build new freeways in the Phoenix area. Planned construction is highlighted below: Pima Freeway (Loop 101) Pima Freeway from Loop 202 to 90th Street is open and construction is underway on the freeway north to Princess Drive. Motorists will be able to access the Pima Freeway at Shea Boulevard near the end of 1999. In the next two years, the Department will spend approximately $100 million to extend the Pima Freeway across the northern edge of the Valley, linking it with Interstate 17 and the Agua Fria Freeway. Price Freeway (Loop 101) Innovative Financing 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 in early 2001. The Price Freeway interchange with the Santan Freeway (Loop 101) is expected to be completed by the end of 2004. 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 has implemented several innovative financial mechanisms. These mechanisms include additional funding of the Highway Expansion and Extension Loan Program (HELP) and Grant Anticipation Notes. In addition the Department has been authorized to issue up to $300 million in Board Funding Obligations (BFO) over the next four years. Deposit of BFO monies into the HELP Fund will begin in late October 1999. Red Mountain Freeway (Loop 202) 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 Country Club Drive (SR 87), making it easier for motorists to reach the State’s rim country. Over the next six years, the Department will spend more than $550 million to complete the Red Mountain Freeway to the Superstition Freeway (US 60), which will serve the rapidly growing communities of the East Valley. Maricopa County Regional Freeway System Transportation serves a vital strategic role in regional development. A safe and efficient transportation system can further economic growth, enhance 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 fourteen-year period from Fiscal Year 1986 to 1999, ADOT has spent $3.5 billion on new regional freeway projects in the Phoenix area, financed largely with the 1985 voter approved transportation excise Squaw Peak Freeway (SR 51) The Squaw Peak Freeway recently opened to Bell Road, bringing the total number of open miles on this facility to eight. The remaining two miles are scheduled for completion by 2005. v Agua Fria Freeway (Loop 101) ADOT, Maricopa County, Valley cities and private industry launched the AZTech initiative to install technologies to detail current traffic conditions, ease congestion, alert drivers to delays and improve public transit operations. AZTech received a $7.5 million federal grant to help fund the $15 million project. In the fall of 1998, AZTech launched its first phase of deployment with the development of a regional traffic management system that coordinates traffic management and incident management activities among traffic, police and emergency services across the Valley of the Sun. During the fall of 1999, AZTech will complete its second phase of technology deployment by expanding its regional traffic management and traveler information systems. Valley cities are installing cameras, traffic signs and message signs on key surface street routes to monitor traffic conditions and make drivers aware of conditions ahead. New traveler information providers also will offer services through the Internet, in-car devices, pagers and e-mail. The northwest Valley has seen major strides toward the completion of the Agua Fria Freeway. Currently, 16 miles are open between Northern Avenue and Interstate 17. 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 spend an additional $100 million to complete the Agua Fria Freeway between Interstate 10 and Northern Avenue. South Mountain Freeway (Loop 202) The acceleration of the Regional Freeway System includes an early connection of the Interstate 10 / Santan / South Mountain interchange to the west that will connect to existing Pecos Road at 40th Street. An interim South Mountain Freeway connection between Pecos Road at 19th Avenue to Baseline Road near 59th Avenue is also planned to be complete by 2005, which will provide access to the Ahwatukee community, to and from the west. FINANCIAL INFORMATION Department management is responsible for establishing and maintaining internal control designed to help 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 control is 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 should not exceed the benefits likely to be derived; and 2) the valuation of costs and benefits requires estimates and judgments by Department management. Santan Freeway (Loop 202) Project development on the Santan Freeway, which is projected to cost approximately $730 million, is starting with the first project scheduled to begin construction in 2001 near Interstate 10. Completion of the Santan Freeway is targeted for 2007. The Santan Freeway will provide improved mobility to the rapidly growing southeast valley. Technology ADOT is considered a leader in the use of technology to improve traffic flow and keep drivers informed about freeway and highway conditions. Less congestion leads to safer freeways. As the Valley’s freeway system grows, so does the Department’s network of computer driven message boards and traffic flow detectors. The application of Intelligent Transportation Systems (ITS) allows ADOT technicians in the Department’s Traffic Operations Center in Phoenix to monitor traffic conditions and alert drivers to delays. Drivers can log on to ADOT’s main web site at www.dot.state.az.us or go directly to ADOT’s freeway management system at www.azfms.com for traffic information. 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 vi system July 1, 1998. This new system is Year 2000 compliant. the following major sources: fuel and motor carrier taxes, vehicle registration, title, license and related fees, intergovernmental revenues (primarily federal) and transfers from other state funds. 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 Projects Funds, and Expendable Trust Funds revenues and expenditures, respectively, for Fiscal Year 1999, and the amount and percent of increases or decreases in relation to the prior year’s amounts. Operating revenues from all governmental funds totaled $1,276.5 million during the Fiscal Year 1999, an increase of 23.4 percent from the preceding year. The increase in revenues can be attributed to increase in The increases in the vehicle registration, title, license and related fees were mainly due to the implementation of Senate Bill 1144, which sharply increased apportioned registration fees for motor carriers. The following is a summary of the Department’s governmental fund revenues. vii Schedule 1 Summary Statement of Revenues All Governmental Fund Types and Expendable Trust Funds Fiscal years ended June 30, 1999 and 1998 (Expressed in Millions) Percent 1999 Amount Revenues Fuel and Motor Carrier Taxes $ Percent of Total 298.4 23.4% 1998 Amount $ Percent of Total 273.8 26.5% Increase Increase from Prior Year from Prior Year $ 24.6 9.0% Vehicle Registration, Title, 250.1 19.6% 210.3 20.3% 39.8 18.9% Intergovernmental Revenue License and Related Fees 419.2 32.8% 284.0 27.5% 135.2 47.6% Transportation Excise Tax 229.5 18.0% 192.5 18.6% 37.0 19.2% Interest 34.4 2.7% 34.4 3.3% - Other 28.2 2.2% 31.0 3.0% <2.8> <9.0%> Transfers from Other State Funds 16.7 1.3% 8.5 0.8% 8.2 96.5% 1,276.5 100.0% 1,034.5 100.0% 242.0 23.4% Total Revenues $ $ $ - Summary Statement of Revenues 450.0 400.0 350.0 Millions of Dollars 300.0 250.0 200.0 150.0 100.0 50.0 Fuel and Motor Carrier Taxes Vehicle Registration Fees and Permits Intergovernmental Revenue 1998 1999 *Other revenues includes interest, transfers from other State funds and other. viii Transportation Excise Tax Other * Governmental and Expendable Trust Fund expenditures totaled $1,419.2 million during Fiscal Year 1999, a $295.0 million increase from the previous year. The largest increase in expenditures was $265.3 million for capital outlay. This increase is attributable to the Department’s acceleration of the completion of the freeway program by the year 2007. The total fund balance for governmental funds increased by $11.5 million or 2.2 percent to $534.3 million. The following is a summary of Governmental and Expendable Trust Funds expenditures. Schedule 2 Summary Statement of Expenditures All Governmental Fund Types and Expendable Trust Funds Fiscal years ended June 30, 1999 and 1998 (Expressed in Millions) Expenditures Appropriated by Legislature (Operating) Administration Highway Highway Maintenance Motor Vehicle Division Aeronautics Division Other 1999 Amount $ Total Appropriated Reimbursements & Other Debt service Capital Outlay Not Appropriated by Legislature Total Expenditures $ Percent of Total 44.7 42.0 79.3 70.4 2.2 1.4 3.1% 3.0% 5.6% 5.0% 0.1% 0.1% 240.0 52.0 226.9 881.6 18.7 16.9% 3.7% 16.0% 62.1% 1.3% 1,419.2 100.0% 1998 Amount $ $ Increase from Prior Year Percent of Total 43.9 41.4 76.6 63.1 9.4 1.2 3.9% 3.7% 6.8% 5.6% 0.9% 0.1% 235.6 61.1 199.9 616.3 11.3 21.0% 5.4% 17.8% 54.8% 1.0% 1,124.2 100.0% $ $ Percent Increase from Prior Year 0.8 0.6 2.7 7.3 <7.2> 0.2 1.8% 1.4% 3.5% 11.6% <76.6%> 16.7% 4.4 <9.1> 27.0 265.3 7.4 <14.9%> 13.5% 43.0% 65.5% 295.0 26.2% Summary Statement of Expenditures 1,000.0 900.0 800.0 Millions of Dollars 700.0 600.0 500.0 400.0 300.0 200.0 100.0 Total Appropriated Remibursements & Other 1998 ix Debt Service 1999 Capital Outlay 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 oddnumbered year. The first two-year budget was submitted in 1999 for Fiscal Years 2000 and 2001. During 1999 the Legislature appropriated $277.9 million for the Agency’s Operating Budget for FY 2000 and $288.3 million for FY 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 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. 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 is 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 must 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 Director of the Department is responsible for developing a Strategic Plan for the Department and for developing a Master 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 Master List shall similarly 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. As noted above, a Strategic Plan (as well as a Master List) complying with these requirements was completed September 1, 1999. 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 accounting system (ADVANTAGE) to ensure budgetary compliance and management control. These features include: encumbrance and preencumbrance 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. A legal limitation is adopted for capital outlay including land, building and improvements for the State Highway Fund, Aviation Fund, and Safety Enforcement and Transportation Infrastructure Fund. Any balances and collections in these three funds in excess of the specific amounts appropriated in the General Appropriations Act are appropriated to the Department. The Department monitors expenditures through an internal budgetary process and the fiveyear construction program approved by the Transportation Board. A legal limitation is not 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 such as for pay adjustments. The result is a detailed operating budget which guides the divisions and programs in their financial operation. x governmental funds and includes 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 Economic Strength Project Fund, and the Privilege Tax Fund. adopted for the other special revenue funds, the debt service funds, capital projects funds, proprietary funds and fiduciary funds. In addition, the Department’s Office of Strategic Planning and Budgeting staff 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 ADVANTAGE to project total year-end expenditures by organizational unit and highlight potential problem areas. The Office also reviews progress in meeting the Agency’s Key Objectives and Performance measurements monthly and makes recommendations for remedial changes as necessary. 