STATE OF ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2005 Janet Napolitano GOVERNOR PREPARED BY ARIZONA DEPARTMENT OF ADMINISTRATION FINANCIAL SERVICES DIVISION GENERAL ACCOUNTING OFFICE STATE OF ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS INTRODUCTORY SECTION (Not Covered by the Independent Auditors’ Report) Letter of Transmittal ........................................................................................................................................................... Arizona State Government Organization ............................................................................................................................ Principal State Officials ...................................................................................................................................................... Page 1 10 11 FINANCIAL SECTION INDEPENDENT AUDITORS' REPORT....................................................................................................................... 17 MANAGEMENT’S DISCUSSION AND ANALYSIS................................................................................................... 23 BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements: Statement of Net Assets ........................................................................................................................................... Universities - Affiliated Component Units – Statement of Financial Position ....................................................... Statement of Activities ............................................................................................................................................. Universities - Affiliated Component Units – Statement of Activities ..................................................................... Governmental Fund Financial Statements: Balance Sheet ........................................................................................................................................................... Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets ..................................... Statement of Revenues, Expenditures and Changes in Fund Balances.................................................................... Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities............................................................................................... 40 42 44 46 47 48 49 50 Proprietary Fund Financial Statements: Statement of Net Assets ........................................................................................................................................... Statement of Revenues, Expenses and Changes in Fund Net Assets ....................................................................... Statement of Cash Flows.......................................................................................................................................... 52 56 58 Fiduciary Fund Financial Statements: Statement of Fiduciary Net Assets ........................................................................................................................... Statement of Changes in Fiduciary Net Assets ........................................................................................................ 62 63 Notes to the Financial Statements .............................................................................................................................. 64 REQUIRED SUPPLEMENTARY INFORMATION Budgetary Comparison Schedule, Expenditures – General Fund.................................................................................. Budgetary Comparison Schedule, Expenditures – Transportation and Aviation Planning, Highway Maintenance and Safety Fund ..................................................................................................................................... Notes to Required Supplementary Information – Budgetary Comparison Schedules................................................... Infrastructure Assets ...................................................................................................................................................... Agent Retirement Plans’ Funding Progress................................................................................................................... i 127 143 145 148 153 STATE OF ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS (CONTINUED) FINANCIAL SECTION - CONCLUDED COMBINING FINANCIAL STATEMENTS AND SCHEDULES Page Non-major Governmental Funds: Combining Balance Sheet ........................................................................................................................................ Combining Statement of Revenues, Expenditures and Changes in Fund Balances ................................................. 158 159 Non-major Special Revenue Funds: Combining Balance Sheet ................................................................................................................................. Combining Statement of Revenues, Expenditures and Changes in Fund Balances.......................................... 162 164 Non-major Debt Service Funds: Combining Balance Sheet ................................................................................................................................. Combining Statement of Revenues, Expenditures and Changes in Fund Balances.......................................... 168 170 Non-major Capital Projects Funds: Combining Balance Sheet ................................................................................................................................. Combining Statement of Revenues, Expenditures and Changes in Fund Balances.......................................... 174 175 Non-major Proprietary Funds: Non-major Enterprise Funds: Combining Statement of Net Assets ................................................................................................................. Combining Statement of Revenues, Expenses and Changes in Fund Net Assets ............................................. Combining Statement of Cash Flows................................................................................................................ 178 180 182 Internal Service Funds: Combining Statement of Net Assets ................................................................................................................. Combining Statement of Revenues, Expenses and Changes in Fund Net Assets ............................................. Combining Statement of Cash Flows................................................................................................................ 186 188 190 Fiduciary Funds: Pension Trust Funds: Combining Statement of Fiduciary Net Assets ................................................................................................. Combining Statement of Changes in Fiduciary Net Assets .............................................................................. 194 195 Investment Trust Funds: Combining Statement of Fiduciary Net Assets ................................................................................................. Combining Statement of Changes in Fiduciary Net Assets .............................................................................. 198 199 Agency Funds: Combining Statement of Assets and Liabilities ................................................................................................ Combining Statement of Changes in Assets and Liabilities ............................................................................. 203 204 Budgetary Comparison Schedule, Expenditures - Other Governmental Funds ............................................................ 209 ii STATE OF ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS (CONCLUDED) STATISTICAL SECTION (Not Covered by the Independent Auditors' Report) Revenues by Source – All Governmental Fund Types for the Last Ten Fiscal Years........................................................ Expenditures by Function – All Governmental Fund Types for the Last Ten Fiscal Years ............................................... Property Tax Levies, Collections, Taxable Property Assessed and Estimated Actual Value for the Last Ten Property Tax Years ...................................................................................................................................... Highway Construction Revenue Bond Coverage for the Last Ten Fiscal Years ................................................................ Maricopa County Road Construction Revenue Bond Coverage for the Last Ten Fiscal Years ......................................... Arizona State University Revenue Bond Coverage for the Last Ten Fiscal Years............................................................. Northern Arizona University Revenue Bond Coverage for the Last Ten Fiscal Years ...................................................... University of Arizona Revenue Bond Coverage for the Last Ten Fiscal Years ................................................................. Economic Indicators for the Last Ten Calendar Years ....................................................................................................... Major Private Employers for the Fiscal Year Ended June 30, 2005 ................................................................................... Population by County for the Last Ten Years..................................................................................................................... Schedule of Bank and Savings and Loan Deposits for the Last Ten Fiscal Years ............................................................. Assessed Value of New Commercial and Residential Construction for the Last Ten Calendar Years .............................. Public School Enrollment - Grades K-12 for the Last Ten Academic Years...................................................................... Average State Prison Adult Inmate Population for the Last Ten Fiscal Years ................................................................... Public Higher Education Institutions’ Full-Time Student Equivalent Fall Enrollment for the Last Ten Years ................. iii Page 221 221 222 222 223 223 224 224 225 225 226 226 227 227 228 228 INTRODUCTORY SECTION INTRODUCTORY SECTION WILLIAM BELL JANET NAPOLITANO GOVERNOR DIRECTOR ARIZONA DEPARTMENT OF ADMINISTRATION OFFICE OF THE DIRECTOR 100 NORTH 15th AVENUE • SUITE 401 PHOENIX, ARIZONA 85007 Phone: (602) 542-1500 March 31, 2006 The Honorable Janet Napolitano, Governor of the State of Arizona; Members of the Legislature; Chief Justice of the Supreme Court; and Citizens and Taxpayers of the State of Arizona Ladies and Gentlemen: It is our pleasure to transmit to you the Comprehensive Annual Financial Report (CAFR) of the State of Arizona for the fiscal year ended June 30, 2005. Responsibility for the accuracy of data, as well as the completeness and fairness of presentation, including all disclosures, rests with the State's management. The data presented in this report, to the best of our knowledge and belief, is accurate in all material respects and is reported in a manner which fairly presents the financial position and results of operations of the major and non-major funds of the State. All disclosures needed for the reader to gain a reasonable understanding of the State's financial activities have been included. The report is presented in three sections: Introductory, Financial, and Statistical. The Introductory Section includes this Letter of Transmittal, the State's organizational chart and a list of principal State officials. The Financial Section includes the State Auditor General's Independent Auditors’ Report, Management’s Discussion and Analysis (MD&A) and the basic financial statements (which include the government-wide financial statements, the fund financial statements and the notes to the financial statements). The financial section also includes Required Supplementary Information (RSI), which includes budgetary comparison schedules, infrastructure condition and maintenance data, and agent retirement plans’ funding progress. In addition, the financial section includes other supplemental financial data, which includes combining financial statements. The Statistical Section includes selected financial, economic, and demographic data. U.S. generally accepted accounting principles (GAAP) require that management provides a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of the MD&A. This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The State’s MD&A can be found immediately following the Independent Auditors’ Report. INTERNAL CONTROLS The State is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the State are protected from loss, theft or misuse and to ensure that adequate accounting data are compiled to allow for the preparation of financial statements in conformity with U.S. GAAP. Internal accounting controls are designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that: (1) the cost of a control should not exceed the benefits likely to be derived and (2) the valuation of costs and benefits requires estimates and judgments by management. In the opinion of management, the State's internal controls are adequate to provide reasonable assurance that these objectives are met. -1- INDEPENDENT AUDIT In compliance with State statute, an annual financial audit of the State Entity is completed each year by the State of Arizona, Office of the Auditor General in conjunction with other audit firms. Their audit was conducted in accordance with U.S. generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Their report on the basic financial statements has been included in the financial section of this report. In addition, ARS §41-1279.03 requires at least a biennial single audit by the Office of the Auditor General. The Single Audit will be issued as a separate report at a later date. PROFILE OF THE GOVERNMENT The State of Arizona was admitted to the Union as the 48th state in 1912. Arizona is the sixth largest state, with 113,909 square miles. Arizona is known for the Grand Canyon, one of the Seven Wonders of the World, and its cacti and other desert landscape. A number of national forests, three national parks, eighteen national monuments, and Indian reservations are located in the State. The State has three branches of government, Executive, Legislative, and Judicial. The Executive branch is headed by a governor elected for a four-year term. Arizona’s Legislative branch is bicameral, consisting of a thirty-member Senate and a sixty-member House of Representatives. Legislators are elected for two-year terms. The Judicial branch consists of the Arizona Supreme Court, Court of Appeals (with two divisions), superior courts, justice of the peace courts and municipal courts. The Supreme Court is the highest court in the State and is an appellate court comprised of five justices. The services provided by the State are administered through various agencies, departments, boards, commissions, councils, administrations, offices and institutions of higher learning. These services include: (1) General Government, (2) Health and Welfare, (3) Inspection and Regulation, (4) Education, (5) Protection and Safety, (6) Transportation and (7) Natural Resources. FINANCIAL REPORTING ENTITY The accompanying CAFR includes all funds of the State of Arizona (primary government), as well as its component units. Blended component units, although legally separate entities, are in substance part of a government’s operations. Therefore, data from these units is combined with data of the primary government. Discretely presented component units are shown separately to emphasize that they are legally separate from the primary government and to differentiate their financial position and results of operations from those of the primary government. Discretely presented component units prepared in accordance with the Governmental Accounting Standards Board (GASB) are reported in a separate column in the government-wide financial statements. Discretely presented component units prepared in accordance with the Financial Accounting Standards Board (FASB) are presented as separate financial statements immediately following the government-wide financial statements to emphasize that they are prepared in accordance with accounting standards other than those promulgated by the GASB. The criteria for inclusion in the reporting entity and presentation are defined by the Codification of Governmental Accounting and Financial Reporting Standards, issued by the GASB, (Section 2100). Note 1 of the Notes to the Financial Statements explains which component units are included in the Financial Reporting Entity of the State. BUDGETARY CONTROLS Budgetary control is maintained through legislative appropriation and the executive branch allotment process. The Governor is required to submit an annual budget to the Legislature. The budget is legally required to be adopted through passage of appropriation bills by the Legislature and approval by the Governor. The appropriated funds are controlled by the executive branch through an allotment process. This process generally allocates the appropriation into quarterly allotments by legal appropriation level. The State also maintains an encumbrance accounting system to further enhance budgetary control. Encumbered amounts generally lapse as of the end of the fiscal year, with the exception of capital outlay and other continuing appropriations. These appropriations and their encumbrances continue from year to year. The State's budgetary policies are explained in detail in the Required Supplementary Information (RSI). -2- GENERAL FUND BALANCE Graph 1 details the General Fund revenues and expenditures for the last five fiscal years. This graph does not include transfer amounts relating to other fund types and other financing sources (uses), which affect the ending fund balance. Graph 1 General Fund Revenues and Expenditures for last 5 fiscal years (Dollars in billions) $18 $16 $14 $12 $10 $8 $6 $4 $2 $0 2001 2002 2003 Revenues 2004 2005 Expenditures The General Fund ended the June 30, 2005, fiscal year with $986.2 million in unreserved fund balance and a $324.2 million reserved fund balance for a total fund balance of $1.310 billion. This compares to the previous year’s total fund balance of $746.6 million. Included in the $324.2 million reserved fund balance is $160.9 million for the Budget Stabilization Fund. The Budget Stabilization Fund is a form of Rainy Day Fund established by the Legislature in 1991. Graph 2 details the General Fund Balance for the last five fiscal years: Graph 2 General Fund Balance for last 5 fiscal years (Dollars in millions) $1,500 $1,000 $500 $0 2001 2002 2003 -3- 2004 2005 RISK MANAGEMENT The State purchases property and liability coverage whenever available on reasonable terms. The State is insured by an approved property insurer for claims in excess of $3.5 million, but less than $450 million, and liability claims in excess of $2 million for the Universities and the School for the Deaf and Blind and $7 million for all other state agencies, but less than $107 million. The State also maintains first dollar aircraft liability, hull, and airport liability coverage up to $200 million. Other purchased coverages include fidelity, foreign liability, medical malpractice (limited to the University of Arizona’s medical professional staff), nuclear property, nuclear liability, and employment practices. The State's self-insurance fund provides property and liability coverage for claims less than or in excess of this coverage, or whenever coverage, such as workers’ compensation and medical malpractice for non-University of Arizona professional staff, is unavailable on reasonable terms. The State pays self-insurance losses, defense costs, premiums and administrative costs from an appropriated fund which all of the State’s agencies participate in. Total costs (excluding the cost of administering the program) have risen from approximately $15.3 million in fiscal year 1988 to approximately $86.7 million in fiscal year 2005. Yearly appropriations have also increased from approximately $27.7 million in fiscal year 1988 to approximately $93.9 million in fiscal year 2005 to meet rising losses and claims-related expenses. Annual funding is established for expected paid claims. The accrued insurance losses are not considered when determining funding for each fiscal year. ECONOMIC CONDITION AND OUTLOOK The following economic summary is excerpted from the Arizona Department of Economic Security’s Arizona’s Workforce, released on September 1, 2005. In comparison to the original forecast released in April 2005, the economy in Arizona is projected to grow at a faster rate over the forecast period from 2004 to 2006. For 2005, the projected growth rate has been increased to 4.6 percent and, for 2006, the projected pace of expansion is 3.7 percent. The revised nonfarm job increase for 2004 to 2006 is 202,200 jobs, in comparison to the original forecast, with a gain of 191,300 jobs. Not only is the overall economy anticipated to grow at a faster rate, as demonstrated in the nonfarm job figures, but most industries are projected to grow at a more rapid pace. The projections are being revised upwards because of stronger than anticipated strength in the Arizona economy. Strong population growth in the State has bolstered major industries such as construction, trade, financial activities, leisure and hospitality, educational and health services and government. Economic growth in the rest of the nation and other parts of the world has also helped to strengthen the State’s economy. Productivity enhancements from automation and information technology have contributed to this overall economic improvement. An improving domestic economy has persuaded businesses to increase their spending. This increased spending has also contributed to accelerating the economy. Rapid economic growth in other parts of the world such as China has increased demand for many globally traded commodities such as copper and, therefore, has resulted in rising prices. Higher copper prices have resulted in expansion in the metal ores sector of the natural resources and mining industry. Continued U.S. military operations abroad have bolstered employment in the aerospace products and parts sector of durable goods manufacturing. Strong construction activity has bolstered another durable goods manufacturing sector, fabricated metal products. The economy will continue to grow over the forecast period despite rising costs for energy, health care and interest rates because incomes are expected to increase at a faster rate than costs. Rising interest rates will make consumer debt service more expensive and home mortgages less affordable. The removal of equity from the refinancing of home mortgages with rising housing prices has placed more money in the hands of consumers and has contributed to continued growth of consumer spending. However, housing price growth is expected to slow as interest rates rise and, therefore, slow equity removal and mortgage refinance activity. Higher health care and energy costs will absorb consumer disposable income and leave less money to be spent on other goods and services. These rising costs will slow, rather than stop, the current economic expansion. The current economic expansion could potentially be halted if the costs of interest rates, energy and health care increase past a certain point where they absorbed a majority of consumer disposable income while not leaving enough funds to be spent on other items. Rising interest rates, a special concern, will make servicing high levels of consumer and federal government debt more expensive and crowd out other types of spending. Construction is now projected to have an increase of 39,800 jobs over the forecast period. The revised projected growth rate for 2005 is 11 percent, which slows to 9 percent for 2006. In contrast, the original set of projections had a gain of 24,800 jobs. Population growth and the corresponding need to expand infrastructure are expected to drive growth in construction. Manufacturing is forecast to add 4,800 jobs for an expansion rate of 1.5 percent for 2005 and 1.2 percent for 2006. The increasing pace of expansion is the result of an anticipated increase in defense contracts. In contrast, the original set of projections had a gain of 3,900 jobs. -4- Natural resources and mining has a projected gain of 1,700 jobs, or a growth rate of 11 percent for 2005 and 9 percent for 2006. The previous forecast called for a gain of 500 jobs. Trade is forecast to have an increase of 37,000 jobs from 2004 to 2006 with a growth rate of 5.6 percent for 2005 and 3.8 percent for 2006. Retail is anticipated to add 33,700 jobs while wholesale employment is projected to gain 3,300 jobs. Financial activities is forecast to add 11,700 jobs in 2005 and 2006 for an expansion rate of 4 percent in 2005 and 3 percent in 2006. The original projections set called for an increase of 9,700 jobs. Transportation, warehousing and utilities is a part of the economy where rising energy costs have caused a downward revision to growth in comparison to the original forecast. The revised set of projections has this sector adding 2,400 jobs for a growth rate of 1.8 percent in 2005 and 1.2 percent in 2006. However, the original forecast called for an increase of 2,800 jobs. The primary reason for the reduced growth rate, especially in transportation, is higher than originally anticipated fuel prices. Information is following the trend of transportation, warehousing and utilities with downwardly revised forecast figures. The revised job losses have deepened to 4,300 jobs over the two-year period in contrast to a much smaller loss of 200 jobs in the original forecast. The reason for the downward revision is a deeper and longer than anticipated consolidation process in the telecommunications sector. Professional and business services is expected to add 37,300 jobs, an expansion rate of 6 percent in 2005 and 4.9 percent in 2006. The original set of projection figures called for an increase of 37,700 jobs. Growth was revised downward for this industry group because of greater projected losses in the sector of business support services. Leisure and hospitality is forecast to have an increase of 18,200 jobs, a growth rate of 4.3 percent for 2005 and 3.1 percent for 2006. The original projections set had an increase of 18,400 jobs. Government is projected to have a gain of 19,300 jobs, or a rate of growth of 2.6 percent in 2005 and 2.2 percent in 2006. The original forecast called for an increase of 21,900 jobs. The projected rate of expansion in educational and health services has been revised downward. This industry is now projected to have an increase of 29,500 jobs, or a pace of expansion of 6.0 percent in 2005 and 5.1 percent in 2006. The original forecast set the expansion to be an increase of 32,200 jobs. Growth projections for health care have been decreased because of the dampening effects of rapidly rising health care costs and shortages of workers in skilled occupations, while the slowing growth of the school age population, especially children in the primary and secondary school categories, has reduced the growth pace in educational and social services. The revised projections for other services are unchanged from the original with an addition of 4,800 jobs for a growth rate of 2.8 percent in 2005 and 2.5 percent in 2006. Overall, the remainder of 2005 and 2006 will be good for Arizona’s economy with strong job growth in most industries. Information is the only exception with anticipated, accelerating losses. The factors of concern are rising interest and energy costs because if these two costs increase fast enough, then they have the potential to significantly slow down the State’s economy. MAJOR INITIATIVES To fully appreciate the challenges and opportunities of the 2004 legislative session and the development of the FY 2005 State budget, it is essential to examine what transpired in the year prior when a newly elected Governor and a bumper crop of first-time Legislators were welcomed into office by arguably the most daunting fiscal crisis in State history. While state governments across the United States were reeling from the nationwide recession, the projected $1 billion General Fund deficit for FY 2004, when viewed as a percentage of the total budget, ranked Arizona among the nation’s most fiscally troubled states. The process of arriving at a balanced budget was predictable and inevitably contentious. Along the way, both the Executive and Legislative branches realized that despite the enormity of the task before them, they could resolve the State’s fiscal crisis without draconian cuts in vital programs, without dismantling and then reconstituting State Government, and without raising taxes. The collective wisdom of employing temporary fiscal measures to address temporary, albeit severe, economic pressures has been affirmed in the last two years as the rebounding economy and sound decision-making in both the Legislative and Executive branches have sparked a return to fiscal health. -5- The Governor’s Fiscal Year 2005 budget reflected a commitment to phase-in initiatives that respect the State’s fiscal situation to shape an environment in which Arizonans of all ages receive an excellent education, pursue a life of prosperity and abundance, live in peace and safety, and enjoy Arizona’s precious natural resources. Education Full Day Kindergarten. The FY 2005 Budget provided $25 million for classroom teachers and new facilities as the first step in a five-year phase-in of voluntary Full Day Kindergarten. Community Colleges. The FY 2005 Budget fully funded the Operating, Capital Outlay, and Equalization Aid funding formulas. Arizona’s two-year community colleges provide high school graduates with a variety of educational opportunities, including technical education needed to participate in Arizona’s and the nation’s new economy. Universities. A top-notch university system allows each person and business in Arizona to be a world-class competitor. Recognizing this, the FY 2005 Budget provided full funding for FY 2005 enrollment growth at the three State universities. Additionally, funding for faculty retention was provided to the University of Arizona and Northern Arizona University. Finally, to help alleviate Arizona’s shortage of nurses, over $1 million was provided for the nursing school at Northern Arizona University. Health and Welfare Human infrastructure investments that were adopted in the FY 2005 Budget included additional funding for the Division of Children, Youth and Families (DCYF) in the Department of Economic Security. Of the $35.6 million requested by the Governor, $28.8 million and 235 full-time equivalent (FTE) positions in FY 2004 supplemental appropriations were provided for a variety of Child Protective Services issues as well as other DCYF services such as Adoption Services, Permanent Guardianship subsidies, and out-of-home placements for foster children. Additionally, the budget provided $13.75 million to double the Healthy Families program in FY 2005. The program provides contracted services to children under five years of age and members of their families. It is designed to prevent child abuse or neglect, as well as promote child development and wellness. Public Safety Keeping the State’s physical infrastructure in quality condition also requires continued investment. With the continued growth in population and attendant growth in Arizona’s network of highways comes the requirement to build more roads and maintain them for the safety of motorists. Department of Public Safety. A major part of highway safety is having an adequate law enforcement presence. The FY 2005 Budget contained approximately $1.9 million for new Highway Patrol officers to increase visibility on the highways and address increased workloads due to traffic accidents and motorist assists. The FY 2005 budget also provided $4.3 million sworn officer salary adjustments. Forest Protection. Arizona forests have suffered from the wilderness equivalent of the perfect storm: unrelenting drought, forest overgrowth stemming from years of policy decisions, and a major infestation of bark beetles. The result: unprecedented fire danger, putting people and property at risk. The FY 2005 Budget provided $782,900 and 14 FTE positions to the State Land Department in inmate fire crews, which provided training for twelve inmate fire crews. The crews were used for fuel treatment and fire suppression in and around at-risk communities. The Budget also provided for $804,300 and 18 FTE positions in the Department of Corrections to fund 18 security positions for the newly added inmate fire crews. Given the tremendous loss of property and the threat to the residents of more than 120 forest communities, it was a wise investment and one the State was dedicated to make. Economic Development Combining the human, physical and financial resources of the State of Arizona to drive economic development is the job of the Department of Commerce. The Governor’s Task Force recommended the largest initiative for military facilities. Military bases provide 83,000 jobs and an economic impact of $5.7 billion annually in Arizona. Laws 2004, Chapter 235 provided an annual $5 million appropriation for military installation preservation and enhancement projects. Another executive initiative for economic development adopted in the FY 2005 Budget included $295,400 for rural community economic health, including direct technical assistance to help those communities find resources that will allow them to upgrade their physical and human infrastructure. -6- -8- (This page intentionally left blank) ARIZONA STATE GOVERNMENT ORGANIZATION ELECTORATE LEGISLATIVE BRANCH STATE HOUSE OF REPRESENTATIVES* STATE SENATE* LEGISLATIVE COUNCIL AUDITOR GENERAL JOINT LEGISLATIVE BUDGET COMM. BD. OF LIBRARY, ARCHIVES AND PUBLIC RECORDS SECRETARY OF STATE* JUDICIAL BRANCH EXECUTIVE BRANCH ATTORNEY GENERAL* GOVERNOR* SUPREME COURT COURT OF APPEALS SUPERIOR COURTS MUNICIPAL COURTS JUSTICE OF THE PEACE COURTS* SUPERINTENDENT OF PUBLIC INSTRUCTION* STATE TREASURER* DEPARTMENT OF LAW CORPORATION COMMISSION* STATE MINE INSPECTOR* DEPARTMENT OF EDUCATION DEPARTMENT OF ADMINISTRATION DEPARTMENT OF CORRECTIONS DEPARTMENT OF TRANSPORTATION DEPARTMENT OF REVENUE DEPARTMENT OF PUBLIC SAFETY DEPARTMENT OF HEALTH SERVICES NORTHERN ARIZONA UNIVERSITY DEPARTMENT OF ECONOMIC SECURITY OTHER BOARDS, COMMISSIONS, AND AGENCIES BOARD OF REGENTS ARIZONA STATE UNIVERSITY AHCCCS UNIVERSITY OF ARIZONA * ELECTED OFFICIALS - 10 - STATE OF ARIZONA PRINCIPAL STATE OFFICIALS JUNE 30, 2005 ELECTED OFFICIALS Janet Napolitano, Governor Tom Horne, Superintendent of Public Instruction Senator Ken Bennett, President of the Senate Jeff Hatch-Miller, Chairman - Corporation Commission Representative James P. Weiers, Speaker of the House William A. Mundell, Commissioner - Corporation Commission Janice K. Brewer, Secretary of State Kristin K. Mayes, Commissioner - Corporation Commission Terry Goddard, Attorney General Mike Gleason, Commissioner - Corporation Commission Douglas K. Martin, State Mine Inspector Marc L. Spitzer, Commissioner - Corporation Commission David A. Petersen, State Treasurer APPOINTED OFFICIALS Executive Officials Judicial Officials William Bell, Director – Department of Administration – current Ruth V. McGregor, Chief Justice - Supreme Court Betsey Bayless, Director - Department of Administration – through September, 2005 Legislative Officials Dora B. Schriro, Director - Department of Corrections Michael E. Braun, Executive Director - Legislative Council David A. Berns, Director - Department of Economic Security Richard Stavneak, Director - Joint Legislative Budget Committee Gale Garriott, Director - Department of Revenue Debra K. Davenport, CPA, Auditor General - Office of the Auditor General Roger Vanderpool, Director - Department of Public Safety Gladys Ann Wells, Director - Board of Library, Archives and Public Records Susan Gerard, Director - Department of Health Services University Officials Anthony D. Rodgers, Director - Arizona Health Care Cost Containment System Michael M. Crow, President - Arizona State University Victor Mendez, Director - Department of Transportation Dr. John D. Haeger, President - Northern Arizona University Peter W. Likins, President - University of Arizona - 11 - FINANCIAL SECTION FINANCIAL SECTION INDEPENDENT AUDITORS’ REPORT INDEPENDENT AUDITORS’ REPORT DEBRA K. DAVENPORT, CPA AUDITOR GENERAL STATE OF ARIZONA OFFICE OF THE AUDITOR GENERAL WILLIAM THOMSON DEPUTY AUDITOR GENERAL Independent Auditors’ Report The Honorable Janet Napolitano, Governor State of Arizona The Honorable Ken Bennett, President Arizona State Senate The Honorable James P. Weiers, Speaker Arizona House of Representatives The Honorable Ruth V. McGregor, Chief Justice Arizona Supreme Court We have audited the accompanying financial statements of the governmental activities, businesstype activities, aggregate discretely presented component units, each major fund, and aggregate remaining fund information of the State of Arizona as of and for the year ended June 30, 2005, which collectively comprise the State’s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the State’s management. Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of certain departments and the component units, which account for the following percentages of the assets and revenues of the opinion units affected: Opinion Unit/Department Government-Wide Statements Governmental activities: Arizona Health Care Cost Containment System Department of Transportation Business-type activities: Lottery Department Arizona Health Care Cost Containment System Department of Transportation Aggregate discretely presented component units: Component Units Universities—Affiliated Component Units 2910 NORTH 44 th Assets Revenues 2.11% 66.77% 11.55% 15.22% 1.31% 11.76% .25% 4.48% 1.10% .43% 100% 100% 100% 100% STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051 Opinion Unit/Department Fund Statements General Fund: Arizona Health Care Cost Containment System Transportation and Aviation Planning, Highway Maintenance and Safety Fund: Department of Transportation Lottery Fund: Lottery Department Aggregate Remaining Fund Information: Arizona Health Care Cost Containment System Department of Transportation Arizona State Retirement System Public Safety Personnel Retirement System Corrections Officer Retirement Plan Elected Officials' Retirement Plan Assets Revenues 8.27% 12.71% 100% 100% 100% 100% .09% 1.01% 65.44% 13.23% 2.32% .92% 2.89% 10.25% 38.66% 7.72% 1.63% .57% Those financial statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for those entities, is based solely on the reports of the other auditors. We conducted our audit in accordance with U.S. generally accepted auditing standards 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 of material misstatement. The financial statements of the discretely presented component units (except for the Water Infrastructure Finance Authority) and the fiduciary fund financial statements of the Arizona State Retirement System, Public Safety Personnel Retirement System, Elected Officials’ Retirement Plan, and Corrections Officer Retirement Plan, were not audited by the other auditors in accordance with Government Auditing Standards. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of the other auditors provide a reasonable basis for our opinions. In our opinion, based on our audit and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, business-type activities, aggregate discretely presented component units, each major fund, and aggregate remaining fund information of the State of Arizona as of June 30, 2005, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with U.S. generally accepted accounting principles. As described in Note 8, the State’s Arizona State University changed its method of calculating depreciation on research buildings to be based on the estimated useful life of each building component, which represents a change in the application of an accounting principle. Also described in Note 1, the State implemented the provisions of the Governmental Accounting Standards Board Statement No. 40, Deposit and Investment Risk Disclosures, for the year ended June 30, 2005, which represents a change in accounting principle. The Management’s Discussion and Analysis on pages 23 through 35, the Budgetary Comparison Schedules on pages 127 through 147, the Infrastructure Assets information on pages 148 through 152, and the Schedule of Agent Retirement Plans’ Funding Progress on page 153, are not a required part of the basic financial statements but are supplementary information required by the Governmental Accounting Standards Board. We and the other auditors have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we and the other auditors did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the State’s basic financial statements. The introductory section, combining and individual fund statements and schedules, and statistical section 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 combining and individual fund statements and schedules have been subjected to the auditing procedures applied by us and the other auditors in the audit of the basic financial statements and, in our opinion, based on our audit and the reports of the other auditors, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in our audit of the basic financial statements and, accordingly, we express no opinion on them. In accordance with Government Auditing Standards, we will also issue our report on our consideration of the State’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 at a future date. 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 the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Debbie Davenport Auditor General March 31, 2006 MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS The following is a discussion and analysis of the State of Arizona’s (the State’s) financial performance, providing an overview of the activities for the fiscal year ended June 30, 2005. Please read it in conjunction with the transmittal letter at the front of this report and with the State’s financial statements, which follow this section. The completeness and fairness of the following information is the responsibility of the State’s officials and management. FINANCIAL HIGHLIGHTS Government-Wide: • The assets of the State exceeded liabilities at the close of the fiscal year by $16.856 billion (reported as net assets). Of this amount, a $306.711 million deficit for unrestricted net assets exists at fiscal year end, $4.170 billion is restricted for specific purposes (restricted net assets), and $12.993 billion is invested in capital assets, net of related debt. • The State’s total net assets increased in fiscal year 2005 by $1.671 billion. Net assets of governmental activities increased by $1.658 billion, while net assets of the business-type activities increased by $13.443 million. Fund Level: • As of the close of the fiscal year, the State’s governmental funds reported combined ending fund balances of $4.202 billion, an increase of $1.082 billion from the beginning of the year. Approximately 37% of the combined fund balances, or $1.561 billion, is available to meet the State’s current and future needs (unreserved fund balances). • As of the close of the fiscal year, unreserved fund balance for the General Fund was $986.168 million, or 6%, of total General Fund expenditures. • The enterprise funds reported net assets at year end of $2.522 billion, an increase of $28.279 million during the year. • The Land Endowments Fund reported fund balance at year end of $1.718 billion, an increase of $355.422 million during the year. The Land Endowments Fund is used to help finance public education within the State as required by the federal government and the State’s Constitution. Long-term Debt: • The State’s total long-term primary government debt increased during the fiscal year to $5.692 billion, an increase of $483.034 million, or 9%. During the year, the State issued revenue bonds and certificates of participation of $574.700 million and $843.799 million, respectively. More detailed information regarding the government-wide financial statements, fund level financial statements and long-term debt activity can be found beginning on page 25. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is an introduction to the State’s basic financial statements, which are comprised of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. Required Supplementary Information and other supplementary information are included in addition to the basic financial statements. Government-Wide Statements (Reporting the State as a Whole) The government-wide financial statements provide a broad overview of the State of Arizona’s finances in a manner similar to private sector business. The financial statements report information about the State, as a whole, and about its activities that should help answer this question: Is the State, as a whole, better or worse off as a result of this year’s activities? These statements include all non-fiduciary assets and liabilities using the accrual basis of accounting. The current year’s revenues and expenses are taken into account regardless of when cash is received or paid. The government-wide financial statements include the following: The Statement of Net Assets and the Statement of Financial Position (pages 40-42) presents all of the State’s assets and liabilities, with the difference between the two reported as net assets. Over time, increases and decreases in net assets measure whether the State’s financial position is improving or deteriorating. - 23 - The Statement of Activities (pages 44-46) presents information showing how the State’s net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying events giving rise to the change occur, regardless of the timing of related cash flows. Therefore, revenues and expenses are reported in these statements for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Both government-wide statements report three activities: • Governmental Activities – Most of the State’s basic services are reported under this category. Taxes and intergovernmental revenues generally fund these services. The Legislature, the Judiciary and the general operations of the Executive departments fall within the governmental activities. • Business-type Activities – The State charges fees to customers to help it cover all or most of the cost of certain services it provides. Lottery tickets, the State’s unemployment compensation services, Industrial Commission rehabilitation services, and the State’s three universities are examples of business-type activities. • Discretely Presented Component Units – Component units are legally separate organizations for which the elected officials of the State are financially accountable. The University Medical Center, the Arizona Power Authority, and the Water Infrastructure Finance Authority are discretely presented component units reported by the State. Based on GASB Statement No. 39, the State has added university foundations and financing authorities whose financial statements are prepared in conformity with U.S. generally accepted accounting principles as adopted by the Financial Accounting Standards Board. These organizations include the ASU Foundation, Arizona Capital Facilities Finance Corporation, the U of A Foundation, and other non-major foundations and financing authorities. Financial statements for these organizations are presented immediately following the government-wide statements to emphasize that they are prepared in accordance with accounting standards other than those promulgated by GASB, and include a statement of financial position (page 42) and a statement of activities (page 46). See pages 65-67 and 111-124 for more information on discretely presented component units. Fund Financial Statements (Reporting the State’s Major Funds) The fund financial statements begin on page 47 and provide detailed information about the major individual funds. A fund is a fiscal and accounting entity with a self-balancing set of accounts that the State uses to keep track of specific sources of funding and spending for a particular purpose. In addition to the major funds, page 158 begins the individual fund data for the non-major funds. The State’s funds are divided into three categories – governmental, proprietary, and fiduciary – each category uses different accounting approaches. • Governmental funds – Most of the State’s basic services are reported in the governmental funds, which focus on how money flows into and out of those funds and the balances left at year end that are available for future spending. The governmental fund financial statements provide a detailed short-term view of the State’s general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the State’s programs. These funds are reported using modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. Governmental funds include the general, special revenue, capital projects, debt service, and permanent funds. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. This report includes two schedules (pages 48 and 50) that reconcile the amounts reported on the governmental fund financial statements (modified accrual accounting) with governmental activities (accrual accounting) reported on the appropriate government-wide statement. Governmental fund financial statements can be found on pages 47 and 49 of this report. • Proprietary funds – When the State charges customers for the services it provides, whether to outside customers or to other agencies within the State, these services are generally reported in proprietary funds. Proprietary funds (enterprise and internal service) utilize accrual accounting; the same method used by private sector businesses. - 24 - Enterprise funds report activities that provide supplies and services to the general public – such as the State Lottery Fund and Universities. Internal service funds report activities that provide supplies and services for the State’s other programs and activities – such as the State’s Risk Management Fund. Internal service fund operations primarily benefit governmental funds and are reported as governmental activities on the government-wide statements. The reconciliation between the government-wide financial statement business-type activities and the proprietary fund financial statements is presented at the end of the financial statements on pages 54-57. Proprietary fund financial statements can be found on pages 52-61 of this report. • Fiduciary funds – The State acts as a trustee or fiduciary for its employee pension plans. It is also responsible for other assets that, because of a trust arrangement, can be used only for the trust beneficiaries. The State’s fiduciary activities are reported in separate Statements of Fiduciary Net Assets and Changes in Fiduciary Net Assets beginning on page 62. These funds, which include pension trust, investment trust and agency funds are reported using accrual accounting. The government-wide statements exclude fiduciary fund activities and balances because these assets are restricted in purpose and do not represent discretionary assets of the State to finance its operations. Fiduciary fund financial statements can be found on pages 62-63 of this report. Notes to the Financial Statements The Notes to the Financial Statements provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes can be found beginning on page 65 of this report. Required Supplementary Information Following the basic financial statements is additional Required Supplementary Information that further explains and supports the information in the financial statements. The Required Supplementary Information includes budgetary comparison schedules for the general fund and each major special revenue fund and a reconciliation of the schedules of statutory and U.S. GAAP expenditures for the fiscal year. This section also includes schedules of condition and maintenance data regarding certain portions of the State’s infrastructure and agent retirement plans’ funding progress schedules. Required supplementary information begins on page 127 of this report. Other Supplementary Information Other supplementary information includes combining financial statements for non-major governmental, non-major enterprise, all internal service funds, and all fiduciary funds. These funds are added together, by fund type, and presented in single columns in the basic financial statements, but are not reported individually, as are major funds on the governmental funds and proprietary funds financial statements. Budgetary expenditure comparison schedules for the non-major governmental funds are also included. Other supplementary information begins on page 158 of this report. GOVERNMENT-WIDE FINANCIAL ANALYSIS The State’s overall financial position and operations for the past year for the primary government are summarized as follows based on the information included in the government-wide financial statements. The fiscal year 2004 businesstype activities net assets amount has been restated due to changing a method of calculating depreciation on research buildings to a componentized method based on the estimated useful life of the building components. See Note 4, capital assets, on page 87 and Note 8, accounting changes and restatements, on page 105 for additional restatement information. - 25 - State of Arizona-Primary Government Net Assets as of June 30, 2005 and 2004 (expressed in thousands) Governmental Activities Current assets Capital assets Other non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets: Invested in capital assets, net of related debt Restricted net assets Unrestricted net assets Total net assets 2005 $ 3,503,360 14,012,830 2,955,282 20,471,472 2004 $ 2,802,208 13,389,970 2,441,674 18,633,852 2,069,865 4,049,808 6,119,673 2,212,000 3,728,379 5,940,379 Business-type Activities 2004, as 2005 restated $ 1,516,254 $ 1,428,582 2,677,802 2,366,582 1,063,599 1,052,549 5,257,655 4,847,713 484,636 2,268,310 2,752,946 423,720 1,932,727 2,356,447 11,825,961 11,226,325 1,166,954 2,938,288 2,100,575 1,232,016 (412,450) (633,427) 105,739 $ 14,351,799 $ 12,693,473 $ 2,504,709 1,163,539 1,190,250 137,477 $ 2,491,266 Primary Government Total 2004, as 2005 restated $ 5,019,614 $ 4,230,790 16,690,632 15,756,552 4,018,881 3,494,223 25,729,127 23,481,565 2,554,501 6,318,118 8,872,619 2,635,720 5,661,106 8,296,826 12,992,915 12,389,864 4,170,304 3,290,825 (306,711) (495,950) $ 16,856,508 $ 15,184,739 The largest portion of the State’s net assets (77%) represents capital assets, net of related debt of $12.993 billion. The State uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the State’s investment in its capital assets is reported net of accumulated depreciation and related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. The State’s net assets also include $4.170 billion (25%) of resources that are subject to external restrictions on how they may be used. The largest restrictions are by the State’s Constitution for basic education funded by the earnings of the Land Endowments Fund and unemployment insurance premiums from employers for funding the Unemployment Compensation Fund. Another major restriction is unspent debt instrument proceeds, primarily for the acquisition and construction of federal, state, and local highways. The remaining negative balance of the State’s net assets of $306.711 million (2%) represents unrestricted net assets, including restatements of beginning net assets. The State’s net assets increased by $1.671 billion during the current fiscal year. This increase is primarily caused by governmental activities increases for sales taxes, income taxes, capital assets, and sale of trust land. Additionally, net assets were further increased by business-type activities increases for the Universities and the Unemployment Compensation Funds. - 26 - State of Arizona-Primary Government Changes in Net Assets for Fiscal Years Ended June 30, 2005 and 2004 (expressed in thousands) Governmental Activities 2005 Revenues: Program revenues: Charges for services Operating grants and contributions Capital grants and contributions General revenues: Sales taxes Income taxes Tobacco taxes Property taxes Motor vehicle and fuel taxes Other taxes Unrestricted investment earnings Unrestricted grants and contributions Miscellaneous revenue Gain on sale of trust land Total revenues Expenses: General government Health and welfare Inspection and regulation Education Protection and safety Transportation Natural resources Intergovernmental revenue sharing Interest on long-term debt Universities Unemployment compensation Industrial Commission special fund Lottery Other business-type activities Total expenses $ 617,659 2004 $ 636,844 Business-type Activities 2004, as 2005 restated Primary Government Total 2004, as 2005 restated $ 1,701,249 $ 1,449,850 $ 2,318,908 $ 2,086,694 7,544,370 6,981,748 834,421 836,076 8,378,791 7,817,824 497,140 421,251 19,774 18,513 516,914 439,764 5,421,949 3,562,916 237,430 46,148 1,758,950 493,501 5,016,585 2,800,461 223,804 50,455 1,613,952 539,218 57,584 - 50,050 - 5,479,533 3,562,916 237,430 46,148 1,758,950 493,501 5,066,635 2,800,461 223,804 50,455 1,613,952 539,218 106,362 24,227 40,311 38,753 146,673 62,980 11,624 387,269 288,483 20,973,801 8,502 281,109 319,517 18,917,673 5 26,017 2,679,361 46,615 2,439,857 11,629 413,286 288,483 23,653,162 8,502 327,724 319,517 21,357,530 646,452 8,494,206 149,238 4,853,458 1,171,340 589,966 184,538 726,525 7,717,148 138,281 4,703,685 1,059,047 731,522 162,366 - - 646,452 8,494,206 149,238 4,853,458 1,171,340 589,966 184,538 726,525 7,717,148 138,281 4,703,685 1,059,047 731,522 162,366 2,335,828 182,852 - 2,144,438 176,035 - 2,540,193 292,127 2,355,418 397,657 2,335,828 182,852 2,540,193 292,127 2,144,438 176,035 2,355,418 397,657 18,607,878 17,559,047 106,295 317,226 120,629 3,376,470 167,331 303,996 109,944 3,334,346 106,295 317,226 120,629 21,984,348 167,331 303,996 109,944 20,893,393 (894,489) 1,668,814 464,137 2,231 2,955 2,231 (6,880) 678,726 (220,412) 2,711,678 2,491,266 1,671,769 15,184,739 $ 16,856,508 (6,880) 459,488 14,725,251 $ 15,184,739 Excess (deficiency) before contributions, special items and transfers 2,365,923 1,358,626 (697,109) Contributions to permanent endowments 2,955 Special item – voluntary retirement program for faculty Transfers (707,597) (678,726) 707,597 Change in net assets 1,658,326 679,900 13,443 Net assets - July 1, as restated 12,693,473 12,013,573 2,491,266 Net assets - June 30 $ 14,351,799 $ 12,693,473 $ 2,504,709 $ - 27 - Change in Net Assets Governmental Activities – Net assets increased by $1.658 billion, or 13%. This increase is primarily attributed to the increases in earned general tax revenues. Reported sales tax and income tax revenue increased by $405.364 million, or 8%, and $762.455 million, or 27%, as compared to fiscal year 2004, respectively. Several key elements led to this increase. The State ranked in the top five nationally in terms of annual percentage job growth as reported by Arizona’s Department of Economic Security, Research Administration. Aggregate personal income growth in Arizona, as reported by the Bureau of Economic Analysis, is vibrant, with growth in 2005 averaging about 9% on a year-over-year basis. Furthermore, population inflows have continued to outpace outflows, fueling the expanding economy. Additionally, the State’s improved efforts in tax enforcement resulted in the collection of $455.000 million for fiscal year 2005. Another significant contributor to the net asset increase was record auction sales of approximately 2,000 acres in State trust land for $288.483 million. Intense and competitive bidding of 18 land sale auctions raised total sales prices approximately $74.176 million above the appraised value of the land. Net asset increases were reduced by increases in long-term debt. The School Facilities Board issued revenue bonds in the amount of $246.600 million and certificates of participation in the amount of $571.850 million. The debt instruments are being issued to construct or repair K through 12 schools throughout the State and refund previously issued debt. Although the debt instruments are obligations of the State, the constructed and improved schools are the capital assets of the school districts, which are separate and sovereign governmental entities. For each dollar of debt proceeds expended on construction and repair of schools, the State’s governmental activities net assets are reduced by one dollar. A comparison of the cost of services by function, net of program revenues, for the State’s governmental activities is shown below for fiscal years 2005 and 2004. 