April 2015 Fiscal Year 2016 COMPREHENSIVE ANNUAL FINANCIAL REPORT State of Arizona I Department of Transportation For fiscal year ended June 30, 2016 ```````````````````````````````````w Categorical Exlusion Guidance – September 2015 ADOT Environmental Planning Group Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2016 Prepared by Financial Management Services State of Arizona Department of Transportation 206 S. 17th Avenue Phoenix, Arizona 85007 azdot.gov Comprehensive Annual Financial Report Fiscal Year 2016 Arizona Department of Transportation Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2016 Table of Contents Page INTRODUCTORY SECTION Letter of Transmittal Certificate of Achievement for Excellence in Financial Reporting List of Principal Officials Organization Chart i-v vi vii viii FINANCIAL SECTION Independent Auditors’ Report Management’s Discussion and Analysis 1-3 4-15 Basic Financial Statements Government-Wide Financial Statements: Statement of Net Position (Exhibit 1) Statement of Activities (Exhibit 2) Governmental Funds Financial Statements: Balance Sheet – Governmental Funds (Exhibit 3) Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position (Exhibit 3.1) Statement of Revenues, Expenditures, and Changes in Fund Balances – Governmental Funds (Exhibit 4) Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities (Exhibit 4.1) 16 17 18-19 20 21-24 25 Proprietary Funds Financial Statements: Statement of Net Position – Proprietary Funds (Exhibit 5) Statement of Revenues, Expenses, and Changes in Fund Net Position – Proprietary Funds (Exhibit 6) Statement of Cash Flows – Proprietary Funds (Exhibit 7) 27 28-29 Notes to the Financial Statements 30-64 26 Required Supplementary Information (Other than MD&A) Budgetary Comparison Schedule – General Fund (State Highway Fund) Note to Required Supplementary Information Information about Infrastructure Assets Reported Using the Modified Approach Pension Liability and Pension Contributions Comprehensive Annual Financial Report Fiscal Year 2016 65 66 67-71 72 Arizona Department of Transportation Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2016 Table of Contents — continued Page Supplementary Information Nonmajor Governmental Funds Financial Statements: Combining Balance Sheet (Exhibit 8) Combining Statement of Revenues, Expenditures, and Changes in Fund Balances (Exhibit 9) 73-74 75-76 STATISTICAL SECTION Overview 77 Index of Statistical Section 78 Financial Trends Change in Net Position (Table A-1) Statement of Revenues, Expenditures, and Changes in Fund Balances – Governmental Funds (Table A-2) Fund Balances of Governmental Funds (Table A-3) Expenditures of Federal Awards (Table A-4) Government-Wide Expenses by Function (Table A-5) Government-Wide Revenues (Table A-6) Net Position by Component (Table A-7) Revenue Capacity Highway User Revenue Fund Collections (Table B-1) Highway User Revenue Fund Distributions (Table B-2) Fuel Tax Rates (Table B-3) Motor Vehicle Fuel Tax – Top Ten Suppliers (Table B-4) Gasoline Volume Sold – Top Twenty-Five Suppliers (Table B-5) Debt Capacity Highway User Revenue Fund – Legal Debt Margin (Table C-1) Highway Revenue Bonds – Bond Coverage (Table C-2) Transportation Excise Tax Revenue Bonds – Bond Coverage (Table C-3) Transportation Excise Tax Revenue Bonds – Debt Service Revenue and Cost Per Capita (Table C-4) Ratios of Outstanding Debt by Type (Table C-5) Comprehensive Annual Financial Report Fiscal Year 2016 79-82 83-86 87-88 89 90-91 92-93 94-95 96 97 98 99 100-101 102 103 104 105 106-107 Arizona Department of Transportation Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2016 Table of Contents — continued Page Demographic and Economic Information Number of Vehicle Registrations Per Year (Table D-1) Vehicle Registrations Per Year Compared to Fuel Sales (Table D-2) Demographic and Economic Statistics (Table D-3) Principal Employers (Table D-4) 108 109 110 111 Operating Information Full-Time Equivalents (FTEs) (Table E-1) Capital Assets – Schedule by Function and Activity (Table E-2) Capital Assets – Schedule of Changes by Function and Activity (Table E-3) Total Public Road Mileage by Highway Class and Governmental Ownership (Table E-4) Vehicle Miles Traveled with Population Data (Table E-5) 115 116 Acknowledgments 117 Comprehensive Annual Financial Report Fiscal Year 2016 112 113 114 Introductory Section Comprehensive Annual Financial Report Fiscal Year 2016 206 South 17th Avenue | Phoenix, Arizona | 85007 Douglas A Ducey, Governor John S. Halikowski, Director Kristine Ward, Chief Financial Officer January 30, 2017 The Honorable Douglas A. Ducey 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 (CAFR) of the Department for the fiscal year ended June 30, 2016. The CAFR 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 Organization Chart. The Financial Section includes the Independent Auditors’ Report, Management’s Discussion and Analysis, Basic Financial Statements, Notes to the Financial Statements, Required Supplementary Information, as well as Other Supplementary Information. The Statistical Section includes additional financial information and transportation data presented on a multi-year comparative basis. Arizona Revised Statutes, §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).” In fulfillment of this requirement, the Department prepared this CAFR, for the fiscal year ended June 30, 2016, and contracted with the independent auditing firm of CliftonLarsonAllen LLP to audit the financial statements. The objective of the independent audit is to provide a reasonable assurance that the financial statements are free from material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unmodified opinion that the Department’s financial statements for the fiscal year ended June 30, 2016, are fairly presented in conformity with accounting principles generally accepted in the United States of America (GAAP). The independent auditors’ report is presented as the first component of the Financial Section of this report. GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). This Letter of Transmittal is designed to complement MD&A and should be read in conjunction with it. The Department’s MD&A can be found immediately following the report of the independent auditors. The CAFR includes all funds (some of which are external to the Department) used to record the financial activity of the Department. Responsibility for both the accuracy of the data and the completeness and fairness of the presentation, including all disclosures, rests with the Department. To provide a reasonable basis for making these representations, the Department has established a comprehensive internal control framework that is designed both to protect the Department’s assets from loss, theft, or misuse and to compile sufficiently reliable information for the preparation of the financial statements in conformity with GAAP. 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. Because the cost of internal controls should not outweigh their benefits, the Department’s comprehensive framework of internal control has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatements. Comprehensive Annual Financial Report Fiscal Year 2016 i To the best of our knowledge and belief, this financial report is complete and reliable 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. All disclosures necessary to enable the reader to gain an understanding of the Department’s financial activities have been included. Profile of the Department The Department was established by the state legislature in July 1974 by combining the former Arizona Highway Department (originally established in 1927) and the 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 safe, efficient, cost-effective transportation system. The vision is creating a transportation system for Arizona that improves the quality of life. The Department’s statutory authority for carrying out its programs is found in Arizona Revised Statutes, Titles 28, 35, and 41. 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 and confirmed by the state senate. The Transportation Board is responsible for the annual update of the Five-Year Transportation Facilities Construction Program and 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 (GARVEE bonds), and board funding obligations. As of June 30, 2016, the Department was organized into five major operating divisions supported by several groups, such as Human Resources, Information Technology and Financial Management Services. The five major operating divisions include: Infrastructure Delivery and Operations, Motor Vehicle Division, Enforcement and Compliance Division, Administrative Services Division, and Multimodal Planning Division. • Infrastructure Delivery and Operations is responsible for the management and maintenance of the existing state highway system and related facilities as well as the location, design, and construction of new highways and facilities that are a part of the state highway system. • The Motor Vehicle Division regulates motor vehicles in the state and collects motor vehicle registration fees, motor carrier fees, motor vehicle operators’ license fees, and miscellaneous fees and revenues. The Motor Vehicle Division annually processes motor vehicle registrations and records, issues certificates of title for motor vehicles, and processes drivers’ license applications. • The Enforcement and Compliance Division conducts criminal and administrative investigations related to all facets of agency operations, e.g., titling, registration, and licensing; as well as providing services to the local and national law enforcement communities while enforcing transportation related laws and regulations. • The Administrative Services Division provides a wide variety of services for ADOT business areas and employees. The Administrative Services Division’s work units include Equipment Services, Facilities Maintenance & Support, Procurement, Safety & Health, and Audit & Analysis. The Administrative Services Division also oversees operations of the Grand Canyon National Park Airport. • The Multimodal Planning Division is responsible for the planning of the statewide transportation system, including highways and airports, in coordination with local and regional planning agencies. The Division produces the Five-Year Transportation Facilities Construction Program through which the Transportation Board establishes the priorities for highways and airports. The Division also supports statewide public transit planning, administers federal grants for transit planning in rural and metropolitan areas, and performs state regulatory safety oversight for the light rail system in Maricopa County. Overall, the Department employs approximately 3,750 persons. Budgetary Controls Upon the effective date of the operating budget appropriations bill, allocations are made to organizational levels within each division. The allocations result in a detailed operating budget that guides the divisions and programs in their financial operation. State funding for the Five-Year Transportation Facilities Construction Program is included in the capital outlay appropriations bill as a lump-sum budget without identifying individual projects. In the land, building, and improvements portion of that bill, each separate capital project is identified for control purposes. This bill also provides funding for building renewal purposes. The budgets are prepared on a cash basis except that liabilities (encumbrances) incurred before the end of the fiscal year and paid Comprehensive Annual Financial Report Fiscal Year 2016 ii within the next calendar month are charged against that prior fiscal year’s budget. With a few exceptions, such as the capital budgets, highway maintenance, and special line items, state appropriations typically lapse at the end of the fiscal year. The Department relies on the Arizona Financial Information System (AFIS) to control total expenditures by appropriation and to ensure budgetary compliance and management control. These features of AFIS include: encumbrance and pre-encumbrance capabilities, appropriation allocation and control capabilities to the expense budget/organization unit level, and management control reports from the expense budget/organizational unit level, with summary reporting capabilities by program, division, or appropriation. Factors Affecting Financial Condition Arizona Economy Arizona continued to experience measured economic growth in FY 2016 with employment, personal income and population all posting modest growth over FY 2015. On the bright side, the 12-month average price of gasoline, net of taxes, decreased 23.9 percent in FY 2016. In addition, the 12-month average price of use fuel (diesel), including taxes, decreased 25.3 percent in FY 2016. Both of these price decreases led to stronger than expected growth in gas and fuel tax revenues. According to AAA, the decrease in fuel prices was a result of abundant fuel supplies and declining crude oil costs. U.S. crude oil supplies are about 13 percent higher than a year ago. The national economy also experienced slow but positive economic growth in FY 2016 with employment and personal income posting modest gains. According to the July 21, 2016 Arizona Department of Administration’s employment report, the Arizona unemployment rate decreased from 6.0 percent in June 2015 to 5.8 percent in June 2016. During this period, the private sector created 83,000 jobs while the government sector lost 1,600 jobs for a net gain of 81,400. The number of jobs gained in FY 2016 was higher than the 53,500 jobs gained in FY 2015. The Department’s two main funding sources, the Highway User Revenue Fund (HURF) and the Regional Area Road Fund (RARF), also known as the Maricopa County Transportation Excise Tax, posted positive results in fiscal year 2016. In fiscal year 2016, the HURF revenue collections were $1,356.8 million, 5.1 percent above fiscal year 2015 and 1.9 percent above the forecast. The Regional Area Road Fund revenues equaled $396.8 million, an increase of 3.8 percent over fiscal year 2015, but 1.0 percent below the estimate. Fiscal year 2016 was the first year that RARF revenues surpassed the fiscal year 2007 high, while fiscal year 2016 HURF revenues were 1.8 percent below the fiscal year 2007 high. Arizona’s economy is expected to grow over the next two years, but at a slower rate than the historical growth prior to 2007. The June 2016 University of Arizona Economic and Business Research Center Forecast Report estimated Arizona non-farm employment will grow by 3.0 and 3.0 percent in calendar years 2016 and 2017, respectively. According to the June 2016 Western Blue Chip report, personal income in Arizona is expected to increase by 5.3 percent in calendar year 2016 and 5.5 percent in calendar year 2017. According to the Arizona Department of Administration, the population of Arizona is forecasted to grow by 1.6 percent in fiscal year 2016 and 1.7 percent in fiscal year 2017. The Department’s fiscal year 2017 HURF revenue estimate amounts to $1,415.6 million, an increase of 4.3 percent over fiscal year 2016. The HURF ten year compound growth rate for fiscal years 2007 through 2016 was -0.2 percent. The distribution of HURF revenues in fiscal year 2017 is estimated to be as follows: State Highway Fund $644.4 million; Arizona cities and towns $408.8 million; Arizona counties $254.7 million; Department of Public Safety $96.0 million; Economic Strength Project Fund $1.0 million; and the Motor Vehicle Division for the registration compliance/third party program $0.650 million. An estimated $10.0 million will be re-allocated from the State Highway Fund share of HURF vehicle license tax revenues with $6.8 million going to the State General Fund and $3.2 million going to the Department of Public Safety. The Maricopa County Transportation Excise Tax revenue forecast for fiscal year 2017 totals $411.4 million, an increase of 3.7 percent over fiscal year 2016. The Maricopa County Transportation Excise Tax ten year compound growth rate for fiscal years 2007 through 2016 was 0.1 percent. The distribution of the Maricopa County Transportation Excise Tax revenue in fiscal year 2017 is estimated to be as follows: Maricopa County Regional Area Road Fund $231.2 million for highways, $43.2 million for arterial streets, and $137.0 million for the Public Transportation Fund. Long-term Financial Planning The Department has developed a long-range forecasting model for revenues to be deposited in the Highway User Revenue Fund and the Maricopa County Regional Area Road Fund. This econometric modeling approach provides a framework that allows for the complex interaction of economic, Comprehensive Annual Financial Report Fiscal Year 2016 iii demographic, and technological factors which influence revenue collections over the long term. Using this process, the Department updates and publishes its official forecast on an annual basis, after the close of the fiscal year, and uses this data in developing cash-flow projections for the statewide Highway Construction Program and the Regional Transportation Plan (RTP) Freeway Program, two components of the Five-Year Transportation Facilities Construction Program (the other components being the Pima Association of Governments Highway Program and the Airport Program). These cash-flow projections incorporate estimates of all funding sources available to the capital program and estimates of project-related and other expenditures. Planned Construction Activity In June 2015, the Transportation Board approved a $4.5 billion statewide Highway Construction Program as part of the Five-Year Transportation Facilities Construction Program for fiscal years 2017 through 2021. This program provides funding for highway facilities on the National Highway System and the statewide system, as well as the Maricopa County Regional Transportation Plan. Altogether (including Maricopa County), the program includes $1.9 billion for expansion, $1.8 billion for preservation, and $0.66 billion for modernization. The Five-Year Transportation Facilities Construction Program includes approximately $1.8 billion for the RTP of freeway and expressway construction in Maricopa County, funded in large part from the Maricopa County Regional Area Road Fund. Obligations for the Regional Transportation Plan Freeway Program to date total $5.5 billion. The Department currently has 5 major RTP Freeway Program projects under design and 7 major projects under construction. Included in these project listings is the new South Mountain Freeway. The Department acquired 5,106 acres of land for the RTP Freeway Program. As part of the Five-Year Transportation Facilities Construction Program, the Transportation Board also adopted a $101.03 million (state share) Five-Year Airport Development Program that includes 512 projects at general aviation and air carrier airports located throughout the state. Other Information 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 Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. The Department’s Single Audit information is included in the Single Audit of the State of Arizona for the fiscal year ended June 30, 2016. 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, 2015. This accomplishment was the twenty-sixth 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. 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. Acknowledgments We would like 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 whose commitment, professionalism, and dedicated efforts contributed to the preparation of the fiscal year 2016 Comprehensive Annual Financial Report. Comprehensive Annual Financial Report Fiscal Year 2016 iv Comprehensive Annual Financial Report Fiscal Year 2016 vi Arizona Department of Transportation List of Principal Officials John S. Halikowski Director Scott Omer Deputy Director Operations Kevin Biesty Deputy Director for Policy Dallas Hammit Deputy Director Transportation Kristine Ward Chief Financial Officer Floyd Roehrich, Jr. Executive Officer Sonya E. Herrera Director Administrative Services Division Tim Lane Director Enforcement and Compliance Division Eric Jorgensen Director Motor Vehicle Division Michael Kies Director Multimodal Planning Division Arizona State Transportation Board Member Joseph E. La Rue, Chairman Deanna L. Beaver, Vice Chairman Jack Sellers, Member Michael S. Hammond, Member William R. Cuthbertson, Member Steve Stratton, Member Arlando S. Teller, Member Counties District 1 (Maricopa County) District 6 (Yavapai, Yuma, Mohave, and LaPaz Counties) District 1 (Maricopa County) District 2 (Pima County) District 3 (Cochise, Greenlee, and Santa Cruz Counties) District 4 (Gila, Graham, and Pinal Counties) District 5 (Apache, Coconino, and Navajo Counties) Comprehensive Annual Financial Report Fiscal Year 2016 Term Expires 2018 2018 2020 2021 2019 2022 2017 vii State of Arizona Department of Transportation Organization Chart Comprehensive Annual Financial Report Fiscal Year 2016 viii Financial Section Comprehensive Annual Financial Report Fiscal Year 2016 CliftonLarsonAllen LLP CLAconnect.com INDEPENDENT AUDITORS' REPORT The Honorable Douglas A. Ducey Governor of the State of Arizona Members of the Arizona State Legislature Arizona Department of Transportation Phoenix, Arizona Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the businesstype activities, each major fund, and the aggregate remaining fund information of the Arizona Department of Transportation (Department), as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the Department’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 1 The Honorable Douglas A. Ducey Governor of the State of Arizona Members of the Arizona State Legislature Arizona Department of Transportation Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Arizona Department of Transportation as of June 30, 2016, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis on pages 4 through 15, budgetary comparison information on pages 65 and 66, information about infrastructure assets reported using the modified approach on page 67 through 71, and the Department’s proportionate share of the net pension liability and contributions on page 72 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary and Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Arizona Department of Transportation’s basic financial statements. The accompanying supplementary information, the Introductory Section and Statistical Section, as listed in the table of contents, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The Supplementary Information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the Supplementary Information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. The Introductory Section and Statistical Section have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them. 2 The Honorable Douglas A. Ducey Governor of the State of Arizona Members of the Arizona State Legislature Arizona Department of Transportation Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have issued our report dated January 30, 2017, on our consideration of the Department’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Department’s internal control over financial reporting and compliance. a CliftonLarsonAllen LLP Phoenix, Arizona January 30, 2017 3 Arizona Department of Transportation Management’s Discussion and Analysis For the Year Ended June 30, 2016 As management of the Arizona Department of Transportation (the “Department”), we offer readers of the Department’s financial statements this narrative overview and analysis of the financial activities of the Department for the fiscal year ended June 30, 2016. We encourage readers to consider the information presented here in conjunction with the Letter of Transmittal, which can be found on pages i‐v, and the Department’s basic financial statements, which begin on page 16, with the accompanying notes and Required Supplementary Information (RSI). Financial Highlights Government-Wide • The net position of the Department at the close of the fiscal year is $19.1 billion, compared to $18.3 billion for fiscal year 2015, an increase of 4.3%. Of this amount, $10.7 million represents the unrestricted component as compared to ($57.2) million at the end of 2015. • The Department’s capital assets are $21 billion, compared to $20.3 billion for fiscal year 2015, an increase of 3.3%. This increase is attributable to the results of highway construction activity. The Department’s net investment in capital assets is $18.3 billion, compared to $17.5 billion for fiscal year 2015, an increase of 4.6%. • The Department’s total liabilities are $3.5 billion, compared to $3.6 billion in 2015. The Department had $183.1 million less in bonds outstanding in 2016 than in 2015. During fiscal year 2016, there were no new bonds issued and $217.5 million in bonds retired. Fund Level • As of the close of the fiscal year, the governmental funds of the Department reported combined ending fund balances of $1.2 billion, as compared to $1.2 billion in 2015. • The total restricted fund balance is $885.6 million; the majority of this amount is restricted for capital projects. Inventories of $6.2 million represent the nonspendable portion of fund balance while $299.6 million represents the committed fund balance portion. • The proprietary funds reported net position at year‐end of $59.3 million, as compared to $79.2 million in 2015. Overview of Financial Statements This discussion and analysis is intended to serve as an introduction of the Department’s basic financial statements. The Department’s basic financial statements consist of three components: 1) government‐wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other Required Supplementary Information, in addition to the basic financial statements. Government-wide Financial Statements (Reporting the Department as a Whole) The government‐wide financial statements are designed to present an overall picture of the financial position of the Department. These statements consist of the Statement of Net Position and the Statement of Activities, and are prepared using the accrual basis of accounting, which is similar to the accounting used by most private sector Comprehensive Annual Financial Report Fiscal Year 2016 4 Arizona Department of Transportation Management’s Discussion and Analysis For the Year Ended June 30, 2016 companies. All of the current year’s revenues and expenses are taken into account regardless of when cash is received or paid. The Statement of Net Position combines and consolidates the Department’s current financial resources with capital assets and long‐term obligations. This statement includes all of the Department’s assets and liabilities. Net position is the difference between the Department’s assets and deferred outflows of resources less liabilities and deferred inflows of resources, and represents one measure of the Department’s financial health. • An increase or decrease in the Department’s net position from one year to the next is an indicator of whether its financial health is improving or declining. • Other indicators of the Department’s financial health include the condition of its roads and bridges (infrastructure) and economic trends affecting the Department’s future tax revenues. The Statement of Activities focuses on both the gross and net cost of various activities (governmental and business‐type); these costs are paid by the Department’s general tax and other revenues. This statement summarizes the cost of providing specific Department services and includes all current year revenues and expenses. The Statement of Net Position and the Statement of Activities divide the Department’s activities into two types: Governmental Activities—The Department’s basic services are reported here, including administration, highway, highway maintenance, and motor vehicle. Taxes, fees, and federal grants finance most of these activities. Business-type Activities—Activities for which the Department charges a fee to customers to pay for most or all of the costs of the services it provides are reported as business‐type activities. The Department’s Highway Expansion and Extension Loan Program (HELP) is reported here. The government‐wide financial statements can be found on pages 16‐17 of this report. This report includes two schedules (Exhibit 3.1 and Exhibit 4.1) that reconcile the amounts reported on the governmental fund financial statements (prepared using the modified accrual basis of accounting and current financial resources measurement focus) with governmental activities (prepared using the accrual basis of accounting and economic resources measurement focus) on the appropriate government‐wide statements. The following summarizes the impact of utilizing Governmental Accounting Standards Board Statement 34 (GASB 34), as amended, reporting: • Capital assets