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 1999 was $144 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, 1999, was actuarially computed to be 3.34 percent of covered payroll by an actuarial valuation performed at June 30, 1997. The contribution requirement for Fiscal Year 1999 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, 1999, the Department had $1.28 billion in outstanding bonds payable. This total included $153.4 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 $371.0 million in subordinated bonds. In addition, there is $419.0 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 $333.3 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 The bonds have been sold in 16 separate issues between 1986 and 1998. All bonds issued to date are scheduled to mature not later than July 1, 2011. The bonds are obligations of the Transportation Board xi 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 and Maricopa Transportation Excise Taxes. funds. This investment policy applies to all financial assets administered by the Department under statutory authority. The investment program has grown from a total of six funds in 1980 to 27 funds currently invested. The system has been computerized and several daily and monthly monitoring reports have been completed. An 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 Department has received the Investment Policy Certification of Excellence Award from the Municipal Treasurers’ Association of the United States and Canada. Of the $3.05 billion total in bonds issued between 1986 and 1998, $1.09 billion, or approximately 36 percent, have been refunding issues to lower debt service costs. These efforts have resulted in cumulative savings of $56.2 million in current dollar debt costs and $38.6 million on a present value basis. These savings provide additional funds for highway construction. The senior lien HURF bonds have been rated Aa1/AAA by Moody’s Investors Service and Standard & Poor’s Ratings Services (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 Aa2/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. Cash Management During Fiscal Year 1999, the Department earned $33.6 million in interest from its investment program. The interest was earned from investing 99.1 percent of the Department’s $593 million average cash balance during the year. An average yield of 5.5 percent was received on the Department’s investments during Fiscal Year 1999. 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 the handling of 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. 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 xii 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 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. 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 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. 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, 1998. This was the ninth consecutive year that the Department has achieved this prestigious award. In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. For Fiscal Year 1999, 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. 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. A Certificate of Achievement is valid for a period of one year only. We believe our current comprehensive annual financial report continues to meet the Certificate of Achievement Program‘s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. 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’s Single Audit information is included in the Single Audit of the State for the Fiscal Year ended June 30, 1999. 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 Fiscal Operations and Resource Management whose commitment, professionalism, and dedicated efforts contributed to the timely preparation of the Fiscal Year 1999 comprehensive annual financial report. A requirement of the Single Audit is to ensure that adequate internal control is in place and that the Sincerely, Mary E. Peters, Director Arizona Department of Transportation John E. McGee, Chief Financial Officer Financial Management Services xiii Arizona Department of Transportation List of Principal Officials Mary E. Peters Director Victor M. Mendez Deputy Director Sam Maroufkhani Chief of Staff Edward D. Wright State Engineer Intermodal Transportation Division Stacey K. Stanton Acting Assistant Director Motor Vehicle Division Mary Lynn Tischer, PhD Assistant Director Transportation Planning Division Gary Adams Assistant Director Aeronautics Division John E. McGee Chief Financial Officer Arizona State Transportation Board John I. Hudson, Chairperson Jerry C. Williams, Vice Chairperson F. Rockne Arnett Katie Dusenberry Ingo Radicke Bill Jeffers xiv District Six District Three District One District Two District Four District Five Burton S. Kruglick At Large xiv Arizona Department of Transportation Combined Balance Sheet - All Fund Types and Account Groups June 30, 1999 (With comparative totals at June 30, 1998) Proprietary Fund Type Governmental Fund Types Special Revenue Debt Service Capital Projects Enterprise Assets and other debits Assets: Cash and cash equivalents on deposit with the State Treasurer Receivables (net of allowance for uncollectibles): Subscriptions Notes and loans 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 Fixed assets - net of accumulated depreciation (Note 7) $ 388,083,287 $ 32,541,511 $ 18,770,317 $ 3,221,552 19,872,561 3,498,914 9,498,053 2,195,226 - 554,801 - 463,554 38,658 123,519 44,110,269 - - - 106,459,635 - 5,875,596 - 19,510,343 3,781,392 - - - 2,815,194 606,291 - - - 2,420,394 - - - - - - - - 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 $ 594,814,454 The notes to the financial statements are an integral part of this statement. 2 $ 34,736,737 $ 25,200,714 $ 9,689,162 Exhibit 1 $ $ Proprietary Fund Type Fiduciary Fund Types Internal Service Trust and Agency 5,330,106 $ Totals (Memorandum Only) Account Groups General Long-Term Debt General Fixed Assets 102,373,703 $ - $ 1999 - $ 550,320,476 1998 $ 521,356,669 43,107 87,503 472,646 165,884,710 555,167 - - 463,554 19,872,561 6,803,352 165,884,710 10,264,242 185,854 15,335,744 8,885,657 136,304,460 7,264,089 - 1,865,536 - - 45,975,805 31,047,913 1,775,347 45,670,690 - - 159,781,268 114,628,380 20,254 2,560,838 - 376,534 - - - 19,907,131 9,157,424 606,291 18,710,907 9,392,775 321,228 35,321,018 - 191,511,390 - 229,252,802 222,340,667 - - - 34,736,737 34,736,737 27,965,269 - - - 1,231,428,357 1,231,428,357 1,239,003,546 45,138,173 $ 317,198,986 $ 191,511,390 $ 1,266,165,094 3 $ 2,484,454,710 $ 2,352,743,158 Arizona Department of Transportation Combined Balance Sheet - All Fund Types and Account Groups June 30, 1999 (With comparative totals at June 30, 1998) Proprietary Fund Type Governmental Fund Types Special Revenue Debt Service Capital Projects Enterprise Liabilities, equity and other credits Liabilities: Construction contracts payable Accounts payable Accrued payroll and other accrued expenditures/expenses 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 Federal arbitrage rebate 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: Highway construction Inventories Unreserved, undesignated Total equity and other credits Total liabilities, equity and other credits $ 64,170,642 24,642,881 $ - $ 8,463,402 6,772,019 $ 246,241 8,529,429 - - 237,845 10,241,346 - - 1,675,635 - 1,808 - 253,972 1,356,397 109,194,667 - 16,911,056 4,257,611 4,743,505 - - - 1,538,698 - - - - 3,406,959 223,429,128 3,781,392 258,409,267 485,619,787 34,736,737 34,736,737 8,289,658 8,289,658 4,945,657 594,814,454 The notes to the financial statements are an integral part of this statement. 4 $ 34,736,737 $ 25,200,714 $ 9,689,162 Exhibit 1 $ $ Proprietary Fund Type Fiduciary Fund Types Internal Service Trust and Agency 563,025 $ Totals (Memorandum Only) Account Groups General Long-Term Debt General Fixed Assets 1,961,246 6,148,773 $ - $ 1999 - $ 74,595,290 38,372,939 1998 $ 47,622,529 28,216,000 908,896 - - - 9,676,170 9,197,316 - 147,862,479 1,692,500 - - 159,781,268 1,692,500 114,628,380 1,562,500 1,471,921 151,770,235 2,109,581 311,544,814 - 1,257,491,710 443,175 8,230,209 1,266,165,094 152,024,207 4,257,611 2,109,581 1,356,397 1,257,491,710 443,175 8,230,209 1,710,031,057 122,933,879 4,366,877 2,287,641 1,257,155,705 1,908,665 7,904,445 1,597,783,937 6,106,640 - - 191,511,390 - 7,645,338 191,511,390 8,145,338 182,505,056 9,985,210 27,574,402 - - - 9,985,210 30,981,361 9,985,210 31,539,758 43,666,252 5,654,172 5,654,172 191,511,390 - 272,109,695 3,781,392 258,409,267 774,423,653 67,319,438 4,249,661 451,214,760 754,959,221 45,138,173 $ 317,198,986 $ 191,511,390 $ 1,266,165,094 5 $ 2,484,454,710 $ 2,352,743,158 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, 1999 (With comparative totals for the fiscal year ended June 30, 1998) 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 State match Reimbursements from Arizona counties, cities and other state agencies State appropriations Interest on loans receivable Interest Other Total revenues $ 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 Bond issuance cost Federal arbitrage rebate Distributions to Arizona counties, cities and other state agencies Other Total expenditures Excess of revenues over expenditures Other financing sources : Proceeds from sale of bonds Proceeds from refunding bonds Payment to refunded bond escrow agent 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 30 229,470,201 250,120,838 298,393,657 $ $ Capital Projects - $ Totals (Memorandum Only) 1999 - $ 229,470,201 250,120,838 298,393,657 1998 $ 192,518,877 210,369,491 273,805,897 354,209,698 47,254,925 24,794 - - 17,747,416 - 371,957,114 47,254,925 24,794 263,846,604 20,135,794 - 14,879,540 868,443 28,798 22,259,947 27,912,195 1,245,423,036 7,648,833 7,648,833 4,439,936 71,525 4,511,461 917,414 233,225 18,898,055 15,796,954 868,443 28,798 34,348,716 28,216,945 1,276,481,385 4,689,062 3,815,900 34,381,636 30,967,590 1,034,530,851 240,049,735 18,698,801 - - - 240,049,735 18,698,801 235,571,745 11,294,362 705,454,365 - 148,241,265 16,114,005 869,809,635 602,955,140 11,488,854 282,248 - - - 11,488,854 282,248 12,810,323 537,526 12,500,000 - - - 12,500,000 15,000,000 6,527,900 - - - 6,527,900 800,000 6,364,000 1,356,397 150,570,000 74,341,597 659,778 - - - - - 150,570,000 74,341,597 659,778 1,356,397 126,170,000 73,777,474 - 32,854,388 1,029,212,688 114,023 225,685,398 1,989 148,243,254 16,114,005 32,854,388 116,012 1,419,255,345 38,817,595 111,664 1,124,209,829 216,210,348 <218,036,565> <143,731,793> 2,784,050 <142,773,960> <89,678,978> 282,248 43,771,485 28,825,844 <27,390,000> 226,501,081 152,572,363 - - 152,572,363 28,825,844 <27,390,000> 282,248 270,272,566 537,526 199,982,291 <226,501,081> <40,062,960> <222,510,308> <3,128,892> 224,808,033 <550,912> 152,021,451 <226,501,081> <43,771,485> 154,290,455 <191,417,408> <8,564,883> 537,526 6,771,468 8,289,658 11,516,495 <89,141,452> <6,299,960> $ - Fiduciary Fund Types Expendable Trust 491,919,747 485,619,787 $ 27,965,269 34,736,737 The notes to the financial statements are an integral part of this statement. 6 $ 8,289,658 <28,721> <28,721> 2,755,329 $ 2,898,843 5,654,172 $ 522,783,859 534,300,354 $ 611,925,311 522,783,859 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, 1999 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 $ Expenditures appropriated by State legislature in 1999 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 Year 2000 Projects Expenditures appropriated by State legislature by carryover of previous years' unexpended budgets Total expenditures Excess of revenues over expenditures $ 239,754,500 282,716,300 2,249,500 7,489,400 1,052,300 1,400 533,263,400 Variance Favorable Actual Non-GAAP $ 208,093,913 285,062,844 2,249,440 7,489,832 1,052,368 1,356 503,949,753 $ <31,660,587> 2,346,544 <60> 432 68 <44> <29,313,647> 45,427,600 41,911,700 80,754,752 69,809,400 1,691,500 43,200 81,400 44,536,442 41,080,938 79,341,857 67,865,562 1,637,055 42,765 65,978 891,158 830,762 1,412,895 1,943,838 54,445 435 15,422 239,719,552 234,570,597 5,148,955 15,704,036 46,900 11,464,101 46,900 4,239,935 - 12,500,000 6,527,900 12,500,000 6,527,900 - 1,061,581 275,559,969 496,088 265,605,586 565,493 9,954,383 257,703,431 The notes to the financial statements are an integral part of this statement. 