2005 Governmental Activities (expressed in thousands) Expenses, Net of Program Revenues: General government Health and welfare Inspection and regulation Education Protection and safety Transportation Natural resources Intergovernmental revenue sharing Interest on long-term debt Total Governmental Activities Expenses, Net of Program Revenues - 28 - 2004 Governmental Activities (expressed in thousands) $ (367,749) (2,190,654) (1,262) (3,881,306) (924,270) 43,964 (108,752) (2,335,828) (182,852) $ (415,740) (1,871,192) 11,977 (3,820,842) (870,240) (152,047) (80,647) (2,144,438) (176,035) $ (9,948,709) $ (9,519,204) Expenses and Program Revenues Governmental Activities for Fiscal Year 2005 (in millions of dollars) Expenses D eb t g ng -te rm Lo to n In te re s In te rg o vt . R ev en ue Sh ar in ce s n tio al R es ou r N at ur sp or ta Tr an Sa fe ty & ec tio n Ed uc at io n Program Revenues Pr ot G en er al G ov er nm en H ea t lth & In W sp el ec fa t io re n & R eg ul at io n $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Business-type Activities – The net assets increased by $13.443 million, or 1%. This increase is primarily caused by the net increase of the Unemployment Compensation Fund of $24.264 million; a net increase in the Universities Fund of $32.367 million; and a decrease in the Industrial Commission’s Fund of $30.156 million. The increase in net assets from the Unemployment Compensation Fund was primarily caused by an increase in employer assessments, or higher contribution rates, and a decline in the unemployment rate. In addition, the increase in net assets for the Universities Fund was primarily attributed to an increase in the fair market value of endowments, student fees, new gifts, and state appropriations. Net asset increases were reduced by the Industrial Commission’s net assets decrease that resulted from workers’ compensation claims from insolvent insurance carriers during the year. The increase in insolvent insurers increased the Industrial Commission’s long-term liabilities. As allowed by Title 23 of the Arizona Revised Statutes, the Industrial Commission has assessed the State Compensation Fund, privately owned insurance companies, and all selfinsured plans that provide workers’ compensation insurance a two and one-half percent premium assessment for calendar year 2005, the largest amount currently authorized in Arizona law. A comparison of the cost of services by business-type, net of program revenues, for the State’s business-type activities is shown below for fiscal years 2004 and 2005. 2005 Business-type Activities (expressed in thousands) Expenses, Net of Program Revenues: Universities Unemployment Compensation Industrial Commission Special Fund Lottery Other Total Business-type Activities Expenses, Net of Program Revenues - 29 - 2004, as restated, Business-type Activities (expressed in thousands) $ (871,465) 25,969 (49,248) 80,335 (6,617) $ (828,962) (95,724) (162,189) 62,586 (5,618) $ (821,026) $ (1,029,907) FINANCIAL ANALYSIS OF THE STATE’S FUNDS The State uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds – The general government functions are contained in the general, special revenue, debt service, capital projects and permanent funds. The focus of the State’s governmental funds is to provide information on nearterm inflows, outflows, and balances of spendable resources. Such information is useful in assessing the State’s financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. General Fund The General Fund is the chief operating fund of the State. At June 30, 2005, unreserved fund balance of the General Fund was $986.168 million, while total fund balance closed the year at $1.310 billion. As a measure of the General Fund’s liquidity, it may be useful to compare both unreserved fund balance and total fund balance to total fund expenditures and other financing uses. Unreserved fund balance represents 6% of total expenditures and other financing uses, while total fund balance represents 8% of the same amount. The fund balance of the State’s General Fund increased by $563.764 million during the fiscal year. The primary source of the increase in fund balance is from the increase of sales tax and income tax revenues. Sales tax revenues increased $344.843 million from fiscal year 2004, an increase of 8%. Sales taxes paid by retail stores, construction contractors, restaurants and bars, and out-of-state companies increased approximately $155.000 million, $111.000 million, $29.000 million and $21.000 million, respectively, when compared to fiscal year 2004 sales tax receipts. Income tax revenues increased $709.789 million, an increase of 25%. Income taxes paid by individuals increased by approximately $530.000 million when compared to fiscal year 2004 individual income tax receipts. In addition, income taxes paid by businesses increased approximately $180.000 million during the same period. Health and welfare expenditures and intergovernmental revenue increased by $640.612 million, or 9%, and $477.182 million, or 7%, as compared to fiscal year 2004, respectively. Overall program enrollment growth of 11% in the State’s various healthcare programs, most significantly Title XIX Medicaid and the Title XXI State Children’s Health Insurance Program, was the main contributing factor to the growth in expenditures in fiscal year 2005. Additionally, increased expenditures resulted from rising cost of health care programs. Inflationary trends for health care costs are incorporated in the rate development process for the managed care organization capitation rates. Due to substantial increases in utilization and costs for pharmacy (37%), physician (21%), and transportation and inpatient (14%), the capitation rates were increased by an average of 6% for the contract period of October 2004 to September 2005. The State received additional federal grants and county funding to cover a major portion of these increased costs. Education expenditures increased $305.888 million, or 8%, compared to fiscal year 2004. The increase is primarily attributed to an increase in statewide enrollment of 41,000 from fiscal year 2004. Transportation and Aviation Planning, Highway Maintenance and Safety Fund The Transportation and Aviation Planning, Highway Maintenance and Safety Fund is responsible for repair and maintenance of existing roads, paying the debt service for roads that are built from the issuing of revenue bonds, and providing technical assistance with road construction provided by contractors hired by the Arizona Department of Transportation. Total fund balance increased $77.484 million during fiscal year 2005. The fund balance increase was primarily caused by a $28.206 million increase in sales taxes, a $145.258 million increase in motor vehicle and fuel taxes, and a $79.531 million increase in intergovernmental revenues. Fund balance was reduced by the 2004 Senate Bill 1413 which required an additional $118.000 million to be transferred from fuel tax revenues to the State’s General Fund. Further, there was also a $64.243 million increase in the distributions to Arizona counties and cities due to the increase in motor vehicle and fuel taxes. The fiscal year 2005 collections for sales taxes recorded the highest year-overyear growth since fiscal year 1996. The growth in sales taxes and motor vehicle and fuel taxes is due primarily to the increase in population, which tends to follow job growth. - 30 - Land Endowments Fund The fund was established when the federal government granted statehood. Both the State’s Constitution and the federal government require that the land grants given to the State be maintained indefinitely, and the earnings from the land grants should be used for public education, primarily K through 12 grades. The Land Endowments Fund total fund balance increased $355.422 million during fiscal year 2005. The net increase in the fair value of investments at fiscal year end was approximately $76.000 million. This increase was primarily due to the rise in stock values of the S&P 500 and S&P Mid Cap 400 Index Pools held by the State. Payments from the sale of trust land by the Land Department increased by approximately $125.126 million, from $149.001 million during fiscal year 2004 to $274.127 million during fiscal year 2005. This increase is primarily the result of land contract payoffs that occurred for sales in prior fiscal years. Proprietary funds The business-type activities discussion for the fund level financial statements of the State’s enterprise funds provide the same type of information found in the government-wide financial statements analysis on page 29. GENERAL FUND BUDGETARY HIGHLIGHTS During the fiscal year, the original budget was amended by various supplemental appropriations and appropriation revisions. Budgetary Comparison Schedules for the major governmental funds are in the Required Supplementary Information section beginning on page 127. Differences between the original budget and the final amended budget resulted in a $774.395 million increase in appropriations for the General Fund. The following comments summarize current year budgetary results: • Some of the primary reasons for the General Fund appropriations $774.395 million increase are 1) $10.611 million of prior year obligations that are expended in the current year as allowed by §ARS 35-191; 2) $191.294 million for the Department of Education’s deferral of Basic State Aid and Additional State Aid payments to school districts; 3) $199.554 million for the Arizona Health Care Cost Containment System’s enrollment growth of 11% for the Acute Base and Proposition 204 capitation costs programs; 4) $88.056 million for the Department of Health Services’ increased expenditure authorizations for Behavioral Health and Children Rehabilitative Services programs; and 5) $75.000 million for the School Facilities Board’s Deficiencies Correction Fund adjustment. The original General Fund appropriation total was $12.268 billion. The final General Fund appropriation total was $13.043 billion. • The difference between the final budget and actual expenditures was $368.821 million. Of this amount, $55.727 million will continue as legislative multiple fiscal year spending authority for fiscal year 2006 and beyond, depending upon the budgetary guidelines of the Legislature. The remaining $313.094 million represents the unused portion of the State’s legislatively authorized annual operating budget. Additional budgetary information can be found on pages 146-147 of this report. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital assets: The State’s investment in capital assets for its governmental and business-type activities as of June 30, 2005 totaled $16.691 billion, net of accumulated depreciation. The total primary government increase in capital assets for the current period was 6%, with a 5% increase in capital assets used for governmental activities and a 13% increase for businesstype activities. Depreciation charges of the governmental and business-type activities for the fiscal year totaled $268.327 million. Major capital assets activity during the current fiscal year included the following: • The Universities’ additions to capital assets totaled approximately $490.038 million and included increased investment in research facilities. - 31 - • The Department of Transportation started or completed roads and bridges totaling $894.854 million during the fiscal year. For government-wide financial statement presentation, all depreciable assets were depreciated from acquisition date to the end of the current fiscal year. Capital asset purchases of the governmental funds are reported in the fund financial statements as expenditures. Capital assets for the governmental and business-type activities as of June 30, 2005 are presented below (amounts in thousands): Governmental Activities Land Buildings Improvements other than buildings Equipment Collections (non-depreciable) Infrastructure Construction in progress Less accumulated depreciation Total Business-type Activities 2004, as 2005 restated $ 143,195 $ 135,715 2,709,694 2,488,685 Total 2005 $ 2,124,173 4,225,037 2004, as restated $ 2,094,542 3,976,878 2,493 1,063,060 146,163 1,775,123 142,522 1,699,582 33,130 289,215 284,181 31,054 246,791 160,275 33,130 9,159,447 2,069,532 31,054 8,844,766 1,616,988 (1,893,919) $ 2,677,802 (1,761,491) $ 2,366,582 (2,841,973) $ 16,690,632 (2,649,780) $ 15,756,552 2005 $ 1,980,978 1,515,343 2004 $ 1,958,827 1,488,193 142,563 666,417 140,029 636,522 3,600 1,108,706 8,870,232 1,785,351 8,597,975 1,456,713 (948,054) $ 14,012,830 (888,289) $ 13,389,970 See Note 4, capital assets, beginning on page 87 for additional capital asset data and Note 8, accounting changes and restatements, on page 105 for information concerning Arizona State University changing its depreciation method to a componentized method. As provided by GASB 34, the State has elected to record its infrastructure assets, that the Department of Transportation is responsible for maintaining, using the modified approach. Assets accounted for under the modified approach include approximately 6,816 center lane miles (18,424 travel lane miles) and 4,608 bridges (approximate total deck area of 42.0 million square feet). The State 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 State serviceability rating goal is 3.23 for the overall system. The most recent assessment indicated that an overall rating of 3.8 was achieved for fiscal year end 2005. The State manages its bridges using the Arizona Bridge Information and Storage System (ABISS). The State determines the condition rating based on standards developed by the Federal Highway Administration and additional internal criteria. It is the policy of the State to maintain a Condition Rating Index (CRI) of 93% or better. In fiscal year 2005, a CRI of 94% was obtained. - 32 - In addition to many smaller projects, each of the following major highway construction projects in excess of $20 million were started during fiscal year 2005 (amounts in thousands): Project Description Construction of State Route Loop 202 from Frye Road to Power Road in Maricopa County. Construction of State Route Loop 202 from Gilbert Road to Frye Road in Maricopa County. Construction on Interstate 60 at 59th Avenue and Glendale Avenue in Maricopa County. Construction at the interchange of State Route Loop 202 and Interstate 60 in Maricopa County. Contract Start 09/20/2004 Contract Amount $ 58,869 Current Year Expenditures $ 21,747 11/10/2004 $ 50,458 $ 17,461 11/22/2004 $ 25,996 $ 5,005 04/18/2005 $ 71,375 $ 3,848 In addition to many smaller projects, the following major highway construction projects had expenditures in excess of $15 million in fiscal year 2005 (amounts in thousands): Project Description Construction of State Route Loop 202 from Power Road to Elliot Road in Maricopa County. Construction on State Route Loop 202 from Arizona Avenue to Gilbert Road in Maricopa County. Construction of State Route Loop 202 from Frye Road to Power Road in Maricopa County. Construction on State Route Loop 202 from Elliot Road to Baseline Road in Maricopa County. Construction of State Route Loop 202 from Gilbert Road to Frye Road in Maricopa County. Construction on State Route 85 to add a parallel road between Gila Bend and Interstate 10 to improve capacity and safety in Maricopa County. Construction on State Route Loop 202 from Dobson Road to Arizona Avenue in Maricopa County. Construction on State Route Loop 202 west of Higley Road to Power Road in Maricopa County. Construction at the interchange of State Route Loop 202 and Interstate 60 in Maricopa County. Construction on the Burro Creek Section of US 93 in Mohave County. Construction on State Route 51 from Interstate 10 to Shea Boulevard in Maricopa County. Project Expenditures $ 34,236 $ 32,571 $ 28,601 $ 24,317 $ 23,689 $ 23,319 $ 20,601 $ 19,690 $ 17,818 $ 16,898 $ 15,453 Capital assets financed by debt instruments do not generate funds to repay the debt instruments. More detailed information regarding capital assets are on pages 87 and 88. Long-term debt: The State issues no general obligation debt instruments. The Arizona Constitution, under Article 9, Section 5, provides that the State may contract debts not to exceed $350 thousand. This provision has been interpreted to restrict the State from pledging its credit as a sole payment for debts incurred for the operation of the State government. As a result, the State pledges either dedicated revenue streams or the constructed building or equipment acquired as security for the repayment of long-term debt instruments. - 33 - Major long-term debt activity during the current fiscal year included the following: • The Department of Transportation issued revenue bonds for $188.260 million to (i) finance portions of the Transportation Board’s Five Year Transportation Facilities Construction Program, (ii) pay costs of issuing the bonds, and (iii) pay interest on any bonds issued for highway purposes. • The School Facilities Board issued $246.600 million of revenue bonds for school repairs at K through 12 public schools throughout the State, to refund previously issued debt, and pay the cost of issuing the bonds. • The Universities issued revenue bonds for $139.840 million primarily to fund the acquisition, construction or renovation of capital facilities, and information technology and telecommunications upgrade projects. Further, proceeds were used to refund previously issued debt with a total outstanding principal balance of $100.440 million. • The Department of Transportation issued $104.385 million of grant anticipation notes to (i) pay costs of the projects (as specified), (ii) pay costs of issuing the notes, and (iii) pay interest on the notes. • The School Facilities Board issued $571.850 million of certificates of participation to acquire and construct leasehold interests in new schools. The schools will be subleased to various school districts. At no time during the construction and sublease of the schools will the leasehold improvements be reported as assets of the State government. Further, proceeds were used to refund previously issued debt with a total outstanding principal balance of $332.020 million, pay the cost of issuing the certificates of participation, and pay capitalized interest. • Universities issued $271.800 million of certificates of participation primarily for construction and building renewal projects and early redemption of certificates of participation prior to maturity. State of Arizona-Primary Government Outstanding Long-Term Debt as of June 30, 2005 (expressed in thousands) Revenue Bonds Grant Anticipation Notes Certificates of Participation Total Governmental Activities Business-type Activities Total 2005 2004 2005 2004 2005 $ 2,170,845 $ 2,278,225 $ 768,000 $ 756,781 $ 2,938,845 $ 363,970 308,585 363,970 1,054,677 845,804 860,759 641,315 1,915,436 $ 3,589,492 $ 3,432,614 $ 1,628,759 $ 1,398,096 $ 5,218,251 $ 2004 3,035,006 308,585 1,487,119 4,830,710 More detailed information regarding long-term debt begins on page 92. ECONOMIC CONDITION AND OUTLOOK The Arizona Department of Economic Security Research Administration’s forecast update calls for Arizona’s economy to continue expanding through the forecast period of 2005-06. Arizona’s non-farm jobs are forecast to grow by 5% in 2005 and 4% in 2006. Over the two-year period, non-farm job growth is forecast to total more than 202,000 jobs. During the forecast period, some issues will continue to capture attention and restrain the growth of the State’s economy. Potentially, slower expansion could be the result of higher-than-anticipated energy costs that have eroded consumer purchasing power and elevated business costs. Also, rising interest rates, a special concern, will make servicing high levels of consumer and federal government debt more expensive and crowd out other types of spending. - 34 - CONTACTING THE STATE COMPTROLLER’S OFFICE This financial report is designed to provide citizens, taxpayers, customers, investors, and creditors with a general overview of the State’s finances and to demonstrate the State’s accountability for the money it receives. If you have any questions about this report or need additional financial information, contact the Department of Administration, General Accounting Office, Financial Reporting Section at (602) 542-5405. You may also access and print this report at http://www.gao.state.az.us/financials/. The State’s component units issue their own separately issued audited financial statements. These statements may be obtained by directly contacting the component unit. Contact information regarding the component units begins on page 65. - 35 - BASIC FINANCIAL STATEMENTS BASIC FINANCIAL STATEMENTS (This page intentionally left blank) STATE OF ARIZONA STATEMENT OF NET ASSETS JUNE 30, 2005 (Expressed in Thousands) PRIMARY GOVERNMENT TOTAL PRIMARY GOVERNMENT GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES ASSETS Current Assets: Cash Cash with U.S. Treasury Cash and pooled investments with State Treasurer Restricted cash and pooled investments with State Treasurer Cash held by trustee Collateral investment pool Short-term investments Restricted investments held by trustee Receivables, net of allowances: Taxes Interest Loans and notes Other Internal balances Due from U.S. Government Due from local governments Due from others Inventories, at cost Other current assets Total Current Assets $ $ - $ 78,487 770,931 188,504 $ 94,906 83,725 87,977 - 468,210 20,278 19,658 163,490 89,680 356,231 1,489 343 18,666 8,880 3,503,360 Noncurrent Assets: Restricted assets: Cash Cash and pooled investments with State Treasurer Cash held by trustee Investments Investments held by trustee Receivables, net of allowances: Loans and notes Other Securities held in escheat Investments Endowment investments Other noncurrent assets Capital assets: Infrastructure, land and other non-depreciable Depreciable buildings, property and equipment, net of accumulated depreciation Total Noncurrent Assets Total Assets 3,950 2,352,485 69,240 3,299 14,147 112,893 (89,680) 67,126 203 30,403 4,093 1,516,254 82,437 770,931 2,540,989 COMPONENT UNITS $ 18,056 137,213 94,906 83,725 87,977 - 16,126 60,374 2,426 537,450 23,577 33,805 276,383 423,357 1,692 343 49,069 12,973 5,019,614 5,477 62,581 10,027 755 313,035 1,514 676,466 77,152 2,586 - 187,577 2,689 54,998 28,062 101,986 189,091 679,155 132,150 30,648 101,986 40,938 424,175 52,198 1,721,191 - 43,952 7,071 367,282 253,086 16,896 468,127 7,071 52,198 367,282 1,974,277 16,896 489,072 68,082 50,633 12,629,957 460,506 13,090,463 13,236 1,382,873 16,968,112 2,217,296 3,741,401 3,600,169 20,709,513 92,143 754,104 20,471,472 $ The Notes to the Financial Statements are an integral part of this statement. 5,257,655 $ 25,729,127 $ 1,067,139 (Continued) - 40 - STATE OF ARIZONA STATEMENT OF NET ASSETS JUNE 30, 2005 (Expressed in Thousands) PRIMARY GOVERNMENT TOTAL PRIMARY GOVERNMENT GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES LIABILITIES Current Liabilities: Accounts payable and other current liabilities Accrued liabilities Obligations under securities loan agreements Tax refunds payable Due to U.S. Government Due to local governments Due to others Unearned deferred revenue Current portion of accrued insurance losses Current portion of long-term debt Current portion of other long-term liabilities Total Current Liabilities $ 471,183 420,857 53 28,678 437,032 87,797 93,384 52,233 272,956 205,692 2,069,865 $ 86,509 57,744 83,725 64 11 4,634 61,055 90,452 31,796 58,283 10,363 484,636 $ 557,692 478,601 83,725 117 28,689 441,666 148,852 183,836 84,029 331,239 216,055 2,554,501 COMPONENT UNITS $ 27,239 18,559 4,673 35,355 3,428 89,254 Noncurrent Liabilities: Unearned deferred revenue Contracts payable Accrued insurance losses Funds held for others Long-term debt Other long-term liabilities Total Noncurrent Liabilities 6,297 48,079 249,367 3,647,617 98,448 4,049,808 39,670 429,802 39,927 1,713,455 45,456 2,268,310 45,967 48,079 679,169 39,927 5,361,072 143,904 6,318,118 2,022 8,353 544,783 10,548 565,706 Total Liabilities 6,119,673 2,752,946 8,872,619 654,960 11,825,961 1,166,954 12,992,915 20,078 102,794 548,488 28,708 2,657 820,383 8,203 102,794 551,145 820,383 36,911 14,603 5,106 2,164,200 171,976 163,922 177,082 2,328,122 - NET ASSETS Invested in capital assets, net of related debt Restricted for: Federal grants Capital projects Unemployment compensation Debt service Permanent funds and University funds: Expendable Nonexpendable Loans and other financial assistance: Expendable Other purposes Unrestricted (deficit) Total Net Assets 88,992 (412,450) $ 14,351,799 64,875 105,739 $ The Notes to the Financial Statements are an integral part of this statement. - 41 - 2,504,709 64,875 88,992 (306,711) $ 16,856,508 240,080 137,418 $ 412,179 STATE OF ARIZONA STATEMENT OF FINANCIAL POSITION UNIVERSITIES - AFFILIATED COMPONENT UNITS JUNE 30, 2005 (Expressed in Thousands) ASSETS Cash and cash equivalent investments $ 51,082 Receivables: Pledges receivable Other receivables Total receivables 115,816 12,498 128,314 Investments: Investments in securities Investments held in trust for Universities Other investments Total investments 671,000 56,770 132,807 860,577 Net direct financing leases Property and equipment, net of accumulated depreciation Other assets 48,260 164,742 50,629 Total Assets 1,303,604 LIABILITIES Liability under Universities' endowment trust agreements Bonds payable Unearned revenue Other liabilities 82,296 325,168 51,956 57,268 Total Liabilities 516,688 NET ASSETS Permanently restricted Temporarily restricted Unrestricted Total Net Assets 468,308 264,487 54,121 $ 786,916 The Notes to the Financial Statements are an integral part of this statement. - 42 - (This page intentionally left blank) STATE OF ARIZONA STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2005 (Expressed in Thousands) PROGRAM REVENUES EXPENSES FUNCTIONS/PROGRAMS PRIMARY GOVERNMENT: Governmental Activities: General government Health and welfare Inspection and regulation Education Protection and safety Transportation Natural resources Intergovernmental revenue sharing Interest on long-term debt Total Governmental Activities $ Business-type Activities: Universities Unemployment compensation Industrial Commission special fund Lottery Other Total Business-type Activities Total Primary Government COMPONENT UNITS: Water Infrastructure Finance Authority University Medical Center Arizona Power Authority Total Component Units 646,452 8,494,206 149,238 4,853,458 1,171,340 589,966 184,538 2,335,828 182,852 18,607,878 OPERATING GRANTS AND CONTRIBUTIONS CHARGES FOR SERVICES $ 2,540,193 292,127 106,295 317,226 120,629 3,376,470 139,486 78,611 133,073 41,073 98,111 88,296 39,009 617,659 $ 863,042 270,610 57,047 397,561 112,989 1,701,249 139,217 6,224,941 14,903 931,079 148,959 48,937 36,334 7,544,370 CAPITAL GRANTS AND CONTRIBUTIONS $ 785,912 47,486 1,023 834,421 496,697 443 497,140 19,774 19,774 $ 21,984,348 $ 2,318,908 $ 8,378,791 $ 516,914 $ 19,928 354,885 27,869 $ 14,763 372,813 26,472 $ 7,339 - $ - $ 402,682 $ 414,048 $ 7,339 $ - General Revenues: Taxes: Sales Income Tobacco Property Motor vehicle and fuel Other Unrestricted investment earnings Unrestricted grants and contributions Miscellaneous Contributions to permanent endowments Gain on sale of trust land Transfers Total General Revenues, Contributions, Gains and Transfers Change in Net Assets Net Assets - Beginning, as restated Net Assets - Ending The Notes to the Financial Statements are an integral part of this statement. - 44 - NET (EXPENSE) REVENUE AND CHANGES IN NET ASSETS PRIMARY GOVERNMENT TOTAL GOVERNMENTAL BUSINESS-TYPE PRIMARY COMPONENT ACTIVITIES ACTIVITIES GOVERNMENT UNITS $ (367,749) (2,190,654) (1,262) (3,881,306) (924,270) 43,964 (108,752) (2,335,828) (182,852) (9,948,709) $ $ (9,948,709) (367,749) (2,190,654) (1,262) (3,881,306) (924,270) 43,964 (108,752) (2,335,828) (182,852) (9,948,709) (871,465) 25,969 (49,248) 80,335 (6,617) (821,026) (871,465) 25,969 (49,248) 80,335 (6,617) (821,026) (821,026) (10,769,735) $ 2,174 17,928 (1,397) 18,705 5,421,949 3,562,916 237,430 46,148 1,758,950 493,501 106,362 11,624 387,269 288,483 (707,597) 11,607,035 1,658,326 12,693,473 $ 14,351,799 57,584 40,311 5 26,017 2,955 707,597 834,469 13,443 2,491,266 $ 2,504,709 5,479,533 3,562,916 237,430 46,148 1,758,950 493,501 146,673 11,629 413,286 2,955 288,483 12,441,504 1,671,769 15,184,739 $ 16,856,508 14,160 26 14,186 32,891 379,288 $ 412,179 - 45 - STATE OF ARIZONA STATEMENT OF ACTIVITIES UNIVERSITIES - AFFILIATED COMPONENT UNITS JUNE 30, 2005 (Expressed in Thousands) UNRESTRICTED REVENUES Contributions Rental revenue Sales and services Net investment income Reclassification of donor intent Net assets released from restrictions Capital lease revenue Other revenues $ Total Revenues EXPENSES Program services: Payments to Universities Leasing related expenses Payments on behalf of Universities Other program services Personal services, operations, and administrative expenses Fundraising expenses Interest Assets expensed under capital lease agreement Other expenses Total Expenses Increase in Net Assets Before Extraordinary Items Extraordinary items (primarily early extinguishment of debt) PERMANENTLY RESTRICTED RESTRICTED $ 76,455 $ 10,043 9,829 (73,963) 11,406 35,053 $ 23,948 (9,829) (4,703) 208 144,259 21,378 7,404 42,089 13,225 40,314 33,770 44,677 268,669 56,630 5,959 19,301 18,766 - - 56,630 5,959 19,301 18,766 23,930 10,692 6,045 - - 23,930 10,692 6,045 12,242 12,005 - - 12,242 12,005 165,570 - - 165,570 24,652 33,770 44,677 103,099 - - (2,899) 44,677 423,206 425 100,200 686,716 - 21,753 32,430 (62) $ TOTAL 190,222 (2,899) Increase in Net Assets After Extraordinary Items Net Assets - Beginning, as restated Transfers Net Assets - Ending 32,751 21,378 7,404 8,098 78,666 13,225 28,700 TEMPORARILY 54,121 33,770 231,080 (363) $ 264,487 The Notes to the Financial Statements are an integral part of this statement. - 46 - $ 468,308 $ 786,916 STATE OF ARIZONA BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2005 (Expressed in Thousands) TRANSPORTATION & GENERAL FUND ASSETS Cash Cash and pooled investments with State Treasurer Receivables, net of allowances: Taxes Interest Loans and notes Other Due from U.S. Government Due from local governments Due from others Due from other Funds Inventories, at cost Restricted assets: Cash Cash and pooled investments with State Treasurer Cash held by trustee Investments Securities held in escheat Endowment investments Other Total Assets LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and other current liabilities Accrued liabilities Tax refunds payable Due to U.S. Government Due to local governments Due to others Due to other Funds Unavailable deferred revenue Unearned deferred revenue Total Liabilities $ OTHER GOVERNMENTAL FUNDS $ $ - $ 28 2,214 TOTAL $ 3,950 1,335,586 190,015 39,174 678,309 2,243,084 390,138 13,083 71,419 140,487 1,448 265,187 8,070 60,057 1,049 27,843 40,074 41 20,000 5,231 4,359 443,833 4,820 1,458 - 18,015 1,775 22,215 343 62,871 2,547 468,210 20,266 443,833 126,297 180,561 1,489 343 349,516 15,848 1,514 - - - 1,514 55,480 73,149 2,586 52,198 356 473,761 - 1,721,191 - 147,225 4,003 1 676,466 77,152 2,586 52,198 1,721,191 357 $ 2,412,409 $ 818,071 $ 2,214,863 $ 939,518 $ 6,384,861 $ 243,244 167,854 53 8,685 266,206 87,293 45,857 209,423 73,392 1,102,007 $ 94,699 9,463 127,738 181,981 5,586 419,467 $ 1,156 1 18,739 451,711 25,661 497,268 $ 71,706 14,243 43,088 503 32,776 1,547 628 164,491 $ 410,805 191,560 53 8,685 437,032 87,797 279,353 668,267 99,681 2,183,233 Fund Balances: Reserved for: Budget stabilization fund Highway construction Other construction School facilities improvements Permanent funds Continuing appropriations Debt service Other fund balance reservations Unreserved Unreserved reported in: Non-major special revenue funds Total Fund Balances Total Liabilities and Fund Balances 1,708 AVIATION PLANNING, HIGHWAY LAND MAINTENANCE & ENDOWMENTS SAFETY FUND FUND $ 160,873 107,260 55,727 374 986,168 286,451 82,443 25,231 4,479 1,716,404 1,191 - 132,621 7,307 5,386 37,118 21,992 144 - 160,873 419,072 7,307 112,646 1,716,404 176,479 21,992 25,749 990,647 1,310,402 398,604 1,717,595 570,459 775,027 570,459 4,201,628 2,412,409 $ 818,071 $ 2,214,863 The Notes to the Financial Statements are an integral part of this statement. - 47 - $ 939,518 $ 6,384,861 STATE OF ARIZONA RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2005 (Expressed in Thousands) Total fund balances - governmental funds $ 4,201,628 Amounts reported for governmental activities in the Statement of Net Assets are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds. 13,949,467 Long-term receivables are not available to pay for current period expenditures and, therefore, are deferred in the funds. 668,267 Certain receivables related to reimbursements are not available at year end and, therefore, are not reported in the funds. 26,019 Internal service funds are used by management to charge the costs of certain activities to individual funds. The assets and liabilities of the internal service funds are included in governmental activities in the Statement of Net Assets. (188,822) The allocation of internal service fund net loss results in an amount due from business-type activities, which is not reported in the funds. 17,450 Deferred issue costs are reported as current expenditures in the funds. However, deferred issue costs are amortized over the life of the bonds and are included in the governmental activities in the Statement of Net Assets. 6,375 Long-term debt is not due and payable from current financial resources and, therefore, is not reported in the funds. These amounts consist of: Revenue bonds Premium on revenue bonds Grant anticipation notes Certificates of participation Premium on certificates of participation Capital leases Installment purchase contracts (2,170,845) (131,385) (363,970) (1,054,677) (66,094) (120,766) (6,926) (3,914,663) Accrued liabilities for AHCCCS programmatic costs and reimbursements are not due and payable from current financial resources and, therefore, are not reported in the funds. (250,741) Accrued long-term contract payable to Accenture is not due and payable from current financial resources and, therefore, is not reported in the funds. (48,079) Other long-term liabilities are not due and payable from current financial resources and, therefore, are not reported in the funds. Those liabilities consist of: Compensated absences Claims and judgments (141,733) (150,905) (292,638) 174,245 3,291 177,536 Other long-term assets are not available to pay for current-period expenditures and, therefore, are not reported in the funds. Those assets consist of: AHCCCS programmatic cost reimbursements Other long-term assets Net assets of governmental activities $ The Notes to the Financial Statements are an integral part of this statement. - 48 - 14,351,799 STATE OF ARIZONA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2005 (Expressed in Thousands) GENERAL FUND REVENUES Taxes: Sales Income Tobacco Property Motor vehicle and fuel Other Intergovernmental Licenses, fees and permits Earnings on investments Sales and charges for services Fines, forfeitures and penalties Gaming Tobacco settlement Other Total Revenues $ EXPENDITURES Current: General government Health and welfare Inspection and regulation Education Protection and safety Transportation Natural resources Intergovernmental revenue sharing Debt service: Principal Interest and other fiscal charges Capital outlay Total Expenditures Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers in Transfers out Proceeds from sale of trust land Capital lease and installment purchase contracts Refunding bonds issued Payment to refunded bond escrow agent Bonds issued Premium on bonds issued Grant anticipation notes issued Premium on grant anticipation notes issued Refunding certificates of participation issued Payment to refunded certificates of participation escrow agent Certificates of participation issued Premium on certificates of participation issued Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ TRANSPORTATION & AVIATION PLANNING, HIGHWAY LAND MAINTENANCE & ENDOWMENTS SAFETY FUND FUND OTHER GOVERNMENTAL FUNDS $ $ 4,546,492 3,528,522 60,859 29,055 629 395,335 7,132,985 91,278 59,454 85,356 16,285 4,760 93,933 288,327 16,333,270 316,806 13,180 1,758,321 544,909 81,814 15,182 919 28,797 2,759,928 $ 6 84,221 20,489 23,436 128,152 547,085 43 176,571 3,913 98,166 36,112 162,668 31,642 47,487 104,838 62,898 89,537 1,360,960 TOTAL $ 5,410,383 3,528,565 237,430 46,148 1,758,950 493,501 7,714,012 335,760 190,499 154,251 121,123 67,658 93,933 430,097 20,582,310 662,139 8,088,851 47,809 4,333,786 1,025,226 72 54,438 1,248,817 48 533,971 1,087,011 274 3,333 46,455 2,141 - 95,736 327,729 98,714 471,858 105,058 30,531 121,155 - 758,149 8,419,913 146,523 4,852,099 1,132,473 564,574 175,593 2,335,828 23,053 45,114 40,299 15,569,604 312 2,522 387,423 2,011,287 990 53,193 358,147 153,095 281,976 2,043,999 381,512 200,731 710,688 19,678,083 763,666 748,641 74,959 (683,039) 374,992 (839,037) 5,038 334,225 8,236 (679,705) 312 - 6,670 (334) 274,127 - 621,558 (195,486) 224,283 (247,417) 210,577 38,651 104,385 11,551 - 1,011,456 (1,714,562) 274,127 5,350 224,283 (247,417) 210,577 38,651 104,385 11,551 334,225 (363,052) 237,625 50,307 (199,902) 563,764 746,638 (671,157) 77,484 321,120 768,102 85,063 689,964 (363,052) 237,625 50,307 177,506 1,081,733 3,119,895 1,310,402 $ 398,604 280,463 355,422 1,362,173 $ The Notes to the Financial Statements are an integral part of this statement. - 49 - 1,717,595 $ 775,027 904,227 $ 4,201,628 STATE OF ARIZONA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2005 (Expressed in Thousands) Net change in fund balances - total governmental funds $ 1,081,733 Amounts reported for governmental activities in the Statement of Activities are different because: Capital outlays are reported as expenditures in governmental funds. However, in the Statement of Activities, the cost of assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays exceeded depreciation in the current period. Capital outlay 710,688 Depreciation expense (86,888) 623,800 The net loss of internal service funds that is included with governmental activities in the Statement of Activities. (33,178) Some revenues reported in the Statement of Activities are not currently available at yearend and are not reported as revenue in the governmental funds. Operating grants 70,788 Sales taxes 11,566 Income taxes 34,351 Other revenue 4,646 121,351 Certain revenue refunds due to the Federal Government at year-end are not payable from current financial resources and, therefore, are not reported as revenue reductions in the governmental funds. (19,616) Trust land sales are financed with long-term mortgages. In the Statement of Activities, the gain on sale of trust land is reported, whereas in the governmental funds, the proceeds from the collection of mortgage payments are reported. 14,356 Some expenses reported in the Statement of Activities do not require the use of current financial resources and, therefore, are not reported as expenditures in the governmental funds. Accrued contract payable (8,529) AHCCCS accrued programmatic costs (77,821) Compensated absences (6,303) Other noncurrent expenses (10,530) The Notes to the Financial Statements are an integral part of this statement. (103,183) (Continued) - 50 - STATE OF ARIZONA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2005 (Expressed in Thousands) Certain expenditures that are reported in the funds in the current year, but were incurred in prior fiscal years, are not reported in the Statement of Activities. Ladewig vs. State of Arizona lawsuit 133,125 Schofield vs. State of Arizona lawsuit 12,700 145,825 Certain refunds due from vendors are not currently available at year-end and are not reported as expenditure reductions in the governmental funds. 26,019 The estimated liability for the Ladewig vs. State of Arizona lawsuit, which was accrued at the government-wide level in fiscal year 2004, has been revised, in the State's favor, in fiscal year 2005. This accrual was not financed from current financial resources in fiscal year 2004 and, therefore, was not reported in the fund statements in fiscal year 2004. 7,716 Bond proceeds provide current financial resources to the governmental funds; however, issuing debt increases long-term liabilities in the Statement of Net Assets. In the current period, proceeds were received from: New bonds issued (210,577) Refunding bonds issued (224,283) Premium on bonds/grant anticipation notes issued Bond premium/discount amortization (50,202) 11,135 New certificates of participation issued (237,625) Premium on COPs issued (50,307) COP premium amortization 5,228 Refunding certificates of participation issued (334,225) Grant anticipation notes issued (104,385) (1,195,241) Repayment of long-term debt is reported as an expenditure in governmental funds, but the repayment reduces noncurrent liabilities in the Statement of Net Assets. In the current year, these amounts consist of: Debt service principal 381,512 Payment to refunded bond escrow agent 247,417 Payment to refunded certificates of participation escrow agent 363,052 Bond issuance costs 2,113 994,094 Some capital asset additions were financed through capital leases and installment purchase contracts. Such financing arrangements are reported as an other financing source in the governmental funds, however, these amounts are reported as liabilities in the Statement of Net Assets. (5,350) Change in net assets of governmental activities $ The Notes to the Financial Statements are an integral part of this statement. - 51 - 1,658,326 STATE OF ARIZONA STATEMENT OF NET ASSETS PROPRIETARY FUNDS JUNE 30, 2005 (Expressed in Thousands) UNIVERSITIES ASSETS Current Assets: Cash $ Cash with U.S. Treasury Cash and pooled investments with State Treasurer Restricted cash and pooled investments with State Treasurer Collateral investment pool Short-term investments Receivables, net of allowances: Taxes Interest Loans and notes Other Due from U.S. Government Due from local governments Due from other Funds Inventories, at cost Other current assets Total Current Assets Noncurrent Assets: Restricted assets: Cash Cash and pooled investments with State Treasurer Cash held by trustee Investments Investments held by trustee Receivables, net of allowances: Loans and notes Other Investments Endowment investments Other long-term assets Capital assets: Infrastructure, land and other non-depreciable Depreciable buildings, property and equipment, net of accumulated depreciation Total Noncurrent Assets Total Assets 71,204 115,305 BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS INDUSTRIAL UNEMPLOYMENT COMMISSION COMPENSATION SPECIAL FUND LOTTERY $ 770,931 - $ 6,850 2,089 $ OTHER 50,135 $ 433 20,975 36,786 87,936 - 46,939 - - 94,906 41 830 4,128 88,076 67,022 19,814 3,521 494,622 63,911 9,615 844,457 5,329 2,172 2,487 65,866 6,388 2,327 58,850 297 10,019 6,327 104 203 114,547 8,262 572 256,686 187,577 - - - - 54,998 28,062 98,837 - 3,149 - 2,689 - 29,055 7,071 137,612 253,086 10,093 - 229,670 - 6,730 14,897 73 454,572 - 2,996 938 2,000 2,177,629 3,438,592 3,933,214 844,457 19,502 255,317 321,183 2,502 10,170 69,020 17,663 37,322 294,008 The Notes to the Financial Statements are an integral part of this statement. - 52 - TOTAL ENTERPRISE FUNDS $ 78,487 770,931 188,504 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS $ 109,400 94,906 83,725 87,977 - 69,240 3,299 14,147 112,893 67,126 203 114,547 30,403 4,093 1,720,481 11 11,177 2,758 2,818 2,148 128,312 187,577 - 2,689 54,998 28,062 101,986 - 43,952 7,071 367,282 253,086 16,896 - 460,506 - 2,217,296 3,741,401 5,461,882 63,363 63,363 191,675 (Continued) - 53 - STATE OF ARIZONA STATEMENT OF NET ASSETS PROPRIETARY FUNDS JUNE 30, 2005 (Expressed in Thousands) UNIVERSITIES LIABILITIES Current Liabilities: Accounts payable and other current liabilities Accrued liabilities Obligations under securities loan agreements Tax refunds payable Due to U.S. Government Due to local governments Due to others Due to other Funds Unearned deferred revenue Current portion of accrued insurance losses Current portion of long-term debt Current portion of other long-term liabilities Total Current Liabilities Noncurrent Liabilities: Unearned deferred revenue Accrued insurance losses Funds held for others Long-term debt Other long-term liabilities Total Noncurrent Liabilities Total Liabilities NET ASSETS Invested in capital assets, net of related debt Restricted for: Capital projects Unemployment compensation Debt service University funds: Expendable Nonexpendable Loans and other financial assistance: Expendable Unrestricted (deficit) Total Net Assets $ BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS INDUSTRIAL UNEMPLOYMENT COMMISSION COMPENSATION SPECIAL FUND LOTTERY OTHER 79,134 37,438 36,786 22,428 80,163 55,153 9,068 320,170 15,352 11 8,464 247 24,074 2,248 46,939 64 31,796 3,100 84,147 2,784 4,634 30,068 20,061 311 57,858 2,343 4,954 95 166,469 10,289 30 984 185,164 39,670 39,927 1,713,397 45,371 1,838,365 2,158,535 24,074 429,802 429,802 513,949 57,858 58 85 143 185,307 1,124,454 - 19,398 3,440 19,662 2,657 5,054 820,383 - 3,149 - - 171,976 163,922 - - - - 306,616 - 7,722 64,875 24,164 1,774,679 $ 820,383 Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds. Net assets of business-type activities The Notes to the Financial Statements are an integral part of this statement. - 54 - (215,313) $ (192,766) $ 11,162 $ 108,701 TOTAL ENTERPRISE FUNDS GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS 86,509 57,744 83,725 64 11 4,634 61,055 186,777 90,452 31,796 58,283 10,363 671,413 60,377 417 691 52,233 1,234 7,800 122,752 39,670 429,802 39,927 1,713,455 45,456 2,268,310 2,939,723 249,367 4,676 3,702 257,745 380,497 1,166,954 57,454 2,657 820,383 8,203 - 171,976 163,922 - 64,875 123,189 $ 2,522,159 $ 2,504,709 (246,276) $ (188,822) (17,450) - 55 - STATE OF ARIZONA STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2005 (Expressed in Thousands) UNIVERSITIES OPERATING REVENUES Sales and charges for services: Pledged student tuition and fees, net of scholarship allowances of $161,177 Pledged auxiliary enterprises, net of scholarship allowances of $6,491 Pledged educational department Lottery Other Unemployment assessments Workers' compensation assessments Intergovernmental Nongovernmental grants and contracts Licenses, fees and permits Earnings on investments Fines, forfeitures and penalties Settlement Income Other (revenues for Universities are pledged) Total Operating Revenues $ OPERATING EXPENSES Cost of sales and benefits Interest on notes payable Scholarships and fellowships Personal services Contractual services Depreciation and amortization Insurance Other Total Operating Expenses Operating Income (Loss) NON-OPERATING REVENUES (EXPENSES) Share of State sales tax revenues Gain (loss) on sale of capital assets Investment income (revenues for Universities are pledged) Endowment earnings on investments Other non-operating revenue Distributions to local governments Interest expense Other non-operating expense Total Non-Operating Revenues (Expenses) Income (Loss) Before Contributions and Transfers 557,987 BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS INDUSTRIAL UNEMPLOYMENT COMMISSION COMPENSATION SPECIAL FUND LOTTERY $ - $ - $ OTHER - $ - 254,721 50,334 589,220 94,275 18,208 1,564,745 268,895 8,210 1,715 25 278,845 15,493 41,554 57,047 397,561 46 397,607 109,328 1,023 651 3,010 1,466 115,478 610,334 110,850 1,569,988 164,726 2,455,898 (891,153) 292,127 292,127 (13,282) 101,395 1,140 102,535 (45,488) 262,819 5,410 10,813 190 67 2,192 281,491 116,116 75,259 4,040 25,953 6,984 2,658 622 5,112 120,628 (5,150) - (4) 57,584 (690) - 20,123 25,165 3,615 (56,883) (12,576) 36,338 39,276 39,276 17,045 2,047 (102) (3,658) 15,332 897 (35,735) (34,838) 3,143 407 (1) 3,545 (854,815) 25,994 (30,156) 81,278 (1,605) Gifts and donations Capital grants and contributions Contributions to permanent endowments Transfers in Transfers out 77,252 19,774 2,955 787,201 - (1,730) (80,658) 5 4,196 (1,412) Change in Net Assets Total Net Assets - Beginning, as restated 32,367 1,742,312 Total Net Assets - Ending $ 1,774,679 - - 24,264 796,119 $ 820,383 $ Change in net assets of enterprise funds Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds. Change in net assets of business-type activities The Notes to the Financial Statements are an integral part of this statement. - 56 - (30,156) (162,610) 620 10,542 (192,766) $ 11,162 1,184 107,517 $ 108,701 TOTAL ENTERPRISE FUNDS $ 557,987 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS $ 254,721 50,334 397,561 109,328 268,895 15,493 598,453 94,275 651 3,010 1,715 41,554 19,745 2,413,722 684,597 2,886 687,483 1,341,934 4,040 110,850 1,601,351 17,797 168,714 689 7,304 3,252,679 (838,957) 535,850 26,785 29,587 12,725 122,506 5,179 732,632 (45,149) 57,584 (694) 153 79,587 25,165 6,966 (35,735) (56,986) (16,234) 59,653 84 33 (47) 223 (779,304) (44,926) 77,252 19,779 2,955 791,397 (83,800) 1,403 59 (4,550) 28,279 2,493,880 $ - 2,522,159 $ 28,279 (14,836) $ 13,443 (48,014) (140,808) $ (188,822) - 57 - STATE OF ARIZONA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2005 (Expressed in Thousands) UNIVERSITIES CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Receipts from assessments Receipts from student loans collected Receipts from sales and services of auxiliary enterprises Receipts from sales and services of educational departments Receipts from interfund services / premiums Receipts from student tuition and fees Receipts from federal and local governments Receipts from settlement income Receipts from other Funds Payments to suppliers, prize winners, claimants, insurance companies or beneficiaries Payments to employees Payments to retirees Payments for scholarships and fellowships Payments for student loans issued Payments to other Funds Other receipts (payments) Net Cash Provided (Used) by Operating Activities CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Custodial funds received Office rental receipts Share of State sales tax receipts Grants and contributions received Transfers from other Funds Interest paid Custodial funds disbursed Grants and contributions disbursed Distributions to local governments Transfers to other Funds Other receipts (payments) Net Cash Provided (Used) by Non-capital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from sale of capital assets Proceeds from capital debt, installment purchase contracts and capital leases Capital grants and contributions received Acquisition and construction of capital assets Interest paid on capital debt, installment purchase contracts and capital leases Principal paid on capital debt, installment purchase contracts and capital leases Other (payments) Net Cash (Used) by Capital and Related Financing Activities $ 10,972 BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS INDUSTRIAL UNEMPLOYMENT COMMISSION SPECIAL FUND LOTTERY COMPENSATION $ 253,259 - $ 13,875 - $ OTHER 217,649 - $ 251,782 - - - 112,560 - 57,858 560,899 666,046 - 8,210 - 41,832 - - 1,042 54,491 (612,470) (1,558,170) (123,775) (11,261) 9,450 (748,669) (288,948) 1,740 (25,739) (25,088) 30,619 (112,536) (5,460) 17,136 116,789 (81,844) (25,535) (55,148) (846) 4,720 144,907 55,074 440,159 781,315 (163,223) (360,927) - (1,661) - 2,047 (1,590) (35,735) (70,111) - 960 (1,412) 549 897,305 (1,661) 820 - 457 - (105,846) - 274,873 9,705 (429,180) - (65) (53,443) - (102) - (48,182) - - (1,500) (34) - (245,407) - (1,701) The Notes to the Financial Statements are an integral part of this statement. - 58 - (154) (154) 97 (2,378) (17) (2,395) TOTAL ENTERPRISE FUNDS $ 330,209 267,134 10,972 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS $ - 251,782 - 57,858 560,899 675,298 41,832 54,491 683,397 - (1,120,886) (1,589,165) (123,775) (11,261) (55,148) 27,480 (622,280) (610,343) (27,347) (9,718) 2,876 38,865 144,907 2,047 55,074 440,159 782,275 (163,223) (360,927) (35,735) (73,184) (1,041) 59 (47) (4,550) 33 790,352 (4,505) 820 274,873 9,705 (431,777) 600 (11,028) (53,545) - (49,682) (51) - (249,657) (10,428) (Continued) - 59 - STATE OF ARIZONA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2005 (Expressed in Thousands) UNIVERSITIES CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of investments Interest and dividends from investments Change in cash collateral received from securities lending transactions Purchase of investments Other (payments) Net Cash Provided (Used) by Investing Activities Net Increase in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning, as restated Cash and Cash Equivalents - Ending RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation and amortization Loss on sale of capital assets Net changes in assets and liabilities: (Increase) in receivables, net of allowances Decrease in due from U.S. Government Decrease in due from local governments Decrease in due from others (Increase) decrease in due from other Funds (Increase) decrease in inventories, at cost (Increase) decrease in other assets Increase (decrease) in accounts payable Increase (decrease) in accrued liabilities (Decrease) in due to U.S. Government Increase (decrease) in due to others Increase (decrease) in due to other Funds Increase in deferred revenue Increase in accrued insurance losses Increase in other liabilities Net Cash Provided (Used) by Operating Activities $ $ BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS INDUSTRIAL UNEMPLOYMENT COMMISSION COMPENSATION SPECIAL FUND LOTTERY 371,027 23,769 39,276 134,315 10,287 345 20 3,005 (241,544) 153,252 39,276 12,944 (169,180) (2,029) (13,663) 345 (1) 3,024 56,481 372,603 11,876 759,055 15,712 40,166 429,084 $ (891,153) $ 164,726 - SCHEDULE OF NONCASH INVESTING, CAPITAL AND NON-CAPITAL FINANCING ACTIVITIES Gifts and conveyances of capital assets $ Assets acquired under capital leases Change in fair value of investments Amortization of bond discount and issuance costs Amortization of deferred amount on refunding and bond premium (Loss) on disposal of capital assets, net Amortization of deferred rent Refinancing of long-term debt Total Noncash Investing, Capital and Non-capital Financing Activities $ (748,669) $ 9,317 $ 43,554 3,669 (1,560) 1,105 (7,659) 4,900 142,760 196,086 770,931 $ (13,282) $ - (21,213) (3,898) (403) (7,415) 9,897 568 222 $ OTHER 5,446 113,557 $ 50,135 $ (45,488) $ 116,116 $ 119,003 (5,150) 1,140 - 190 5 2,658 4 (15,921) 3,481 (17) - (1,404) (291) 76,662 - (612) (772) 478 694 690 - (1,093) 19 183 (2,236) 401 434 (37) 3,372 (168) 4,037 2,138 158 (25,739) $ 30,619 $ 6,704 - $ - $ $ 55,878 11,134 39,001 - $ 6,704 $ The beginning cash and cash equivalents balance at July 1, 2004 for the other enterprise funds differs from the ending cash and cash equivalents balance on the cash flow for the year ended June 30, 2004 due to the correction of an error. - 60 - $ - $ (58) - The beginning cash and cash equivalents balance at July 1, 2004 was restated for the Universities due to the reclassification of short term investments to cash and cash equivalents. The Notes to the Financial Statements are an integral part of this statement. 