used in governmental activities are not reported on governmental fund statements. • Long‐term assets that are not available to pay for current period expenditures are not reported on governmental fund statements. • Internal service fund activities are reported as governmental activities, but reported as proprietary funds in the fund financial statements. • Bond issuance costs are expensed as governmental activities. • Unless currently due and payable, long‐term liabilities, such as capital lease obligations, compensated absences, bonds, notes payable, and others only appear as liabilities on the government‐wide statements. Comprehensive Annual Financial Report Fiscal Year 2016 5 Arizona Department of Transportation Management’s Discussion and Analysis For the Year Ended June 30, 2016 • Capital outlay spending results in capital assets on the government‐wide statements, but is reported as expenditures on the governmental fund statements. • Bond and note proceeds result in liabilities on the government‐wide statements, but are recorded as other financing sources on the governmental fund statements. • Certain other outflows represent either increases or decreases in liabilities on the government‐wide statements, but are reported as expenditures on the governmental fund statements. Fund Financial Statements (Reporting the Department’s Major Funds) The fund financial statements begin on page 18 and provide detailed information about the major individual funds. A fund is an accounting entity with a self‐balancing set of accounts that the Department uses to keep track of specific sources of funding and spending for a particular purpose. The Department, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance‐related legal requirements. All of the funds of the Department can be divided into two categories: governmental and proprietary. Governmental Funds—A majority of the Department’s activities are reported in governmental funds. Reporting of these funds focuses on how financial resources flow in and out of the funds, and amounts remaining at year‐end for future spending. Governmental funds are accounted for using the modified accrual basis of accounting, which measures cash and other assets that can be readily converted to cash. The governmental fund statements provide a detailed short‐term view of the Department’s general governmental operations and the basic services it provides. This information should help determine whether there are more or less current financial resources available for the Department’s programs. The reconciliations following the fund financial statements explain the differences between the government’s activities, reported in the government‐wide statement of activities, and the governmental funds. The Department maintains fifteen individual governmental funds. Information is presented separately in the governmental funds Balance Sheet and the governmental funds Statement of Revenues, Expenditures, and Changes in Fund Balances for the General Fund (State Highway Fund), Maricopa Regional Area Road Construction Fund, Motor Vehicle Division Clearing Fund, Highway User Revenue Fund, Debt Service Fund, and Capital Projects Fund, which are considered to be major funds. Data from the other nine governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds are provided in the form of combining statements elsewhere in this report. The legislature appropriates an annual budget from the Department’s General Fund (State Highway Fund). The Budgetary Comparison Schedule – General Fund (State Highway Fund) has been provided to demonstrate compliance with this budget and is presented as Required Supplementary Information. The governmental funds financial statements can be found on pages 18‐25 of this report. Proprietary Funds: When the Department charges customers for the services it provides, these services are generally reported in proprietary funds. Proprietary funds (enterprise and internal service) utilize full accrual accounting, the same method used by most private sector businesses. Enterprise funds report activities that provide goods and services to outside customers, to other agencies, or to other divisions of the Department. The Department’s enterprise fund is the Highway Expansion and Extension Loan Program Fund. The internal service fund reports activities that provide supplies and services for the Department’s other programs and activities and other state agencies. The Equipment Revolving Fund is the Department’s only internal service fund. Internal Comprehensive Annual Financial Report Fiscal Year 2016 6 Arizona Department of Transportation Management’s Discussion and Analysis For the Year Ended June 30, 2016 service fund activities are reported as governmental activities on the government‐wide statements. The proprietary funds financial statements can be found on pages 26‐29 of this report. Notes to the Financial Statements The notes provide additional information that is essential to a full understanding of the data provided in the government‐wide and fund financial statements. The notes to the financial statements can be found on pages 30‐ 64 of this report. Required Supplementary Information In addition to the basic financial statements, including accompanying notes, this section presents certain Required Supplementary Information including the Department’s Budgetary Comparison Schedule – General Fund (State Highway Fund), the modified approach to reporting infrastructure assets, and the Pension Liability and Pension Contributions as per GASB statement 68, as amended. Required Supplementary Information can be found on pages 65-72 of this report. Supplementary Information Other Supplementary Information includes the combining statements for the nonmajor governmental funds and is presented immediately following the Required Supplementary Information. Combining fund statements and schedules can be found on pages 73‐76 of this report. Government-wide Financial Analysis As noted earlier, net position may serve over time as a useful indicator of the Department’s financial health. The following tables, graphs, and analyses address the net position and changes to net position for the Department as a whole as of and for the fiscal years ended June 30, 2016 and 2015. The Department’s combined net position increased by $784.5 million over the course of this fiscal year’s operations, an increase of 4.3%. The net position of the governmental activities increased by $804.0 million, or 4.4%; and business-type activities decreased by $19.5 million, a decrease of 25% over the previous year. The overall increase in the Department’s net position was due primarily to an increase in the Department’s infrastructure. Comprehensive Annual Financial Report Fiscal Year 2016 7 Arizona Department of Transportation Management’s Discussion and Analysis For the Year Ended June 30, 2016 The following table reflects the condensed Statement of Net Position as of June 30, 2016 and 2015: Condensed Statement of Net Position As of June 30, Governmental Activities 2016 2015 Business-Type Activities 2016 Total 2015 2016 2015 Assets Current and other assets Capital assets Total assets Deferred Outflows of Resources $ 1,486,427,479 $ 1,474,303,545 $ 20,307,159,233 20,971,599,914 22,458,027,393 21,781,462,778 59,293,343 $ 59,293,343 83,207,708 $ 1,545,720,822 $ 1,557,511,253 18,328 20,971,599,914 20,307,177,561 83,226,036 22,517,320,736 21,864,688,814 93,921,223 109,108,947 - 227,258 93,921,223 109,336,205 299,304,777 3,161,519,626 3,460,824,403 232,093,784 3,346,919,370 3,579,013,154 - 2,057,201 1,916,635 3,973,836 299,304,777 3,161,519,626 3,460,824,403 234,150,985 3,348,836,005 3,582,986,990 28,720,206 53,525,346 - 307,767 28,720,206 53,833,113 18,305,645,969 746,099,060 17,496,121,617 819,445,518 59,293,343 18,328 78,770,273 18,305,645,969 805,392,403 17,496,139,945 898,215,791 59,293,343 $ 383,090 10,658,978 (57,150,820) 79,171,691 $ 19,121,697,350 $ 18,337,204,916 Liabilities Other liabilities Noncurrent liabilities Total liabilities Deferred Inflows of Resources Net Position Net investment in capital assets Restricted Unrestricted Total net position 10,658,978 (57,533,910) $ 19,062,404,007 $ 18,258,033,225 $ The total assets of the Department (excluding deferred outflows of resources) were $22.5 billion, while total liabilities (excluding deferred inflows of resources) were $3.5 billion, resulting in a net position balance of $19.1 billion. The majority of the Department’s net position, $18.3 billion (95.7%), was invested in capital assets (e.g., land, infrastructure, buildings, machinery, and equipment), net of any related debt used to acquire those assets. The Department uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the Department’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other resources, since the capital assets themselves cannot be used to liquidate these liabilities. The governmental activities reported an increase in capital assets with the largest increase being in the area of infrastructure. During the fiscal year ended June 30, 2016, ADOT reclassified the Arizona Highways Magazine from Business-Type Activities to Governmental Activities. The 2015 numbers in this table have not been revised to reflect this change. See Note 2 for further information. Comprehensive Annual Financial Report Fiscal Year 2016 8 Arizona Department of Transportation Management’s Discussion and Analysis For the Year Ended June 30, 2016 The following condensed financial information was derived from the government‐wide Statement of Activities and reflects how the Department’s net position changed during the year, compared to the prior year: Condensed Statement of Activities For the Years Ended June 30, Governmental Activities 2016 2015 167,982,852 $ 134,446,359 856,433,851 145,815,312 $ 172,279,124 696,876,955 Business-Type Activities 2016 Total 2015 2016 2015 167,982,852 $ 134,446,359 856,433,851 150,888,420 172,279,124 696,876,955 Revenues Program revenues Charges for services Operating grants and contributions Capital grants and contributions General revenues Motor vehicle registration, title, and related taxes Fuel and motor carrier taxes and fees Transportation excise taxes Flight property taxes Income from investments Other Gain (loss) on sale of capital assets Total revenues $ 1,134,913,276 735,927,602 262,970,657 9,620,180 9,064,236 6,990,075 60,471 3,318,409,559 1,036,501,712 686,041,839 254,871,189 8,595,398 9,989,166 10,264,182 151,096 3,021,385,973 1,260,018,637 373,006,370 232,905,324 122,025,358 116,067,188 114,649,721 113,029,280 93,840,131 88,898,186 1,155,651,075 315,348,743 189,517,017 41,835,681 137,473,410 98,371,365 92,519,607 94,955,871 98,854,942 2,514,440,195 2,224,527,711 803,969,364 796,858,262 - $ 559,869 559,869 5,073,108 $ - 612,623 5,685,731 1,134,913,276 735,927,602 262,970,657 9,620,180 9,624,105 6,990,075 60,471 3,318,969,428 1,036,501,712 686,041,839 254,871,189 8,595,398 10,601,789 10,264,182 151,096 3,027,071,704 4,739,367 - 1,260,018,637 373,006,370 232,905,324 122,025,358 116,067,188 114,649,721 113,029,280 93,840,131 88,898,186 1,155,651,075 315,348,743 189,517,017 46,575,048 137,473,410 98,371,365 92,519,607 94,955,871 98,854,942 43,169 4,782,536 20,036,799 2,534,476,994 43,169 2,229,310,247 903,195 784,492,434 797,761,457 Expenses Distributions to Arizona counties and cities Noncapital, including asset preservation Distributions to other state agencies Highway Highway maintenance Local governmental assistance Motor vehicle Interest on long-term debt Administration Highway Expansion and Extension Loan Program Total expenses Changes in net position Net position, beginning Net position, ending 17,461,174,963 18,258,434,643 $ 19,062,404,007 $ 18,258,033,225 $ 20,036,799 20,036,799 (19,476,930) 78,770,273 59,293,343 $ 78,268,496 18,337,204,916 17,539,443,459 79,171,691 $ 19,121,697,350 $ 18,337,204,916 During the fiscal year ended June 30, 2016, ADOT reclassified the Arizona Highways Magazine from Business-Type Activities to Governmental Activities. The 2015 numbers in this table have not been revised to reflect this change. See Note 2 for further information. Comprehensive Annual Financial Report Fiscal Year 2016 9 Arizona Department of Transportation Management’s Discussion and Analysis For the Year Ended June 30, 2016 Governmental Activities The following chart depicts revenues of the governmental activities for the fiscal year ended June 30, 2016: Revenues – Governmental Activities $3,318,409,559 Operating grants and contributions, 4.0% Charges for services, 5.1% Transportation excise taxes, 7.9% Fuel and motor carrier taxes and fees, 22.2% Other revenues including flight property taxes and gain on sale of capital sales, 0.5% Income from investments, 0.3% Vehicle registration, title, license and related taxes, 34.2% Capital grants and contributions, 25.8% Of the Department’s revenues, $2.7 billion (or 82.2%) are from the following three revenue sources: • Vehicle registration, title, license, and related taxes comprise the Department’s largest revenue source of $1.1 billion (34.2%). • Capital grants and contributions represent the Department’s second largest revenue source of $856.4 million (25.8%). • Fuel and motor carrier taxes and fees represent the Department’s third largest revenue source of $735.9 million (22.2%). Comprehensive Annual Financial Report Fiscal Year 2016 10 Arizona Department of Transportation Management’s Discussion and Analysis For the Year Ended June 30, 2016 The Department’s two main funding sources, the Highway User Revenue Fund (HURF) and the Regional Area Road Fund (RARF), also known as the Maricopa County Transportation Excise Tax, posted positive year‐results in fiscal year 2016. HURF collections totaled approximately $1,356.8 million, 5.1% above fiscal year 2015 and 1.9% above the forecast. Maricopa County Transportation Excise Tax collections totaled $396.8 million, an increase of 3.8 % over fiscal year 2015 and 1.0% above the Department’s estimate. The Transportation Excise Tax distribution to the Department was $263 million compared to $254.9 million for fiscal year 2015. The following chart depicts expenses of the governmental activities for the fiscal year ended June 30, 2016: Expenses – Governmental Activities $2,514,440,195 Motor Vehicle, 4.5% Local governmental assistance, 4.6% Interest on long-term debt, 3.7% Administration, 3.5% Highway Maintenance, 4.6% Highway, 4.9% Distributions to other state agencies, 9.3% Noncapital, including asset preservation, 14.8% Comprehensive Annual Financial Report Fiscal Year 2016 Distributions to Arizona Counties and cities, 50.1% 11 Arizona Department of Transportation Management’s Discussion and Analysis For the Year Ended June 30, 2016 Of the Department’s expenses, $1.9 billion (or 74.2%) were for the following: • Distributions to Arizona counties and cities comprise the Department’s largest expense of $1.3 billion (50.1%). • Noncapital, including asset preservation, represents the Department’s second largest expense of $373 million (14.8%). • Distributions to other state agencies represent the Department’s third largest expense of $232.9 million (9.3%). Distributions to Arizona counties and cities increased in fiscal year 2016 as compared to fiscal year 2015 due to an increase in gas and fuel tax revenue collections. The distributions to other government entities equal $1.5 billion (59.4%); making up more than half of the expenditures for fiscal year 2016. Business-Type Activities Net position for business‐type activities decreased by $19.5 million in fiscal year 2016. Total revenues were $560 thousand, all of which came from income from investments. The total expenses for business‐type activities were $20 million. The Highway Expansion and Extension Loan Program did not approve or disburse any loans in Fiscal Year 2016. Interest revenue decreased this fiscal year due to the lower interest rates during the year. Financial Analysis of the Department’s Funds As previously mentioned, the Department uses fund accounting to ensure and demonstrate compliance with budgetary and legal requirements. The following is a brief discussion of financial highlights from the fund financial statements. Governmental Funds: The focus of the Department’s governmental funds financial statements (pages 18‐25) is to provide information on near‐term inflows, outflows, and balances of spendable resources. All major governmental funds are discretely presented on these financial statements, while the nonmajor governmental funds are combined into a single column. Combining statements for the nonmajor governmental funds may be found on pages 73‐76. As of the end of the fiscal year, the fund balances of the governmental funds totaled $1.2 billion, a decrease of $57.5 million over the previous fiscal year. The majority of this amount is restricted for capital projects. The General Fund (State Highway Fund) is the primary operating fund of the Department. At the end of the current fiscal year, the non‐spendable fund balance was $6.2 million; the restricted fund balance was $337.5 million; and the committed fund balance was $282.3 million. The Maricopa Regional Area Road Construction Fund is a major special revenue fund that receives a portion of Maricopa County Transportation Excise Tax monies that are used to provide a funding source for the construction of new freeways and other routes, improvements to existing freeways and other routes, and improvements to the arterial street system within Maricopa County. Total revenues collected in the fund in fiscal year 2016 were $568.1 million; Transportation Excise Tax revenue of $263 million (or 46.3%) was the bulk of the revenue. The remaining revenue was mainly federal revenue and income from investments. Comprehensive Annual Financial Report Fiscal Year 2016 12 Arizona Department of Transportation Management’s Discussion and Analysis For the Year Ended June 30, 2016 The Debt Service Fund is used for the accumulation of resources for, and the payment of, general long‐term debt principal and interest of the governmental funds. The other financing sources of $304.3 million were transferred in from the General Fund (State Highway Fund) ($144.1 million), Maricopa Regional Area Road Construction Fund ($103.3 million), and Grant Anticipation Notes Fund ($56.9 million), and were used to pay the debt service. The Capital Projects Fund is used to account for financial resources used for the acquisition or construction of major capital facilities in the governmental funds. During the fiscal year, the Capital Projects Funds’ expenditures were $67.8 million. Capital outlay expenditures of $51.6 million (76.1%) accounted for the majority of the expenditures in the Capital Projects Fund. This expenditure for the acquisition and construction of new highways was converted to capital assets on the government‐wide statements. Budget Variances The Department’s appropriated operating budget from the General Fund (State Highway Fund) increased by about $1.0 million from fiscal year 2015 to fiscal year 2016. The increase was primarily due to the increased cost to maintain and operate new lane miles. In fiscal year 2015, the Department spent 97.5% of its budget and in fiscal year 2016 the Department spent 94.2% of its budget. Ultimately, the Department spent about $7.9 million less in fiscal year 2016 than in fiscal year 2015 from its appropriated operating budget from the General Fund (State Highway Fund). Reference the budgetary comparison schedule on page 65. Capital Assets and Debt Administration Capital Assets (See Note 5A to the financial statements for additional information) The Department’s investment in capital assets for its governmental and business‐type activities as of June 30, 2016, amounts to $21 billion (net of accumulated depreciation), a $664.4 million increase over the previous fiscal year. Capital Assets June 30, Governmental Activities 2016 Land Infrastructure Construction in progress Buildings and improvements Improvements other than buildings Machinery and equipment Mobile fleet and aircraft Total $ 3,232,963,015 Business-Type Activities 2015 $ 2,977,145,531 2016 $ Total 2015 - $ 2016 7,900 $ 3,232,963,015 2015 $ 2,977,153,431 16,095,093,730 15,732,568,650 - - 16,095,093,730 15,732,568,650 1,422,492,003 104,236,514 1,358,933,346 104,164,773 - 4,471 1,422,492,003 104,236,514 1,358,933,346 104,169,244 20,718,360 31,609,100 46,770,729 21,970,078 - 5,957 20,718,360 31,609,100 46,770,729 21,976,035 64,487,192 65,606,126 $ 20,971,599,914 $ 20,307,159,233 $ - $ 18,328 64,487,192 65,606,126 $ 20,971,599,914 $ 20,307,177,561 As provided by accounting principles generally accepted in the United States (GAAP), the Department has elected to record its infrastructure assets using the modified approach, as defined in GASB Statement 34, as amended. Assets accounted for under the modified approach include 6,800 center line miles of roads (21,390 travel lane miles) and 4,798 bridges that the Department is responsible for maintaining. Comprehensive Annual Financial Report Fiscal Year 2016 13 Arizona Department of Transportation Management’s Discussion and Analysis For the Year Ended June 30, 2016 The Five‐Year Transportation Facilities Construction Program (the “Program”) is a dynamic program and adjustments are made to the annual plans based on the needs of the Department to maintain the condition level of the roads and bridges at a level equal to, or greater than, the goals established by the Department. The Program is updated annually and adjustments are made monthly during the fiscal year, as circumstances may require. The Department manages its roads using the Present Serviceability Rating (PSR), which measures the condition of the pavement and its ability to serve the traveling public. The PSR uses a five‐point scale (5 excellent, 0 impassable) to characterize the condition of the roadway. The Department’s serviceability rating goal is 3.23 for the overall system. The Department’s most recent assessment indicated that an overall rating of 3.66 was achieved for fiscal year 2016. The Department manages its bridges using the Arizona Bridge Information and Storage System (ABISS). To comply with Federal standards, the Department is expected to maintain its Bridges to a condition where not more than 10.0% are classified as poor. The Department’s most recent assessment indicated that 2.9% of the bridges were so classified for fiscal year 2016. Noncurrent Liabilities (See Note 5E to the financial statements for additional information) The Department’s noncurrent liabilities for its governmental and business-type activities as of June 30, 2016, amount to $3.2 billion, a decrease of $185.6 million from the previous fiscal year. Governmental Activities Highway revenue bonds Transportation excise tax revenue bonds Grant anticipation notes (GARVEE bonds) Unamortized Premium on bonds Capital leases Compensated absences Net pension liability and net OPEB obligation (Note 6C) Advances and notes payable Total governmental activities 2016 2015 $ 1,519,770,000 $ 1,589,965,000 717,225,000 147,320,000 782,810,000 194,670,000 367,142,825 37,745,660 401,520,619 30,944,653 18,307,328 331,830,170 22,178,643 18,742,433 306,088,022 22,178,643 3,161,519,626 3,346,919,370 Business-Type Activities Compensated absences Total business-type activities Total noncurrent liabilities - 156,652 - 156,652 $ 3,161,519,626 $ 3,347,076,022 The Department has issued revenue bonds in 35 separate issues since 2000. All bonds outstanding as of June 30, 2016, are scheduled to mature on various dates, but none later than July 1, 2038. The bonds are obligations of the Transportation Board of the State of Arizona Department of Transportation (the “Transportation Board”) and are not obligations of the State of Arizona. Comprehensive Annual Financial Report Fiscal Year 2016 14 Arizona Department of Transportation Management’s Discussion and Analysis For the Year Ended June 30, 2016 The senior lien Highway Revenue Bonds have been rated AAA/Aa1 by Standard & Poor’s Ratings Services and Moody’s Investors Service, respectively. The Department’s subordinate lien Highway Revenue Bonds are rated AA+/Aa2. The Department’s Transportation Excise Tax Revenue Bonds are rated AA+/Aa1. The Department’s Grant Anticipation Notes (GARVEE bonds) are rated AA/Aa2/AA with the additional rating provided by Fitch Ratings. Requests for Information This financial report is designed to provide our citizens, taxpayers, customers, investors, and creditors with an overview of the Department’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Controller, Arizona Department of Transportation, 206 S. 17th Avenue, Phoenix, Arizona, 85007, or by visiting our website at: http://www.azdot.gov/about/FinancialManagementServices/transportation-funding/financial-reports. Comprehensive Annual Financial Report Fiscal Year 2016 15 BASIC FINANCIAL STATEMENTS Government‐wide Financial Statements – includes a statement of net position and a statement of activities. These statements report the overall Department activities. The statements also distinguish between the Department’s government and business-type activities. These statements are prepared utilizing the accrual basis of accounting for financial reporting. Governmental and Proprietary Fund Financial Statements – Provides information about the Department’s funds. Separate statements are presented for the governmental and proprietary fund categories. The emphasis of fund financial statements is on major governmental and enterprise funds, each displayed in a separate column. All remaining governmental and enterprise funds are aggregated and reported as nonmajor funds. Notes to the Financial Statements – provide additional information that is essential for the full understanding of the data provided in the government-wide and fund financial statements. Comprehensive Annual Financial Report Fiscal Year 2016 GOVERNMENT-WIDE FINANCIAL STATEMENTS Statement of Net Position – combines and consolidates the Department’s current financial resources with capital assets and long‐term obligations. This statement includes all of the Department’s non‐fiduciary assets and liabilities. Statement of Activities – focuses on both the gross and net cost of various activities (governmental and business‐ type); these costs are paid by the Department’s general tax and other revenues. This statement summarizes the cost of providing specific Department services and includes all current year revenues and expenses. Comprehensive Annual Financial Report Fiscal Year 2016 Arizona Department of Transportation Exhibit 1 Statement of Net Position June 30, 2016 Governmental Activities Primary Government Business-Type Activities Total Assets Unrestricted cash on deposit with State Treasurer Receivables Taxes and fees Notes and loans Other, net of allowance for doubtful accounts Due from U.S. government Due from other state agencies Inventories Restricted cash on deposit with State Treasurer Restricted cash with fiscal agents Capital assets not subject to depreciation (Notes 5A) Capital assets subject to depreciation, net of accumulated depreciation, (Notes 5A) Total assets $ 232,243,239 $ - $ 232,243,239 74,157,406 3,472,154 14,414,460 65,096,195 22,584,082 8,696,351 1,065,216,825 546,767 20,750,548,748 59,293,343 - 74,157,406 3,472,154 14,414,460 65,096,195 22,584,082 8,696,351 1,124,510,168 546,767 20,750,548,748 221,051,166 22,458,027,393 59,293,343 221,051,166 22,517,320,736 Deferred Outflows of Resources Relating to pensions (Note 6C) Loss on debt refundings Total deferred outflows of resources 31,877,605 62,043,618 93,921,223 - 31,877,605 62,043,618 93,921,223 110,751,611 10,650,516 12,548,303 15,575,257 147,991,868 1,787,222 2,829,689,456 9,802,038 322,028,132 3,460,824,403 - 110,751,611 10,650,516 12,548,303 15,575,257 147,991,868 1,787,222 2,829,689,456 9,802,038 322,028,132 3,460,824,403 28,720,206 28,720,206 - 28,720,206 28,720,206 18,305,645,969 - 18,305,645,969 Liabilities Accounts payable and other current liabilities Accrued payroll and other accrued expenses Due to other state agencies Tax and refunds payable Due to Arizona counties and cities Unearned revenue Long-term obligations (Notes 5E) Net OPEB obligation (Note 6C) Net pension liability (Note 6C) Total liabilities Deferred Inflows of Resources Relating to pensions (Note 6C) Total deferred inflows of resources Net Position Net investment in capital assets Restricted Loans and other financial assistance Capital projects Unrestricted Total net position 17,708,713 728,390,347 10,658,978 $ 19,062,404,007 $ 59,293,343 77,002,056 728,390,347 10,658,978 59,293,343 $ 19,121,697,350 The accompanying notes are an integral part of these financial statements. Comprehensive Annual Financial Report Fiscal Year 2016 16 Arizona Department of Transportation Exhibit 2 Statement of Activities For the Year