7 $ 238,344,167 $ <19,359,264> 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, 1999 (With comparative totals for the fiscal year ended June 30, 1998) Totals (Memorandum Only) 1999 1998 Proprietary Fund Types Enterprise Internal Service Operating revenues: Equipment rentals Warehouse supply billings Equipment sales Magazine sales Sales of related products Other Total operating revenues $ Operating expenses: Equipment operations Warehouse operations Cost of sales General and administrative Depreciation Total operating expenses 6,039,340 4,269,466 607,749 10,916,555 $ 10,133,092 1,225,226 358,265 11,716,583 Operating income 24,289,009 165,711 3,396,663 27,851,383 $ 20,469,378 203 6,663,738 27,133,319 24,289,009 165,711 6,039,340 4,269,466 4,004,412 38,767,938 $ 20,469,378 203 10,133,092 1,225,226 7,022,003 38,849,902 24,246,642 56,555 227,707 6,041,695 4,443,666 3,566,351 38,582,616 21,743,066 99,446 9,664,662 1,251,233 6,749,123 39,507,530 <800,028> 718,064 <81,964> <924,914> Non-operating revenues : Interest Loss on sale/disposal of fixed assets Total non-operating revenues 227,854 169,448 397,302 511,625 <279,989> <52,135> <93,746> 75,702 <373,735> 23,567 <181,906> 329,719 Income before Legislative transfer Legislative transfer out <852,163> - 793,766 <500,000> <58,397> <500,000> <595,195> - Net income <852,163> 293,766 <558,397> <595,195> Retained earnings, July 1 Retained earnings, June 30 $ 4,259,122 3,406,959 $ The notes to the financial statements are an integral part of this statement. 8 37,265,846 37,559,612 $ 41,524,968 40,966,571 $ 42,120,163 41,524,968 Exhibit 5 Arizona Department of Transportation Combined Statement of Cash Flows All Proprietary Fund Types For the fiscal year ended June 30, 1999 (With comparative totals for the fiscal year ended June 30, 1998) Totals (Memorandum Only) 1999 1998 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 $ 358,265 9,330 <43,299> <285,063> 58,554 2,464 Cash flows from capital and related financing activities: Acquisition of fixed assets Proceeds from sale of fixed assets Reduction of contributed capital Legislative transfer out Net cash used for capital and related financing activities Cash flows from investing activities: Interest Net cash provided by investing activities $ <81,964> $ <924,914> 6,663,738 7,022,003 6,749,123 187,662 93,910 39,519 <189,619> <239,063> 187,662 93,910 48,849 <232,918> <285,063> <180,509> <229,610> 29,510 <153,565> <143,144> <44,670> <52,369> 80,995 83,459 51,119 <503> <109,266> <23,998> 2,306 - <809,546> 7,355,206 6,545,660 5,259,788 <224,214> <500,000> - <5,525,953> 448,628 <500,000> <5,750,167> 448,628 <500,000> <500,000> <8,472,778> 437,129 - <724,214> <5,577,325> <6,301,539> <8,035,649> <1,258,522> $ 718,064 <503> <109,266> 275,238 275,238 Net increase in cash and cash equivalents Cash and cash equivalents, July 1 Cash and cash equivalents, June 30 <800,028> $ 4,480,074 3,221,552 The notes to the financial statements are an integral part of this statement. 9 $ 185,430 185,430 460,668 460,668 1,963,311 704,789 3,366,795 5,330,106 $ 7,846,869 8,551,658 503,250 503,250 <2,272,611> $ 10,119,480 7,846,869 Arizona Department of Transportation Notes to Financial Statements June 30, 1999 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reporting entity 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 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 seven-member 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 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 Financial Services Division of the Arizona Department of Administration controls expenditures and adherence to annual budgets . The State Treasurer invests the cash balances of the Department. 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. Fund accounting 10 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1999 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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, Safety Enforcement and Transportation Infrastructure Fund, Highway Expansion and Extension Loan Program 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. projects fund of the Department is the Maricopa 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. 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 Revolving Fund and the Warehouse Revolving Fund. 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 11 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1999 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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 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, Economic Strength Project Fund, and Privilege Tax Fund. 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. ACCOUNT GROUPS 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 are used to establish accounting control and accountability for the Department’s general fixed assets and unmatured principal of its general long-term debt. General Fixed Assets - Fixed assets used in governmental fund type operations are accounted for in the General Fixed Assets Account Group rather than in governmental funds. 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. 12 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1999 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Budgets and budgetary accounting 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. Most State appropriations lapse at year-end. Biennial budgets for the operating expenditures and capital outlay including land, building and improvements for the State Highway Fund, Aviation Fund, Safety Enforcement and Transportation Infrastructure Fund, Air Quality and General 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 all other operating expenditures are specifically budgeted within most divisions. In certain divisions, other specific programs are budgeted in addition to these categories. Revenue budgets are developed internally by the Department and are not a part of the appropriation process. For financial reporting purposes, the accompanying financial statements present the legally adopted budget for those operations subject to legislative appropriation. A legal limitation is adopted for capital outlay including land, building and improvements for the State Highway Fund, Aviation Fund, and Safety Enforcement and Transportation Infrastructure Fund. Any balances and collections in these three funds in excess of the specific amounts appropriated in the general appropriations act are appropriated to the Department. The Department monitors expenditures through an internal budgetary process and the fiveyear construction program approved by the Transportation Board. A legal limitation is not adopted for the other special revenue funds, the debt service funds, capital projects funds, proprietary funds and fiduciary funds. Amendments to the approved appropriations require Legislative approval. However, since the Department's appropriation is a lump sum appropriation by program, the allocation of funds between personal services, employee-related expenses, and other operating expenses is an internal decision for the program manager. Accordingly, transfers between line items such as personal services and other operating expenses within a particular program may be done by the program manager. Transfers of funds between programs require the approval of the Joint Legislative Budget Committee. Absent an amendment to the Department's appropriated amount by the full legislature, expenditures may not exceed appropriations. 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 yearend. Accordingly, no reserve for encumbrances is reflected in the accompanying financial statements. All transfers of funds are reported to the Department’s Office of Strategic Planning and Budgeting for monitoring purposes. 13 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1999 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Application of FASB pronouncements to proprietary activities Financial Reporting for Certain Investments and for External Investment Pools. 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, first-out (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 fair value. 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. State statutes require the State Treasurer to maintain separate investment accounts for the portions of the highway bond proceeds fund relating to the highway revenue bond issues and the Maricopa Regional Area Road Bond Fund relating to the transportation excise tax revenue bond issues. These funds may be invested primarily in obligations of the U.S. Government. 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 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. Fixed assets 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 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 14 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1999 is provided using the straight-line method based on estimated useful life as follows: 15 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1999 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) associated with the procurement of subscriptions are expensed in the year incurred. Buildings 40 years Buildings improvements 20 years Furniture and fixtures Mobile equipment Long-term obligations 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. Shop tool, office and computer equipment and software 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 Effective July 1, 1998, State employees are eligible to receive payment for an accumulated sick leave balance of 500 hours or more with a maximum of 1,500 hours, upon retirement directly from State service. The benefit value is calculated by taking the State hourly rate of pay at the retirement date, multiplied by the number of sick hours at the retirement date times the eligibility percentage. The eligibility percentage varies based upon the number of accumulated sick hours from 25 percent for 500 hours to a maximum of 50 percent for 1,500 hours. The maximum benefit value is $30,000. The benefit is paid out in annual installments over three years. The Retiree Accumulated Sick Leave Fund is accounted for on the State’s financial statements as an Expendable Trust Fund. As of June 30, 1999, Department employees had accumulated $26,020,885 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 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 debt service expenditures in the appropriate fund as incurred. Deferred revenue 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 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 16 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1999 expenditures/expenses.” For governmental funds, the portion of the vacation normally taken in the first 17 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1999 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Transactions between funds 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 LongTerm 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. 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, 1999. 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 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 claims processing and treasury services) without cost from other Arizona state agencies. Certain services, including accounting and investment services and claims, are furnished to certain funds by various other funds of the Department without charge. 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 the Department. The internal service funds pay the costs of repairs and maintenance of those facilities, but no rental charges are made to the funds for the use thereof. The Arizona Highways Magazine Fund provides promotional magazines to other Arizona state agencies without charge. 18 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1999 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Loan losses and revenue Memorandum and comparative totals 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.” Total columns for 1999 and 1998 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. Use of estimates The preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Reclassifications Certain 1998 amounts have been reclassified to conform to the 1999 presentation. NOTE 2. BUDGET BASIS OF ACCOUNTING 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 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. 