116,789 (58) $ 4,720 (424) (424) TOTAL ENTERPRISE FUNDS GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS 505,362 76,682 84 12,944 (410,725) (2,029) 182,234 84 100,649 1,324,382 $ $ 1,425,031 24,016 85,384 $ (838,957) $ 109,400 (45,149) 168,714 9 12,725 - (40,243) 19 183 (2,236) (4,269) 509 (7,049) 17,440 (17) 400 4,037 2,360 76,662 158 (1,284) 2 71 (276) (216) 15,478 (410) (998) 58,472 450 $ (622,280) $ 38,865 $ 9,317 $ 43,554 9,891 (1,560) 6,122 - 1,105 (7,659) 4,900 142,760 $ 202,308 $ 6,122 - 61 - STATE OF ARIZONA STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2005 (Expressed in Thousands) PENSION INVESTMENT AGENCY TRUSTS FUNDS TRUSTS ASSETS Cash Cash and pooled investments with State Treasurer Short-term investments $ Receivables, net of allowances: Accrued interest and dividends Securities sold Forward contract receivable Contributions Court fees Miscellaneous receivables Total receivables Due from others Investments, at fair value: Temporary investments Temporary investments from securities lending U.S. Government securities Corporate bonds Corporate notes Corporate stocks Real estate mortgages and contracts Collateral investment pool Repurchase agreements Other investments Money market mutual funds Total investments Custodial securities in safekeeping Other assets Property and equipment, net of accumulated depreciation Total Assets LIABILITIES Accounts payable and other current liabilities Payable for securities purchased Accrued liabilities Obligation under securities loan agreements Due to local governments Due to others Total Liabilities NET ASSETS Held in trust for: Pension benefits Pool participants Total Net Assets $ 22,632 $ - $ TOTAL 43,439 $ 66,071 - - 316,518 2,353 316,518 2,353 75,687 510,583 1,573,699 31,491 343 6,561 2,198,364 4,937 4,937 303 207 510 80,927 510,583 1,573,699 31,491 343 6,768 2,203,811 - - 90,945 90,945 2,040,185 - - 2,040,185 2,279,978 2,866,151 3,446,234 335,106 19,713,984 26,774 1,201,153 240,251 32,149,816 1,433,834 899,055 827,725 1,123 3,161,737 - 2,279,978 4,299,985 4,345,289 335,106 19,713,984 26,774 1,201,153 827,725 240,251 1,123 35,311,553 - - 2,543,553 3,609 2,543,553 3,609 4,497 - - 4,497 34,375,309 3,166,674 3,000,927 40,542,910 1,593,907 984,476 - - 159,794 5,512 1,753,701 984,476 5,512 3,481,131 - 1,749 - 6,118 2,829,503 3,481,131 7,867 2,829,503 6,059,514 1,749 3,000,927 9,062,190 28,315,795 - 3,164,925 - 28,315,795 3,164,925 28,315,795 $ 3,164,925 $ - The Notes to the Financial Statements are an integral part of this statement. - 62 - $ 31,480,720 STATE OF ARIZONA STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS FOR THE YEAR ENDED JUNE 30, 2005 (Expressed in Thousands) ADDITIONS: Member contributions Employer contributions Member purchase of service credit Court fees $ PENSION INVESTMENT TRUSTS TRUSTS 548,798 566,737 140,159 3,793 $ TOTAL - $ 548,798 566,737 140,159 3,793 Investment income: Net increase in fair value of investments Interest income Dividends Real estate Other investment income Securities lending income Total investment income 1,694,502 332,517 270,200 6,113 4,731 48,084 2,356,147 1,290 64,053 65,343 1,695,792 396,570 270,200 6,113 4,731 48,084 2,421,490 Less investment expenses: Investment activity expenses Security lending expenses Net investment income 34,444 41,096 2,280,607 2,280 63,063 36,724 41,096 2,343,670 Capital share and individual account transactions: Shares sold Reinvested interest income Shares redeemed Net capital share and individual account transactions - Other additions Total Additions DEDUCTIONS: Retirement and disability benefits Death benefits Refunds to withdrawing members, including interest Administrative expense Dividends to investors Other deductions Total Deductions Change in net assets held in trust for: Pension benefits Pool participants Net Assets - Beginning Net Assets - Ending 5,016,265 56,035 (4,754,674) $ 5,016,265 56,035 (4,754,674) 317,626 317,626 16,844 - 16,844 3,556,938 380,689 3,937,627 1,872,625 18,402 - 1,872,625 18,402 68,548 27,929 9,640 63,063 - 68,548 27,929 63,063 9,640 1,997,144 63,063 2,060,207 1,559,794 26,756,001 317,626 2,847,299 1,559,794 317,626 29,603,300 28,315,795 $ 3,164,925 $ 31,480,720 The Notes to the Financial Statements are an integral part of this statement. - 63 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS INDEX Page Page Note 1. Summary of Significant Accounting Policies--------- 65 A. Reporting Entity------------------------------------- 65 B. Basis of Presentation-------------------------------- 68 C. Measurement Focus and Basis of Accounting------------------------------------------ 70 D. Deposits and Investments -------------------------- 70 E. Taxes Receivable------------------------------------ 71 F. Inventories ------------------------------------------- 71 G. Property Tax Calendar------------------------------ 71 H. Capital Assets---------------------------------------- 71 I. Investment Income ---------------------------------- 72 J. Scholarship Allowances ---------------------------- 72 K. Deferred Revenue ----------------------------------- 72 L. Compensated Absences ---------------------------- 72 M. Long-Term Obligations ---------------------------- 73 N. New Accounting Pronouncement ----------------- 73 Note 6. Long-Term Obligations---------------------------------- 92 A. Revenue Bonds---------------------------------------- 92 B. Grant Anticipation Notes ---------------------------- 96 C. Certificates of Participation ------------------------- 96 D. Leases and Installment Purchases ---------------- 100 E.-Litigation--------------------------------------------- 102 F. Compensated Absences ---------------------------- 102 G. Changes in Long-Term Obligations -------------- 103 Note 2. Deposits and Investments-------------------------------- 73 A. Deposits and Investment Policies----------------- 73 B. Custodial Credit Risk – Deposits and Investments ----------------------- 74 C. Interest Rate Risk ----------------------------------- 75 D. Credit Risk------------------------------------------- 79 E. Concentration of Credit Risk ---------------------- 80 F. Foreign Currency Risk ----------------------------- 81 G. Unemployment Compensation -------------------- 81 H. Securities Lending ---------------------------------- 82 I. Derivatives ---------------------------------------- 84 J. State Treasurer’s Separately Issued Financial Statements ------------------------------ 84 Note 10. Joint Venture ------------------------------------------- 106 Note 7. Interfund Transactions---------------------------------- 104 Note 8. Accounting Changes and Restatements -------------- 105 A. Fund Financial Statements------------------------ 105 B. Government-Wide Statements ------------------- 105 Note 9. Fund Deficit---------------------------------------------- 105 Note 11. Commitments, Contingencies, and Compliance --A. Risk Management Insurance Losses -----------B. Litigation ------------------------------------------C. Accumulated Sick Leave ------------------------D. Unclaimed Property ------------------------------E. Construction Commitments ---------------------F. Arizona State Lottery ----------------------------- 106 106 107 108 109 109 109 Note 12. Tobacco Settlement------------------------------------ 109 Note 13. Public-Private Partnership---------------------------- 109 Note 3. Receivables/Deferred Revenue ------------------------- 85 A. Taxes Receivable ----------------------------------- 85 B. Deferred Revenue----------------------------------- 86 Note 14. Conduit Debt ------------------------------------------- 110 Note 4. Capital Assets --------------------------------------------- 87 Note 16. Summary of Significant Accounting PoliciesComponent Units -------------------------------------- 111 A. Financial Reporting Policies --------------------- 111 B. Deposits and Investments ------------------------ 113 C. Program Loans------------------------------------- 115 D. Pledges Receivable-------------------------------- 115 E. Capital Assets -------------------------------------- 116 F. Long-Term Obligations--------------------------- 116 G. Accounting Changes and Restatements -------- 121 H. Related Party Transactions ----------------------- 122 I. Subsequent Events -------------------------------- 122 J. Condensed Financial Statement Information --------------------------------------- 123 Note 5. Retirement Plans------------------------------------------ 88 A. Plan Descriptions------------------------------------- 88 B. Summary of Significant Accounting Policies ---- 89 C. Investment Restrictions------------------------------ 89 D. Funding Policy --------------------------------------- 90 E. Annual Pension Cost--------------------------------- 90 F. Trend Information------------------------------------ 91 G. Universities’ Retirement Plans --------------------- 91 H. Post-Employment Benefits-------------------------- 91 - 64 - Note 15. Subsequent Events------------------------------------- 110 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies of the State of Arizona (the State) conform to U.S. GAAP applicable to governmental units adopted by the GASB. A. REPORTING ENTITY The State is a general purpose government. The accompanying financial statements present the activities of the State (the primary government) and its component units. Component Units’ footnote disclosures are presented in Note 16 – Summary of Significant Accounting Policies – Component Units. Component Units Component units are legally separate entities for which the State is considered to be financially accountable, or organizations that raise and hold economic resources for the direct benefit of the State. Blended component units, although legally separate entities, are in substance part of a government’s operations. Therefore, data from these units is combined with data of the primary government. Discretely presented component units of the State, except for component units affiliated with the State's Universities, are reported in a separate column in the government-wide financial statements to emphasize they are legally separate from the State. Because the component units affiliated with the Universities follow Financial Accounting Standards Board (FASB) statements, these financial statements have been reported on separate pages following the respective counterpart financial statements of the State. For financial reporting purposes, only the statement of financial position and the statement of activities for component units affiliated with the Universities are included in the State's financial statements as required by GASB. The GASB has set forth criteria to be considered in determining financial accountability. These criteria include appointing a voting majority of an organization’s governing body and (1) the ability of the State to impose its will on that organization or (2) the potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the State. In addition, GASB 39 requires that legally separate, tax-exempt entities that meet all of the following criteria should be discretely presented as component units: (1) The economic resources received or held by the separate organization are entirely or almost entirely for the direct benefit of the primary government, its component units, or its constituents, (2) The primary government, or its component units, is entitled to, or has the ability to otherwise access, a majority of the economic resources received or held by the separate organization, and (3) The economic resources received or held by an individual organization that the specific primary government, or its component units, is entitled to, or has the ability to otherwise access, are significant to that primary government. The State reports the Arizona State Retirement System (ASRS) as a blended component unit. The ASRS is a cost-sharing, multipleemployer, defined benefit pension plan that benefits employees of the State, its political subdivisions and public schools. ASRS is governed by a nine-member board that is appointed by the Governor and approved by the Senate to serve three-year terms. The State reports the following discretely presented component units: University Medical Center (UMC) – The UMC is the primary teaching hospital for the College of Medicine, College of Nursing, the College of Pharmacy, the College of Public Health, and the School of Health Related Professions of the University of Arizona (U of A). The UMC was created in 1984 when the State Legislature passed a bill that allowed the Arizona Board of Regents (ABOR) to convey the UMC to a private, not-for-profit, tax-exempt corporation. Although an autonomous entity was created, the teaching missions and research alliances with the U of A and the State remained. The ABOR confirms all members of the UMC’s Board of Directors, and must approve all amendments to the UMC’s articles of incorporation and bylaws. Complete financial statements may be obtained from the UMC’s administrative offices at 655 East River Road, Tucson, Arizona 85704, (520) 694-2700. Arizona Power Authority (APA) – The APA purchases the State’s allocation of power produced at the federally owned Boulder Canyon Project hydropower plant and resells it to Arizona entities that are eligible purchasers under federal and state laws. The APA is governed by a commission of five members appointed by the Governor and approved by the Senate. The term of office of each member is six years and the members select a chairman and vice-chairman from among their membership for a term of two years. All revenue bonds issued by the APA must be approved by the State Certification Board. Complete financial statements may be obtained from the APA’s administrative offices at 1810 West Adams Street, Phoenix, Arizona 85007-2697, (602) 542-4263. - 65 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 Water Infrastructure Finance Authority (WIFA) – The WIFA is authorized to administer the Clean Water Revolving Fund. The Clean Water Revolving Fund was created pursuant to the Federal Water Pollution Control Act, which required the State to establish the Clean Water Revolving Fund to accept federal capitalization grants for publicly owned wastewater treatment projects. The WIFA has also entered into an agreement with the Environmental Protection Agency to administer the Drinking Water Revolving Fund pursuant to the Safe Drinking Water Act. The WIFA is governed by a twelve-member board of directors. The 10 Governor appointed directors serve staggered terms of five years and serve at the pleasure of the Governor. Complete financial statements may be obtained from the WIFA’s administrative offices at 1100 West Washington, Suite 290, Phoenix, Arizona 85007, (602) 3641310. Component units of the State affiliated with the Universities are legally separate, tax-exempt organizations controlled by separate Boards of Directors that meet the criteria established in GASB Statement No. 39, with the exception of the Collegiate Golf Foundation and Campus Research Corporation (CRC). The Collegiate Golf Foundation is included because it is a legally separate organization that the State believes would be misleading to exclude due to its financial relationship to the State. The CRC is included because the U of A appoints a majority of the board of directors and approves the budget; the U of A can thus impose its will on the CRC. The following discretely presented component units affiliated with the Universities are reported as major component units of the State: Arizona State University (ASU) Foundation – The ASU Foundation's resources are disbursed at the discretion of the Foundation's independent board of trustees, in accordance with donor directions and Foundation policy. Arizona Capital Facilities Finance Corporation (ACFFC) and Mesa Student Housing, LLC. - These two foundations are providing facilities for either the use by students of ASU or ASU itself. U of A Foundation - The U of A Foundation supports the U of A through various fund-raising activities and contributes funds to the U of A in support of various programs. The following discretely presented component units affiliated with the Universities are reported as non-major component units of the State: ASU Alumni Association, Sun Angel Foundation, and Sun Angel Endowment - These three foundations receive funds primarily through donations and dues, and contribute funds to ASU for support of various programs. ASU Research Park, Inc. - ASU Research Park, Inc., is developing a research park to promote and support research activities in coordination with ASU. Collegiate Golf Foundation - This foundation operates an ASU-owned golf course. U of A Alumni Association - The U of A Alumni Association was established to serve the U of A and its graduates, former students, and friends by attracting, organizing and encouraging them to advance the U of A's missions - teaching, research, and public service. Law College Association of the U of A (Law Association) - The Law Association was established to provide support and financial assistance to the College of Law at the U of A. The Law Association funds provide support to the College on many levels, from endowed student scholarships to named faculty professorships. CRC - The CRC was established to assist the U of A in the acquisition, improvement, and operation of the U of A Science and Technology Park (Park) and related properties. The CRC currently leases from the U of A the remaining 32% of building space of the Park not leased to the Arizona Research Park Authority. The CRC is responsible for assisting in the development of the presently undeveloped portions of the Park and for subleasing unoccupied space, newly developed space, and space now occupied by IBM or its subtenants once the current subleases expire. The U of A is responsible for payment of operational expenses associated with the space occupied by the U of A departments, offices and programs. Northern Arizona University Foundation, Inc. (NAU Foundation) - The NAU Foundation receives gifts and bequests, administers and invests securities and property, and disburses payments to and on behalf of the NAU for advancement of its mission. - 66 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 Northern Arizona Capital Facilities Finance Corporation (NACFFC) - The NACFFC was established for the purpose of acquiring, developing, constructing, maintaining and operating student housing and other capital facilities and equipment for the use and benefit of the NAU's students. Complete financial statements for each of the aforementioned component units, except for the U of A Foundation, may be obtained at the following addresses: ASU Foundation, ASU Alumni Association, Sun Angel Foundation, Sun Angel Endowment, ASU Research Park, Inc., Collegiate Golf Foundation, ACFFC, and Mesa Student Housing, LLC - Arizona State University, Financial Services, P.O. Box 875812, Tempe, Arizona 85287-5812 or (480) 965-3601 The U of A Alumni Association - P.O. Box 210109, Tucson, Arizona 85721-0109 Law College Association of the U of A - P.O. Box 210176, Tucson, Arizona 85721-0176 CRC - University of Arizona Science and Technology Park, 9040 South Rita Road, Suite 1400, Tucson, Arizona 85747 NAU Foundation and NACFFC - Northern Arizona University, Comptroller's Office, P.O. Box 4069, Flagstaff, Arizona 86011 The financial statements of the U of A Foundation are not publicly available. For information regarding the U of A Foundation's financial statements, contact the U of A Comptroller at the following address: University of Arizona, Financial Services, P.O. Box 3310, Tucson, Arizona 85722-3310. Related Organizations Related organizations are legally separate entities for which the State is not considered to be financially accountable, and that do not meet the criteria established by GASB Statement No. 39. The State’s accountability for these organizations does not extend beyond making the appointments, nor are the economic resources accessible to the State. As a result, financial activity for the organizations described below is not included in the State’s financial statements. Arizona Health Facilities Authority (the Authority) – Arizona Revised Statutes (ARS) §36-482 established the Authority to issue tax-exempt bonds and loans for the purpose of reducing health care costs and improving health care for Arizona residents by providing less expensive financing for health care institutions. Proceeds from bond issues are loaned to various qualifying nonprofit health care institutions. The health care institutions reimburse the Authority for expenses for issuance of the bonds, pay fees of the Authority, and make payments under the loans for the benefit of the holders of the bonds. The Authority is governed by a sevenmember board of directors that is appointed by the Governor and approved by the Senate. The directors serve staggered terms of seven years, and can be removed for cause or at will by the Governor with the consent of the Senate. Arizona International Development Authority (the Authority) – ARS §41-1553.01 established the Authority to facilitate the development of international trade or commerce between Arizona and other countries. The Authority is governed by a sevenmember board of directors appointed by the Governor and approved by the Senate for five-year terms, and can be removed only for cause. Arizona Tourism and Sports Authority (the Authority) – ARS §5-802 established the Authority to construct, finance, maintain, improve, operate, market and promote the use of a multipurpose facility and do all things necessary to accomplish those purposes. The Authority may issue revenue bonds in such principal amounts to accomplish the above stated purposes. The Authority is governed by a nine-member board of directors of which five are appointed by the Governor and approved by the Senate and two members each by the President of the Senate and the Speaker of the House. The directors serve terms of five years, and may be reappointed for one full subsequent term, and can be removed only for cause. Arizona Housing Finance Authority (the Authority) – ARS §41-3902 established the Authority to issue bonds for residential dwelling units and multifamily residential rental projects in rural areas. The Authority may also establish mortgage credit certificate programs to finance residential dwelling units in rural areas. The Authority is required to notify and obtain written consent from the governing bodies of any city, town, county, tribal government or existing corporation for any multifamily residential rental projects planned for their jurisdiction. The Authority is governed by a seven-member board of directors that is appointed by the Governor and approved by the Senate. The directors serve terms of seven years, and can be removed only for cause. - 67 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 State Compensation Fund (the Fund) – ARS §23-981 established the Fund to provide insurance to employers for workers’ compensation, occupational disease compensation, and medical, surgical and hospital benefits. The Fund is governed by a board of directors that consists of five members appointed by the Governor for staggered terms of five years, and can be removed only for cause. Annually, the Governor appoints a chairman from among the board members. Joint Ventures As described in Note 10, the U of A participates in a joint venture. In accordance with U.S. generally accepted accounting principles, the financial activities of this joint venture are not included in the State’s financial statements. B. BASIS OF PRESENTATION The basic financial statements include both government-wide statements and fund financial statements. The government-wide statements focus on the State as a whole, while the fund financial statements focus on major funds. Each presentation provides valuable information that can be analyzed and compared between years and between governments to enhance the usefulness of the information. Government-wide statements - provide information about the primary government and its component units. The statements include a statement of net assets and a statement of activities. These statements report the financial activities of the overall government, except for fiduciary activities. They also distinguish between the governmental and business-type activities of the State and between the State and its discretely presented component units. Governmental activities generally are financed through taxes and intergovernmental revenues. Business-type activities are financed in whole or in part by fees charged to external parties. The Statement of Net Assets presents the State’s non-fiduciary assets and liabilities, with the difference reported as net assets. Net assets are reported in three categories: Invested in capital assets, net of related debt consist of capital assets, net of accumulated depreciation and reduced by outstanding balances for bonds, notes and other debt that are attributed to the acquisition, construction, or improvement of those assets. Restricted net assets result when constraints placed on net asset use are either externally imposed by creditors, grantors, contributors, and the like, or imposed by law through constitutional provisions or voter initiative. Unrestricted net assets consist of net assets which do not meet the definition of the two preceding categories. Unrestricted net assets often have constraints on resources, which are imposed by management, but can be removed or modified. The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the State’s governmental activities, and its different business-type activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular program or function. The State does not allocate indirect expenses to programs or functions. Program revenues include: • • • charges to customers or applicants for goods, services, privileges provided, and fines or forfeitures, operating grants and contributions, and capital grants and contributions, including special assessments. Revenues that are not classified as program revenues, including internally dedicated resources and all taxes, are reported as general revenues. Interfund balances have been eliminated from the government-wide financial statements to the extent that they occur within either the governmental or business-type activities. Balances between governmental and business-type activities are presented as internal balances and are eliminated in the total column. Revenues and expenses associated with reciprocal transactions within governmental or within business-type activities have not been eliminated. Fund financial statements - provide information about the State’s funds, including fiduciary funds. Separate statements are presented for the governmental, proprietary, and fiduciary fund categories. The emphasis of fund financial statements is on major - 68 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 governmental and enterprise funds, each displayed in a separate column. All remaining governmental and enterprise funds are aggregated and reported as non-major funds. Fiduciary funds are aggregated and reported by fund type. Proprietary fund operating revenues, such as charges for services, result from exchange transactions associated with the principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal values. Operating expenses 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 non-operating revenues and expenses. The State reports the following major governmental funds: The General Fund - is the State’s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The Transportation and Aviation Planning, Highway Maintenance and Safety Fund - accounts for all financial transactions applicable to the general operations of the Arizona Department of Transportation (ADOT). The ADOT builds and maintains the State’s highway system and the Grand Canyon Airport. The Land Endowments Fund - holds lands granted to the State by the Federal government for the benefit of public schools and other public institutions. Principal is maintained intact and investment earnings and lease revenues are distributed to beneficiaries in accordance with State statute. The State reports the following major enterprise funds: The Universities - account for transactions of the State’s three universities, which comprise the State’s university system. Unemployment Compensation - pays claims for unemployment to eligible recipients from employer contributions and reimbursements. The Industrial Commission Special Fund – accounts for deposits not to exceed 2.50% of all premiums received by the State Compensation Fund and private insurance carriers during the preceding calendar year. These monies are used to provide additional awards as necessary to enable injured employees to accept the benefits of any law for promotion of vocational rehabilitation of persons disabled in industry. In addition, benefits may be paid for workers’ compensation claims filed by employees of non-insured employers. The Industrial Commission (Commission) then pursues against the non-insured employer for reimbursement of all benefits paid, including assessed penalties. The Lottery - accounts for the activities of the Arizona State Lottery. Additionally, the State reports the following fund types: Internal Service Funds - account for insurance coverage, employee benefits, automotive maintenance and operation, highway equipment rentals, and data processing and telecommunication services provided to State agencies on a cost-reimbursement basis. It is the policy of the State to classify immaterial proprietary fund activities in governmental funds. This policy helps to reduce the number of funds reported in the financial statements to the minimum amount needed. These funds allocate a fixed rate payroll processing charge among all agencies, allocate postage and mailing costs among all agencies, and arrange for the sale of the State’s office equipment and motorized vehicles at public auctions. Pension Trust Funds - account for the activities of the Arizona State Retirement System (ASRS), the Public Safety Personnel Retirement System (PSPRS), the Elected Officials’ Retirement Plan (EORP), and the Corrections Officer Retirement Plan (CORP), for which the State acts as a trustee. These retirement plans accumulate resources to pay pension benefits of State employees and employees of other governmental entities participating in the plans. Investment Trust Funds - account for transactions by local governments and political subdivisions that elect to participate in the State Treasurer’s investment pools. The Treasurer acts as trustee for the original deposits made into the investment pools. Agency Funds - account for the receipt and disbursement of various taxes, deposits, deductions, and property collected by the State, where the State acts as an agent for distribution to other governments and organizations. - 69 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 C. MEASUREMENT FOCUS AND BASIS OF ACCOUNTING The government-wide, proprietary fund, and fiduciary fund financial statements are presented using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Grants and donations are recognized as revenues as soon as all eligibility requirements the provider imposed have been met. Governmental funds in the fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The State considers all revenues reported in the governmental funds to be available if the revenues are collected within 31 days after year-end. Those revenues susceptible to accrual are federal reimbursements, highway user revenue tax, and state sales tax. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on long-term debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they are due and payable. General capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of long-term debt and acquisitions under capital leases are reported as other financing sources. Under the terms of grant agreements, the State funds certain programs through a combination of grants and general revenues. Therefore, when program expenses are incurred, there are both restricted and unrestricted resources available to finance the program. The State’s policy regarding whether to first apply restricted or unrestricted resources is made on a case-by-case basis. The State’s business-type activities and enterprise funds follow FASB Statements and Interpretations issued on or before November 30, 1989; Accounting Principles Board Opinions; and Accounting Research Bulletins, unless those pronouncements conflict with GASB pronouncements. The State has chosen the option not to follow FASB Statements and Interpretations issued after November 30, 1989. D. DEPOSITS AND INVESTMENTS 1. Cash and Cash Equivalents On the Statement of Cash Flows, the amount reported as “Cash and Cash Equivalents” is equal to the total of the amounts on the Statement of Net Assets “Cash”, “Cash with U.S. Treasury”, “Cash and pooled investments with State Treasurer”, “Cash held by trustee” and “Collateral investment pool” (for the Industrial Commission Special Fund). For purposes of the Statement of Cash Flows, the State considers only those highly liquid debt instruments with an original maturity of ninety days or less to be cash equivalents. • Cash (not with State Treasurer) – cash includes undeposited receipts, petty cash, bank accounts, non-negotiable certificates of deposit, and demand deposits with banking institutions other than the State Treasurer. • Cash with U.S. Treasury – consists of unemployment compensation contributions from Arizona employers that are deposited in a trust fund maintained by the United States Treasury. • Cash and pooled investments with State Treasurer – the State Treasurer maintains a centralized management of most State cash resources. From the perspective of the various State funds, the pool functions as both a cash management pool and a demand deposit account. The operations and investments of the State Treasurer’s pooled investments are described in Note 2. • Cash held by trustee – consists of certificates of participation (COPs) proceeds that primarily are invested in government money market mutual funds to be used for capital projects. • Collateral investment pool – consists of cash received as collateral on securities lending transactions and investments made with that cash. The State records the collateral received as an asset. A corresponding liability is also recorded for such securities lending transactions. 2. Investment Valuation Investments maintained by the State Treasurer are reported at fair value using Bank of New York (BONY) prices, as determined by independent, industry leading data vendors whose values are either exchange provided or matrix based on similar securities. - 70 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 Equities are priced utilizing the primary market close price. In the absence of a closed price, the mid, bid or ask price will be utilized. All bonds are priced using an evaluated price, the closing exchange price or the most recent exchange or quoted bid. The official price is normally the last traded price. Short-term instruments such as certificates of deposit and commercial paper are based on an internal model which uses primarily a vendor price. Equity prices are compared to Bloomberg’s Index Alert. Any differences in prices are researched and generally Bloomberg’s end of day price is used over BONY’s price. All investments with a remaining maturity of 90 days or less, that have no price available, are priced using amortized cost (amortizing premium/accreting discount on a straight-line to maturity method). The ASRS investments are reported at fair value determined by the custodial agents, except for real estate and commercial mortgages. The agent’s determination of fair values includes, among other things, using pricing services or prices quoted by independent brokers at current exchange rates. The fair value of real estate investments is based on independent appraisals or estimated value. Commercial mortgages have been valued on an amortized cost basis, which approximates fair value. No allowance for loan loss has been provided as all loans are considered by ASRS to be fully collectible. Short-term investments are reported at cost plus accrued interest, which approximates fair value. For investments where no readily ascertainable fair value exists, ASRS, in consultation with its investment advisors, has determined the fair values for the individual investments based on anticipated maturity dates and current interest rates commensurate with the investment’s degree of risk. Security transactions and any resulting gains or losses are accounted for on a trade date basis. The PSPRS, the EORP, and the CORP investments are reported at fair value with the exception of directed real estate and venture capital investments that are reported at cost. Fair values are determined as follows: Short-term investments are reported at fair value, which approximates cost. Equity securities are valued at the last reported sales price. Fixed-income securities are valued using the last reported sales price or the estimated fair market value as determined by a fixed-income broker/dealer. Investments that do not have an established market are reported at estimated fair value. E. TAXES RECEIVABLE Taxes receivable include amounts owed by taxpayers for the 2004 and prior calendar years including assessments for underpayments, penalties and interest. In the government-wide financial statements, a corresponding amount is recorded as revenue using the accrual basis of accounting. In the governmental fund financial statements, revenue is recorded using the modified accrual basis of accounting. The remainder is recorded as deferred revenues. The income tax receivable is composed of individual and corporate estimated payments, withholding payments, and payments with final returns and assessments that relate to income earned through June 30, 2005. Sales and motor vehicle and fuel tax receivables represent amounts that are earned by the State in the fiscal period ended June 30, 2005, but not collected until the following month. F. INVENTORIES Inventories consist of expendable supplies held for consumption in all funds and merchandise intended for sale to customers in the Proprietary Funds. Inventories are stated at cost using the first-in, first-out method, weighted average, or lower of cost or market. In the Governmental Funds, inventories are accounted for using the consumption method. Under this method, inventories are recorded as expenditures as they are used. G. PROPERTY TAX CALENDAR Real property taxes are levied on or before the third Monday in August and become due and payable in two equal installments. The first installment is due on the first day of October and becomes delinquent after the first business day of November. The second installment is due on the first day of March of the next year and becomes delinquent after the first business day of May. A lien attaches on the first day of January preceding assessment and levy. H. CAPITAL ASSETS Capital assets are stated at cost at the date of acquisition or, if donated, at the estimated fair market value at the date received. Interest incurred during the construction of capital assets is only capitalized in the Proprietary Funds. Most capital assets are depreciated over their useful life. However, the State utilizes an alternative accounting treatment for most infrastructure assets in which costs to maintain and preserve these assets are expensed and no depreciation expense is recorded. - 71 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 This approach is discussed further in the Required Supplementary Information portion of this report. The State has adopted a general policy for capitalization thresholds, depreciation, and estimated useful lives of capital assets. In addition, the State has approved alternative policies for some State agencies. Depreciable capital assets are depreciated on a straight-line basis. Capitalization thresholds (the dollar values at which asset acquisitions are added to the capital asset accounts) and estimated useful lives of capital assets being depreciated in the governmentwide financial statements and the Proprietary Funds are as follows: Asset Category Land Buildings Improvements other than buildings Equipment Infrastructure General State Policy Capitalization Estimated Useful Life Threshold (yrs) All capitalized Not depreciated All capitalized 25-40 $5,000 15 $5,000 3-15 All capitalized Not depreciated Other Authorized Agency Policies Capitalization Estimated Useful Threshold Life (yrs) All capitalized Not depreciated $0-$100,000 10-50 $5,000-$100,000 20-50 $0-$5,000 3-25 $0-$100,000 20-100 The State is trustee for approximately 9.3 million acres of land acquired through U.S. Government land grants in the early 1900’s. The State acquired a substantial portion of this land at no cost and its fair market value at acquisition has not been reliably estimated. Accordingly, this land is not reported in the accompanying financial statements. A portion of the land that the State is trustee for has been sold and the buyers of the land have defaulted on the loans. The value of this land has been recorded at the sales price and properly included in the financial statements. The State has interest in and maintains significant special collections, works of art, and historical treasures. All special collections, works of art, and historical treasures which are held for financial gain are capitalized at fair market value at the date of acquisition or donation. Those special collections, works of art, and historical treasures which are held for educational, research, or public exhibition purposes are not capitalized, as they are not subject to disposal for financial gain or encumbrance. Such items are inventoried for property control purposes. Additional disclosures related to capital assets and assets acquired through capital leases are provided in Notes 4 and 6, respectively. I. INVESTMENT INCOME Investment income is composed of interest, dividends, and net changes in fair value of applicable investments. J. SCHOLARSHIP ALLOWANCES Student tuition and fee revenues, and certain other revenues earned by the three State Universities are reported net of scholarship discounts and allowances in the Statement of Revenues, Expenses and Changes in Fund Net Assets. A scholarship discount and allowance is the difference between the stated charge for goods and services provided and the amount that is paid by the student or third party making payment on behalf of the student. Accordingly, some types of student financial aid such as Pell grants and scholarships awarded by the Universities are considered to be scholarship allowances. These allowances are netted against applicable revenues in the Statement of Revenues, Expenses and Changes in Fund Net Assets. K. DEFERRED REVENUE Deferred revenue consists of payments to the State for goods and services, not yet rendered, or taxes, grants, and other nonexchange transactions for which related resources are not available to pay current liabilities. In the government-wide and proprietary fund financial statements, revenue is deferred when cash, receivables, or other assets are received prior to their being earned. In the governmental fund financial statements, revenue is deferred when that revenue is unearned or unavailable. L. COMPENSATED ABSENCES In the government-wide and proprietary fund financial statements, the State accrues liabilities for compensated absences as required by GASB. In the governmental fund financial statements, liabilities for compensated absences are not accrued, because they are not considered due and payable. - 72 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 In general, State employees accrue vested annual leave at a variable rate based on years of service. Except for University employees, an employee forfeits accumulated annual leave in excess of 240 hours at the end of a calendar year, unless the Director of the Department of Administration authorizes an exception. University employees may accumulate up to 264 hours of vacation, and any vacation hours in excess of the maximum amount that are unused at December 31 are forfeited. Except for University employees, an employee who separates from State service is paid for all unused and unforfeited annual leave at the employee’s rate of pay at the time of separation. University employees, upon termination of employment, are paid all unused vacation benefits not exceeding 176 hours (annual accrual amount), depending on years of service and full-time equivalent employment status. Some employees accumulate compensatory leave for time worked over 40 hours per week. An employee may accumulate up to 240 hours of compensatory leave (480 if working in a public safety activity or an emergency response activity). An employee who separates from State service is paid for all unused compensatory leave at either the employee’s average base salary during the last three years of employment or final base salary, whichever is higher. Sick leave includes any approved period of paid absence granted an employee due to illness, injury or disability. Most State employees accrue sick leave at the rate of eight hours per month without an accumulation limit. Because sick leave benefits do not vest with employees, a liability for sick leave is not accrued in the financial statements. However, 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 (See Note 11.C). M. LONG-TERM OBLIGATIONS In the government-wide and proprietary fund financial statements, long-term debt and long-term liabilities are reported as liabilities. Amounts due within one year are reported as current liabilities, and amounts due thereafter are reported as non-current liabilities. Premiums and discounts on revenue bonds and COPs are deferred and amortized over the life of the debt instrument using the straight-line method. Bonds and COPs are reported net of the applicable premium or discount. Except for the ADOT and the NAU, bond issuance costs and deferred gains or losses on debt refundings are immaterial and are charged to expense in the period incurred. In the fund financial statements, governmental fund types recognize proceeds from revenue bonds, COPs, and premiums and discounts on revenue bonds and COPs as other financing sources and uses in the current period. Long-term liabilities are more fully described in Note 6. N. NEW ACCOUNTING PRONOUNCEMENT During the fiscal year ended June 30, 2005, the State implemented the GASB Statement No. 40, Deposit and Investment Risk Disclosures, which establishes disclosure requirements for deposit and investment risks. The implementation of GASB Statement No. 40 requires only additional disclosures, and had no effect on reported amounts for deposits, investments, net assets or changes in net assets. NOTE 2. DEPOSITS AND INVESTMENTS A. DEPOSITS AND INVESTMENT POLICIES The State’s deposits and investments are primarily under the control of the State Treasurer, the Retirement Systems, the Universities, and the Commission. These entities maintain the majority of the deposits and investments of the primary government. The investment policies of these organizations are defined according to State statutes or a governing board or both and are described below. The ARS §35-312, §35-313 and §35-314 authorize the State Treasurer to invest operating, trust and permanent endowment fund monies. Monies deposited with the State Treasurer by State agencies are invested by the State Treasurer in a pooled fund. Any interest earned is allocated monthly into each respective fund based on average daily cash balances. There is no income from investments associated with one fund that is assigned to another fund. The State statutes and the State Treasurer’s investment policies designed to administer these statutes restrict investments to obligations of the U.S. Government and its agencies, obligations or other evidence of indebtedness of the State and certain local government divisions, negotiable certificates of deposit, bonds, debentures and notes issued by U.S. corporations, commercial paper - 73 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 issued by entities organized and doing business in the United States, bankers acceptances, collateralized repurchase agreements, money market mutual funds, domestic equities, and other securities. The State Treasurer is not allowed to invest in foreign investments. The State Treasurer maintains external investment pools [the Local Government Investment Pool (LGIP), Local Government Investment Pool-Government, and the Central Arizona Water Conservation District]. The pools are not required to register (and are not registered) with the Securities and Exchange Commission under the 1940 Investment Advisors Act. The activity and performance of the pools are reviewed monthly by the State Board of Investment in accordance with ARS §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. State statutes authorize the retirement systems to make investments in accordance with the “Prudent Person” rule. This rule imposes the responsibility of making investments with the judgment and care that persons of ordinary prudence would exercise in the management of their own affairs when considering both the probable safety of their capital and the probable income from that capital. The ASRS invests in U.S. government and government agency obligations, real estate, commercial mortgages, corporate bonds and equity obligations. Per ARS §38-719, no more than 80% of the ASRS’ total assets may be invested at any given time in corporate stocks or equity equivalents, based on cost value of the stocks or equity equivalents irrespective of capital appreciation. No more than 5% of the voting stock of any one corporation may be owned. No more than 20% of the ASRS’ assets may be invested in foreign equity securities, and those investments shall be made only by investment managers with demonstrated expertise in such investments. No more than 10% of the ASRS’ assets may be invested in bonds or other evidences of indebtedness of those multinational development banks in which the U.S. is a member nation, including the International Bank for Reconstruction and Development, the African Development Bank, the Asian Development Bank, and the Inter-American Development Bank. No more than 1% of ASRS’ assets may be invested in economic development projects authorized as eligible for such investment by the Arizona State Department of Commerce. The ASRS Board has not formally adopted more restrictive policies for the various types of risks. Per ARS §38-848, the PSPRS, the EORP, and the CORP may not invest more than 70% in corporate stocks, based on cost value of such stocks irrespective of capital appreciation, and shall be restricted to stocks that, except for bank and insurance stocks, are either: 1) listed or approved on issuance for listing on an exchange registered under the Securities Exchange Act of 1934, as amended, 2) designated or approved on notice of issuance for designation on the national market system of a national securities association registered under the Securities Exchange Act of 1934, as amended, 3) listed or approved on issuance for listing on an exchange registered under the laws of this State or any other State, or 4) listed or approved on issuance for listing on an exchange registered of a foreign country with which the U.S. is maintaining diplomatic relations at the time of purchase, except that no more than 10% may be invested in foreign equity securities on these exchanges, based on the cost value of the stocks irrespective of capital appreciation. Not more than 5% of the voting stock of any one corporation shall be owned. The Board of Regents governs the investment policies of the Universities. The Universities may invest operating funds and capital projects funds in collateralized certificates of deposits and repurchase agreements with commercial banks, U.S. Treasury securities and other Federal agency securities, or in the Local Government Investment Pool administered by the State Treasurer. For endowment investments, donor restrictions for these investments will be applied, if any. In addition, the Board of Regents has authorized the Universities to establish investment committees to make investment policies and investment decisions. The Board of Regent’s policies guide the investment committees’ decisions and constitute each University’s investment policy. Per ARS §23-1065, the Commission’s investment committee is responsible for defining, developing and implementing investment objectives, policies and restrictions and supervising the investment activities of the Commission. The Commission requires that their investment policy be responsive to the unpredictable nature of the incidence and severity of claims, the long periods over which losses may be paid, and the effect on both claims and losses of increases in treatment and rehabilitation costs. The investment committee may invest in any legal investment authorized under ARS §38-719. B. CUSTODIAL CREDIT RISK – DEPOSITS AND INVESTMENTS Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, the deposits or collateral securities may not be recovered from an outside party. The State Treasurer, the Retirement Systems and the Universities’ - 74 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 deposits with financial institutions are required by State statutes to be entirely covered by Federal Depository Insurance or, alternatively, collateralized for amounts in excess of the amount insured. The Commission’s deposits are not required to be insured or collateralized. Surety collateral for the Universities and the ASRS must be equal to at least 100% of the bank balance required to be collateralized (102% for the State Treasurer, the PSPRS, the EORP, and the CORP). Beyond this requirement, these organizations do not have a formal policy specifically addressing custodial credit risk on deposits, except for the State Treasurer. The State statutes require surety collateral for the State Treasurer to consist of U.S. Government obligations, State obligations, and obligations of counties and municipalities within the State. As of June 30, 2005, $6.360 million was uncollateralized and uninsured and $3.374 million was collateralized with securities held by the pledging financial institution or its trust department/agent, but not in the State’s name. Custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, the value of the investment or collateral securities that are in the possession of an outside party may not be recovered. The State does not have a formal policy in regards to custodial credit risk for investments. As of June 30, 2005, the State had $52.461 million in securities that were uninsured, not registered in the State’s name and held by a counterparty or a counterparty’s trust department or agent but not in the State’s name. C. INTEREST RATE RISK Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The State manages interest rate risk using the segmented time distribution, weighted average maturity, and duration methods. The State Treasurer manages interest rate risk by incorporating ARS §35-323, which states that the State Treasurer will invest public monies in securities with a maximum maturity of 5 years and operating fund monies shall not be invested for a duration of longer than 3 years, into their investment policy and setting forth various thresholds or parameters in accordance with each investment pool’s portfolio structure. The State Treasurer’s policy provides either maturity or duration limitations for the various investment pools. The interest rate risk inherent in the portfolio is monitored monthly by measuring the weighted average maturity and/or duration. The ASU manages interest rate risk by a policy for operating funds that limits the maximum maturity of any fixed rate issue to 3 years. The capital projects funds portfolio is not limited as to the overall maturity of its investments, with funds invested per the financing indentures to coincide with capital spending needs and debt service requirements, which are typically less than 3 years, with the additional limitation that certificates of deposit and commercial paper have maximum maturities of 360 days and 270 days, respectively. The Commission manages interest rate risk by setting different goals of yield periods or duration of maturities for each individual investment segment within the Commission. Beyond this requirement, the Commission does not have a formal policy specifically addressing interest rate risk. - 75 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 The following table presents the State Treasurer’s, the ASU’s and the Commission’s weighted average maturity in years by investment type (expressed in thousands): Investment Type Bond Mutual Funds Certificate of Deposit Commercial Paper Corporate Asset Backed Securities Corporate Collateralized Mortgage Obligations Corporate Notes & Bonds Government Bonds Government Mortgage Backed Securities Index Linked Government Bonds Money Market Mutual Funds Repurchase Agreements U.S. Agency Securities U.S. Agency Mortgage Backed Securities U.S. Treasury Securities Other Total Debt Securities Fair Value $ 12,613 5,058 1,730,808 11,316 84,556 1,051,920 20,221 13,388 6,008 39,441 1,197,049 2,441,905 578,956 1,241,116 13,387 Weighted Average Maturity (in years) 4.40 2.09 0.03 6.19 22.47 2.51 7.28 18.99 7.81 0.09 0.00 1.03 21.15 1.02 2.40 $ 8,447,742 2.51 - 76 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 The ASRS does not have a formal policy in regards to interest rate risk, but does manage interest rate risk using effective duration. Effective duration measures the expected change in value of a fixed income security for a given change in interest rate. The method takes into account the likely timing and amounts of variable cash flows for bonds with call options and prepayment provisions. The following table presents ASRS’ effective duration by investment type (expressed in thousands): Investment Type Domestic Fixed Income Securities Asset Backed Securities Bond Funds CMO's of Government Sponsored Entities Commercial Mortgage Backed Securities Commercial Paper Corporate Bonds Dollar Denominated Debt of Foreign Companies Dollar Denominated Debt of Foreign Countries Fixed Income Strips GNMA Pools Government Sponsored Entity Debt Indexed Linked Government Bond Funds Indexed Linked Treasury Bonds Municipal Bonds Non-government Backed CMO's Pools of Government Sponsored Entities Short Term Investments U.S. Treasury Debt Total Domestic Debt Securities Fair Value $ 240,254 322,906 74,599 211,200 