Ended June 30, 2016 Program Revenues Operating Grants and Contributions Charges for Services Expenses Capital Grants and Contributions Net (Expenses) Revenues Functions/Programs Governmental activities Administration Highway Highway maintenance Motor vehicle Noncapital, including asset preservation Distributions to other state agencies Distributions to Arizona counties and cities Local government assistance Interest on long-term debt Total governmental activities Business-type activities Highway Expansion and Extension Loan Program Total business-type activities Total primary government $ 88,898,186 122,025,358 116,067,188 113,029,280 373,006,370 232,905,324 1,260,018,637 114,649,721 93,840,131 $ 13,185,551 2,596,575 6,301,700 145,899,026 - $ 167,982,852 2,514,440,195 4,548,967 17,925,767 520,328 111,451,297 - $ 134,446,359 45,457,540 810,744,433 3,645 228,233 856,433,851 20,036,799 - - - 20,036,799 - - - $ 2,534,476,994 $ 167,982,852 $ 134,446,359 $ Governmental Activities Net (expenses) revenues General revenues Transportation excise taxes Motor vehicle registration, title, and related taxes Fuel and motor carrier taxes and fees Flight property taxes Income from investments Gain on sale of capital assets Other Total general revenues Changes in net position Beginning net position Ending net position 856,433,851 Business-type Activities $ (1,355,577,133) $ $ (25,706,128) 709,241,417 (109,761,843) 33,618,307 (373,006,370) (232,905,324) (1,260,018,637) (3,198,424) (93,840,131) (1,355,577,133) (20,036,799) (20,036,799) $ (1,375,613,932) Total (20,036,799) $ (1,375,613,932) 262,970,657 1,134,913,276 735,927,602 9,620,180 9,064,236 60,471 6,990,075 559,869 - 262,970,657 1,134,913,276 735,927,602 9,620,180 9,624,105 60,471 6,990,075 2,159,546,497 559,869 2,160,106,366 803,969,364 (19,476,930) 18,258,434,643 $ 19,062,404,007 $ 784,492,434 78,770,273 18,337,204,916 59,293,343 $ 19,121,697,350 The accompanying notes are an integral part of these financial statements. Comprehensive Annual Financial Report Fiscal Year 2016 17 GOVERNMENTAL FUNDS FINANCIAL STATEMENTS MAJOR FUNDS General Fund (State Highway Fund) – This 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 including 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 design, construction, and maintenance of state highways, parts of highways forming state routes, and highways under cooperative agreements with the United States and day‐to‐day operating expenses. Maricopa Regional Area Road Construction Fund – This fund receives certain Maricopa County transportation excise tax monies collected by the Department of Revenue. These monies are used for the construction of new freeways and other routes, improvements to existing freeways and other routes, and improvements to the arterial streets within Maricopa County. Motor Vehicle Division Clearing Fund – This fund accounts for the collection and disbursement of Motor Vehicle Division revenues. Highway User Revenue Fund – This fund receives all revenues collected by the Department and its agents that are not designated for other purposes. The revenues include: motor fuel taxes, a portion of vehicle license tax, vehicle registration fees, driver license fees, dealer fees, permits, and other miscellaneous fees. These monies are distributed to the General Fund (State Highway Fund), the Department of Public Safety, the Economic Strength Project Fund, incorporated cities, counties, and other legislatively appropriated entities. Debt Service Fund – This fund is used to administer all payments of principal and interest on bonds and notes issued by the Arizona Transportation Board for Highway Revenue Bonds, Transportation Excise Tax Revenue Bonds, and Grant Anticipation Notes (GARVEE bonds). Capital Projects Fund – This fund is used to administer bond proceeds for Arizona Transportation Board Highway Revenue Bonds, Arizona Transportation Board Transportation Excise Tax Revenue Bonds, Grant Anticipation Notes (GARVEE bonds). These monies are expended for the construction of projects in the Five‐Year Transportation Facilities Construction Program. NONMAJOR FUNDS Other Governmental Funds are the nonmajor funds and are all special revenue funds. These funds can be found on Exhibit 8 and Exhibit 9. Comprehensive Annual Financial Report Fiscal Year 2016 Arizona Department of Transportation Balance Sheet — Governmental Funds June 30, 2016 Special Revenue Funds Maricopa Regional Motor Vehicle Area Road Division Construction Clearing Fund Fund General Fund (State Highway Fund) Assets Unrestricted cash on deposit with the State Treasurer $ Receivables Interfund $ 100,140,520 Taxes and fees - Notes and loans 561,377 Due from other state agencies Amounts due from U.S. government Inventories $ 820,282 - 11,036,999 - 22,584,082 272,622 40,415,747 16,675,354 95,686 - - 546,767 336,987,207 - - 5,144,974 6,178,810 Restricted cash held by fiscal agents Restricted cash on deposit with the State Treasurer - - - Other, net Total assets 214,431,885 - 383,637,716 65,997,440 $ 704,407,287 $ 423,169,774 $ 77,950,407 $ 60,528,255 9,593,963 820,282 $ 28,457,079 255,157 - $ 1,017,738 15,575,257 30,056,116 Liabilities, Deferred Inflows of Resources and Fund Balances Liabilities Accounts payable Accrued payroll and other accrued expenditures Tax and refunds payable Interfund payables Amounts due to Other state agencies Arizona counties and cities - - 6,559,276 Unearned revenue 5,091,155 1,787,222 3,601,165 - 32,870,443 - Total liabilities 77,820,877 32,313,401 86,078,830 Deferred inflows of resources Unavailable revenue 561,377 - - Fund balances Unassigned - Nonspendable Restricted Committed Total fund balances (deficits) Total liabilities, deferred inflows of resources and fund balances (deficits) - 6,178,810 $ 337,533,974 282,312,249 390,856,373 - 626,025,033 390,856,373 704,407,287 (8,128,423) - $ 423,169,774 (8,128,423) $ 77,950,407 The accompanying notes are an integral part of these financial statements. Comprehensive Annual Financial Report Fiscal Year 2016 18 Exhibit 3 Special Revenue Funds Highway User Revenue Fund $ Debt Service Fund - $ 26,690,672 63,120,407 - Capital Projects Fund - $ - - - - - - - $ 16,468,314 Total Governmental Funds $ 3,114,056 230,900,199 130,765,530 - 74,157,406 2,910,777 3,472,154 - - - - - - 8,871,402 14,384,684 - - - 8,005,094 65,096,195 - - - 110,489,183 232,883 $ 200,300,262 $ $ 99,889,132 $ - $ Total Nonmajor Governmental Funds (See Exhibit 8) 232,883 - - 22,584,082 - 145,195,300 6,178,810 22,677,096 546,767 1,065,216,825 $ 145,195,300 $ 62,046,739 $ 1,613,302,652 $ 5,842,274 69,222 - $ 14,764,702 300,934 - $ 110,610,048 10,219,276 15,575,257 130,765,530 - - 5,989,027 12,548,303 100,411,130 - - - 6,017,975 - 147,991,868 1,787,222 200,300,262 - 27,072,638 429,497,504 5,911,496 - - - - 561,377 - - - - (8,128,423) - - - - 6,178,810 - 232,883 - 139,283,804 - 17,708,713 17,265,388 885,615,747 299,577,637 - 232,883 139,283,804 34,974,101 1,183,243,771 62,046,739 $ 1,613,302,652 200,300,262 $ 232,883 $ 145,195,300 $ The accompanying notes are an integral part of these financial statements. Comprehensive Annual Financial Report Fiscal Year 2016 19 Arizona Department of Transportation Exhibit 3.1 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position June 30, 2016 Fund balances – total governmental funds (Exhibit 3) $ 1,183,243,771 Amounts reported for governmental activities in the statement of net position (Exhibit 1) are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds (Note 4 B1). Certain receivables are not available to pay for current period expenditures and, therefore, are reported as deferred inflows of resources in the funds (Exhibit 3). 20,906,101,458 561,377 Internal service funds are used by management to charge the costs of equipment rentals to individual funds. The assets and liabilities of the internal service funds are included in governmental activities in the statement of net position (Exhibit 5). 53,251,319 Deferred outflows of resources are not reported in the funds (Notes 4 B2). 92,484,451 OPEB liabilities are not due and payable from current financial resources and, therefore, are not reported in the funds (Note 4 B3). (9,341,342) Pension liabilities are not due and payable from current financial resources and, therefore, are not reported in the funds (Note 4 B4). Long-term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported in the funds (Note 4 B5). Deferred inflows of resources related to pensions are not reported in the funds (Note 4 B6). Net position of governmental activities (Exhibit 1) (307,512,150) (2,828,959,285) (27,425,592) $ 19,062,404,007 The accompanying notes are an integral part of these financial statements. Comprehensive Annual Financial Report Fiscal Year 2016 20 Arizona Department of Transportation Statement of Revenues, Expenditures and Changes in Fund Balances — Governmental Funds For the Year Ended June 30, 2016 Special Revenue Funds Maricopa Regional Motor Vehicle Area Road Division Construction Clearing Fund Fund General Fund (State Highway Fund) Revenues Transportation excise taxes $ - $ 262,970,657 $ - Vehicle registration, title, license, and related taxes and fees 364,211,789 - Fuel and motor carrier taxes and fees 282,499,056 - - - - Flight property taxes Reimbursement of construc on expenditures − federal aid Other federal grants and reimbursements Reimbursements from Arizona counties and cities Distributions from other state agencies Interest on loans receivable 492,327,144 20,700,502 4,818,225 - - - 47,593 - - 3,453,468 Sales and charges for services 9,188,717 Rental income Other 759,848 - 743,960 Income from investments Grand Canyon National Park Airport 299,345,147 550,527,971 - 3,130,734 - - - - - 3,388,112 4,257,314 1,862,395 - 6,305 1,185,635,880 568,068,781 550,534,276 63,851,491 3,464,117 2,317,783 Highway 104,691,671 4,608,219 Highway maintenance Motor vehicle 98,652,620 100,505,490 10,119,771 1,276 985,310 367,701,272 18,193,383 3,303,093 Total revenues Expenditures Current Administration Total current expenditures - The accompanying notes are an integral part of these financial statements. Comprehensive Annual Financial Report Fiscal Year 2016 21 Exhibit 4 Special Revenue Funds Highway User Revenue Fund $ Debt Service Fund - $ Total Nonmajor Governmental Funds (See Exhibit 9) Capital Projects Fund - $ - $ - Total Governmental Funds $ 262,970,657 346,608,419 - - 19,464,123 1,280,812,302 412,719,819 - - 40,708,727 735,927,602 - - - 9,620,180 9,620,180 - - - 68,313,014 859,985,305 - - - 85,959,020 106,659,522 18,657,310 24,235,383 - - - - - - 399,013 - 753,778 - 1,188,218 - - 743,960 159,142 206,735 139,025 9,064,236 - 9,188,717 - - 343,849 343,849 1,890,639 20,192 - 306,146 815,625 5,556,653 6,990,075 761,617,890 773,970 1,188,218 244,486,161 3,312,305,176 4,794,082 57,123 120,920 759,168 5,553,250 6,585,071 81,190,587 - - 53,710,908 163,010,798 - - 109,238 3,779,137 108,881,629 106,030,381 64,184,354 459,113,395 57,123 120,920 The accompanying notes are an integral part of these financial statements. Comprehensive Annual Financial Report Fiscal Year 2016 22 Arizona Department of Transportation Statement of Revenues, Expenditures and Changes in Fund Balances — Governmental Funds For the Year Ended June 30, 2016 Special Revenue Funds Maricopa Motor Vehicle Regional Division Area Road Clearing Construction Fund Fund General Fund (State Highway Fund) Expenditures − con nued Intergovernmental Distributions to other state agencies $ Distributions to Arizona counties and cities Debt service 9,012,551 $ 52,639,224 Principal 11,178,006 Interest Noncapital, including asset preservation Capital outlay - $ 43,885,737 57,264,841 489,966,342 - - 647,403 335,279,971 175,863,430 5,162,962 460,875,153 - Total expenditures 952,321,857 528,117,235 Revenues over (under) expenditures 233,314,023 39,951,546 - (144,111,139) 50,000 6,301,700 (103,296,981) 10,471 - - (137,759,439) (103,286,510) - 95,554,584 (63,334,964) - 550,534,276 Other Financing Sources (Uses) Transfers in Transfers out Sale of capital assets Insurance recovery Total other financing sources (uses) Net change in fund balances Fund balances (deficits), end of year 454,191,337 530,470,449 Fund balances (deficits), beginning of year $ 626,025,033 $ 390,856,373 (8,128,423) $ (8,128,423) The accompanying notes are an integral part of these financial statements. Comprehensive Annual Financial Report Fiscal Year 2016 23 Exhibit 4 — continued Special Revenue Funds Highway User Revenue Fund $ 105,749,042 $ - $ - - $ 60,964,057 8,146 84,133,987 232,990,491 1,320,949,034 - 121,801,162 - 15,988,429 51,643,007 322,185 1,231,515 122,448,565 356,753,547 689,613,105 304,988,285 67,760,502 210,836,098 3,376,176,143 - (304,214,315) (66,572,284) 33,650,063 (63,870,967) - 304,310,751 - - (56,902,631) - 304,310,751 (304,310,751) 60,471 6,301,700 - 304,310,751 - (56,902,631) 6,362,171 - 96,436 (23,252,568) (57,508,796) (66,572,284) 136,447 $ 232,883 - $ 183,130,000 - - Total Governmental Funds - 761,617,890 $ Capital Projects Fund Debt Service Fund 650,315,598 Total Nonmajor Governmental Funds (See Exhibit 9) 205,856,088 $ 139,283,804 $ 194,308,006 58,226,669 1,240,752,567 34,974,101 $ 1,183,243,771 The accompanying notes are an integral part of these financial statements. Comprehensive Annual Financial Report Fiscal Year 2016 24 Arizona Department of Transportation Exhibit 4.1 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the Year Ended June 30, 2016 Net change in fund balances – total governmental funds (Exhibit 4) $ (57,508,796) Amounts reported for governmental activities in the statement of activities are different because: Capital outlays are reported as expenditures in governmental funds (Note 4 C1). 665,096,577 Repayment of long-term debt is reported as an expenditure in governmental funds, but the repayment reduces long-term liabilities in the statement of net position (Note 4 C2). 222,916,440 Internal services funds are used by management to charge the cost of equipment rentals to individual funds. The net loss of the internal service funds is reported with governmental activities (Note 4 C3). (592,179) Pension contributions are reported as expenditures in the governmental funds (Note 4 C4). 1,058,590 (9,341,342) OPEB expense (Note 4 C4). Some items reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as revenues or expenditures in governmental funds (Note 4 C5). Change in net position of governmental activities (Exhibit 2) (17,659,926) $ 803,969,364 The accompanying notes are an integral part of these financial statements. Comprehensive Annual Financial Report Fiscal Year 2016 25 PROPRIETARY FUNDS FINANCIAL STATEMENTS MAJOR FUNDS Highway Expansion and Extension Loan Program Fund – This fund is an innovative financing mechanism to administer monies designated to provide loans and credit enhancement assistance to the Department and to sponsors of local transportation projects. NONMAJOR FUNDS Internal Service Fund – The Equipment Revolving Fund is primarily funded by the charges it collects from the Department of Transportation, other state agencies, and local organizations to support the repair and maintenance of vehicles and equipment. Comprehensive Annual Financial Report Fiscal Year 2016 Arizona Department of Transportation Exhibit 5 Statement of Net Position Proprietary Funds June 30, 2016 Business-Type Ac vi es − Enterprise Fund Highway Expansion and Extension Loan Program Fund Governmental ActivitiesInternal Service Fund Assets Current assets Unrestricted cash on deposit with the State Treasurer Receivables Other, net allowance for doubtful accounts Inventories Restricted cash on deposit with the State Treasurer Total current assets $ Noncurrent assets Capital assets subject to depreciation, net of accumulated depreciation Total noncurrent assets Total assets Deferred outflows of resources − relating to pensions - $ 1,343,040 59,293,343 59,293,343 29,776 2,517,541 3,890,357 59,293,343 65,498,456 65,498,456 69,388,813 - 1,436,772 - 141,563 431,240 730,171 1,302,974 - 460,696 14,515,982 14,976,678 16,279,652 - 1,294,614 Liabilities Current liabilities Accounts payable Accrued payroll and other accrued expenses Compensated absences Total current liabilities Noncurrent liabilities Net OPEB obligation Net pension liability Total noncurrent liabilities Total liabilities Deferred inflows of resources − rela ng to pensions Net Position Net investment in capital assets Restricted for loans and other financial assistance Unrestricted Total net position $ 59,293,343 59,293,343 $ 64,901,837 (11,650,518) 53,251,319 The accompanying notes are an integral part of these financial statements. Comprehensive Annual Financial Report Fiscal Year 2016 26 Arizona Department of Transportation Exhibit 6 Statement of Revenues, Expenses, and Changes in Fund Net Position – Proprietary Funds For the Year Ended June 30, 2016 Business-Type Ac vi es − Enterprise Fund Highway Expansion and Extension Loan Program Fund Governmental ActivitiesInternal Service Fund Operating Revenues Sales and charges for services Other Total operating revenues $ - $ 24,721,125 11,639 - 24,732,764 - 18,008,108 13,782,414 8,389,842 1,740,132 373,534 158,653 122,189 57,140 2,562,908 Operating Expenses Depreciation Salaries and related benefits Fuel and lubricants Repair and maintenance Professional and outside services Equipment purchase and rental Supplies Travel Other Total operating expenses - 45,194,920 Operating loss - (20,462,156) Nonoperating Income Income from investments Investment expense/credit card fees Gain on sale/disposal of capital assets Insurance recoveries Distributions to other state agencies 559,869 (36,799) (20,000,000) (19,476,930) Total nonoperating revenue (expenses) 1,226,320 - Capital contributions Change in net position 18,643,657 (19,476,930) (592,179) 78,770,273 Net position, beginning of year Net position, end of year 13,143 (1,201) 952,353 262,025 - $ 59,293,343 53,843,498 $ 53,251,319 The accompanying notes are an integral part of these financial statements. Comprehensive Annual Financial Report Fiscal Year 2016 27 Arizona Department of Transportation Exhibit 7 Statement of Cash Flows Proprietary Funds For the Year Ended June 30, 2016 Business-Type Ac vi es − Enterprise Fund Highway Expansion and Extension Loan Program Fund Governmental ActivitiesInternal Service Fund Cash flows from operating activities Receipts from customers Payments to suppliers $ Payments to employees Other receipts Net cash provided by (used in) operating activities - $ 25,290,271 (14,004,910) 37,016 (13,937,218) 11,639 37,016 (2,640,218) Cash flows from noncapital financing activities Distribution to other state agencies Net cash used in noncapital financing activities (20,000,000) - (20,000,000) - Cash flows from capital and related financing activities Proceeds from sale of capital assets Insurance recoveries Net cash provided by capital and related financing activities - 2,243,800 262,025 - 2,505,825 Cash flows from investing activities Income from investments Investment expense Net cash provided by investing activities Net decrease in cash 13,143 (1,201) 523,070 11,942 (19,439,914) (122,451) 78,733,257 Cash, beginning of year Cash, end of year 559,869 (36,799) $ 59,293,343 1,465,491 $ 1,343,040 The accompanying notes are an integral part of these financial statements. Comprehensive Annual Financial Report Fiscal Year 2016 28 Arizona Department of Transportation Exhibit 7 — continued Statement of Cash Flows Proprietary Funds For the Year Ended June 30, 2016 Business-Type Ac vi es − Enterprise Fund Highway Expansion and Extension Loan Program Fund Governmental ActivitiesInternal Service Fund Reconciliation of operating loss to net cash provided by (used in) operating activities Operating loss $ - $ (20,462,156) Adjustments to reconcile operating loss to net cash provided by (used in) operating activities Depreciation Change in assets and liabilities Due from other state agencies - 18,008,108 37,016 37,645 Other receivables - (27,222) Inventories - 162,576 Deferred outflows of resources - 428,607 Accounts payable - (600,512) Accrued payroll and other accrued expenses - 56,560 Unearned revenues Compensated absences - (32,460) (14,885) Net OPEB liability 460,696 Net pension liability Deferred inflows of resources Total adjustments Net cash provided by (used in) operating activities $ - 499,297 (1,156,472) 37,016 17,821,938 37,016 $ (2,640,218) $ 18,643,657 Noncash capital and financing activities Certain vehicles were contributed to the Equipment Revolving Fund by the General Fund The accompanying notes are an integral part of these financial statements. Comprehensive Annual Financial Report Fiscal Year 2016 29 Notes to the Financial Statements Comprehensive Annual Financial Report Fiscal Year 2016 Arizona Department of Transportation Index — Notes to the Financial Statements June 30, 2016 Page Note 1 – Summary of Significant Accounting Policies 31 A – Reporting Entity 31 B – Government‐wide and Fund Financial Statements 31 C – Measurement Focus, Basis of Accounting, and Financial Statement Presentation 32 D – Assets, Liabilities, and Net Position/Fund Balance 34 E – Revenues and Expenditures/Expenses 39 F – Interfund Activity and Balances 39 G – Use of Estimates 40 Note 2 – Funds by Classification 40 A – Funds 40 B – Reclassifications 41 Note 3 – Budgeting, Budgetary Control, and Legal Compliance 41 Note 4 – Accounting Pronouncements and Reconciliation of Government‐Wide and Fund Financial Statements 42 A – New Accounting Pronouncements 42 B – Explanations of Reconciling Items of the Balance Sheet of Governmental Funds to the Statement of Net Position 43 C – Explanations of Reconciling Items of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 45 Note 5 – Detailed Notes on all Funds and Activities 47 A – Capital Assets 47 B – Construction Commitments 48 C – Interfund Receivables, Payables, Advances, and Transfers 49 D – Leases 50 E – Noncurrent Liabilities 51 F – Fund Balances 57 Note 6 – Other Information 57 A – Loop 202 South Mountain Freeway Project 57 B – Contingent Liabilities 58 C – Pension and Other Postemployment Benefits 59 D – Subsequent Events 64 Comprehensive Annual Financial Report Fiscal Year 2016 30 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 1) Summary of Significant Accounting Policies The accounting and reporting policies of the Arizona Department of Transportation (the “Department”) conform in all material respects to accounting principles generally accepted in the United States of America (GAAP) as applicable to governments. The Governmental Accounting Standards Board (GASB) is the primary standard‐setting body for establishing governmental accounting and financial reporting principles, which are primarily set forth in the GASB’s Codification of Governmental and Financial Reporting Standards (GASB Codification). Following is a summary of the Department’s significant accounting policies. A. Reporting Entity The Department is a department of the State of Arizona (the “State”) and is not a legally separate entity. The Department has no component units. The Director of the Department serves as the Chief Executive Officer and is directly responsible to the governor. The governor appoints a seven‐member Transportation Board of the State of Arizona Department of Transportation (the “Transportation Board”), which has responsibility for establishing a complete system of state highway routes, approving all highway construction contracts, 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 and other 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. B. Government-wide and Fund Financial Statements The government‐wide financial statements (i.e., the Statement of Net Position and the Statement of Activities) report information on all of the activities of the government. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by federal reimbursement, taxes, and intergovernmental revenues, are reported separately from business‐type activities, which rely to a significant extent on fees and charges for services. The Statement of Net Position presents the reporting entity’s assets and liabilities, with the difference reported as net position. Net position is reported in three categories: Net investment in capital assets consists of capital assets, net of accumulated depreciation and is reduced by outstanding balances for bonds, notes, and other debt that are attributed to the acquisition, construction, or improvement of those assets. Restricted results when constraints placed on asset use are either externally imposed by creditors, grantors, contributors, and the like, or imposed by law through constitutional provisions or enabling legislation. ` Comprehensive Annual Financial Report Fiscal Year 2016 31 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 Unrestricted consists of those assets which do not meet the definition of the two preceding categories. Unrestricted often are designated to indicate that management does not consider them to be available for general operations. The unrestricted component often has constraints on resources which are imposed by management, but can be removed or modified by management or the Transportation Board. When both restricted and unrestricted resources are available for use, the Department generally expends the restricted resources first, and then unrestricted resources, as they are needed to maintain appropriate cash balances and finance the construction program. The Statement of Activities demonstrates the degree to which the direct expenses of a given function are offset by program revenues. Direct expenses are those that are clearly identified with a specific function. Program revenues include: charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function; and grants and contributions that are restricted to meeting the operational or capital requirements of a particular function. Taxes and other items not properly included among program revenues are reported instead as general revenues. Fund Financial Statements Separate statements are provided for governmental funds and proprietary funds. Major individual governmental funds and major proprietary funds are reported as separate columns in the fund financial statements, with nonmajor funds being reported in a single column. C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The government‐wide financial statements are reported using the economic resources measurement focus and the full accrual basis of accounting, as are the proprietary funds. Revenues are recorded when earned and expenses are recorded when the liability is incurred, regardless of the timing of related cash flows. Taxes are recognized as revenues in the year they are levied for transportation excise, aircraft licensing, aviation and motor fuel, flight property, and underground storage tanks. Motor carrier and vehicle license taxes are recognized when received. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the Department considers revenues to be available if they are collected within 60 days of the end of the fiscal year, e.g., federal revenue reimbursements, vehicle license taxes, and highway user revenue taxes. Expenditures generally are recorded when a liability is incurred as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due and payable. Financial Statement Presentation The Department reports the following major governmental funds: ` Comprehensive Annual Financial Report Fiscal Year 2016 32 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 The General Fund, known as the State Highway Fund, is the primary operating fund. It accounts for all financial resources except for those required to be accounted for in another fund. Expenditures are reported for 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 registrations, titles, licenses and related fees; and federal grants. In 2016, management elected to report the Arizona Highways Magazine in the General fund. The Maricopa Regional Area Road Construction Fund is a special revenue fund that receives a portion of Maricopa County Transportation Excise Tax monies collected by the Department of Revenue. These monies are expended for the construction of new freeways and other routes, improvements to existing freeways and other routes, and improvements to the arterial street system, which are included in the Maricopa County Regional Transportation Plan. The Motor Vehicle Division Clearing Fund is a special revenue fund which accounts for the collection and disbursement of certain Motor Vehicle Division revenues (e.g., vehicle registration, title, license, and related taxes and fees, and fuel and motor carrier taxes and fees). The Highway User Revenue Fund is a special revenue fund which 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 General Fund (State Highway Fund), the Department of Public Safety, the Economic Strength Project Fund, incorporated cities, towns, counties, and other legislatively appropriated entities. The Debt Service Fund is used to account for the accumulation of resources for, and the payments of, general long‐term debt principal and interest of the governmental funds. The Capital Projects Fund is used to account for financial resources to be used for the acquisition or construction of major capital facilities in the governmental funds. The Department reports the following major proprietary fund: 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. Additionally, the Department reports the following fund: The Internal Service Fund, which accounts for purchases and maintenance of equipment and materials to be used by other divisions in the Department and other government agencies. The Equipment Revolving Fund is the Department’s only internal service fund. As a general rule, the effect of interfund activity has been eliminated from the government‐wide financial statements. Exceptions to this general rule are charges for services by the Equipment Revolving Fund to the other governmental functions. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. ` Comprehensive Annual Financial Report Fiscal Year 2016 33 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 Amounts reported as program revenues include: charges for services, operating grants and contributions, and capital grants and contributions. Internally dedicated resources are reported as general revenues rather than program revenues. Likewise, general revenues include all taxes. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues are charges for services, interest on loan receivables and other revenues intended to recover the cost of services. Operating expenses for the enterprise fund and the internal service fund include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. D. Assets, Liabilities, and Net Position/Fund Balance Deposits and Investments The Department’s cash includes petty cash and deposits with the State Treasurer for pooled investments. 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, obligations of the U.S. Government, or other permitted investments. All investments are carried at fair value. These balances are not subject to GASB Statement No. 3, Deposits with Financial Institutions, Investments (including Repurchase Agreements), and Reverse Repurchase Agreements, and GASB Statement No. 40, Deposit and Investment Risk Disclosures – an amendment of GASB Statement No. 3, classification because they are included in the state’s investment pool. The investment pool is not required to register (and is not registered) with the Securities and Exchange Commission under the 1940 Investment Advisors Act. The activity and performance of the pool is reviewed monthly by the State Board of Investment in accordance with Arizona Revised Statutes, §35‐ 311. The fair value of investments is measured on a monthly basis. Participant shares are purchased and sold based on the Net Asset Value (NAV) of the shares. The NAV is determined by dividing the fair value of the portfolio by the total shares outstanding. The State Treasurer does not contract with an outside insurer in order to guarantee the value of the portfolio or the price of shares redeemed. As of June 30, 2016, the State’s investment pool 2, pool 3, and pool 4 were not rated. The weighted average maturity at year-end for investment pool 2 was 6.10 years while for investment pool 3 it was 2.56 years, and for investment pool 4 it was 3.28 years. State statutes require the State Treasurer to maintain separate investment accounts for the portions of the Highway Revenue Bond Proceeds Fund relating to the Highway Revenue Bond issues and the Maricopa Regional Area Road Bond Proceeds Fund relating to the Transportation Excise Tax Revenue Bond issues. These funds may be invested by the Treasurer in the State’s investment pool. The Department’s investments are included in the State investment pool and these investments are not shown in the Department’s name. From the perspective of the Department, the pool functions as both a cash management pool and a demand deposit account. Therefore, the Department presents its equity in the internal pool as required in GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, and carries the investments at fair value. ` Comprehensive Annual Financial Report Fiscal Year 2016 34 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 The Department has restricted cash for payment of capital projects for Maricopa and Pima Counties, for future debt service payments, and for the Statewide Transportation Acceleration Needs account. At June 30, 2016, the carrying amount of the Department’s cash on deposit with the State Treasurer (unrestricted and restricted) totaled $1,356,753,704. The funds were invested in the State Agency’s pool number 2, pool number 3 and pool number 4. These pools are valued at the pool’s share price multiplied by the number of shares the Department held. The fair value of a participant’s position in the pools approximate the value of that participant’s shares. The funds are invested in accordance with the Investment Policy of the Arizona State Treasurer’s office. Receivables, Payables and Advances Activities between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as interfund receivables/payables. All other outstanding balances between the U.S. Government, Arizona counties and cities, and other state agencies are reported as due to/from. Any residual balances outstanding between the governmental activities and business‐type activities are reported in the government‐wide financial statements as internal balances. The subscriptions receivable allowance for doubtful accounts is the portion of any receivable greater than 90 days that has been recognized as revenue. The remainder of the subscriptions receivable that has not been recognized is still unearned. Advances between funds, as reported in the fund financial statements, are offset by a fund balance reserve account in applicable governmental funds to indicate that they are not available for appropriation and are not expendable available financial resources. The other receivables are shown net of allowance for doubtful accounts. Other receivable amounts include funds held by third parties on behalf of the agency. For other receivables comprising recoverable insurance claims, the amount reserved for doubtful accounts is comprised of 100% of balances sent to the Attorney General’s Office for collection. Notes receivable represents loans made to parties purchasing assets previously owned by the Department for highway construction purposes. Inventories The governmental activities inventory is valued at cost, which approximates market, using the moving average method. This inventory is accounted for using the consumption method. Under this method, inventories are recorded as expenditures as they are used. The fund financial statement reports inventory as nonspendable for the like amount indicating it does not constitute available expendable resources. No reservation of net position is shown in the government‐wide statements for inventories. Costs of the internal service fund’s inventories (consisting of vehicle parts and supplies, fuels and lubricants, and other supplies) are determined by moving average cost methods. ` Comprehensive Annual Financial Report Fiscal Year 2016 35 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 Restricted Assets Certain proceeds of the Department’s governmental revenue bonds, as well as certain resources of the General Fund (State Highway Fund) and the Highway Expansion and Extension Loan Program Fund (enterprise fund) are classified as restricted assets on the balance sheet because they are maintained in separate accounts and their use is limited by applicable bond covenants or State statutes. State law requires 12.6% of the revenues allocated each year to the General Fund (State Highway Fund) from the Highway User Revenue Fund be allocated for design, purchase of right‐of‐way, or construction of controlled‐access highways, arterial streets, and local highways that are included in the regional transportation plan of counties with populations in excess of 400,000 (Maricopa and Pima counties). State Transportation Board policy further allocates 2.6% of the revenues for the same purpose as listed above. The debt service fund is used to report the resources set aside for payment of future debt service. Bond proceeds are deposited in the capital projects fund and are restricted for acquisitions of right‐of‐way and construction of federal, state, and local highways. Capital Assets Capital assets, which include land, buildings and improvements, improvements other than buildings, machinery and equipment, mobile fleet and aircraft, infrastructure, and construction in progress, are reported in the applicable governmental or business‐type columns in the government‐wide financial statements. Capital assets are defined by the Department as assets with an initial, individual cost of $5,000 or more and an estimated useful life in excess of one year. Purchased capital assets are recorded at historical cost or estimated historical cost if historical cost is not available. Donated capital assets are recorded at fair market value at time of donation. Costs of normal maintenance and repairs that do not add to the value of the asset or materially extend the asset’s life are not capitalized. Outlays for capital assets are capitalized at the time of the purchase or, in the case of infrastructure, at the time of final acceptance by the Department from the contractor. Asset preservation costs are expensed as incurred. The Department depreciates non‐infrastructure capital assets on a straight‐line basis using the following estimated useful lives: Capital Assets Useful Life Buildings and improvements 20-40 years Improvements other than buildings 20-40 years Machinery and equipment 5-15 years Mobile fleet and aircraft 5-7 years Infrastructure was capitalized for the first time in fiscal year 2002. The infrastructure assets are reported in the governmental activities column of the Statement of Net Position. The Department’s infrastructure assets consist of roads and bridges and are presented using the modified approach and, therefore, are not depreciated. In order to utilize the modified approach, the Department is required to maintain an asset management system that includes an up‐to‐date inventory of eligible infrastructure assets, perform condition assessments of eligible assets and summarize the results using a measurement scale, estimate each year the annual amount to maintain and preserve the assets at the condition level established and disclosed by the Department, and document that the assets are being preserved approximately at or above the established condition level. ` Comprehensive Annual Financial Report Fiscal Year 2016 36 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 Unearned Revenues In the government‐wide statements and proprietary fund financial statements, unearned revenues are recorded when cash, receivables, or other assets are received prior to revenue being recognized. Unearned revenue in the Governmental Activities represents subscription revenue received in advance of delivery of the related subscriptions. Additionally, in the governmental funds, unavailable revenue is reported as deferred inflows of resources, until such revenue is available to liquidate liabilities of the current period. Unearned revenues are reported in the government-wide statements for the governmental activities and in the fund statements for the governmental funds. In the fund statements for the General Fund (State Highway Fund), the unavailable revenue represents the amount for the notes receivable for loans made to parties who purchased assets previously owned by the Department for highway construction purposes. Compensated Absences It is the Department’s policy to permit employees to accumulate earned but unused sick leave and vacation benefits as well as compensatory time. There is no liability for unpaid accumulated sick leave for the Department. All vacation pay and compensatory time is accrued when incurred in the government‐ wide and proprietary fund financial statements. 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 employee’s 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% for 500 hours to a maximum of 50% for 1,500 hours. The maximum benefit value is $30,000. Per Arizona Revised Statute 38‐615D, the benefit shall be paid either in a lump sum or in installments over three years. The Retiree Accumulated Sick Leave Fund is accounted for on the State’s financial statements as an Internal Service Fund. Most employees accrue vacation time which is paid when taken or upon termination of employment at the individual’s then current rate of pay. Additionally, some employees may earn compensatory time in lieu of overtime pay, which is paid in the same manner as vacation time. To limit the Department’s liability, employees are allowed to carry forward a maximum of 240 hours of vacation time if covered and 320 hours if uncovered at the end of each calendar year. Compensatory time accrual is capped at 240 hours at any time, however the agency policy has been to evaluate and pay quarterly to keep this accrual low. The liabilities for vacation and compensatory time outstanding as of June 30 for both the governmental and proprietary funds are reported on the Statement of Net Position. Long-Term Obligations In the government‐wide financial statements, long‐term debt and other long‐term obligations are reported as liabilities. Bond premiums and discounts are deferred and amortized using the straight‐line method. Bonds payable are reported net of the applicable premium or discount. Gains and losses related to refunding of debt are reported as deferred inflows of resources and deferred outflows of resources, respectively. Debt issuance costs are expensed in the current period. Other long‐term obligations also include amounts that other governmental entities advance the Department for highway road construction projects. ` Comprehensive Annual Financial Report Fiscal Year 2016 37 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as issuance costs, during the current period. The face amount of the debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Advances from other governmental entities are recorded as debt issuance in other financing sources. Net Position/Fund Balance The difference between assets and deferred outflows of resources, and liabilities and deferred inflows of resources is “Net Position” on the government‐wide and proprietary statements and “Fund Balance” on the governmental fund statements. Fund balances for governmental funds may be reported in classifications that comprise a hierarchy based primarily on the extent to which the Department is bound to honor constraints on the specific purposes for which amounts in those fund can be spent. Five classifications are available: Nonspendable fund balance – describes that portion that cannot be spent because of its form (inventories, prepaid amounts, etc.) and are not expected to be converted to cash. Restricted fund balance – describes that portion of fund balance that reflects resources that are subject to externally enforceable legal restrictions (voter initiatives, court orders, etc.). Committed fund balance – describes that portion which can be used only for specific purposes pursuant to constraints imposed by a formal action of the Department’s highest level of decision‐making authority. This formal action is the passage of law by the Legislature creating, modifying or rescinding fund balance commitments. Assigned fund balance – describes that portion of that reflects the Department’s intended use of resources for a specific purpose, but are neither restricted nor committed. Unassigned fund balance – the residual classification for the general fund and includes all spendable amounts not reported in other classifications. Also, deficits in fund balances of other governmental funds are reported as unassigned. The Department’s highest level of Authority is the Arizona State Legislature where the legislative appropriations are determined, identifying the uses of funds for specific purposes. The Arizona State Legislature also grants authority to other Boards and Commissions to authorize fund uses. When an expenditure is incurred for purposes for which restricted, committed and unassigned fund balance is available, the Department considers restricted, committed and unassigned amounts to have been spent in that order. ` Comprehensive Annual Financial Report Fiscal Year 2016 38 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 E. Revenues and Expenditures/Expenses In the government‐wide Statement of Activities, revenues and expenses are segregated by activity (governmental or business‐type), then further by function (e.g., Administration, Highway). Additionally, revenues are classified between program and general revenues. Program revenues include charges for services, operating grants and contributions, and capital grants and contributions. Internally dedicated resources are reported as general revenue rather than as program revenue. General revenue includes all taxes and income on investments. In the governmental fund financial statements, revenues are reported by source. Expenditures are reported by function (e.g., administration, distributions to Arizona counties and cities, distributions to other state agencies, debt service, capital outlay). The distributions to Arizona counties and cities and distributions to other state agencies are shared tax revenues that are distributed based on statutory requirements. Debt service includes both interest and principal outlays related to bonds, loans, advances, board funding obligations, and capitalized leases. Capital outlay includes expenditures for real property or infrastructure (i.e., bridges and roads). Revenues and expenses of proprietary funds are classified as operating and nonoperating and are sub‐ classified by object (e.g., salaries, equipment rental, depreciation). Operating revenues and expenses generally result from providing services and producing and delivering goods. All other revenues and expenses are reported as nonoperating. Other Financing Sources (Uses) Other financing sources are additions to the governmental fund balances in the fund financial statements and include resources and financing provided by bond issuance, sale of capital assets, capital leases, insurance recovery, and transfers from other funds. Other financing uses are reductions of governmental fund resources in fund financial statements normally resulting from transfers to other funds. F. Interfund Activity and Balances Interfund Activity As a general rule, the effect of interfund activity has been eliminated from the government‐wide statements. Exceptions to this rule are activities between the funds reported as governmental activities and the funds reported as business‐type activities (e.g., the transfer of the gain or loss from the Equipment Revolving Fund). Interfund Balances Interfund receivables and payables have been eliminated from the Statement of Net Position, except for the residual amounts due between governmental and business‐type activities. ` Comprehensive Annual Financial Report Fiscal Year 2016 39 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 G. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make a number of estimates and assumptions that affect the reported amounts of assets, deferred outflow of resources, liabilities, deferred inflows of resources, and net position, the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses/expenditures during the reporting period. Actual results could differ from those estimates. 2) Funds by Classification A. Funds The following table lists all of the funds whose balances are reflected in this financial report. FUND TYPES MAJOR FUNDS Governmental Funds General Fund (State Highway Fund) Special Revenue Funds: Maricopa Regional Area Road Construction Fund Motor Vehicle Division Clearing Fund Highway User Revenue Fund Debt Service Fund Capital Projects Fund Proprietary Funds Enterprise Fund: Highway Expansion and Extension Loan Program Fund Internal Service Fund: Equipment Revolving Fund NONMAJOR FUNDS Special Revenue Funds State Aviation Fund Safety Enforcement and Transportation Infrastructure Fund Motor Vehicle Liability Insurance Enforcement Fund Motor Vehicle Inspection and Title Enforcement Fund Motor Carrier Safety Revolving Fund Underground Storage Tank Fund Economic Strength Project Fund Grant Anticipation Notes Fund Local Agency Deposits Fund ` Comprehensive Annual Financial Report Fiscal Year 2016 40 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 B. Fund Reclassifications Fund Financial Statements Fund Balance and Net Position have been reclassified as follows: Fund balance/net position, as previously reported Fund reclassification Accounting basis change due to fund reclassification Fund balance Governmental Funds Proprietary Funds General Fund (State Highway Fund) Arizona Highways Magazine Fund $ 528,071,887 401,418 1,997,144 $ $ 530,470,449 $ 401,418 (401,418) - Government-wide Financial Statements Government-wide Net Position has been reclassified as follows: Governmental Activities Net position, as previously reported Fund reclassification Net position Business-Type Activities $ 18,258,033,225 401,418 $ 79,171,691 (401,418) $ 18,258,434,643 $ 78,770,273 Arizona Highways Magazine (AHM) has been reclassified as part of the State Highway Fund. The AHM was previously reported as a major Enterprise Fund using the full accrual basis of accounting and the economic resources measurement focus. As a result of this reclassification, the AHM is now reported as a governmental fund using the modified accrual basis of accounting and the current financial resources measurement focus. 3) Budgeting, Budgetary Control and Legal Compliance An annual budget for the operating expenditures of the General Fund (State Highway Fund) is submitted to the governor in accordance with state law. The budget is legally enacted as appropriations after approval by the state legislature and signature of the governor. The legal level of control for operating expenditures is set at the agency level and expenditure budgets are appropriated using a lump‐sum by agency format with a special line‐item appropriation for highway maintenance. Expenditure details for personal services, employee‐related expenditures, and all other operating expenditures are specifically allocated within all divisions. In certain divisions, other specific programs are allocated in addition to these categories. Revenue budgets are developed internally by the Department and are not part of the appropriation process. ` Comprehensive Annual Financial Report Fiscal Year 2016 41 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 Amendments to the approved appropriations require legislative approval. However, since the Department’s appropriation is a lump sum appropriation, the allocation of funds between personal services, employee‐related expenditures, and other operating expenditures is an internal decision. Accordingly, transfers between line items such as personal services and other operating expenditures within a particular program may be made by the program manager. Expenditures may not exceed appropriations in total. All transfers of funds are reported to the Department’s Office of Strategic Planning and Budgeting for monitoring purposes. Budgets are prepared on the cash basis except that liabilities incurred before the end of the fiscal year and paid within the first month of the subsequent fiscal year are charged against the prior fiscal year’s budget. The Department’s appropriations lapse at fiscal year‐end unless exempted by the legislature. In addition, budgets for capital outlay, including land, building, and improvements for the State Highway Fund and State Aviation Fund, are also submitted to the governor in accordance with state law. The capital outlay appropriation includes state highway construction and land, building, and improvements for the State Highway Fund. A legal limitation is adopted for land, building, and improvements; however, legislation allows the Department to spend in excess of its appropriation for state highway construction up to the current fund balance. The Department monitors expenditures through an internal budgetary process and the Five‐Year Transportation Facilities Construction Program approved by the Transportation Board. 4) Accounting Pronouncements and Reconciliation of Government‐Wide and Fund Financial Statements A. New Accounting Pronouncements For the year ended June 30, 2016, the Department implemented the provisions of GASB Statement No. 72, Fair Value Measurement and Application; and GASB Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. GASB Statement No. 72 establishes standards for measuring fair value and applying fair value to certain investments and disclosures related to all fair value measurements. GASB Statement No. 76 establishes the hierarchy of source of accounting principles used to prepare financial statements of state and local governmental entities in conformity with generally accepted accounting principles. The following GASB pronouncements have been issued, but are not yet effective at June 30, 2016:  GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans – to improve the usefulness of information about postemployment benefits other than pensions (other postemployment benefits or OPEB) included in the general purpose external financial reports of state and local governmental OPEB plans for making decisions and assessing accountability.  GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions –to improve accounting and financial reporting by state and local governments for postemployment benefits other than pensions (other postemployment benefits or OPEB). ` Comprehensive Annual Financial Report Fiscal Year 2016 42 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016  GASB Statement No. 77, Tax Abatement Disclosures – to provide financial statement users with essential information about the nature and magnitude of the reduction in tax revenues through tax abatement programs in order to better assess (a) whether current-year revenues were sufficient to pay for current-year services, (b) compliance with finance-related legal or contractual requirements, (c) where a government's financial resources come from and how it uses them, and (d) financial position and economic condition and how they have changed over time.  GASB Statement No. 78, Pensions Provided Through Certain Multiple-Employer Defined Benefit Pension Plans – to address a practice issue regarding the scope and applicability of Statement No. 68, Accounting and Financial Reporting for Pensions. This issue is associated with pensions provided through certain multiple-employer defined benefit pension plans and to state or local governmental employers whose employees are provided with such pensions.  GASB Statement No. 82, Pension Issues an Amendment of GASB Statements No. 67, No. 68, and No. 73 – this Statement addresses issues regarding (1) the presentation of payroll-related measures in required supplementary information, (2) the selection of assumptions and the treatment of deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes, and (3) the classification of payments made by employers to satisfy employee (plan member) contribution requirements. The Department has not fully determined the effect that the aforementioned GASB Statements will have on the Department’s financial statements. B. Explanations of Reconciling Items of the Balance Sheet of Governmental Funds to the Statement of Net Position The governmental funds Balance Sheet includes reconciliation between total fund balances – governmental funds and net position of governmental activities as reported on the government‐wide Statement of Net Position. The following explanations are necessary to clarify these differences between the governmental fund Balance Sheet and the government‐wide Statement of Net Position: 1. Capital assets are not included on the fund statements, but are included on the government‐wide statement as follows: Capital assets not subject to depreciation Capital assets subject to depreciation Less: Internal Service Fund (Equipment Revolving Fund) assets $ 20,750,548,748 221,051,166 20,971,599,914 (65,498,456) $ 20,906,101,458 ` Comprehensive Annual Financial Report Fiscal Year 2016 43 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 2. Deferred outflows of resources are not reported in the governmental funds, but are reported in the government‐wide Statement of Net Position. The detail for the difference is as follows: Deferred outflows of resources related to pensions Less: Internal Service Fund (Equipment Revolving Fund) deferred outflows of resources related to pensions $ (1,436,772) 30,440,833 62,043,618 Deferred outflows of resources-loss on debt refunding 3. $ 92,484,451 $ (9,802,038) OPEB liabilities is as follows: Net OPEB obligation Less: Internal Service Fund (Equipment Revolving Fund) net OPEB obligation 460,696 $ 4. (9,341,342) Pension liabilities are not due and payable from current financial resources and, therefore, are not reported in the governmental funds. The detail for the difference is as follows: Net pension liability Less: Internal Service Fund (Equipment Revolving Fund) net pension liability $ (322,028,132) 14,515,982 $ 5. 