19 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1999 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, 1999, 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 2,458,189 <53,186,179> <50,727,990> Perspective differences Revenues and other financing sources not recognized on budget basis: 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 Debt service transfer out Other operating transfers out Total perspective differences Entity differences Less excess of revenues over expenditures for funds for which no annual budgets are prepared Excess of revenues over expenditures — budget basis 20 <6,299,960> <354,209,698> <13,097,447> <2,694,452> <868,443> <10,992,565> <16,774,282> <282,248> <2,783,180> 18,666,099 554,026,432 282,248 25,715,577 74,192,405 39,142,131 310,322,577 $ <14,950,460> 238,344,167 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1999 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 $266,459,547 9,100,422 Revised Budget $275,559,969 NOTE 3. SECURITIES HELD IN LIEU OF RETENTION 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, 1999, the Trustee held assignment on securities aggregating $18,894,034, $6,201,565 and $29,327 in lieu of contractor retentions for construction in the special revenue funds, capital projects funds, and expendable trust funds, respectively. Additional securities aggregating $210,059 were on deposit but not assigned to a specific project. These additional securities are not reflected in the accompanying financial statements. NOTE 4. RESTRICTION OF USE OF THE STATE HIGHWAY FUND CASH 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 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, 1999, approximately $61,700,000, including interest, of the fund balance was reserved representing such unspent monies. NOTE 5. NOTES RECEIVABLE Notes receivable represent real estate mortgage loans made to individuals purchasing homes previously owned by the Department for highway construction purposes . The loans were made at a fixed rate and mature ten years from the date of origination. 21 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1999 NOTE 6. INTERFUND RECEIVABLES AND PAYABLES A summary of interfund receivables and payables at June 30, 1999, 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 Safety Enforcement and Transportation Infrastructure Fund Highway Expansion & Extension Loan Program Fund Maricopa Regional Area Road Construction Fund Motor Vehicle Liability Insurance Enforcement Fund Vehicle Inspection and Title Enforcement Fund Total Special Revenue Funds Capital Projects Fund: Maricopa Regional Area Road Bond Proceeds Fund Enterprise Fund: Arizona Highways Magazine Fund Internal Service Funds: Equipment Revolving Fund Agency Funds: Motor Vehicle Division Clearing Fund Highway User Revenue Fund Underground Storage Tank Fund Total Agency Funds Total All Funds 22 $ Interfund Payables 97,617,821 5,862,433 103,480,254 $ 4,360,583 4,360,583 74,323 120,863 500,000 2,092,211 104,054 87,930 106,459,635 313 1,094 5,875,797 2,622 937 10,241,346 5,875,596 1,675,635 - 1,808 1,775,347 - 27,420 42,288,533 3,354,737 45,670,690 50,217,237 97,645,242 147,862,479 $ 159,781,268 $ 159,781,268 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1999 NOTE 7. FIXED ASSETS A summary of changes in general fixed assets follows: Balance July 1, 1998 Land Buildings and improvements Improvements other than buildings Machinery and equipment Total General Fixed Assets $ $ Additions 8,657,685 102,113,393 30,143,274 41,590,704 182,505,056 $ $ 2,205,387 7,994,527 1,003,986 4,536,897 15,740,797 Balance June 30, 1999 Disposals $ $ - $ <61,000> <6,673,463> <6,734,463> $ 10,863,072 110,107,920 31,086,260 39,454,138 191,511,390 A summary of proprietary fund fixed assets at June 30, 1999, follows: Enterprise Fund Land Buildings Furniture and fixtures Shop tools, office and computer equipment and software Mobile equipment $ Less accumulated depreciation Total Proprietary Fund Fixed Assets $ 7,900 981,157 333,760 2,861,893 10,059 4,194,769 <1,774,375> 2,420,394 Internal Service Funds $ $ NOTE 8. FUND EQUITY Fund equity for the proprietary funds consists of the following: Enterprise Fund: Contributed Capital Balance, July 1, 1998 Reduction of contributed capital Net income Balance, June 30, 1999 Arizona Highways Magazine Fund Retained Totals Earnings 1999 1998 $ 2,038,698 $ 4,259,122 $ 6,297,820 $ 6,186,887 <500,000> <500,000> <852,163> <852,163> 110,933 $ 1,538,698 $ 3,406,959 $ 4,945,657 $ 6,297,820 23 2,297,446 95,508,796 97,806,242 <62,485,224> 35,321,018 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1999 NOTE 8. FUND EQUITY (Continued) Internal Service Funds: Equipment Revolving Fund Balance, July 1, 1998 Net income Balance, June 30, 1999 Contributed Capital Reserved Retained Earnings Unreserved Retained Earnings Total Fund Equity $ 5,793,237 $ 5,793,237 $ 9,985,210 $ 9,985,210 $ 27,350,542 277,499 $ 27,628,041 $ 43,128,989 277,499 $ 43,406,488 Warehouse Revolving Fund Contributed Retained Total Capital Earnings Fund Equity Balance, July 1, 1998 Net income Balance, June 30, 1999 $ $ 313,403 313,403 $ $ <69,906> $ 16,267 <53,639> $ 243,497 16,267 259,764 Totals Internal Service Funds 1999 1998 Balance, July 1, 1998 Net income $ 43,372,486 293,766 $ 44,078,614 <706,128> Balance, June 30, 1999 $ 43,666,252 $ 43,372,486 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 capital represents contributions from the State Highway Fund of $38,698 and $2,000,000 during 1991 and 1990, respectively less a reduction of $500,000 in the current fiscal year. 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. 24 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1999 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, 1999: Balance July 1, 1998 Bonds: 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 Transportation Excise Tax Revenue Bonds 1988 Series A, Capital Appreciation 1989 Series A, Subordinated 1991 Series A 1992 Series A, Refunding 1992 Series B 1993 Series, Subordinated Refunding 1995 Series A, Subordinated 1995 Series B, Subordinated, Refunding 1998 Series A Total Bonds Payable Other long-term liabilities: Contracts and capital leases payable Long-term accrued vacation leave Total General Long-Term Debt $ 25,985,000 21,905,000 Additions $ Amortization of Discount Retirements - $ 8,425,000 - $ - Balance June 30, 1999 $ 17,560,000 21,905,000 71,395,000 36,560,000 137,280,000 - 22,430,000 1,470,000 - 48,965,000 36,560,000 135,810,000 240,025,000 - 11,480,000 - 228,545,000 35,000,000 - - - 35,000,000 50,135,705 - - 3,751,005 53,886,710 76,710,000 13,100,000 181,700,000 18,600,000 - 51,090,000 4,100,000 16,515,000 2,265,000 - 25,620,000 9,000,000 165,185,000 16,335,000 138,795,000 103,285,000 - 8,200,000 12,645,000 - 130,595,000 90,640,000 106,680,000 - 174,545,000 20,240,000 19,100,000 - 86,440,000 155,445,000 1,257,155,705 174,545,000 177,960,000 3,751,005 1,257,491,710 1,908,665 282,248 1,747,738 - 443,175 7,904,445 $ 1,266,968,815 325,764 $ 175,153,012 $ 179,707,738 $ 3,751,005 8,230,209 $ 1,266,165,094 25 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1999 NOTE 9. GENERAL LONG-TERM DEBT (Continued) Bonds payable 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 $21,500,000 in 2002 through 2004 with the balance of $8,500,000 due in 2005. Bonds payable at June 30, 1999, are comprised of the following individual issues: 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% 6.0% - 6.1% 6.1% - 8.0% 4.7% - 5.3% 4.2% - 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, 1999 $ Total Highway Revenue Bonds 17,560,000 21,905,000 48,965,000 36,560,000 135,810,000 228,545,000 35,000,000 524,345,000 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, Refunding 1995 Series A, Subordinated 1995 Series B, Subordinated, Refunding 1998 Series A 7.3% - 7.5% 7.0% 6.0% - 6.1% 5.2% - 5.8% 5.2% - 5.8% 4.2% - 5.6% 4.5% - 6.5% 4.4% - 6.5% 3.9% -5.0% 7/1/05 7/1/00 7/1/01 7/1/05 7/1/05 7/1/05 7/1/05 7/1/05 7/1/05 53,886,710 25,620,000 9,000,000 165,185,000 16,335,000 130,595,000 90,640,000 86,440,000 155,445,000 Total Transportation Excise Tax Revenue Bonds 733,146,710 Total Bonds Payable $ The Highway Revenue Bonds are secured by a prior lien on and a pledge of motor vehicle and related fuel fees and taxes of the State Highway Fund, a special revenue fund. Arizona Revised Statutes prohibit the 1,257,491,710 total principal amount of Arizona Highway Revenue Bonds, excluding refunded bonds, from exceeding $800,000,000. 26 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1999 NOTE 9. GENERAL LONG-TERM DEBT (Continued) The Transportation Excise Tax Revenue Bonds are secured by transportation excise taxes collected by the Arizona Department of Revenue on behalf of Maricopa County. 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. Bonds aggregating $405,800,000 ($240,585,000 of Highway Revenue Bonds and $165,215,000 of Transportation Excise Tax Revenue Bonds, respectively) 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 $870,805,000 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, 1999, the carrying basis was $53,886,710. At maturity on July 1, 2005, the carrying basis will equal the maturity amount of $73,000,000. 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. 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 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, 1999) 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 MBIA Insurance Corporation, and the 1995 Series A and Series B Subordinated Bonds policies which were issued by AMBAC Assurance Corporation. These policies are noncancelable and insure payment, up to the policy amount, of the bond interest on their 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 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 27 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1999 NOTE 9. GENERAL LONG-TERM DEBT (Continued) service payments on the old and new debt) of $711,337. Future debt service requirements of bonds outstanding at June 30, 1999, are as follows: Fiscal Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Highway Revenue Bonds Principal Interest $ 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 $ 524,345,000 $ Transportation Excise Tax Revenue Bonds Principal Interest 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 $ 111,810,000 108,365,000 124,400,000 130,135,000 135,675,000 141,875,000 $ 190,949,176 $ Total Principal 36,430,161 30,334,143 24,837,253 19,106,893 13,564,910 7,364,226 $ - - - - - - - - - - 157,540,000 156,030,000 157,740,000 165,085,000 172,765,000 181,180,000 41,505,000 43,840,000 46,035,000 48,680,000 51,685,000 54,520,000 $ 752,260,000 $ 131,637,586 $ 1,276,605,000 Interest $ 65,102,871 56,384,139 48,116,331 40,763,661 33,081,100 24,670,770 15,102,204 12,770,796 10,575,076 7,936,164 5,458,950 2,624,700 $ 322,586,762 Refunding bonds 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, 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. 28 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1999 NOTE 9. GENERAL LONG-TERM DEBT (Continued) Refunded bonds of the Department outstanding at June 30, 1999, are as follows: Original Issue Date Balance Outstanding Type 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 Total refunded bonds outstanding 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 $ 48,275,000 32,170,000 141,260,000 149,235,000 52,350,000 32,255,000 43,300,000 Transportation Excise Tax Revenue Bonds Transportation Excise Tax Revenue Bonds Transportation Excise Tax Revenue Bonds Transportation Excise Tax Revenue Bonds 96,290,000 8,357,596 153,855,000 19,645,000 $ 776,992,596 Contracts and capital leases payable 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 three year lease with a two year lease extension. This lease was terminated in December 1998. At June 30, 1999, remaining annual fiscal payments for the purchase contracts were as follows: 2000 $ 117,338 2001 112,439 2002 107,376 2003 88,352 2004 17,670 $ Total outstanding 29 443,175 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1999 NOTE 10. OPERATING LEASES 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, 1999, approximated $3,625,000. 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, 1999, is as follows: State Highway Fund Arizona Highways Magazine Fund Other Total operating leases $ $ 24,146,541 24,439 118,029 24,289,009 NOTE 11. RETIREMENT PLANS 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. Central Avenue, P. O. Box 33910, Phoenix, Arizona 85067-3910 or by calling (602) 240-2000 or (800) 6213778. Arizona Revised Statues provide statutory authority for employee and employer contributions. The employee and employer contribution rate for the year ended June 30, 1999, was computed to be 3.34 percent of covered payroll by an actuarial valuation performed at June 30, 1997. Contributions for the years ended June 30, 1997, 1998 and 1999 were $4,600,690, $4,668,911 and $4,705,156, 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 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 would be covered by the self-insurance program. Accordingly, the Department has no risk of loss beyond adjustments to future years’ premium 30 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1999 NOTE 12. CONTINGENT LIABILITIES (Continued) 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. mileage) paid to the State (the “Disputed Revenues”). Several trucking companies have additionally filed refund claims. The claimants assert that the applicable statutes at the time did not permit the State to collect Disputed Revenues for certain tax years prior to 1997 relating to travel on state maintained roads crossing Federal lands. The Arizona Legislature subsequently clarified the statutes in 1997. The State filed its notice of appeal to the Arizona Court of Appeals on September 3, 1999. The Department disputes the claimants’ interpretation of the applicable statutes and intends to assert a vigorous defense. However, if the plaintiff in the Hurley case were to prevail, the maximum potential amount of the claim is difficult to predict with certainty because the amount of each claim would vary based on the nature of the actual roads used and mileage of each claimant. If the plaintiff were to prevail on both counts and all existing claimants were to receive a lump sum payment in a single fiscal year, the Department does not believe that the maximum potential payment from the Arizona Highway User Revenue Fund would reduce the amount of State Highway Fund revenues by more than ten percent (10%) for the single fiscal year in which such payments were made. Grants 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. 