122,644 838,230 57,330 71,347 8,142 138,092 462,654 774,263 37,381 2,370 117,806 1,283,948 1,787,462 635,320 7,185,948 1.47 5.59 2.40 4.13 0.06 5.83 7.08 6.80 8.86 2.43 3.83 4.44 8.20 14.79 2.02 2.29 0.08 4.16 2.90 8,742 14,626 2,687 10,086 36,141 0.13 11.34 7.32 0.08 5.19 Foreign Debt Securities Corporate Bonds Government Bonds Provincial Bonds Margin Accounts Total Foreign Debt Securities Total Debt Securities $ Effective Duration 7,222,089 - 77 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 The PSPRS, the EORP, the CORP, and the NAU do not have a formal policy in regards to interest rate risk. The U of A’s investment policy limits its operating funds to having a portfolio comprised of a significant proportion of authorized securities with maturities of one year or less, and requires that a maximum maturity of any fixed rate issue may not exceed 3 years and the final maturity of any floating rate issue may not exceed 5 years. The U of A capital projects and endowment funds have no such limitations. The following table presents the interest rate risk for the PSPRS, the EORP, the CORP, the NAU, the U of A, and other State agencies utilizing the segmented time distribution (expressed in thousands): Investment Maturities (in years) Investment Type Corporate Bonds Corporate Bond Funds Collateralized Bond Obligations (CBO’s) Collateralized Debt Obligations (CDO’s) Commercial Paper Indexed Treasury Bond Fund International Fixed Income Fund Money Market Mutual Funds Securities Lending Pool U.S. Agency Securities U.S. Treasury Securities Other Investments Total Debt Securities Fair Value $ 774,146 1,873 Less than 1 $ 60,340 - 1-5 $ 143,198 1,155 6-10 $ 113,918 718 11-15 $ 96,896 - 16-20 $ 64,991 - More than 20 $ 294,803 - 56,761 - 802 5,000 16,815 - 34,144 40,340 335,106 3,554 8,163 143,077 24,449 520,523 74,319 12,321 335,106 143,077 24,449 168,727 73,753 761 8,163 62,001 10,343 15,000 53,745 566 985 3,554 99,014 232 76,956 - 25,340 60,080 - $ 1,994,632 $ 806,213 $ 225,662 $ 189,932 $ 216,511 $ 141,947 $ 414,367 - 78 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 The following table presents the State’s investments at fair value that are considered to be highly sensitive to interest rate changes (expressed in thousands): Interest Rate Terms U.S. LIBOR plus/minus fixed point variable monthly to semiannually Mortgage Backed Securities-when interest rates fall, mortgages are refinanced and paid off early and the reduced stream of future interest payments diminish fair value. Callable Step-Up Notes - where on certain specified dates, the issuer can call the security. If the security is not called, the interest rate is increased by a specified amount. Prevailing interest rates may go up faster than this increase in the coupon interest rate. Annual U.S. LIBOR flat variable quarterly Quarterly U.S. LIBOR + 80 bps variable quarterly Six month U.S. LIBOR + 50 bps variable semi-annually Monthly U.S. CPI YO + 118 variable monthly Monthly U.S. CPI YO + 200 variable monthly Quarterly U.S. LIBOR + 375 bps variable quarterly Quarterly U.S. LIBOR + 230 bps variable quarterly Quarterly U.S. LIBOR + 125 bps variable quarterly Monthly U.S. CPI YO + 140 variable monthly Monthly U.S. CPI YO + 150 variable monthly Monthly U.S. CPI YO + 100 variable monthly Quarterly U.S. LIBOR + 175 bps variable quarterly Quarterly U.S. LIBOR + 27 bps variable quarterly Six month U.S. LIBOR + 125 bps variable semi-annually Other securities with sensitivity to rate changes Total Corporate Bonds $ 716,222 CDO’s CBO’s $ $ - U.S. Agency Securities - $ 198,747 Total $ 914,969 - - - 595,342 595,342 19,813 15,021 802 14,755 4,066 4,000 12,752 8,544 24,690 4,928 40,032 15,000 - 4,118 - 10,000 - 119,888 183,616 119,888 19,813 15,021 802 14,755 4,066 4,000 4,118 12,752 8,544 24,690 4,928 10,000 40,032 15,000 183,616 $ 880,625 $ 4,118 10,000 $ 1,097,593 $ 1,992,336 $ D. CREDIT RISK Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations to the holder of the investment. The State statutes and the State Treasurer’s investment policy require that commercial paper must be rated P1 by Moody’s Investor Service (Moody’s) or A1 or better by Standard and Poor’s Ratings Service (S & P). Corporate bonds, debentures, and notes must carry a minimum Baa or better rating of Moody’s or a BBB or better rating of S & P. For investments not rated by Moody’s, Fitch rating information is used. There is no statute or investment policy on ratings or credit quality for obligations issued by the U.S. Government or it agencies or repurchase agreements. The underlying securities for repurchase agreements must be explicitly guaranteed by the U.S. Government. The ASRS has not adopted a formal policy with respect to credit risk. The PSPRS, the EORP, and the CORP’s investment policy is specific as to permissible credit quality ranges, exposure levels within individuals’ quality tiers, and the average credit quality of the overall portfolios. The fixed income portfolio must have a minimum weighted average quality rating of A3 by Moody’s and A- by S & P. Fixed income investments must have a minimum quality rating of Baa3 by Moody’s and BBB- by S & P at the time of purchase. Commercial paper must have a minimum quality rating of P1 by Moody’s and A1 by S & P at the time of purchase. The portion of the bond portfolio in investments rated Baa3 through Baa1 by Moody’s and BBB- through BBB+ by S & P must be 20% or less of the fair value of the fixed income portfolio. The Universities each have a different policy regarding credit risk. The ASU’s policy requires that certificates of deposit have a minimum credit rating of A1/P1, commercial paper have a minimum credit rating of A1+/P1 and money market funds have a credit - 79 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 rating of AAAm or better, all rated by S & P. The U of A’s policy requires that for endowment funds, corporate bonds and notes should be rated Baa or higher by Moody’s at the time of purchase. The NAU does not have a formal policy with respect to credit risk. The Commission’s investment policy requires that fixed income investments be rated Ba or better by Moody’s or BB or better by S & P at the time of purchase. Fixed income managers hired to manage funds in a specialized manner (high yield) are exempted from this requirement. Purchases of high yield fixed income investments will consist of a diversified portfolio of holdings which will maintain in the aggregate a minimum credit rating of Ba3 by Moody’s and BB by S & P. The following table presents the State’s investments which were rated by S & P and/or an equivalent national rating organization as of June 30, 2005. The ratings are presented using S & P’s rating scale (expressed in thousands): Investment Type Asset Backed Securities Bond Funds Certificate of Deposit Collateralized Bond Obligations Collateralized Debt Obligations CMO's of Government Sponsored Entities Commercial Mortgage Backed Securities Commercial Paper Corporate Bonds Directed Real Estate Dollar Denominated Debt of Foreign Companies Dollar Denominated Debt of Foreign Countries Fixed Income Strips incl US Strips GNMA Pools Government Bonds Government Mortgage Backed Securities Government Sponsored Entity Debt Indexed Linked Government Bond Funds Indexed Linked Treasury Bonds Money Market Mutual Funds Mortgages Municipal Bonds Non-government Backed CMO's Pools of Government Sponsored Entities Securities Lending Pool Short Term Money Markets U.S. Agency Securities Other Investments International Fixed Income Fund Foreign Corporate Bonds Foreign Government Bonds Foreign Provincial Bonds Foreign Margin Accounts Total Fair Value $ 240,254 337,392 5,058 56,761 40,340 AAA $ 227,061 8,254 - AA $ 5,476 5,058 - 74,599 211,200 2,188,558 2,740,842 240,251 74,599 209,733 413,260 - 57,330 71,347 8,142 138,092 27,200 13,388 462,654 774,263 40,935 182,508 16,711 2,370 117,806 1,283,948 24,449 1,787,462 3,228,163 17,888 8,163 8,742 14,626 2,687 10,086 $14,434,215 A 5,244 48,507 36,221 BBB $ 1,462 - - B $ 1,011 - 4,119 - 1,177 333,714 - 290 1,264,435 - 601,443 - - 3,299 37,556 35,124 8,142 138,092 27,200 13,388 444,976 40,935 127,707 16,711 881 117,593 1,283,948 2,041,635 9,793 $5,239,032 15,037 17,678 1,489 165 9,212 12 2,687 $395,004 2,744 48 $1,395,045 $ BB - Not Rated $ 337,392 - - - 88,752 - 37,213 - 2,188,558 - 2,025 240,251 12,373 2,162 1,940 - - 17,352 4,833 $641,582 $90,914 1,090 $41,254 1,177,311 $3,365,869 774,263 54,801 24,449 1,787,462 5 17,876 8,163 8,742 10,086 $3,265,515 $ A1 $ E. CONCENTRATION OF CREDIT RISK Concentration of credit risk is the risk of loss attributed to the magnitude of a government’s investment in a single issuer. The State Treasurer’s, the ASRS’, the U of A’s, and the Commission’s investment policies state that no more than 5% of their investments may be invested in securities issued by any one institution, agency or corporation, other than securities issued as direct obligations of or are fully guaranteed by the U.S. Government or mortgage backed securities and agency debentures issued by federal agencies. The PSPRS, the EORP, and the CORP’s investment policy states that no more than 5% of their investments may be invested in - 80 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 securities issued by any one institution, agency or corporation, other than securities issued as direct obligations of or are fully guaranteed by the U.S. Government. The ASU and the NAU have no formal policy in regards to the concentration of credit risk. At June 30, 2005, the following investments exceeded 5% of the Governmental Activities’ total investments (expressed in thousands): Issuer Description Federal Home Loan Mortgage Corporation Federal Home Loan Bank Federal National Mortgage Association Fair Value $ 782,273 596,398 589,702 Percentage 16.01% 12.20% 12.07% At June 30, 2005, the following investments exceeded 5% of the Business-type Activities’ total investments (expressed in thousands): Issuer Description Federal Home Loan Bank Federal National Mortgage Association Fair Value $ 176,009 194,484 Percentage 7.65% 8.46% F. FOREIGN CURRENCY RISK Foreign currency risk is the risk that changes in the foreign exchange rate will adversely impact the fair value of an investment or deposit. The State does not have a policy regarding foreign currency risk. The ASRS is the primary State agency that has foreign currency risk. Per ARS §38-719, no more than 20% of the ASRS assets may be invested in foreign equity securities and those investments shall be made only by investment managers with demonstrated expertise in those investments. The ASRS Board has not adopted a formal policy that is more restrictive. The following table summarizes the State’s foreign currency risk as of June 30, 2005 (expressed in thousands): Currency Australian Dollar British Pound Sterling Canadian Dollar Danish Krone Euro Currency Hong Kong Dollar Japanese Yen New Mexican Peso New Taiwan Dollar New Zealand Dollar Singapore Dollar Swiss Franc Other Total Foreign Currency Risk by Investment Type at Fair Value Short Term Fixed Income Equities Total $ 1,418 $ $ $ 1,418 176 164,307 164,483 880 8,809 9,689 1,569 1,569 2,339 7,685 468,552 478,576 247 247 1,599 8,742 252,583 262,924 288 4,833 5,121 6,008 6,008 2,233 4,795 13,302 20,330 2 24,561 24,563 904 97,804 98,708 5,428 9,107 35,243 49,778 $ 15,514 $ 35,162 $ 1,072,738 $ 1,123,414 G. UNEMPLOYMENT COMPENSATION The ARS §23-703 requires that unemployment compensation contributions from Arizona employers be deposited in an unemployment trust fund account with the Secretary of the Treasury of the United States that is established and maintained pursuant to Section 1104 of the Social Security Act. The cash on deposit in the trust fund account is pooled and invested. Interest earned from investments purchased with such pooled monies is deposited in the trust fund account. The Unemployment Compensation Fund, reported as a major Proprietary Fund, has been established for this purpose. - 81 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 H. SECURITIES LENDING Cash received as collateral on securities lending transactions and investments made with that cash are reported as assets. A corresponding liability is also recorded for such securities lending transactions. 1. Industrial Commission State statutes and the Commission’s policies permit the Commission to enter into securities lending transactions with its custodial bank. There were no significant violations of legal or contractual provisions, and there were no borrower or lending agent default losses to the securities lending agent. The custodial bank, Northern Trust, manages the securities lending operations through a contractual agreement with the Commission and splits the fees received with the Commission. There was no credit risk (i.e., lender’s exposure to the borrowers of its securities) related to the securities lending transactions at June 30, 2005. Northern Trust’s indemnification responsibilities include performing appropriate borrower and collateral investment credit analysis, demanding adequate types and levels of collateral, and complying with applicable Department of Labor and Federal Financial Institutions Examinations Council regulations concerning securities lending. Securities are loaned for collateral that may include cash, U.S. Government securities and irrevocable letters of credit. Domestic securities are loaned for collateral valued at 102% of the market value of securities loaned plus accrued interest. International securities are loaned for collateral valued at 105% of the market value of securities loaned plus accrued interest. The market value at June 30, 2005 for loaned securities collateralized by cash and noncash collateral was $45.909 million and $5.991 million, respectively. As part of the securities lending transactions, Northern Trust received cash and non-cash collateral valued at $46.939 million and $6.135 million, respectively at June 30, 2005. Non-cash collateral cannot be pledged or sold unless the borrower defaults. Deposit and investment risk disclosures are only reported for collateral received on securities lent. All securities loans can be terminated on demand by either the lender or the borrower. The average term of the loans is 139 days and cash open collateral is invested in a short-term investment pool, the Core USA Collateral Section, which had an average weighted maturity of 28 days as of June 30, 2005. Cash collateral may also be invested separately in term loans, in which case the investments match the loan term. Cash open loans can be terminated on demand by either lender or borrower and there were no dividends or coupon payments owing on securities lent. Securities lending earnings are credited to participating clients on approximately the fifteenth day of the following month. Investments made with cash collateral received are classified as an asset on the Statement of Net Assets. A corresponding liability is recorded as the Commission must return the cash collateral to the borrower upon expiration of the loan. At June 30, 2005, the Commission had $46.939 million outstanding as payable for securities lending. 2. Arizona State Retirement System The ASRS is permitted by ARS §38-715(D) (3), to enter into securities lending transactions. The ASRS’ custodial bank enters into agreements with counterparts to loan securities and have the same securities redelivered at a later date. All securities are eligible for loan (U.S. fixed income securities, U.S. equities, and international equities) with a higher percentage of U.S. Treasuries on loan than most other security types. It is the policy of the ASRS to receive as collateral at least 102% of the market value of the loaned securities and maintain collateral at no less than 100% for the duration of the loan. At year-end, the ASRS has no credit risk exposure to borrowers because the amount the ASRS owes the borrowers exceeds the amount the borrowers owe the ASRS. The ASRS records the collateral received as an asset and the same amount as an obligation for securities on loan. Any cash collateral received is invested in short-term investments. The maturities of the investments are closely matched to those of the security loans to avoid interest rate exposure. The ASRS receives a spread for its lending activities. Investments made with cash collateral received are classified as an asset on the Statement of Fiduciary Net Assets. A corresponding liability is recorded as the ASRS must return the cash collateral to the borrower upon expiration of the loan. At June 30, 2005, the ASRS had $2.3 billion outstanding as payable for securities on loan. Due to the flow of securities to and from transfer agents and the security loan program, securities occasionally cannot be delivered for a sale or received for a purchase, resulting in a failed transaction. Securities with trade dates in June and settlement dates in July result in outstanding transactions. Since these securities have contractually changed ownership, receivables and payables result from these transactions. Such transactions resulted in a receivable for securities sold of $510.600 million and a payable for securities purchased of $984.500 million at June 30, 2005. - 82 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 3. Public Safety Personnel Retirement System, Elected Officials’ Retirement Plan and Corrections Officer Retirement Plan The PSPRS, the EORP and the CORP are permitted by ARS Title 38, Chapter 5, Articles 3, 4, and 6 to enter into securities lending transactions. The PSPRS, the EORP and the CORP are parties to securities lending agreements with a bank. The bank, on behalf of the PSPRS, the EORP, and the CORP, enters into agreements with brokers to loan securities and have the same securities returned at a later date. The loans are fully collateralized, primarily by cash. Collateral is marked-to-market on a daily basis. Non-cash collateral can be sold only upon borrower default. The PSPRS, the EORP, and the CORP require collateral of at least 102% of the fair value of the loaned U.S. Government or corporate security. Securities on loan are carried at fair value. As of June 30, 2005, the fair values of securities on loan were (expressed in millions): PSPRS EORP CORP $ 902.230 71.013 177.943 The PSPRS, the EORP, and the CORP receive a negotiated fee for their loan activities and are indemnified for broker default by the securities lending agent. The PSPRS, the EORP, and the CORP participate in a collateral investment pool. All security loans can be terminated on demand by either the pool participants or the borrower. The total cash collateral investments received for unmatched loans (any loan for which the cash collateral has not been invested for a specific maturity) will have a maximum effective duration of 233 days. And, at least 20% of total collateral investments shall be invested on an overnight basis. All matched loans shall have matched collateral investments. At June 30, 2005, the weighted average maturity was twenty days for all investments purchased with cash collateral from unmatched loans. The PSPRS, the EORP, and the CORP have no credit risk because the amounts owed to borrowers exceed the amounts borrowers owe to them. Under this program, the PSPRS, the EORP, and the CORP have not experienced any defaults or losses on these loans. 4. University of Arizona During the fiscal year, the U of A engaged in securities lending transactions within its endowment funds, as authorized by the Board of Regents. The U of A entered into an agreement with Wells Fargo, the U of A’s custodian, to carry out these transactions. The custodian enters into agreements with brokers to loan securities and have the same securities returned at a later date. It is the policy of the U of A to receive as collateral at least 102% of the market value of the loaned securities and accrued interest, and maintain collateral at no less than 100% for the duration of the loan. At year-end, the U of A had no credit risk to borrowers because the U of A was holding more collateral than the amount of loaned securities outstanding. The U of A records the collateral received as an asset, which is offset by an obligation recorded under securities lending. During the fiscal year ended June 30, 2005, there were no violations of legal or contractual provisions, and there were no borrower or lending agent default losses. Wells Fargo does indemnify the U of A against losses due to borrower defaults. Collateral can be received in the form of U.S. Government securities, letters of credit, or cash. As of June 30, 2005, the custodian has received only cash collateral. This collateral may be invested in U.S. Treasury and sponsored agency obligations, repurchase agreements, bankers’ acceptances, commercial paper, mortgage backed securities, municipal securities, and corporate bonds or in a cash collateral investment pool, which invests in similar securities. At June 30, 2005, cash collateral received from borrowers was invested in the cash collateral investment pool and corporate bonds, which had a weighted average maturity of 1 day and 591 days, respectively, and represented 67% and 33% of cash collateral investments, respectively. The relationship between the maturities of the cash collateral investment pool and the U of A’s securities loans is affected by the maturities of the securities loans made by other entities that use the custodial bank’s pool, which the U of A cannot determine. However, the U of A or the borrower can terminate securities loans on demand. Other cash collateral investments are made such that their maturities will match those of the related securities loans. Such matching existed at year-end. At June 30, 2005, cash collateral investments totaled $36.786 million with a corresponding market value of securities on loan of $35.983 million. Securities lent for cash collateral included corporate stocks, corporate bonds, agency notes, agency bonds, government notes, and government bonds. The U of A cannot sell or pledge securities received as collateral unless the borrower defaults. The U of A earns a negotiated fee for participating in securities lending activities. - 83 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 I. DERIVATIVES A derivative instrument is a financial instrument or other contract with all three of the following characteristics: • It has (1) one or more underlyings and (2) one or more notional amounts or payment provisions or both. Those terms determine the amount of the settlement or settlements, and in some cases whether or not a settlement is required. • It requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors. • Its terms require or permit net settlement, it can readily be settled net by means outside the contract, or it provides for delivery of an asset that puts the recipient in a position not substantially different from net settlement. The principal categories of derivatives employed and their uses during the year were as follows: Category Currency forward contracts Futures contracts Purpose Hedge currency risk of investments denominated in foreign currencies. Reduce transaction costs; obtain market exposure; enhance returns. Derivatives are reported at fair value. The fair value of currency forward contracts is determined by interpolating the spot rate and the forward rates based upon number of days to maturity. The interpolated rate is used to determine the unrealized gain/loss at the valuation date. The fair value of futures contracts is determined by calculating the difference between the closing Bloomberg market price on valuation date and the original futures trade price. Futures are settled daily. Generally, derivatives are subject to both market risk and credit risk. The derivatives utilized by ASRS internal investment managers typically have no greater market risk than their physical counterparts, and in many cases are offset by exposure elsewhere in the portfolio. The ASRS believes that it is unlikely that any of the derivatives used by its internal investment managers could have a material adverse effect on the financial conditions of the System. J. STATE TREASURER’S SEPARATELY ISSUED FINANCIAL STATEMENTS The State Treasurer issues a separately published Annual Financial Report. The report provides additional information relating to the State Treasurer’s total investing activities, including the Investment Trust Funds. A copy of the State Treasurer’s Office Annual Financial Report can be obtained from their office location at: State Treasurer’s Office 1700 W. Washington Phoenix, Arizona 85007-2812 The Treasurer’s financial statements are audited by the Office of the Auditor General. - 84 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 NOTE 3. RECEIVABLES/DEFERRED REVENUE A. TAXES RECEIVABLE The following table summarizes taxes receivable at June 30, 2005 (expressed in thousands): General Fund Type of Tax Sales Income – individual and corporate Motor vehicle and fuel Luxury Unemployment Other Gross taxes receivable Allowance for uncollectible taxes Net taxes receivable $ $ 372,205 115,461 8,626 496,292 (106,154) 390,138 Transportation & Aviation Planning, Highway Maintenance & Unemployment Safety Compensation Fund Fund $ $ 60,057 60,057 60,057 $ $ - 85 - 63,911 63,911 63,911 Industrial Commission Special Fund $ $ 5,329 5,329 5,329 Non-Major Governmental Funds $ $ 2,797 15,218 18,015 18,015 GovernmentWide Total $ $ 375,002 115,461 60,057 23,844 63,911 5,329 643,604 (106,154) 537,450 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 B. DEFERRED REVENUE At June 30, 2005, the components of deferred revenue, in terms of revenue unavailable and unearned, were as follows (expressed in thousands): Current Deferred Revenue for Governmental Funds: General Fund: Delinquent sales tax Delinquent income tax Tobacco settlement Child support administrative reimbursements Advance insurance premiums Advance land lease payments Public assistance overpayments Vaccine & commodity food supplement Advanced county Medicaid payments Federal grants Tribal reimbursements Transportation & Aviation Planning, Highway Maintenance & Safety Fund: Notes receivable for real estate mortgage loans Land Endowments Fund: Land sales receivable Land leases receivable Advance land lease payments Non-Major Funds: Public assistance overpayments Advance payments for Hawaii/Arizona PMMIS Alliance Other Total Current Deferred Revenue for Governmental Funds Unavailable $ Noncurrent Deferred Revenue for Governmental Funds: General Fund: Advance land lease payments Total Noncurrent Deferred Revenue for Governmental Funds $ Total Current and Noncurrent Deferred Revenue for Governmental Funds Total Deferred Revenue Unearned 84,892 58,861 44,805 4,547 1,345 14,715 258 $ 41,304 291 7,049 18,451 - 5,586 448,180 3,531 - 25,661 448,180 3,531 25,661 1,547 668,267 608 20 93,384 1,547 608 20 761,651 - 6,297 6,297 6,297 6,297 668,267 $ 99,681 $ Noncurrent Deferred Revenue for Proprietary Funds: Universities: IBM lease related to acquisition of research park Total Noncurrent Deferred Revenue for Proprietary Funds - 86 - 84,892 58,861 44,805 4,547 41,304 291 1,345 7,049 18,451 14,715 258 5,586 Unearned Current Deferred Revenue for Proprietary Funds: Universities: Unexpended cash advances received Auxiliary sales and services IBM lease related to acquisition of research park Student tuition and fees Other deferred revenue Deposits Non-Major Funds: Policyholders' advance premiums Magazine subscriptions Total Current Deferred Revenue for Proprietary Funds $ 31,360 5,367 4,900 35,474 2,198 864 $ 6,721 3,568 90,452 $ $ 39,670 39,670 $ 767,948 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 NOTE 4. CAPITAL ASSETS Capital asset activities for the fiscal year ended June 30, 2005 were as follows (expressed in thousands): Primary Government Beginning Balance Governmental Activities: Non-depreciable capital assets: Land Construction in progress Infrastructure Total Non-depreciable Capital Assets $ 1,958,827 1,456,713 8,591,371 12,006,911 Additions $ 43,510 619,163 272,272 934,945 Retirements $ (21,043) (256,187) (15) (277,245) Adjustments & Reclassifications $ Ending Balance (316) (34,338) (34,654) $ 1,980,978 1,785,351 8,863,628 12,629,957 Depreciable capital assets: Buildings Improvements other than buildings Equipment Infrastructure 1,488,193 140,029 636,522 6,604 5,133 1,991 65,384 - (4,577) (36,694) - 26,594 543 1,205 - 1,515,343 142,563 666,417 6,604 Total Depreciable Capital Assets 2,271,348 72,508 (41,271) 28,342 2,330,927 Less accumulated depreciation for: Buildings Improvements other than buildings Equipment Infrastructure Total Accumulated Depreciation (386,281) (55,621) (442,324) (4,063) (888,289) (37,630) (3,940) (57,944) (99) (99,613) 3,234 34,738 37,972 104 5 1,767 1,876 (420,573) (59,556) (463,763) (4,162) (948,054) Total Depreciable Capital Assets, Net 1,383,059 (27,105) (3,299) 30,218 1,382,873 $ 13,389,970 $ 907,840 $ (280,544) (4,436) $ 14,012,830 Total Governmental Activities Capital Assets, Net Beginning Balance (as restated) Business-type Activities: Non-depreciable capital assets: Land Construction in progress Collections Total Non-depreciable Capital Assets Retirements Adjustments & Reclassifications $ 7,600 230,009 2,244 239,853 $ (120) (511) (631) Depreciable capital assets: Buildings Improvements other than buildings Equipment Infrastructure Total Depreciable Capital Assets 2,488,685 2,493 1,063,060 246,791 3,801,029 162,747 1,106 80,366 8,784 253,003 (13,690) (34,890) (48,580) 71,952 1 170 33,640 105,763 2,709,694 3,600 1,108,706 289,215 4,111,215 Less accumulated depreciation for: Buildings Improvements other than buildings Equipment Infrastructure Total Accumulated Depreciation (951,012) (20,993) (730,848) (58,638) (1,761,491) (89,617) (142) (69,701) (9,254) (168,714) 5,284 31,007 36,291 (160) 19,043 155 (19,043) (5) (1,035,505) (2,092) (769,387) (86,935) (1,893,919) 2,039,538 84,289 (12,289) 105,758 2,217,296 $ 2,366,582 $ 324,142 $ (12,920) (2) $ 2,677,802 Total Business-type Activities Capital Assets, Net - 87 - $ (105,592) (168) (105,760) Ending Balance 135,715 160,275 31,054 327,044 Total Depreciable Capital Assets, Net $ Additions $ $ $ 143,195 284,181 33,130 460,506 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 Depreciation expense was charged to governmental functions as follows (expressed in thousands): General government Health and welfare Inspection and regulation Education Protection and safety Transportation Natural resources Total governmental activities $ $ 22,508 17,999 1,633 697 35,270 14,415 7,091 99,613 Depreciation expense was charged to business-type activities as follows (expressed in thousands): Lottery Industrial Commission Universities Other Total business-type activities $ $ 190 1,140 164,726 2,658 168,714 NOTE 5. RETIREMENT PLANS The State contributes to the four plans described below. The four plans are considered part of the State’s financial reporting entity and are included in the State’s financial statements as Pension Trust Funds. A. PLAN DESCRIPTIONS The State participates in the ASRS, the PSPRS, the EORP, and the CORP. Benefits are established by State statutes and provide retirement, death, long-term disability, survivor and health insurance premium benefits to State employees, public school employees and employees of counties, municipalities, and other State political subdivisions. The ASRS is a cost-sharing, multiple-employer defined benefit pension plan that benefits employees of the State, its political subdivisions, and public schools. The ASRS is governed by the Arizona State Retirement System Board according to the provisions of ARS Title 38, Chapter 5, Article 2. The PSPRS is an agent, multiple-employer defined benefit pension plan that benefits fire fighters and police officers employed by the State or certain local governments. The PSPRS, acting as a common investment and administrative agent, is governed by a fivemember board, known as the Fund Manager, and 200 local boards according to the provisions of ARS Title 38, Chapter 5, Article 4. The EORP is a cost-sharing, multiple-employer defined benefit pension plan that benefits all elected State and county officials and judges and certain elected city officials. The EORP is governed by the Fund Manager of the PSPRS according to the provisions of ARS Title 38, Chapter 5, Article 3. The CORP is an agent, multiple-employer defined benefit pension plan that benefits town, city and county detention officers and certain employees of the Arizona Department of Corrections and the Arizona Department of Juvenile Corrections. The CORP is governed by the Fund Manager of the PSPRS and 18 local boards according to the provisions of ARS Title 38, Chapter 5, Article 6. Each plan issues a publicly available financial report that includes its financial statements and required supplementary information. A report may be obtained by writing or calling the applicable plan. Arizona State Retirement System P.O. Box 33910 Phoenix, Arizona 85067-3910 (602) 240-2000 or (800) 621-3778 - 88 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 Public Safety Personnel Retirement System, Elected Officials’ Retirement Plan or the Corrections Officer Retirement Plan 3010 East Camelback Road, Suite 200 Phoenix, Arizona 85016 (602) 255-5575 The number of participating government employers as of June 30, 2005 is shown below: Employer Cities and towns Counties and county agencies State Special districts School districts Charter schools Community college districts Dispatchers ASRS PSPRS EORP CORP 72 14 1 81 233 184 10 - 130 24 1 45 - 18 15 1 - 12 1 5 B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES As part of the Pension Trust Funds, the financial statements are prepared using the accrual basis of accounting under which expenses are recorded when the liability is incurred and revenues are recorded in the accounting period in which they are earned and become measurable. Employee contributions are recognized in the period in which contributions are due. Employer contributions are recognized when due and the employer has made a formal commitment to provide the contributions. Contributions from employees and employers for service through June 30 are accrued. These contributions are considered to be fully collectible and, accordingly, no allowance for uncollectible receivables is reflected in the financial statements. For the ASRS, investments are reported at fair value and at cost. Security transactions and any resulting gains or losses are accounted for on a trade-date basis. Investments, other than real estate and commercial mortgages, are reported at fair values determined by the custodial agents. The agent’s determination of fair values includes, among other things, using pricing services or prices quoted by independent brokers at current exchange rates. Commercial mortgages have been valued on an amortized cost basis, which approximates fair value. No allowance for loan loss has been provided as all loans and bonds are considered by management to be fully collectible. Short-term investments are reported at cost plus accrued interest, which approximates fair value. For investments where no readily ascertainable fair value exists, management, in consultation with its investment advisors, has determined the fair values for the individual investments based on anticipated maturity dates and current interest rates commensurate with the investment’s degree of risk. The fair value of real estate investments is based on independent appraisals or estimated value. Net investment income includes net increase in fair value of investments, interest income, dividend income, and total investment expense, which includes investment management and custodial fees and all other significant investment related costs. For the PSPRS, the EORP, and the CORP, investments are reported at fair value with the exception of directed real estate and venture capital investments that are reported at cost. Fair values are determined as follows: Short-term investments are reported at fair value, which approximates cost. Equity securities are valued at the last reported sales price. Fixed-income securities are valued using the last reported sales price or the estimated fair market value as determined by one of the world’s largest and most prominent fixed-income broker/dealers. Investments that do not have an established market are reported at estimated fair value. Investment income is recognized as earned. C. INVESTMENT RESTRICTIONS State statutes restrict the retirement plans from investing more than five percent of each plan’s total assets in securities issued by any one institution, agency or corporation, other than securities issued as direct obligations of or fully guaranteed by the U.S. Government, except for the ASRS, which may also invest in mortgage backed securities and agency debentures issued by federal agencies. As of June 30, 2005, the four retirement plans are in compliance with the State statutes. - 89 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 D. FUNDING POLICY The contribution requirements of plan members and the State are established by Title 38, Chapter 5 of the Arizona Revised Statutes. These contribution requirements may be amended by the Arizona State Legislature. Cost-sharing plans – For the year ended June 30, 2005, active ASRS members and the State were each required by statute to contribute at the actuarially determined rate of 5.70% (5.20% retirement and 0.50% long-term disability) of the members’ annual payroll. The State’s contributions to ASRS for the years ended June 30, 2005, 2004, and 2003 were $93.148, $87.657, and $37.777 million, respectively, for the primary government. In addition, active EORP members were required by statute to contribute 7.00% of the members’ annual covered payroll. The State was required to contribute a designated portion of certain fees collected by the Supreme Court plus additional contributions of 7.00% of the members’ annual covered payroll, as determined by actuarial valuation. The State’s contributions to EORP for the years ended June 30, 2005, 2004, and 2003 were $1.010 million, $987 thousand, and $81 thousand, respectively, which were equal to the required contributions for the year. Agent plans – For the year ended June 30, 2005, active PSPRS members were required by statute to contribute 7.65% of the members’ annual covered payroll and the participating State agencies were required to contribute at actuarially determined rates of 10.74 to 37.39%. Active CORP members were required by statute to contribute 8.50% of the members’ annual covered payroll and the participating State agencies were required to contribute at actuarially determined rates of 6.88 to 7.17 %. E. ANNUAL PENSION COST The State’s annual pension cost and related actuarial data for each of the agent, multiple-employer defined benefit pension plans for the year ended June 30, 2005, is as follows (expressed in thousands): Contribution rates: State Plan members Annual pension cost Contributions made Actuarial valuation date Actuarial cost method Actuarial assumptions: Investment rate of return Projected salary increases includes inflation at Cost-of-living adjustments Amortization method Remaining amortization Asset valuation method PSPRS CORP 10.74 - 37.39% 7.65% $6,442 $6,442 6/30/03 entry age 6.88 - 7.17% 8.50% $12,754 $12,754 6/30/03 entry age 8.50% 6.00 - 9.00% 5.00% none level percent open 20 years smoothed market value 8.50% 5.00 - 9.00% 5.00% none level percent open 20 years smoothed market value - 90 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 F. TREND INFORMATION Information for each of the agent, multiple-employer defined benefit plans as of the most recent actuarial valuations is as follows (expressed in thousands): Contributions Required and Contributions Made PSPRS Fiscal Year Ended 6/30/05 6/30/04 6/30/03 Annual Pension Cost (APC) $6,442 6,299 3,951 Percentage of APC Contributed 100% 100% 100% 6/30/05 6/30/04 6/30/03 12,754 11,900 5,789 100% 100% 100% CORP Net Pension Obligation $ 0 0 0 0 0 0 G. UNIVERSITIES’ RETIREMENT PLANS Faculty, academic professional, and administrative officers at the three universities (the ASU, the NAU, and the U of A) may select one of six retirement plans: the Teachers Insurance Annuity Association/College Retirement Equities Fund (TIAA/CREF), Variable Annuity Life Insurance Company (VALIC), Fidelity Investments Tax-Exempt Services Company (Fidelity), Aetna Life Insurance and Annuity Company (Aetna), The Vanguard Group (Vanguard), or the ASRS. The ASRS is a defined benefit plan (described above) and the other five plans are defined contribution plans. The five defined contribution plans are administered by independent insurance and annuity companies approved by the ABOR. In addition, the U of A employees hired before July 1, 1972, have the option to participate in the defined contribution plan administered by the ASRS. Eligible classified staff belong to the ASRS. In a defined contribution plan, benefits depend solely on amounts contributed to the plan plus investment earnings. The Arizona State Legislature establishes and may amend active plan members’ and the Universities’ contribution rates. For the year ended June 30, 2005, plan members and the three Universities were each required by statute to contribute an amount equal to 7.00% of an employee’s compensation, except for an 8.10% contribution for the ASRS defined contribution plan. Contributions to these plans for the year ended June 30, 2005, were as follows (expressed in thousands): Plan TIAA/CREF VALIC Fidelity Aetna Vanguard ASRS University Contributions $ 25,676 2,954 5,579 591 2,442 114 Employee Contributions $ 25,676 2,954 5,579 591 2,442 99 Total Contributions $ 51,352 5,908 11,158 1,182 4,884 213 H. POST-EMPLOYMENT BENEFITS In addition to the pension benefits described, the ASRS offers the Retiree Group Insurance Program and the Health Insurance Premium Benefit Program to eligible retired and disabled members. A retired member is defined as a member actively receiving an annuity benefit and a disabled member is defined as a member receiving a Long-Term Disability (LTD) benefit through the LTD program administered by the ASRS or through their former member employer’s group LTD plan. Pursuant to ARS §38-782, the Retiree Group Insurance Program makes available group health insurance coverage to eligible retired and disabled members and their dependents. Retired and disabled members of the ASRS, University Optional Retirement Plans, the PSPRS, the EORP, and the CORP may participate if they are no longer eligible for health insurance benefits through their former employer. More than 44,000 coverage agreements currently exist for retired and disabled members and their dependents. - 91 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 Pursuant to ARS §38-783, retired and disabled members with at least five years of credited service are eligible to participate in the Health Insurance Premium Benefit (subsidy) Program. This assistance is provided to those members who elect group coverage through either the Retiree Group Insurance Program or their former member employer. The ASRS offers a monthly subsidy to decrease the cost of group healthcare insurance offered to all retired and disabled persons of the ASRS, PSPRS, CORP, and EORP that is provided by the primary government of the State. The amount of the subsidy provided retired or disabled participants is dependent upon the number of years of credited service; whether the participant is eligible for Medicare coverage; if the participant elects group insurance coverage for spouse or dependents; and if the participant lives in an isolated or rural location of the State. The amount of the monthly subsidy paid on a member’s and their dependents’ behalf toward the cost of group health insurance by the ASRS ranges from $50 to $600. The ASRS reimbursed approximately $89.600 million and $83.600 million towards the cost of group health insurance coverage for the years ended June 30, 2005 and June 30, 2004, respectively. Employment functions of the retired and disabled members eligible for the subsidy are teachers, State employees, and political subdivision employees. The subsidy was enacted by the State Legislature as part of the enabling and operating laws of the ASRS (ARS §38-782 and §38783). The actuarial calculation of the ASRS plan liabilities used to assess Annual Required Contribution Rate to all participating employers includes an actuarial dollar amount of approximately $879.000 million for fiscal year 2005 (3.50% of the total actuarial liabilities) to fund the health insurance subsidy program. The Total Annual Required Contribution Rate for both employers and employees during fiscal year 2005 was 7.00%. The participating ASRS employers and employees make no other contributions for funding the health insurance subsidy benefit enacted by the State Legislature. Total actuarial liabilities of the ASRS, including funding for the healthcare insurance subsidy, are determined on a projected unitcredit basis. As the ASRS is a cost-sharing plan, the number of subsidy participants and amount contributed for the subsidy by each participating employer is not available. Total Net Assets available to pay the subsidy for all participants at June 30, 2005, is $815.000 million. The State Legislature in ARS §38-783 has made the payment of the healthcare subsidy to retired and disabled participants subordinate to the payment of normal retirement benefits. During the November 1998 general election, voters added Article XXIX to the State of Arizona Constitution. Article XXIX is titled Public Retirement Systems. Article XXIX provided for the following actions: 1. Public retirement systems shall be funded with contributions and investment earnings using actuarial methods and assumptions that are consistent with generally accepted actuarial standards. 2. The assets of the State’s public retirement systems, including investment earnings and contributions, are separate and independent trust funds and shall be invested, administered, and distributed as determined by law solely in the interests of the members and beneficiaries of the public retirement systems. 3. Membership in a public retirement system is a contractual relationship that is subject to Article II, Section 25 of the State’s constitution, and public retirement system benefits shall not be diminished or impaired. Article II, Section 25 of the State’s constitution indicates that no law impairing the obligation of a contract shall ever be enacted. NOTE 6. LONG-TERM OBLIGATIONS A. REVENUE BONDS Governmental Activities 1. Arizona Department of Transportation The ADOT issued Senior and Subordinated Highway Revenue Bonds to provide funds for acquisition of right-of-way and construction of federal, state and local highways. The original amount of Highway Revenue Bonds issued in prior years and outstanding at the start of the fiscal year was $1.0 billion. During the year, Highway Revenue Bonds totaling $188.260 million were - 92 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 issued to (i) finance portions of the Transportation Board’s Five Year Transportation Facilities Construction Program, (ii) pay costs of issuing the bonds, and (iii) pay interest on any bonds issued for highway purposes. The Highway Revenue Bonds are secured by a prior lien on and a pledge of motor vehicle and related fuel fees and taxes. Arizona Revised Statutes prohibit the total principal amount of Arizona Highway Revenue Bonds, excluding refunded bonds, from exceeding $1.3 billion. The Maricopa County Regional Area Road Bond Fund is used to record all payments of principal and interest for Transportation Excise Tax Revenue Bonds issued by the ADOT. The Bonds are secured by transportation excise taxes collected by the Arizona Department of Revenue on behalf of Maricopa County. The original amount of Transportation Excise Tax Revenue Bonds issued in prior years and outstanding at the start of the fiscal year was $289.000 million. The Bond Resolution adopted by the Transportation Board on July 25, 1986 established a debt service reserve requirement equal to the maximum annual interest due in the current year or future years on any series of outstanding Transportation Excise Tax Revenue Bonds. The Second Supplemental Transaction Excise Tax Revenue Bond Resolution adopted by the Board on September 22, 1988, gives the Board the option, which it has elected, of acquiring debt service reserve insurance policies in lieu of the debt service reserve requirement. Accordingly, no debt service reserve is reported in the accompanying financial statements. The policies (aggregating $70.064 million at June 30, 2005) were issued by Financial Guaranty Insurance Company, except for the 1993 Series Subordinated Bonds policies, which were issued by MBIA Insurance Corporation, and the 1995 Series A and Series B Subordinated Bonds policies, which were issued by AMBAC Assurance Corporation. These policies are noncancelable and insure payment, up to the policy amount, of the bond interest on their respective payment dates. The policies shall terminate on the earlier of July 1, 2005, or the date when no respective bonds are outstanding under the bond resolution. The premiums on these insurance policies are recorded as expenditures in the year of payment. In prior fiscal years, the ADOT refinanced various bond issues through advance 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 the defeased bonds are not reflected in the accompanying financial statements. Refunded bonds for the ADOT at June 30, 2005 totaled $74.551 million. 2. School Facilities Board On July 27, 2004, the School Facilities Board (SFB) issued State School Trust Revenue Bonds Series 2004A for $246.600 million. The 2004A Bonds include $246.600 million of serial bonds with interest rates ranging from 3.25% to 6.00% and maturity dates ranging from 2005 to 2019. The SFB realized net proceeds from the 2004A Bonds of $271.952 million after receipt of Original Issue Premium of $25.788 million and payment of $436 thousand for issuance costs. In addition, $12.409 million of funds held in reserve for the Series 2003A-1 and 2003A-2 were used to complete the refunding. The net proceeds were used to (i) refund Taxable Series 2003A-1 and 2003A-2 with a total outstanding principal balance of $247.125 million, (ii) pay the cost of correcting existing deficiencies in school facilities in the State, and (iii) pay the cost of issuance for the 2004A Bonds. Business-Type Activities 3. Universities a. University of Arizona The U of A’s bonded debt consists of various issues of system revenue bonds that are generally callable with interest payable semiannually. Bond proceeds are used to pay for acquiring or constructing capital facilities and infrastructure. Bond proceeds are also used for refunding obligations from previously issued bonds. Payment of principal and interest on bonds are secured by a pledge of tuition and fees, sales and services, auxiliary enterprises, and other charges. On October 27, 2004, the U of A sold System Revenue Bonds Series 2004B (2004B Bonds) for $50.265 million dated November 1, 2004. The 2004B Bonds include $39.540 million of serial bonds with interest rates ranging from 3.00% to 5.00% and maturity dates ranging from 2008 to 2024. The 2004B Bonds also include two term bonds consisting of $4.750 million with an interest rate of 4.50% due June 1, 2029, and $5.975 million with an interest rate of 5.00% due June 1, 2034. The 2004B Bonds with maturity on or - 93 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 after June 1, 2015, are subject to optional redemption without premium. The 2004B Bonds with maturity on June 1, 2029 and June 1, 2034, are subject to mandatory sinking fund redemption without premium pursuant to the debt documents. The 2004B Bonds sold at a premium of $2.882 million along with a reserve fund transfer of $1.350 million. The U of A realized net proceeds of $53.985 million after payment of $512 thousand for issuance costs, underwriter discounts and bond insurance. The net proceeds were used to purchase the La Aldea Student Apartments for $21.980 million, and refund in advance of maturity a portion, $14.075 million, of the System Revenue Bonds Series 1998 with an outstanding principal balance of $40.240 million. The net proceeds were also used to advance-refund System Revenue Bonds 2000A with a total outstanding principal balance of $14.210 million. The advance-refundings generated a net present value benefit of $1.441 million (difference between the present values of the old debt and the new debt service payments) for the U of A. The advance-refunding reduced the U of A’s debt service by an average of $250 thousand per year in the first 6 years. The total debt service reduction from the refunding debt was $1.538 million. The advancerefunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $3.259 million. This difference, reported in the accompanying financial statements as a deduction from long-term debt, is being charged to operations through the year 2024 using the straight-line method. The refunded System Revenue Bonds will be paid by investments held in an irrevocable trust with a combined carrying value of $31.352 million. The refunded debt is considered defeased and is not included in the U of A’s financial statements. In fiscal year 2003, the U of A refunded, in advance of maturity, a portion of outstanding System Revenue Bonds Series 2000A. At June 30, 2005, the outstanding principal balance of the refunded bonds was $4.935 million, which will be paid by investments held in trust with a fair value of $5.199 million. These amounts are not included in the accompanying financial statements. b. Northern Arizona University The NAU’s bonded debt consists of various issues of student housing and system revenue bonds that are generally callable with interest payable semi-annually. Bond proceeds primarily pay for acquiring, constructing or renovating capital facilities. System revenue bonds are repaid from pledged gross revenues that primarily consist of student tuition and fees, and certain auxiliary revenues. On December 16, 2004, the NAU sold System Revenue and Refunding Bonds Series 2004 for $39.675 million dated December 1, 2004. The 2004 Bonds include $35.225 million of serial bonds with interest rates ranging from 3.00% to 5.25% and maturity dates ranging from June 1, 2005 to June 1, 2024. The 2004 Bonds also include $4.450 million of term bonds, with interest rates ranging from 4.375% to 4.75% and maturing on June 1, 2021, 2029 and 2034. The 2004 Bonds were sold with net original issue premium of $2.440 million. The NAU realized net proceeds of $41.700 million after payment of $415 thousand for issuance costs, underwriter discounts and bond insurance. Fifteen million of the net proceeds are being used to finance five separate projects on the NAU's Mountain Campus and $26.700 million is being used to purchase U.S. Government obligations to refund in advance of maturity $25.255 million of system revenue bonds previously issued by the NAU. The Series 2004 System Revenue and Refunding Bonds, with an average interest rate of 4.34%, and the refunded portion of the Series 1997 System Revenue Bonds had an average interest rate of 5.03%. Although the recognition of the difference between the reacquisition price and the net carrying amount of the old debt of $1.445 million, which was reported in the financial statements as a deferred charge for the year ended June 30, 2005, the NAU reduced its aggregate debt service payments by $1.077 million over the next 12 years and obtained an economic gain (i.e., difference between present values of the old and the new debt service payments) of $835 thousand. In prior years, the NAU defeased certain revenue bonds by either placing the proceeds of new bonds, or cash and investments accumulated in the sinking fund, in an irrevocable trust to provide for all future debt service payments on the refunded bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the NAU’s financial statements. At June 30, 2005, $25.475 million of such bonds outstanding are considered defeased. c. Arizona State University In April 2005, the ASU issued $49.900 million of system revenue refunding bonds, with an average interest rate of 4.24%, to refund a portion of the outstanding 2000 and 2002 system revenue bonds totaling $46.900 million with an average interest rate of 5.64%. The net proceeds of $51.300 million, after the net addition of $1.400 million for bond premium, underwriting fees and other issuance costs, were used to purchase U.S. Government securities which were deposited in an irrevocable trust in order to retire the 2012 through 2025 maturities of the 2000 bonds on 7/1/2009 and to retire the 2014 through 2021, 2026, and 2027 maturities of the 2002 bonds on 7/1/2012. The refunded debt is considered defeased and related liabilities are not included in the ASU’s financial - 94 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 statements. The issuance of the refunding bonds at a lower interest rate than the rate for the refunded debt resulted in a $3.900 million reduction in future debt service payments, with an economic gain of $2.400 million based upon the present value savings. At June 30, 2005, ASU held a combination of fixed and variable rate bonds. ASU’s fixed rate bonded debt consists of various issues of system revenue bonds that are generally callable at a prescribed date with interest payable semi-annually. In prior years, certain system revenue bonds of ASU were defeased through advance refundings by depositing sufficient U.S. Government securities to pay all future debt service in an irrevocable trust. Accordingly, the liabilities for these defeased bonds are not included in ASU’s financial statements. The principal amount of all such bonds outstanding June 30, 2005 was $48.900 million. ASU had outstanding two series of variable rate demand system revenue bonds, Series 2003A and 2003B, totaling $103.000 million. Both series of bonds continue to bear interest at a weekly rate not to exceed 12.00% per annum based upon prevailing market conditions, as determined by the respective remarketing agents. The bonds are subject to conversion, at the option of the Arizona Board of Regents on behalf of ASU, to a different or alternate adjustable rate mode, or a fixed rate pursuant to the bond indenture. The interest rates in effect at June 30, 2005 were 2.27% for the Series 2003A bonds and 2.26% for the Series 2003B bonds. The variable rate bonds are subject to purchase on the demand of the holder at a price equal to principal plus accrued interest on seven days’ notice and delivery to the remarketing agents. If the remarketing agents are unable to resell the bonds, the University has a Standby Purchase Agreement with Bank of America, N.A. to extend credit through the purchase of the unremarketed bonds. Assuming all of the $51.500 million Series 2003A bonds and $51.500 million Series 2003B bonds are not resold within 90 days, ASU would be responsible to make annual installment principal payments of $20.600 million over a five-year period, plus interest to be calculated as established in the Standby Purchase Agreement. The ASU has agreed to pay Bank of America, N.A. an annual commitment fee of 0.18% on the outstanding principal for the Standby Purchase Agreement. The Standby Purchase Agreement is valid through October 15, 2008. Securities and cash restricted for bond debt service funds held by trustees at June 30, 2005 totaled $25.800 million. Summary of Revenue Bonds The following schedule summarizes revenue bonds outstanding at June 30, 2005 (expressed in thousands): Revenue Bonds Outstanding Governmental Activities: Department of Transportation School Facilities Board Proprietary Funds: University Revenue Bonds Interest Rates Outstanding Balance at June 30, 2005 Dates Issued Maturity Dates 1989-2005 2001-2005 2006-2024 2006-2021 2.75-8.00% .14-6.00% $1,241,730 929,115 1969-2005 2006-2035 2.26-7.13% 768,000 Principal and interest debt service payments on revenue bonds outstanding at June 30, 2005 are as follows (expressed in thousands): Annual Debt Service Fiscal Year 2006 2007 2008 2009 2010 2011-2015 2016-2020 2021-2025 2026-2030 2031-2035 Total Total Principal $ 178,335 102,860 108,925 114,715 121,080 637,085 731,435 176,410 $ 2,170,845 Governmental Activities Total Interest $ 108,222 101,799 97,079 91,486 85,868 332,349 154,616 18,222 $ 989,641 Business-Type Activities Total $ $ Total Principal 286,557 204,659 206,004 206,201 206,948 969,434 886,051 194,632 3,160,486 - 95 - $ $ 33,870 41,490 46,240 43,255 45,305 214,040 134,540 87,785 68,210 53,265 768,000 Total Interest $ 29,148 32,827 30,807 28,635 26,408 99,462 54,203 32,102 15,025 4,312 $ 352,929 Total $ $ 63,018 74,317 77,047 71,890 71,713 313,502 188,743 119,887 83,235 57,577 1,120,929 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 B. GRANT ANTICIPATION NOTES Grant Anticipation Notes are issued by the Transportation Board and secured by revenues received from the Federal Highway Administration under a grant agreement and certain other federal-aid revenues. The original amount of Grant Anticipation Notes issued in prior years and outstanding at the start of the fiscal year was $308.585 million. During the year, Grant Anticipation Notes totaling $104.385 million were issued to (i) pay costs of the projects (as specified), (ii) pay costs of issuing the notes, and (iii) pay interest on the notes. Grant Anticipation Notes currently outstanding are as follows (expressed in thousands): Grant Anticipation Notes Outstanding Governmental Activities: Department of Transportation Outstanding Balance at June 30, 2005 Dates Issued Maturity Dates Interest Rates 2000-2005 2006-2016 3.00-5.25% $ 363,970 Future debt service principal and interest payments on Grant Anticipation Notes issues for fiscal years ended June 30 are summarized below (expressed in thousands): Annual Debt Service Governmental Activities Total Total Fiscal Year 2006 Principal $ Interest 38,540 $ Total 16,480 $ 55,020 2007 42,570 14,578 57,148 2008 36,565 13,300 49,865 2009 29,990 11,832 41,822 2010 31,350 10,468 41,818 2011-2015 172,865 28,505 201,370 2016 Total 12,090 $ 604 363,970 $ 95,767 12,694 $ 459,737 C. CERTIFICATES OF PARTICIPATION 1. Department of Administration The State has issued COPs to finance construction or improvements of office buildings that are primarily leased to State agencies. The State’s obligation to make lease payments and any other obligations of the State under the lease are subject to, and dependent upon, annual appropriations made by the State Legislature and annual allocations of such appropriations being made by the Department of Administration for such purpose. The Department of Administration agrees to use its best efforts to budget, obtain, allocate and maintain sufficient appropriated monies to make lease payments. In the event any such appropriation and allocation is not made, the leases will terminate and there can be no assurance that the proceeds for the re-leasing or sale of the projects will be sufficient to pay principal and interest with respect to the then outstanding COPs. The scheduled payments of principal and interest with respect to the COPs are guaranteed under certificate insurance policies. The State’s obligation to make lease payments does not constitute a debt or liability of the State within the meaning of any constitutional or statutory limitation. Neither the full faith and credit nor the general taxing power of the State is pledged to make payments of principal or interest due with respect to the COPs. Such payments will be made solely from amounts derived under the terms of the lease, including lease payments, and amounts from time to time on deposit under the terms of the declaration of trust. Capitalized interest costs include interest incurred during the construction of an asset. 