31,877,605 (307,512,150) Long‐term liabilities, including bonds payable, are not due and payable in the current period, and are not reported in the current period on the fund statements. The detail for the difference is as follows: Bonds payable (including unamortized premium) Capital leases Compensated absences Intergovernmental advances $ (2,751,457,825) (37,745,660) (18,307,328) (22,178,643) (2,829,689,456) 730,171 Less: Internal Service Fund (Equipment Revolving Fund) $ (2,828,959,285) 6. Deferred inflows of resources are not reported in the governmental funds. The detail for the difference is as follows: Deferred inflows of resources related to pensions Less: Internal Service Fund (Equipment Revolving Fund) deferred inflows of resources related to pensions $ (28,720,206) $ (27,425,592) 1,294,614 ` Comprehensive Annual Financial Report Fiscal Year 2016 44 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 C. Explanations of Reconciling Items of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities The governmental funds Statement of Revenues, Expenditures, and Changes in Fund Balances includes a reconciliation between net change in fund balances – total governmental funds and changes in net position of governmental activities as reported on the government‐wide Statement of Activities. The following explanations are necessary to clarify these differences between the governmental fund Statement of Revenues, Expenditures, and Changes in Fund Balances and the government‐wide Statement of Activities: 1. Governmental funds report capital outlay as expenditures. However, in the Statement of Activities, these costs are removed; some costs are capitalized as assets while other costs are expensed as follows: Capital outlay Reduction in construction in progress resulting from certain infrastructure projects, previously identified as infrastructure, reclassified as non-infrastructure Assets removed from service, net of accumulated depreciation Less: depreciation expense - governmental funds $ (14,004,659) (2,341,432) (8,170,437) $ 2. 665,096,577 The issuance of long‐term debt (e.g., bonds) provides current financial resources to governmental funds, while the repayment of principal of long‐term debt consumes current financial resources of the governmental funds. Neither transaction, however, has any effect on net position. Also, the government reports the effect of premiums, discounts, and similar items when debt is first issued, whereas these amounts are amortized in the Statement of Activities. The details of this difference are as follows: Principal repayments Highway Revenue Bonds Transportation Excise Tax Revenue Bonds Grant Anticipation Notes (GARVEE bonds) Amortization of premium and discount Amortization of deferred loss on refunding Repayment of capital leases $ $ 3. 689,613,105 70,195,000 65,585,000 47,350,000 34,377,794 (5,769,360) 11,178,006 222,916,440 The Internal Service Fund (Equipment Revolving Fund) is used by the Department to charge the cost for purchases and maintenance of equipment and material to be used by other funds and state agencies. The gain /(loss) in the Internal Service Fund (Equipment Revolving Fund) represents ` Comprehensive Annual Financial Report Fiscal Year 2016 45 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 over/(under) billing and must be eliminated from the government‐wide Statement of Activities for the governmental activities. Internal Service Fund (Equipment Revolving Fund) Changes in net position 4. (592,179) Pension contributions are reported as expenditures in the governmental funds in the fiscal year contributed. However, current year contributions are reported as deferred outflows of resources in the government‐wide Statement of Net Position because the reported net pension liability is measured a year before the Department’s current fiscal year‐end financial statements. Pension expense, which is the change in net pension liability adjusted for changes in deferred outflows and inflows of resources related to pensions, is reported in the Statement of Activities: Pension contributions Pension expense OPEB expense, net of Internal Service Fund of $460,696 5. $ $ 19,283,651 (18,225,061) $ 1,058,590 $ (9,341,342) Some items reported in the Statement of Activities do not provide or require the use of current financial resources and, therefore, are not reported in the governmental funds. The details are as follows: Land sales are financed with Notes Receivable, which are not available to pay current expenditures, and are, therefore, deferred inflows of resources in the governmental funds. The entire land sale is recognized in the year of sale for government-wide reporting. However, for fund level reporting loan repayments are recognized as revenue as received $ Compensated absences Assumption of Lease from Equipment Services fund by Highway fund (257,785) 576,872 (17,979,013) $ (17,659,926) ` Comprehensive Annual Financial Report Fiscal Year 2016 46 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 5) Detailed Notes on All Funds and Activities A. Capital Assets Capital assets activity for the year ended June 30, 2016, was as follows: July 1, 2015 Balance Increases Decreases Transfers June 30, 2016 Ending Balance Governmental activities Capital assets, not being depreciated Land Infrastructure Construction in progress Total capital assets, not being depreciated $ 2,977,145,531 $ 15,758,147,180 1,358,933,346 20,094,226,057 257,336,788 $ 34,190,476 381,030,839 672,558,103 (1,527,204) $ (12,358,338) (2,357,770) (16,243,312) 7,900 $ 3,232,963,015 315,114,412 16,095,093,730 (315,114,412) 1,422,492,003 7,900 20,750,548,748 Capital assets, being depreciated Buildings and improvements Improvements other than buildings Machinery and equipment Mobile fleet and aircraft Total capital assets, being depreciated 200,289,397 33,910,868 59,718,795 172,728,263 466,647,323 3,945,970 1,218,267 12,537,560 18,005,373 35,707,170 (1,411,122) (12,223,046) (13,634,168) 839,925 225,448 (679,059) 630,856 1,017,170 205,075,292 35,354,583 70,166,174 179,141,446 489,737,495 Less accumulated depreciation for Buildings and improvements Improvements other than buildings Machinery and equipment Mobile fleet and aircraft Total accumulated depreciated (96,124,624) (12,718,669) (37,748,717) (107,122,137) (253,714,147) (3,802,172) (1,696,388) (3,424,580) (17,255,405) (26,178,545) 1,267,421 10,947,669 12,215,090 (911,982) (221,166) 1,348,802 (1,224,381) (1,008,727) (100,838,778) (14,636,223) (38,557,074) (114,654,254) (268,686,329) Total capital assets, being depreciated, net 212,933,176 9,528,625 (1,419,078) 8,443 221,051,166 Governmental activities capital assets, net $ 20,307,159,233 $ 682,086,728 $ (17,662,390) $ 16,343 $ 20,971,599,914 Capital asset additions are not included on the fund statements, but are included on the governmentwide statement as follows: Capital asset additions not subject to depreciation Capital asset additions subject to depreciation $ 708,265,273 (18,652,168) Less: Internal Service Fund (Equipment Revolving Fund) asset additions Total capital outlay 672,558,103 35,707,170 $ 689,613,105 ` Comprehensive Annual Financial Report Fiscal Year 2016 47 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 Depreciation expense was charged to functions/programs as follows: Governmental activities Administration Highway Highway maintenance Motor vehicle $ 2,259,685 2,549,506 1,702,920 1,658,326 8,170,437 Capital assets held by the Department's internal service fund are charged to the various functions based on their usage of the assets $ Total depreciation expense B. 18,008,108 26,178,545 Construction Commitments The Department’s outstanding commitments for contracts at June 30, 2016, were $1,466,349,681. Remaining Commitment Construction Contracts Rural Roadways Small Urban Roadways Urban Roadways Large Urban Roadways 202 Loop / SM Freeway General Roadways $ 131,992,229 20,656,980 26,228,190 80,577,822 890,389,178 125,351,862 1,275,196,261 Capital Asset Replacement and Maintenance 202 Loop / SM Freeway 191,153,420 $ 1,466,349,681 Area type designations for highways and roads are primarily determined by geographic location and population, as noted below: Rural – outside of urbanized areas and urban clusters, generally long roads carrying little traffic Small urban – in areas of 5,000 to 49,999 in population Urban – interstate highways, freeways, expressways, principal arteries serving major centers of activity in metropolitan areas Large urban – in areas of equal to or greater than 200,000 in population General roadways – statewide projects that cross categories. ` Comprehensive Annual Financial Report Fiscal Year 2016 48 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 C. Interfund Receivables, Payables, Advances, and Transfers The balances of current interfund receivables and payables as of June 30, 2016, were: Receivables Governmental activities General Fund (State Highway Fund) Payables Highway User Revenue Fund Motor Vehicle Division Clearing Fund Highway User Revenue Fund Motor Vehicle Division Clearing Fund Motor Vehicle Division Clearing Fund Nonmajor Governmental Funds General Fund (State Highway Fund) Amount $ 99,889,132 251,388 26,690,672 820,282 3,114,056 Motor Vehicle Division Clearing Fund $ 130,765,530 The General Fund (State Highway Fund) receivable of $99,889,132 is an accrual for fuel taxes imposed in fiscal year 2016 from the Highway User Revenue Fund that will be collected in fiscal year 2017. The Highway User Revenue Fund receivable of $26,690,672 is an accrual for vehicle license taxes due in fiscal year 2016 from the Motor Vehicle Division Clearing Fund that will be collected in fiscal year 2017. Interfund transfers for the year ended June 30, 2016, consisted of the following: Transfers To Debt Service Fund Total Transfer from General Fund (State Highway Fund) Maricopa Regional Area Road Construction Fund Nonmajor Governmental Fund (GANS) Total Debt Service Fund $ $ 144,111,139 $ 103,296,981 56,902,631 304,310,751 $ 144,111,139 103,296,981 56,902,631 304,310,751 Transfers from the General Fund (State Highway Fund), Maricopa Regional Area Road Construction Fund, and the Nonmajor Governmental Fund (GANS) into the Debt Service Fund are to pay bond debt service. ` Comprehensive Annual Financial Report Fiscal Year 2016 49 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 D. Leases Operating Leases The Department leases data processing equipment, other equipment, and certain facilities from various lessors. The majority of these leases are for a one year term, renewable annually. Total rental expenditures (excluding interfund transactions) for the fiscal year ended June 30, 2016, approximated $18.5 million. During fiscal year 2016, the Department entered into two operating agreements for noncapital computer equipment. Agreements initiated in prior years, for office space in East Phoenix and a lab in Gilbert, and several MVD offices remain in force. Future commitments on operating leases are as follows: Description Payson MVD 2017 $ 28,056 2018 $ 2019 9,352 $ 2020 - North Tucson MVD Show Low MVD South Mesa MVD Phoenix EHO 34,472 63,888 17,616 34,472 63,888 17,616 42,592 15,532 892,510 917,942 943,384 E Washington St Phoenix 535,510 Gilbert Lab Computer Equipment #1 Computer Equipment #2 126,000 322,919 168,881 Total commitments $ 2,189,852 - 1,750,447 1,614,185 $ 387,503 225,174 $ 964,133 2022 - $ - - 351,456 387,503 225,174 $ - - 94,500 387,503 225,174 $ $ 2021 - - - - - 387,503 225,174 $ 612,677 64,584 56,294 $ 120,878 Capital Leases The Department has entered into lease agreements as lessee for financing the acquisition of various vehicles, equipment, and modular buildings. These lease agreements qualify as capital leases for accounting purposes and, therefore, have been recorded at the present value of their future minimum lease payments as of the inception date. The assets acquired through capital leases are as follows: Description Governmental Activities Machinery and equipment Less accumulated depreciation $ 65,861,746 (19,385,642) Total $ 46,476,104 ` Comprehensive Annual Financial Report Fiscal Year 2016 50 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 The future minimum lease obligations and the net present value of these minimum lease payments as of June 30, 2016, were as follows: Year Ending June 30 Governmental Activities 2017 2018 2019 2020 2021 2022 Total minimum lease payments Less amount representing interest $ 12,576,945 10,765,074 7,797,642 5,331,643 2,638,819 41,971 Present value of minimum lease payments $ 37,745,660 39,152,094 (1,406,434) Capital outlay on Exhibit 4 includes $18.0 million of capital leases. E. Noncurrent Liabilities Arizona Transportation Board Highway Revenue Bonds The Transportation Board has issued Senior and Subordinate Lien Highway Revenue Bonds to provide funds for acquisition of right‐of‐way, design, and construction of federal and state highways. The balance of Highway Revenue Bonds issued in prior years and outstanding at the start of the fiscal year was $1,589,965,000. 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 General Fund (State Highway Fund). On September 21, 2006, House Bill 2206 became effective and eliminated the restriction that limited the principal amount of Highway Revenue Bonds that could be outstanding at any time to $1.3 billion. Also, during fiscal year 2007, the Transportation Board received legislative authority to begin issuing Highway Revenue Bonds with maturities up to 30 years in length, replacing the 20‐year maturity requirement that had been in place since 1980. ` Comprehensive Annual Financial Report Fiscal Year 2016 51 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 Highway Revenue Bonds currently outstanding are as follows: Outstanding Highway Revenue Bonds As of June 30, 2016 Maturity (7/1) Series 2011A Principal Coupon 2017 2018 $ 36,390,000 270,000 5.000% 3.000% 2018 2018 2019 2019 10,475,000 27,480,000 4.000% 5.000% 600,000 39,390,000 4.000% 5.000% Series 2011B Principal Coupon $ 9,895,000 10,140,000 2.492% 2.842% 10,435,000 3.024% Series 2013A Principal Coupon $ - - Series 2013B Principal Coupon $ 8,405,000 27,760,000 1.194% 1.631% 28,245,000 1.831% 27,940,000 2.179% Series 2015 Principal Coupon $ 18,095,000 4.000% 2020 200,000 4.000% 7,000,000 3.500% 2020 2021 2021 33,315,000 200,000 48,465,000 5.000% 4.000% 5.000% 13,050,000 36,020,000 5.000% 5.000% 2022 2023 53,210,000 13,475,000 5.000% 5.000% 35,710,000 53,430,000 5.000% 5.000% 24,745,000 5.000% 2024 2025 30,170,000 30,885,000 5.000% 5.000% 40,080,000 32,880,000 5.000% 5.000% 25,985,000 27,280,000 5.000% 5.000% 2026 2027 7,000,000 7,370,000 5.250% 5.000% 49,950,000 44,840,000 5.000% 5.000% 28,650,000 30,085,000 5.000% 5.000% 2028 7,740,000 5.000% 14,500,000 4.000% 31,585,000 5.000% 32,580,000 2,100,000 47,200,000 5.000% 4.000% 5.000% 33,160,000 5.000% 34,820,000 5.000% 2028 2029 2029 8,125,000 5.250% 2030 8,550,000 5.250% 20,000,000 4.000% 5.000% 5.000% 2030 2031 9,000,000 5.250% 31,740,000 14,835,000 36,565,000 5.000% 2032 4,220,000 4.000% 15,580,000 5.000% 38,385,000 5.000% 2032 2033 2033 5,250,000 9,915,000 5.250% 5.000% 16,360,000 5.000% 40,305,000 5.000% 2034 2035 10,415,000 10,935,000 5.000% 5.000% 17,175,000 18,035,000 5.000% 5.000% 2036 2037 2038 11,480,000 5.000% 18,935,000 19,885,000 20,880,000 5.000% 5.000% 5.000% Totals $ 424,525,000 $ 30,470,000 $ 602,765,000 $ 92,350,000 $ 369,660,000 ` Comprehensive Annual Financial Report Fiscal Year 2016 52 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 Annual debt service requirements to maturity for Highway Revenue Bonds are as follows: Fiscal year ending June 30, 2017 Principal $ Highway Revenue Bonds Interest 72,785,000 $ 71,657,429 $ Total 144,442,429 2018 2019 76,125,000 78,670,000 69,858,434 67,316,390 145,983,434 145,986,390 2020 2021 81,505,000 84,685,000 64,490,168 61,310,106 145,995,168 145,995,106 2022-2026 2027-2031 2032-2036 2037-2038 453,450,000 414,795,000 216,990,000 40,765,000 239,367,239 126,849,936 37,919,176 3,082,250 692,817,239 541,644,936 254,909,176 43,847,250 741,851,128 $ 2,261,621,128 $ 1,519,770,000 $ The Department has pledged future motor vehicle and related fuel fees and taxes to repay $1,519,770,000 in outstanding Highway Revenue Bonds issued since 2011. Proceeds from the bonds finance portions of the Transportation Board’s Five‐Year Transportation Facilities Construction Program. The bonds are payable solely from motor vehicle and related fuel fees and taxes and are payable through 2038. The total principal and interest remaining to be paid on the bonds is $2,261.6 million. Principal and interest paid for the current year and total pledged revenues were $144.4 million and $589.4 million, respectively. The annual principal and interest payments on the bonds required 24.5% of the pledged revenues. Arizona Transportation Board Transportation Excise Tax Revenue Bonds The Maricopa Regional Area Road Construction Fund is used to record all payments of principal and interest for Transportation Excise Tax Revenue Bonds issued by the Transportation Board. These bonds are secured by a portion of transportation excise taxes collected by the Arizona Department of Revenue on behalf of Maricopa County. The balance of Transportation Excise Tax Revenue Bonds issued in prior years and outstanding at the start of the fiscal year was $782.81 million. ` Comprehensive Annual Financial Report Fiscal Year 2016 53 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 All Transportation Excise Tax Revenue Bonds mature no later than July 1, 2025. Transportation Excise Tax Revenue Bonds currently outstanding are as follows: Maturity (7/1) 2017 2017 2007 Series Principal Coupon $ 17,770,000 2,250,000 5.000% 4.000% 2009 Series Principal Coupon $ 3.000% 5.000% 27,355,000 $ 2011 Series Principal Coupon 2014 Series Principal Coupon 1,685,000 9,405,000 2.000% 5.000% $ 10,330,000 5.000% 5.000% 1,505,000 10,090,000 3.000% 5.000% 10,840,000 5.000% 18,480,000 5.000% 6,700,000 22,020,000 4.250% 5.000% 2,370,000 9,775,000 2.500% 5.000% 11,385,000 5.000% 19,400,000 5.000% 2020 340,000 3.500% 5,250,000 4.000% 11,955,000 5.000% 20,365,000 5.000% 2020 2021 29,765,000 5.250% 7,445,000 13,275,000 5.000% 5.000% 12,555,000 5.000% 53,065,000 5.000% 13,940,000 14,635,000 5.000% 5.000% 13,180,000 13,575,000 3.000% 4.000% 55,720,000 58,505,000 5.000% 5.000% 735,000 3.125% 14,115,000 14,685,000 4.000% 3.000% 76,800,000 63,675,000 5.000% 5.000% 15,400,000 5.000% 2018 2018 2019 2019 325,000 25,730,000 2010 Series Principal Coupon 2022 2023 2024 2025 830,000 4.000% 2025 Totals $ 20,020,000 $ 113,065,000 $ 105,510,000 $ 112,620,000 $ - - $366,010,000 Annual debt service requirements to maturity for Transportation Excise Tax Revenue Bonds are as follows: Transportation Excise Tax Revenue Bonds Principal Interest Total Fiscal year ending June 30, 2017 $ 67,495,000 $ 34,802,631 $ 102,297,631 2018 2019 68,270,000 71,650,000 31,507,431 28,124,031 99,777,431 99,774,031 2020 2021 2022-2025 75,120,000 78,895,000 355,795,000 24,651,031 20,878,219 43,294,076 99,771,031 99,773,219 399,089,076 $ 717,225,000 $ 183,257,419 $ 900,482,419 The Department has pledged future transportation excise taxes to repay $717,225,000 in outstanding Transportation Excise Tax Revenue Bonds issued since 2007. Proceeds from the bonds pay the costs of design, right‐of‐way purchase, or construction of certain freeways and other routes within Maricopa County. The bonds are payable solely from transportation excise taxes and are payable through 2025. The total principal and interest remaining to be paid on the bonds is $900.5 million. Principal and interest paid for the current year and total pledged revenues were $103.6 million and $263 million, respectively. The annual principal and interest payments on the bonds required 39.4% of the pledged revenues. Arizona Transportation Board Grant Anticipation Notes (GARVEE) The Grant Anticipation Notes Fund administers all payments of principal and interest for notes issued by the Transportation Board and is secured by revenues received from the Federal Highway Administration under grant agreements and certain other federal‐aid revenues. The balance of Grant Anticipation Notes (GARVEE bonds) issued in prior years and outstanding at the start of the fiscal year was $194.67 million. ` Comprehensive Annual Financial Report Fiscal Year 2016 54 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 Grant Anticipation Notes (GARVEE) currently outstanding are as follows: Series 2011A Principal Coupon Maturity (7/1) 2017 2017 $ 3,365,000 8,405,000 4.000% 5.000% 2018 2018 2019 2019 1,830,000 10,495,000 4.000% 5.000% 2,800,000 10,125,000 4.000% 5.000% 2020 260,000 4.000% 2020 13,285,000 5.000% 2021 2021 270,000 13,945,000 4.000% 5.000% 2022 1,085,000 4.000% 2022 2023 2023 13,840,000 275,000 15,385,000 5.000% 4.125% 5.000% 2024 2025 2025 2026 16,440,000 600,000 16,705,000 18,210,000 5.250% 4.500% 5.250% 5.250% Totals $ 147,320,000 Annual debt service requirements to maturity for Grant Anticipation Notes (GARVEE) are as follows: Transportation Excise Tax Revenue Bonds Principal Interest Total Fiscal year ending June 30, 2017 $ 11,770,000 $ 7,392,881 $ 19,162,881 2018 2019 12,325,000 12,925,000 6,838,031 6,240,081 19,163,031 19,165,081 2020 2021 2022-2026 13,545,000 14,215,000 82,540,000 5,621,831 4,947,181 13,282,063 19,166,831 19,162,181 95,822,063 $ 147,320,000 $ 44,322,068 $ 191,642,068 The Department has pledged federal revenues to repay $147,320,000 in outstanding Grant Anticipation Notes (GARVEE bonds). Proceeds from the bonds pay the costs of design, right‐of‐way purchase, or construction of certain freeways and other routes within Arizona. The bonds are payable solely from federal revenues and are payable through 2026. The total principal and interest remaining to be paid on the bonds is $191.6 million. Principal and interest paid for the current year and total pledged revenues were $56.9 million and $998.3 million, respectively. The annual principal and interest payments on the bonds required 5.7% of the pledged revenues. ` Comprehensive Annual Financial Report Fiscal Year 2016 55 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 Refunded Bonds Deposited with Escrow Agents In prior fiscal years, the Transportation Board refinanced various bond issues through refunding arrangements. Under the terms of the refunding bond issues, sufficient assets to pay all principal, redemption premium, if any, 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 these legally defeased bonds are not reflected in the financial statements of the Department. Advances and Notes Payable The Department’s outstanding advances and notes payable as of June 30, 2016, were $22,178,643 in governmental activities. The advances and notes payable represent amounts for other intergovernmental advances. Annual debt service requirements to maturity for advances and notes payable are as follows: Governmental Activities Principal Interest Fiscal year ending June 30, 2020 2021 $ 151,430 22,027,213 $ - $ 22,178,643 $ - Changes in Noncurrent Liabilities The activity for the fiscal year ended June 30, 2016, was as follows: Beginning Balance July 1, 2015 Additions Reductions Ending Balance June 30, 2016 Due Within One Year Governmental activities Bonds and notes Highway Revenue bonds Transportation Excise Tax Revenue bonds Grant Anticipation notes Unamortized premium on bonds Total bonds and notes Capital leases Compensated absences Advances and notes payable Total governmental activities $ 1,589,965,000 $ 782,810,000 194,670,000 401,520,619 2,968,965,619 30,944,653 18,899,085 22,178,643 $ 3,040,988,000 $ - $ (70,195,000) $ 1,519,770,000 $ (65,585,000) 717,225,000 (47,350,000) 147,320,000 (34,377,794) 367,142,825 (217,507,794) 2,751,457,825 72,785,000 67,495,000 11,770,000 29,762,543 181,812,543 17,979,013 10,639,508 28,618,521 $ (11,178,006) 37,745,660 (11,231,265) 18,307,328 22,178,643 (239,917,065) $ 2,829,689,456 $ 11,943,492 11,234,002 204,990,037 The Internal Service Fund predominantly serves the governmental funds. Accordingly, long‐term liabilities for that fund are included as part of the above totals for governmental activities. At year‐end, $730,171 of the Internal Service Fund’s compensated absences is included in the above amounts. The capital leases will be liquidated by the General Fund (State Highway Fund). The General Fund (State Highway Fund) has paid compensated absences in the past while the advances and notes payable will be ` Comprehensive Annual Financial Report Fiscal Year 2016 56 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 repaid with funds from the General Fund (State Highway Fund) and the Maricopa Regional Area Road Construction Fund. Bonds and notes issued by the Department require compliance with a number of covenants. The Department believes that it is in compliance with all such covenants. In addition, certain of the Department’s obligations are subject to Internal Revenue Service regulations pertaining to issuance of tax‐exempt debt by governmental entities. The Department does not have and has not accrued a liability under these regulations. F. Fund Balances The fund balance classifications of the governmental funds as of June 30, 2016, were as follows: Maricopa Regional Area Road Construction Fund General Fund (State Highway Fund) Fund Balances Nonspendable Inventories $ 6,178,810 $ 6,178,810 Total nonspendable Restricted for Highway - Motor Vehicle Division Clearing Fund $ - - Debt Service Fund $ - Capital Projects Funds - $ - Nonmajor Governmental Funds - $ - - Total $ 6,178,810 6,178,810 337,533,974 390,856,373 - 232,883 139,283,804 17,708,713 885,615,747 Total restricted 337,533,974 390,856,373 - 232,883 139,283,804 17,708,713 885,615,747 Committed to Administration Highway Highway maintenance Motor vehicle 276,411,976 5,900,273 - - - - - 10,964,804 6,300,584 10,964,804 276,411,976 5,900,273 6,300,584 Total committed 282,312,249 - - - - 17,265,388 299,577,637 - Unassigned Total fund balances $ 626,025,033 $ 390,856,373 (8,128,423) $ (8,128,423) $ 232,883 $ 139,283,804 $ 34,974,101 (8,128,423) $ 1,183,243,771 The ($8.1) million in the unassigned portion of the fund balance is due to Arizona Revised Statutes, §28‐ 6542 (B), which prohibits adjustments more than 24 months after the original distribution. 6) Other Information A. Loop 202 South Mountain Freeway Project On February 26, 2016 the Department entered into a design-build-maintain contract with Connect 202 Partners (private partner) for the design, construction, and 30 year maintenance of the Loop 202 South Mountain Freeway totaling $1.1 billion. The South Mountain Freeway is a 22 mile, 8 lane freeway that will complete the Loop 202 and Loop 101 freeway system. This is the largest highway project in Arizona history. Pre-construction activities, including geotechnical, utility work, property acquisition and preparation, have been underway since spring 2015. Construction is scheduled to begin in summer 2016 with an anticipated project completion of late 2019. ` Comprehensive Annual Financial Report Fiscal Year 2016 57 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 Cost and Funding Sources The anticipated cost of this project is approximately $1.837 billion, not including financing costs. Right-ofway cost estimates are not contractually committed, but are necessary costs to complete the project. The significant cost components of this project are as follows: Design and construction Preliminary engineering and right of way Capital asset replacement Maintenance (30-year period) Total anticipated cost of project $ 916,549,178 729,297,401 103,192,057 87,961,364 $ 1,837,000,000 Actual costs incurred by the Department through June 30, 2016 for this project is $314,328,383. Anticipated funding for the Loop 202 South Mountain Freeway Project will be provided from the following sources (in millions): Regional Area Road Fund (1/2 - cent sales tax) Federal Funds Regional Area Road Fund Bonds State Highway User Revenue Funds Total funding by source $ 702 494 435 206 $ 1,837 Maintenance Services – 30-Year Period Upon completion of the construction phase of the project, Connect 202 Partners will maintain the freeway corridor for a period of 30 years. The average annual maintenance cost to the Department is approximately $2,932,045. Connect 202 Partners will invoice the Department on a monthly basis for maintenance services provided. B. 