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 construction contracts were approximately $754,710,000 at June 30, 1999. On August 5, 1999, in Hurley Trucking Co., Inc. v. State, the Tax Court of the State ruled in favor of a refund claim for motor vehicle use fuel (diesel) taxes and motor carrier taxes (based on vehicle weight and NOTE 13. SUBSEQUENT EVENTS On July 21, 1999, the Department issued $124,695,000 in Transportation Excise Tax Revenue Bonds (1999 Series) to (i) advance refund portions of the Transportation Board’s outstanding Senior 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 31 Arizona Department of Transportation Notes to Financial Statements (Continued) June 30, 1999 of issuing the 1999 Series Bonds. The 1999 Series Bonds are due July 1, 2000 through 2005. Net proceeds totaled $126,690,457 (after receipt of $2,112,418 of reoffering premium and payment of NOTE 13. SUBSEQUENT EVENTS (Continued) $116,961 in underwriting fees). Net proceeds of $4,711,545 were used to advance refund $4,640,000 of the 1991 Series A, Senior 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 two years by $57,463 and to obtain an economic gain (difference between the present values of the debt service payments on the old and new debt) of $55,927. Bonds and Subordinated Bonds and (iii) pay costs of issuing the 1999 Series Bonds. The 1999 Series Bonds are due July 1, 2001 through 2019. Net proceeds totaled $151,926,437 (after receipt of $1,781,810 of reoffering premium and payment of $935,373 in underwriting fees). Net proceeds of $21,408,821 were used to advance refund $9,065,000 of the Senior Series 1990 Bonds and $11,410,000 of the Subordinated 1991 Series A 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 $491,359 and to obtain an economic gain (difference between the present values of the debt service payments on the old and new debt) of $407,420. On November 16, 1999, the Department issued $151,080,000 in Highway Revenue Bonds (Series 1999) to (i) finance portions of the Transportation Board’s five year capital program, (ii) advance refund portions of the Transportation Board’s outstanding Senior 32 Arizona Department of Transportation Required Supplementary Information June 30, 1999 Year 2000 Issue 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 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 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 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, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes and similar uncertainties. 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. Reimbursements for certain construction expenditures are received from the Federal government, Arizona cities and counties, and other state agencies. The fund also receives interest 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 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 Highway Expansion and Extension Loan Program Fund is an innovative financing mechanism to administer funds designated to provide loan and credit enhancement assistance to sponsors of local transportation projects. 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 vehicle transporting hazardous materials, substances or wastes. The Motor Vehicle Liability Insurance Enforcement Fund receives fees and interest to administer the Mandatory Liability Insurance Program. The Vehicle Inspection and Title Enforcement Fund are monies for continuing appropriation to be use 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 June 30, 1999 (With comparative totals at June 30, 1998) Budgeted State Highway Fund Assets Cash and cash equivalents on deposit with the State Treasurer Receivables: Notes and loans 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 Total assets Liabilities and fund balances Liabilities: Construction contracts payable Accounts payable Accrued payroll and other accrued expenditures Federal arbitrage rebate 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 Unreserved, undesignated Total fund balances Total liabilities and fund balances $ $ $ $ 212,960,362 $ State Aviation Fund Safety Enforcement and Transportation Infrastructure Fund Highway Expansion and Extension Loan Program Fund 27,089,438 $ $ 3,435,079 37,600,370 Maricopa Regional Area Road Construction Fund $ 106,024,818 1,915,867 8,166,891 6,174,211 414,017 422,473 25,527 - 7,796,171 420,050 - 5,902,179 723,453 837,648 42,356,808 - - - 1,753,461 103,480,254 74,323 120,863 500,000 2,092,211 3,781,392 372,661,574 34,174,462 3,581,469 46,316,591 19,510,343 136,844,113 52,932,589 20,569,810 $ $ 869,960 $ $ 78,861 $ $ - $ $ 11,238,053 2,982,940 8,423,376 - 61,118 - 6,591 - - 5,005 1,356,397 4,360,583 313 1,094 - 5,875,797 253,972 86,540,330 931,391 86,546 - 21,458,192 61,726,616 3,781,392 220,613,236 286,121,244 372,661,574 33,243,071 33,243,071 34,174,462 3,494,923 3,494,923 3,581,469 46,316,591 46,316,591 46,316,591 115,385,921 115,385,921 136,844,113 $ 32 $ $ $ Exhibit A-1 Motor Carrier Safety Revolving Fund Motor Vehicle Vehicle Liability Inspection Insurance and Title Enforcement Enforcement Fund Fund $ $ $ $ $ 76,394 Totals 1999 388,826 $ 508,000 - 71,041 - 19,872,561 3,498,914 9,498,053 15,335,744 5,543,277 6,086,061 - - - 44,110,269 28,756,975 - 104,054 87,930 106,459,635 79,016,288 76,394 563,921 $ 595,930 $ 19,510,343 3,781,392 594,814,454 18,107,227 4,249,661 570,688,386 $ $ - $ $ 54,184 87,126 $ 388,083,287 1998 64,170,642 24,642,881 $ $ $ 413,593,153 44,873,314 21,194,028 1,281 - - 32,058 - 8,529,429 1,356,397 8,134,034 - - 2,622 937 10,241,346 2,718,189 1,281 56,806 120,121 253,972 109,194,667 1,849,074 78,768,639 75,113 75,113 76,394 507,115 507,115 563,921 475,809 475,809 $ 595,930 223,429,128 3,781,392 258,409,267 485,619,787 594,814,454 182,661,840 4,249,661 305,008,246 491,919,747 570,688,386 $ $ $ 33 Arizona Department of Transportation Special Revenue Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances For the fiscal year ended June 30, 1999 (With comparative totals for the fiscal year ended June 30, 1998) 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 State match Reimbursements from Arizona counties, cities and other state agencies State appropriations Distributions from agency funds Interest on loans receivable Interest Flight property tax Grand Canyon Airport 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 Federal arbitrage rebate $ Safety Enforcement and Transportation Infrastructure Fund State Aviation Fund - $ - $ - Highway Expansion and Extension Loan Program Fund $ - Maricopa Regional Area Road Construction Fund $ 229,470,201 242,091,224 297,803,534 2,582,594 590,123 3,370,803 - - - 354,209,698 6,819,799 - 6,277,648 - - 5,567,176 24,794 28,590,302 - 2,694,452 868,443 10,992,565 16,774,282 932,253,997 2,025,514 7,489,832 1,052,578 24,726 20,043,015 105,002 3,475,805 28,798 2,661,772 8,282,540 12,185,088 6,475,094 2,570,777 279,291,462 44,648,035 42,034,947 79,304,434 67,143,631 1,388,360 2,235,913 - 791,699 - - - 234,519,407 2,235,913 791,699 - - 18,666,099 - - 32,702 - 554,026,432 - - - 151,427,933 11,441,954 46,900 - - - 282,248 - - - - 1,356,397 34 Exhibit A-2 Motor Vehicle Liability Insurance Enforcement Fund Motor Carrier Safety Revolving Fund $ - $ - Vehicle Inspection and Title Enforcement Fund $ - Totals 1999 $ 229,470,201 1998 $ 192,518,877 13,900 - 1,090,883 - 971,434 - 250,120,838 298,393,657 210,369,491 273,805,897 - - - 354,209,698 47,254,925 24,794 237,435,162 20,135,794 - 13,900 1,090,883 971,434 14,879,540 868,443 28,798 22,259,947 7,489,832 1,052,578 19,369,785 1,245,423,036 2,876,353 615,900 27,564,137 7,582,939 1,348,951 21,984,040 996,237,541 6,894 - 1,549,434 - 946,388 - 44,648,035 42,034,947 79,304,434 70,438,046 2,235,913 1,388,360 43,913,778 41,381,128 76,596,858 63,056,327 9,409,728 1,213,926 6,894 1,549,434 946,388 240,049,735 235,571,745 - - - 18,698,801 11,294,362 - - - 705,454,365 566,394,266 - - - 11,488,854 12,810,323 - - - 282,248 1,356,397 537,526 (continued) 35 Arizona Department of Transportation Special Revenue Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances For the fiscal year ended June 30, 1999 (With comparative totals for the fiscal year ended June 30, 1998) Budgeted State Highway Fund 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 Distributions to Arizona counties, cities and other state agencies Total expenditures Excess of revenues over expenditures Other financing sources : Proceeds from contracts and capital leases payable Operating transfers in Operating transfers out: Debt service Other Total other financing sources Maricopa Regional Area Road Construction Fund - - - - 6,527,900 - - - - 461,718 838,425,758 24,503,859 26,786,672 750,000 1,541,699 32,702 7,019,772 159,804,102 93,828,239 <6,743,657> 1,934,106 8,249,838 119,487,360 - 38,066,753 2,921,552 - <74,192,405> <39,142,086> <110,269,063> <16,440,824> $ Highway Expansion and Extension Loan Program Fund 12,500,000 282,248 2,783,180 Excess of revenues and other financing sources over expenditures and other financing uses Fund balances, July 1 Fund balances, June 30 State Aviation Fund Safety Enforcement and Transportation Infrastructure Fund 302,562,068 286,121,244 - <45> <45> <6,743,657> 39,986,728 $ 33,243,071 36 1,934,061 $ 1,560,862 3,494,923 $ 38,066,753 <152,308,676> <920,829> <150,307,953> 46,316,591 <30,820,593> 46,316,591 $ 146,206,514 115,385,921 Exhibit A-2 Motor Vehicle Liability Insurance Enforcement Fund Vehicle Inspection and Title Enforcement Fund - - 7,900 14,794 Motor Carrier Safety Revolving Fund <894> 1998 - 12,500,000 15,000,000 - - 6,527,900 800,000 6,364,000 1,549,434 111,139 1,057,527 32,854,388 1,029,212,688 29,017,595 877,789,817 216,210,348 118,447,724 537,526 8,564,954 <458,551> <86,093> - - - 282,248 43,771,485 - - - <226,501,081> <40,062,960> <222,510,308> <191,417,408> <2,831,788> <185,146,716> <6,299,960> <66,698,992> <894> $ Totals 1999 76,007 75,113 <458,551> $ 965,666 507,115 <86,093> $ 561,902 475,809 $ 491,919,747 485,619,787 $ 37 558,618,739 491,919,747 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, 1999 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 1999 budget: Administration: Personal services Employee related expenditures Other operating expenditures Risk management premiums Total Administration $ 233,940,300 282,044,100 515,984,400 State Aviation Fund Variance Favorable $ 202,279,704 284,391,045 486,670,749 $ <31,660,596> $ 2,346,945 <29,313,651> Variance Favorable Actual Non-GAAP Budget 2,429,200 672,200 2,153,500 7,489,400 1,052,300 1,400 13,798,000 $ 2,429,194 671,799 2,153,451 7,489,832 1,052,368 1,356 13,798,000 $ <6> <401> <49> 432 68 <44> - 17,041,900 3,709,700 15,651,600 9,024,400 45,427,600 17,069,617 3,745,466 14,696,959 9,024,400 44,536,442 <27,717> <35,766> 954,641 891,158 - - - 27,356,200 6,193,700 7,955,900 405,900 41,911,700 27,331,242 6,193,746 7,151,868 404,082 41,080,938 24,958 <46> 804,032 1,818 830,762 - - - 24,772,700 6,391,800 48,071,600 24,969,503 6,423,712 46,592,179 <196,803> <31,912> 1,479,421 1,518,652 80,754,752 1,356,463 79,341,857 162,189 1,412,895 - - - Motor Vehicle Division: Personal services Employee related expenditures Other operating expenditures License plates and tabs Medical advisory board Abandoned Vehicle Attorney General Legal Special Projects Desktop Computer