2. School Facilities Board On August 1, 2004, the SFB issued 2004B COPs for $190.040 million, with interest rates ranging from 3.50% to 6.00%, and maturity dates ranging from 2006 to 2020. Series 2004B COPs maturing on or after September 1, 2014 are subject to optional redemption and payment prior to maturity, at the sole option of the Board. Net proceeds from the Series 2004B COPs totaled - 96 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 $200.015 million, after receipt of a net reoffering premium of $16.260 million, payment of $1.174 million in issuance costs, and payment of capitalized interest of $5.111 million. The COPs are being issued to finance the costs of acquiring leasehold interests in school sites and constructing and equipping thereon certain school facilities, which will be subleased to various school districts within the State participation in the Board’s Lease-to-Own program, to pay capitalized interest on, and pay the costs of issuing the 2004B COPs. On August 1, 2004, the SFB issued 2004C COPs for $47.585 million, with interest rates ranging from 3.00% to 5.00%, and maturity dates ranging from 2007 to 2020. Series 2004C COPs maturing on or after September 1, 2014 are subject to optional redemption and payment prior to maturity, at the sole option of the SFB. Net proceeds from the Series 2004C COPs totaled $50.013 million, after receipt of a net reoffering premium of $3.303 million, payment of $353 thousand in issuance costs, and payment of capitalized interest of $522 thousand. The COPs are being issued to finance the costs of acquiring leasehold interests in school sites and constructing and equipping thereon certain school facilities, which will be subleased to various school districts within the State participation in the Board’s Lease-to-Own program, and to pay the cost of issuing the 2004C COPs. On September 1, 2004, the SFB issued Refunding COPs Series 2005A-1, 2005A-2 and 2005A-3 for $201.125 million, $80.055 million and $53.045 million, respectively, dated September 1, 2004. The 2005A-1 COPs include $201.125 million of serial certificates with interest rates ranging from 2.50% to 5.00% and maturity dates ranging from 2007 to 2018. The 2005A-2 COPs include $80.055 million of serial certificates with interest rates ranging from 2.50% to 5.00% and maturity dates ranging from 2007 to 2019. The 2005A-3 COPs include $53.045 million of serial certificates with interest rates ranging from 2.50% to 5.00% and maturity dates ranging from 2007 to 2020. The 2005A-1, 2005A-2 and 2005A-3 COPs maturing on or after September 1, 2015, are subject to optional redemption prior to maturity without premium. The SFB realized net proceeds from the 2005A-1, 2005A-2 and 2005A-3 COPs of $363.070 million after receipt of $30.744 million net reoffering premium and payment of $1.899 million for issuance costs. The SFB net proceeds were used to advance-refund a portion of COPs Series 2003A, 2003B, and 2004B with a total outstanding principal balance of $332.020 million. The advance-refunding resulted in a debt service savings of $893 thousand and a net present value benefit of $5.519 million (difference between the present values of the old debt and new debt service payments) for SFB. The advance-refunding resulted in an immaterial difference between the reacquisition price and the net carrying amount of the old debt. This difference is being charged to operations as a direct expense in the current year. The refunded COPs Series 2003A, 2003B and 2004B will be paid by investments held in an irrevocable trust with a fair value of $363.052 million. As a result, the refunded debt is considered to be defeased and is not included in the State’s financial statements. Refunded COPs for the SFB at June 30, 2005 totaled $332.020 million. 3. Industrial Commission The exempt adjustable mode refunding COPs, Series 1985 were issued to refund the 1984 certificates that were issued to finance the cost of acquiring and constructing a building at 800 W. Washington Street, Phoenix, Arizona. The COPs matured serially at six month intervals and lease payments are made to the trustee, JP Morgan Trust Co. The sale-leaseback agreement provides that title will pass to the Commission at the end of the lease term, once the COPs are completely redeemed. The refunded amount was $17.500 million. This amount is considered paid and is not included in the outstanding amounts. The Trust Indenture for COPs specifies that the rates of specific types of financial instruments must be considered by the Remarketing Agent in setting the variable interest rates for the COPs. These instruments include the following: other issues of bonds marketed under the TEAMS program or similar programs; variable rate demand bonds; variable rate notes; and fixed rate notes that, in the judgment of the Remarketing Agent are otherwise comparable to TEAM certificates in credit quality and length of time prior to which such instruments mature or become subject to purchase at par on the demand of the owner. The interest rate ranged from 1.45% to 3.25% during the fiscal year ended 2005. 4. University of Arizona On May 10, 2005, the U of A issued Refunding COPs Series 2005A, 2005B and 2005C for $12.660 million, $14.825 million and $16.330 million, respectively, dated May 1, 2005. The 2005A COPs include $12.660 million of serial certificates with interest rates ranging from 4.00% to 5.00% and maturity dates ranging from 2015 to 2024. The 2005B COPs include $9.385 million of serial certificates with an interest rate of 5.00% and maturity dates ranging from 2015 to 2024. The 2005B COPs also include two term certificates consisting of $2.590 million with an interest rate of 5.00% due June 1, 2017, and $2.850 million with an interest rate of 5.00% due June 1, 2019. The 2005C COPs include $12.455 million of serial certificates with interest rates ranging from 4.125% to 5.00% and maturity dates ranging from 2014 to 2022. The 2005C COPs also include $3.875 million of term certificates with an interest rate of 5.00% and a maturity date of June 1, 2017. The 2005A, 2005B and 2005C COPs maturing on or after June 1, 2016, are subject to optional redemption prior to maturity without premium. The 2005B COPs maturing on June 1, 2017 and June 1, 2019 are subject to mandatory sinking fund redemption in part on June 1 of the years 2016 through 2018 without premium. The 2005C - 97 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 COPs maturing on June 1, 2017 are also subject to mandatory sinking fund redemption without premium. There are also extraordinary redemption dates for the 2005A, 2005B and 2005C COPs pursuant to the debt documents. The 2005A, 2005B, and 2005C COPs were issued at a premium of $2.818 million. The U of A realized net proceeds from the 2005A, 2005B and 2005C COPs of $45.920 million after payment of $713 thousand for issuance costs, underwriters discount and bond insurance. The net proceeds were used to advance-refund a portion of COPs Series 1999A, 1999, and 2001A with a total outstanding principal balance of $67.845 million. The advance-refunding generated a net present value benefit of $1.876 million (difference between the present values of the old debt and new debt service payments) for the U of A. The advance-refunding decreases the U of A’s debt service by $2.162 million in year one and increases it by $105 thousand in year two. Annual debt service will decrease by an average of $70 thousand in years three through ten and increase by an average of $137 thousand in years eleven through twenty. The advancerefunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $4.468 million. This difference, reported in the accompanying financial statements as a deduction from long-term debt, is being charged to operations through the year 2024 using the straight-line method. The refunded COPs Series 1999A, 1999 and 2001A will be paid by investments held in an irrevocable trust with a fair value of $43.758 million. As a result, the refunded debt with an outstanding principal balance of $41.935 million is considered to be defeased and is not included in the U of A’s financial statements. In fiscal year 2003, the U of A refunded, in advance of maturity, a portion of outstanding COPs Series 2001B. At June 30, 2005, the outstanding principal balance for the COPs Series 2001B was $6.255 million, which will be paid by investments held in trust with a fair value of $6.496 million. These amounts are not included in the U of A’s financial statements. The U of A has outstanding at June 30, 2005, three variable rate COPs, Series 1999B, 2000A, and 2004B, totaling $103.500 million. These COPs bear interest at a weekly rate, determined by UBS Financial Services for the 1999B and 2000A COPs and by J.P. Morgan Securities for the 2004B COPs, as remarketing agents, with final maturity dates of June 1, 2024, June 1, 2025, and June 1, 2031, respectively. These COPs are subject to conversion, at the option of the Arizona Board of Regents, to an adjustable rate, an annual rate, or a term rate pursuant to the debt documents. If not converted, the 1999B, 2000A, and 2004B COPs will bear interest at a weekly rate not to exceed 12 percent per annum determined under prevailing market conditions by the remarketing agent. The variable rate COPs are subject to purchase on the demand of the holder at a price equal to principal plus accrued interest on seven days’ notice and delivery to the remarketing agents. If the remarketing agents are unable to resell the demand certificates, the U of A has Standby Purchase Agreements with Bayerische Landesbank to extend credit through the purchase of the un-marketed certificates. Assuming all of the $103.500 million COPs are not resold within 90 days, the U of A would be responsible to make annual installment principal payments of $20.700 million over a five-year period, plus interest to be calculated as established in the Standby Purchase Agreements. Bayerische Landesbank charges the U of A an annual Standby Purchase Agreement commitment fee on the outstanding principal for each of the COPs for the Series 1999B, 2000A, and 2004B. The fees are 0.17%, 0.18%, and 0.19%, respectively. The Standby Purchase Agreements are valid through November 30, 2015. 5. Arizona State University During fiscal year 2005, the ASU issued $190.390 million in COPs to fund the Research Infrastructure facility projects which included Biodesign Institute Building B and Interdisciplinary Science and Technology Buildings I, II, and III. The 2004 COPs were issued in July 2004 at an average interest rate of 4.89%. The 2005A COPs were issued in January 2005 at an average interest rate of 4.36%. The annual debt service will be funded by state appropriations in the amount of $14.500 million annually beginning in fiscal 2008. State appropriations will also fund the ASU’s portion of the Arizona Biomedical Collaborative project that will be debt financed during fiscal 2006. 6. Northern Arizona University On July 29, 2004, the NAU issued COPs Series 2004 for $37.585 million dated July 1, 2004. The Series 2004 COPs included $20.100 million of serial certificates with interest rates ranging from 2.50% to 5.125% and maturity dates ranging from 2007 to 2026. The 2004 COPs also included $17.485 million of term certificates with interest rates ranging from 4.75% to 5.00% and maturing on September 1, 2019, 2026 and 2030. The Series 2004 COPs were issued at a premium of $583 thousand. The NAU realized net proceeds of $37.513 million after payment of $655 thousand for issuance costs, underwriters discount and bond insurance. The premium and costs associated with this issue were recorded in the current fiscal year. The net proceeds are being used to finance the Applied Research and Development building and the College of Engineering and Technology Renovation project. - 98 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 A summary of the COPs issued as of June 30, 2005, is as follows (expressed in thousands): Project Governmental Activities: AHCCCS Refunding Certificates of 92A, 92C, & 1091 Health Lab/HRIS Refunding Certificates of 92B School Facilities Board 2003A School Facilities Board 2003B School Facilities Board 2004A Refunding ADOA Certificates of 2004A ADOA Series 2004B School Facilities Board 2004B School Facilities Board 2004C SFB Refunding Certificates of 2003A SFB Refunding Certificates of 2003B SFB Refunding Certificates of 2004B Total Governmental Activities: Business-Type Activities: Industrial Commission Special Fund Arizona State University: Towers Project West Campus - Refunding Downtown Center – A Downtown Center – B 2002 Certificates of Participation 2004 West Campus – Refunding 2004 Certificates of Participation 2005A Certificates of Participation University of Arizona: Fixed Student Union A Student Union B Parking Garage/Residence Hall McKale/UAPD/Mt. Graham Park Student Union/Ln Svcs/6th St Gar Gittings Bldg. Highland Infra. Life Sci. Student Housing, Health Bldg., UA North Meinel Bldg & Refund COPS 1994B Refund COPS 1997 & Portion of Series 2001B Med. Resh. Bldg./Biomed Sci./Tech. Infstr. Chem.Bldg./Res.Life/Pkg.Garage/Rfnd.COPS Chemical Building Expansion Refund COPS 1999A Refund COPS 1999 Refund COPS 2001A Northern Arizona University: 2004 Certificates of Participation Total Business-Type Activities: Total Certificates of Participation Issue Date Maturity Date 1994 2001 2002 2002 2003 2004 2004 2004 2004 2005 2005 2005 2005 2005 2006 2011 2022 2011 2018 2019 2019 2012 2019 2020 2020 2018 2019 2020 Amount Authorized And Issued $ Outstanding Balance $ 12,642 57,930 63,270 75,295 372,730 194,610 47,160 16,725 31,965 190,040 47,585 201,125 80,055 53,045 1,444,177 $ $ 272 41,890 55,000 71,100 156,270 115,170 47,160 15,600 31,965 138,440 47,585 201,125 80,055 53,045 1,054,677 $ 17,500 $ 3,100 Interest Rates 6.66% 3.25 – 5.25 3.00 – 5.50 2.00 – 5.50 1.60 – 5.25 2.25 – 6.00 2.00 – 5.00 2.00 – 5.00 2.50 – 5.25 3.50 – 6.00 3.00 – 5.00 2.50 – 5.00 2.50 – 5.00 2.50 – 5.00 1985 2006 1991 1993 1999 1999 2002 2004 2005 2005 2011 2006 2025 2025 2027 2010 2031 2031 4,500 46,905 5,620 5,165 103,800 22,495 80,275 110,115 2,110 4,070 5,085 4,800 97,705 22,495 80,275 110,115 6.89 5.18 5.75 8.00 4.75 2.36 4.89 4.36 1999 1999 1999 2000 2001 2001 2002 2002 2020 2024 2014 2025 2025 2022 2022 2023 21,607 36,500 18,635 28,300 31,695 21,425 76,965 29,845 9,989 36,500 3,950 25,600 15,405 13,385 68,400 29,360 5.00 – 5.30 Variable not to exceed 12 4.75 – 5.375 Variable not to exceed 12 3.75 – 5.50 3.00 – 5.125 3.75 – 5.50 3.00 – 5.125 2003 2004 2004 2004 2005 2005 2005 2022 2031 2029 2031 2024 2024 2022 10,615 153,960 42,020 41,400 12,660 14,825 16,330 10,615 153,385 41,615 41,400 12,660 14,825 16,330 3.50 – 5.00 2.00 – 5.25 2.50 – 5.25 Variable not to exceed 12 4.00 – 5.00 5.00 4.125 – 5.00 2005 2030 37,585 $ 990,742 $ 2,434,919 37,585 $ 860,759 $ 1,915,436 - 99 - 1.45 – 3.25% 2.50 – 5.125 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 Principal and interest debt service requirements on COPs outstanding at June 30, 2005, are as follows (expressed in thousands): Annual Debt Service Governmental Activities Fiscal Year Total Principal 2006 $ Total Interest 33,867 $ Business-type Activities Total Amount Required 48,962 $ 82,829 Total Principal Total Interest Total Amount Required $ $ $ 17,425 38,074 55,499 2007 60,944 47,664 108,608 16,735 37,326 54,061 2008 63,215 45,202 108,417 27,745 36,587 64,332 2009 65,805 42,417 108,222 28,805 35,588 64,393 2010 68,580 39,425 108,005 29,665 34,355 64,020 2011-2015 394,915 142,816 537,731 162,341 154,858 317,199 2016-2020 360,870 37,851 398,721 209,298 110,567 319,865 2021-2025 6,481 505 6,986 205,425 60,020 265,445 2026-2030 - - - 135,390 21,980 157,370 2031 Total $ 1,054,677 $ - - 27,930 695 28,625 404,842 $ 1,459,519 $ 860,759 $ 530,050 $ 1,390,809 D. LEASES AND INSTALLMENT PURCHASES 1. Leases The total operating lease expenditures for the fiscal year ended June 30, 2005, were $31.404 million for governmental activities and $20.465 million for business-type activities. The future minimum lease payments for long-term operating leases as of June 30, 2005, are summarized below (expressed in thousands): Fiscal Year 2006 2007 2008 2009 2010 2011-2015 Total Minimum Lease Payments Governmental Activities $ 27,368 19,682 11,722 8,181 2,990 1,028 $ 70,971 Business-type Activities $ 3,279 2,286 1,816 447 12 $ 7,840 Total $ 30,647 21,968 13,538 8,628 3,002 1,028 $ 78,811 Many operating leases are for buildings and land leased by State agencies. Although these leases are considered to be long-term, they are cancelable under certain circumstances. • An agency must be able to cancel the lease if monies are not appropriated to cover the lease expenditures. • If an agency is ordered to move into State-owned property and a 60-day notice is given, the lease can be canceled without penalty. • In situations where the use of the leased property is dependent on the use of Federal monies, the lease must be cancelable in the event Federal monies are no longer available. The State has entered into capital lease agreements for the acquisition of buildings, telephone systems, copy machines and other equipment. Capital leases' assets and liabilities are reported on the government-wide Statement of Net Assets. A lease is reported as a capital lease if one or more of the following criteria are met: • Title to or ownership of the asset is transferred to the State at the end of the lease. • The lease contains a bargain purchase option. - 100 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 • The lease term is equal to 75.00% or more of the useful life of the leased asset. (This criteria does not apply if the beginning lease term falls within the last 25.00% of the total useful life of the asset.) • The present value of the minimum lease payments at the inception of the lease, excluding executory costs, equals at least 90.00% of the fair market value of the leased asset. (This criterion does not apply if the beginning lease term falls within the last 25.00% of the total useful life of the asset.) The future minimum lease payments for long-term capital leases as of June 30, 2005 are summarized below (expressed in thousands): Annual Debt Service Fiscal Year 2006 2007 2008 2009 2010 2011-2015 2016-2020 2021-2025 2026-2030 2031-2035 Governmental Activities $ 13,140 13,405 13,660 13,789 12,869 63,027 71,512 81,123 40,027 - Business-type Activities $ 9,221 9,355 8,926 9,207 8,286 35,178 27,888 27,397 28,673 21,230 322,552 (94,343) (101,533) 185,361 (65,000) - Total minimum lease payments Less: amount representing interest Less: amount representing executory costs Obligations under capital leases 2. $ 126,676 $ 120,361 Installment Purchases The State has installment purchase contracts payable for acquisitions of computer and other equipment. Installment purchases assets and liabilities are reported in the government-wide Statement of Net Assets. The future minimum payments for long-term installment purchases as of June 30, 2005, are summarized below (expressed in thousands): Annual Debt Service Fiscal Year 2006 2007 2008 2009 2010 2011-2015 2016-2020 Total future minimum payments Less: amount representing interest Obligations under installment purchases Governmental Activities $ 2,171 1,823 1,595 1,212 564 7,365 (439) $ 6,926 - 101 - Business-type Activities $ 1,746 1,692 1,135 970 631 2,193 239 8,606 (1,330) $ 7,276 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 3. Capital Assets Financed through Capital Leases and Certificates of Participation The following table summarizes the historical costs of assets acquired under capital leases and COPs: Governmental Business-type Activities Activities Land $ Construction in progress Buildings Improvements other than buildings Equipment Less: Accumulated Depreciation Carrying Value $ 6,078 $ - 24,509 - 303,311 571,182 3,653 - 55,021 - 392,572 571,182 (100,143) (57,313) 292,429 $ 513,869 E. LITIGATION The amounts shown for the Ladewig vs. Arizona Department of Revenue settlement is further discussed in Note 11 – Commitments, Contingencies, and Compliance. The State has typically paid for litigation from the General Fund. F. COMPENSATED ABSENCES Compensated absences are paid from various funds in the same proportion that those funds pay payroll costs. The compensated absence liability attributable to governmental activities will be liquidated primarily by the General Fund. During fiscal year 2005, the State paid for compensated absences as follows: 79.00% from the General Fund, 11.00% from other major funds, and 10.00% from other funds. - 102 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 G. CHANGES IN LONG-TERM OBLIGATIONS The following is a summary of changes in Long-Term Obligations (expressed in thousands): Balance July 1, 2004 Governmental Activities: Long-term Debt: Revenue bonds Grant anticipation notes Certificates of participation Capital leases Installment purchase contracts Notes payable Revenue bond/GAN premium Certificates of participation premium Total Long-term Debt $ 2,278,225 308,585 845,804 125,974 4,602 562 93,309 51,450 3,708,511 Other Long-term Liabilities: Compensated absences Ladewig vs. Arizona Department of Revenue Settlement Schofield vs. State of Arizona Settlement Total Other Long-term Liabilities Total Long-term Obligations Business-type Activities: Long-term Debt: Revenue bonds Certificates of participation Capital leases Installment purchase contracts Notes payable Revenue bond premium Deferred amount on refundings – Revenue bonds Certificates of participation premium Deferred amount on refundings – COPs Total Long-term Debt Other Long-term Liabilities: Compensated absences Total Other Long-term Liabilities Total Long-term Obligations Increases $ 434,860 104,385 571,850 6,434 5,038 50,202 50,307 1,223,076 Decreases $ (542,240) (49,000) (362,977) (5,732) (2,714) (562) (12,126) (35,663) (1,011,014) Balance June 30, 2005 $ 2,170,845 363,970 1,054,677 126,676 6,926 131,385 66,094 3,920,573 Due Within One Year Due Thereafter $ 178,335 38,540 33,867 3,467 1,984 10,978 5,785 272,956 $ 1,992,510 325,430 1,020,810 123,209 4,942 120,407 60,309 3,647,617 146,116 214,431 (207,312) 153,235 147,433 5,802 291,746 12,700 450,562 214,431 (140,841) (12,700) (360,853) 150,905 304,140 58,259 205,692 92,646 98,448 $ 4,159,073 $ 1,437,507 $ (1,371,867) $ 4,224,713 $ 478,648 $ 3,746,065 $ 756,781 641,315 80,338 5,038 80 24,785 $ 139,840 271,949 50,006 3,794 8,486 $ (128,621) (52,505) (9,983) (1,556) (50) (3,731) $ 768,000 860,759 120,361 7,276 30 29,540 $ 33,870 17,425 5,709 1,428 30 1,288 $ 734,130 843,334 114,652 5,848 28,252 (9,838) 3,399 (1,132) 1,500,766 (11,613) 3,809 466,271 1,536 (615) 226 (195,299) (19,915) 6,593 (906) 1,771,738 (1,467) 58,283 (18,448) 6,593 (906) 1,713,455 51,016 51,016 $ 1,551,782 64,034 64,034 530,305 (59,231) (59,231) (254,530) 55,819 55,819 $ 1,827,557 10,363 10,363 68,646 45,456 45,456 $ 1,758,911 $ $ $ The above long-term obligations relating to governmental activities include Internal Service Funds. Amounts for capital leases and compensated absences differ from those in the Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets because $5.910 million of capital leases and $11.502 million of compensated absences are attributable to Internal Service Funds. These amounts are included in the reconciliation as part of internal service fund net assets. - 103 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 NOTE 7. INTERFUND TRANSACTIONS INTERFUND BALANCES AND TRANSFERS Interfund Receivables/Payables Interfund balances, as of June 30, 2005, are as follows (expressed in thousands): Due To Due From General Fund General Fund $ - Transportation & Aviation Planning, Highway Maintenance & Safety Fund $ - 63,811 4,565 30,334 3 19,336 146,468 670 $ 265,187 20,000 20,000 Land Endowments Fund $ 344 Non-Major Governmental Funds $ 39,887 Non-Major Enterprise Funds $ 3,414 Internal Service Funds $ 2,212 Total Due To $ 45,857 111,133 $ 114,547 3 521 1 21 2,758 181,981 18,739 32,776 247 20,061 166,469 691 $ 466,821 Transportation & Aviation Planning, Highway Maintenance & Safety Fund Land Endowments Fund Non-Major Governmental Funds Unemployment Compensation Fund Lottery Fund Non-Major Enterprise Funds Internal Service Funds Total Due From $ 1,114 1,458 $ $ 7,037 14,171 807 244 725 62,871 $ Interfund balances represent (1) amounts due to and from the Internal Service Funds for goods and services rendered, and (2) cash transferred between funds for various interfund activities subsequent to the balance sheet date. The cash is recorded in the fund which initiated the transfer, and a corresponding liability is recorded. The receiving fund records an interfund receivable. An interfund balance of $62.958 million between the General Fund and the Transportation and Aviation Planning, Highway Maintenance and Safety Fund is not due until fiscal year 2009. An interfund balance of $146.454 million between the General Fund and Non-Major Enterprise Funds is not due until fiscal year 2008. The entire interfund receivable in the Transportation and Aviation Planning, Highway Maintenance and Safety Fund is not due until fiscal year 2009. An interfund balance of $106.515 million between the Transportation and Aviation Planning, Highway Maintenance and Safety Fund and Non-Major Enterprise Funds is not due until fiscal year 2009. Interfund Transfers Transfers for the year ended June 30, 2005 are as follows (expressed in thousands): Transferred To Transferred From Transportation & Aviation Planning, Land General Highway Maintenance Endowments & Safety Fund Fund Fund General Fund $ - $ Transportation & Aviation Planning, Highway Maintenance & Safety Fund 157,219 Land Endowments Fund 334 Non-Major Governmental Funds 158,275 Unemployment Compensation Fund 15 Lottery Fund 54,751 Non-Major Enterprise Funds 1,412 Internal Service Funds 2,986 Total Transfers In $ 374,992 $ Non-Major Non-Major Internal Governmental Universities Enterprise Service Funds Fund Funds Funds Total Transfers Out 2,199 $ 97 $ 45,823 $ 787,201 $ 3,700 $ 17 $ 839,037 6,017 20 8,236 $ 5,072 1,501 6,670 $ 522,112 25,958 1,715 25,907 43 621,558 $ 787,201 374 122 $ 4,196 $ 42 59 679,705 334 195,486 1,730 80,658 1,412 4,550 $ 1,802,912 Interfund transfers represent legally authorized non-exchange transfers of funds. These transfers include: (1) Legislative appropriations from the General Fund, (2) other legislative transfers, (3) statutorily required transfers, (4) transfers related to the elimination of funds, and (5) transfers for debt service. - 104 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 NOTE 8. ACCOUNTING CHANGES AND RESTATEMENTS A. FUND FINANCIAL STATEMENTS Net Assets have been restated as follows (expressed in thousands): Proprietary Funds Universities Net Assets, as previously reported $ 1,755,645 Change in application of an accounting principle (13,333) Net Assets, as restated $ 1,742,312 B. GOVERNMENT-WIDE STATEMENTS Government-wide Net Assets have been restated as follows (expressed in thousands): Business-type Activities of Primary Government Net Assets, as previously reported $ 2,504,599 $ 2,491,266 Change in application of an accounting principle Net Assets, as restated (13,333) Change in Application of an Accounting Principle In fiscal year 2005, the ASU changed its method of calculating depreciation on research buildings to a componentized method based on the estimated useful life of the building components. All other buildings continue to be depreciated using a basic straight-line method over the estimated useful lives of the assets. The ASU’s management believes this change is preferable under generally accepted accounting principles and it is the method which will be used for ensuing indirect cost calculations. This change resulted in a decrease in net assets related to building components which are now fully depreciated. NOTE 9. FUND DEFICIT The major contributor to the Industrial Commission Special Fund deficit of $192.766 million is the $76.662 million increase in the actuarial liability for several insolvent insurance carriers and self-insured plans. The Industrial Commission Special Fund is responsible for paying all current and future Arizona workers’ compensation claims of these companies. Some of the claims expense will be recovered over a period of years as the Industrial Commission Special Fund receives liquidation distributions from the bankrupt companies. The deficit will also be recovered from the Industrial Commission reinstating assessments of gross premium revenues received by the State Compensation Fund and privately owned insurance companies that provide workers’ compensation insurance. The 2005 calendar year assessments percentage for the State Compensation Fund and privately owned insurance companies that provide workers’ compensation insurance is two and one-half percent, the largest amount currently authorized in Arizona law. In 2005, §23-1081 (B) was amended to permit a surplus in the Administrative Fund to be transferred to the Industrial Commission Special Fund when the special fund is not actuarially sound. The Internal Service Funds deficit results from the following: • Risk Management Fund (RMF) - The RMF deficit of $276.601 million is primarily due to the RMF receiving annual funding for expected paid claims (self-insured and excess insurance expenditures, legal and other claim related expenditures, and administrative expenditures). Accrued insurance losses of the RMF are not considered when determining funding for each fiscal year. • The Retiree Accumulated Sick Leave pays retirees their accumulated sick leave upon retirement from State service when they meet certain criteria. When a retiree submits an application to receive their sick leave benefits, the entire liability is recorded in the fund. The retirees receiving benefits are paid in three equal annual installments; however, State agencies pay for only one year based on a .40% charge on gross payroll. The $4.089 million fund deficit is primarily due to the above funding mechanism. - 105 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 NOTE 10. JOINT VENTURE The U of A is a participant in the Large Binocular Telescope Corporation (LBT). The LBT was formally incorporated as a nonprofit corporation in August 1992, pursuant to a Memorandum of Understanding, as amended, executed on February 24, 1989, between the U of A and the Arcetri Astrophysical Observatory in Florence, Italy (Arcetri). The purpose of the joint venture is to design, develop, construct, own, operate, and maintain a binocular telescope currently being constructed in Arizona. The current members of the LBT are the U of A, Arcetri Research Corporation, Ohio State University and the LBT Beteiligungsgesellschaft. The U of A has committed resources equivalent to 25.00% of the project’s construction costs and the LBT’s annual operating costs. As of June 30, 2005, the U of A has made cash contributions of $18.159 million toward the project’s construction costs. The U of A’s financial interest represents its future viewing/observation rights. Upon completion of construction, these rights will be divided among the participants in proportion to their contributions. According to the audited financial statements of the LBT for the year ended December 31, 2004, assets, liabilities, revenues, and expenses totaled $103.000 million, $2.000 million, $15.000 million, and $3.000 million, respectively. The LBT’s separate audited financial statements can be obtained from LBT Project Office, Steward Observatory, University of Arizona, Tucson, AZ 85721-0065. NOTE 11. COMMITMENTS, CONTINGENCIES, AND COMPLIANCE A. RISK MANAGEMENT INSURANCE LOSSES The Department of Administration – Risk Management Section manages the State’s property, environmental, liability and workers’ compensation losses. The State has determined that the management of these losses can be performed effectively and efficiently through the Risk Management Section. Consequently, all agencies and the State’s three universities are required to participate in this program. The State’s Risk Management Section evaluates the proper mix of purchased commercial insurance and self-insurance annually. The Industrial Commission Special Fund provides payment of workers’ compensation losses which are not covered by the State Compensation Fund, the Department of Administration – Risk Management Section, private insurance carriers, or self-insured employers. The workers’ compensation claims paid by the Industrial Commission encompass losses against uninsured or underinsured employers and insolvent insurance carriers and would include payments for vocational rehabilitation, medical conditions incurred prior to 1973, apportionment claims for pre-existing industrial and non-industrial related physical impairments, and compensation for loss of earnings associated with the disability. The Industrial Commission is totally selfinsured. The State records claims liability when the reported loss is probable and reasonably estimated. On an annual basis, independent actuarial firms are engaged to estimate the State’s total year-end outstanding claims liability, which takes into account recorded claims and related allocated claims adjustment expenditures, salvage, subrogation, loss development factors, and an estimate for incurred but not reported claims. The management and payment of these losses is accomplished through the funding mechanism of the Risk Management Fund (Internal Service Fund) and the Industrial Commission Special Fund (Enterprise Fund). As discussed in the above paragraph, an independent annual actuarial analysis is performed to evaluate the needed funding. The Risk Management Section will assess each agency an annual portion of the necessary funding for the Risk Management Fund based on their exposures and prior loss experience. Interest and dividend earnings of investments and assessments on gross premium revenues currently fund the Industrial Commission Special Fund. To provide funding for workers’ compensation claims, the Industrial Commission may direct payment to the State Treasurer an amount not to exceed one and one-half percent of all premiums received by the State Compensation Fund, private carriers and self-insured plans during the immediately preceding calendar year. Beginning in calendar 2004 a one and one-half percent assessment was levied under § 23-1065(A) because of a deficit net assets balance resulting from an increase in accrued insurance losses due to defunct insurance carriers. The majority of the liability increase from July 1, 2004 through June 30, 2005 was the result of $67.423 million Arizona workers' compensation claims from the defunct California domiciled Fremont Companies that were assigned to the State Compensation Fund (SCF) under §23-966(A). Effective for 2005, the Industrial Commission approved an additional one-half percent Special - 106 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 Fund assessment under §23-966(D), based on insolvent carrier losses, bringing the total to two percent before including the other new §23-1065(F) one-half percent assessment based on the total apportionment liability. With the inclusion of the §23-1065(F) assessment, the total of all three assessments for the Special Fund in 2005 is two and one-half percent. Over the next three fiscal years of 2006, 2007, and 2008, a projected $17.000 million will be received by the Special Fund from liquidated assets of insolvent carriers. The Industrial Commission Special Fund discounts all benefit reserves at three and one-half percent, except for medical. Medical benefits are discounted at an assumed inflation rate equal to the investment rate of return earned by the Industrial Commission Special Fund. The Industrial Commission has filed pending proof of claim requests with ancillary receivers, liquidators holding deposits and surety bonds of several insolvent companies. Since the actual amount that will ultimately be received cannot be determined, the Industrial Commission will continue to recognize receipt of insolvent carrier deposits (no insurance settlement income) as revenue at the time received rather than recording a receivable. Occasionally, the Risk Management Section agrees with claimants to purchase an annuity contract to settle specific claims when it is determined that it is in the best interest of the State to do so. In these instances, the State requires the claimant to sign an agreement releasing the State from any further obligation. As a result of these requirements, the likelihood that the State will be required to make future payments on these claims is remote. There have been no significant reductions in the current fiscal year insurance coverage. There have been no settlements that have exceeded insurance premium coverage in the last three years. The following table presents the changes in claims liabilities balances (short- and long-term combined) during fiscal years ended June 30, 2004 and June 30, 2005 (expressed in thousands): Fiscal Year Risk Management Fund: 2004 2005 Industrial Commission Fund: 2004 2005 Current Year Claims and Changes in Estimates Beginning Balance $ 233,080 243,128 $ 239,738 384,936 68,430 127,775 163,108 101,395 Claims Payments $ 58,382 69,303 17,910 24,733 Ending Balance $ 243,128 301,600 384,936 461,598 B. LITIGATION In Ladewig vs. Arizona Department of Revenue, Ladewig is a class action tax refund case. The class members are seeking refunds for Arizona income tax paid on dividends received from corporations doing less than 50.00% of their business in Arizona during the years 1986 through 1989. The trial court held that such taxes violated the Commerce clause of the U.S. Constitution and certified the class. The class certification was upheld by the Arizona Supreme Court in 2001. The Tax Court approved a settlement in December 2002. The remaining issues concern the administration of the settlement. The Department moved to correct claim errors that were caused by computer and clerical mistakes and resulted in millions of dollars in overpayments on the first installment to approximately 3,250 class members. The Tax Court ruled in November 2005 that the Department could not recover amounts previously paid to class members, but could offset the overpayments against the amounts due for the remaining two installments. Accordingly, the State has recorded a liability in its financial statements in the amount of $150.905 million. In Kerr vs. Killian, federal employees claimed an income tax refund on taxes paid on federal employee contributions. The Board of Tax Appeals granted these claims for the years before 1991, but has denied the claim for later years. The State did not appeal. The plaintiffs appealed for years after 1990. The Tax Court awarded attorneys fees from refunds the State is paying, and this ruling was upheld on appeal. The State has filed a petition for review. The attorneys’ fees will be paid from funds otherwise due to taxpayers, so there will be little monetary effect on the State if the fees are awarded. The Tax Court has denied class certification, and ruled for the plaintiffs on the merits regarding entitlement to refunds for years after 1990. The State appealed the substantive law issue and the plaintiffs have appealed the denial of class certification, and the Court of Appeals ruled against the State. The Arizona Supreme Court held that Arizona's tax statutes after 1990 did not discriminate against federal employees - 107 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 based on the source of the income. The potential outcome is uncertain at this time. If this case were to have an unfavorable outcome, the State could incur losses ranging from $20.000 million to $70.000 million. In Roosevelt Elementary School District No. 66 vs. State of Arizona, the plaintiffs allege the State failed to fully fund the Building Renewal Fund established by the Students FIRST legislation. On October 13, 2000, the court held that the State did not violate the statutory provisions regarding funding of the Building Renewal Fund for fiscal year 1998-99. However, the court held that neither party was entitled to summary judgment regarding funding for fiscal year 1999-00, and that in order to prevail on that claim, the plaintiffs would have to demonstrate that they were injured by the alleged underfunding. On February 21, 2002, the court granted the plaintiffs’ motion to file an amended complaint, which included similar allegations regarding funding for fiscal year 2001-02. The parties both moved for summary judgment once again regarding the remaining claims in the case (fiscal years 1999-2000 and 2001-02), and on May 7, 2002, the trial court granted the plaintiffs’ motion for summary judgment as to both years. The State timely appealed the decision to the Arizona Court of Appeals. On August 14, 2003, the Court of Appeals reversed the decision of the trial court and remanded the matter back to the trial court. Plaintiffs filed a petition for review in the Arizona Supreme Court, which was denied. The matter has been remanded to the Superior Court, and discovery is now ongoing. The potential outcome is uncertain at this time. If this case were to have an unfavorable outcome, it is possible that the State could incur losses of approximately $88.000 million. However, at this time, the plaintiffs have suggested that they are only seeking a declaration that the Students FIRST legislation is unconstitutional as applied. In the Somerton Elementary School District No. 66 vs. State of Arizona, the plaintiffs’ claim is identical to that alleged in the Roosevelt Elementary School District case discussed above, except that it involves the level of State funding for the Building Renewal Fund for the fiscal year 2002-03. Because the issues raised in this case are identical to those raised in the Roosevelt Elementary School District case, it was assigned to the same trial court judge. The potential outcome is uncertain at this time. If this case were to have an unfavorable outcome, it is possible that the State could incur losses of approximately $90.000 million. However, at this time, the plaintiffs have suggested that they are only seeking a declaration that the Students FIRST legislation is unconstitutional as applied. In Smith vs. Winkelman the plaintiffs have filed an action in Maricopa County Superior Court seeking an accounting, declaratory relief and damages for breach of trust. Damages are for the value of land disposed of by the State Land Department between 1929 and 1967 for approximately 900 rights of way that were issued to governmental entities without appraisal or auction, and without the payment of any compensation. The State’s motion to dismiss was denied, but motion to compel joinder of dozens of public entities was granted. The plaintiff’s counsel has agreed to defer joinder pending settlement discussions. The Governor’s Office is involved in any settlement proposal because about half the land in question was granted to ADOT’s predecessor and there could be a conflict of interest between ADOT and State Land. The potential outcome is uncertain at this time. If this case were to have an unfavorable outcome, it is possible that the State would have to pay the Land Endowments Fund between $500.000 million and $1.0 billion. The State has a variety of claims pending against it that arose during the normal course of its activities. Management believes, based on advice of legal counsel, losses, if any, resulting from settlement of these claims will not have a material effect on the financial position of the State. All losses for any unsettled litigation or contingencies involving workers’ compensation, medical malpractice, construction and design, highway operations, employment practices, criminal justice, fidelity and surety, environmental property damage, general liability, environmental liability, building and contracts, auto liability, or auto physical damage are determined on an actuarial basis and included in the Accrued Insurance Losses of the Internal Service Funds and the Industrial Commission Special Fund. C. ACCUMULATED SICK LEAVE State employees are eligible to receive payment for an accumulated sick leave balance of 500 hours or more with a maximum of 1,500 hours upon retirement directly from State service. The benefit value is calculated by taking the State 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 25.00% for 500 hours to a maximum of 50.00% for 1,500 hours. The maximum benefit value is $30 thousand. The benefit is paid out in annual installments over three years. The Retiree Accumulated Sick Leave Fund is accounted for on the financial statements as an Internal Service Fund and accounts for the retiree accumulated sick leave. - 108 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 D. UNCLAIMED PROPERTY The State of Arizona’s Uniform Unclaimed Property Act requires deposit of certain unclaimed assets into a managed Agency Fund. ARS §44-313 requires a separate trust fund of not less than $100 thousand to be retained for prompt payment of claims. The excess amount, above that which is required to be retained, is required to be deposited to the General Fund where it is included as other revenue. Under ARS §46-731, unclaimed utility deposits are deposited in the Utility Assistance Fund to help low income and elderly people make utility deposits and repairs. Fifty-five and twenty percent of the remaining net cash collected, after refunds, is transferred to the Department of Commerce Housing Fund to be used for low-cost housing and the State Treasurer for distribution as provided for in ARS §5-113, respectively. The balance is to be deposited in the General Fund. Also, per Senate Bill 1524, notwithstanding ARS §44-313, the Department of Revenue shall deposit any unclaimed property for fiscal year 2005 and fiscal year 2006 that is associated with the case of Ladewig v. State of Arizona in the General Fund. For fiscal year 2005, $1.664 million was deposited in the Utility Assistance Fund, $23.943 million was deposited in the Housing Fund, $8.706 million was deposited in the Racing Fund and $9.423 million was deposited in the General Fund. Ladewig unclaimed property in the amount of $21.292 million was also deposited into the General Fund during fiscal year 2005. A total of approximately $365.062 million has been remitted since inception of the fund. In addition, the State is also holding securities valued at $45.159 million, and mutual funds of $7.039 million. The remittances to the General Fund and the holdings by the State represent contingencies, as claims for refunds can be made by the owners of the property. The GASB requires that a liability be reported to the extent that it is probable that escheat property will be reclaimed and paid to claimants. This liability is also reported as a reduction of revenue. This liability is reported in the General Fund because it is the fund to which the property ultimately escheats in Arizona. At June 30, 2005, this amount, reported as Due to Others in the General Fund, is $86.581 million. E. CONSTRUCTION COMMITMENTS The ADOT had outstanding commitments under construction contracts of approximately $627.448 million at June 30, 2005. F. ARIZONA STATE LOTTERY Annuities are purchased for all prizes over $400 thousand for which winners will receive the jackpot in annual installments for The Pick on-line game. These annuities are purchased from qualifying insurance companies which have the highest ratings from among A.M. Best Company, Standard & Poor’s, Moody, Duff & Phelps or Weiss. The Lottery remains contingently liable on all annuities. Aggregate future payments to prize winners on existing annuities totaled approximately $196.281 million at June 30, 2005. Approximately $140.626 million of the total aggregate future payments at June 30, 2005 relate to annuities purchased from five separate insurance companies, of which approximately $57.771 million relates to a single insurance company. NOTE 12. TOBACCO SETTLEMENT The State is one of many states participating in the settlement of litigation with the tobacco industry over the reimbursement of healthcare costs. The settlement money is intended to compensate the State for costs it has incurred in providing health and other services to its citizens that were necessitated by the use of tobacco products. The State expects to receive settlement payments through 2025. The State recorded tobacco settlement revenue of $93.933 million and $93.875 million in the fund statements and the government-wide statements in fiscal year 2005, respectively. Future settlement payments are subject to several adjustments, but the amounts are not presently determinable. These adjustments include a volume adjustment, which could reflect any decreasing cigarette production under a formula that also takes into account increased operating income from sales. Other factors that might affect the amounts of future payments include ongoing and future litigation against the tobacco industry and the future financial health of the tobacco manufacturers. Because the net realizable value of the future settlement payments is not measurable and there is no obligation for the tobacco companies to make settlement payments until cigarettes are shipped, the State did not record a receivable for the future payments related to cigarette sales after June 30, 2005. NOTE 13. PUBLIC-PRIVATE PARTNERSHIP The State has entered into a partnership agreement with Accenture. The purpose of this partnership is to fund the Department of Revenue’s technology needs. This agreement stipulates that Accenture will be paid 85.00% of the new revenue generated from the system enhancements, even if this amount is insufficient to cover the total contract cost. Accordingly, Accenture has created a system that increases the State’s efficiency in collecting tax revenues. As of June 30, 2005, the State has paid Accenture - 109 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 $36.922 million and accrued $48.079 million towards the $145.080 million contract cost. Included in the $145.080 million contract cost is capital interest charges of $13.000 million and application support charges of $32.014 million. NOTE 14. CONDUIT DEBT During the year ended June 30, 2005, the Greater Arizona Development Authority (GADA) issued $10.360 million Infrastructure Revenue Bonds, Series 2004B for public infrastructure projects in the communities of the Town of Queen Creek, the City of Wilcox, and the Drexel Heights Fire District. During the year ended June 30, 2005, the GADA issued $47.695 million Infrastructure Revenue Bonds, Series 2005A for public infrastructure projects in the communities of the Towns of Taylor, Camp Verde, and Buckeye as well as the Fire Districts of Central Yavapai, Golden Ranch, Maricopa, Northwest, and Three Points. The GADA’s bond structure provides lower borrowing costs for Arizona’s communities by diversifying the risk to investors and by sharing financing costs among several borrowers. The GADA Fund is leveraged when GADA issues its bonds, which maximizes loan capacity for communities. An intercept mechanism for intercepting state-shared revenues for loans to political subdivisions enhances the security of the GADA bonds even further. In certain previous years, the State appropriated a total of $20.000 million to the GADA for the express purpose of securing bonds issued by the GADA. As of June 30, 2005, the remaining balance in the appropriations account was $16.750 million. The Series 2004B and 2005A bonds were issued by the GADA to make loans to the participants listed above and constitute special and limited obligations of the GADA. The principal of and interest on the bonds are payable solely from the funds which are held in Trust by the Trustee (the Trust Estate). The Trust Estate includes debt service payments required to be made by the respective participants in the Series 2004B and 2005A bond issues. The principal of and interest premium, if any, on the Series 2004B and 2005A bonds shall not constitute or give rise to a pecuniary liability on the part of the directors and officers of the GADA. The Series 2004B and 2005A bonds do not constitute a legal debt of the State and are not enforceable against the State. At June 30, 2005, the outstanding face value of the Series 2004B and 2005A bonds was $10.360 million and $47.695 million, respectively, and the total outstanding face value of all bonds issued by the GADA was $120.875 million. NOTE 15. SUBSEQUENT EVENTS In July 2005, the ASU entered into a ground lease with the ACFFC, a component unit of the ASU, for the construction and operation of the McAllister Academic Village (MAV) residential facility. In August 2005, the ACFFC issued $145.000 million in variable rate demand revenue bonds. The project, to be constructed in two phases, will include approximately 2,000 beds for freshman residential students for initial occupancy starting in August 2006 for phase one and August 2007 for phase two. The ACFFC will have overall responsibility for the residential portion, comprising about 90.00% of the facility, including budgetary approval, with the ASU leasing the non-residential portion of the facility. The ACFFC will contract out management of the residential portion, with the contract for the residential life program and room assignments, including rent collections being with the ASU’s Residential Life Department, and with custodial and facility maintenance potentially being with a non-university contractor. In order for the ACFFC to obtain the lowest cost and most efficient financing arrangement possible for the residential portion of the facility, the ASU entered into a contingent commitment to make up any debt service funding deficiencies to the bondholders of the MAV debt, if such a situation should ever exist. It is contemplated that the non-residential portion of the facility will be a capital lease of the ASU based on the net present value of the lease payments to be made by the ASU. On July 19, 2005, the ADOT issued $147.400 million in Highway Revenue Refunding Bonds, Series 2005A to (i) refund portions of the ADOT’s outstanding senior bonds and (ii) pay costs of issuing the Series 2005A Refunding Bonds. The 2005A Bonds are due July 1, 2011, through July 1, 2022. Net proceeds totaled $161.783 million (after receipt of $14.957 million reoffering premium and payment of $573 thousand in underwriting fees and costs of issuance). In August 2005, the NAU issued approximately $40.300 million of COPs for various capital projects and renovations on the main campus. In November 2005, the NAU issued approximately $15.300 million of System Revenue Bonds for the purpose of constructing a parking structure on the mountain campus. These bonds are secured by a first lien on certain gross revenues and are on parity with the Series 1997 System Revenue Bonds, the Series 2002 System Revenue Bonds, the Series 2002 System Revenue Refunding Bonds, the Series 2003 System Revenue Bonds and the Series 2004 System Revenue and Refunding Bonds. In August 2005, the GADA issued the Infrastructure Revenue Bond Series 2005B. The principal amount of original issue was $64.100 million with interest rates of 3.00% to 5.00%. Maturity dates are from August 1, 2006 through August 1, 2035. Interest payment dates are February 1 and August 1 of each year. The GADA’s contribution to the bond issue costs was $175 thousand. In addition, the GADA will reclassify from unrestricted net assets to its restricted net assets the amount of $6.360 million for the - 110 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 pledged collateral reserve fund. The participants in this bond issue are the communities of Lake Havasu City, Drexel Heights Fire District, the Towns of Queen Creek and Superior and the City of Williams in the amounts of $58.070 million, $1.560 million, $2.470 million, $500 thousand and $1.500 million, respectively. On August 10, 2005, the SFB issued $448.760 million of State School Improvement Revenue Refunding Bonds, Series 2005, with interest rates ranging from 3.00% to 5.00%, and maturity dates ranging from 2006 to 2021. Series 2005 Bonds maturing on and after July 1, 2016 are subject to redemption prior to maturity at the option of the SFB. The Series 2005 Bonds are being issued to (i) refund and redeem, in advance of maturity, Series 2001, Series 2002 and Series 2003 Revenue Bonds, and (ii) pay costs of the issuance of the Series 2005 Bonds. Net proceeds totaled $484.963 million (after receipt of an original issue premium of $37.304 million and payment of the $1.101 million of bond issuance costs). These proceeds were deposited into a special trust account with a depository trustee and used to purchase U.S. Government securities, the maturing principle and interest income on which is calculated to be sufficient to pay the principal and interest represented by the bonds being refunded to their respective redemption dates. On September 13, 2005, the U of A issued System Revenue Bonds (SRBs) Series 2005A in the amount of $35.570 million dated September 1, 2005, to finance the construction of the Architecture Building Expansion Project, the Residence Life Building Renewal Phase II Project, the Poetry Center, and Deferred Maintenance and Building Renewal projects, and to pay the December 1, 2005 interest payments on the U of A’s System Revenue Bonds Series 1992A, 1998, 2002, 2003, 2004A, and 2004B. The SRBs Series 2005A bears interest rates ranging from 3.00% to 5.00% and will mature in 2031. On October 1, 2005, the State entered into a lease-to-own agreement with Capitol Mall, L.L.C., which amended a previous leaseto-own agreement for the purpose of construction, occupancy and ownership of two office buildings and related parking facilities located on the capitol mall dated December 1, 2000. The scheduled lease payments for fiscal year 2006 will total $5.449 million. The lease is not a general obligation or indebtedness of the State. The State shall have the right to cancel and terminate the lease only at the end of its fiscal period in the event that funds are not appropriated by the Arizona State Legislature or the Department of Administration fails to allocate monies for any subsequent fiscal period with respect to this lease. The State shall have the right, during the lease term, to purchase the Capital Mall, L.L.C.’s right, title, and interest in this project. On November 16, 2005, the U of A issued Refunding COPs 2005D through 2005I in the amount of $29.460 million dated November 1, 2005, to refund a portion of the U of A’s COPs 1999, 1999A, and 2000A, and to pay the December 1, 2005 interest payments on the COPs 1999, 1999A, 1999B, 2000A, 2001A, 2001B, 2002A, 2002B, 2003A, 2003B, and 2004A. The COPs 2005D-I bear interest rates ranging from 3.25% to 4.58% and will mature in 2025. On November 18, 2005, the U of A entered into two interest rate exchange agreements with Citibank, N.A., New York. One agreement was for SRBs in the amount of $18.750 million and the other was for COPs in the amount of $12.070 million. The purpose of the agreements was to lock in a fixed interest rate of 4.07% for the SRBs and COPs which the U of A anticipates issuing in May 2006 to refund the June 2006 principal payments and pay the June 2006 interest payments for several SRBs and COPs issues. The effective date for both agreements is May 11, 2006, and they will terminate on June 1, 2020. NOTE 16. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – COMPONENT UNITS The accounting policies of the State’s component units conform to U.S. GAAP applicable to governmental units adopted by the GASB, except for those component units affiliated with the State's Universities. Because the component units affiliated with the Universities are not governmental entities, they follow FASB statements for not-for-profit organizations for financial reporting purposes. Each component unit has a June 30 year-end with the exception of the Law College Association, which has a May 31 year-end. A. FINANCIAL REPORTING POLICIES 1. Measurement Focus and Basis of Accounting The State's component units and component units affiliated with the Universities are presented using the economic resources measurement focus and the accrual basis of accounting. The State’s component units follow FASB Statements and Interpretations issued on or before November 30, 1989; Accounting Principles Board Opinions; and Accounting Research Bulletins, unless those pronouncements conflict with GASB pronouncements. The State has chosen the option not to follow FASB Statements and interpretations issued after November 30, 1989, except for UMC, which has elected to apply the provisions - 111 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 of all relevant pronouncements of the FASB, including those issued after November 30, 1989, unless those pronouncements conflict or contradict GASB pronouncements. 2. Net Assets Component units affiliated with the Universities classify net assets, revenues, expenses, gains and losses based on the existence or absence of donor-imposed restrictions. Accordingly, the net assets of the component units affiliated with the Universities and changes therein are classified and reported as follows: 3. • Unrestricted net assets include assets and contributions that are not restricted by donors or for which such restrictions have expired. • Temporarily restricted net assets include contributions for which donor imposed restrictions have not been met (either by the passage of time or by actions of the Foundations), charitable remainder unitrusts, pooled income funds, gift annuities, and pledges receivable for which the ultimate purpose of the proceeds is not permanently restricted. Donorrestricted contributions are classified as temporarily restricted if the restrictions are satisfied in the same reporting period in which the contributions are received, except for the Foundations associated with ASU, which classify such contributions as unrestricted. • Permanently restricted net assets include contributions, charitable remainder unitrusts, pooled income funds, gift annuities, and pledges receivable which require by donor restriction that the corpus be invested in perpetuity and only the board-approved payout be made available for program operations in accordance with donor restrictions. Cash and Cash Equivalents Cash and cash equivalents includes monies held in certificates of deposit, overnight money market accounts, and money market funds. Cash and cash equivalents are stated at cost, which approximates fair value. 4. Investments Investments are recorded in accordance with Statements of Financial Accounting Standards (SFAS) No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations. Under SFAS No. 124, entities are required to report investments in equity securities that have readily determinable fair values, and all investments in debt securities at fair value. Equities, fixed income, and mutual funds are stated at fair market value based on quoted market prices. Investment securities, in general, are exposed to various risks, such as interest rate, credit and overall market volatility. Investment income or loss (including realized and unrealized gains and losses on investments, interest and dividends) is included in the excess of revenues over expenses in the Statement of Activities. 5. Income Taxes The Foundations qualify as tax-exempt organizations under Section 501(c)(3) of the Internal Revenue Code and, accordingly, there is no provision for income taxes in the accompanying financial statements, except for the Collegiate Golf Foundation and the ACFFC. In addition, they qualify for the charitable contribution deduction and have been classified as organizations that are not private foundations. Any income determined to be unrelated business taxable income would be taxable. The ACFFC and NACFFC are exempt from taxes under the provisions of Section 501(c)(4) of the Internal Revenue Code. The ACFFC does not qualify for the charitable contribution deduction. 6. Annuities Payable and Other Trust Liabilities Annuities payable and other trust liabilities for the U of A Foundation are stated at the actuarially computed present value of future payments to the annuitants. The excess of the fair values of assets received (classified according to their nature in the Statement of Financial Position) pursuant to annuity agreements over the actuarially computed annuities payable (using market rates in effect on the contribution date) is recorded as contributions in the year received. - 112 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 7. Contributions Contributions are recorded in accordance with SFAS No. 116, Accounting for Contributions Received and Contributions Made. Contributions received are recorded as unrestricted, temporarily restricted or permanently restricted support depending on the existence and/or nature of any donor restrictions. All donor-restricted support is reported as an increase in temporarily or permanently restricted net assets depending on the nature of the restriction. 8. Net Assets Released from Restriction Expenses are not incurred in the temporarily restricted or permanently restricted net asset categories. As the restrictions on these net assets are met, the assets are reclassified to unrestricted net assets. The total assets reclassified are reported as net assets released from restriction in the accompanying statement of activities. 9. Use of Estimates The preparation of the Universities-affiliated component units' financial statements in conformity with U.S. GAAP required management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. B. DEPOSITS AND INVESTMENTS 1. Component Units A. Deposits and Investment Policies The investments of the WIFA are stated at fair value, except guaranteed investment contracts, which are stated at cost since they are non-participating contracts. B. Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The WIFA does not have a formal policy in regards to interest rate risk. The following table presents the interest rate risk for the WIFA utilizing the segmented time distribution method as of June 30, 2005 (expressed in thousands): Investment Maturities (in years) Investment Type Commercial Paper Corporate Asset Backed Securities Corporate Collateralized Mortgage Obligations Corporate Notes Guaranteed Investment Contracts Money Market Mutual Funds U.S. Agency Securities U.S. Agency Mortgage Backed Securities U.S. Treasury Securities Total Fair Value $ 32,802 761 5,426 23,146 68,082 16,126 58,134 2,996 3,067 Less than 1 $ 32,802 16,126 58,134 - $ 210,540 $ 107,062 - 113 - 1-5 6-10 $ 23,146 11,468 3,067 $ 761 56,614 - $ 37,681 $ 57,375 More than 10 $ 5,426 2,996 $ 8,422 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 C. Credit Risk Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations to the holder of the investment. The WIFA does not have a formal policy in regards to credit risk. The following table presents the WIFA’s investments which were rated by S & P’s and/or an equivalent national rating organization. The ratings are presented using S & P’s rating scale as of June 30, 2005 (expressed in thousands): Fair Investment Type Value Commercial Paper $ 32,802 Not AAA $ AA - $ A - $ - $ - $ - $ 32,802 $ - 68,082 68,082 - - - - - - Money Market Mutual Funds 16,126 - - - - - - 16,126 U.S. Agency Securities 61,130 42,146 - - - - 18,984 - $ 207,473 $ 123,012 $ 10,980 $ - 3,110 Rated 12,784 2,459 - A1 29,333 $ 10,980 BB Corporate Securities Guaranteed Investment Contracts Total 2,459 BBB $ 3,110 - $ 51,786 - $ 16,126 D. Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of a government’s investment in a single issuer. The WIFA’s investment policy contains no limitations on the amount that can be invested in any one issuer. As of June 30, 2005, an investment in Bayerische Landesbank (fair value of $40.586 million) was approximately 19.28% of the WIFA’s total investments and an investment in AIG Matched Funding Corp. (fair value of $25.153 million) was approximately 11.95% of the WIFA’s total investments. 2. Universities-Affiliated Component Units A. Investment Summary Investments of the Universities-affiliated component units are comprised of the following amounts at June 30, 2005. All investments are stated at fair value (expressed in thousands): ASU Foundation $ 20,282 204,180 86,347 107,672 $ 418,481 Money market funds and cash equivalents U.S. Government/agency obligations and mutual funds Domestic/international equity securities and mutual funds Fixed income Corporate bonds REIT fund, real estate and timber partnerships Absolute return limited partnerships Other investments Total Investments ACFFC $ 34,702 2,753 $ 37,455 U of A Foundation $ 76,387 125,631 9,941 22,857 8,597 43,816 6,194 $ 293,423 NAU Foundation $ 12,127 28,159 5,855 41 $ 46,182 B. Endowment Trust Agreement In March 2003, the ASU Foundation and the ASU entered into a trust agreement, appointing the ASU Foundation the trustee of selected ASU endowments. In accordance with the trust agreement, the ASU Foundation receives a management fee for providing these services. Unrealized and realized gains and losses, and interest and dividends, if any, are added to or subtracted from the recorded value of the invested trust assets managed by the ASU Foundation. The invested trust assets are separate from ASU Foundation investments, and a corresponding liability is presented for the fair value of the invested trust assets managed for the ASU. C. Securities Lending Program The U of A Foundation participates in a securities lending program established by Wells Fargo Bank, the custodian of the majority of the U of A Foundation's investment assets (the Program). Under the Program, the custodian makes the U of A - 114 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 Foundation's securities available for loan to selected brokerage firms and other borrowing organizations. Each loan is required to be collateralized in an amount equal to at least 102 percent of the market value of the loaned security and accrued interest thereon. Each loaned security is marked to market daily, and the custodian is required to ensure that collateralization remains at an amount of at least 102.00% on a daily basis. At June 30, 2005, $20.615 million, $24.138 million and $360 thousand in U.S. Government and agency obligations, equity securities and corporate bonds, respectively, were in use under the Program. C. PROGRAM LOANS The WIFA has made loans to local governments and others in Arizona to finance various projects pursuant to the requirements of the Clean Water and Safe Drinking Water Acts. The loans are generally payable in semi-annual installments due January 1 and July 1 of each year, including interest. However, several loans are payable monthly or quarterly. Changes in the program loans during fiscal year 2005 are as follows (expressed in thousands): Beginning Balance Clean Water Fund Drinking Water Fund Total Ending Increases Decreases Balance $ 292,475 $ 73,572 $ (16,953) $ 349,094 116,695 26,871 (3,588) 139,978 $ 409,170 $ 100,443 $ (20,541) $ 489,072 Repayment of these loans will be made from pledged property taxes, net revenues from the systems, transaction privilege taxes or from special assessments. Most loans have a .30 to 4.00% annual administrative fee. Some program loans require a monthly or quarterly payment into a debt service reserve to assure payments of the loans. The debt service reserve is a liability of the WIFA to the borrowers and interest on the reserve accrues to the borrowers. D. PLEDGES RECEIVABLE Unconditional promises to give are included in the accompanying financial statements as pledges receivable and revenue of the appropriate net asset category. Unconditional promises to give are recorded at their net realizable value using various yields as determined by the University Foundations. The following summarizes unconditional promises as of June 30, 2005 (expressed in thousands): UniversitiesAffiliated Component Units Net Pledges Receivable $ 46,218 35,105 31,293 ASU Foundation U of A Foundation Law Association - 115 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 E. CAPITAL ASSETS Capital asset activity for the UMC for the fiscal year ended June 30, 2005 was as follows (expressed in thousands): University Medical Center Beginning Balance Non-depreciable capital assets: Land Construction in progress Total Non-depreciable Capital Assets $ Additions 5,998 4,642 10,640 $ Retirements 3 9,805 9,808 $ Adjustments & Ending Reclassifications Balance (7) (7) $ (7,205) (7,205) $ 6,001 7,235 13,236 Depreciable capital assets: Buildings Improvements other than buildings Equipment Total Depreciable Capital Assets 148,962 876 156,274 306,112 51 6,969 7,020 (272) (4,180) (4,452) 1,144 5 4,918 6,067 149,885 881 163,981 314,747 Less accumulated depreciation for: Buildings Improvements other than buildings Equipment Total Accumulated Depreciation (84,316) (313) (124,776) (209,405) (6,756) (51) (11,774) (18,581) 129 3,254 3,383 1,775 1,775 (90,943) (364) (131,521) (222,828) 96,707 (11,561) (1,069) 7,842 91,919 $ 107,347 $ (1,753) $ (1,076) 637 $ 105,155 Total Depreciable Capital Assets, Net Total UMC Capital Assets, Net $ Capital asset summary for the Universities-affiliated component units for the fiscal year ended June 30, 2005 was as follows (expressed in thousands): ASU Foundation Buildings and improvements Furniture, fixtures, and equipment Construction in progress Other property and equipment Total cost or donated value Less: Accumulated Depreciation Property and Equipment, Net $ 15,233 1,913 17,146 (455) $ 16,691 ACFFC CRC $ 28,914 36,176 46,720 509 112,319 (5,779) $ 106,540 $ 11,302 611 11,913 (1,427) $ 10,486 NACFFC $ 3,216 3,216 $ 3,216 F. LONG-TERM OBLIGATIONS 1. Component Units A. Arizona Power Authority On September 12, 2001 the APA issued $57.520 million of Special Obligation Crossover Refunding Bonds (Crossover Bonds). Proceeds from the sale of the bonds along with a fund contribution by the APA were held in an escrow trust account invested in government securities until October 1, 2003 (the Crossover Date) when a crossover refunding took place. The crossover refunding resulted in $57.520 million of Special Obligation Crossover Refunding Bonds being exchanged for 2001 Series Power Resource Revenue Refunding Bonds of the same principal amount, maturity date and interest rates as the crossover bonds. In addition, as part of the crossover and as required by regulation, the APA applied an additional $600 thousand of funds held in their Debt Service Reserve Account to effect the crossover transaction and called the $62.630 million of the 1993 Series Power Resource Revenue Refunding Bonds maturing on and after October 1, 2005. The proceeds in the government securities escrow trust account, together with the income realized from investment of trust assets served as collateral for the Crossover Bonds and paid the debt service on those bonds until the Crossover Date. The Crossover Bonds were payable solely from the amounts in the escrow trust account and were not payable from any other source. Because - 116 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 they were not payable from revenues derived by the APA or secured by any assets held by the APA, neither the Crossover Bonds nor the assets held in the escrow trust account were reflected on the APA’s Statement of Net Assets at June 30, 2003. However, in conjunction with the issuance of the Crossover Bonds, the APA deposited $2.695 million with a crossover bond trustee which is reflected as “Cash with Trustee” in the APA’s Statement of Net Assets at June 30, 2003. As a result of the crossover refunding transaction on October 1, 2003, the 2001 Series Bonds are reflected as obligations of the APA at June 30, 2004 and the called portion of the 1993 Series Bonds are no longer outstanding and cease to be entitled to any lien on the revenues pledged to payment of those bonds. Instead, the revenue stream originally pledged to secure the called portion of the 1993 Series bonds “crossed over” to pay debt service on the 2001 Series Bonds on October 1, 2003. The 2001 Series Bonds bear interest at a rate of 5.00% and 5.25% payable on April 1 and October 1 of each year, commencing April 1, 2004 and maturing in 2017. In addition, the APA recognized an economic gain (difference between the present value of the old and new debt service payments) of $2.096 million. The crossover refunding also resulted in the recognition of a deferred amount of $2.412 million that has been reflected as a decrease in bonds payable and which will be amortized using the effective interest method as a component of interest expense over the life of the refunded bonds. The APA amortized $267 thousand for the year ended June 30, 2005 resulting in a net deferred amount of $1.946 million in the Statement of Net Assets. The APA also recognized a premium of $3.537 million on the crossover refunding which has been reflected as an increase in bonds payable and which will be amortized using the effective interest method. The APA amortized $391 thousand for the year ended June 30, 2005. In prior years, the APA defeased various issues of bonds by purchasing U.S. Government securities which were deposited in an irrevocable trust with an escrow agent to provide future debt service until the call dates. As a result, those bonds are considered to be defeased and the liability has been removed from the Hoover Uprating Fund. Accordingly, these trust account assets and related liabilities are not included in the accompanying financial statements. B. University Medical Center In March 1992, the UMC issued $28.405 million of Hospital Revenue Bonds (the Series 1992 Bonds) and in May 1993, the UMC issued $54.750 million of Hospital Revenue Refunding Bonds (the Series 1993 Bonds). The proceeds of the Series 1992 Bonds and the Series 1993 Bonds were used to advance refund a portion of prior bonds. In March 2004, the UMC issued $52.000 million of Hospital Revenue Bonds (the Series 2004 Bonds). The Series 2004 Bonds were issued at a net premium to yield an effective interest rate of 4.82% and were used in part to advance refund the Series 1992 Bonds. The UMC is subject to certain financial covenants under the Master Trust Indenture (the Indenture), with which the UMC is in compliance as of and for the year ended June 30, 2005. In addition, the Indenture places certain restrictions on the incurrence of additional indebtedness and the sale or acquisition of property. The UMC has established and maintains separate funds as a bond reserve fund on outstanding bonds payable. These funds totaled $8.794 million at June 30, 2005 which are held by the trustee and are reflected as restricted investments held by trustee in the accompanying financial statements. The bonds or other obligations of the UMC do not constitute general obligations of the Arizona Board of Regents, the U of A, the State or any political subdivision thereof. C. Water Infrastructure Finance Authority The WIFA issued Financial Assistance Revenue Bonds in 1992, 1995, 1996, 1997, and 1998. The WIFA also issued Capitalization Revenue Bonds in 1992, 1995, 1996, and 1997. The WIFA also issued Water Quality Refunding Bonds in 1999, 2001, and 2004. The bonds are callable and interest is payable semiannually. The bonds are special obligations of the WIFA payable solely from and secured by the WIFA’s assets. The bonds are not obligations, general, specific, or otherwise, of the State or any other political subdivision thereof other than the WIFA. On September 8, 1999, the WIFA issued $64.000 million of Water Quality Refunding Bonds to advance refund all of the 1991A bonds, and part of the 1992A, 1995A, and 1996A bonds. Under the terms of the refunding issue, sufficient assets to pay all of the principal and interest on the refunded bonds have been placed in irrevocable trust accounts at commercial banks and invested in U.S. Government securities which, together with the interest earned thereon, will provide amounts sufficient for future debt service requirements of the refunded bonds. The amount outstanding on the refunded bonds as of June 30, 2005 is $17.275 - 117 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 million. These bonds have been defeased through advanced refunding and, therefore, the corresponding liability has been removed from the accompanying financial statements. On April 7, 2004, the WIFA issued $97.100 million of Water Quality Refunding Bonds to do an advance refunding of part of the 1992, 1997A, 1998A, and 2001 bonds. Under the terms of the refunding issue, sufficient assets to pay all principal and interest on the refunded bond issues have been placed in irrevocable trust accounts at commercial banks and invested in U.S. Government securities which, together with interest earned thereon, will provide amounts sufficient for future payment of principal and interest on the issues refunded. The amount outstanding on those bonds as of June 30, 2005 is $91.215 million. These bonds are fully defeased, and, therefore, the corresponding liability has been removed from the accompanying financial statements. The net present value cash flow savings on issuing the refunding bonds at 3.213% bond yield was $3.120 million. The $8.609 million deferred amount on retirement of bonds is being amortized over the lives of the defeased bonds on a straightline basis. Annual amortization is $409 thousand and $173 thousand for Clean Water Revolving and Drinking Water Revolving Funds, respectively. Amortization has been offset against interest expense. Bond premiums are being amortized over the life of the bonds. The amortization for the year ended June 30, 2005, is $1.681 million. Further, bond issuance costs are amortized over the life of the bond and offset to interest expense. The amortization for the year ended June 30, 2005, is $173 thousand. - 118 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 Summary of Revenue Bonds The following schedule summarizes revenue bonds outstanding at June 30, 2005 (expressed in thousands): Revenue Bonds Outstanding Component Units: Arizona Power Authority University Medical Center Water Infrastructure Finance Authority Outstanding Balance at June 30, 2005 Dates Issued Maturity Dates 2001-2004 1993-2004 2006-2018 2006-2034 5.0-5.25% 4.82-5.53% $ 57,520 97,245 1992-2004 2006-2025 2.0-6.10% 405,675 Interest Rates Principal and interest debt service payments on revenue bonds outstanding at June 30, 2005 are as follows (expressed in thousands): Fiscal Year 2006 2007 2008 2009 2010 2011-2015 2016-2020 Total Annual Debt Service Arizona Power Authority Principal Interest $ 2,560 2,825 3,120 3,450 3,815 24,010 17,740 $ 57,520 $ 2,894 2,760 2,611 2,447 2,265 7,927 1,429 $ 22,333 Fiscal Year 2006 2007 2008 2009 2010 2011-2015 2016-2020 2021-2025 Total Annual Debt Service University Medical Center Principal Interest Fiscal Year Total $ $ 2006 2007 2008 2009 2010 2011-2015 2016-2020 2021-2025 2026-2030 2031-2034 Total 5,454 5,585 5,731 5,897 6,080 31,937 19,169 79,853 $ 4,280 3,835 4,040 4,145 4,040 23,595 24,765 11,725 9,735 7,085 $ 97,245 Annual Debt Service Water Infrastructure Finance Authority Principal Interest Total $ 28,515 25,110 23,025 23,670 22,120 116,705 100,855 65,675 $ 405,675 - 119 - $ 18,369 17,450 16,482 15,444 14,416 54,661 27,513 5,827 $ 170,162 $ $ 46,884 42,560 39,507 39,114 36,536 171,366 128,368 71,502 575,837 $ 4,876 4,689 4,491 4,289 4,082 17,083 10,851 5,596 3,279 720 $ 59,956 Total $ $ 9,156 8,524 8,531 8,434 8,122 40,678 35,616 17,321 13,014 7,805 157,201 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 D. Changes in Long-Term Obligations The following is a summary of changes in Long-Term Obligations for the component units (expressed in thousands): Arizona Power Authority: Long-term Debt: Revenue bonds Revenue bond premium (discount) Deferred amounts, Net Total Long-term Debt Balance July 1, 2004 Increases $ $ Other Long-term Liabilities: Compensated absences Total Other Long-term Liabilities Total Long-term Obligations University Medical Center: Long-term Debt: Revenue bonds Revenue bond premium Revenue bond discount Total Long-term Debt 60,065 3,244 (2,212) 61,097 59 59 Decreases - 64 64 (2,545) (391) 266 (2,670) $ (59) (59) 57,520 2,853 (1,946) 58,427 Due Within One Year $ 64 64 2,560 2,560 Due Thereafter $ 64 64 54,960 2,853 (1,946) 55,867 - $ 61,156 $ 64 $ (2,729) $ 58,491 $ 2,624 $ 55,867 $ 99,425 1,753 (2,438) 98,740 $ - $ (2,180) (315) 193 (2,302) $ 97,245 1,438 (2,245) 96,438 $ 4,280 4,280 $ 92,965 1,438 (2,245) 92,158 Other Long-term Liabilities: Compensated absences Other Total Other Long-term Liabilities 8,546 859 9,405 6,735 3,564 10,299 Total Long-term Obligations $ 108,145 $ 10,299 Water Infrastructure Finance Authority: Long-term Debt: Revenue bonds Revenue bond premium Deferred amounts, Net Total Long-term Debt $ 417,400 29,887 (9,190) 438,097 $ Other Long-term Liabilities: Compensated absences Total Other Long-term Liabilities Total Long-term Obligations $ Balance June 30, 2005 53 53 $ 438,150 $ (5,818) (5,818) 3,338 3,338 6,125 4,423 10,548 (8,120) $ 110,324 $ 7,618 $ 102,706 - $ (11,725) (1,681) 582 (12,824) $ 405,675 28,206 (8,608) 425,273 $ 28,515 28,515 $ 377,160 28,206 (8,608) 396,758 20 20 (47) (47) 26 26 26 26 - 20 $ (12,871) $ 425,299 $ 28,541 $ 396,758 - 120 - $ 9,463 4,423 13,886 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 2. Universities-Affiliated Component Units Bonds payable as of June 30, 2005 are summarized as follows (expressed in thousands): Final Amount Maturity ASU Foundation: Series 2003 Lease Revenue Term Bonds 2023 Series 2003 Lease Revenue Term Bonds 2028 $ 20,400 10,575 Series 2003 Lease Revenue Term Bonds 2034 16,625 Series 2004A Variable Rate Revenue Bonds 2034 22,420 Series 2004B Variable Rate Revenue Bonds 2022 12,075 ACFFC: Series 2005 Tax – Exempt Refunding Bonds 2035 16,005 Series 2004 Variable Rate Demand Revenue Bonds 2030 51,605 Series 2004A Variable Rate Demand Lease Revenue Bonds 2034 20,175 Series 2004B Variable Rate Demand Lease Revenue Bonds 2034 14,825 Series 2003 Serial and Term Bonds 2035 13,395 Series 2002 Bonds 2018 31,065 Series 2000 Serial and Term Bonds 2032 10,775 Unamortized bond premium 1,501 Campus Research Corporation: Series A Bonds 2013 7,912 Series B Bonds 2006 540 2033 35,910 NACFFC: Variable Rate Demand Revenue Bonds, Series 2005 Scheduled future maturities of Universities-affiliated component units' bonds payable are as follows (expressed in thousands): Fiscal ASU Year 2006 Foundation $ 385 ACFFC $ 1,420 NACFFC $ 105 2007 995 1,830 460 2008 1,035 1,945 355 2009 1,090 2,845 400 2010 Thereafter Total $ 1,135 4,540 455 77,455 146,766 34,135 82,095 $ 159,346 $ 35,910 G. ACCOUNTING CHANGES AND RESTATEMENTS Net Assets have been restated as follows (expressed in thousands): Universities Affiliated Component Units Net assets as previously reported $ 688,633 Prior period adjustment (1,917) Net assets as restated $ 686,716 The ASU restated their component units’ beginning net assets due to correcting an error in their financial statements for the ASU Research Park in the recording of advanced refunding cost made in 1996. As a result, beginning net assets was decreased by $1.941 million. - 121 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 The U of A restated their component units’ beginning net assets due to the exclusion of the Southern Arizona Capital Facilities Finance Corporation because it no longer met the significance criterion of GASB Statement No. 39. As a result, beginning net assets was increased by $743 thousand. The NAU restated their component units’ beginning net assets due to the exclusion by the NAU Foundation of three funds that the NAU Foundation was holding in custody for the NAU. These three funds were included in fiscal year 2004 determination of net assets for the NAU Foundation. As a result, beginning net assets was decreased by $719 thousand. H. RELATED PARTY TRANSACTIONS The UMC and the U of A both provide and receive services from each other under various contracts. Payments to the U of A by the UMC include resident and intern salaries, utilities, ground maintenance, mailroom operations and various administrative functions. Amounts paid to the U of A for these services were approximately $19.315 million for the year ended June 30, 2005. The UMC has entered into contractual agreements with the U of A to provide support for the academic mission of the U of A. Charges to the U of A for such services and facilities provided by the UMC were approximately $9.600 million for the year ended June 30, 2005. These amounts are included in other operating revenue in the accompanying financial statements. University Physicians Healthcare (UPH) is a not-for-profit corporation whose members are physicians employed by the U of A and who practice at the UMC. The UMC has agreements with the UPH whereby the UPH provides physician and other services to the UMC. The UMC also has an agreement to provide healthcare services to members of a health plan owned by the UPH. Net revenues include $9.066 million in 2005 from this payor, based on negotiated rates. Effective July 1, 2003, the UMC became the region’s sole Level I Trauma Center and entered into an arrangement with the UPH to pay trauma physician call pay. Funding for the physician call pay was derived primarily from funds designated by the State to cover trauma readiness costs. During 2005, amounts incurred for these services totaled $3.576 million. As of June 30, 2005, accrued expenses include approximately $440 thousand payable to the UPH for these services. These amounts were funded primarily by amounts the UMC received from the State of Arizona during fiscal year 2005. I. SUBSEQUENT EVENTS The MAV, a wholly-owned subsidiary of the ACFFC, was organized in May 2005 to provide assistance to the ASU by acquiring, constructing, developing and operating capital facilities to provide student housing, academic, tutorial, retail, and food service at the Tempe campus of the ASU. The final plans and specifications for the project have been completed and approved by the MAV and the ASU. On July 1, 2005, the MAV entered into a ground lease with the ASU to develop, construct, and operate its project. The ground lease expires on the earlier of July 1, 2045 or the first date on which all monetary liens and encumbrances on the leasehold estate have been paid. Upon termination of the ground lease, the premises will become the sole property of the ASU. Also on July 1, 2005, the MAV entered into a lease with the ASU. Under this lease, the ASU will lease from the MAV, the academic portions of the project together with the food service and retail areas, and the related support areas. Any right, title, or interest of the MAV in and to the academic portions of the project will pass to the ASU without further cost upon the payment in full of the bonds by the MAV or the ASU and termination of the ground lease. The MAV project is being developed by the ASU pursuant to a Development Agreement, dated July 1, 2005. Pursuant to the Development Agreement, the ASU coordinates and administers construction of the project. The MAV will pay the ASU certain fees from proceeds of the Series 2005 Bonds for providing such services. As construction of the MAV project is completed, the ASU will manage the residential portion of the project on behalf of the MAV pursuant to a year-to-year Management Agreement, dated July 1, 2005. The MAV will pay the ASU a fee of $50 thousand per year for providing such services. On August 3, 2005, the MAV issued Variable Rate Demand Revenue Series 2005A and Series 2005B Bonds for $96.700 million and $48.300 million, respectively. Both the Series 2005A bonds and Series 2005B bonds are due at various intervals through July 1, 2045 and bear interest at weekly rates unless and until converted to the fixed rate mode. Interest is payable monthly commencing on September 1, 2005. - 122 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 In November 2005, the UMC issued $140.000 million of Hospital Revenue Bonds (the Series 2005 Bonds). The Series 2005 Bonds were issued at a discount with an effective interest rate of 5.01%. These proceeds will be used to finance upcoming constructions projects and other capital needs of the UMC. J. CONDENSED FINANCIAL STATEMENT INFORMATION The following represents summary financial information for the State's component units for the year ended June 30, 2005. Component units conforming to GASB are presented separately from those component units conforming to FASB (expressed in thousands): 1. Component Units Condensed Statement of Net Assets Component Units (Expressed in Thousands) Water Infrastructure Finance Authority ASSETS Cash and investments Loans & notes receivable Capital assets, net of accumulated depreciation Other assets Total Assets $ 215,828 489,072 12 9,855 714,767 University Medical Center $ 112,601 105,155 70,732 288,488 Arizona Power Authority $ Total 14,786 212 48,886 63,884 $ 343,215 489,072 105,379 129,473 1,067,139 LIABILITIES Long-term debt Other liabilities Total Liabilities 425,273 7,091 432,364 96,438 65,029 161,467 58,427 2,702 61,129 580,138 74,822 654,960 NET ASSETS Invested in capital assets, net of related debt Restricted Unrestricted Total Net Assets 12 240,080 42,311 282,403 19,854 14,603 92,564 $ 127,021 212 2,543 2,755 20,078 254,683 137,418 412,179 $ $ $ Condensed Statement of Activities Component Units (Expressed in Thousands) EXPENSES Water Infrastructure Finance Authority $ 19,928 University Medical Center $ 354,885 Arizona Power Authority $ 27,869 Total $ 402,682 14,763 7,339 2,174 372,813 17,928 26,472 (1,397) 414,048 7,339 18,705 8,580 8,580 4,983 4,983 597 26 623 14,160 26 14,186 10,754 271,649 282,403 22,911 104,110 $ 127,021 (774) 3,529 2,755 32,891 379,288 $ 412,179 PROGRAM REVENUES Charges for services Operating grants and contributions Net Revenue (Expense) GENERAL REVENUES Unrestricted investment earnings Miscellaneous Total General Revenue Change in Net Assets Total Net Assets - Beginning Total Net Assets - Ending $ - 123 - $ STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2005 2. Universities-Affiliated Component Units Condensed Statement of Financial Position Universities-Affiliated Component Units (Expressed in Thousands) ASU Foundation ASSETS Cash and investments Property and equipment, net Other assets Total Assets $ U of A Foundation ACFFC Other Component Units Total 418,481 16,691 70,913 506,085 $ 334,638 1,687 51,526 387,851 $ 37,455 106,540 38,509 182,504 $ 113,896 39,824 73,444 227,164 $ 904,470 164,742 234,392 1,303,604 LIABILITIES Bonds payable Other liabilities Total Liabilities 82,095 100,968 183,063 495 22,988 23,483 159,346 29,539 188,885 83,232 38,025 121,257 325,168 191,520 516,688 NET ASSETS Permanently restricted Temporarily restricted Unrestricted Total Net Assets 205,222 91,959 25,841 323,022 234,489 121,858 8,021 $ 364,368 (6,381) $ (6,381) 28,597 50,670 26,640 $ 105,907 468,308 264,487 54,121 786,916 $ $ Condensed Statement of Activities Universities-Affiliated Component Units (Expressed in Thousands) ASU Foundation REVENUES Contributions Rental revenue Net investment income Other revenues Total Revenues $ EXPENSES Program services: Payments to Universities Other program services Personal services, operations, and administrative Other expenses Total Expenses Extraordinary Items Increase (Decrease) in Net Assets Net Assets - Beginning, as restated Net Assets - Ending $ U of A Foundation 59,981 17,317 23,557 100,855 $ 64,354 19,107 8,246 91,707 30,355 15,673 4,351 10,465 60,844 40,011 283,011 323,022 - 124 - ACFFC $ Other Component Units Total 3,586 529 3,019 7,134 $ 19,924 17,792 5,136 26,121 68,973 19,787 13,003 4,004 3,109 39,903 1,860 6,837 8,697 6,488 15,350 13,715 20,573 56,126 56,630 44,026 23,930 40,984 165,570 51,804 312,564 $ 364,368 (2,752) (4,315) (2,066) (6,381) (147) 12,700 93,207 $ 105,907 (2,899) 100,200 686,716 786,916 $ $ $ 144,259 21,378 42,089 60,943 268,669 REQUIRED SUPPLEMENTARY INFORMATION REQUIRED SUPPLEMENTARY INFORMATION STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2005 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) GENERAL FUND General Accounting Office Capital Outlay - Cochise Capital Outlay - Coconino Capital Outlay - Graham Capital Outlay - Maricopa Capital Outlay - Mohave Capital Outlay - Navajo Capital Outlay - Pima Capital Outlay - Pinal Capital Outlay - Yavapai Capital Outlay - Yuma/La Paz Equalization Aid - Cochise Equalization Aid - Graham Equalization Aid - Navajo Equalization Aid - Yuma/La Paz General Relief Operating State Aid - Cochise Operating State Aid - Coconino Operating State Aid - Graham Operating State Aid - Maricopa Operating State Aid - Mohave Operating State Aid - Navajo Operating State Aid - Pima Operating State Aid - Pinal Operating State Aid - Yavapai Operating State Aid - Yuma/La Paz Provisional Community Colleges - Gila Salary Adjustments Woolsey Flood District Department of Administration State Archives and History Building Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Arizona Financial Information System Arizona Financial Information System Building Renewal FY00 - 01 Building Renewal FY01 - 02 Building Renewal FY02 - 03 Building Renewal FY03 - 04 Building Renewal FY04 - 05 Building Renewal FY97 - 98 Building Renewal FY98 - 99 Building Renewal FY98 - 99 Classification Pilot Program Ensco HB1464 Personnel Reform HRMS Lapsing End of FY03 Human Resources Information Solution On Call Pay Settlement Agreement Operating Lump Sum Appropriation $ 912,200 355,700 509,500 10,372,200 492,000 586,300 3,297,800 711,100 683,800 866,500 3,151,300 9,588,000 2,134,800 606,000 0 6,232,700 3,025,000 5,252,400 51,290,500 3,710,000 4,412,300 19,593,500 5,659,100 4,724,500 5,447,800 325,000 26,500,000 0 400,000 0 0 0 0 0 0 927,500 49,445 2,154 473,761 2,302,183 3,500,000 2,103 6,848 5,906 122,454 5,310,300 273,045 0 2,294,700 0 17,567,000 The Notes to Required Supplementary Information are an integral part of this schedule. - 127 - FINAL BUDGET (Appropriations) $ 912,200 355,700 509,500 10,372,200 492,000 586,300 3,297,800 711,100 683,800 866,500 3,151,300 9,588,000 2,134,800 606,000 105,725 6,232,700 3,025,000 5,252,400 51,290,500 3,710,000 4,412,300 19,593,500 5,659,100 4,724,500 5,447,800 325,000 578,000 86,065 400,000 145,415 125 98,535 2 572,685 0 939,800 66,699 2,154 566,935 2,175,673 2,977,500 2,103 6,848 5,906 122,454 5,310,300 273,045 0 2,294,700 2,499,100 17,884,700 ACTUAL EXPENDITURE AMOUNTS $ 912,200 355,700 509,500 10,372,200 492,000 586,300 3,297,800 711,100 683,800 866,500 3,151,300 9,588,000 2,134,800 606,000 105,725 6,232,700 3,025,000 5,252,400 51,290,500 3,710,000 4,412,300 19,593,500 5,659,100 4,724,500 5,447,800 325,000 0 86,065 400,000 145,415 125 98,535 2 572,685 26 749,734 28,655 0 558,632 1,459,483 1,414,041 0 6,848 3,562 0 5,309,300 0 26 2,294,700 2,378,396 17,450,191 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2005 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation PLTO 1 Backfill Agency Relocations FY01 - 02 PLTO 1 Backfill Agency Relocations FY02 - 03 PLTO 1 Backfill Space Renovations PLTO 1 Backfill Space Renovations FY01 - 02 PLTO 1 Backfill Space Renovations FY02 - 03 PLTO 1 Project Management PLTO 1 Project Management FY01 - 02 PLTO 1 Project Management FY02 - 03 Relocation FY00 - 01 Relocation FY01 - 02 Relocation FY02 - 03 Relocation FY03 - 04 Relocation FY04 - 05 Relocation FY99 - 00 State Boards Lump Sum Appropriation State Surplus Property Sales Proceeds Utilities Radiation Regulatory Agency Off Site Nuclear Emergency Response Plan Operating Lump Sum Appropriation Office of Equal Opportunity Governor's Office of Equal Opportunity Attorney General Administrative Adjustments Crane Elementary School Case Military Installation/Planning Operating Lump Sum Appropriation Operating Lump Sum Appropriation Property Tax Supplemental State Grand Jury Department of Agriculture Administrative Adjustments Agricultural Employment Relations Board Animal Damage Control Operating Lump Sum Appropriation Red Imported Fire Ant Arizona State University East Campus - Operating Lump Sum Appropriation Main Campus - Operating Lump Sum Appropriation West Campus - Operating Lump Sum Appropriation Auditor General Operating Lump Sum Appropriation FY00-01 Operating Lump Sum Appropriation FY01-02 Operating Lump Sum Appropriation FY02-03 Operating Lump Sum Appropriation FY03-04 Operating Lump Sum Appropriation FY04-05 Operating Lump Sum Appropriation FY99-00 Banking Department Administrative Adjustments Operating Lump Sum Appropriation The Notes to Required Supplementary Information are an integral part of this schedule. - 128 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 11,673,700 1,078,500 352,100 5,031,900 4 325,183 126,078 847 336,702 146,756 1 55,659 60,000 59,866 59,775 54,569 60,000 46,526 283,000 3,000,000 5,733,800 11,858,200 1,109,000 352,100 5,134,900 4 325,183 126,078 847 336,702 146,756 1 55,659 60,000 59,866 59,775 54,569 60,000 46,526 287,600 3,000,000 5,733,800 11,695,472 1,011,863 48,441 4,282,164 0 80,417 19,676 0 (11,460) 2,061 0 0 0 0 0 29,436 0 0 231,775 1,779,561 5,274,228 0 1,078,000 451,600 1,105,600 451,600 1,088,402 216,300 220,900 220,826 0 69,607 0 22,891,300 18,004,400 301 160,100 11,454 69,607 100,000 23,188,400 18,273,300 301 160,100 11,454 36,185 71,306 23,169,877 17,704,213 0 160,046 0 23,300 65,000 10,005,500 23,200 10,969 23,300 65,000 10,226,100 23,200 10,969 10,000 65,000 10,178,560 23,200 12,729,900 276,040,500 39,575,400 13,040,200 282,510,500 40,323,100 13,040,200 282,510,500 40,323,100 387,692 233,944 293,810 489,384 11,543,900 230,000 387,692 233,944 293,810 489,384 11,747,500 230,000 22,199 0 480 113,720 11,341,613 230,000 0 2,836,400 1,263 2,891,700 1,263 2,856,834 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2005 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Board of Nursing Fingerprinting Nursing Assistants Operating Lump Sum Appropriation Board of Regents Administrative Adjustments Arizona Transfer Articulation Support System Operating Lump Sum Appropriation Student Financial Aid Trust Fund University Pay Plan Western Interstate Commission Office WICHE Student Subsidies Corporation Commission Administrative Adjustments Operating Lump Sum Appropriation Operating Lump Sum Appropriation Railroad Warning Systems FY00 - 01 Railroad Warning Systems FY99 - 00 Court of Appeals Division I Division I - Operating Lump Sum Appropriation State Board for Charter Schools Administrative Adjustments Operating Lump Sum Appropriation Court of Appeals Division II Division II - Operating Lump Sum Appropriation Department of Corrections Administrative Adjustments ASPC - Lewis Repair Shower FY00 - 01 Employee Compensatory Leave Payout Operating Lump Sum Appropriation Operating Lump Sum Appropriation Department of Economic Security ADM Attorney General Legal Services ADM Attorney General Legal Services ADM Finger Imaging ADM Finger Imaging ADM High Performance Bonus ADM Lease Purchase Equipment ADM Lease-Purchase Equipment ADM Operating Lump Sum Appropriation ADM Operating Lump Sum Appropriation ADM Operating Lump Sum Appropriation ADM Public Assistance Collections ADM Statewide Cost Allocation Plan Fund ADM Tri-Agency Disaster Recovery ADM Workforce Investment Act Operating Lump Sum Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Attorney General Legal Services Coolidge Environmental Impact Study DACS Adult Services DACS Community and Emergency Services The Notes to Required Supplementary Information are an integral part of this schedule. - 129 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 90,198 135,200 90,198 136,400 0 136,400 0 213,700 2,103,100 2,251,200 16,100,000 103,000 2,908,100 862,829 213,700 2,135,000 2,251,200 0 105,000 2,906,100 862,829 213,700 885,102 2,251,200 0 105,000 2,871,119 0 4,849,500 39,500 88,586 102,000 23,944 4,953,400 40,700 88,586 102,000 23,944 4,947,943 40,683 88,586 54,490 7,591,400 7,685,700 7,681,247 0 691,200 2,298 702,700 2,298 691,512 3,314,400 3,347,300 3,347,179 0 20,000 0 617,703,800 1,541,800 2,098,302 0 7,500,000 629,113,900 1,541,800 2,098,302 0 7,499,446 624,707,037 1,356,869 309,600 141,300 488,900 289,900 33,335 1,602,700 645,000 26,592,100 4,333,800 1,049,300 177,800 1,000,000 742,300 0 0 0 0 0 0 15,300 4,948 11,339,800 5,424,900 314,100 141,300 490,300 89,900 33,335 1,602,700 645,000 27,462,200 4,333,800 1,053,200 177,800 1,000,000 742,300 500,000 5,673,568 30,053,996 89,899 1,019,600 9,773,081 15,400 4,948 11,339,800 5,424,900 314,100 60,799 490,300 24,672 5,476 1,602,700 206,052 27,196,198 3,497,459 1,032,642 60,966 0 381,084 0 5,673,568 30,053,996 89,899 1,019,600 9,773,081 6,322 0 10,291,859 4,127,254 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2005 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) DACS Coordinated Homeless Program DACS Coordinated Homeless Program DACS Coordinated Hunger Program DACS Coordinated Hunger Program DACS Domestic Violence Prevention DACS Domestic Violence Prevention DACS Hopi Senior Center - Kykotsmovi DACS Information and Referral DACS Marriage and Communication Skills DACS Marriage Handbook DACS Marriage Skills Training DACS Navajo Senior Centers - Birdsprings DACS Navajo Senior Centers - Chilchenbento DACS Navajo Senior Centers - Chinle DACS Navajo Senior Centers - Dilcon DACS Navajo Senior Centers - Fort Defiance DACS Navajo Senior Centers - St Michael's DACS Navajo Senior Centers - White Cone DACS Navajo Senior Centers Services DACS Operating Lump Sum Appropriation DACS TANF Operating Lump Sum Appropriation DACS TANF Short-Term Crisis Services FY00 - 01 DACS TANF Short-Term Crisis Services FY99 - 00 DACS Tribal Senior Centers - Navajo Day Care Subsidy DBME General Assistance DBME Operating Lump Sum Appropriation DBME Operating Lump Sum Appropriation DBME TANF Cash Benefits DBME TANF Cash Benefits DBME TANF FLSA Supplemental DBME Tribal Pass-Through Funding DBME Tuberculosis Control DCSE Attorney General Legal Services DCSE Attorney General Legal Services DCSE Central Payment Processing DCSE Central Payment Processing DCSE County Participation DCSE Genetic Testing DCSE Genetic Testing DCSE Operating Lump Sum Appropriation DCSE Operating Lump Sum Appropriation DCYF Adoption Services DCYF Adoption Services DCYF Attorney General Legal Services DCYF Attorney General Legal Services DCYF Children Services DCYF Children Services DCYF Comprehensive Medical and Dental Program DCYF CPS Appeals DCYF CPS Substance Abuse Treatment DCYF Family Builders TANF DCYF Healthy Families DCYF Healthy Families 1,155,400 1,649,500 1,286,600 500,000 2,507,900 5,120,700 22,097 115,400 166,857 809 22,960 65,000 45,000 10,000 30,000 65,000 1,961 30,000 25,000 4,847,000 213,400 47,817 2 415,185 61,866,900 4,260,800 22,122,400 9,024,500 64,378,600 103,856,800 1,008,900 4,288,700 32,200 325,400 6,893,900 444,700 3,275,700 6,845,200 72,400 723,600 4,337,500 34,834,900 20,760,700 5,186,100 8,200,600 48,700 42,140,600 9,412,100 2,057,000 628,900 224,500 5,200,000 8,715,800 5,034,200 The Notes to Required Supplementary Information are an integral part of this schedule. - 130 - FINAL BUDGET (Appropriations) 1,155,400 1,649,500 1,286,600 500,000 2,507,900 5,120,700 22,097 115,400 166,857 809 22,960 65,000 45,000 10,000 30,000 65,000 1,961 30,000 25,000 4,923,200 213,400 47,817 2 415,185 57,866,900 3,960,800 22,495,800 12,024,500 64,378,600 91,856,800 608,900 4,288,700 32,200 482,460 7,387,500 444,700 3,275,700 6,845,200 42,400 663,600 4,244,740 34,707,500 18,460,700 8,986,100 8,098,900 48,700 62,740,700 8,112,100 2,057,000 639,200 224,500 4,500,000 3,915,800 5,034,200 ACTUAL EXPENDITURE AMOUNTS 1,121,017 1,393,314 1,257,205 442,260 2,188,505 3,861,283 0 115,400 136,384 84 12,712 0 0 0 0 55,993 0 0 0 4,922,509 98,587 0 0 415,185 57,137,058 3,917,351 22,495,800 8,972,703 62,796,108 91,158,456 517,053 3,802,536 28,924 482,460 5,983,962 444,700 1,771,707 5,053,758 42,400 280,984 4,214,740 26,983,200 18,460,700 5,186,100 8,098,900 48,700 62,740,700 6,073,614 2,057,000 639,200 224,500 3,139,404 3,915,800 0 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2005 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) DCYF Homeless Youth Intervention DCYF Intensive Family Services DCYF Joint Substance Abuse Treatment-GF DCYF Operating Lump Sum Appropriation DCYF Operating Lump Sum Appropriation DCYF Permanent Guardianship Subsidy DCYF Permanent Guardianship Subsidy DCYF Residential Drug Treatment FY03 - 04 DCYF Residential Drug Treatment FY04 - 05 DCYF Substance Abuse Treatment DCYF TANF to SSBG DDD Arizona Training Program at Coolidge DDD Case Management DDD Home and Community Based Services DDD Home and Community Based Services DDD Institutional Services DDD Institutional Services DDD Operating Lump Sum Appropriation DDD State Funded Long Term Care Services DDD Training Program at Coolidge DERS Child Care Sliding Fee Scales DERS Daycare Subsidy DERS Independent Living Rehabilitation Services DERS Job Search Stipends DERS Jobs DERS Jobs DERS Jobs DERS Operating Lump Sum Appropriation DERS Operating Lump Sum Appropriation DERS Operating Lump Sum Appropriation DERS Operating Lump Sum Appropriation DERS Summer Youth Employment and Training DERS Summer Youth Program DERS TANF Day Care Subsidy DERS Vocational Rehabilitation Services DERS Work Related Transportation DERS Workforce Investment Act Discretionary DERS Workforce Investment Act Operating Lump Sum DERS Workforce Investment Act Programs LTC Arizona Training Program at Coolidge LTC Arizona Training Program at Coolidge LTC Case Management LTC Case Management LTC Home and Community Based Services LTC Home and Community Based Services LTC Institutional Services LTC Institutional Services LTC Medical Services LTC Medical Services LTC Operating Lump Sum Appropriation LTC Operating Lump Sum Appropriation State Funded LTC Services Statewide Bldg Renewal FY03 - 04 Statewide Bldg Renewal FY04 - 05 400,000 1,985,600 3,000,000 43,742,900 20,267,100 2,144,500 859,300 350,000 0 2,000,000 22,613,100 2,961,000 3,837,300 30,761,800 848,100 294,900 0 3,620,400 21,034,000 2,390,500 2,676,118 75,032,900 784,200 30,000 2,000,000 17,316,600 1,793,500 6,251,700 4,893,200 8,425,100 2,063,300 1,000,000 32,446 620,300 3,285,100 302,200 4,881,000 1,952,200 45,088,100 3,752,000 11,304,400 9,452,000 28,237,300 136,831,900 419,832,500 5,053,900 15,297,700 26,555,000 82,633,500 8,934,600 26,995,300 762,900 37,015 0 The Notes to Required Supplementary Information are an integral part of this schedule. - 131 - FINAL BUDGET (Appropriations) 400,000 1,985,600 3,000,000 33,620,800 29,167,100 2,144,500 1,759,300 350,000 250,000 2,000,000 22,613,100 600,400 3,899,000 30,809,400 848,100 150,000 0 3,681,600 21,036,300 2,455,000 2,676,118 75,032,900 784,200 30,000 2,000,000 15,316,600 1,793,500 6,318,900 4,893,200 8,627,700 2,120,900 1,000,000 32,446 620,300 3,585,100 302,200 4,556,000 1,990,200 44,913,100 3,848,500 15,650,900 9,574,400 25,359,700 136,850,200 412,850,800 5,068,300 14,062,100 26,559,900 87,638,400 8,862,400 