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 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. 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. ` Comprehensive Annual Financial Report Fiscal Year 2016 58 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 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. Light Rail Transit System Arizona Revised Statutes, §28‐9201, requires the Department to establish, implement, and enforce minimum safety standards for light rail transit systems. If a violation of the safety standards is discovered, the Department shall report the violation in writing to the Federal Transit Administration. Furthermore, the organization that operates a light rail transit system shall include a safety oversight function and pay the Department’s costs resulting from administration. C. Pension and Other Postemployment Benefits Arizona State Retirement System Plan Descriptions – Employees of the Department participate in the Arizona State Retirement System (ASRS). The ASRS administers a cost‐sharing, multiple‐employer defined benefit pension plan; a cost‐ sharing, multiple‐ employer defined benefit health insurance premium benefit (OPEB); and a cost‐sharing, multiple‐employer defined benefit long‐term disability (OPEB). The Arizona State Retirement System Board governs the ASRS according to the provisions of A.R.S. Title 38, Chapter 5, Articles 2 and 2.1. The ASRS issues a publicly available financial report that includes its financial statements and required supplementary information. The report is available on its Web site at www.azasrs.gov. Benefits Provided – The ASRS provides retirement, health insurance premium supplement, long‐term disability, and survivor benefits. State statute establishes benefit terms. Retirement benefits are calculated on the basis of age, average monthly compensation, and service credit as follows: Retirement Initial Membership Date Before July 1, 2011 On or after July 1, 2011 Years of service and age required Sum of years and age equals 80 10 years, age 62 30 years, age 55 5 years, age 50* Any years, age 65 10 years, age 62 5 years, age 50* to received benefit 25 years, age 60 Any years, age 65 Final average salary is based on Highest 36 consecutive months of last 120 months Highest 60 consecutive months of last 120 months Benefit percent per year of service 2.1% to 2.3% 2.1% to 2.3% *With actuarially reduced benefits. ` Comprehensive Annual Financial Report Fiscal Year 2016 59 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 Retirement benefits for members who joined the ASRS prior to September 13, 2013, are subject to automatic cost‐of‐living adjustments based on excess investment earnings. Members with a membership date on or after September 13, 2013, are not eligible for cost‐of‐living adjustments. Survivor benefits are payable upon a member’s death. For retired members, the retirement benefit option chosen determines the survival benefit. For all other members, the beneficiary is entitled to the member’s account balance that includes the member’s contributions and employer’s contributions, plus interest earned. Contributions – In accordance with State statutes, annual actuarial valuations determine active member and employer contribution requirements. The combined active member and employer contribution rates are expected to finance the costs of benefits employees earn during the year, with an additional amount to finance any unfunded accrued liability. For the year ended June 30, 2016, active ASRS members were required by statute to contribute at the actuarially determined rate of 11.47% (11.35% for retirement and 0.12% for long‐term disability) of the members’ annual covered payroll, and the Department was required by statute to contribute at the actuarially determined rate of 11.47% (10.85% for retirement, 0.50% for the health insurance premium benefit, and 0.12% for long‐term disability) of the active members’ annual covered payroll. In addition, the Department was required by statute to contribute at the actuarially determined rate of 9.36% (9.17% for retirement, 0.13% for health insurance premium benefit, and 0.06% for long‐term disability) of annual covered payroll of retired members who worked for the Department in positions that would typically be filled by an employee who contributes to the ASRS. The Department’s contributions to the pension plan for the year ended June 30, 2016, were $20,193,753. The Department’s contributions for the current and two preceding years for OPEB, all of which were equal to the required contributions, were as follows: Year ended June 30 2016 2015 2014 Health Benefit Supplement Fund $ 922,181 1,123,313 1,123,160 Long-Term Disability Fund $ 219,684 224,308 440,942 During the fiscal year ended June 30, 2016, the Department paid for ASRS pension and OPEB contributions as follows: 93% from the General Fund, 3% from major funds, and 4% from other nonmajor funds. The Department’s total payroll for fiscal year 2016 was $186,117,539. The System is funded through payroll deductions from employees’ gross earnings and amounts contributed by the Department. Retirement benefits, health care benefits, and long term disability benefits are obligations of the System and not of the Department. The Arizona Revised Statutes provide statutory authority for employee and employer contributions. The contribution requirement for fiscal year 2016 was $20,193,753 each by both the employees and the Department. Presentation of Deferred Outflows and Deferred Inflows of Resources Deferred outflows and inflows of resources are reported in the basic statements of net position in a separate section following assets and liabilities, respectively. The Department elected the optional statement of net position presentation. ` Comprehensive Annual Financial Report Fiscal Year 2016 60 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 The Department recognizes the consumption of net position that is applicable to a future reporting period as deferred outflows of resources. The deferred outflows of resources are related to the Department’s pension plan. The Department recognizes the acquisition of net position that is applicable to a future reporting period as deferred inflows of resources. The deferred inflows of resources relate to the Department’s pension plan. Retirement Plans The Department contributes to the Arizona Statement Retirement System plan described below. The plan is a component unit of the State of Arizona. At June 30, 2016, the Department reported the following amounts related to the pension plan to which it contributes: Statement of Net Position and Statement of Activities Net pension liabilities Deferred outflows of resources Deferred inflows of resources Pension expense Governmental Activities $ 322,028,132 31,877,605 28,720,206 18,890,222 Changes in the Department’s net pension liability during the fiscal year ended June 30, 2016, were as follows: Governmental Activities Beginning balance Increases Decreases $ 307,848,005 53,385,532 (39,205,405) Ending balance $ 322,028,132 Pension Liability – At June 30, 2016, the Department reported a liability of $322,028,132 for its proportionate share of the ASRS’ net pension liability. The net pension liability was measured as of June 30, 2015. The total pension liability used to calculate the net pension liability was determined using update procedures to roll forward the total pension liability from an actuarial valuation as of June 30, 2014, to the measurement date of June 30, 2015. The Department’s reported liability at June 30, 2016, increased by $14,180,127 from the prior year liability of $307,848,005 because of changes in the ASRS’ net pension liability and the Department’s proportionate share of that liability. The ASRS’ publicly available financial report provides details on the change in the net pension liability. ` Comprehensive Annual Financial Report Fiscal Year 2016 61 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 The Department’s proportion of the net pension liability was based on the Department’s actual contributions to the plan relative to the total of all participating employers’ contributions for the year ended June 30, 2015. The Department’s proportion measured as of June 30, 2015, was 2.067410%, which was a decrease of 0.013122% from its proportion measured as of June 30, 2014. Pension Expense and Deferred Outflows/Inflows of Resources – For the year ended June 30, 2016, the Department recognized pension expense for ASRS of $18,890,222. At June 30, 2016, the Department reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows Inflows of Resources of Resources Differences between expected and actual experience − 2014 Differences between expected and actual experience − 2015 Net difference between projected and actual earnings on pension plan investments Changes in proportion and differences between State contributions and proportionate share of contributions − 2014 Changes in proportion and differences between State contributions and proportionate share of contribu ons − 2015 DOT contributions subsequent to the measurement date Total $ 8,787,449 $ - 16,874,599 - 10,320,288 2,896,403 - - 1,525,319 - 20,193,753 $ - 31,877,605 $ 28,720,206 The $20,193,753 reported as deferred outflows of resources related to ASRS pensions resulting from the Department contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2017. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to ASRS pensions will be recognized in pension expense as follows: Year Ending June 30 2017 2018 2019 2020 Pension Expense $ (5,299,435) (11,590,740) (7,596,134) 7,449,955 ` Comprehensive Annual Financial Report Fiscal Year 2016 62 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 Actuarial Assumptions – The significant actuarial assumptions used to measure the total pension liability are as follows: Actuarial valuation date June 30, 2014 Actuarial roll forward date Actuarial cost method June 30, 2015 Entry age normal Investment rate of return 8% Projected salary increases 3−6.75% Inflation 3% Permanent benefit increase Mortality rates Included 1994 GAM Scale BB Actuarial assumptions used in the June 30, 2014, valuation were based on the results of an actuarial study for the 5‐year period ended June 30, 2012. The long‐term expected rate of return on ASRS pension plan investments was determined to be 8.79% using a building block method in which best‐estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long‐term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Asset Class Target Allocation Equity 58% Fixed income 25% Multi-asset 5% Real estate 10% Commodities 2% Total 100% Inflation Total long-term expected rate of return Long-Term Expected Real Rate of Return 3.94% 0.93% 0.17% 0.42% 0.08% 5.54% 3.25% 8.79% Discount Rate – The discount rate used to measure the ASRS total pension liability was 8%, which is less than the long‐term expected rate of return of 8.79%. The projection of cash flows used to determine the discount rate assumed that contributions from participating employers will be made based on the actuarially determined rates based on the ASRS Board’s funding policy, which establishes the contractually required rate under Arizona statutes. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of ` Comprehensive Annual Financial Report Fiscal Year 2016 63 Arizona Department of Transportation Notes to the Financial Statements June 30, 2016 current plan members. Therefore, the long‐term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Sensitivity of the Department’s Proportionate Share of the ASRS Net Pension Liability to Changes in the Discount Rate – The following table presents the Department’s proportionate share of the net pension liability calculated using the discount rate of 8%, as well as what the Department’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (7%) or 1 percentage point higher (9%) than the current rate. DOT's proportionate share of the net pension liability 1% Decrease (7%) Current Discount Rate (8%) 1% Increase (9%) $ 421,966,901 $ 322,028,132 $ 253,537,325 Pension Plan Fiduciary Net Position – Detailed information about the pension plan’s fiduciary net position is available in the separately issued ASRS financial report. The most recent report may be obtained by writing the Arizona State Retirement System, 3300 North Central Avenue, P.O. Box 33910, Phoenix, AZ 85067‐3910, by calling (602) 240‐2000 or (800) 621‐3778 or visiting the website at www.azasrs.gov/content/annual‐reports. D. Subsequent Events Grant Anticipation Refunding Notes, Series 2016 On October 6, 2016, the Department issued $90,410,000 in Grant Anticipation Refunding Notes, Series 2016. Proceeds from the notes were used to refund the Grant Anticipation Notes, Series 2011A. The notes bear an interest rates range from 4.000% to 5.250% over the term of the notes. The refunding will save the Department $10,650,129 of debt service interest over the life of the notes and will result in an economic gain of $9,825,487. Highway Revenue Refunding Bonds, Series 2016 On October 6, 2016, the Department issued $203,050,000 in Highway Revenue Refunding Bonds, Series 2016. Proceeds from the bonds were used to refund the Highway Revenue Bonds, Series 2011A and 2013A. The bonds bear an interest rates range from 4.000% to 5.250% over the term of the bonds. The refunding will save the Department $21,822,194 of debt service interest over the life of the notes and will result in an economic gain of $17,625,047. Transportation Excise Tax Revenue Refunding Bonds On October 6, 2016, the Department issued $109,850,000 in Transportation Excise Tax Revenue Bonds. Proceeds from the bonds were used to refund the Transportation Excise Tax Revenue Bonds Series 2009, Series 2010 and Series 2011. The bonds bear an interest rates range from 3.000% to 5.250% over the term of the bonds. The refunding will save the Department $8,156,379 of debt service interest over the life of the notes and will result in an economic gain of $7,647,042. ` Comprehensive Annual Financial Report Fiscal Year 2016 64 REQUIRED SUPPLEMENTARY INFORMATION (OTHER THAN MD&A) Budgetary Comparison Schedule – General Fund (State Highway Fund) Note to Required Supplementary Information Information about Infrastructure Assets Reported Using the Modified Approach Pension Liability and Pension Contributions Comprehensive Annual Financial Report Fiscal Year 2016 Arizona Department of Transportation Required Supplementary Information June 30, 2016 Budgetary Comparison Schedule General Fund (State Highway Fund) – Budgetary Basis For the Year Ended June 30, 2016 Variance with Final Budget − Positive (Negative) Budgeted Amounts Original Final Actual Amounts 341,899,700 $ 341,899,700 $ 322,089,942 $ Expenditures appropriated by State legislature in 2016 budget Department of Transportation $ Timing differences: Prior-year appropriation expenditures expended in current budget 13,388,117 Basis differences: Net increase (decrease) from cash basis for budgeting purposes and modified accrual basis for financial reporting purposes 35,319,114 Entity differences: Funds not appropriated, but included for financial reporting purposes 1,071,273 Perspective differences: Expenditures on modified accrual basis and not recognized on budgetary basis: Capital outlay and asset preservation Distributions to Arizona counties and cities Distributions to other state agencies Interest expense Principal repayment of debt Total expenditures as reported on the Statement of Revenues, Expenditures, and Changes in Fund Balances − Governmental Funds (General Fund) - Exhibit 4 19,809,758 511,143,401 48,472,050 9,012,551 647,403 11,178,006 $ 952,321,857 The accompanying note to required supplementary information is an integral part of this schedule. Comprehensive Annual Financial Report Fiscal Year 2016 65 Arizona Department of Transportation Required Supplementary Information June 30, 2016 Note to Required Supplementary Information 1. Budgets and Budgetary Accounting An annual budget for the operating expenditures of the General Fund (State Highway Fund) is submitted to the governor in accordance with state law. The budget is legally enacted as appropriations after approval by the state legislature and signature of the governor. The legal level of control for operating expenditures is set at the agency level and expenditure budgets are appropriated using a lump‐sum by agency format. Revenue budgets are developed internally by the Department and are not part of the appropriation process. Amendments to the approved appropriations require legislative approval. However, since the Department’s appropriation is a lump sum appropriation by agency, the allocation of funds between personal services, employee‐ related expenditures, and other operating expenditures is an internal decision. Accordingly, transfers between line items such as personal services and other operating expenditures within a particular program may be made by the program manager. Expenditures may not exceed appropriations. All transfers of funds are reported to the Department’s Office of Strategic Planning and Budgeting for monitoring purposes. Budgets are prepared on the cash basis except that liabilities incurred before the end of the fiscal year and paid within the first month of the subsequent fiscal year are charged against the prior fiscal year’s budget. The Department’s appropriations lapse at fiscal year‐end unless exempted by the legislature. For financial reporting purposes, the accompanying financial statements present the legally adopted budget for the operations of the General Fund (State Highway Fund) that is subject to legislative appropriation. In addition, budgets for capital outlay, including land, building, and improvements for the General Fund (State Highway Fund) and State Aviation Fund, are also submitted to the governor in accordance with state law. The capital outlay appropriation includes state highway construction and land, building, and improvements for the General Fund (State Highway Fund). A legal limitation is adopted for land, building, and improvements; however, legislation allows the Department to spend in excess of its appropriation for state highway construction up to the current fund balance. The Department monitors expenditures through an internal budgetary process and the Five‐ Year Transportation Facilities Construction Program approved by the Transportation Board. Comprehensive Annual Financial Report Fiscal Year 2016 66 Arizona Department of Transportation Required Supplementary Information June 30, 2016 Information About Infrastructure Assets Reported Using the Modified Approach As allowed by Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments (GASB 34), as amended, the Arizona Department of Transportation (the “Department”) reports its roads and bridges using the modified approach. Assets accounted for under the modified approach include 6,822 center line miles (21,532 travel lane miles) of roads and 4,858 bridges that the Department is responsible to maintain. In order to utilize the modified approach, the Department is required to: • Maintain an asset management system that includes an up to date inventory of eligible infrastructure assets. • Perform condition assessments of eligible assets and summarize the results using a measurement scale. • Estimate each year the annual amount to maintain and preserve the assets at the condition level established and disclosed by the Department. • Document that the assets are being preserved approximately at or above the established condition level. As adopted by the Transportation Board of the State of Arizona Department of Transportation (the “Transportation Board”) on an annual basis, the Five‐Year Transportation Facilities Construction Program (the “Program”) contains estimated expenditures for highway system improvements and the preservation of existing roadway and bridges. Both of these factors impact the condition assessment of the roads and bridges as described in the following sections. The Program in effect for fiscal year 2016 and beyond was adopted by the Transportation Board on June 19, 2015. This Program is a dynamic instrument and adjustments are made to the annual plans based on the needs of the Department to maintain the condition level of the roads and bridges at a level equal to, or greater than, the goals established by the Department. In addition, not only are adjustments made during the life of the Program, circumstances may require that refinements to the individual components of the Program be made during the fiscal year. In comparing Estimated to Actual Expenditures in the tables that follow, significant variances can occur. These variances are primarily due to the methodology used in the preparation of the Program. In this Program, the Estimated Expenditures for the current year are based on “programmed” projects which may or may not be spent in the current year of the Program. Programmed expenditures consist of those items that are planned for the future, with contracts that have not yet been awarded. Furthermore, the Actual Expenditures will include projects that were programmed for a prior year’s Estimated Expenditures, but which did not occur, or were not completed, in the prior year. Comprehensive Annual Financial Report Fiscal Year 2016 67 Arizona Department of Transportation Required Supplementary Information June 30, 2016 The following information pertains to the condition assessment and maintenance of infrastructure assets and reflects the Department’s success in achieving condition levels that exceed the established levels. Roads The mission of the Department’s Pavement Management Section (PMS) is to develop and provide a cost effective pavement rehabilitation construction program that preserves the state’s investment in its highway system and enhances public transportation and safety. The requirements of GASB 34 and the PMS both work toward the same basic goal, the efficient, effective management of the Department’s assets to produce long‐term benefits while minimizing expenditures. The PMS has developed performance goals for the condition level of the pavement in the state highway system. These goals require periodic assessment of pavement conditions and the budget level needed to meet that goal. The goal is expressed as a measure called “Serviceability” which can be defined as the ability of a pavement to serve the traveling public (as documented in 1961 after American Association of State Highway and Transportation Officials (AASHTO) Road Test, 1956‐1961). Serviceability is based on detailed measurements of objective features of the pavement. Many surveys since the original road test have shown that these measurements closely track the subjective opinion of the traveling public. Most commonly, this number is called Present Serviceability Rating and abbreviated as PSR. PSR is a five‐point scale (5 excellent, 0 impassable), similar to the Weaver/AASHTO Scale shown as follows: Numerical Rating PSR Weaver/AASHTO Scale 5 Excellent Perfect 4 Good Very Good 3 Fair Good 2 Poor Fair 1 Very Poor Poor 0 Impassable Very Poor Comprehensive Annual Financial Report Fiscal Year 2016 68 Arizona Department of Transportation Required Supplementary Information June 30, 2016 The goal of the Department is to maintain a condition level (PSR) rating of 3.23 or better for all roads in the state highway system. Annually, Transportation Material Technicians drive over the system with inertial profiling equipment and measure the roughness of the pavement. This process is continuous throughout the year in order to assess the condition level of all pavement on an annual basis. As of the end of fiscal year 2016, an overall rating of 3.66 was achieved, as shown in the following graph: Condition Level-Roads 5 PSR 4 3 2 Actual 1 Goal 0 2012 2013 2014 Fiscal Year 2015 2016 Figure 1 Preservation of the roads is accomplished through programs managed primarily by the Department’s PMS, as well as other units within the Department. The estimated (as specified in the Program as programmed amounts) and actual expenditures for fiscal years 2012 through 2016 were as follows: Fiscal Year Estimated Expenditures (in millions) Actual Expenditures (in millions) 2012 $261.9 $373.6 2013 276.3 291.3 2014 271.2 287.2 2015 249.5 300.6 2016 272.0 317.0 Comprehensive Annual Financial Report Fiscal Year 2016 69 Arizona Department of Transportation Required Supplementary Information June 30, 2016 Bridges The Department’s bridge assets constitute a significant portion of all infrastructure assets in Arizona. As of June 30, 2016, the Department owned and maintained 4,858 bridges with an approximate total deck area of 49,764,611 square feet. Bridges, for purposes of this report, include all structures erected over an opening or depression with a centerline of 20 feet or more. Information related to these bridges is stored and updated in the Arizona Bridge Information and Storage System (ABISS). This system is used to efficiently manage the bridge inventory through storing all bridge related data and assisting bridge engineers in arriving at appropriate bridge preservation decisions. Also, ABISS is used for reporting bridge inventory and condition, on a biennial basis, to the Federal Highway Administration (FHWA). Historically, a Condition Rating Index (CRI) has been used to track the condition of the bridge network. The CRI was based on four selected bridge inspection condition ratings, which in turn were based on standards established in the FHWA’s “Recording and Coding Guide for the Structural Inventory of the Nation’s Bridges.” In 2015, FHWA issued new rules which have had the effect of replacing CRI as the summary statistic for bridge condition. Instead, the Departments of Transportation of the various States are expected to maintain their bridges so that no more than 10% are classified as Poor. Financial sanctions are held against States that do not comply with this standard. Management of the bridge inventory is a major function of the Department’s Bridge Group and regularly scheduled biennial inspections are made of all bridges. A civil or structural engineer, licensed to practice in Arizona, performs these inspections. In fiscal year 2016, 2.9% of bridges maintained by the Department were classified as Poor. As this is the first year this measurement has been used, long-term trend data is not available, but will be accumulated over time. Comprehensive Annual Financial Report Fiscal Year 2016 70 Arizona Department of Transportation Required Supplementary Information June 30, 2016 Figure 2 Bridges represent a major public investment, and their inspection and maintenance is an essential function of the Department in its mission of providing products and services for a safe, efficient, and cost effective transportation system. Figure 2 indicates that approximately 56% of the bridges in the state were constructed prior to the 1970s while only 15% have been constructed since 2000. Age of Department's Bridge Population 30.0% 25.0% % of bridges built in corresponding decade 20.0% 15.0% 10.0% 5.0% 0.0% <1930 30s 40s 50s 60s 70s 80s 90s 2000s 2010s Each bar represents % of bridges built in corresponding decade. Preservation of the bridges is accomplished through programs managed by the Bridge Group. The estimated (as specified in the Program as programmed amounts) and actual expenditures for fiscal years 2012 through 2016 were as follows: Fiscal Year Estimated Expenditures (in millions) Actual Expenditures (in millions) 2012 $12.5 $20.6 2013 14.7 10.7 2014 21.2 20.5 2015 13.7 21.9 2016 11.6 39.8 Comprehensive Annual Financial Report Fiscal Year 2016 71 Arizona Department of Transportation Required Supplementary Information June 30, 2016 Pension Liability and Pension Contributions In 2015, the Department implemented Government Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions and GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date—An Amendment of GASB Statement No. 68. Required supplementary information as a result of this implementation is: Schedule of the Proportionate Share of the Net Pension Liability For the last two fiscal years ended (1) Fiscal Year 2016 Proportion of the net pension liability Proportion share of the net pension liability Covered-employee payroll Proportion share of the net pension liability as a percentage of its covered-employee payroll Plan fiduciary net position as a percentage of the total pension liability Fiscal Year 2015 2.07% $ 322,028,132 $ 186,117,539 2.08% $ 307,848,006 $ 187,545,346 173.02% 164.15% 68.35% 69.49% Schedule of Pension Contributions For the last three fiscal years ended (1) Fiscal Year 2015 2016 Statutorily required contribution Contributions in relation to the statutorily required contribution $ Contribution deficiency (excess) $ Covered-employee payroll Contributions as a percentage of covered-employee payroll 20,193,753 $ $ 186,117,539 10.85% $ 20,753,085 20,193,753 - 20,753,085 2014 $ - $ 190,570,110 20,067,352 20,067,352 $ - $ 187,545,346 10.89% 10.70% (1) The Department implemented GASB 68 in fiscal year 2015. Therefore, ten years of data is not available, but will be accumulated over time. Comprehensive Annual Financial Report Fiscal Year 2016 72 SUPPLEMENTARY INFORMATION Comprehensive Annual Financial Report Fiscal Year 2016 NONMAJOR GOVERNMENTAL FUNDS FINANCIAL STATEMENTS SPECIAL REVENUE FUNDS Special revenue funds are used to account for specific revenues that are legally restricted to expenditures for particular purposes. 