Replacement Total Motor Vehicle Division 36,739,600 9,314,700 13,768,000 1,275,300 1,020,000 405,600 124,700 3,842,300 2,552,000 69,042,200 36,717,516 9,381,660 13,515,446 1,255,531 1,019,984 348,815 124,700 2,209,247 2,552,000 67,124,899 22,084 <66,960> 252,554 19,769 16 56,785 1,633,053 1,917,301 - - - Air Quality Program: Personal services Employee related expenditures Other operating expenditures Total Air Quality Program 33,300 9,600 300 43,200 32,352 10,113 300 42,765 948 <513> 435 - - - 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 38 Exhibit A-3 Safety Enforcement and Transportation Infrastructure Fund Variance Actual Favorable Budget Non-GAAP $ 3,385,000 96,000 3,481,000 $ 3,385,015 95,989 3,481,004 $ 15 $ <11> 4 Totals Budget 239,754,500 282,716,300 2,249,500 7,489,400 1,052,300 1,400 533,263,400 Variance Favorable Actual Non-GAAP $ 208,093,913 285,062,844 2,249,440 7,489,832 1,052,368 1,356 503,949,753 $ <31,660,587> 2,346,544 <60> 432 68 <44> <29,313,647> - - - 17,041,900 3,709,700 15,651,600 9,024,400 45,427,600 17,069,617 3,745,466 14,696,959 9,024,400 44,536,442 <27,717> <35,766> 954,641 891,158 - - - 27,356,200 6,193,700 7,955,900 405,900 41,911,700 27,331,242 6,193,746 7,151,868 404,082 41,080,938 24,958 <46> 804,032 1,818 830,762 - - - 24,772,700 6,391,800 48,071,600 24,969,503 6,423,712 46,592,179 <196,803> <31,912> 1,479,421 - - - 1,518,652 80,754,752 1,356,463 79,341,857 162,189 1,412,895 388,100 99,100 280,000 767,200 369,890 94,226 276,547 740,663 18,210 4,874 3,453 26,537 37,127,700 9,413,800 14,048,000 1,275,300 1,020,000 405,600 124,700 3,842,300 2,552,000 69,809,400 37,087,406 9,475,886 13,791,993 1,255,531 1,019,984 348,815 124,700 2,209,247 2,552,000 67,865,562 40,294 <62,086> 256,007 19,769 16 56,785 1,633,053 1,943,838 - - - 33,300 9,600 300 43,200 32,352 10,113 300 42,765 948 <513> 435 (Continued) 39 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, 1999 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 Year 2000 computer projects Expenditures appropriated by State legislature by carryover of previous years' unexpended budgets Total expenditures Excess of revenues over expenditures $ State Aviation Fund Variance Favorable Variance Favorable Actual Non-GAAP Budget 38,200 22,900 3,500 16,800 81,400 32,848 14,506 1,879 16,745 65,978 5,352 8,394 1,621 55 15,422 - - - - - - 842,000 212,900 626,600 821,958 207,891 607,206 20,042 5,009 19,394 - - - 10,000 1,691,500 1,637,055 10,000 54,445 15,704,036 11,464,101 4,239,935 46,900 46,900 - 12,500,000 6,527,900 12,500,000 6,527,900 - - - - 1,033,311 273,026,099 496,086 263,180,966 537,225 9,845,133 28,270 1,766,670 2 1,683,957 28,268 82,713 12,031,330 $ 12,114,043 242,958,301 $ 223,489,783 $ 40 <19,468,518> $ $ 82,713 Exhibit A-3 Safety Enforcement and Transportation Infrastructure Fund Variance Actual Favorable Budget Non-GAAP $ Totals Variance Favorable Actual Non-GAAP Budget - - - 38,200 22,900 3,500 16,800 81,400 32,848 14,506 1,879 16,745 65,978 5,352 8,394 1,621 55 15,422 - - - 842,000 212,900 626,600 821,958 207,891 607,206 20,042 5,009 19,394 - - - 10,000 1,691,500 1,637,055 10,000 54,445 15,750,936 11,511,001 4,239,935 - - - 12,500,000 6,527,900 12,500,000 6,527,900 - 767,200 740,663 26,537 1,061,581 275,559,969 496,088 265,605,586 565,493 9,954,383 2,713,800 $ 2,740,341 $ 26,541 $ 257,703,431 $ 41 238,344,167 $ <19,359,264> Debt Service Funds The Highway Revenue Bond Fund administers the payment of principle and interest on the 1990 Series State of Arizona Highway Revenue Bond series, the 1991 Series A and 1992 Series B State of Arizona Subordinated Highway Revenue Bond issues, the 1993 Series State of Arizona 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 principle and interest on the 1988 Series A, 1991 Series A, 1992 Series A Refunding, 1992 Series B and 1998 Series A Transportation Board of the State of Arizona Transportation Excise Tax Revenue Bond issues, the 1989 Series A 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, 1999 (With comparative totals at June 30, 1998) Highway Revenue Bond Fund Assets Cash and cash equivalents on deposit with the State Treasurer Accrued interest receivable Total assets Fund balances Reserved for highway construction Total fund balances $ Maricopa Regional Area Road Bond Fund $ $ 1,504,163 630,339 2,134,502 $ $ 2,134,502 2,134,502 Totals 1999 $ $ 31,037,348 1,564,887 32,602,235 $ $ 32,602,235 32,602,235 42 1998 $ $ 32,541,511 2,195,226 34,736,737 $ 25,312,879 2,652,390 27,965,269 $ $ 34,736,737 34,736,737 $ $ 27,965,269 27,965,269 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, 1999 (With comparative totals for the fiscal year ended June 30, 1998) Highway Revenue Bond Fund Revenues: Interest $ Expenditures: Debt service: Principal Interest Bond issuance cost Other Total expenditures 1,705,834 Maricopa Regional Area Road Bond Fund $ 5,942,999 Totals 1999 $ 7,648,833 1998 $ 6,817,499 43,805,000 31,090,114 33,649 74,928,763 106,765,000 43,251,483 659,778 80,374 150,756,635 150,570,000 74,341,597 659,778 114,023 225,685,398 126,170,000 73,777,474 110,843 200,058,317 Deficiency of revenues under expenditures <73,222,929> <144,813,636> <218,036,565> <193,240,818> Other financing sources : Operating transfers in Proceeds from refunding bonds Payment to refunded bond escrow agent Operating transfers out Total other financing sources 74,192,405 <210,776> 73,981,629 152,308,676 28,825,844 <27,390,000> <2,918,116> 150,826,404 226,501,081 28,825,844 <27,390,000> <3,128,892> 224,808,033 191,417,408 <5,285,908> 186,131,500 6,012,768 6,771,468 <7,109,318> Excess of revenues and other financing sources over expenditures and other financing uses Fund balances, July 1 Fund balances, June 30 758,700 $ 1,375,802 2,134,502 26,589,467 32,602,235 $ 43 $ 27,965,269 34,736,737 $ 35,074,587 27,965,269 Capital Projects Fund The Maricopa Regional Area Road Fund Bond Proceeds Fund is used to administer bond proceeds from the 1998 Series A and the 1999 Series A Transportation Board of the State of Arizona Subordinated Transportation Excise Tax Revenue Bond issues. 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, 1999 and 1998 1998 1999 Assets Cash and cash equivalents on deposit with the State Treasurer Accrued interest receivable Due from other Arizona Department of Transportation Funds Total assets $ $ Liabilities and fund balances Liabilities: Construction contracts payable Accounts payable Due to other Arizona Department of Transportation Funds Total liabilities $ Fund balances - reserved for highway construction Total liabilities and fund balances $ 44 18,770,317 554,801 5,875,596 25,200,714 $ 8,463,402 6,772,019 1,675,635 16,911,056 $ 8,289,658 25,200,714 $ - - $ - 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, 1999 and 1998 1999 Revenues: Interest Other Total revenues $ Expenditures: Capital outlay - highway construction Other Total expenditures 1998 4,439,936 71,525 4,511,461 $ - 148,241,265 1,989 148,243,254 3,792,977 821 Deficiency of revenues under expenditures <143,731,793> <3,793,798> Other financing sources : Proceeds from sale of bonds Operating transfers out Total other financing sources 152,572,363 <550,912> 152,021,451 <79,536> <79,536> Excess of revenues and other financing sources over expenditures and other financing uses 8,289,658 Fund balances, July 1 - Fund balances, June 30 $ 45 8,289,658 3,793,798 <3,873,334> 3,873,334 $ - 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, 1999 and 1998 1998 1999 Assets Current assets: Cash and cash equivalents on deposit with the State Treasurer Subscriptions receivable, less allowance for doubtful accounts of $7,300 in 1999 and 1998 Accrued interest receivable Accounts receivable - retail/commercial, less allowance for returns of $10,000 in 1999 and 1998 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 3,221,552 $ 4,480,074 $ <1,258,522> 463,554 38,658 185,854 86,042 277,700 <47,384> 123,519 2,815,194 606,291 7,268,768 410,549 2,771,895 321,228 8,255,642 <287,030> 43,299 285,063 2,420,394 2,834,434 11,090,076 <414,040> $ 9,689,162 $ $ 246,241 237,845 1,808 4,257,611 4,743,505 $ Fund equity: Contributed capital Retained earnings Total fund equity 4,792,256 1,538,698 3,406,959 4,945,657 Total liabilities and fund equity $ 46 9,689,162 187,687 235,381 2,311 4,366,877 2,038,698 4,259,122 6,297,820 $ 11,090,076 $ 58,554 2,464 <503> <109,266> 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, 1999 and 1998 1999 Operating revenues: Magazine sales Sales of related products 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 Non-operating revenues : Interest Loss on disposal of fixed assets Total non-operating revenues Net income Retained earnings, July 1 Retained earnings, June 30 $ 47 1998 6,039,340 4,269,466 607,749 10,916,555 $ 6,041,695 4,443,666 422,535 10,907,896 5,685,205 2,011,090 466,812 1,969,985 107,401 79,249 513,544 63,800 23,951 68,521 368,760 358,265 11,716,583 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 <800,028> <172,546> 227,854 <279,989> <52,135> 288,379 <4,900> 283,479 <852,163> 110,933 4,259,122 3,406,959 4,148,189 $ 4,259,122 Exhibit D-3 Arizona Department of Transportation Arizona Highways Magazine Fund Comparative Statements of Cash Flows For the fiscal years ended June 30, 1999 and 1998 1998 1999 Cash flows from operating activities: Operating loss Adjustments to reconcile operating loss to net cash used for 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 used for operating activities Cash flows from capital and related financing activities: Acquisition of fixed assets Reduction of contributed capital Net cash used for capital and related financing activities Cash flows from investing activities: Interest Net cash provided by investing activities <800,028> 164,547 9,330 <43,299> <285,063> 58,554 2,464 <503> <109,266> <9,518> <117,659> <122,079> <44,670> <357,573> 21,742 <15,354> 2,306 <468,740> <809,546> <641,286> <224,214> <500,000> <724,214> <934,081> <934,081> 275,238 288,027 288,027 <1,258,522> Cash and cash equivalents, July 1 Cash and cash equivalents, June 30 4,480,074 $ 3,221,552 48 <172,546> 358,265 275,238 Net decrease in cash and cash equivalents $ <1,287,340> 5,767,414 $ 4,480,074 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, 1999 (With comparative totals at June 30, 1998) 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 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 $ $ 5,065,792 264,314 Totals 1999 $ 5,330,106 1998 $ 3,366,795 41,789 87,503 1,318 - 43,107 87,503 59,089 127,022 1,775,347 20,254 2,560,838 9,551,523 265,632 1,775,347 20,254 2,560,838 9,817,155 1,963,009 114,164 2,371,219 8,001,298 $ 35,321,018 44,872,541 $ 265,632 $ 35,321,018 45,138,173 $ 37,001,177 45,002,475 $ 557,157 $ 5,868 $ 563,025 $ 802,088 $ 908,896 1,466,053 5,868 908,896 1,471,921 827,901 1,629,989 5,793,237 313,403 6,106,640 6,106,640 9,985,210 27,628,041 43,406,488 44,872,541 <53,639> 259,764 265,632 9,985,210 27,574,402 43,666,252 45,138,173 9,985,210 27,280,636 43,372,486 45,002,475 $ 49 $ $ 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, 1999 (With comparative totals for the fiscal year ended June 30, 1998) Equipment Warehouse Revolving Fund Revolving Fund Operating revenues: Equipment rentals Warehouse supply billings Equipment sales Other Total operating revenues $ 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 24,289,009 165,711 3,394,993 27,849,713 $ 1,670 1,670 Totals 1999 $ 24,289,009 165,711 3,396,663 27,851,383 1998 $ 24,246,642 56,555 227,707 3,143,816 27,674,720 5,813,831 3,162,837 8,826,969 224,049 460,658 855,600 116,161 1,009,273 6,663,738 27,133,116 203 203 5,813,831 3,162,837 8,826,969 224,049 460,861 855,600 116,161 1,009,273 6,663,738 27,133,319 Operating income 716,597 1,467 718,064 <752,368> Non-operating revenues : Interest Loss on disposal of fixed assets Legislative transfer out 154,648 <93,746> <500,000> 14,800 - 169,448 <93,746> <500,000> 223,246 <177,006> - <439,098> 14,800 <424,298> 46,240 277,499 16,267 293,766 <706,128> Total non-operating revenues Net income Retained earnings , July 1 Retained earnings , June 30 $ 37,335,752 37,613,251 $ 50 <69,906> <53,639> $ 37,265,846 37,559,612 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 $ 37,971,974 37,265,846 Exhibit E-3 Arizona Department of Transportation Internal Service Funds Combining Statement of Cash Flows For the fiscal year ended June 30, 1999 (With comparative totals for the fiscal year ended June 30, 1998) 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 Equipment Warehouse Revolving