28,923,100 762,900 148,015 94,000 ACTUAL EXPENDITURE AMOUNTS 226,750 1,985,600 2,787,702 33,620,800 26,547,080 2,113,898 859,000 0 0 1,699,305 17,186,189 595,100 3,500,000 26,469,694 0 139,455 106 3,441,600 18,949,485 6,715 1,600,000 75,032,900 681,896 30,000 0 12,633,983 1,793,500 6,318,900 4,328,884 8,627,604 2,120,900 1,000,000 0 0 3,285,100 292,692 1,958,283 0 40,753,049 3,848,500 0 9,574,400 0 136,850,200 0 5,068,300 0 26,559,900 0 8,862,400 0 761,659 148,015 94,000 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2005 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Statewide Building Renewal FY92 - 93 Transitional Child Care Department of Juvenile Corrections Administrative Adjustments Adobe Mountain Campus Health Facility Upgrades Building Renewal FY91 - 92 Building Renewal FY94 - 95 DOA Building Renewal - Restore Fire Pump-Cms Operating Lump Sum Appropriation Operating Lump Sum Appropriation Department of Transportation Operating Lump Sum Appropriation Department of Education Accountability Measures Achievement Testing Additional State Aid to Schools Administrative Adjustments Adult Education Assistance AIMS Intervention and Dropout Prevention Program Arizona Teacher Evaluation Assistance to School Districts for Children of State Employees Basic Aid and Additional State Aid Entitlement Basic State Aid Entitlement Certificates of Educational Convenience Chemical Abuse English Learner Classroom Bonus Fund FY04 - 05 English Learner FY02 - 03 English Learner FY03 - 04 English Learner FY04 - 05 English Learner Instruction FY02 - 03 English Learner Instruction FY03 - 04 English Learner Instruction FY04 - 05 English Learner Materials and Supplies FY03 - 04 English Learner Materials and Supplies FY04 - 05 English Learner Pilot FY03 - 04 English Learner Pilot FY04 - 05 English Learner Teacher FY02 - 03 English Learner Teacher FY03 - 04 English Learner Teacher FY04 - 05 Extended School Year Family Literacy Program FY04 - 05 Family Literacy Program FY98 - 99 Full-Day Kindergarten Gifted Support Operating Lump Sum Appropriation Operating Lump Sum Appropriation Optional Performance Incentive Programs Parental Choice for Reading Success Residential Placement School Accountability Fund School Report Cards School Safety Program School Safety Program FY01 - 02 School Safety Program FY02 - 03 FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 20 32,911,900 20 36,911,900 0 33,373,598 0 0 39 3,794 0 67,774,300 2,683,700 430,723 646,000 39 3,794 40,000 67,946,000 2,736,600 430,723 646,000 0 0 5,237 67,549,073 2,716,215 69,400 71,700 71,699 50 7,565,978 296,669,700 0 4,439,917 550,000 193,700 99,500 0 2,564,461,100 269,900 797,578 0 202,272 159,073 0 272,588 1,015,107 0 385,436 0 202 0 4,500,000 4,453,299 0 500,000 1,002,529 1,373 0 1,302,248 596,148 6,573,709 120,000 1,000,000 10,000 18,400 440,378 0 7,461 50,798 50 17,568,878 286,274,330 5,504,049 4,443,817 550,000 195,700 100,507 191,293,800 2,564,461,100 664,263 800,478 3,060,000 202,272 159,073 322,422 272,588 1,015,107 5,500,000 385,436 1,500,000 202 750,000 4,500,000 4,453,299 4,500,000 500,000 1,003,429 1,373 21,000,000 1,304,248 603,148 6,671,109 120,000 1,000,000 10,000 18,400 443,278 0 7,461 50,798 The Notes to Required Supplementary Information are an integral part of this schedule. - 132 - 0 12,267,583 279,818,010 5,504,049 4,443,817 550,000 183,041 100,507 191,293,800 2,528,800,466 663,387 714,950 3,060,000 199,883 156,439 59,451 0 1,010,961 4,456,215 276,511 1,105,359 202 736,490 0 (46,411) (291) 404,258 993,323 0 21,000,000 1,180,359 586,958 6,625,417 0 938,333 10,000 72 287,827 (2,810) 5,418 (16,686) (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2005 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) School Safety Program FY03 - 04 School Safety Program FY04 - 05 Small Pass-Through Programs Special Education Audit Special Education Fund State Block Grant for Early Childhood Education State Block Grant for Vocational Education Teacher Certification Unorganized Territories Transportation Vocational Education Extended Year Department of Commerce Agriculture Preservation District Apprenticeship Services Office International Trade Offices Military Installation Contracts Military Installation Fund - Operating Motion Picture Development NAFTA Agreement Projects NAFTA Projects-Initial Phase Operating Lump Sum Appropriation Operating Lump Sum Appropriation Rural Economic Development Board of Tax Equalization Operating Lump Sum Appropriation Department of Environmental Quality Administrative Adjustments Administrative Adjustments Aquifer Protection Permit Program Operating Lump Sum Appropriation Operating Lump Sum Appropriation Water Infrastructure Finance Authority Geological Survey Operating Lump Sum Appropriation Government Information Technology Agency Operating Lump Sum Appropriation Governor's Office Administrative Adjustments Arizona - Sonora Study Implementation FY00-01 Border Volunteer Corps FY94-95 Border Volunteer Corps FY95-96 Governor's Office of Strategic Planning and Budgeting Governor's Telecommunication Office of Sonora Operating Lump Sum Appropriation FY00-01 Operating Lump Sum Appropriation FY01-02 Operating Lump Sum Appropriation FY02-03 Operating Lump Sum Appropriation FY03-04 Operating Lump Sum Appropriation FY04-05 Operating Lump Sum Appropriation FY99-00 Arizona Health Care Cost Containment System Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments The Notes to Required Supplementary Information are an integral part of this schedule. - 133 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 1,656,577 6,701,978 581,600 291,563 31,093,029 19,410,603 11,167,755 1,123,200 0 600,000 1,656,577 6,704,878 581,600 293,963 31,093,929 19,415,603 11,199,055 1,147,300 600,000 600,000 1,571,410 4,416,442 581,600 154,246 31,093,929 19,372,745 11,199,026 1,147,300 600,000 452,764 32,514 156,000 334,200 0 0 291,100 37,777 19,874 2,826,000 121,000 295,400 32,514 158,700 334,200 4,825,000 75,000 296,500 37,777 19,874 2,879,700 122,700 295,400 0 153,333 331,355 4,825,000 50,170 252,803 0 0 2,727,148 98,323 244,518 548,600 556,700 552,640 0 0 756,100 9,742,500 11,724,500 2,445,100 833 141,515 756,100 9,940,900 11,852,700 2,445,100 833 141,515 754,858 9,937,583 1,942,737 2,445,100 782,600 796,700 796,588 2,521,700 2,545,900 2,214,117 0 5,200 34,705 65,374 1,696,100 504 7,783 1 162,392 228,583 115,976 6,054,100 1,014 418 5,200 34,705 65,374 1,721,400 504 7,783 1 162,392 228,583 115,976 6,127,700 1,014 418 0 0 0 1,720,720 0 0 0 129,375 32,225 14,965 6,041,494 1,014 0 0 0 0 1,279,825 22,005,541 1,583,351 18,351,063 1,279,825 22,005,541 1,583,351 18,351,063 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2005 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Board of Nursing Breast and Cervical Cancer Treatment Fed Administration Breast and Cervical Cancer Treatment Fed Program Breast and Cervical Cancer Treatment Program FY01 - 02 Breast and Cervical Cancer Treatment Program FY04 - 05 Breast and Cervical Cancer Treatment State Program Capitation Capitation CHIP - Parents CHIP - Services Critical Access Hospitals Critical Access Hospitals DES Eligibility DES Eligibility DES Title XIX Pass Though DES Title XIX Pass Through Disproportionate Share Payments Disproportionate Share Payments DOA Data Center Charges DOA Data Center Charges Fee for Service Fee for Service Fee For Service FY04 - 05 Fee For Service FY99 - 00 Graduate Medical Education Graduate Medical Education Health Care Group Indian Advisory Council Indian Advisory Council Kidscare Administration Long Term Care Program Lump Sum Appropriation Medicare Premiums Medicare Premiums Mental Health - Adults FY91 - 92 Office of Administrative Hearings Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Proposition 204 - Admin Oper 100% Fpl Expansion Proposition 204 - Administration Proposition 204 - Capitation Proposition 204 - Capitation Proposition 204 - Capitation Proposition 204 - Capitation Proposition 204 - Fee-For-Service Proposition 204 - Fee-For-Service Proposition 204 - Medicare Premiums Proposition 204 - Pass Through Admin Proposition 204 Admin Oper 100% Fpl Expansion Proposition 204 Fee-For-Service Proposition 204 Pass Through Admin Ticket To Work Ticket To Work 209,700 52,730 745,860 73 96,900 327,600 370,821,600 1,111,955,100 6,882,100 15,890,700 554,200 1,145,800 20,996,100 23,841,900 134,200 179,100 46,428,000 95,369,400 1,724,700 3,992,800 77,780,200 166,019 311,642,100 468,147 6,883,500 14,264,000 4,000,000 100,800 101,500 1,864,600 7,446,500 14,520,700 38,746,500 45,368 191,900 25,546,700 71,614,900 35,929,900 814,045,100 4,887,700 5,566,700 170,590,000 618,720,000 30,068,200 43,494,600 121,250,700 24,173,600 9,322,000 13,487,100 4,887,800 3,500,000 13,245,000 1,280,100 2,647,700 The Notes to Required Supplementary Information are an integral part of this schedule. - 134 - FINAL BUDGET (Appropriations) 339,200 52,730 745,860 73 191,900 597,600 410,295,485 1,202,832,100 7,050,200 16,038,500 553,350 1,146,650 23,539,600 24,392,500 136,500 181,700 46,336,553 96,018,448 1,724,700 3,992,800 76,800,200 166,019 307,246,250 468,147 6,883,512 14,264,000 4,000,000 102,800 103,600 1,893,700 7,446,500 16,590,700 41,671,500 45,368 255,300 28,554,400 71,614,900 36,178,100 813,915,600 6,604,000 5,566,700 180,615,800 677,089,000 30,068,200 43,494,600 113,209,252 21,873,600 12,772,000 13,866,000 4,294,900 4,000,000 11,618,500 1,295,100 2,647,700 ACTUAL EXPENDITURE AMOUNTS 339,200 0 0 0 147,222 498,451 404,280,879 1,200,025,021 6,950,799 15,861,277 553,350 1,146,650 18,495,015 23,077,644 134,614 156,062 37,825,476 78,381,824 1,720,426 3,987,184 76,155,982 166,019 303,652,851 468,147 6,883,511 14,263,989 585,580 84,558 76,896 1,893,700 7,446,500 16,582,854 41,518,339 0 202,682 28,150,254 71,614,900 34,494,730 772,776,907 5,915,489 5,566,700 168,530,109 669,763,173 30,068,200 43,494,600 105,555,262 21,873,600 12,501,310 12,124,449 4,294,900 3,997,441 10,571,719 1,289,525 2,512,196 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2005 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Office of Administrative Hearings Operating Lump Sum Appropriation Operating Lump Sum Appropriation Historical Society Field Services And Grants Operating Lump Sum Appropriation Papago Park Museum Papago Park Museum House of Representatives Operating Lump Sum Appropriation FY00-01 Operating Lump Sum Appropriation FY01-02 Operating Lump Sum Appropriation FY02-03 Operating Lump Sum Appropriation FY03-04 Operating Lump Sum Appropriation FY04-05 Operating Lump Sum Appropriation FY98-99 Operating Lump Sum Appropriation FY99-00 Department of Health Services 90/91 Environmental Assessment Phoenix Administrative Adjustments Administrative Adjustments Administrative Adjustments Adult Cystic Fibrosis Adult Sickle Cell Anemia AHCCCS-Children's Rehabilitative Services AHCCCS-Children's Rehabilitative Services AIDS Reporting and Surveillance Arizona State Hospital Accreditation Arizona State Hospital Corrective Action Plan Arnold v. Sarn Arnold v. Sarn ASH Condensate Receiver Assurance and Licensure Assurance and Licensure Assurance and Licensure Attorney General Legal Services Breast and Cervical Cancer Screening Building Renewal - Tucson FY00 - 01 Building Renewal - Tucson FY02 - 03 Building Renewal - Tucson FY98 - 99 Building Renewal - Tucson FY99 - 00 Building Renewal FY91 - 92 Building Renewal FY96 - 97 CBH State Match Title XIX Supplemental CBH State Match Title XIX Supplemental Children's Behavioral Health Services Children's Behavioral Health State Match for Title XIX Children's Behavioral Health State Match For Title XIX FY00 - 01 Children's Behavioral Health State Match For Title XIX Children's Rehabilitative Services Cholla - Sexual Predator Community Health Centers Community Placement Treatment Community Placement Treatment County Nutrition Services The Notes to Required Supplementary Information are an integral part of this schedule. - 135 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 1,086,900 13,900 1,104,200 13,900 1,104,200 13,900 80,000 1,909,000 1,407,600 193,700 80,000 1,957,000 1,425,100 193,700 79,398 1,956,880 1,425,096 193,700 854,254 426,822 842,887 616,410 11,710,500 2,462 360,375 854,254 426,822 842,887 616,410 11,955,500 2,462 360,375 997 1,810 1,140 23,013 10,917,379 2,462 347 8,849 0 0 0 105,200 33,000 13,975,400 28,897,200 1,125,000 3,140 0 27,500,000 10,338,700 4,700 7,613,500 708,400 772,200 362,800 887,000 6,109 78,900 2,221 37,168 3,548 30 0 0 9,351,800 64,727,100 833,545 139,169,100 3,587,000 11,655 10,403,200 5,574,100 1,130,700 330,300 8,849 1,505,361 17,988 17,779 105,200 33,000 13,975,400 28,897,200 1,125,000 3,140 1,281,400 27,500,000 10,338,700 4,700 7,767,000 721,100 772,200 362,800 887,000 6,109 78,900 2,221 37,168 3,548 30 12,408,800 32,735,100 9,351,800 64,727,100 833,545 139,169,100 3,587,000 11,655 10,412,300 5,574,100 1,130,700 330,300 0 1,505,361 17,988 17,779 105,200 33,000 13,975,400 0 1,057,807 0 883,340 27,488,099 0 0 7,498,136 658,341 0 362,800 687,330 0 0 0 0 0 0 12,408,800 0 9,351,799 64,727,100 572,904 0 3,587,000 0 9,930,918 5,574,100 1,130,700 265,474 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2005 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) County Prenatal Services Grant County Public Health Court Monitoring Diabetes Prevention Control Direct Grants General Fund Transfer 2nd Regular Session Chapter 275 Health Start Hearing and Speech Professionals Hearing and Speech Professionals Regulation Hepatitis C Surveillance High Risk Prenatal Services Indirect Cost Fund Indirect Costs AHCCCS - CRS Kidney Program Laboratory Services Loan Repayment Services Medicaid Spec Exam State Supplemental Medicaid Special Exemption Payment State Supplemental Medicaid Special Exemption Payments Medicaid Special Exemption Payments Medicaid Special Exemption Payments BHS Medicaid Special Exemption Payments CFHS Mental Health - Non-Title XIX Mental Health and Substance Abuse State Match Mental Hlth & Subst Abuse St Match Title XIX Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Proposition 204 Administration State Match Proposition 204 Administration Title XIX Match Proposition 204 Children's Behavior Health State Match Proposition 204 Children's Title XIX Match Proposition 204 Mental Health and Substance Abuse State Match Proposition 204 MH/SA Title XIX Match Proposition 204 Seriously Mentally Ill State Match Proposition 204 Seriously Mentally Ill Title XIX Match Reimbursement to Counties Renal and Non-Renal Disease Management Seriously Emotionally Handicapped Child Seriously Mentally Ill Non-Title XIX Seriously Mentally Ill State Match for Title XIX Seriously Mentally Ill State Match for Title XIX Sexually Transmitted Diseases Control Sexually Violent Persons SMI-MH-SA-P204 State T19 Supplemental SMI-MH-SA-P204 State T19 Supplemental Statewide Immunization Information System Substance Abuse - Non-Title XIX 1,148,500 200,000 197,500 100,000 460,300 2,000,000 226,600 0 66,012 354,600 3,180,600 6,954,100 350,000 50,500 2,985,100 150,000 0 0 4,192,700 305,500 8,669,300 631,700 2,447,300 22,678,900 46,893,800 13,758,500 5,633,800 3,226,500 4,045,700 35,466,300 1,576,200 7,169,300 1,910,500 4,263,200 1,997,100 4,129,400 394,700 2,037,400 8,717,200 52,992,800 5,562,100 118,912,600 67,900 468,000 500,000 61,116,700 88,043,100 13,153,100 26,300 9,786,500 0 0 454,600 12,135,400 The Notes to Required Supplementary Information are an integral part of this schedule. - 136 - FINAL BUDGET (Appropriations) 1,148,500 200,000 224,000 100,000 460,300 2,000,000 226,600 260,000 66,012 360,900 3,180,600 7,053,800 350,000 50,500 3,041,900 150,000 1,117,800 364,300 4,192,700 305,500 8,669,300 631,700 2,447,300 22,678,900 46,893,800 13,921,200 5,755,400 3,291,700 3,989,200 36,505,400 1,576,200 7,169,300 1,910,500 4,263,200 1,997,100 4,129,400 394,700 2,037,400 8,717,200 52,992,800 5,562,100 118,912,600 67,900 468,000 500,000 61,116,700 88,043,100 13,153,100 26,300 9,999,100 34,138,800 8,772,900 460,900 12,135,400 ACTUAL EXPENDITURE AMOUNTS 803,950 200,000 224,000 75,394 460,300 2,000,000 0 114,994 3,768 322,554 2,427,174 5,384,257 244,502 50,500 2,926,131 28,857 0 364,300 4,192,700 305,500 0 0 2,447,300 22,678,900 0 13,535,563 5,598,919 3,053,858 3,899,565 36,173,991 1,534,393 7,124,869 0 0 1,997,100 0 394,700 0 8,717,200 0 5,562,100 0 67,900 450,000 26,015 60,991,014 0 13,153,100 23,668 9,526,128 0 8,772,900 457,132 12,135,400 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2005 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) TANF Prenatal Services FY99 - 00 Telemedicine Tuberculosis Provider Care and Control Vaccines Vaccines Vital Records Commission on the Arts Administrative Adjustments Arts Endowment Fund Community Service Projects Operating Lump Sum Appropriation Indian Affairs Commission Administrative Adjustments Operating Lump Sum Appropriation Occupational Safety and Health Review Board Employee Related Expenditures FY01 - 02 Operating Lump Sum Appropriation FY00 - 01 Operating Lump Sum Appropriation FY01 - 02 Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY03 - 04 Operating Lump Sum Appropriation FY04 - 05 Operating Lump Sum Appropriation FY98 - 99 Operating Lump Sum Appropriation FY99 - 00 Personal Services FY91 - 92 Insurance Department Administrative Adjustments Managed Care and Dental Plan Oversight Operating Lump Sum Appropriation Arizona Criminal Justice Commission Administrative Adjustments Operating Lump Sum Appropriation Rural State Aid to County Attorneys Rural State Aid to Indigent Defense Joint Legislative Budget Committee Operating Lump Sum Appropriation FY03-04 Operating Lump Sum Appropriation FY04-05 Department of Library, Archives and Public Records Grants-In-Aid FY01 - 02 Grants-In-Aid FY02 - 03 Grants-In-Aid FY03 - 04 Grants-In-Aid FY04 - 05 Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY00-01 Operating Lump Sum Appropriation FY01-02 Operating Lump Sum Appropriation FY03-04 Operating Lump Sum Appropriation FY04-05 Statewide Radio Reading Service for the Blind Legislative Council Juvenile Study Ombudsman Citizens Aid Office FY03 - 04 Ombudsman Citizens Aid Office FY04 - 05 Ombudsman FY93 - 94 Ombudsman FY94 - 95 Operating Lump Sum Appropriation FY00-01 The Notes to Required Supplementary Information are an integral part of this schedule. - 137 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 46,969 260,000 1,010,500 3,784,300 576,600 37,860 46,969 260,000 1,010,500 3,784,300 576,600 37,860 0 204,140 700,750 3,780,515 575,959 12,335 0 2,000,000 1,263,100 541,900 2,000,000 2,000,000 1,263,100 555,100 2,000,000 2,000,000 1,263,100 555,100 0 201,600 3,277 205,100 3,277 203,348 75 1,000 6,947 4,800 4,800 4,800 8,051 1,000 53 75 1,000 6,947 4,800 4,800 4,800 8,051 1,000 53 0 0 0 0 0 0 2,028 0 0 0 517,000 5,758,900 21,233 526,400 5,867,200 21,233 497,651 5,848,242 0 994,200 157,700 150,100 234,727 994,200 157,700 150,100 234,727 829,235 157,700 150,100 1,330,187 2,165,400 1,330,187 2,201,100 1,330,187 677,819 1,343 54,400 88,857 651,400 663,000 135,650 89,146 169,428 5,856,000 97,000 1,343 54,400 88,857 651,400 672,200 135,650 89,146 169,428 5,975,700 97,000 0 50,000 22,476 536,000 535,188 97,630 16,228 159,941 5,918,858 97,000 19,520 34,938 363,400 43,000 95,169 180,329 19,520 34,938 363,400 43,000 95,169 180,329 0 34,938 347,241 0 0 21,348 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2005 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Operating Lump Sum Appropriation FY03-04 Operating Lump Sum Appropriation FY04-05 Operating Lump Sum Appropriation FY99-00 School Maintenance and Operations Land Department Cap User Fees Environmental County Grants Fire Equipment In/Out of State Fire Costs Inmate Fire Crews Natural Resource Conservation Districts Operating Lump Sum Appropriation Liquor Licensing Department Operating Lump Sum Appropriation Law Enforcement Merit System Council Operating Lump Sum Appropriation Department of Emergency Management and Military Affairs Apache County River Reservoir Dam Emergency Aspen Fire Emergency Civil Air Patrol Euz701 Search and Rescue Euz701 Search and Rescue Euz701 Search and Rescue Euzhaz - Hazard Material Contingency February 2005 Winter Storms and Flooding Forest Heath Emergency - Pine Bark Beetle Forest Heath Emergency - Pine Bark Beetle Gila County Flash Flood Emergency Hazard Materials Contingency Kinishba Fire Emergency La Paz/Maricopa Counties Storm Emergency La Paz/Maricopa Counties Storm Emergency La Paz/Maricopa Counties Storm Emergency Mediterranean Fruit Fly Emergency Mesa Armory Re-Roofing Mitigation Projects 2004 Emergency Funds Navajo County Severe Weather Emergency Navajo, Gila and Coconino Counties Rodeo Fire Navajo, Gila and Coconino Counties Rodeo Fire Nogales and 52nd Street Building Renewal Northern Arizona Winter Storm Emergency Nuclear Emergency Management Fund Nuclear Emergency Management Fund - Buckeye Nuclear Emergency Management Fund - Maricopa Nuttall Complex and Willow Fire Emergency Off Site Nuclear Emergency FY89-90 Operating Lump Sum Appropriation Operating Lump Sum Appropriation - Administration Operating Lump Sum Appropriation - DEMA Prescott and Bellemont Armories Project Challenge Construction FY01 - 02 Project Challenge Program Queen Valley Flash Flood Emergency Safford and Sunnyslope Building Renewal - 138 - ACTUAL EXPENDITURE AMOUNTS 279,617 4,210,000 886,420 214,221 279,617 4,265,000 886,420 214,221 279,617 3,939,884 0 0 1,026,400 125,000 1,200,000 0 790,200 110,000 12,360,900 1,026,400 125,000 1,200,000 3,000,000 790,200 110,000 12,548,500 1,026,400 125,000 917,138 3,000,000 465,505 110,000 12,539,082 2,769,800 2,813,700 2,813,559 57,100 58,300 57,962 394,816 819,450 56,700 0 1 1,010 12,939 0 452,696 1,084,231 0 49,014 0 50 1,797 119,373 0 1,325 1,636,179 0 52 326,430 12,032 0 0 0 0 0 1,708 2,673,500 1,304,100 842,000 101,897 145,468 1,560,300 0 141 The Notes to Required Supplementary Information are an integral part of this schedule. FINAL BUDGET (Appropriations) 394,816 819,450 56,700 200,000 1 1,010 12,939 1,820,000 452,696 1,084,231 (261) 49,014 (3,810) 50 1,797 119,373 200,000 1,325 1,636,179 70,000 52 326,430 12,032 950,000 294,306 31,551 258,628 560,000 1,708 2,776,400 1,325,500 859,300 8,723 145,468 1,560,300 200,000 141 337,675 74,440 56,700 149,004 1 1,010 1,455 760,067 0 819,751 (261) 695 (3,810) 29 (59,797) 13,588 196,459 712,638 58 48 (6,823) 0 485,729 294,306 31,551 258,628 207,969 0 2,768,164 1,324,066 859,263 0 145,468 1,558,977 100,895 0 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2005 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) September Terrorism Incident Emergency Service Contracts FY03 - 04 Service Contracts FY04 - 05 Mine Inspector Administrative Adjustments Operating Lump Sum Appropriation Department of Building and Fire Safety Administrative Adjustments Operating Lump Sum Appropriation Mines and Mineral Resources Operating Lump Sum Appropriation Medical Student Loans Board Medical Student Loans Northern Arizona University Main Campus - Operating Lump Sum Appropriation NAU - Yuma Campus Navigable Streams Adjudication Commission Administrative Adjustments Operating Lump Sum Appropriation Personnel Board Administrative Adjustments Operating Lump Sum Appropriation Commission for Postsecondary Education Leveraging Educational Assistance Partnership Private Postsecondary Education Student Financial Assistance Prescott Historical Society Administrative Adjustments Building Renewal -Sharlot Hall Re-roofing Operating Lump Sum Appropriation Pioneer's Home Operating Lump Sum Appropriation Board of Executive Clemency Operating Lump Sum Appropriation Parks Board Acquisition and Development Administrative Adjustments Kartchner Caverns Land Conservation Fund-General Fund Operating Lump Sum Appropriation Operating Lump Sum Appropriation Department of Public Safety Administrative Adjustments Building Renewal - Project 91-1036 Building Renewal - Project 91-2060 Building Renewal - Project 91-4018 Building Renewal - Project 91-4019 Building Renewal - Project 91-4020 Building Renewal - Project 91-4048 Building Renewal - Project 91-5013 Building Renewal - Project 91-5014 G.I.T.E.M. Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation The Notes to Required Supplementary Information are an integral part of this schedule. - 139 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 0 248,785 852,300 0 248,785 852,300 (107,024) 248,785 605,812 0 1,096,600 2,835 1,116,200 2,835 1,116,180 0 3,221,000 472 3,278,400 472 2,964,819 650,300 658,400 654,054 13,200 13,200 13,193 113,034,100 2,308,200 115,132,300 2,308,200 115,132,300 2,308,200 0 158,400 3,136 160,700 3,136 151,364 0 334,800 111 338,300 111 292,010 1,220,800 170,500 1,220,800 170,500 1,220,800 170,500 0 19 620,700 131 19 639,100 131 0 628,864 3,112,700 2,057,500 2,057,500 894,900 913,300 903,117 114,360 0 1,595,700 0 2,334,500 8,679,700 114,360 70,000 1,654,800 20,000,000 2,380,500 8,851,000 7,260 70,000 1,629,448 20,000,000 2,282,811 8,198,275 0 0 4,242 2,310 2,654 6,544 0 0 0 4,288,900 20,920,300 13,006,800 331,000 3,595 2,746 4,242 2,310 12,186 8,500 4,022 28,500 40,000 4,308,100 21,116,000 13,006,800 343,000 3,595 2,746 4,165 2,300 11,965 8,500 4,022 28,498 39,076 4,298,525 21,116,000 13,006,800 125,000 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2005 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Statewide Interoperability - Phase II Statewide Interoperability Design Sworn Officer Salary Adjustments Tri-Agency Disaster Recovery Racing Department Administrative Adjustments Operating Lump Sum Appropriation Independent Redistricting Commission Operating Lump Sum Appropriation FY00-01 Operating Lump Sum Appropriation FY03-04 Real Estate Department Operating Lump Sum Appropriation Ranger's Pension Operating Lump Sum Appropriation Department of Revenue Administrative Adjustments Operating Lump Sum Appropriation Revenue Generating Program Schools for the Deaf and the Blind Administrative Adjustments Operating Lump Sum Appropriation - Administration Operating Lump Sum Appropriation - Phoenix Operating Lump Sum Appropriation - Tucson School Facilities Board Administrative Adjustments Deficiencies Correction Full Day Kindergarten Capital Grants General Fund Transfer to Building Renewal 1st Tier General Fund Transfer to Building Renewal 2nd Tier General Fund Transfer to Deficiencies Correction Fund 3rd Tier General Fund Transfer to Deficiencies Correction Fund Senate Bill 1406 New School Facilities Debt Service Operating Lump Sum Appropriation Senate Operating Lump Sum Appropriation FY03-04 Operating Lump Sum Appropriation FY04-05 Operating Lump Sum Appropriation FY99-00 Supreme Court 4th Floor Chiller Administrative Adjustments Administrative Adjustments Administrative Adjustments Adult Intensive Probation Adult Standard Probation Enhancement Automation Automation Commission on Judicial Conduct Community Punishment County Reimbursements Domestic Relations Foster Care Review Board HVAC Piping and Pump - Courts Building HVAC Storage Tank Interstate Compact The Notes to Required Supplementary Information are an integral part of this schedule. - 140 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 3,000,000 2,000,000 1,414,900 296,200 3,000,000 2,000,000 1,414,900 296,200 0 517,952 1,414,900 286,736 0 2,458,500 1,501 2,504,800 1,501 2,504,797 48,633 249,542 48,633 2,749,542 48,633 728,172 3,142,700 3,208,400 3,201,942 12,600 12,600 12,600 0 55,096,100 6,537,000 26,378 62,846,500 0 26,378 62,286,079 0 0 4,841,600 1,750,900 7,395,400 796,056 4,973,800 1,942,800 7,719,600 796,056 4,767,710 1,593,878 7,315,471 0 15,000,000 0 30,000,000 10,000,000 25,000,000 0 43,009,600 1,585,800 1,456,708 15,000,000 4,000,000 30,000,000 10,000,000 25,000,000 75,000,000 43,009,600 1,606,500 1,456,708 15,000,000 2,684,648 30,000,000 10,000,000 25,000,000 75,000,000 43,009,600 1,606,491 93,907 6,694,100 711,220 93,907 6,841,500 711,220 93,907 6,341,014 711,220 2,528 0 0 0 10,175,900 11,114,300 4,613,000 9,886,100 343,700 893,100 246,000 708,500 1,864,100 329 1,211 560,500 2,528 54,607 (5,357) 8,671 10,370,100 11,351,800 4,636,800 9,886,100 348,600 913,000 246,000 713,900 1,901,200 329 1,211 570,200 0 54,607 (5,357) 8,671 10,368,663 11,349,330 2,317,943 8,499,690 348,590 910,461 230,613 700,120 1,897,711 0 0 570,113 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2005 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Judges Compensation Judicial Nomination & Performance Review Juvenile Family Counseling Juvenile Intensive Probation Juvenile Standard Probation Juvenile Treatment Services Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Progressively Increasing Consequences Repair/Rehab Cooling Tower - Courts Building Rural State Aid to the Courts Special Water Master State Aid Secretary of State Administrative Adjustments Election Services Help America Vote Act Help America Vote Act - Federal Funds Operating Lump Sum Appropriation Office of Tourism Administrative Adjustments International and Domestic Marketing Media Advertising Transfer to Tourism Fund State Treasurer Administrative Adjustments Community College Reimbursement Corporate Income Tax Transfer General Fund Transfer 2nd Regular Session Chapter 275 General Fund Transfer 2nd Regular Session Chapter 275 General Fund Transfer 2nd Regular Session Chapter 275 General Fund Transfer 2nd Regular Session Chapter 275 Justice of the Peace Salaries Operating Lump Sum Appropriation Operating Lump Sum Appropriation Tax Appeals Board Administrative Adjustments Operating Lump Sum Appropriation University of Arizona Agriculture Clinical Rural Rotation Clinical Teaching Support Liver Research Institute Main Campus - Operating Lump Sum Appropriation Operating Lump Sum Appropriation Sierra Vista Campus Telemedicine Uniform State Law Commission Operating Lump Sum Appropriation Veterans' Services Department Administrative Adjustments Administrative Adjustments Nursing Home Project FY91-92 The Notes to Required Supplementary Information are an integral part of this schedule. - 141 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 14,711,000 281,300 660,400 13,025,200 7,459,700 22,066,700 8,195,300 624,900 4,807,700 9,268,100 0 418,500 20,000 84,700 14,361,000 284,300 660,400 13,591,200 7,639,000 22,101,400 8,302,400 633,900 4,812,300 9,391,900 320,000 418,500 20,000 84,700 14,296,423 275,846 641,068 13,301,112 7,620,509 22,039,853 8,109,052 364,420 4,245,051 9,391,900 124,922 418,500 20,000 80,460 0 3,623,200 1,400,000 27,000,000 2,081,500 19,535 3,632,200 1,400,000 27,000,000 2,117,700 19,535 2,911,231 702,683 47,125 2,007,752 0 18,095 4,500 0 20,403 18,095 4,500 11,963,538 20,403 18,095 4,500 11,963,538 0 0 0 8,000,000 6,000,000 16,832,250 133,658,250 2,775,500 150,000 2,598,400 821,662 2,048,976 10,000,000 8,000,000 6,000,000 16,832,250 133,658,250 2,775,500 150,000 2,635,700 821,662 2,048,976 10,000,000 8,000,000 6,000,000 16,832,250 133,658,250 2,390,127 150,000 2,626,522 0 274,100 23 278,700 23 246,529 39,536,800 459,800 9,473,200 488,300 231,328,800 42,549,800 2,241,400 1,172,100 40,336,000 475,700 9,434,500 503,300 236,204,200 43,251,300 2,302,800 1,184,300 40,336,000 475,700 9,434,500 503,300 236,204,200 43,251,300 2,302,800 1,184,300 52,300 52,300 43,042 0 0 3,605 2 65 3,605 2 65 0 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2005 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Nursing Home Project FY91-92 Nursing Home Project FY91-92 Operating Lump Sum Appropriation Southern Arizona Cemetery Veterans' Organizations Contracts Water Resources Department Administrative Adjustments Operating Lump Sum Appropriation Rural Water Studies FY05 Weights and Measures Department Administrative Adjustments Operating Lump Sum Appropriation Total General Fund Budgetary Expenditures before Adjustments FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 13,284 18,934 2,036,700 129,000 29,200 13,284 18,934 2,097,800 134,700 29,200 0 0 2,095,932 134,700 29,200 0 13,497,300 500,000 663,428 13,698,900 500,000 663,428 13,642,543 500,000 0 1,440,000 6,504 1,466,900 6,504 1,450,991 12,268,278,811 13,042,674,265 11,513,715,608 Less: Economic Security Long-Term Care System Fund Appropriations that were duplicate expenditure authorizations (584,300,700) (584,485,000) 0 Department of Health Services Behavioral Health Appropriations, Children Rehabilitation Services Appropriations, & Kidscare Appropriations that were duplicate expenditure authorizations (507,661,000) (575,652,700) 0 Total General Fund Budgetary Expenditures after Adjustments $ 11,176,317,111 The Notes to Required Supplementary Information are an integral part of this schedule. - 142 - $ 11,882,536,565 $ 11,513,715,608 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES TRANSPORTATION AND AVIATION PLANNING, HIGHWAY MAINTENANCE AND SAFETY FUND FOR THE YEAR ENDED JUNE 30, 2005 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS TRANSPORTATION AND AVIATION PLANNING, HIGHWAY MAINTENANCE AND SAFETY FUND Department of Transportation Administrative Adjustments Administrative Adjustments Airport Planning and Development Airport Planning and Development FY03 - 04 Alternate Truck Route - Douglas Chino Road Arizona-Mexico Border Points FY97 - 98 Asbestos and Lead Inspections FY01 - 02 Asbestos and Lead Inspections FY02 - 03 Building Renewal Building Renewal Building Renewal Building Renewal FY00 - 01 Building Renewal FY01 - 02 Building Renewal FY02 - 03 Building Renewal FY03 - 04 Building Renewal FY03 - 04 De-Icer Building FY02 - 03 Douglas Maintenance Yard Admin Adjustment FY90 - 91 Douglas Weigh Station East Valley Maintenance Yard FY02-03 Fee Accounting and Revenue Management System Fire System Upgrades Highway - Operating Lump Sum Appropriation Highway Construction Highway Construction FY03 - 04 Highway Maintenance Lump Sum Appropriation Highway Maintenance Lump Sum Appropriation Highway Maintenance Lump Sum Appropriation FY03 - 04 Highway Maintenance Lump Sum Appropriation FY03 - 04 Increase to Vehicle Registration Enforcement Integrated Inventory System License Plate Credits and Refunds Liquid De-Icer Storage Tanks Methane Extraction Unit Modular Trailer Operating Expenses Motor Carrier Towing Regulation Motor Vehicle - Electronic Certificate of Title Sys FY01 - 02 Motor Vehicle - Electronic Certificate of Title Sys FY02 - 03 Motor Vehicle - One-Time Trailer Feds Implementation Motor Vehicle - Operating Lump Sum Appropriation Motor Vehicle - Operating Lump Sum Appropriation Motor Vehicle - Operating Lump Sum Appropriation Motor Vehicle - Operating Lump Sum Appropriation Motor Vehicle - Security Enhancement Issues FY01 - 02 Motor Vehicle - Security Enhancement Issues FY02 - 03 Motor Vehicle Nogales Port Facility FY00 - 01 Motor Vehicle Nogales Port Facility FY99 - 00 Nogales Cyber Port Study Nogales Port of Entry FY98 - 99 North Phoenix Maintenance Yard $ 0 0 13,540,000 4,706,554 250,000 569 401,770 598,039 65,900 500,000 2,715,000 2,463 12,600 634,893 32,000 914,242 14,822 2,000 178,000 1,026,761 156,083 46,187 115,466,700 218,155,000 69,900,759 105,048,800 558,700 100 2,670,844 0 99,244 0 1,436 65,436 18,882 0 4,852 13,488 43,724 83,603,700 2,139,000 1,130,400 1,157,200 174,917 2,168,504 5,481 20,347 300,000 2 27,217 The Notes to Required Supplementary Information are an integral part of this schedule. - 143 - $ 350 14,485 13,540,000 4,706,554 250,000 569 401,770 598,039 65,900 500,000 2,715,000 2,463 12,600 634,893 32,000 914,242 0 2,000 178,000 1,026,761 156,083 0 117,024,700 218,155,000 69,900,759 106,112,000 558,700 100 2,670,844 37,000 99,244 322,000 0 0 18,882 168,500 4,852 13,488 43,724 85,449,400 2,174,500 1,149,900 1,175,500 174,917 2,168,504 5,481 20,347 300,000 2 27,217 $ 350 14,485 6,318,147 4,706,554 0 0 190,596 0 0 495,031 945,204 2,463 12,600 634,894 32,000 887,741 0 0 0 675,304 153,181 0 117,011,487 151,844,063 69,900,759 102,897,488 558,699 0 2,670,315 37,000 99,194 245,181 0 0 11,363 157,393 0 0 0 85,341,012 1,420,293 1,112,638 971,919 173,766 628,920 0 17,009 0 0 27,217 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES TRANSPORTATION AND AVIATION PLANNING, HIGHWAY MAINTENANCE AND SAFETY FUND FOR THE YEAR ENDED JUNE 30, 2005 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) On-Line Verification of Social Security Numbers Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Safety, Security, Traffic Management and Control San Luis Poe Connector Road Site Improvement - Nogales Inspection Station Southern Border Ports Administrations Office Annex Special Projects FY98 - 99 Transfer to Department of Public Safety Transfer to Department of Public Safety Transfer to Department of Public Safety Vehicle Registration Enforcement Vehicle Registration Enforcement West Phoenix Motor Vehicle Service Center Governor's Office of Highway Safety Annual Rev Motorcycle Safety ARS 28-2010 Department of Public Safety Administrative Adjustments Operating Lump Sum Appropriation Total Transportation and Aviation Planning, Highway Maintenance and Safety Fund Budgetary Expenditures $ FINAL BUDGET (Appropriations) 797 1,929,200 38,333,600 56,800 18,000 200,000 54,000 42,600 30,868 32,540,600 1,218,200 51,889,500 383,300 383,300 1,347 797 1,967,000 38,801,800 58,600 18,000 200,000 54,000 42,600 30,868 32,680,100 1,226,800 52,216,300 383,300 383,300 1,341 0 1,797,760 38,795,649 58,600 0 0 0 42,600 0 32,680,100 1,226,800 52,216,300 378,128 383,219 1,341 0 43,028 43,028 0 205,000 5,242 205,000 5,242 205,000 755,859,728 The Notes to Required Supplementary Information are an integral part of this schedule. - 144 - ACTUAL EXPENDITURE AMOUNTS $ 761,845,346 $ 678,028,033 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION – BUDGETARY COMPARISON SCHEDULES JUNE 30, 2005 A. RECONCILIATION OF BUDGETARY TO GAAP EXPENDITURES The accompanying Budgetary Comparison Schedules for the General Fund and the Transportation and Aviation Planning, Highway Maintenance and Safety Fund present comparisons of the legally adopted budget with actual expenditure data on the budgetary basis. The original budget represents any appropriation bills passed by June 30, 2004 that affect available appropriations during fiscal year 2005. The final budget represents any appropriation bills passed during fiscal year 2005 for fiscal year 2005 plus the original budget. Appropriation bills passed after the end of fiscal year 2005 for fiscal year 2005 would also be included in the final budget. The Budgetary Comparison Schedules present actual amounts on the State’s budgetary basis for expenditures only. The Schedules include appropriations authorized in one fund and transferred, by legislation, to another fund. The State does not have a legally adopted budget for revenues; therefore, only expenditures are presented on the Budgetary Comparison Schedule, Expenditures for the General Fund and the Transportation and Aviation Planning, Highway Maintenance and Safety Fund. As the budgetary and GAAP presentations of actual data differ, a reconciliation of the two follows (amounts expressed in thousands): Transportation & Aviation Planning, Highway Maintenance & Safety Fund General Fund Uses/outflows of resources Actual expenditure amounts (budgetary basis) "total charges to appropriations" from the budgetary comparison schedule $ 11,513,716 $ 678,028 Differences - budget to GAAP: Increase (decrease) in unpaid incurred expenditures from fiscal year end 2004 to fiscal year end 2005. (12,179) Increase in unpaid payroll expenditures from fiscal year end 2004 to fiscal year end 2005. For budgetary reporting, final June 2005 payroll expenditures were charged to fiscal year 2006 budget. 19,519 - Distributions to counties and cities of sales taxes are recognized as expenditures on the modified accrual basis, but have no effect on budgetary expenditures. 875,744 - Distribution to counties and cities for Urban Revenue Sharing, derived from the State's income tax collections, is recognized as an expenditure on the modified accrual basis, but has no effect on budgetary expenditures. 373,073 - Capital leases and installment purchase contracts initiated during the fiscal year, which are not reported in budgetary expenditures. 532 - Programs which are not controlled by legislative appropriations but have disbursed cash or incurred obligations during fiscal year 2005. 3,638,236 1,564,642 Transfers to other funds are outflows of budgetary resources but are not expenditures for financial reporting purposes. Total expenditures, as reported on the Statement of Revenues, Expenditures and Changes in Fund Balances 448,322 (679,705) (839,037) $ 15,569,604 $ There were no expenditures in excess of appropriations or allotments in the individual budget accounts for the year. - 145 - 2,011,287 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION – BUDGETARY COMPARISON SCHEDULES JUNE 30, 2005 B. BUDGETARY BASIS OF ACCOUNTING Formulation of the budget begins with the preparation of estimates of expenditure requirements by the head of each budgeted agency and institution. These estimates are submitted no later than September 1 of each year to the Governor’s Office of Strategic Planning and Budgeting. The budget is prepared by line item and/or program elements for each agency. The budget document, as finally developed by the Governor, must be submitted to the Legislature no later than five days after the regular session convenes. The Legislature must approve the budget by passing a general and a capital outlay appropriation bill. The Governor may veto any item in an appropriation bill. Such vetoes are subject to legislative overrides. The budget can be amended throughout the year by special legislative appropriations and/or budget transfers. The State’s Constitution prohibits budgeted expenditures from exceeding 7.41 percent of aggregate personal income as estimated by the Economic Estimates Commission. The State prepares its operating budget on the cash basis of accounting. Encumbrances as of June 30 can be liquidated during a three-week administrative period known as the 13th month. At the time of the appropriation bill’s passage, estimates prepared by legislative and executive branch professional staff assure the State Legislature that adequate revenues will be available to meet the level of appropriations approved. Anticipated revenue is estimated on the cash basis but is not part of the legally adopted budget. Consequently, the accompanying Budgetary Comparison Schedules only present budget to actual expenditure comparisons. The Budgetary Comparison Schedules present all appropriation line items as passed by the State Legislature in order to demonstrate compliance with the legal level of budgetary control. The State budgets on both an annual and biennial basis. Laws 2001, Chapter 236 appropriated biennial budgets for all state agencies. In biennial budgets, an agency receives a separate appropriation for each of two fiscal years. For “small” regulatory agencies, comprised of five to ten people, whose budgets were merely amended for technical adjustments in Laws 2002, Chapter 327, the first year appropriations do not lapse until the end of the second year. Except where specifically noted by the appropriation bills, the appropriations for all other agencies lapse at the end of each fiscal year. For the “large” fifteen state agencies, Laws 2002, Chapter 210 returned their budgets to a “one” year cycle beginning with the 2003 Legislative Session (fiscal year 2004 budget request). In prior years the “large” agencies have accounted for approximately ninety percent or more of the appropriations for the General Fund. The budget format used by the State Legislature determines how an agency’s appropriation appears in the General Appropriations Act. A less detailed format provides an agency with more discretion in implementing the budget. Conversely, a more detailed format may require an agency to use formal processes for redirecting appropriated funding. Among the possible format choices are the following: Lump Sum – The appropriation of an agency for each fiscal year consists of a single dollar amount, thereby allowing the agency to shift funds among line items, programs and subprograms without further Legislative or Executive Branch review. Within this format, any programs or Special Line Items may be listed separately. Modified Lump Sum – The appropriation of an agency for each fiscal year consists of at least three lines: Personal Services, Employee Related Expenditures and All Other Operating Expenditures. Any Special Line Items would be listed separately. Under this format, pursuant to ARS §35-173, an agency must seek approval of the Joint Legislative Budget Committee before moving any funding into or out of the Personal Services and Employee Related Expenditures line items. Any other funding transfers would require approval by the Department of Administration (ADOA), but not the Joint Legislative Budget Committee. Detailed Line Item – The agency appropriation for each fiscal year consists of each line item listed in the Appropriation Report including Professional and Outside Services, Travel, Other Operating Expenditures, Equipment, Food and any Special Line Items. The same rules govern Personal Services and Employee Related Expenditures funding transfers as noted in the Modified Lump Sum description. This appropriation format requires an agency to seek ADOA approval before initiating funding transfers between all line items. - 146 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION – BUDGETARY COMPARISON SCHEDULES JUNE 30, 2005 During the fiscal year, $901.956 million in supplemental appropriations net of increases and reversions were provided to major and non-major governmental funds to enhance various programs. The General Fund and the Transportation and Aviation Planning, Highway Maintenance and Safety Fund received $774.395 and $5.986 million, respectively, and those amounts are included in the Budgetary Comparison Schedules. State agencies are responsible for exercising budgetary control and ensuring that expenditures do not exceed appropriations. The State Department of Administration – Financial Services Division exercises oversight and does not disburse funds in excess of appropriations. The Governor shall have in continuous process of preparation and revision a tentative budget report for the next two ensuing years for which a budget report is required to be prepared. Whenever the expenses of any fiscal year shall exceed the income, the Legislature may provide for levying a tax for the ensuing fiscal year sufficient, with other sources of income, to pay the deficiency, as well as the estimated expenses of the ensuing fiscal year. All expenditure of the State’s money must be authorized by law. Authorization can be granted directly by law or contingent upon appropriation from the State Legislature. Periodically, the State Legislature may appropriate monies for program expenditures already authorized by law, resulting in duplicate spending authority. In appropriating monies, the State Legislature has, in some cases, included external funding sources as a portion of an agency’s total program expenditure authorization (budget) and has identified the external funding sources as an offset against the program appropriations total in order to reflect the State funding amount. Examples of these are found in the Department of Economic Security’s Long Term Care appropriation line items on page 131 and in the Department of Health Services Title XIX appropriation line items on pages 135 and 136. Accordingly, sometimes program expenditures may not exhaust specific legislative appropriations. To properly present the total budget (appropriation) information, in relationship to “actual” expenditure amounts, duplicate expenditure authorizations have been eliminated from general fund budget (appropriation) totals on page 142. - 147 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2005 Information About Infrastructure Assets Reported Using the Modified Approach As allowed by Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments (GASB 34), the State of Arizona reports its roads and bridges using the modified approach. Assets accounted for under the modified approach include 6,816 center lane miles (18,424 travel lane miles) of roads and 4,608 bridges that the State is responsible to maintain. In order to utilize the modified approach, the State 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 State • Document that the assets are being preserved approximately at or above the established condition level As adopted by the State Transportation Board on an annual basis, the Five-Year Transportation Facilities Construction Program (Program) contains estimated expenditures for highway system improvements and the preservation of existing roadways 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 2006 and beyond was adopted by the Transportation Board on June 17, 2005. This Program is a dynamic instrument and adjustments are made to the annual plans based on the needs of the State to maintain the condition level of the roads and bridges at a level equal to, or greater than, the goals established by the State. 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, 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 and 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. The following information pertains to the condition assessment and maintenance of infrastructure assets and reflects the State’s success in achieving condition levels that exceed the established levels. Roads The mission of the Department of Transportation’s (ADOT) 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 ADOT PMS both work toward the same basic goal, the efficient, effective management of the State’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’s 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 AASHTO Road Test, 1956-1961). Serviceability is based on detailed measurements of objective features of the pavement and 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” (PSR). PSR is a five-point scale (5 excellent, 0 impassable), similar to the Weaver/AASHTO Scale shown as follows: - 148 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2005 Numerical Rating 5 4 3 2 1 0 Weaver/AASHTO Scale Perfect Very Good Good Fair Poor Very Poor PSR Excellent Good Fair Poor Very Poor Impassable The goal of the State is to maintain a condition level (PSR) rating of 3.23 or better for all roads in the State’s 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 2005, an overall rating of 3.8 was achieved, as shown in the following graph: Condition Level - Roads 5.00 PSR 4.00 3.00 Actual Level 2.00 Desired Level 1.00 0.00 2002 2003 2004 2005 2006 Fiscal Year Figure 1 Preservation of the roads is accomplished through programs managed primarily by the ADOT 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 2002 through 2005 were as follows: Fiscal Year 2002 2003 2004 2005 Estimated Expenditures (in millions) $227.4 $243.5 $198.5 $235.7 - 149 - Actual Expenditures (in millions) $234.8 $220.8 $215.5 $196.0 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2005 Bridges Bridges constitute a significant portion of all infrastructure assets in Arizona. As of June 30, 2005, the State owns and maintains 4,608 bridges with an approximate total deck area of 41,988,500 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 assist 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). A Condition Rating Index (CRI) is used to track the condition of the bridge network. The CRI is based on four selected bridge inspection condition ratings, which in turn are based on standards established in the FHWA’s “Recording and Coding Guide for the Structural Inventory of the Nation’s Bridges”. The four selected condition ratings that are included in the CRI computation are: the bridge joints condition, the deck condition, the superstructure condition, and the substructure condition. The bridge joints condition rating is an Arizona specific rating item not included in the FHWA condition rating guidelines, whereas the three other condition ratings are federally mandated condition ratings. The CRI is computed by subtracting from one the ratio of the sum of the deck areas of all bridges with a condition rating of four or less, which indicates that the rated element is at best in a poor condition, to the total sum of the deck areas. The rating system in this guide is as follows: Numerical Rating 9 8 7 6 5 4 3 2 1 Condition Rating Excellent Very Good Good Satisfactory Fair Poor Serious Critical Imminent Failure Management of the bridge inventory is a major function of ADOT’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. It is the policy of the State to maintain State highway bridges so that the CRI exceeds 92.5%. In fiscal year 2005, the CRI was computed at 93.9%. - 150 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2005 Condition Levels - Bridges 95% CRI 94% 93% Actual Level Desired Level 92% 91% 90% 2002 2003 2004 2005 2006 Fiscal Year Figure 2 Bridges represent a major public investment and their inspection and maintenance is an essential function of the State in its mission of products and services for a safe, efficient, and cost effective transportation system. Figure 3 indicates that approximately 64% of the bridges in the State were constructed prior to the 1970s while only 15% have been constructed in the last two decades. Age of ADOT's Bridge Population 35 % of bridges built in corresponding decade 30 25 20 15 10 5 0 < 1930 30s 40s 50s 60s Figure 3 - 151 - 70s 80s 90s 2000s STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2005 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 2002 through 2005 were as follows: Fiscal Year 2002 2003 2004 2005 Estimated Expenditures (in millions) $14.4 $13.6 $12.1 $ 9.4 - 152 - Actual Expenditures (in millions) $18.2 $15.8 $12.2 $10.0 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION AGENT RETIREMENT PLANS’ FUNDING PROGRESS JUNE 30, 2005 Analysis of the funding progress for each of the agent, multiple-employer defined benefit plans, as of the most recent actuarial valuations, is as follows (expressed in thousands). Plan PSPRS CORP Actuarial Valuation Date 6/30/2005 6/30/2004 6/30/2003 Actuarial Value of Plan Assets $ 573,536 588,237 612,183 6/30/2005 6/30/2004 6/30/2003 674,749 649,029 632,635 Actuarial Accrued Liability $ 718,353 635,120 594,058 (Unfunded)/ Funding Excess $ (144,817) (46,883) 18,125 Funded Ratio 79.8% 92.6% 103.1% Annual Covered Payroll $ 73,779 69,576 71,364 696,396 618,373 552,740 (21,647) 30,656 79,895 96.9% 105.0% 114.5% 295,772 296,028 286,197 - 153 - (Unfunded)/ Funding Excess as Percentage of Covered Payroll (196.3)% (67.4)% 25.4% (7.3)% 10.4% 27.9% (This page intentionally left blank) COMBINING FINANCIAL STATEMENTS AND SCHEDULES COMBINING FINANCIAL STATEMENTS AND SCHEDULES NON-MAJOR GOVERNMENTAL FUNDS Special Revenue Funds Special Revenue Funds account for the proceeds of specific revenue sources (other than major capital projects) that are legally restricted to expenditures for specified purposes. Debt Service Funds The Debt Service Funds account for the accumulation of resources for, and the payment of, general longterm debt principal, interest and related costs. Capital Projects Funds Capital Projects Funds account for financial resources used to acquire or construct major capital facilities (other than those financed by Proprietary Funds, Pension Trust Funds or Component Units). STATE OF ARIZONA COMBINING BALANCE SHEET NON-MAJOR GOVERNMENTAL FUNDS JUNE 30, 2005 (Expressed in Thousands) SPECIAL REVENUE FUNDS ASSETS Cash Cash and pooled investments with State Treasurer Receivables, net of allowances: Taxes Interest Other Due from others Due from other Funds Inventories, at cost Restricted assets: Cash and pooled investments with State Treasurer Cash held by trustee Other Total Assets LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and other current liabilities Accrued liabilities Due to local governments Due to others Due to other Funds Unavailable deferred revenue Unearned deferred revenue Total Liabilities $ $ CAPITAL PROJECTS FUNDS - $ TOTAL - $ 2,214 668,573 6,101 3,635 678,309 18,015 1,009 22,215 343 61,703 2,547 302 1,168 - 464 - 18,015 1,775 22,215 343 62,871 2,547 655 106 1 14,413 8 - 132,157 3,889 - 147,225 4,003 1 $ 777,381 $ 21,992 $ 140,145 $ 939,518 $ 71,489 14,243 43,088 503 32,776 1,547 628 164,274 $ - $ 217 217 $ 71,706 14,243 43,088 503 32,776 1,547 628 164,491 Fund Balances: Reserved for: Highway construction Other construction School facilities improvements Continuing appropriations Debt service Other fund balance reservations Unreserved Total Fund Balances Total Liabilities and Fund Balances 2,214 DEBT SERVICE FUNDS 5,386 37,118 144 570,459 613,107 $ 777,381 21,992 21,992 $ 21,992 - 158 - 132,621 7,307 139,928 $ 140,145 132,621 7,307 5,386 37,118 21,992 144 570,459 775,027 $ 939,518 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2005 (Expressed in Thousands) SPECIAL REVENUE FUNDS REVENUES Taxes: Sales Income Tobacco Property Other Intergovernmental Licenses, fees and permits Earnings on investments Sales and charges for services Fines, forfeitures and penalties Gaming Other Total Revenues $ EXPENDITURES Current: General government Health and welfare Inspection and regulation Education Protection and safety Transportation Natural resources Debt service: Principal Interest and other fiscal charges Capital outlay Total Expenditures Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers in Transfers out Refunding bonds issued Payment to refunded bond escrow agent Bonds issued Premium on bonds issued Grant anticipation notes issued Premium on grant anticipation notes issued Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ 481,270 43 176,571 3,913 98,166 36,112 162,668 9,513 34,637 104,838 62,898 89,410 1,260,039 $ DEBT SERVICE FUNDS CAPITAL PROJECTS FUNDS 65,815 18,292 12,850 127 97,084 $ 3,837 3,837 TOTAL $ 547,085 43 176,571 3,913 98,166 36,112 162,668 31,642 47,487 104,838 62,898 89,537 1,360,960 95,736 327,729 98,714 471,858 105,058 121,155 - 30,531 - 95,736 327,729 98,714 471,858 105,058 30,531 121,155 127 10 12,422 1,232,809 358,020 151,088 509,108 1,997 269,554 302,082 358,147 153,095 281,976 2,043,999 27,230 (412,024) (298,245) (683,039) 209,299 (181,422) 22,317 2,328 52,522 79,752 533,355 411,963 (5,966) 224,283 (247,417) 23,460 406,323 (5,701) 27,693 296 (8,098) 188,260 12,863 104,385 11,551 309,257 11,012 