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 the Grand Canyon National Park Airport. The State Aviation Fund monies are used to build and maintain airport facilities throughout Arizona. The Safety Enforcement and Transportation Infrastructure Fund is appropriated by the legislature and receives monies from registration fees for non‐resident vehicles and single trip and limited use fuel tax permits. Monies are used for enforcement of vehicle safety requirements, and construction and maintenance of transportation facilities within twenty‐five miles of the border between Arizona and Mexico. The Motor Vehicle Liability Insurance Enforcement Fund is appropriated by the legislature and receives reinstatement fees for insurance‐related driver license and vehicle registration suspensions. Monies are used to administer the State's Mandatory Liability Insurance Program. The Motor Vehicle Inspection and Title Enforcement Fund is appropriated by the legislature and receives monies from the fees charged for certain vehicle inspections. Monies are used to defray the cost of investigations involving certificates of title, licensing fraud, registration enforcement, and other enforcement related issues. The Motor Carrier Safety Revolving Fund receives fees to administer and enforce the rules governing the safety operations of motor carriers, shippers, and vehicles transporting hazardous materials, substances, or waste. The Underground Storage Tank Fund receives certain Department revenues for distribution to the Department of Environmental Quality. The Economic Strength Project Fund receives monies from the Highway User Revenue Fund for use on approved economic strength projects recommended by the Department of Commerce and Economic Development Commission. The Grant Anticipation Notes Fund receives revenues from the Federal Highway Administration under various grant agreements for the repayment of Grant Anticipation Notes (GARVEE bonds). 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. Comprehensive Annual Financial Report Fiscal Year 2016 Arizona Department of Transportation Combining Balance Sheet Nonmajor Governmental Funds June 30, 2016 State Aviation Fund Safety Enforcement and Transportation Infrastructure Fund Motor Vehicle Liability Insurance Enforcement Fund Motor Vehicle Inspection and Title Enforcement Fund Assets Unrestricted cash on deposit with the State Treasurer $ Receivables Interfund 8,234,228 $ 37,256 518,972 $ 4,703,789 $ 1,948,639 33,652 63,756 Notes and loans 2,910,777 - - - Other, net 1,064,379 - - - 1,106,204 - - - - Amounts due from U.S. government Restricted cash on deposit with the State Treasurer Total assets 44,690 $ 13,352,844 $ 552,624 $ 4,767,545 $ 1,993,329 $ 1,534,522 44,060 $ 111,524 25,744 $ 1,159 34,006 $ 431,644 44,166 Liabilities and Fund Balances Liabilities Accounts payable Accrued payroll and other accrued expenditures Amounts due to Other state agencies Arizona counties and cities 2,236,815 Total liabilities - - - 3,815,397 137,268 35,165 475,810 9,537,447 415,356 4,732,380 1,517,519 Fund balances Restricted Committed 9,537,447 Total fund balances Total liabilities and fund balances Comprehensive Annual Financial Report Fiscal Year 2016 $ 13,352,844 415,356 $ 552,624 4,732,380 $ 4,767,545 1,517,519 $ 1,993,329 73 Exhibit 8 Motor Carrier Safety Revolving Fund $ 50,685 Underground Storage Tank Fund $ - $ Grant Anticipation Notes Fund 1,012,001 2,934,702 $ - Local Agency Deposits Funds $ Total Nonmajor Governmental Funds - $ 16,468,314 - - - 3,114,056 - - - - - 2,910,777 - - - - 7,807,023 8,871,402 - - 6,898,890 19,622,771 8,005,094 22,677,096 - 3,054,325 $ 50,685 $ $ - $ 5,989,027 - $ 1,012,001 $ - $ - $ 34,328,684 $ 62,046,739 $ - $ 12,685,853 152,958 $ 14,764,702 300,934 - 5,989,027 - - - 3,781,160 5,989,027 6,017,975 - 5,989,027 - - 16,619,971 27,072,638 - 17,708,713 - 17,708,713 17,265,388 50,685 - 50,685 1,012,001 - 50,685 $ - Economic Strength Project Fund $ 5,989,027 1,012,001 $ 1,012,001 Comprehensive Annual Financial Report Fiscal Year 2016 $ - 17,708,713 $ 34,328,684 34,974,101 $ 62,046,739 74 Arizona Department of Transportation Combining Statement of Revenues, Expenditures, and Changes in Fund Balances — Nonmajor Governmental Funds For the Year Ended June 30, 2016 Safety Enforcement and Transportation Infrastructure Fund State Aviation Fund Motor Vehicle Liability Insurance Enforcement Fund Motor Vehicle Inspection and Title Enforcement Fund Revenues Vehicle registration, title, license, and related taxes and fees $ Fuel and motor carrier taxes and fees 8,600,668 $ 2,637,288 $ 3,273,307 $ 2,018,158 325,479 - - - Flight property taxes 9,620,180 - - - Reimbursement of construc on expenditures − federal aid 4,511,495 - - - Other federal grants and reimbursements Reimbursements from Arizona counties and cities - - - - 63,923 - - - Interest on loans receivable 159,142 - - - Income from investments 101,635 4,598 - - Grand Canyon National Park Airport 343,849 - - - Rental income Other 306,146 791,875 - - 18,750 24,824,392 2,641,886 Administration 4,782,435 295 - Highway 1,962,200 - - Total revenues 3,273,307 2,036,908 Expenditures Current Highway maintenance Motor vehicle - Total current expenditures - 109,238 1,125,325 1,205,463 1,448,349 6,744,635 1,234,858 1,205,463 1,448,349 2,329,400 Intergovernmental Distributions to other state agencies Distributions to Arizona counties and cities Noncapital, including asset preservation Capital outlay Total expenditures 15,000,000 1,219,687 23,203,590 1,231,515 230,139 - 46,179,740 2,684,684 (21,355,348) Revenues over (under) expenditures - - - 3,534,863 (42,798) 1,448,349 (261,556) 588,559 Other Financing Sources (Uses) Transfers out for debt service Total other financing sources (uses) Net change in fund balances Fund balances, beginning of year Fund balances, end of year Comprehensive Annual Financial Report Fiscal Year 2016 $ - - - - - - - - (21,355,348) (42,798) 30,892,795 458,154 9,537,447 $ 415,356 (261,556) 588,559 4,993,936 $ 4,732,380 928,960 $ 1,517,519 75 Exhibit 9 Motor Carrier Safety Revolving Fund $ - Underground Storage Tank Fund $ - $ 39,383,248 Grant Anticipation Notes Fund - $ 1,000,000 Local Agency Deposits Funds - $ Total Nonmajor Governmental Funds - $ 19,464,123 - - 40,708,727 - - 9,620,180 - - - - - - 6,898,890 68,313,014 - - - - 85,959,020 85,959,020 - - - - 18,593,387 18,657,310 - - - - - 159,142 - 12,735 20,057 - - 139,025 - - - - - 343,849 5,000 - - - - 306,146 815,625 42,330,685 1,020,057 - 882 2,467 - - - - - 882 - 42,329,803 5,000 - 42,330,685 5,000 - 56,902,629 56,902,629 111,451,297 244,486,161 - 1,798,992 6,585,071 5,589 - 51,743,119 53,710,908 - - 8,056 - 53,542,111 64,184,354 - - 85,167 60,964,057 - - 60,930,397 92,046 - 84,133,987 322,185 1,231,515 8,056 - 114,649,721 210,836,098 1,012,001 - 56,902,629 109,238 3,779,137 (3,198,424) 33,650,063 - - - (56,902,631) - (56,902,631) - - - (56,902,631) - (56,902,631) 5,000 - 45,685 $ 2,934,702 Economic Strength Project Fund 50,685 1,012,001 $ - (2) $ 1,012,001 Comprehensive Annual Financial Report Fiscal Year 2016 (3,198,424) 2 $ - (23,252,568) 20,907,137 $ 17,708,713 58,226,669 $ 34,974,101 76 Statistical Section Comprehensive Annual Financial Report Fiscal Year 2016 Arizona Department of Transportation Overview — Statistical Section For the Year Ended June 30, 2016 This part of the Arizona Department of Transportation’s (the “Department”) Comprehensive Annual Financial Report provides detail in the form of graphs and tables intended to assist the reader of the report with understanding the information presented in the financial statements, note disclosures, and required supplementary information regarding the overall financial health of the Department. Financial Trends These schedules show trend information that gives an insight into the Department’s financial well‐being and performance over time. Revenue Capacity Information about the Motor Vehicle Fuel Tax and the Highway User Revenue Fund, the Department’s most significant own‐source revenues, is presented in these tables. Debt Capacity These tables present information to help the reader assess the affordability of the Department’s current levels of outstanding debt as well as the Department’s ability to issue additional debt in the future. Demographic and Economic Information The demographic and economic indicators presented in this section offer an understanding of the environment in which the Department’s financial activities take place. Operating Information The Department’s relationship of the financial report to the services provided as well as its activities is illustrated in these tables depicting service and infrastructure information. Sources: Unless otherwise stated, all information in the following tables is derived from the Comprehensive Annual Financial Reports for the years shown. Comprehensive Annual Financial Report Fiscal Year 2016 77 Arizona Department of Transportation Index — Statistical Section For the Year Ended June 30, 2016 Page Financial Trends Change in Net Position (Table A-1) 79-82 Statement of Revenues, Expenditures, and Changes in Fund Balances – Governmental Funds (Table A-2) 83-86 Fund Balances of Governmental Funds (Table A-3) 87-88 Expenditures of Federal Awards (Table A-4) 89 Government-wide Expenses by Function (Table A-5) 90-91 Government-wide Revenues (Table A-6) 92-93 Net Position by Component (Table A-7) 94-95 Revenue Capacity Highway User Revenue Fund Collections (Table B-1) 96 Highway User Revenue Fund Distributions (Table B-2) 97 Fuel Tax Rates (Table B-3) 98 Motor Vehicle Fuel Tax – Top Ten Suppliers (Table B-4) 99 Gasoline Volume Sold – Top Twenty-Five Suppliers (Table B-5) 100-101 Debt Capacity Highway User Revenue Fund – Legal Debt Margin (Table C-1) 102 Highway Revenue Bonds – Bond Coverage (Table C-2) 103 Transportation Excise Tax Revenue Bonds – Bond Coverage (Table C-3) 104 Transportation Excise Tax Revenue Bonds – Debt Service Revenue and Cost Per Capita (Table C-4) 105 Ratios of Outstanding Debt by Type (Table C-5) 106-107 Demographic and Economic Information Number of Vehicle Registrations Per Year (Table D-1) 108 Vehicle Registrations Per Year Compared to Fuel Sales (Table D-2) 109 Demographic and Economic Statistics (Table D-3) 110 Principal Employers (Table D-4) 111 Operating Information Full-Time Equivalents (FTEs) (Table E-1) 112 Capital Assets – Schedule by Function and Activity (Table E-2) 113 Capital Assets – Schedule of Changes by Function and Activity (Table E-3) 114 Total Public Road Mileage by Highway Class and Governmental Ownership (Table E-4) 115 Vehicle Miles Traveled with Population Data (Table E-5) 116 Comprehensive Annual Financial Report Fiscal Year 2016 78 FINANCIAL TRENDS Comprehensive Annual Financial Report Fiscal Year 2016 Arizona Department of Transportation Change in Net Position For the Year Ended June 30, (Thousands of Dollars) 2007 Expenses Governmental activities Administration Aeronautics $ 1 Highway Highway maintenance Motor vehicle 1 Noncapital, including asset preservation Distributions to other state agencies Distributions to Arizona counties and cities Local government assistance 2 Issuance cost on long-term debt Interest on long-term debt Total governmental activities expenses Business-Type Activities Arizona Highways Magazine Highway Expansion and Extension Loan Program Program Revenues Governmental activities Charges for services Administration Aeronautics Highway Highway maintenance Motor vehicle Local governmental assistance 56,066 10,993 138,788 120,163 105,961 132,874 137,100 112,880 116,742 110,963 133,415 113,569 114,795 1,219,208 48,760 187,004 176,692 1,238,383 37,285 216,198 413,940 1,091,893 48,571 82,450 92,295 114,683 2,000,779 2,173,804 2,313,464 8,072 4,355 7,712 4,053 7,410 2,112 11,765 9,522 $ 2,185,569 $ 2,322,986 $ 8,843 1,133 2,953 577 132,274 12,239 $ 9,706 940 1,451 1,765 127,900 8,263 $ 8,752 936 1,765 887 117,267 9,789 Business-type activities Charges for services Arizona Highways Magazine Highway Expansion and Extension Loan Program 72,679 354,024 79,747 523,728 90,619 552,488 584,722 753,500 782,503 8,060 2,909 7,624 1,755 6,291 1,128 9,379 10,969 Total business-type activities program revenues Total primary government net expense $ 2,013,206 Total governmental activities program revenues Net (expenses)/revenues Governmental activities Business-type activities 54,918 4,373 2009 $ Operating grants and contributions Capital grants and contributions Total primary government program revenues $ 12,427 Total business-type activities expenses Total primary government expenses 51,667 5,418 2008 $ 762,879 7,419 $ 789,922 $ 595,691 $ (1,416,057) $ (1,458) (1,420,304) $ (2,386) (1,530,961) (2,103) $ (1,417,515) $ (1,422,690) $ (1,533,064) 1 NOTES: Adjustments were made to Highway and Noncapital, including asset preservation, for the year 2007 to conform to the current year's presentation. 2 Notes to Financial Statement (A), New Accounting Pronouncements, Statement Number 65. Comprehensive Annual Financial Report Fiscal Year 2016 79 Table A-1 2010 $ 65,781 - 2011 $ 93,040 - 2012 $ 94,075 - 2013 $ 101,370 - 2014 $ 106,200 - 2015 $ 98,855 - 2016 $ 88,899 - 34,721 102,932 102,926 37,070 129,700 99,949 39,632 125,331 116,095 46,076 139,762 107,655 51,074 122,977 111,397 41,836 137,473 92,520 122,025 116,067 113,029 122,747 251,392 1,057,720 83,230 345,590 254,702 1,024,756 163,035 351,116 307,885 1,005,114 93,557 257,126 213,394 1,074,086 102,332 312,519 216,675 1,065,798 90,376 315,349 189,517 1,155,651 98,371 373,006 232,905 1,260,019 114,650 129,626 128,768 164,081 187,315 13,554 114,406 94,956 93,840 1,951,075 2,276,610 2,296,886 2,229,116 2,204,976 2,224,528 2,514,440 6,288 147 5,664 126 4,979 75 4,637 46 4,821 46 4,739 43 20,037 5,790 6,435 5,054 4,683 4,867 4,782 20,037 $ 1,957,510 $ 2,282,400 $ 2,301,940 $ 2,233,799 $ 2,209,843 $ 2,229,310 $ 2,534,477 $ 9,766 1,266 1,858 111,412 5 $ 10,770 2,798 2,667 117,427 - $ 11,947 1,681 2,290 111,429 - $ 12,254 842 1,887 119,733 - $ 12,400 864 2,418 122,042 - $ 8,145 2,157 2,676 132,837 - $ 13,185 2,597 6,302 145,899 - 146,936 575,448 220,759 743,718 161,992 775,976 168,436 651,798 157,705 546,680 172,279 696,877 134,446 856,434 846,691 1,098,139 1,065,315 954,950 842,109 1,014,971 1,158,863 5,975 556 5,619 154 5,581 2 5,188 6 5,164 - 5,073 - 5,773 6,531 5,583 5,194 5,164 - 5,073 - $ 853,222 $ (1,104,384) $ 96 (1,178,471) $ (17) (1,231,571) $ 529 (1,274,166) $ 511 (1,362,867) $ 297 (1,209,557) $ 291 (1,355,577) (20,037) $ (1,104,288) $ (1,178,488) $ (1,231,042) $ (1,273,655) $ (1,362,570) $ (1,209,266) $ (1,375,614) $ 1,103,912 $ 1,070,898 Comprehensive Annual Financial Report Fiscal Year 2016 $ 960,144 $ 847,273 $ 1,020,044 $ 1,158,863 80 Arizona Department of Transportation Change in Net Position For the Year Ended June 30, (Thousands of Dollars) 2007 2008 2009 General Revenues and Other Changes in Net Position Governmental activities Transportation excise taxes Motor vehicle registration, title, and related taxes Fuel and motor carrier taxes and fees Flight property taxes Income from investments Other Transfers Governmental activities before accounting change $ $ 2,163,235 Special Item − State appropria on for Statewide Transporta on Acceleration Needs (STAN) 245,000 Business-type activities Income from investments Other Transfers $ - 1,930,334 4,788 (17) - 1,612 (1) 500 4,771 5,560 219,165 976,075 667,200 11,975 33,588 22,831 (500) 1,930,334 2,165,763 5,563 (3) - Total business-type activities 253,742 1,033,505 766,394 13,822 59,528 38,772 2,165,763 2,408,235 Total governmental activities Total primary government 262,264 1,029,001 790,909 15,303 55,760 9,998 - 2,111 $ 2,413,795 $ 2,170,534 $ 1,932,445 $ 992,178 4,102 $ 745,459 2,385 $ 399,373 8 $ 996,280 $ 747,844 $ 399,381 Changes in Net Position Governmental activities Business-type activities Total primary government Comprehensive Annual Financial Report Fiscal Year 2016 81 Table A-1 — continued 2010 $ 2011 199,672 893,287 690,503 9,527 16,347 8,966 - $ 1,818,302 2012 206,545 $ 874,191 704,727 9,798 9,415 16,095 (851) 1,819,920 216,281 899,345 700,620 10,735 11,388 10,442 - $ 1,848,811 - - 2013 2014 227,800 913,326 708,062 8,084 11,781 13,411 - $ 1,882,464 - 2015 243,786 963,221 714,852 12,975 11,634 13,931 - $ 1,960,399 - 2016 254,871 1,036,502 686,042 8,595 9,989 10,415 - $ 2,006,414 - 262,971 1,134,913 735,928 9,620 9,064 7,050 2,159,546 - - 1,818,302 1,819,920 1,848,811 1,882,464 1,960,399 2,006,414 2,159,546 514 - 554 851 783 - 747 - 735 - 613 - 560 - 1,405 514 783 747 735 613 560 $ 1,818,816 $ 1,821,325 $ 1,849,594 $ 1,883,211 $ 1,961,134 $ 2,007,027 $ $ 713,918 610 $ 641,449 1,388 $ 617,240 1,312 $ 608,298 1,258 $ 597,532 1,032 $ 796,857 904 $ 803,969 (19,477) $ 714,528 $ 642,837 $ 618,552 $ 609,556 $ 598,564 $ 797,761 $ 784,492 Comprehensive Annual Financial Report Fiscal Year 2016 2,160,106 82 Arizona Department of Transportation Statement of Revenues, Expenditures, and Changes in Fund Balances — Governmental Funds For the Year Ended June 30, (Thousands of Dollars) 2007 2008 2009 Revenues Transportation excise taxes Vehicle registration, title, license, and related taxes and fees Fuel and motor carrier taxes and fees Flight property taxes Reimbursement of construc on expenditures − federal aid $ 262,264 $ 253,742 $ 219,165 1,159,379 1,159,474 1,064,147 792,717 768,046 696,075 15,303 13,822 11,975 334,376 494,584 531,981 Other federal grants and reimbursements 72,548 79,747 94,521 Reimbursements from Arizona counties and cities 34,971 38,609 27,498 1,799 463 876 928 697 427 55,393 59,197 33,221 - - - Distributions from other state agencies Interest on loans receivable Income from investments Sales and charges for services Grand Canyon National Park Airport 1,133 940 936 Rental income Other 1,434 7,088 1,367 6,206 1,788 21,579 2,739,333 2,876,894 2,704,189 44,875 44,322 46,056 3,876 4,089 10,471 Total revenues Expenditures Current Transportation Administration Aeronautics Highway 184,240 171,134 163,570 Highway maintenance Motor vehicle 118,940 103,801 135,629 110,982 111,346 131,665 Total transportation 455,732 466,156 463,108 Intergovernmental Distributions to other state agencies Distributions to Arizona counties and cities 114,795 173,405 404,569 1,217,883 1,241,110 1,100,959 Debt service Principal 100,395 192,663 199,687 Interest 90,836 102,583 126,932 1,592 3,447 3,967 63,273 741,506 158,991 989,882 142,604 1,077,835 2,786,012 3,328,237 3,519,661 Bond issuance costs Noncapital, including asset preservation Capital outlay Total expenditures Excess (deficiency) of revenues over (under) expenditures Comprehensive Annual Financial Report Fiscal Year 2016 (46,679) (451,343) (815,472) 83 Table A-2 2010 $ 2011 199,672 $ 2012 206,545 $ 2013 216,281 $ 2014 227,800 $ 2015 243,786 $ 2016 254,871 $ 262,971 1,002,312 991,335 1,010,548 1,021,441 1,085,166 1,169,339 1,280,812 692,632 704,727 700,620 613,607 714,852 686,042 735,928 9,527 9,799 10,735 12,975 8,595 9,620 544,498 736,803 770,900 597,762 536,192 685,823 859,985 146,936 219,743 157,437 66,217 148,902 162,701 106,660 31,503 10,078 9,645 (2,380) 19,314 20,632 24,235 936 845 1,842 989 915 1,338 744 596 436 351 93 228 179 207 15,853 9,083 11,130 11,282 11,500 9,989 9,064 - - - - - - 9,189 866 798 821 - 1,170 1,295 344 1,800 6,370 2,554 9,913 3,096 8,177 5,244 7,779 6,025 11,959 6,671 10,264 5,556 6,990 2,653,501 2,902,659 2,901,583 2,549,834 2,792,984 3,017,739 3,312,305 52,971 81,477 80,627 80,612 92,966 93,309 81,191 - - - - - - - - 115,061 200,216 135,908 42,996 128,196 136,527 163,011 94,014 101,142 120,716 98,115 118,230 114,327 125,199 100,993 133,572 109,553 130,599 87,296 108,882 106,030 363,188 500,524 449,092 349,800 464,287 447,731 459,114 244,836 254,210 305,218 132,685 216,482 189,517 232,990 1,046,576 1,022,512 1,004,768 1,053,543 1,065,798 1,155,651 1,320,949 144,232 201,219 196,338 160,415 216,879 272,053 194,308 143,133 144,748 137,213 142,524 140,259 121,404 122,449 121 2,099 3,043 2,455 217,338 998,502 313,179 709,250 286,217 701,657 242,039 677,236 223,572 563,428 251,953 634,303 356,753 689,613 3,157,926 3,147,741 3,083,546 2,760,697 2,890,705 3,075,638 3,376,176 (504,425) (245,082) (181,963) Comprehensive Annual Financial Report Fiscal Year 2016 (210,863) - (97,721) 3,026 (57,899) - (63,871) 84 Arizona Department of Transportation Statement of Revenues, Expenditures, and Changes in Fund Balances — Governmental Funds For the Year Ended June 30, (Thousands of Dollars) 2007 2008 2009 Other Financing Sources (Uses) Transfers in Transfers out for debt service Transfers out other Capital leases Sale of capital assets Insurance recovery Debt issuance Debt issuance − refunding bond Amortized premium from debt issuance Payment to refunded bond escrow agent $ 225,499 $ (186,856) (38,643) 2,129 10,162 577 325,000 26,201 - 303,513 $ (231,563) (71,950) 28,233 1,765 711,479 31,862 - 239,447 (221,232) (17,252) 2,127 887 796,819 58,123 - 364,069 773,339 858,919 Net change in fund balances before accounting change 317,390 321,996 43,447 Special item − State appropria on for Statewide Transportation Acceleration Needs (STAN) Net change in fund balances 562,390 321,996 43,447 Fund balances, beginning of year 482,419 1,044,809 1,366,805 Total other financing sources (uses) Fund balances, end of year Debt service as a percentage of noncapital expenditures Debt service as a percentage of total revenues Comprehensive Annual Financial Report Fiscal Year 2016 - 245,000 $ 1,044,809 $ 1,366,805 - $ 1,410,252 11.1% 9.4% 12.8% 9.2% 7.0% 10.4% 85 Table A-2 — continued 2010 $ 2011 271,408 $ (266,934) (9,013) 3,088 1,765 32,628 - 331,547 $ (331,547) (2,400) 3,712 2,529 349,698 38,876 - 2013 330,856 $ (330,856) 1,815 1,818 269,001 499,725 90,753 (560,228) 2014 283,066 $ (227,996) 1,636 1,679 767,020 92,477 36,385 (611,874) 2015 303,030 $ (303,030) 900 2,328 42,366 - 2016 305,410 $ (305,410) 259 2,676 783 754,285 149,554 (900,813) 304,311 (304,311) 60 6,302 - 32,942 392,415 302,884 342,393 45,594 6,744 6,362 (471,483) 147,333 120,921 131,530 (52,127) (51,155) (57,509) - - - (52,127) (51,155) (57,509) - (471,483) 1,410,252 $ 2012 938,769 $ - - 147,333 120,921 131,530 938,769 1,086,102 1,169,853 1,086,102 $ 1,207,023 $ 1,301,383 1,341,636 $ 1,289,509 1,289,508 $ 1,238,353 1,240,753 $ 1,183,244 13.5% 13.3% 14.1% 14.5% 15.3% 16.1% 11.8% 12.2% 10.8% 12.1% 10.4% 12.8% 13.0% 9.6% Comprehensive Annual Financial Report Fiscal Year 2016 86 Arizona Department of Transportation Fund Balances of Governmental Funds As of June 30, (Thousands of Dollars) 2007 General Fund (State Highway Fund) Reserved Unreserved Nonspendable Restricted Committed $ Total general fund All other governmental funds Reserved Debt service Capital projects Unreserved, reported in Nonmajor special revenue funds Unassigned Nonspendable $ 497,691 563,590 325,571 350,801 2,688 495,428 3,212 774,644 2,692 1,078,478 1,894 576,331 49,002 - 25,359 - 3,574 - 9,743 - - - - - 1,044,809 $ 2010 505,691 57,899 - 547,118 Total all other governmental funds 2009 507,723 $ (10,032) - Restricted Committed Total general and other governmental funds 2008 803,215 $ 1,366,805 230,885 94,686 - $ 1,084,744 $ 1,410,315 270,550 80,251 - 587,968 $ 938,769 1 NOTES: GASB 54 rules state that fund balances should be reported with the categories listed in the above table for years beginning in 2011. Years 2007−2010 will con nued to be reported in the old format un l 10 years of informa on is available. 2 Estimated in 2012 CAFR and have been revised for 2012 actuals. Comprehensive Annual Financial Report Fiscal Year 2016 87 Table A-3 2011 $ 1 2012 9,765 229,559 102,350 $ 2013 8,235 240,444 25,229 $ 273,908 341,674 $ 2 2014 7,207 267,414 123,662 $ 398,283 2015 6,833 295,361 129,115 $ 431,309 2016 6,341 344,347 177,384 $ 528,072 6,179 337,534 282,312 626,025 - - - - - - - (8,128) - (8,128) - (8,128) - (8,128) 6,341 (8,128) - 719,966 24,462 903,891 37,352 870,678 40,550 816,591 49,737 490,664 221,404 548,082 17,265 744,428 933,115 903,100 858,200 710,281 557,219 1,086,102 $ 1,207,023 $ 1,301,383 Comprehensive Annual Financial Report Fiscal Year 2016 $ 1,289,509 $ 1,238,353 $ 1,183,244 88 Arizona Department of Transportation Expenditures of Federal Awards For the Year Ended June 30, (Thousands of Dollars) Table A-4 1 1 Fiscal Year BIA 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 $ $ (21) BJA 13 - BLM $ FAA 1,004 124 268 57 544 FHWA $ 3,292 428 454 198 488 3,844 7,938 3,902 715 610 $ Federal Agencies FMCSA FRA 713,270 837,698 660,644 794,912 840,649 988,403 574,068 603,643 555,282 393,751 $ 760 2,122 2,204 2,747 1,518 3,891 4,148 4,734 2,642 1,769 $ FTA 53 48 65 611 - GSA $ 14,279 18,644 18,107 19,056 19,261 21,451 22,769 13,853 15,530 10,169 $ 234 541 - NHTSA OST $ 175 103 112 123 1,143 120 101 106 101 $ 8,671 10,417 1,512 344 - USDA $ - Total Federal Expenditures $ 80 - 740,500 869,460 683,332 818,004 862,537 1,019,736 609,167 626,501 574,332 406,923 SOURCE: Arizona Department of Transporta on Schedule of Expenditures of Federal Awards − fiscal years 2007 through 2016 1 NOTES: Bureau of Indian Affairs (BIA); Bureau of Justice Assistance (BJA); Bureau of Land Management (BLM); Federal Aviation Administration (FAA); Federal Highway Administration (FHWA); Federal Motor Carrier Safety Administration (FMCSA); Federal Railroad Administration (FRA); Federal Transit Administration (FTA); General Services Administration (GSA); National Highway Transportation Safety Administration (NHTSA); Office of the Secretary (OST) Administration Secretariate; United States Department of Agriculture (USDA). 2 The 2016 total federal expenditures are prepared on the other comprehensive basis of accounting using the cash basis. Total Expenditures of Federal Awards $1,200,000 Thousands of Dollars $1,000,000 $800,000 $600,000 $400,000 $200,000 $2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Fiscal Year Comprehensive Annual Financial Report Fiscal Year 2016 89 Arizona Department of Transportation Government-Wide Expenses by Function For the Year Ended June 30, (Thousands of Dollars) Maintenance Motor Vehicle Distributions to Arizona Counties, Cities and Other State Agencies $ $ $ Highway Fiscal Year 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 Admin. $ 88,899 98,855 106,200 101,370 94,075 93,040 65,781 56,282 54,918 51,667 Aeronautics $ 10,993 4,373 5,418 Highway $ 122,025 41,836 51,074 46,076 39,632 37,070 34,721 116,697 132,874 138,788 1 116,067 137,473 122,977 139,762 476,447 475,290 225,679 311,605 324,104 233,732 113,029 92,520 111,397 107,655 116,095 99,949 102,926 133,243 112,880 105,961 1,492,924 1,345,168 1,282,473 1,287,481 1,312,999 1,279,459 1,309,112 1,505,835 1,415,075 1,334,003 1 NOTES: Includes noncapital, including asset preservation. 