Fund Revolving Fund $ $ 716,597 6,663,738 1,467 - 187,662 93,910 39,519 <191,770> <213,731> 80,995 Net cash provided by operating activities Totals 2,151 <25,332> - 1999 $ 1998 718,064 $ <752,368> 6,663,738 6,584,576 187,662 93,910 39,519 <189,619> <239,063> 80,995 <229,610> 29,510 <35,906> <21,065> 305,204 29,377 - <8,644> 6,660,323 <23,181> 6,637,142 6,653,442 7,376,920 <21,714> 7,355,206 5,901,074 Cash flows from capital and related financing activities: Acquisition of fixed assets Proceeds from sale of fixed assets Legislative transfer out <5,525,953> 448,628 <500,000> - <5,525,953> 448,628 <500,000> <7,538,697> 437,129 - Net cash used for capital and related financing activities <5,577,325> - <5,577,325> <7,101,568> Cash flows from investing activities: Interest Net cash provided by investing activities 169,194 169,194 Net increase in cash and cash equivalents 1,968,789 Cash and cash equivalents, July 1 Cash and cash equivalents, June 30 3,097,003 5,065,792 $ 51 16,236 16,236 <5,478> $ 269,792 264,314 185,430 185,430 1,963,311 3,366,795 $ 5,330,106 215,223 215,223 <985,271> 4,352,066 $ 3,366,795 Fiduciary Funds Expendable Trust Fund 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 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 the renters of properties 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, 1999 (With comparative totals at June 30, 1998) Agency Funds Expendable Trust Fund Motor Vehicle Division Clearing Local Agency Deposits 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 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 highway construction Total fund balances Total liabilities and fund balances $ 4,969,692 - $ 24,363,176 Underground Storage Tank Highway User Revenue $ 68,104,498 $ 339,667 - 530,223 79,348,245 - 455,506 86,536,465 - 2,868 - 1,865,536 - - - - 27,420 42,288,533 3,354,737 197,385,002 $ 3,697,272 376,534 7,741,985 1,961,246 126,567 $ $ 103,738,841 5,935,001 $ $ - $ 87,205 - 50,217,237 97,645,242 - - - 1,692,500 - - 45,477,022 2,109,581 98,047,260 - 3,610,067 - 2,087,813 103,738,841 197,385,002 3,697,272 5,654,172 5,654,172 7,741,985 103,738,841 197,385,002 $ 3,697,272 $ 52 $ Exhibit F-1 Highway Property Rentals - 24% $ $ $ $ Agency Funds Economic Strength Project Privilege Tax Totals 1999 2,532,464 $ 1,990,088 - $ 74,118 - 24,944 14,272 - - 472,646 165,884,710 555,167 544,859 136,304,460 640,457 - - - 1,865,536 2,290,938 - - - 45,670,690 33,649,083 2,557,408 $ 2,004,360 $ 74,118 $ $ $ $ - - - $ 7,373,565 95,000,138 1998 376,534 317,198,986 1,961,246 6,148,773 $ $ $ 6,798,217 67,805,551 489,516 248,523,081 2,749,215 6,032,197 - - - 147,862,479 111,907,880 - - - 1,692,500 1,562,500 2,557,408 - 2,004,360 - 74,118 - 151,770,235 2,109,581 121,084,805 2,287,641 2,557,408 2,004,360 74,118 311,544,814 245,624,238 2,557,408 $ 2,004,360 $ 74,118 5,654,172 5,654,172 317,198,986 2,898,843 2,898,843 248,523,081 $ $ 53 Exhibit F-2 Arizona Department of Transportation Expendable Trust Fund Local Agency Deposits Fund Comparative Statements of Revenues, Expenditures and Changes in Fund Balances For the fiscal years ended June 30, 1999 and 1998 Revenues: Reimbursements of construction expenditures - federal aid Reimbursements from Arizona counties, cities and other state agencies State appropriations Other Total revenues 1999 1998* $ 17,747,416 $ 26,411,442 917,414 233,225 18,898,055 1,812,709 3,200,000 51,660 31,475,811 16,114,005 16,114,005 32,767,897 9,800,000 42,567,897 2,784,050 <11,092,086> 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 <28,721> <28,721> Excess of revenues over expenditures and other financing sources 2,755,329 Fund balances, July 1 Fund balances, June 30 2,898,843 5,654,172 $ * Includes Bridge Construction Fund and Davis-Monthan Runway Extension Fund 54 <71> <367,651> <367,722> <11,459,808> 14,358,651 $ 2,898,843 Exhibit F-3 Arizona Department of Transportation Agency Funds Combining Statement of Changes in Assets and Liabilities For the fiscal year ended June 30, 1999 Balance July 1, 1998 Motor Vehicle Division Clearing Fund Assets: Cash and cash equivalents on deposit with the State Treasurer, unrestricted Taxes and fees receivable Due from other Arizona Department of Transporatation funds 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 20,985,937 65,105,510 $ Deletions 876,944,624 891,167,453 - $ 712 - 873,567,385 876,924,718 Balance June 30, 1999 $ <26,708> 46,614 24,363,176 79,348,245 27,420 46,614 - $ 86,091,447 $ 1,768,159,403 $ 1,750,512,009 $ 103,738,841 $ 3,780,322 $ 62,167,233 $ 60,012,554 $ 5,935,001 $ $ 38,921,501 469,386,745 458,091,009 50,217,237 41,101,983 2,287,641 86,091,447 359,663,301 <2,500> 891,214,779 355,288,262 175,560 873,567,385 45,477,022 2,109,581 103,738,841 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 1,003,554,166 2,085,314 629,104,228 $ $ 398,507,435 979,759,843 2,148,478 613,766,631 $ $ 387,513,348 12,727 68,104,498 455,506 86,536,465 42,288,533 125,709 - $ 2,033,263,870 $ 1,983,314,009 $ 197,385,002 $ 513,149,304 12,630,000 $ 488,490,441 12,500,000 $ 97,645,242 1,692,500 $ 503,930,400 1,029,709,704 $ 478,769,402 979,759,843 $ 98,047,260 197,385,002 (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, 1999 Balance July 1, 1998 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 Additions $ 260,888 7,833 $ 27,680,255 <5,610> $ 2,623,358 $ $ 60,995 $ 2,562,363 2,623,358 $ 27,601,476 <645> 56,355,644 $ $ 945,774 $ 27,729,615 28,675,389 2,354,637 $ Deletions $ 339,667 2,868 55,281,730 $ 3,697,272 $ 919,564 $ 87,205 $ 26,681,911 27,601,475 $ 3,610,067 3,697,272 28,680,999 $ $ 2,509,439 25,066 2,534,505 $ $ Balance June 30, 1999 27,680,899 $ $ 453,620 453,498 907,118 - $ 2,534,505 2,534,505 $ 3,354,737 $ $ 430,595 453,620 884,215 $ 2,532,464 24,944 2,557,408 1,008 $ 1,008 $ - 452,491 453,499 $ 429,588 430,596 $ 2,557,408 2,557,408 (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, 1999 Balance July 1, 1998 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 $ 1,907,121 18,356 $ Balance June 30, 1999 Deletions $ 1,109,173 105,088 $ 1,026,206 109,172 $ 1,990,088 14,272 1,925,477 $ 2,214,261 $ 2,135,378 $ 2,004,360 $ $ 1,925,477 1,925,477 $ 1,105,089 $ 1,026,206 $ 2,004,360 $ 1,105,089 $ 1,026,206 $ 2,004,360 $ $ $ 74,133 82 74,215 17 <64> $ 32 18 $ 74,118 - $ <47> $ 50 $ 74,118 $ - $ 17 $ 17 $ - $ 74,215 74,215 $ <82> <65> $ 15 32 $ 74,118 74,118 - 1,000,000 1,000,000 - (Continued) 57 Exhibit F-3 Arizona Department of Transportation Agency Funds Combining Statement of Changes in Assets and Liabilities For the fiscal year ended June 30, 1999 Balance July 1, 1998 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 other Arizona Department of Transportation funds 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 Department of Public Safety Due to Arizona counties, cities and other state agencies Surety and rental deposits Total liabilities $ 2,242,142 67,805,551 Additions $ 28,789,445 1,880,952,410 Deletions $ 28,627,714 1,853,757,823 Balance June 30, 1999 $ 2,403,873 95,000,138 544,859 136,304,460 25,066 2,184,792 1,520,271,617 453,498 2,257,005 1,490,691,367 453,620 472,646 165,884,710 24,944 33,649,083 428,189,146 416,167,539 45,670,690 112,982 $ 240,684,143 $ 59,341 3,860,900,249 $ 172,323 3,792,127,391 $ 309,457,001 $ 3,841,317 $ 63,114,032 $ 60,933,143 $ 6,022,206 $ 111,907,880 1,562,500 982,536,049 12,630,000 121,084,805 2,287,641 240,684,143 892,880,814 <2,500> 1,951,158,395 $ 58 $ 946,581,450 12,500,000 147,862,479 1,692,500 862,195,384 175,560 1,882,385,537 151,770,235 2,109,581 309,457,001 $ 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. Prepared by Richard Gromoll 2/2/00 11:07 AM Arizona Department of Transportation Comparative Schedules of General Fixed Assets By Source June 30, 1999 and 1998 Exhibit G-1 1999 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 1991 (1) Assets acquired subsequent to fiscal year 1990 Special revenue funds Proprietary funds Third-party financing Total investment in general fixed assets $ 8,657,685 102,113,393 30,143,274 41,590,704 $ 10,863,072 110,107,920 31,086,260 39,454,138 191,511,390 $ 182,505,056 $ 80,468,593 $ 81,167,572 $ 106,804,898 1,221,920 3,015,979 191,511,390 $ 93,906,117 1,118,755 6,312,612 182,505,056 (1) Breakdown of assets by source is not available prior to fiscal year 1991. 59 1998 Exhibit G-2 Arizona Department of Transportation Schedule of General Fixed Assets - By Function and Activity June 30, 1999 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) Remaining assets acquired prior to fiscal year 1991 (1) 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 Buildings and Improvements Land $ $ 5,766,839 $ 56,983,782 Improvements Other Than Buildings Machinery and Equipment $ $ 13,947,551 $ - 5,766,839 56,983,782 13,886,551 3,831,421 80,468,593 3,941,310 6,769,671 170,101 23,136,904 1,040,568 5,569,978 1,903,706 9,964,901 843,896 9,338,446 17,775,140 6,583,975 38,320,366 1,154,923 10,863,072 175,085 821,313 181,326 3,510,062 1,126,965 7,613,826 9,618,885 110,107,920 239,843 121,106 25,550 37,242 510,991 7,750,725 31,086,260 2,531,445 4,458,648 1,188,653 1,505,026 2,413,817 621,478 2,756,407 39,454,138 2,706,530 5,519,804 1,491,085 5,040,638 3,578,024 8,746,295 21,280,940 191,511,390 (1) Breakdown of assets by function and activity is not available prior to fiscal year 1991. 60 $ <637,979> 81,167,572 - $ <61,000> 4,469,400 Total $ <698,979> $ 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, 1999 General Fixed Assets July 1, 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 $ $ 81,167,572 Additions $ Deductions - 20,772,117 6,316,431 31,611,626 1,738,536 279,958 6,762,595 2,533,996 5,083,784 1,255,748 4,707,964 3,595,667 9,084,223 16,375,928 182,505,056 301,039 515,298 292,862 343,036 43,677 515,546 4,948,250 $ 15,740,797 $ <698,979> $ 80,468,593 <4,735,513> <12,414> <53,855> 17,775,140 6,583,975 38,320,366 <128,505> <79,278> <57,525> <10,362> <61,320> <853,474> <43,238> $ <6,734,463> $ 2,706,530 5,519,804 1,491,085 5,040,638 3,578,024 8,746,295 21,280,940 191,511,390 (1) Breakdown of assets by function and activity is not available prior to fiscal year 1991. 61 General Fixed Assets June 30, 1999 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, 1999 Highway Revenue Bonds 1990 Bonds Fiscal Year 2000 2001 Principal $ $ 8,495,000 9,065,000 17,560,000 Interest $ $ 1,185,300 611,888 1,797,188 Subordinated Highway Revenue Bonds Fiscal 1991 Series A Bonds Year 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 1,631,438 713,126 7,238,878 Principal $ $ 23,760,000 25,205,000 48,965,000 1992 Series B Bonds Interest $ $ 2,963,106 1,537,506 4,500,612 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 2,321,940 1,896,000 1,312,000 681,200 14,273,130 Highway Revenue Bonds Fiscal 1993 Series Refunding Bonds Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Principal $ $ 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 17,285,000 135,810,000 1993 Series A and B Subordinated, Refunding Bonds Interest $ 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 $ 42,309,654 Principal $ $ 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 54,520,000 263,545,000 62 Total Interest $ 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 $ 120,829,714 Principal $ $ 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 54,520,000 524,345,000 Interest $ 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 $ 190,949,176 (Continued) Exhibit H Arizona Department of Transportation Schedule of Debt Service Requirements June 30, 1999 Transportation Excise Tax Revenue Bonds 1988 Series A Capital Appreciation Bonds Fiscal Year 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 $ - $ $ $ 25,620,000 25,620,000 1991 Series A Bonds Interest $ $ 1,793,400 1,793,400 Principal $ $ 4,360,000 4,640,000 9,000,000 Interest $ 545,800 284,200 830,000 $ Transportation Excise Tax Revenue Bonds 1993 Series Subordinated Fiscal 1992 Series A Refunding Bonds Year 2000 2001 2002 2003 2004 2005 Principal $ $ 38,165,000 40,170,000 110,000 23,240,000 24,545,000 38,955,000 165,185,000 1992 Series B Bonds Interest Principal $ 9,112,500 7,127,920 4,958,740 4,952,690 3,651,250 2,239,913 $ 32,043,013 $ $ 2,380,000 2,500,000 2,635,000 2,780,000 2,935,000 3,105,000 16,335,000 Refunding Bonds Interest $ $ 906,665 782,905 647,905 502,980 347,300 178,538 3,366,293 Principal $ $ 8,530,000 8,890,000 30,835,000 31,180,000 32,335,000 18,825,000 130,595,000 Interest $ $ 6,251,465 5,893,205 5,502,045 3,775,285 2,372,185 884,775 24,678,960 Transportation Excise Tax Revenue Bonds 1995 Series