2 Arizona Highways Magazine was included in the general fund starting in 2016. Comprehensive Annual Financial Report Fiscal Year 2016 90 Table A-5 Local Governmental Assistance $ 114,650 98,371 90,376 102,332 93,557 163,035 83,230 48,571 37,285 48,760 Premium on Long-Term Debt $ 1,419 - Arizona Highways Interest on Long-Term Debt $ 93,840 94,956 114,406 187,315 162,662 128,768 129,626 114,683 92,295 82,450 Comprehensive Annual Financial Report Fiscal Year 2016 2 Other $ 373,006 315,349 326,073 257,126 - Magazine $ 4,739 4,821 4,637 4,978 5,664 6,288 7,410 7,712 8,072 Highway Expansion and Extension Loan Program $ 20,037 43 46 46 75 126 147 2,110 4,053 4,355 Total $ 2,534,477 2,229,310 2,209,843 2,233,800 2,301,939 2,282,401 1,957,510 2,307,429 2,185,569 2,013,206 91 Arizona Department of Transportation Government-Wide Revenues For the Year Ended June 30, (Thousands of Dollars) Fiscal Year 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 Program Revenues Governmental Business-Type Operating Grants Capital Grants Charges for Services and Contributions and Contributions Charges for Services $ 167,983 145,815 137,725 134,716 127,347 133,661 124,307 139,396 150,024 158,019 $ 134,446 172,279 157,705 168,436 161,992 220,759 146,936 90,619 79,747 72,679 $ 856,434 696,877 546,680 651,798 776,814 743,718 575,448 552,488 523,728 354,024 $ 5,073 5,164 5,194 5,583 5,773 6,541 7,418 9,379 10,969 1 NOTE: Includes transfers for multiple years. Comprehensive Annual Financial Report Fiscal Year 2016 92 Table A-6 General Revenues Total Governmental Taxes $ 2,143,432 1,986,010 1,934,835 1,857,273 1,826,980 1,795,291 1,792,989 1,874,415 2,067,464 2,097,476 Other Revenues $ Income from Investments 1 7,050 10,264 13,905 13,290 9,604 16,079 8,965 22,331 38,772 9,998 Business-Type Income from 1 Other Revenues Investments $ Comprehensive Annual Financial Report Fiscal Year 2016 9,064 9,989 11,634 11,781 11,388 9,402 16,347 33,588 59,528 57,760 $ $ 151 26 121 851 500 (18) (3) 560 613 735 747 783 555 514 1,612 4,788 5,563 Government-Wide Revenues $ 3,318,969 3,027,071 2,808,409 2,843,356 2,920,491 2,926,089 2,672,047 2,722,367 2,933,412 2,766,485 93 Arizona Department of Transportation Net Position by Component As of June 30, (Thousands of Dollars) Governmental Activities Fiscal Year 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 Net Investment in Capital Assets $ 18,305,646 17,496,122 16,812,808 16,290,605 15,818,053 15,159,086 14,620,099 13,951,802 13,285,438 12,211,861 Restricted $ 746,099 819,446 805,893 738,969 666,828 669,811 566,794 534,535 704,929 1,006,512 Unrestricted $ 10,659 $ (57,534) 159,127 150,721 106,932 125,860 126,415 113,053 209,650 236,186 Total 19,062,404 18,258,034 17,777,828 17,180,295 16,591,813 15,954,757 15,313,308 14,599,390 14,200,017 13,454,559 Business-Type Net Investment in Capital Assets Restricted $ 18 24 30 43 54 92 131 173 225 $ 59,293 78,770 78,226 77,564 76,882 76,192 75,619 74,703 74,115 71,708 1 NOTE: Includes transfers for multiple years. Comprehensive Annual Financial Report Fiscal Year 2016 94 Table A-7 Business-Type Unrestricted $ $ 383 1,790 1,414 825 192 (663) (406) 132 102 Primary Government Total 59,293 79,171 80,040 79,008 77,750 76,438 75,048 74,428 74,420 72,035 Net Investment in Capital Assets $ Comprehensive Annual Financial Report Fiscal Year 2016 18,305,646 17,496,140 16,812,832 16,290,635 15,818,096 15,159,140 14,620,191 13,951,933 13,285,611 12,212,086 Restricted $ 805,392 898,216 884,119 816,533 743,710 746,003 642,413 609,238 779,044 1,078,220 Unrestricted $ 10,659 $ (57,151) 160,917 152,135 107,757 126,052 125,752 112,647 209,782 236,288 Total 19,121,697 18,337,205 17,857,868 17,259,303 16,669,563 16,031,195 15,388,356 14,673,818 14,274,437 13,526,594 95 REVENUE CAPACITY Comprehensive Annual Financial Report Fiscal Year 2016 Arizona Department of Transportation Table B-1 Highway User Revenue Fund Collections For the Year Ended June 30, (Thousands of Dollars) Fiscal Year 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 Motor Vehicle Fuel Tax Revenues $ 688,105 634,245 632,544 647,858 538,352 636,507 633,771 637,054 697,771 725,787 Motor Vehicle Reg. Fee Revenues $ Comprehensive Annual Financial Report Fiscal Year 2016 184,564 188,793 182,492 180,115 180,685 175,179 170,453 178,953 196,151 194,308 Motor Carrier Tax Revenues $ 41,058 18,623 17,953 17,103 17,085 17,466 17,157 18,930 21,758 22,473 Motor Vehicle Operators' License Fees and Other Fees $ 57,943 69,245 68,452 67,373 69,765 64,361 59,431 58,500 60,630 57,085 Motor Vehicle License (In Lieu) Tax Revenues $ 395,952 366,607 345,603 321,864 228,317 275,132 331,080 349,399 400,787 389,503 Total Deposited to Arizona HURF $ 1,367,622 1,277,513 1,247,044 1,234,313 1,034,204 1,168,645 1,211,892 1,242,836 1,377,097 1,389,156 96 Arizona Department of Transportation Table B-2 Highway User Revenue Fund Distributions For the Year Ended June 30, (Thousands of Dollars) State Highway Fund Fiscal Year 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 $ 621,182 580,993 559,765 555,030 401,172 522,556 520,484 513,379 680,530 688,451 Cities and Towns $ 405,169 364,260 340,718 327,732 306,376 341,502 399,900 346,443 415,556 417,541 Department of Public Safety Counties $ 233,712 226,928 212,251 219,228 190,857 212,739 211,741 215,817 258,871 260,107 $ 95,035 89,255 119,247 119,965 123,211 79,216 78,626 84,950 10,000 10,000 Economic Strength Project Fund $ 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 Other $ 1 11,524 15,077 14,063 11,358 11,588 11,631 60,141 81,247 11,140 12,057 Total $ 1,367,622 1,277,513 1,247,044 1,234,313 1,034,204 1,168,644 1,271,892 1,242,836 1,377,097 1,389,156 The Highway User Revenue Fund receives certain Motor Vehicle Division revenues from the Motor Vehicle Division Clearing Fund. These monies are distributed: 50.5% to the State Highway Fund, 27.5% to cities and towns, 3% to cities with popula on over 300,000, and 19% to coun es based on Arizona Revised Statutes − Sec on 28-6538. SOURCE: Basic Financial Statements − fiscal years 2007 through 2016 1 NOTE: An appropriation for Arizona State Parks is included. Fiscal years 2009, 2010, 2011 and 2012 include distributions to the State General Fund. Comprehensive Annual Financial Report Fiscal Year 2016 97 Arizona Department of Transportation Table B-3 Fuel Tax Rates For the Year Ended June 30, (Cents per Gallon) Fiscal Year 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 Use Fuel Gasoline Tax $ 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18 Tax $ 1 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 SOURCE: Arizona Revised Statutes §28-5606 Imposition of Motor Fuel Taxes NOTE: Gasohol is currently taxed at the same rate as gasoline and use fuel. Use fuel is primarily diesel. 1 Light class motor vehicles with a declared vehicle weight <26,001 pounds and have less than three axles pay $.18 per gallon. Comprehensive Annual Financial Report Fiscal Year 2016 98 Arizona Department of Transportation Table B-4 Motor Vehicle Fuel Tax – Top Ten Suppliers For the Year Ended June 30, (Thousands) Fiscal Year Gallons from Top Ten Suppliers 2016 2015 2014 3,466,062 3,298,612 3,138,450 2013 2012 2011 3,110,955 3,025,722 2,898,241 2010 2009 2008 2007 2,905,890 2,871,995 2,839,622 2,807,989 Revenue from Top Ten Suppliers $ 677,464 650,714 617,134 All Motor Vehicle Fuel Tax Revenue $ Revenue Percentage from Top Ten Suppliers 749,433 715,248 691,250 90.4% 91.0% 89.3% 613,799 589,607 564,353 685,320 688,642 686,591 89.6% 85.6% 82.2% 569,974 565,889 559,609 552,997 683,880 698,959 753,036 772,100 83.3% 81.0% 74.3% 71.6% SOURCE: Revenue & Fuel Tax Administration reporting, based on gallonage data reported by fuel suppliers NOTE: Above data reflects a change in gasoline and use fuel gallons reported by the Revenue & Fuel Tax Administra on for 2007 − 2016 Comprehensive Annual Financial Report Fiscal Year 2016 99 Arizona Department of Transportation Gasoline Volume Sold – Top Twenty-Five Suppliers For the Year Ended June 30, 2007 Range − in Millions of Gallons Suppliers within Range < 25 26−50 50−100 101−200 201−300 >300 Suppliers within Range 2009 % of Total Gallons Sold Suppliers within Range 2010 % of Total Gallons Sold Suppliers within Range 2011 % of Total Gallons Sold Suppliers within Range % of Total Gallons Sold 6 1 5 6 3 4 2.0% 1.0% 11.1% 24.5% 18.2% 40.4% 8 6 3 5 3 − 1.5% 4.2% 12.1% 11.1% 34.8% 32.7% 7 5 2 3 3 5 3.3% 5.2% 3.2% 11.4% 17.9% 55.8% 7 8 1 2 3 4 2.7% 9.2% 1.5% 9.8% 21.7% 51.6% 7 5 3 3 3 4 3.2% 4.9% 4.6% 15.3% 19.0% 49.8% 25 97.2% 25 96.4% 25 96.8% 25 96.5% 25 96.8% Total Gallons of Gasoline (Thousands) Gasoline % of Total Total Gallons of Use Fuel (Diesel) (Thousands) Diesel % of Total 2008 % of Total Gallons Sold 2,871,528 2,797,714 74.5% 981,647 74.5% 959,406 25.5% 25.5% 2,634,840 75.3% 864,455 24.7% 2,607,660 76.0% 824,996 24.0% 2,616,186 75.9% 829,530 24.1% NOTE: Above data reflects a change in gasoline and use fuel gallon reported by the Revenue & Fuel Tax Administra on for 2007 − 2016. Comprehensive Annual Financial Report Fiscal Year 2016 100 Table B-5 2012 Range − in Millions of Gallons Suppliers within Range < 25 26−50 50−100 101−200 201−300 >300 Suppliers within Range 2014 % of Total Gallons Sold Suppliers within Range 2015 % of Total Gallons Sold Suppliers within Range 2016 % of Total Gallons Sold Suppliers within Range % of Total Gallons Sold 15 1 1 3 1 4 5.9% 1.3% 1.8% 16.1% 7.7% 65.3% 14 2 1 2 2 4 5.9% 2.4% 2.0% 10.2% 12.7% 64.2% 13 2 2 3 1 4 4.8% 2.0% 4.2% 15.0% 6.2% 65.0% 13 3 1 2 2 4 3.9% 3.4% 1.6% 9.1% 13.7% 66.1% 13 2 2 2 2 4 3.8% 2.0% 3.8% 8.5% 13.9% 66.4% 25 98.1% 25 97.4% 25 97.2% 25 97.8% 25 98.4% Total Gallons of Gasoline (Thousands) Gasoline % of Total Total Gallons of Use Fuel (Diesel) (Thousands) Diesel % of Total 2013 % of Total Gallons Sold 2,616,570 2,612,577 75.8% 837,151 76.0% 827,138 24.2% 24.0% 2,644,667 76.0% 827,731 24.0% 2,745,426 76.0% 850,274 24.0% 2,882,788 76.0% 886,658 24.0% NOTE: Above data reflects a change in gasoline and use fuel gallon reported by the Revenue & Fuel Tax Administra on for 2007 − 2016. Comprehensive Annual Financial Report Fiscal Year 2016 101 DEBT CAPACITY Comprehensive Annual Financial Report Fiscal Year 2016 Arizona Department of Transportation Table C-1 Highway User Revenue Fund Legal Debt Margin For the Year Ended June 30, (Thousands of Dollars) Fiscal Year 1,2 Debt Limit Total Principal Applicable to Limit Legal Debt Margin Total Principal Applicable to the Limit as a Percentage of Debt Limit 2016 2015 2014 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 2013 2012 2011 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 2010 2009 2008 2007 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 1 NOTES: The statutory limitation on the issuance of bonds, as outlined in ARS §28-7510, applies only to the Highway User Revenue Fund (HURF). The only limitation on Maricopa County Regional Area Road Fund (RARF) and Grant Anticipation Notes (GARVEE) is the ability to secure the debts with available excise tax monies and available grant revenues, respectively, pursuant to the applicable bond resolutions. 2 As stated in House Bill 2206 of the Second Regular Session of the Forty-seventh Legislature, the $1.3 billion debt limit is eliminated from ARS §28-7510. The general effective date of this change was September 21, 2006. Comprehensive Annual Financial Report Fiscal Year 2016 102 Arizona Department of Transportation Table C-2 Highway Revenue Bonds Bond Coverage For the Year Ended June 30, (Thousands of Dollars) Pledged Fiscal Year Principal 2016 2015 $ 70,195 61,660 Interest $ Total 74,248 75,937 $ 144,443 137,597 Revenues $ 1,2 Coverage 589,476 566,352 4.1 4.1 2014 2013 58,485 60,540 80,495 78,198 138,980 138,738 537,768 512,971 3.9 3.7 2012 2011 2010 2009 2008 67,885 71,770 68,140 64,190 60,645 71,113 83,960 87,661 89,825 75,538 138,998 155,730 155,801 154,015 136,183 392,648 504,175 502,874 509,183 658,616 2.8 3.2 3.2 3.3 4.8 2007 57,825 73,785 131,610 635,140 4.8 SOURCES: Highway User Revenue Fund Schedule fiscal years 2007 through 2016, Debt Service Funds fiscal years 2007 through 2016. 1 NOTES: Includes vehicle license tax revenues distributed directly to the State Highway Fund. Fiscal year 2009 is net of $66 million, 2010 is net of $44 million and 2011 is net of $45 million distribution to the State General Fund. 2 The Highway Revenue Bonds are secured by a prior lien on and pledge of motor vehicle and related fuel fees and taxes. Highway Revenue Bonds − Bond Coverage $700,000 Thousands of Dollars $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Fiscal Year Revenue Comprehensive Annual Financial Report Fiscal Year 2016 Debt Service 103 Arizona Department of Transportation Table C-3 Transportation Excise Tax Revenue Bonds Bond Coverage For the Year Ended June 30, (Thousands of Dollars) Pledged Fiscal Year Principal 2016 2015 $ Interest 65,585 70,940 $ Total 38,001 32,652 $ Revenues 103,586 103,592 $ 1,2 Coverage 262,971 254,871 2.5 2.5 2014 2013 58,600 55,870 44,988 47,721 103,588 103,591 243,786 227,800 2.4 2.2 2012 2011 2010 2009 2008 55,460 45,970 33,315 13,825 19,045 48,129 42,496 38,225 17,193 10,673 103,589 88,466 71,540 31,018 29,718 216,281 206,545 199,672 219,165 253,742 2.1 2.3 2.8 7.1 8.5 2007 - - 262,264 N/A - SOURCE: Maricopa County Regional Area Road Fund Report NOTES: Bond coverage ratio is based upon total Maricopa County Transportation Excise Tax collections. 1 The Transportation Excise Tax Revenue Bonds are secured by transportation excise taxes collected by the Department of Revenue on behalf of Maricopa County. Transporta on Excise Tax Revenue Bonds − Bond Coverage $350,000 Thousands of Dollars $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Fiscal Year Revenue Comprehensive Annual Financial Report Fiscal Year 2016 Debt Service 104 Arizona Department of Transportation Table C-4 Transportation Excise Tax Revenue Bonds Debt Service Revenue and Cost Per Capita For the Year Ended June 30, (Thousands) Fiscal Year 2015 Principal $ 65,585 Interest $ 38,001 Total Cost $ Revenues 103,586 $ 1 Maricopa County Population Cost per Capita $ 25 Revenue per Capita 254,871 4087 2014 2013 58,600 55,870 44,988 47,721 103,588 103,591 243,786 227,800 4087 4009 25 26 $ 60 57 2012 2011 2010 2009 2008 2007 55,460 45,970 33,315 13,825 19,045 - 48,129 42,496 38,225 17,193 10,673 - 103,589 88,466 71,540 31,018 29,718 - 216,281 206,545 199,672 219,165 253,742 262,264 3942 3880 3817 4023 3955 3907 26 23 19 8 8 55 53 52 54 64 67 2006 80,375 1,567 81,942 316,491 3793 22 83 - 62 SOURCE: Maricopa County Regional Area Road Fund Report; population data from the U.S. Census Bureau available only through 2015. 1 NOTE: Based upon total Maricopa County Transportation Excise Tax collections. Transportation Excise Tax Revenue and Cost Per Capita $350,000 Thousands of Dollars $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Fiscal Year Revenue Comprehensive Annual Financial Report Fiscal Year 2016 Cost 105 Arizona Department of Transportation Ratios of Outstanding Debt by Type For the Year Ended June 30, (Thousands of Dollars) 2006 Governmental Activities Highway Revenue Bonds $ Transportation Excise Tax Revenue Bonds Grant Anticipation Notes (GARVEE) Premium on bonds Capital leases Advances and notes payable Total governmental activities Business-Type Activities Notes payable Total business-type activities Total primary government $ Debt as a Percentage of Personal Income Amounts of Debt per Capita 1 2007 1,223,425 $ 1,490,600 $ 2009 1,623,905 $ 1,740,765 325,430 90,852 11,130 195,018 282,860 108,034 10,601 168,287 350,955 298,280 128,586 7,535 56,739 777,130 329,650 173,313 4,326 42,668 1,845,855 2,060,382 2,466,000 3,067,852 150,494 154,534 2,170 - 150,494 154,534 2,170 - 1,996,349 $ 2,214,916 0.96% $ 2008 322 $ 2,468,170 1.01% $ 348 $ 1.10% $ 380 3,067,852 1.40% $ 465 SOURCES: U.S. Bureau of Economic Analysis (for population, personal income, and per capita personal income figures); U.S. Bureau of the Census (also for population) population data only available through 2015. NOTE: 1 The Arizona population data are midyear population estimates of the U.S. Bureau of the Census. Year 2006 through 2009 have been revised to reflect revisions made by the U.S. Bureau of the Census. Per capital personal income is total personal income divided by total midyear population estimates of the U.S. Bureau of the Census. Previous years have been revised to reflect revisions in personal income and population estimates. Comprehensive Annual Financial Report Fiscal Year 2016 106 Table C-5 2010 $ $ 2011 1,672,625 $ 2012 1,600,855 $ 2 2013 1,619,965 $ 2014 1,733,285 $ 2015 1,674,800 $ 1,589,965 743,815 304,480 158,601 1,304 60,711 877,845 392,495 180,225 4,910 59,892 981,845 335,230 248,892 10,729 55,666 925,975 296,240 350,739 22,271 105,816 867,375 247,710 323,356 29,324 108,096 782,810 194,670 401,520 30,944 40,921 2,941,536 3,116,222 3,252,327 3,434,326 3,250,661 3,040,830 - - - - - - - - - - - - 2,941,536 $ 1.31% $ 1 441 3,116,222 $ 1.37% $ 481 3,252,327 $ 1.38% $ 496 Comprehensive Annual Financial Report Fiscal Year 2016 3,434,326 $ 1.40% $ 518 3,250,661 $ 1.27% $ 483 3,040,830 1.14% $ 445 107 DEMOGRAPHIC AND ECONOMIC INFORMATION Comprehensive Annual Financial Report Fiscal Year 2016 Arizona Department of Transportation Table D-1 Number of Vehicle Registrations Per Year For the Year Ended June 30, (Thousands) Fiscal Year Total Vehicles Change in Number of Registered Vehicles Arizona Population 1 Change in Population Vehicles per Person 2015 7,520 67 6,828 97 1.101 2014 2013 7,453 7,181 272 205 6,731 6,627 105 73 1.107 1.084 2012 2011 2010 2009 2008 2007 6,975 6,840 6,741 6,693 6,734 6,609 136 99 48 (41) 125 290 6,553 6,483 6,413 6,596 6,499 6,362 71 69 (183) 96 137 170 1.064 1.055 1.051 1.015 1.036 1.039 2006 6,318 373 6,192 217 1.020 SOURCE: Vehicle registrations from Motor Vehicle Division's annual reports. 1 NOTES: The Arizona population data are midyear population estimates of the U.S. Bureau of the Census. Year 2010 has been revised to reflect revisions made by the U.S. Bureau of the Census. Year 2012 Vehicles has been revised to reflect revisions made by MVD. Population data available only through fiscal year 2015. Change in Vehicles Registered Compared to Population Change 500,000 400,000 Change 300,000 200,000 100,000 <100,000> <200,000> <300,000> 2006 2007 2008 2009 2010 Vehicles Comprehensive Annual Financial Report Fiscal Year 2016 2011 2012 2013 2014 2015 Population 108 Arizona Department of Transportation Table D-2 Vehicle Registrations Per Year Compared to Fuel Sales For the Year Ended June 30, (Thousands) Fiscal Year Vehicle Registrations Fuel Percentage Change Sales 1 Percentage Change 2016 2015 7,971 7,694 3.6% 3.2% 3,652,363 3,506,176 4.2% 3.4% 2014 2013 7,453 7,181 3.8% 5.2% 3,389,934 3,360,587 0.9% -1.4% 2012 2011 2010 2009 2008 2007 6,824 6,840 6,741 6,693 6,734 6,609 -0.2% 1.5% 0.7% -0.6% 1.9% 4.6% 3,409,594 3,411,652 3,369,732 3,398,866 3,731,808 3,759,465 -0.1% 1.2% -0.9% -8.9% -0.7% 3.4% SOURCES: Vehicle registrations from Motor Vehicle Division's annual reports. fuel sales from Motor Vehicle Division data reported by fuel suppliers 1 NOTES: Fuel sales include both gasoline and use fuel (primarily diesel) sales. Fuel Sales numbers for 2009 and 2010 have been revised to reflect revisions made to the Motor Vehicle Division data. Percentage Change in Vehicle Registrations and Fuel Sales 6.0% 4.0% Percentage Change 2.0% 0.0% <2.0%> <4.0%> <6.0%> <8.0%> <10.0%> 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Fiscal Year Vehicle Registrations Comprehensive Annual Financial Report Fiscal Year 2016 Fuel Sales 109 Arizona Department of Transportation Table D-3 Demographic and Economic Statistics For the Last Ten Calendar years Calendar Year Ended December 31 Personal Per Capita Personal 2 Population 1 Income (in thousands) 2015 6,828,065 $ 267,361,132 2014 2013 6,731,484 6,626,624 2012 2011 2010 2009 2008 2007 2006 3 Income $ Unemployment 4 Rate 39,156 6.1% 255,092,928 245,070,457 37,895 36,983 6.9% 7.8% 6,553,255 6,482,505 6,676,627 6,587,653 6,499,207 6,360,238 235,780,739 227,286,519 223,716,314 219,026,704 223,961,131 218,587,551 35,979 35,062 33,507 33,248 34,460 34,368 8.4% 9.5% 10.4% 9.9% 6.1% 3.9% 6,190,987 206,958,398 33,429 4.2% SOURCES: U.S. Bureau of Economic Analysis (for population, personal income, and per capita personal income figures); U.S. Bureau of the Census (also for population); Arizona Department of Economic Security's website, www.workforce.az.gov (for unemployment rates). 1 NOTES: The Arizona population data are midyear population estimates of the U.S. Bureau of the Census. Previous years have been revised to reflect revisions made by the U.S. Bureau of the Census. 2 Personal income estimates for previous years were revised to reflect revisions made by the U.S. Bureau of the Census. 3 Per capita personal income is total personal income divided by total midyear population estimates of the U.S. Bureau of the Census. Previous years have been revised to reflect revisions in personal income and population estimates. 4 The unemployment rates were revised to reflect a revision made by the Arizona Department of Commerce website, www.workforce.az.gov. Comprehensive Annual Financial Report Fiscal Year 2016 110 Arizona Department of Transportation Table D-4 Principal Employers Current and Ten Years Ago Calendar Year Ended December 31, 2015 Calendar Year Ended December 31, 2005 Rank Percentage of Total State Employment Rank Percentage of Total State Employment State of Arizona Banner Health 50,816 35,406 1 2 1.61% 1.12% 49,958 19,250 1 3 1.73% 0.67% Wal-Mart Stores Inc. Fry's Food Stores 32,373 17,286 3 4 1.03% 0.55% 28,246 - 2 - 0.98% - City of Phoenix Wells Fargo Maricopa County Arizona State University Dignity Health 14,585 14,480 13,567 12,676 12,100 5 6 7 8 9 0.46% 0.46% 0.43% 0.40% 0.38% 13,844 11,533 13,002 11,202 - 4 6 5 7 - 0.48% 0.40% 0.45% 0.39% - U.S. Postal Service Honeywell Aerospace 11,442 - 10 0.36% - 11,000 10,700 8 9 0.38% 0.37% - 10,300 10 0.36% Employer Full-Time Equivalent Employees Raytheon Co. - Total 214,731 6.80% Full-Time Equivalent Employees 179,035 6.21% SOURCES: Bizjournals.com for 2015 employers, Business Journal, Book of Lists 2005 for employers; Arizona Department of Commerce website, www.workforce.az.gov (for annual State employment). The sources are those most current at the time of printing. NOTE: Beginning with fiscal year 2015, a 10-year range is used. Prior years reflect a 9-year range. Comprehensive Annual Financial Report Fiscal Year 2016 111 OPERATING INFORMATION Comprehensive Annual Financial Report Fiscal Year 2016 Arizona Department of Transportation Table E-1 Full-Time Equivalents (FTEs) For the Year Ended June 30, Appropriated Fiscal Year Admin. Highways Multimodal Planning Division Motor Vehicle Division Non-appropriated Enforcement Total & Compliance Appropriated 1 Division FTEs Arizona Highways Magazine 2016 2015 792 792 2,235 2,235 78 78 1,075 1,075 368 368 4,548 4,548 18 18 2014 2013 792 792 2,235 2,235 78 78 1,060 1,075 383 368 4,548 4,548 20 18 2012 2011 2010 2009 2008 756 745 692 692 692 2,262 2,267 2,153 2,255 2,255 87 52 46 46 46 1,075 1,111 1,657 1,755 1,751 368 373 - 4,548 4,548 4,548 4,748 4,744 23 22 23 28 28 2007 692 2,223 46 1,730 - 4,691 60 HELP Total NonAppropriated FTEs Other Total All FTEs 1 1 44 44 63 63 4,611 4,611 1 44 45 65 63 4,613 4,611 1 2 2 44 44 43 24 24 68 68 68 52 52 4,616 4,616 4,616 4,800 4,796 3 49 112 4,803 - - 1 NOTE: ECD FTE total was included in the Motor Vehicle Division 2007-2010. Comprehensive Annual Financial Report Fiscal Year 2016 112 Arizona Department of Transportation Table E-2 Capital Assets Used in the Operation of Governmental Funds Schedule by Function and Activity1 June 30, 2016 (Thousands of Dollars) Function and Activity Administration Highway Highway maintenance Motor vehicle Total governmental funds capital assets Land Buildings and Improvements Improvements Other Than Buildings Machinery and Equipment Infrastructure Construction in Progress Total $ 6,333 3,217,211 4,772 4,647 $ 56,615 63,875 42,660 41,543 $ 9,779 11,033 7,368 7,175 $ 18,540 20,919 13,969 13,603 $ 16,095,094 - $ 1,422,492 - $ 91,267 20,830,624 68,769 66,968 $ 3,232,963 $ 204,693 $ 35,355 $ 67,031 $ 16,095,094 $ 1,422,492 $ 21,057,628 NOTE: 1 This schedule presents only the cost of the capital asset balances related to governmental funds. Accordingly, the cost of the capital assets reported in the internal service fund are excluded from the above amounts. Generally, the capital assets of the internal service fund are included as governmental activities in the statement of net position. Reconciliation of Governmental Funds Capital Assets − acquisition cost Capital assets not subject to deprecia on − cost Capital assets subject to deprecia on − cost Subtotal Less EQR − cost Total Comprehensive Annual Financial Report Fiscal Year 2016 $ 20,750,549 489,737 21,240,286 (182,658) $ 21,057,628 113 Arizona Department of Transportation Table E-3 Capital Assets Used in the Operation of Governmental Funds Schedule of Changes by Function and Activity1 For the Year Ended June 30, 2016 (Thousands of Dollars) Governmental Funds Capital Assets July 1, 2015 Function and Activity Administration Highway Highway maintenance Motor vehicle Total governmental funds capital assets Additions Deductions Governmental Funds Capital Assets June 30, 2016 $ 86,407 20,169,483 65,107 63,401 $ 5,182 677,748 3,905 3,803 $ (322) $ (16,607) (243) (236) 91,267 20,830,624 68,769 66,968 $ 20,384,398 $ 690,638 $ (17,408) $ 21,057,628 1 NOTE: This schedule presents only the capital asset balances (not net of depreciation) related to governmental funds. Accordingly, the capital assets reported in the internal service fund are excluded from the above amounts. Generally, the capital assets of the internal service fund are included as governmental activities in the statement of net position. Reconciliation of Governmental Funds Capital Assets − acquisition cost Capital assets not subject to deprecia on − cost Capital assets subject to deprecia on − cost Subtotal Less EQR − cost Total Comprehensive Annual Financial Report Fiscal Year 2016 $ 20,750,549 489,737 21,240,286 (182,658) $ 21,057,628 114 Arizona Department of Transportation Table E-4 Total Public Road Mileage by Highway Class and Governmental Ownership For the Calendar Year Ended December 31, (In Center Line Miles) Functional Classification Rural Interstate Freeway 1 Principal Arterial Freeways & Expressways Principal Arterial Minor Arterial Major Collector Minor Collector Local Total Rural 2007 2008 981 2009 980 980 2010 980 2011 2012 2013 2014 2015 2016 980 980 982 921 921 917 Additional categorization beginning 2011 1,168 1,359 4,303 2,186 27,819 37,816 1,167 1,357 4,301 2,185 27,685 37,675 1,167 1,358 4,302 2,191 27,525 37,523 1,167 1,378 4,342 2,134 30,845 40,846 1,259 1,276 4,338 1,735 31,157 40,745 25 1,267 1,328 4,413 2,032 31,548 41,593 43 1,267 1,308 6,416 31,370 41,386 18 1,174 1,173 4,179 1,794 30,870 40,129 18 1,207 1,200 4,127 1,807 30,104 39,384 18 1,210 1,284 4,204 1,882 30,285 39,800 Urban Interstate Freeway 2 Principal Arterial Freeways & Expressways Principal Arterial Minor Arterial Urban Collector Local Total Urban 188 188 188 188 188 188 187 248 248 252 168 1,400 1,791 1,632 17,380 22,559 171 1,400 1,792 1,632 17,735 22,918 176 1,399 1,807 1,632 17,735 22,937 176 1,400 1,808 1,649 17,817 23,038 175 1,390 1,752 1,631 17,806 22,942 178 1,435 1,788 1,653 18,256 23,498 181 1,437 1,786 1,642 18,645 23,878 208 1,491 1,957 2,100 20,308 26,312 215 846 2,633 2,103 20,165 26,210 214 843 2,635 2,159 20,219 26,322 Statewide composite Freeways and expressways Arterials Collectors Locals Total statewide composite 1,337 5,718 8,121 45,199 60,375 1,339 5,716 8,118 45,420 60,593 1,344 5,731 8,125 45,260 60,460 1,344 5,753 8,125 48,662 63,884 1,343 5,677 7,704 48,963 63,687 1,346 5,843 8,098 49,804 65,091 1,350 4,533 9,366 50,015 65,264 1,377 5,813 8,073 51,178 66,441 1,384 5,904 8,037 50,269 65,594 1,383 5,990 8,245 50,504 66,122 SOURCE: Arizona's Highway Performance Monitoring System (HPMS). 1 Additional category created for 2011 reporting. 2 Before 2012 this category was titled "Urban Expressway". Comprehensive Annual Financial Report Fiscal Year 2016 115 Arizona Department of Transportation Table E-5 Vehicle Miles Traveled With Population Data For the Calendar Year Ended December 31, (Thousands) 1 Calendar Year Ended December 31 3 3 State Highways Non-State Highways All Public Highways 3 Arizona Population Daily Miles per Capita 2015 - - 178,205 6,828 26.1 2014 2013 88,153 77,837 171,591 165,990 6,731 6,627 25.5 25.0 2012 2011 2010 2009 2008 2007 85,285 83,955 84,427 87,608 86,886 91,042 79,003 79,312 79,699 76,714 81,496 81,456 164,288 163,267 164,126 164,322 168,382 172,498 6,553 6,467 6,413 6,588 6,499 6,360 25.1 25.2 25.6 24.9 25.9 27.1 2006 89,016 82,178 171,194 6,191 27.7 SOURCE: Arizona's Highway Performance Monitoring System (HPMS); ADOT Multimodal Planning Division office records. The Arizona population data are midyear population estimates of the U.S. Bureau of the Census. 1 NOTES: Year 2015 is the latest population information available at the time of publication. 2 Years 2006 through 2009 and 2011 population information has been revised to reflect revisions made by the U.S. Bureau of the Census. 3 At the time of publishing, this information was not available. Comprehensive Annual Financial Report Fiscal Year 2016 116 ACKNOWLEDGMENTS The Comprehensive Annual Financial Report was prepared by Financial Management Services, Fiscal Operations: Tim Newton, CPA Anita Kleinman, CPA Christopher M. Freitag, CPA Prabha Ramaswamy Mary Ann Miller, CPA Tom Kaye Mark Darmer Joel Konopken, MBA Jeff Aiazzi Greg Martin Larry Ehrke Karuna Ramisetty, CPA Francine Rubin 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. The staff of REDWLLC CPAs for their consultation on audit and CAFR preparation matters. Comprehensive Annual Financial Report Fiscal Year 2016 117 State of Arizona I Department of Transportation 206 South 17th Avenue, Phoenix, Arizona