B Subordinated Fiscal Year 2000 2001 2002 2003 2004 2005 Refunding Bonds 1995 Series A Subordinated Bonds Principal $ $ 13,200,000 13,925,000 14,555,000 15,355,000 16,275,000 17,330,000 90,640,000 Interest $ 5,172,125 4,446,125 3,819,500 3,018,975 2,097,675 1,039,800 $ 19,594,200 Principal $ $ 245,000 255,000 33,185,000 10,215,000 12,470,000 30,070,000 86,440,000 1998 Series A Bonds Interest $ 5,113,256 5,102,538 5,091,063 3,099,963 2,614,750 1,804,200 $ 22,825,770 Principal $ $ 19,310,000 37,985,000 21,580,000 25,865,000 25,615,000 25,090,000 155,445,000 Interest $ $ 7,534,950 6,697,250 4,818,000 3,757,000 2,481,750 1,217,000 26,505,950 (Continued) 63 Exhibit H Arizona Department of Transportation Schedule of Debt Service Requirements June 30, 1999 Transportation Excise Tax Revenue Bonds Fiscal Total Year 2000 2001 2002 2003 2004 2005 Principal $ $ 111,810,000 108,365,000 124,400,000 130,135,000 135,675,000 141,875,000 752,260,000 Fiscal $ 36,430,161 30,334,143 24,837,253 19,106,893 13,564,910 7,364,226 $ 131,637,586 Total Bonds Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Interest Principal Interest 157,540,000 156,030,000 157,740,000 165,085,000 172,765,000 181,180,000 41,505,000 43,840,000 46,035,000 48,680,000 51,685,000 54,520,000 $ 1,276,605,000 $ 65,102,871 56,384,139 48,116,331 40,763,661 33,081,100 24,670,770 15,102,204 12,770,796 10,575,076 7,936,164 5,458,950 2,624,700 $ 322,586,762 $ Total $ 222,642,871 212,414,139 205,856,331 205,848,661 205,846,100 205,850,770 56,607,204 56,610,796 56,610,076 56,616,164 57,143,950 57,144,700 $ 1,599,191,762 64 Table I Arizona Department of Transportation Governmental and Expendable Trust Fund Expenditures For the fiscal year ended June 30 (Thousands of Dollars) Motor Fiscal Year Administration /1 1999 $ 1998 1997 44,648 43,914 43,981 Highway /2 $ 42,035 41,381 40,230 Vehicle Division $ 70,438 63,056 30,147 Highway Maintenance Highway Construction $ $ 79,304 76,597 70,336 869,810 602,955 540,203 Debt Service Aviation $ 26,787 30,734 18,975 $ 226,928 199,948 210,446 Other /3 $ 59,305 65,625 84,433 Total $ 1,419,255 1,124,210 1,038,751 $ 1,036,294 852,181 936,001 882,939 866,954 970,364 1,185,050 Motor Administrative Services /4 1996 1995 1994 1993 1992 1991 1990 $ 36,406 36,933 45,363 38,473 34,620 32,685 31,117 Highway Division /5 $ 108,670 108,495 104,288 111,188 105,725 107,434 100,226 Vehicle Division $ 33,486 35,221 27,992 30,776 29,588 29,312 29,865 Transportation Planning $ 3,214 3,381 3,468 3,589 4,047 3,717 3,426 Highway Construction $ 555,087 418,601 481,538 446,676 450,793 569,343 843,711 Debt Service Aviation $ 11,107 9,239 13,579 17,279 17,406 12,046 6,069 $ 200,364 182,554 181,519 168,684 159,096 149,049 134,658 Other /6 $ 87,960 57,757 78,254 66,274 65,679 66,778 35,978 Total SOURCE: General Purpose Financial Statements - fiscal years 1990 through 1999 NOTES: /1 Includes the Director's Office, Financial Management (formerly Administrative) Services, Transportation Support Services and the Department's Risk Management Premium. /2 Includes Transportation Planning. /3 Includes Transportation not appropriated, Land, Building & Improvements, Leases Payable and Transfers /4 Includes the Department's Risk Management Premium. /5 Includes Highway Maintenance. /6 Includes Reimbursements, Transfers, Director's Office, Highway Safety Office, and Land, Buildings & Improvements. Total Expenditures $1,600,000 $1,400,000 Thousands of Dollars $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 1990 1991 1992 1993 1994 1995 Fiscal Year 65 1996 1997 1998 1999 Table II Arizona Department of Transportation Governmental and Expendable Trust Fund Revenues For the fiscal year ended June 30 (Thousands of Dollars) Fiscal Year Motor Fuel Tax 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 $ 298,394 273,806 288,878 291,000 293,870 280,394 264,307 261,678 256,521 225,737 Reg., Fees, Permits, Expenditures Service of Federal Investment Charges Awards Earnings $ 250,121 210,370 198,002 171,823 133,689 117,412 102,524 89,261 99,389 109,159 $ 419,212 283,982 305,438 268,605 225,607 261,000 183,407 174,683 191,899 189,955 $ 34,377 34,382 33,238 29,603 22,340 14,229 18,560 22,422 31,799 51,651 Other Reimbursements Total /1 $ 257,712 223,486 231,792 228,698 190,498 177,561 153,333 138,097 132,707 125,970 $ 16,665 8,505 15,083 32,711 17,808 13,130 22,604 18,513 12,632 20,485 $ 1,276,481 1,034,531 1,072,431 1,022,440 883,812 863,726 744,735 704,654 724,947 722,957 SOURCE: General Purpose Financial Statements - Fiscal Years 1990 through 1999 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 $1,400,000 $1,200,000 Thousands of Dollars $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 1990 1991 1992 1993 1994 1995 Fiscal Year 66 1996 1997 1998 1999 Table III Arizona Department of Transportation Expenditures of Federal Awards /2 For the fiscal year ended June 30 (Thousands of Dollars) Fiscal Year 1999 1998 1997 1996 1995 1994 1993 1992 1991 FAA $ 6,278 2,379 91 506 849 129 3,208 4,369 1,642 1990 164 SOURCE: $ FRA 69 14 130 499 475 437 441 12 - FTA $ 5,107 3,392 2,508 3,552 1,687 3,448 1,715 1,097 559 NHTSA $ 275 49 55 54 - FHWA $ 406,509 278,148 302,633 261,820 221,818 256,986 177,968 169,151 189,698 BLM $ 28 20 - 59 1,563 39 188,130 - $ BIA 974 76 2,228 750 - Total $ 419,212 283,982 305,438 268,605 225,607 261,000 183,407 174,683 191,899 - 189,955 Single Audit Reports - fiscal years 1990 through 1999 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 Highway Administration (FHWA); Bureau of Land Management (BLM); Bureau of Indian Affairs (BIA); and Department of Agriculture (DOA). Total Expenditures of Federal Awards $450,000 $400,000 $350,000 Thousand of Dollars $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 1990 1991 1992 1993 1994 1995 1996 1997 Fiscal Year 67 1998 1999 Table IV Arizona Department of Transportation Fuel Tax Rates For the fiscal year ended June 30 (Cents per Gallon) Fiscal Year Effective Date Gasoline Tax Use Fuel Tax /1 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 12/31/97 10/1/90 9/1/88 18 18 18 18 18 18 18 18 18 17 27 27 18 18 18 18 18 18 18 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. /1 Scheduled to be 26 cents per gallon on 7/1/2000. 68 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 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 $ 557,775 508,544 488,701 473,741 451,089 422,556 387,235 369,789 362,018 339,116 $ 131,952 109,445 101,528 97,601 86,159 83,826 80,717 74,180 75,657 88,536 $ $ 34,150 56,123 90,186 85,433 92,103 118,530 120,303 109,573 108,655 104,343 38,775 36,426 41,294 42,654 39,238 37,161 24,161 25,507 24,033 25,474 Motor Veh. License (In Lieu) Tax Revenues $ 220,126 176,950 175,253 160,145 131,562 113,990 105,027 96,146 92,826 91,390 Excess License and Sales Tax Revenues $ 16,632 15,198 Total Deposited To Arizona Hwy. User Rev. Fund $ 982,778 887,488 896,962 859,574 800,151 776,063 717,443 675,195 679,821 664,057 SOURCE: Arizona Highway User Revenue Fund Revenue Collections by Category. Highway User Revenue Fund Collections $1,200,000 $1,000,000 Thousands of Dollars $800,000 $600,000 $400,000 $200,000 $0 1990 1991 1992 1993 1994 1995 Fiscal Year 69 1996 1997 1998 1999 Table VI Arizona Department of Transportation Highway User Revenue Fund Distributions For the fiscal year ended June 30 (Thousands of Dollars) Fiscal Year State Highway Fund /1 Cities and Towns Counties 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 $ 512,149 435,882 444,927 429,171 412,206 406,376 355,304 339,807 346,867 329,698 $ 295,879 263,220 268,696 256,901 244,512 205,479 210,531 201,394 208,708 209,767 $ 199,591 163,973 167,350 152,571 145,349 134,511 124,468 119,068 123,746 124,092 Department of Public Safety /2 Economic Strength Project Fund $ $ 12,630 14,688 17,188 19,688 20,000 24,925 24,928 12,453 - 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 500 500 Other /3 Total $ 8,461 8,519 9,289 9,304 9,084 532 1,212 1,473 - $ 1,029,710 887,282 908,450 868,635 832,151 772,823 717,443 675,195 679,821 664,057 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 1999 (adjusted for accrual basis in years 1994 through 1999); Highway User Revenue Fund Report (Budgetary Basis) - fiscal years 1990 through 1992. NOTES: /1 In fiscal year 1995, HB 2431 authorized the transfer of $1 million for border transportation projects. The revenues beginning in fiscal year 1994 are presented on an accrual basis and are not the same as Table VII. /2 DPS did not receive funding from HURF in fiscal years 1990 through 1991 in accordance with ARS 28-6537. /3 Appropriation to the Motor Vehicle Division for funding of mandatory insurance enforcement administration for fiscal years 1992 through 1994. In fiscal years 1995 through 1999, an appropriation for Arizona State Parks is included. 70 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 Principal Interest Total Pledged Revenues /1 Coverage 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 $ 43,805 43,405 40,970 38,430 36,330 33,425 27,865 26,185 24,690 23,340 ###### 33,266 36,148 38,770 40,974 44,037 48,289 39,957 36,743 26,609 ###### 76,671 77,118 77,200 77,304 77,462 76,154 66,142 61,433 49,949 ####### 468,240 468,542 429,825 399,605 385,844 355,304 339,807 346,867 329,698 6.8 6.1 6.1 5.6 5.2 5.0 4.7 5.1 5.6 6.6 SOURCES: Highway User Revenue Fund Schedule 1 Summary For Revenue Collected Monthly Reports MV675577-1 fiscal years 1993 through 1999; Highway User Revenue Fund Report (Budgetary Basis) - fiscal years 1990 through 1992; Debt Service Funds - fiscal years 1990 through 1999. /1 For fiscal years 1990 through 1996, net of 7% distributed to cities with a population greater than 300,000 persons. For fiscal years 1997 and after, includes vehicle license tax revenues distributed directly to the State Highway Fund. Highway User Revenue Fund Series Bond Coverage $500,000 $450,000 Thousands of Dollars $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 1990 1991 1992 1993 1994 1995 1996 1997 Fiscal Year REVENUE DEBT SERVICE 71 1998 1999 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 Principal 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 $ 106,765 82,765 78,015 76,955 57,930 54,710 45,650 38,410 34,480 34,485 Interest $ 43,251 40,512 45,248 46,209 47,320 49,347 46,880 54,544 53,136 50,224 Total Revenues Coverage $ 150,016 123,277 123,263 123,164 105,250 104,057 92,530 92,954 87,616 84,709 $ 229,470 192,519 193,756 179,533 161,761 142,846 127,273 116,497 113,335 110,801 1.5 1.6 1.6 1.5 1.5 1.4 1.4 1.3 1.3 1.3 SOURCES: Maricopa County Regional Area Road Fund Report. NOTE: Bond coverage ratio is based upon total Maricopa Transportation Excise Tax collections. Regional Area Road Fund Series Bond Coverage Thousands of Dollars $200,000 $150,000 $100,000 $50,000 $0 1990 1991 1992 1993 1994 1995 1996 Fiscal Year REVENUE DEBT SERVICE 72 1997 1998 1999 Table IX Arizona Department of Transportation Total Public Road Mileage By Highway Class and Governmental Ownership For the calendar year ended December 31, 1998 (With comparative totals for the calendar year ended December 31, 1997) (In Miles) TOTAL FUNCTIONAL CLASSIFICATION STATE COUNTY MUNICIPAL FEDERAL 1998 1997 RURAL: Interstate Freeway Principal Arterial Minor Arterial Major Collector Minor Collector Local TOTAL RURAL 996 1,118 1,133 1,860 375 361 5,843 45 101 1,587 1,118 14,195 17,046 14 23 216 52 1,659 1,964 9 842 756 10,192 11,799 996 1,186 1,257 4,505 2,301 26,407 36,652 996 1,186 1,257 4,505 2,300 28,174 38,418 URBAN: Interstate Freeway Urban Expressway Principal Arterial Minor Arterial Urban Collector Local TOTAL URBAN 172 90 271 129 5 102 769 1 105 275 508 1,001 1,890 9 652 865 1,220 11,862 14,608 5 16 30 51 172 100 1,028 1,274 1,749 12,995 17,318 173 96 1,028 1,275 1,749 12,974 17,295 1,258 2,651 2,240 463 6,612 1 526 3,213 15,196 18,936 9 1,554 1,488 13,521 16,572 14 1,614 10,222 11,850 1,268 4,745 8,555 39,402 53,970 1,265 4,746 8,554 41,148 55,713 STATEWIDE COMPOSITE: Freeways and Expressways Arterials Collectors Locals TOTAL STATEWIDE Source: Arizona's Highway Performance Monitoring System (HPMS); 1998 & 1997 Data 73 ACKNOWLEDGMENTS The Comprehensive Annual Financial Report was prepared by Financial Management Services, Fiscal Operations: Craig Rudolphy, MBA, CGFM, CPA Theresa Simms, MBA, CGFM, CPA Terri McHaney, CPA Patricia Markiw, CPA Lawrence H. Ehrke, Jr., MBA Janet Gafford Janet E. Hastings Richard Gromoll, MBA 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 Transportation Planning Division for his graphic design and photography.