128,916 621,558 (195,486) 224,283 (247,417) 210,577 38,651 104,385 11,551 768,102 85,063 689,964 613,107 $ 21,992 $ - 159 - 139,928 $ 775,027 NON-MAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS The School Facilities Revenue Bond Proceeds Fund accounts for the receipt of the Education Transaction Privilege Revenue Bond proceeds. Funds are restricted to be expended to (1) pay the costs of correcting existing deficiencies in public school facilities for grades K-12, (2) pay bond related expenses, and (3) fully or partially fund any reserves or sinking fund accounts established by the bond resolution. The Public Safety and Correctional Programs Fund accounts for law enforcement, military, custody, and related services provided to the general public. The Environmental Protection Fund accounts for the protection of the State’s public health by administering the State’s environmental quality laws and delegating federal programs to prevent, control, and abate pollution of our air, water, and land resources. The Healthcare and Social Services Fund accounts for health and welfare services provided to the general public. The Tobacco Tax and Healthcare Fund accounts for the receipt of monies levied on tobacco products. The monies are used for health education programs; research, prevention and treatment of tobacco related diseases; and medically needy healthcare programs. The Judicial and Legal Services Fund accounts for the anti-racketeering, consumer protection, consumer fraud, anti-trust, and collections enforcement programs of the Attorney General’s Office and statewide court improvement functions supervised by the Arizona Supreme Court. The Regulating and Licensing Fund accounts for inspection and regulatory services provided to the general public. The Game and Fish Fund accounts for the receipt of monies collected by the Department of Game and Fish for various hunting and fishing licenses, for the purpose of conserving, enhancing, and restoring Arizona’s diverse wildlife resources and habitats, as well as providing safe watercraft and off-highway vehicle recreation. The State Parks Development Fund accounts for the receipt of monies collected by the State Parks Fund for the purpose of acquiring and developing State park lands, sites and facilities. The Business Development Fund accounts for the promotion of statewide economic and community development, which supports a globally competitive Arizona. The Educational Programs Fund accounts for supplemental building needs and instructional improvement programs specifically identified in a voter initiative that enacted a six-tenth of one percent statewide sales tax dedicated to education functions. The Educational Programs Fund supports programs from the kindergarten through university educational levels. The Groundwater Protection and Conservation Fund accounts for statewide water protection planning; storage of Colorado River water; statewide water and groundwater conservation; county and metropolitan areas water use and dam repairs. All of these programs are the responsibility of the Department of Water Resources. The Clean Elections System Fund accounts for fines and fees collected to pay for campaign expenses of statewide candidates and State legislative candidates who choose not to accept private source campaign funds. The fund was established as a result of a voter initiative. STATE OF ARIZONA COMBINING BALANCE SHEET NON-MAJOR SPECIAL REVENUE FUNDS JUNE 30, 2005 (Expressed in Thousands) PUBLIC SAFETY & CORRECTIONAL ENVIRONMENTAL PROTECTION PROGRAMS SCHOOL FACILITIES PROCEEDS ASSETS Cash Cash and pooled investments with State Treasurer Receivables, net of allowances: Taxes Interest Other Due from others Due from other Funds Inventories, at cost Restricted assets: Cash and pooled investments with State Treasurer Cash held by trustee Other Total Assets $ - $ 2,136 $ 14 HEALTHCARE & SOCIAL SERVICES $ - TOBACCO TAX & HEALTHCARE $ - JUDICIAL & LEGAL SERVICES $ 2 5,280 82,213 90,808 40,612 13,759 35,753 - 3,962 111 132 343 5,795 2,547 195 12,091 - 450 40 7,074 2,321 - 13,603 30 - 48 1,346 - 106 - - - 655 - - - $ 5,386 $ 97,239 $ 103,108 $ 51,152 $ 27,392 $ 37,149 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and other current liabilities $ Accrued liabilities Due to local governments Due to others Due to other Funds Unavailable deferred revenue Unearned deferred revenue Total Liabilities - $ 6,750 387 360 2 15 7,514 $ 52,829 11,707 64,536 $ 2,681 10,507 302 1,547 608 15,645 $ 1,128 12,397 13,525 $ 1,858 346 869 3,073 Fund Balances: Reserved for: School facilities improvements Continuing appropriations Other fund balance reservations Unreserved Total Fund Balances Total Liabilities and Fund Balances 5,386 5,386 $ 5,386 3,312 81 86,332 89,725 $ 97,239 1,347 1 37,224 38,572 $ - 162 - 103,108 1,698 33,809 35,507 $ 51,152 13,867 13,867 $ 27,392 222 33,854 34,076 $ 37,149 REGULATING & LICENSING $ 27 GROUNDWATER STATE PARKS BUSINESS EDUCATIONAL PROTECTION & DEVELOPMENT DEVELOPMENT PROGRAMS CONSERVATION GAME & FISH $ 30 $ 5 $ - $ - $ - CLEAN ELECTIONS SYSTEM $ - TOTAL $ 2,214 105,844 33,326 58,030 52,775 98,750 28,855 22,568 668,573 60 2,537 150 - 82 1,600 66 - 144 156 - 218 19 24,501 - 16 10,853 15,277 - 65 - - 18,015 1,009 22,215 343 61,703 2,547 - - - 1 - - - 655 106 1 $ 108,618 $ 35,104 $ 58,335 $ 77,514 $ 124,896 $ 28,920 $ 22,568 $ 777,381 $ 2,195 1,712 143 625 4,675 $ 2,117 1,011 162 3,290 $ 1,388 102 11 1,501 $ 314 119 6 5 444 $ 150 43,088 6,694 49,932 $ 79 43 1 123 $ 16 16 $ 71,489 14,243 43,088 503 32,776 1,547 628 164,274 2,305 27 101,611 103,943 $ 108,618 5,613 30 26,171 31,814 $ 35,104 2,435 5 54,394 56,834 $ 58,335 4,015 73,055 77,070 $ 77,514 16,171 58,793 74,964 $ - 163 - 124,896 28,797 28,797 $ 28,920 22,552 22,552 $ 22,568 5,386 37,118 144 570,459 613,107 $ 777,381 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2005 (Expressed in Thousands) PUBLIC SCHOOL FACILITIES PROCEEDS REVENUES Taxes: Sales Income Tobacco Property Other Intergovernmental Licenses, fees and permits Earnings on investments Sales and charges for services Fines, forfeitures and penalties Gaming Other Total Revenues EXPENDITURES Current: General government Health and welfare Inspection and regulation Education Protection and safety Natural resources Debt service: Principal Interest and other fiscal charges Capital outlay Total Expenditures Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers in Transfers out Bonds issued Premium on bonds issued Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ $ 164 164 SAFETY & CORRECTIONAL ENVIRONMENTAL PROTECTION PROGRAMS $ 27,428 7,765 47,458 926 13,521 1,149 29,985 47,398 4,773 180,403 $ 2,157 293 44,087 1,741 65 1,226 136 49,705 HEALTHCARE & SOCIAL SERVICES $ 4,948 12,426 7,634 7,062 425 280 10,549 16,688 3,952 63,964 TOBACCO TAX & HEALTHCARE $ 168,806 232 72 169,110 JUDICIAL & LEGAL SERVICES $ 3,757 2,807 416 284 35,494 1,001 43,759 24,645 - 21,805 105,058 9,921 1,110 92,929 1,255 614 3,993 63,821 111 - 438 170,887 - 32,697 - 1 24,646 80 6 1,243 138,113 96 96,004 403 68,328 101 171,426 3 107 32,807 (24,482) 42,290 (46,299) (4,364) (2,316) 10,952 (12,585) 22,317 2,328 12,060 (12,422) 17,808 94,275 (121,400) (27,125) 15,165 74,560 62,650 (17,229) 45,421 (878) 39,450 6,650 (2,317) 4,333 (31) 35,538 5,844 (693) 5,151 2,835 11,032 1,346 (5,434) (4,088) 6,864 27,212 5,386 $ 89,725 - 164 - $ 38,572 $ 35,507 $ 13,867 $ 34,076 REGULATING & LICENSING $ $ 36,125 1,537 66,984 532 672 2,085 8,122 4,225 120,282 GAME & FISH $ 2,478 18,129 19,175 804 308 194 4,760 4,424 50,272 GROUNDWATER STATE PARKS BUSINESS EDUCATIONAL PROTECTION & DEVELOPMENT DEVELOPMENT PROGRAMS CONSERVATION $ 1,435 388 1,339 193 3,355 $ 2,210 2,616 1,763 287 26,023 32,899 $ 448,894 43 1,626 69 77 2,674 33,328 10,513 497,224 $ 5,959 871 82 28,852 35,764 CLEAN ELECTIONS SYSTEM $ 7,892 5,246 13,138 TOTAL $ 481,270 43 176,571 3,913 98,166 36,112 162,668 9,513 34,637 104,838 62,898 89,410 1,260,039 1,195 92 97,459 283 - 51,267 13,081 26,906 176 446,819 - 46,096 7,592 - 95,736 327,729 98,714 471,858 105,058 121,155 31 1,207 100,267 16 7,104 58,387 1,879 14,960 28 27,110 254 447,073 46,096 7,592 127 10 12,422 1,232,809 20,015 (8,115) (11,605) 5,789 50,151 (10,332) 5,546 27,230 392 (6,470) (6,078) 13,937 90,006 10,959 (2,576) 8,383 268 31,546 19,558 (1,085) 18,473 6,868 49,966 2,960 (3,114) (154) 5,635 71,435 3,215 (5,512) (2,297) 47,854 27,110 1,450 (2,000) (550) (10,882) 39,679 (1,007) (1,007) 4,539 18,013 209,299 (181,422) 22,317 2,328 52,522 79,752 533,355 103,943 $ 31,814 $ 56,834 $ 77,070 $ - 165 - 74,964 $ 28,797 $ 22,552 $ 613,107 NON-MAJOR GOVERNMENTAL FUNDS DEBT SERVICE FUNDS The Department of Transportation Fund administers the payment of principal and interest on the Highway Revenue Bonds issued by the Arizona Department of Transportation Board and the retirement of previously issued revenue bonds. The Maricopa Regional Area Road Fund (RARF) administers the payment of principal and interest on the Arizona Transportation Excise Tax Revenue Bonds issued by the Arizona Department of Transportation Board and the retirement of previously issued revenue bonds. The Certificates of Participation Fund administers the payment of principal and interest on the certificates of participation issued by the State of Arizona (acting by and through the Director of the Department of Administration) and the retirement of previously issued certificates of participation. The School Facilities Debt Instrument Fund administers the payment of principal and interest on revenue bonds issued by the State of Arizona’s School Facilities Board and the retirement of previously issued revenue bonds. The Grant Anticipation Notes Fund administers the payment of principal and interest on grant anticipation notes issued by the Arizona Department of Transportation Board and the retirement of previously issued grant anticipation notes. STATE OF ARIZONA COMBINING BALANCE SHEET NON-MAJOR DEBT SERVICE FUNDS JUNE 30, 2005 (Expressed in Thousands) DEPARTMENT OF TRANSPORTATION ASSETS Cash and pooled investments with State Treasurer Interest receivable Due from other Funds Restricted assets: Cash and pooled investments with State Treasurer Cash held by trustee Total Assets FUND BALANCES Reserved for debt service Total Fund Balances $ 176 - MARICOPA RARF $ CERTIFICATES OF PARTICIPATION 1 - 1,808 - SCHOOL FACILITIES DEBT INSTRUMENT $ 288 - 1,309 - $ 8 4,792 123 1,168 GRANT ANTICIPATION NOTES $ 12,304 - 2 - 13 - $ 1,984 $ 289 $ 1,317 $ 18,387 $ 15 $ 1,984 $ 289 $ 1,317 $ 18,387 $ 15 $ 1,984 $ 289 $ 1,317 $ 18,387 $ 15 - 168 - TOTAL $ 6,101 302 1,168 14,413 8 $ 21,992 $ 21,992 $ 21,992 - 169 - STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR DEBT SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2005 (Expressed in Thousands) DEPARTMENT OF TRANSPORTATION REVENUES Taxes: Sales Earnings on investments Sales and charges for services Other Total Revenues $ EXPENDITURES Debt service: Principal Interest and other fiscal charges Total Expenditures Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers in Transfers out Refunding bonds issued Payment to refunded bond escrow agent Premium on bonds issued Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ 1,036 1,036 MARICOPA RARF $ 1,749 1,749 SCHOOL FACILITIES DEBT INSTRUMENT CERTIFICATES OF PARTICIPATION $ 11 127 138 $ 65,815 14,919 12,850 93,584 GRANT ANTICIPATION NOTES $ 577 577 44,265 60,494 104,759 208,625 14,398 223,023 13,905 10,373 24,278 42,225 48,777 91,002 49,000 17,046 66,046 (103,723) (221,274) (24,140) 2,582 (65,469) 104,474 104,474 751 1,233 204,938 204,938 (16,336) 16,625 25,180 (994) 24,186 46 1,271 1,984 $ 289 - 170 - $ 1,317 12,621 (4,972) 224,283 (247,417) 23,460 7,975 10,557 7,830 $ 18,387 64,750 64,750 (719) 734 $ 15 TOTAL $ 65,815 18,292 12,850 127 97,084 358,020 151,088 509,108 (412,024) 411,963 (5,966) 224,283 (247,417) 23,460 406,323 (5,701) 27,693 $ 21,992 - 171 - NON-MAJOR GOVERNMENTAL FUNDS CAPITAL PROJECTS FUNDS The Department of Transportation Financed Fund administers the proceeds from the Highway Revenue Bonds issued by the Arizona Department of Transportation Board. These monies are expended for the construction of federal, state and local highways. The Grant Anticipation Notes Financed Fund administers the proceeds from the grant anticipation notes issued by the Arizona Department of Transportation Board. These monies are expended for the acquisition of right-of-way purchases or the construction of certain controlled access highways within Maricopa County. Certificates of Participation Financed Fund administers the proceeds from the certificates of participation issued by the State of Arizona (acting by and through the Director of the Department of Administration). These monies are expended on various projects including new building construction and the development of the Human Resource Information System. STATE OF ARIZONA COMBINING BALANCE SHEET NON-MAJOR CAPITAL PROJECTS FUNDS JUNE 30, 2005 (Expressed in Thousands) GRANT ANTICIPATION NOTES FINANCED DEPARTMENT OF TRANSPORTATION FINANCED ASSETS Cash and pooled investments with State Treasurer Interest receivable Restricted assets: Cash and pooled investments with State Treasurer Cash held by trustee Total Assets LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and other current liabilities Total Liabilities $ $ 86,778 - 157 $ 45,379 - 3,635 - TOTAL $ 3,889 3,635 464 132,157 3,889 $ 87,085 $ 45,536 $ 7,524 $ 140,145 $ - $ - $ 217 217 $ 217 217 Fund Balances: Reserved for: Highway construction Other construction Total Fund Balances Total Liabilities and Fund Balances 307 CERTIFICATES OF PARTICIPATION FINANCED 87,085 87,085 $ 87,085 45,536 45,536 $ 45,536 - 174 - 7,307 7,307 $ 7,524 132,621 7,307 139,928 $ 140,145 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR CAPITAL PROJECTS FUNDS FOR THE YEAR ENDED JUNE 30, 2005 (Expressed in Thousands) GRANT ANTICIPATION NOTES FINANCED DEPARTMENT OF TRANSPORTATION FINANCED REVENUES Earnings on investments Total Revenues $ EXPENDITURES Current: Transportation Debt service: Interest and other fiscal charges Capital outlay Total Expenditures (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers in Transfers out Bonds issued Premium on bonds issued Grant anticipation notes issued Premium on grant anticipation notes issued Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ 3,082 3,082 $ CERTIFICATES OF PARTICIPATION FINANCED 619 619 $ 136 136 TOTAL $ 3,837 3,837 30,531 - - 30,531 1,103 144,752 176,386 894 91,654 92,548 33,148 33,148 1,997 269,554 302,082 (173,304) (91,929) (33,012) (298,245) (4,257) 188,260 12,863 196,866 23,562 63,523 (2,699) 104,385 11,551 113,237 21,308 24,228 296 (1,142) (846) (33,858) 41,165 296 (8,098) 188,260 12,863 104,385 11,551 309,257 11,012 128,916 87,085 $ 45,536 - 175 - $ 7,307 $ 139,928 NON-MAJOR ENTERPRISE FUNDS Enterprise Funds account for operations (a) financed and operated in a manner similar to private business enterprises, where the State intends that the cost of providing goods or services to the general public be financed or recovered primarily through service charges, or (b) where the State decides that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. The Arizona Industries for the Blind Fund accounts for the manufacturing, sale, distribution and marketing of products manufactured by employees at training centers, workshops, business enterprises and home industries programs for the training and employment of adaptable visually impaired persons. The Arizona Correctional Industries Fund employs prison inmates in its manufacturing, service and agricultural operations for the sale of goods and services primarily to other State agencies (including the Arizona Department of Corrections) and political subdivisions. The Arizona Highways Magazine Fund publishes and markets the Arizona Highways Magazine and various other products that promote the State of Arizona. The Coliseum & Exposition Center Fund provides rental space to a variety of entertainment and promotional lessees, and sponsors the annual State Fair. Highway Expansion & Extension Loan Program provides the State and communities in Arizona a new financing mechanism to stretch limited transportation dollars and bridge the gap between needs and available revenues. The Healthcare Group of Arizona administers prepaid medical coverage primarily to small, uninsured businesses with 2 to 50 employees and employees of political subdivisions. The Healthcare Group of Arizona processes premium billing, collections and fund disbursements, and data analysis and is responsible for the regulatory oversight of the health plans. The Other Enterprise Funds consist of the State Hospital Revolving Fund, the State Home for Veterans Trust Fund, and the Arizona Beef Council. STATE OF ARIZONA COMBINING STATEMENT OF NET ASSETS NON-MAJOR ENTERPRISE FUNDS JUNE 30, 2005 (Expressed in Thousands) ASSETS Current Assets: Cash Cash and pooled investments with State Treasurer Restricted cash and pooled investments with State Treasurer Short-term investments Receivables, net of allowances: Interest Loans and notes Other Due from U.S. Government Due from local governments Due from other Funds Inventories, at cost Other current assets Total Current Assets ARIZONA ARIZONA COLISEUM & INDUSTRIES CORRECTIONAL HIGHWAYS EXPOSITION & EXTENSION FOR THE BLIND INDUSTRIES MAGAZINE CENTER LOAN PROGRAM $ Noncurrent Assets: Restricted assets: Cash and pooled investments with State Treasurer Loan and note receivables, net of allowances Other long-term assets Capital assets: Land, construction in progress and collections Depreciable buildings, property and equipment, net of accumulated depreciation Total Noncurrent Assets Total Assets LIABILITIES Current Liabilities: Accounts payable and other current liabilities Accrued liabilities Due to others Due to other Funds Unearned deferred revenue Current portion of long-term debt Current portion of other long-term liabilities Total Current Liabilities Noncurrent Liabilities: Long-term debt Other long-term liabilities Total Noncurrent Liabilities Total Liabilities NET ASSETS Invested in capital assets, net of related debt Restricted for: Loans and other financial assistance: Expendable Unrestricted (deficit) Total Net Assets HIGHWAY ARIZONA $ 132 $ 66 $ - $ EXPANSION 21 $ - 661 3,349 1,774 3,946 - - - - - 94,906 - 1 1,803 104 3,395 6,096 16 2,595 3,728 140 9,894 5 456 44 1,137 218 3,634 23 214 4,204 272 10,019 203 111,046 216,446 - - 73 2,689 - 14,897 - 182 692 8 138 - 1,721 1,903 7,999 1,867 2,559 12,453 492 573 4,207 3,827 6,654 10,858 14,897 231,343 586 215 14 30 206 1,051 1,009 211 363 1,583 117 107 3,568 123 3,915 135 101 201 437 4 166,454 10 166,468 85 85 1,136 1,583 3,915 58 58 495 166,468 1,903 2,559 499 3,965 - 4,960 8,311 (207) 6,398 64,875 - 6,863 $ 10,870 $ - 178 - 292 $ 10,363 $ 64,875 HEALTHCARE GROUP OF ARIZONA $ $ OTHER - $ TOTAL 214 $ 433 9,629 1,616 20,975 - 41 94,906 41 8 3,414 13,051 3 1,442 43 2 3,361 297 10,019 6,327 104 203 114,547 8,262 572 256,686 - - 2,689 14,897 73 - 980 2,000 193 193 13,244 9,563 10,543 13,904 17,663 37,322 294,008 371 4,032 6,721 81 11,205 125 284 95 1 505 2,343 4,954 95 166,469 10,289 30 984 185,164 11,205 505 58 85 143 185,307 193 10,543 19,662 1,846 2,856 64,875 24,164 2,039 $ 13,399 $ 108,701 - 179 - STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS NON-MAJOR ENTERPRISE FUNDS FOR THE YEAR ENDED JUNE 30, 2005 (Expressed in Thousands) HIGHWAY OPERATING REVENUES Sales and charges for services Intergovernmental Licenses, fees and permits Earnings on investments Other Total Operating Revenues ARIZONA ARIZONA ARIZONA COLISEUM & EXPANSION INDUSTRIES CORRECTIONAL HIGHWAYS EXPOSITION & EXTENSION FOR THE BLIND INDUSTRIES MAGAZINE CENTER LOAN PROGRAM $ OPERATING EXPENSES Cost of sales and benefits Interest on notes payable Personal services Contractual services Depreciation and amortization Insurance Other Total Operating Expenses Operating Income (Loss) 18,870 1,023 55 19,948 $ 25,499 25,499 11,831 5,041 1,274 373 1,036 19,555 393 20,681 1,931 104 408 462 23,586 1,913 NON-OPERATING REVENUES (EXPENSES) (Loss) on sale of capital assets Investment income Other non-operating revenue Interest expense Total Non-Operating Revenues (Expenses) Income (Loss) Before Contributions and Transfers 409 1,984 Capital grants and contributions Transfers in Transfers out 122 - 5 (1,410) 17 (1) 16 Change in Net Assets Total Net Assets - Beginning Total Net Assets - Ending 6,863 10,870 - 180 - $ $ 3,010 3,010 1 4,040 202 110 7 4,360 (1,350) (1) 40 39 118 407 525 2,725 2,725 (1,410) 508 1,375 - - 508 9,855 1,375 63,500 (1,410) 1,702 $ 10,712 966 11,678 1,620 4,554 2,934 1,190 446 951 11,695 (17) - 579 10,291 $ 8,443 380 8,823 6,262 2,689 680 314 327 10,272 (1,449) (3) 74 71 531 6,332 $ $ 292 $ 10,363 $ 64,875 HEALTHCARE GROUP OF ARIZONA $ OTHER 33,616 33,616 $ 34,527 1,697 1,549 47 640 38,460 (4,844) 12,188 651 65 12,904 $ 109,328 1,023 651 3,010 1,466 115,478 337 9,839 333 326 176 1,689 12,700 204 75,259 4,040 25,953 6,984 2,658 622 5,112 120,628 (5,150) 35 35 (4) 3,143 407 (1) 3,545 (4,710) 239 (1,605) 3,700 - 374 (2) 5 4,196 (1,412) 134 134 (1,010) 3,049 $ TOTAL 2,039 1,184 107,517 611 12,788 $ 13,399 $ 108,701 - 181 - STATE OF ARIZONA COMBINING STATEMENT OF CASH FLOWS NON-MAJOR ENTERPRISE FUNDS FOR THE YEAR ENDED JUNE 30, 2005 ARIZONA (Expressed in Thousands) INDUSTRIES FOR THE BLIND CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Receipts from federal and local governments Receipts from other Funds Payments to suppliers or insurance companies Payments to employees Payments to other Funds Other receipts (payments) Net Cash Provided (Used) by Operating Activities $ CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Transfers from other Funds Transfers to other Funds Other receipts Net Cash Provided (Used) by Non-capital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition and construction of capital assets Other (payments) Net Cash (Used) by Capital and Related Financing Activities ARIZONA CORRECTIONAL INDUSTRIES 18,656 $ 1,042 (12,568) (4,950) (2,251) (71) ARIZONA HIGHWAYS MAGAZINE 25,413 $ (21,649) (1,785) 1,979 HIGHWAY EXPANSION & EXTENSION LOAN PROGRAM COLISEUM & EXPOSITION CENTER 8,195 $ (5,756) (2,677) (40) 380 102 10,804 $ (5,855) (4,513) 966 1,402 1,547 54,491 (30) (215) (55,108) (6) 679 142 (1,410) - - 407 - 142 (1,410) - 407 - (549) - (513) - (4) - (1,274) (17) - (549) (513) (4) (1,291) - CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of investments Interest and dividends from investments Purchase of investments Net Cash Provided by Investing Activities 17 (1) 16 73 73 40 40 118 118 2,588 2,588 Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning (462) 1,255 129 3,286 138 1,636 636 6,020 3,267 91,639 Cash and Cash Equivalents - Ending Reconciliation of operating income (loss) to net cash provided (used) by operating activities: Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation and amortization Loss on sale of capital assets Net changes in assets and liabilities: (Increase) decrease in receivables, net of allowances Decrease in due from U.S. Government Decrease in due from local governments (Increase) in due from other Funds (Increase) decrease in inventories, at cost (Increase) decrease in other assets Increase (decrease) in accounts payable Increase (decrease) in accrued liabilities (Decrease) in due to others Increase (decrease) in due to other Funds Increase (decrease) in deferred revenue Increase (decrease) in other liabilities Net Cash Provided (Used) by Operating Activities SCHEDULE OF NONCASH INVESTING, CAPITAL AND NON-CAPITAL FINANCING ACTIVITIES Change in fair value of investments Total Noncash Investing, Capital and Non-capital Financing Activities $ 793 $ 3,415 $ $ 393 $ 1,913 $ $ 1,774 (1,449) $ 373 4 408 - 314 - (215) 19 (310) (377) 33 9 (86) (428) (13) 39 16 130 85 (40) 1,137 394 (16) 20 (335) (8) (71) $ $ 6,656 $ (17) $ 1,190 - 94,906 (1,350) - 92 53 43 19 22 183 (2,182) (2) 4,040 (10) 1,979 $ 102 $ 1,402 $ 679 $ - $ - $ - $ - $ (399) $ - $ - $ - $ - $ (399) The beginning cash and cash equivalents balance at July 1, 2004 for the Arizona Correctional Industries differs from the ending cash and cash equivalents balance on the cash flow for the year ended June 30, 2004 due to the correction of an error. - 182 - HEALTHCARE GROUP OF ARIZONA $ OTHER 36,089 $ (33,196) (1,682) 1,211 11,856 $ (2,790) (9,713) 65 (582) 586 - 374 (2) - 586 372 (20) - (18) - (2,378) (17) (20) (18) (2,395) 134 134 20 35 55 20 3,005 (1) 3,024 1,911 7,718 $ $ 9,629 112,560 1,042 54,491 (81,844) (25,535) (55,148) (846) 4,720 960 (1,412) 549 97 (173) 2,003 5,446 113,557 $ 1,830 $ (4,844) $ 204 $ 47 - 326 - 2,658 4 (969) (14) 2 (86) 126 (168) (3) - (1,093) 19 183 (2,236) 401 434 (37) 3,372 (168) 4,037 2,138 158 360 3,160 2,473 15 $ TOTAL 1,211 $ (582) $ 119,003 (5,150) 4,720 $ (25) $ - $ (424) $ (25) $ - $ (424) - 183 - INTERNAL SERVICE FUNDS Internal Service Funds account for the financing of goods and services provided by one State department or agency to other State departments or agencies on a cost-reimbursement basis. The Risk Management Fund provides insurance coverage to all State agencies using an optimal combination of self-insurance and private excess insurance. It includes the Workers' Compensation section that receives monies from State agencies and uses these monies to pay for insurance and risk management services including loss control services and self-insured liability losses. The Transportation Equipment Fund administers the purchase, storage and distribution of supplies, equipment and furniture for other Department of Transportation Funds. The Employee Benefits Fund (HITF) administers the State’s benefits program available to State employees and retirees. The Technologies and Telecommunications Fund receives monies from State agencies for services related to the operation of the data processing and telecommunications programs. The Retiree Accumulated Sick Leave Fund (RASL) accounts for monies paid out to retirees for their accumulated sick leave. The Motor Pool Fund receives monies from State agencies for the use of State vehicles and uses these monies for operation of the State Motor Pool. STATE OF ARIZONA COMBINING STATEMENT OF NET ASSETS INTERNAL SERVICE FUNDS JUNE 30, 2005 (Expressed in Thousands) TECHNOLOGIES ASSETS Current Assets: Cash and pooled investments with State Treasurer Receivables, net of allowances: Interest Other Due from other Funds Inventories, at cost Other current assets Total Current Assets RISK TRANSPORTATION EMPLOYEE & TELE- RETIREE MANAGEMENT EQUIPMENT BENEFITS COMMUNICATIONS SICK LEAVE $ Noncurrent Assets: Capital assets: Depreciable buildings, property and equipment, net of accumulated depreciation Total Noncurrent Assets Total Assets LIABILITIES Current Liabilities: Accounts payable and other current liabilities Accrued liabilities Due to other Funds Current portion of accrued insurance losses Current portion of long-term debt Current portion of other long-term liabilities Total Current Liabilities Noncurrent Liabilities: Accrued insurance losses Long-term debt Other long-term liabilities Total Noncurrent Liabilities Total Liabilities NET ASSETS Invested in capital assets, net of related debt Unrestricted (deficit) Total Net Assets $ 29,633 $ 3,561 $ 49,737 $ 9,971 $ 5,866 57 44 1,580 31,314 11 2,797 6,369 8,933 58,670 1,456 1,573 562 13,562 5,866 146 146 31,460 46,668 46,668 53,037 37 37 58,707 5,060 5,060 18,622 5,866 6,192 23 52,233 246 58,694 149 417 1,234 569 2,369 52,272 661 108 53,041 1,113 5 591 1,709 6,253 6,253 249,367 249,367 308,061 4,676 4,676 7,045 53,041 1,709 3,702 3,702 9,955 146 (276,747) 40,759 5,233 37 5,629 5,060 11,853 (4,089) (276,601) $ 45,992 $ - 186 - 5,666 $ 16,913 $ (4,089) MOTOR POOL $ TOTAL 10,632 $ 731 1,141 21 6 12,531 11 11,177 2,758 2,818 2,148 128,312 11,452 11,452 23,983 63,363 63,363 191,675 651 2 33 686 60,377 417 691 52,233 1,234 7,800 122,752 686 249,367 4,676 3,702 257,745 380,497 11,452 11,845 $ 109,400 23,297 57,454 (246,276) $ (188,822) - 187 - STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS INTERNAL SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2005 (Expressed in Thousands) TECHNOLOGIES OPERATING REVENUES Sales and charges for services Other Total Operating Revenues RISK TRANSPORTATION EMPLOYEE & TELE- RETIREE MANAGEMENT EQUIPMENT BENEFITS COMMUNICATIONS SICK LEAVE $ OPERATING EXPENSES Cost of sales and benefits Personal services Contractual services Depreciation and amortization Insurance Other Total Operating Expenses Operating Income (Loss) $ 34,291 2,886 37,177 4,517 27,470 68 119,903 1,690 153,648 (61,792) NON-OPERATING REVENUES (EXPENSES) Gain on sale of capital assets Investment income Interest expense Other non-operating revenue Total Non-Operating Revenues (Expenses) Income (Loss) Before Contributions and Transfers Change in Net Assets Total Net Assets - Beginning $ $ 12,706 11,788 318 6,813 605 1,123 33,353 3,824 33 33 Capital grants and contributions Transfers in Transfers out Total Net Assets - Ending 91,856 91,856 84 (47) 37 507,601 507,601 $ 11,366 11,366 10,592 9,807 1,666 2,726 349 1,911 27,051 1,430 10,213 1 5 8 10,227 1,139 - - - 1,430 1,139 3,861 10,257 59 (3,531) - - (65,231) (211,370) 3,861 42,131 (276,601) $ 45,992 (17) 10,257 (4,591) $ 28,481 28,481 497,344 497,344 10,257 (61,759) - 188 - $ 5,666 - 1,413 15,500 $ 16,913 1,139 (5,228) $ (4,089) MOTOR POOL $ TOTAL 11,002 11,002 $ 4,995 673 132 3,118 1,644 447 11,009 (7) 535,850 26,785 29,587 12,725 122,506 5,179 732,632 (45,149) 153 153 153 84 (47) 33 223 146 (44,926) 1,403 (1,002) 1,403 59 (4,550) 547 22,750 $ 684,597 2,886 687,483 23,297 (48,014) (140,808) $ (188,822) - 189 - STATE OF ARIZONA COMBINING STATEMENT OF CASH FLOWS INTERNAL SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2005 (Expressed in Thousands) CASH FLOWS FROM OPERATING ACTIVITIES Receipts from interfund services / premiums Payments to suppliers or insurance companies Payments to employees Payments to retirees Other receipts Net Cash Provided by Operating Activities RISK MANAGEMENT $ CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Transfers from other Funds Interest paid Transfers to other Funds Other receipts Net Cash (Used) by Non-capital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from sale of capital assets Acquisition and construction of capital assets Net Cash Provided (Used) by Capital and Related Financing Activities CASH FLOWS FROM INVESTING ACTIVITIES Interest and dividends from investments Net Cash Provided by Investing Activities Reconciliation of operating income (loss) to net cash provided by operating activities: Operating income (loss) Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization Net changes in assets and liabilities: (Increase) decrease in receivables, net of allowances Decrease in due from others (Increase) decrease in due from other Funds (Increase) decrease in inventories, at cost (Increase) decrease in other assets Increase (decrease) in accounts payable Increase (decrease) in accrued liabilities Increase (decrease) in due to other Funds Increase in accrued insurance losses Increase (decrease) in other liabilities Net Cash Provided by Operating Activities SCHEDULE OF NONCASH INVESTING, CAPITAL AND NON-CAPITAL FINANCING ACTIVITIES Assets acquired under capital leases Total Noncash Investing, Capital and Non-capital Financing Activities 91,814 $ (86,403) (4,642) 769 $ 507,116 $ (485,300) 21,816 27,796 (16,085) (10,196) 1,515 59 (3,531) 33 (3,439) (47) (47) - (17) (17) (29) 591 (9,387) 9 - (574) (29) (8,796) 9 (574) (2,699) 32,332 $ TECHNOLOGIES & TELECOMMUNICATIONS EMPLOYEE BENEFITS 34,292 $ (15,016) (11,815) 2,876 10,337 - Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning Cash and Cash Equivalents - Ending TRANSPORTATION EQUIPMENT 29,633 84 84 - - 1,578 1,983 21,825 27,912 924 9,047 $ 3,561 $ 49,737 $ 9,971 (61,792) $ 3,824 $ 10,257 $ 1,430 68 6,813 (42) 13 4,182 (137) (7) 58,472 12 - (10) (295) (51) 60 (4) 2,726 (485) 13,022 (988) 10 (885) 200 (228) (1,340) (313) 1 (76) $ 769 $ 10,337 $ 21,816 $ 1,515 $ - $ 6,122 $ - $ - $ - $ 6,122 $ - $ - - 190 - RETIREE SICK LEAVE $ MOTOR POOL 11,366 $ (9,718) 1,648 TOTAL 11,013 $ (7,539) (694) 2,780 683,397 (610,343) (27,347) (9,718) 2,876 38,865 - (1,002) (1,002) 59 (47) (4,550) 33 (4,505) - (1,038) 600 (11,028) - (1,038) (10,428) - - 84 84 1,648 4,218 740 9,892 24,016 85,384 $ 5,866 $ $ 1,139 $ - 10,632 $ (7) $ 3,118 509 109,400 (45,149) 12,725 96 2 (87) 19 (1) (335) (20) (4) (1) (1,284) 2 71 (276) (216) 15,478 (410) (998) 58,472 450 $ 1,648 $ 2,780 $ 38,865 $ - $ - $ 6,122 $ - $ - $ 6,122 - 191 - PENSION TRUST FUNDS Pension Trust Funds account for transactions of the four public employee retirement systems for which the State acts as trustee. The Arizona State Retirement System is a cost-sharing, multiple-employer pension system that benefits employees of public schools, the State and its political subdivisions. The Public Safety Personnel Retirement System is an agent multiple-employer pension system that benefits fire fighters and police officers employed by the State and its political subdivisions. The Elected Officials' Retirement Plan is a cost-sharing, multiple-employer pension plan that benefits all elected State and county officials and judges and certain elected city officials. The Corrections Officer Retirement Plan is an agent multiple-employer pension plan that benefits town, city and county detention officers and certain employees of the State’s Department of Corrections and Department of Juvenile Corrections. STATE OF ARIZONA COMBINING STATEMENT OF FIDUCIARY NET ASSETS PENSION TRUST FUNDS JUNE 30, 2005 (Expressed in Thousands) ASSETS Cash $ Receivables, net of allowances: Accrued interest and dividends Securities sold Forward contract receivable Contributions Court fees Miscellaneous receivables Total receivables Investments, at fair value: Temporary investments Temporary investments from securities lending U.S. Government securities Corporate bonds Corporate notes Corporate stocks Real estate mortgages and contracts Collateral investment pool Other investments Total investments Property and equipment, net of accumulated depreciation Total Assets LIABILITIES Accounts payable Payable for securities purchased Obligation under securities loan agreements Total Liabilities STATE PUBLIC ELECTED RETIREMENT SAFETY OFFICIALS' 18,363 $ 2,743 $ CORRECTIONS OFFICER 982 $ TOTAL 544 $ 22,632 55,103 510,583 1,573,699 21,147 4,427 16,420 10,125 2,134 1,160 81 343 - 3,004 138 - 75,687 510,583 1,573,699 31,491 343 6,561 2,164,959 28,679 1,584 3,142 2,198,364 2,040,185 - - - 2,040,185 2,279,978 2,564,711 2,617,193 15,751,417 26,774 - 242,050 662,003 276,388 3,198,452 943,046 194,105 18,747 45,926 15,016 216,819 74,671 13,193 40,643 121,112 43,702 547,296 183,436 32,953 2,279,978 2,866,151 3,446,234 335,106 19,713,984 26,774 1,201,153 240,251 25,280,258 5,516,044 384,372 969,142 32,149,816 - 3,622 242 633 4,497 27,463,580 5,551,088 387,180 973,461 34,375,309 1,591,741 984,476 - 1,015 - 1,151 - 1,593,907 984,476 2,279,978 943,046 74,671 183,436 3,481,131 4,856,195 943,046 75,686 184,587 6,059,514 NET ASSETS Held in Trust for Pension Benefits $ 22,607,385 $ 4,608,042 - 194 - $ 311,494 $ 788,874 $ 28,315,795 STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS PENSION TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2005 (Expressed in Thousands) STATE RETIREMENT ADDITIONS: Member contributions Employer contributions Member purchase of service credit Court fees $ Investment income: Net increase in fair value of investments Interest income Dividends Real estate $ 1,382,587 225,710 212,174 6,113 Other investment income Securities lending income Total investment income Less investment expenses: Investment activity expenses Security lending expenses Net investment income Other additions Total Additions DEDUCTIONS: Retirement and disability benefits Death benefits Refunds to withdrawing members, including interest Administrative expense Other deductions Total Deductions Change in net assets held in trust for pension benefits Net Assets - Beginning Net Assets - Ending 442,643 442,643 140,159 - PUBLIC SAFETY $ ELECTED OFFICIALS' 67,948 104,497 - $ 249,837 86,351 46,986 - CORRECTIONS OFFICER 3,617 3,305 3,793 $ 18,273 5,866 3,232 - 34,590 16,292 - TOTAL $ 43,805 14,590 7,808 - 548,798 566,737 140,159 3,793 1,694,502 332,517 270,200 6,113 4,731 - - - 4,731 46,757 1,878,072 1,049 384,223 84 27,455 194 66,397 48,084 2,356,147 33,584 41,096 1,803,392 692 383,531 48 27,407 120 66,277 34,444 41,096 2,280,607 1,773 9,156 3,647 2,268 16,844 2,830,610 565,132 41,769 119,427 3,556,938 1,558,332 18,402 257,449 - 25,746 - 31,098 - 1,872,625 18,402 44,164 25,275 8,151 7,648 1,600 128 83 132 246 16,653 922 1,115 68,548 27,929 9,640 1,654,324 266,825 26,207 49,788 1,997,144 1,176,286 21,431,099 298,307 4,309,735 15,562 295,932 69,639 719,235 1,559,794 26,756,001 22,607,385 $ 4,608,042 - 195 - $ 311,494 $ 788,874 $ 28,315,795 INVESTMENT TRUST FUNDS Investment Trust Funds account for assets held by the State in a trustee capacity for local governments and political subdivisions of the State of Arizona which have elected to invest idle cash with the State Treasurer’s Office. The Treasurer acts as trustee for the deposits made by participants. Central Arizona Water Conservation District is an Investment Trust Account composed of corporate debt and United States Government securities. The Central Arizona Water Conservation District is the only participant in the account. Local Government Investment Pool is an Investment Trust Account composed of corporate debt, negotiable certificates of deposit and United States Government securities. Local Government Investment Pool-Government is an Investment Trust Account composed of repurchase agreements and United States Government securities. All investments of the fund are backed by the full faith and credit of the United States Government. STATE OF ARIZONA COMBINING STATEMENT OF FIDUCIARY NET ASSETS INVESTMENT TRUST FUNDS JUNE 30, 2005 (Expressed in Thousands) LOCAL CENTRAL ARIZONA WATER ASSETS Receivables, net of allowances: Accrued interest and dividends Total receivables Total Assets LIABILITIES Due to local governments Total Liabilities GOVERNMENT GOVERNMENT INVESTMENT CONSERVATION INVESTMENT POOL- DISTRICT POOL GOVERNMENT $ Investments, at fair value: U.S. Government securities Corporate bonds Repurchase agreements Money market mutual funds Total investments LOCAL 724 724 $ 2,495 2,495 $ 1,718 1,718 TOTAL $ 4,937 4,937 84,167 19,755 1,117 105,039 684,258 879,300 84,606 6 1,648,170 665,409 743,119 1,408,528 1,433,834 899,055 827,725 1,123 3,161,737 105,763 1,650,665 1,410,246 3,166,674 747 236 766 1,749 747 236 766 1,749 NET ASSETS Held in trust for pool participants $ Net assets consist of: Participant shares outstanding Participants' net asset value (net assets/shares outstanding) 105,016 $ 105,016 $ 1.00 1,650,429 $ 1,650,429 $ 1.00 - 198 - 1,409,480 1,409,480 $ 1.00 $ 3,164,925 3,164,925 STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS INVESTMENT TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2005 (Expressed in Thousands) LOCAL ADDITIONS: Investment income: Net increase in fair value of investments Interest income Total investment income $ Less: Investment activity expenses Net investment income LOCAL GOVERNMENT INVESTMENT WATER GOVERNMENT CONSERVATION INVESTMENT POOL- DISTRICT POOL GOVERNMENT 47 3,397 3,444 $ 102 3,342 Capital share and individual account transactions: Shares sold Reinvested interest income Shares redeemed Net capital share and individual account transactions DEDUCTIONS: Dividends to investors Total Deductions Change in net assets held in trust for pool participants Net Assets - Beginning $ 1,077 25,494 26,571 TOTAL $ 992 25,579 2,771,037 31,630 (2,691,276) 1,290 64,053 65,343 2,280 63,063 2,161,027 20,890 (1,932,827) 5,016,265 56,035 (4,754,674) (42,855) 111,391 249,090 317,626 (39,513) 145,533 274,669 380,689 3,342 34,142 25,579 63,063 3,342 34,142 25,579 63,063 111,391 1,539,038 249,090 1,160,390 317,626 2,847,299 (42,855) 147,871 $ 166 35,162 35,328 1,186 34,142 84,201 3,515 (130,571) Total Additions Net Assets - Ending CENTRAL ARIZONA 105,016 $ - 199 - 1,650,429 $ 1,409,480 $ 3,164,925 AGENCY FUNDS Agency Funds account for the receipt and disbursement of various taxes, deposits, deductions, and property collected by the State, where the State acts as an agent for distribution to other governmental units or organizations. The Treasurer Custodial Securities Fund consists of securities held by the State Treasurer for various State agencies as required by statute. The Other Treasurer Funds account for other various deposits made with the State Treasurer for investment purposes. The Other Funds consist of various funds where the State acts as an agent for distribution to other governmental units or organizations. STATE OF ARIZONA COMBINING STATEMENT OF ASSETS AND LIABILITIES AGENCY FUNDS JUNE 30, 2005 (Expressed in Thousands) TREASURER CUSTODIAL SECURITIES FUND ASSETS Cash Cash and pooled investments with State Treasurer Short-term investments Receivables, net of allowances: Interest Other Due from others Custodial securities in safekeeping Other assets Total Assets LIABILITIES Accounts payable and other current liabilities Accrued liabilities Due to local governments Due to others Total Liabilities $ - OTHER TREASURER FUNDS $ OTHER FUNDS - $ 43,439 TOTAL $ 43,439 - 18,412 - 298,106 2,353 316,518 2,353 2,486,435 - 36 - 267 207 90,945 57,118 3,609 303 207 90,945 2,543,553 3,609 $ 2,486,435 $ 18,448 $ 496,044 $ 3,000,927 $ 2,486,435 $ 301 5,377 12,770 $ 159,493 5,512 741 330,298 $ 159,794 5,512 6,118 2,829,503 $ 2,486,435 $ 18,448 $ 496,044 $ 3,000,927 - 203 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUNDS FOR THE YEAR ENDED JUNE 30, 2005 (Expressed in Thousands) BALANCE JULY 1, 2004 TREASURER CUSTODIAL SECURITIES FUND Assets: Custodial securities in safekeeping Total Assets Liabilities: Due to others Total Liabilities OTHER TREASURER FUNDS Assets: Cash and pooled investments with State Treasurer Interest receivable Total Assets Liabilities: Accounts payable and other current liabilities Due to local governments Due to others Total Liabilities ADDITIONS BALANCE JUNE 30, 2005 DELETIONS $ 2,497,736 $ 970,903 $ 982,204 $ 2,486,435 $ 2,497,736 $ 970,903 $ 982,204 $ 2,486,435 $ 2,497,736 $ 970,903 $ 982,204 $ 2,486,435 $ 2,497,736 $ 970,903 $ 982,204 $ 2,486,435 $ 24,696 29 $ 346,489 36 $ 352,773 29 $ 18,412 36 $ 24,725 $ 346,525 $ 352,802 $ 18,448 $ 11,412 13,313 $ 81,612 278,554 30,697 $ 81,311 284,589 31,240 $ 301 5,377 12,770 $ 24,725 $ 390,863 $ 397,140 $ 18,448 (Continued) - 204 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUNDS FOR THE YEAR ENDED JUNE 30, 2005 (Expressed in Thousands) BALANCE JULY 1, 2004 OTHER FUNDS Assets: Cash Cash and pooled investments with State Treasurer Short-term investments Receivables, net of allowances: Interest Other Due from others Custodial securities in safekeeping Other assets Total Assets Liabilities: Accounts payable and other current liabilities Accrued liabilities Due to local governments Due to others Total Liabilities COMBINED TOTAL ALL AGENCY FUNDS Assets: Cash Cash and pooled investments with State Treasurer Short-term investments Receivables, net of allowances: Interest Other Due from others Custodial securities in safekeeping Other assets Total Assets Liabilities: Accounts payable and other current liabilities Accrued liabilities Due to local governments Due to others Total Liabilities $ 35,661 157,488 2,127 ADDITIONS $ 84 1,064 89,446 60,214 2,089 632,066 5,087,803 2,353 BALANCE JUNE 30, 2005 DELETIONS $ 263 207 90,945 57,118 3,609 624,288 4,947,185 2,127 $ 80 1,064 89,446 60,214 2,089 43,439 298,106 2,353 267 207 90,945 57,118 3,609 $ 348,173 $ 5,874,364 $ 5,726,493 $ 496,044 $ 122,417 7,412 831 217,513 $ 6,700,857 5,512 1,538 1,013,092 $ 6,663,781 7,412 1,628 900,307 $ 159,493 5,512 741 330,298 $ 348,173 $ 7,720,999 $ 7,573,128 $ 496,044 $ 35,661 182,184 2,127 $ 632,066 5,434,292 2,353 $ 624,288 5,299,958 2,127 $ 43,439 316,518 2,353 113 1,064 89,446 2,557,950 2,089 299 207 90,945 1,028,021 3,609 109 1,064 89,446 1,042,418 2,089 303 207 90,945 2,543,553 3,609 $ 2,870,634 $ 7,191,792 $ 7,061,499 $ 3,000,927 $ 122,417 7,412 12,243 2,728,562 $ 6,782,469 5,512 280,092 2,014,692 $ 6,745,092 7,412 286,217 1,913,751 $ 159,794 5,512 6,118 2,829,503 $ 2,870,634 $ 9,082,765 $ 8,952,472 $ 3,000,927 - 205 - BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2005 (Expressed in Dollars) OTHER GOVERNMENTAL FUNDS Accountancy Board Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY03 - 04 Department of Administration Administrative Adjustments Archives and History Building Arizona Pioneers' Home Plumbing Renovations Building Renewal Miners' Hospital Fund FY02 - 03 Department of Corrections Building Renewal FY01 - 02 Department of Corrections Fort Grant Landfill Closure Department of Corrections Safety Improvements Department of Juvenile Corrections Building Renewal FY01 - 02 Employee Bus Subsidy Government Building Defibrillators FY01 - 02 Government Building Defibrillators FY02 - 03 New Prison Complex FY99 - 00 Operating Lump Sum Appropriation Pioneers' Home Plumbing Renovations Prison Planning and Sitting Radiation Regulatory Agency Administrative Adjustments MRTB Assistant Operating Lump Sum Appropriation Attorney General Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Victims' Rights Implementation Fund Victims' Rights/Non Revert HB2427 Department of Agriculture Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Wine Promotion Acupuncture Board of Examiners Operating Lump Sum Appropriation FINAL BUDGET (Appropriations) $ 2,150,500 471,690 ACTUAL EXPENDITURE AMOUNTS $ 1,458,019 166,503 356 1,600,000 8,919 38,655 7,136 43,123 122,110 463 574,100 50,000 50,000 260,698 646,700 359,578 1,426 356 1,074,118 6,329 38,656 7,136 0 122,110 0 569,942 49,984 49,707 0 608,971 96,621 0 433 11,375 247,700 433 0 228,424 1,315 151 47,010 164 2,906,500 310,000 4,070,800 3,199,300 303,770 1,315 151 47,010 164 2,605,070 218,479 3,605,607 2,704,414 81,320 51 811 689 64 73 1,000 65,600 411,000 656,300 247,100 21,400 51,800 79,400 263,400 1,047,500 9,200 258,600 54,858 51 811 689 64 73 1,000 46,419 342,567 524,818 247,065 1,400 34,195 69,189 263,087 798,059 7,405 141,229 0 86,200 81,464 (Continued) - 209 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2005 (Expressed in Dollars) Operating Lump Sum Appropriation FY03 - 04 Appraisal Board Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY03 - 04 Automobile Theft Authority Administrative Adjustments Auto Theft Authority Grants Operating Lump Sum Appropriation Barber Examiners Board Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY03 - 04 Board of Behavioral Health Examiners Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY03 - 04 Board of Nursing Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY03 - 04 Cosmetology Board Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY03 - 04 Corporation Commission Administrative Adjustments Administrative Adjustments Administrative Adjustments Annual Reversion per ARS 10-122 Annual Reversion per ARS 44-3298 Corporations Division Staffing Costs Investigation and Prosecution of Security Fraud Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Utility Audits, Studies, Investigations and Rate Hearing FY00 - 01 Utility Audits, Studies, Investigations and Rate Hearing FY00 - 01 Utility Audits, Studies, Investigations and Rate Hearing FY01 - 02 Utility Audits, Studies, Investigations and Rate Hearing FY02 - 03 Utility Audits, Studies, Investigations and Rate Hearing FY03 - 04 Utility Audits, Studies, Investigations and Rate Hearing FY04 - 05 Chiropractic Examiners Board Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY03 - 04 Department of Corrections Administrative Adjustments Administrative Adjustments Drug Treatment Pilot Program Operating Expenses Supplemental Operating Expenses Supplemental Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Prison Expansion and Additional Beds State Charitable, Penal and Reformatory Land Earnings FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 23,554 8,607 491,200 37,516 486,278 37,509 1,007 4,002,000 548,100 1,007 3,999,358 548,097 234,400 17,939 218,697 6,563 840,400 30,271 795,540 270 2,909,700 146,321 2,909,629 146,322 1,570,100 123,537 1,555,130 123,537 112,424 9,715 8,498 852,138 702,614 456,206 165,599 11,286,400 62,600 3,488,300 2,064,200 794,500 17,890 249,375 380,000 380,000 380,000 380,000 112,424 9,715 8,498 852,138 702,614 298,740 0 11,122,355 54,240 3,115,643 2,050,756 793,057 17,890 147,601 10,380 0 0 0 464,200 57,752 441,328 41,912 299,490 356,669 250,000 2,500,000 1,500,000 28,674,300 449,300 6,250,000 869,200 570,000 699,880 220,000 299,490 356,669 20,628 2,500,000 620,225 28,621,798 444,077 4,160,855 491,992 473,488 699,880 28,775 (Continued) - 210 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2005 (Expressed in Dollars) Department of Economic Security ADM Operating Lump Sum Appropriation ADM Operating Lump Sum Appropriation ADM Operating Lump Sum Appropriation Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Attorney General Legal Services DACS Community and Emergency Services DACS Domestic Violence Prevention DCYF Child Abuse Prevention DCYF Children Services DCYF Operating Lump Sum Appropriation DERS Independent Living Rehabilitation Services DERS Operating Lump Sum Appropriation DERS Operating Lump Sum Appropriation DERS Vocational Rehabilitation Services Jobs Public Assistance Collections Commission for the Deaf and Hard of Hearing Interpreters for Certification, Licensure Operating Lump Sum Appropriation Department of Juvenile Corrections Operating Lump Sum Appropriation Operating Lump Sum Appropriation Dispensing Opticians Board Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY03 - 04 Board of Dental Examiners Operating Lump Sum Appropriation Department of Education Achievement Testing Additional School Days Additional School Days- Prop 301 Additional School Days- Prop 301 Basic State Aid Entitlement Failing School Tutoring Fund Failing School Tutoring Fund FY03 - 04 Hayden-Winkelman Bond Redemption School Accountability Fund School Accountability Fund - Prop 301 School Accountability Fund - Prop 301 School Accountability Fund - Proposition 301 FY03 - 04 School Accountability Fund - Proposition 301 School Safety School Accountability Fund-Prop 301 School Accountability-School Safety Prop301 School Safety - Character Education for FY03 - 04 School Safety - Character Education for FY04 - 05 Department of Commerce Administrative Adjustments Advertising and Promotion Arizona Sonora Economic Development Study FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 557,200 130,000 86,900 1,137,319 355,476 32,138 51,003 170,122 134,115 90,100 500,000 1,700,000 817,500 750,000 209,600 1,707,700 85,000 492,400 204,700 1,500,000 237,600 0 8,524 86,900 1,137,319 355,476 32,138 51,003 170,122 134,115 32,737 287,527 1,571,000 593,765 0 51,143 1,600,814 3,224 318,082 172,048 192,738 148,844 750,000 5,201,600 125,753 4,657,291 585,300 360,000 585,300 360,000 106,700 20,324 84,934 481 923,800 917,666 2,340,300 66,957,200 1,275,492 2,267,304 46,509,100 1,500,000 1,495,780 3,215,000 4,679,260 649,488 1,194,733 2,128,129 13,165 2,890,910 7,800,000 200,000 200,000 0 66,957,200 0 0 46,509,100 120,750 102,085 3,215,000 3,078,295 0 0 2,120,650 13,165 6,943 6,750,550 200,000 71,000 52,278 659,200 10,000 52,278 608,476 0 (Continued) - 211 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2005 (Expressed in Dollars) CEDC Commission Economic Development Matching Funds International Trade Offices Lottery 1989 Main Street Minority and Women Owned Business National Law Center/Free Trade Oil Overcharge Administration Operating Lump Sum Appropriation REDI Matching Grants Small Business Advocate Williams Gateway Airport Authority Department of Environmental Quality Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Air Permits Administration Program Air Quality Program Air Quality Program - Continuing FY01 - 02 Air Quality Program - Continuing FY02 - 03 Department of Administration Travel Reduction Transfer Emissions Cap & Trading Program FY01 -02 Emissions Cap & Trading Program FY02 - 03 Emissions Control - Contractor Payments Emissions Control Program - Administration Fuel Formulation General Fund Transfer 1st Regular Session Chapter 263 General Fund Transfer 2nd Regular Session Chapter 275 Hazardous Waste Program Hazardous Waste Reserve FY94 - 95 Hazardous Waste Reserve FY95 - 96 Operating Lump Sum Appropriation Pima County Air Quality Program Political Subdivisions Assistance FY01-02 Roadside Diesel Emissions Testing Program FY01 - 02 Roadside Diesel Emissions Testing Program FY02 - 03 Solid Waste Program Solid Waste Program Solid Waste Program Underground Storage Tank Policy Comm. FY00 - 01 Underground Storage Tank Policy Comm. FY99 - 00 Underground Storage Tank Program Underground Storage Tank Technical Appeals FY00 - 01 Visibility Index Development FY01 - 02 Visibility Index Development FY02 - 03 Waste Tire Program Water Quality Program Funeral Directors and Embalmers Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY03 - 04 Game and Fish Department Administrative Adjustments FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 253,700 104,000 966,800 5,001 130,000 108,000 200,000 159,500 625,600 45,000 107,200 4,000,000 245,211 103,753 942,739 0 123,234 100,448 200,000 117,443 595,475 44,514 103,439 0 14,669 419,331 262 165,731 35,582 561 5,487,100 5,119,600 214,052 182,451 400,000 70,576 266,582 31,739,600 4,018,900 135,000 11,700,000 3,000,000 715,000 64,000 29,273 500,000 165,000 18,500 200,000 200,000 2,105,200 1,114,700 132,500 1 18,857 22,000 7,500 80,589 121,124 206,600 3,786,500 14,669 419,331 262 165,731 35,582 561 4,861,973 3,593,473 28,017 0 400,000 0 0 29,622,038 2,263,153 122,728 11,700,000 3,000,000 33,135 0 0 445,843 165,000 0 0 0 963,870 730,768 693 0 0 4,598 0 0 111,025 39,457 1,863,214 285,300 9,664 264,647 7,580 42,819 42,819 (Continued) - 212 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2005 (Expressed in Dollars) Administrative Adjustments Bellemont Shooting Range Building Renewal Building Renewal FY02 - 03 Building Renewal FY03 - 04 Canyon Creek Hatchery Improvement Facility Improvements FY00 - 01 Facility Improvements FY01 - 02 Facility Improvements FY02 - 03 Facility Improvements FY99 - 00 Flagstaff Shooting Range Development FY00 - 01 Flagstaff Shooting Range Development FY99 - 00 Flagstaff Shooting Range Planning FY01-02 Flagstaff Shooting Range Planning FY02-03 Flagstaff Shooting Range Planning FY98-99 Headquarters Expansion and Renovation FY02-03 Headquarters Paving Headquarters Security System FY03-04 Lake Havasu Shooting Range Development FY03-04 Mesa Office Security System Migration Waterfowl Development FY98-99 Migratory Waterfowl Development FY00-01 Migratory Waterfowl Development FY01-02 Migratory Waterfowl Development FY02-03 Migratory Waterfowl Development FY03-04 Migratory Waterfowl Development FY99-00 Migratory Waterfowl Habitat FY93-94 Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Performance Based Incentives Program FY00-01 Performance Based Incentives Program FY01-02 Performance Based Incentives Program FY02-03 Performance Based Incentives Program FY97-98 Performance Incentive Pay Program Performance Incentive Pay Program Performance Incentive Pay Program FY03-04 Pinetop Warehouse and Paving FY03-04 Pittman - Robertson/Dingell - Johnson Act Shade Canopies Shooting Range Development FY01- 02 Shooting Range Development FY02 - 03 Shooting Range Development FY99 - 00 Shooting Range Development/Grants Program Shooting Range Development/Grants Program FY03-04 Sierra Vista Shooting Range Silver Creek Hatchery Improvement Statewide Preventive Maintenance Tonto Creek Hatchery Improvements Tri-State Shooting Range Development Department of Gaming Administrative Adjustments Administrative Adjustments FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 483 800,000 343,000 44,885 297,577 355,486 2,453 71,559 145,982 1 73,859 11,584 460,711 499,900 1 800,000 50,000 186,720 299,945 30,000 6,480 99,025 100,000 87,378 97,486 76,900 1,302 20,571,000 2,140,600 300,200 43,400 16,000 13 2 322 6,571 300,000 46,800 1,076 304,502 2,808,000 150,000 39,559 13,783 2,058 100,000 80,638 55,000 80,000 30,000 200,000 300,000 483 0 14,442 42,396 218,745 207,419 0 667 0 0 0 0 0 0 0 0 746 653 1,481 102 6,480 0 20,000 0 0 34,207 0 16,128,775 1,923,490 154,879 17,479 11,702 0 0 0 0 300,000 46,800 0 9,841 1,808,000 510 13,099 0 2,058 2,081 64,550 23,117 272 29,641 73 0 654 25,773 654 25,773 (Continued) - 213 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2005 (Expressed in Dollars) Joint Monitoring System FY03 - 04 Operating Lump Sum Appropriation Operating Lump Sum Appropriation Problem Gambling Problem Gambling Arizona Health Care Cost Containment System Administrative Adjustments Capitation Children's Health Insurance Program - Parents Children's Health Insurance Program - Services Kidscare Administration Prop 204 Capitation Prop 204 Capitation Prop 204 County Hold Harmless Prop 204 Medicare Department of Housing Operating Lump Sum Appropriation Homeopathic Medical Examiners Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY03 - 04 Department of Health Services Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Alzheimer Disease Research Assurance and Licensure Attorney General Legal Services Automated External Defibrillators FY01-02 Automated External Defibrillators FY02-03 Central Medical Direction - EMS FY00-01 Child Fatality Review Team County Poison Control Center Emergency Medical Services General Fund Transfer 2nd Regular Session Chapter 275 High Risk Prenatal Services Laboratory Services Loan Repayment Services Mental Health Research Institute Grant Newborn Screening Fund - Indirect Costs Newborn Screening Program Nursing Care Institution Incentive Grant Operating Lump Sum Appropriation Operating Lump Sum Appropriation Poison Control Center Funding Relief Bill Rural Medical Services FY01-02 Scorpion Anti-venom Seriously Mentally Ill State Match for Title XIX Statewide Emergency Medical Trauma System Substance Abuse - Non-Title XIX Trauma Advisory Board FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 1,291,500 1,594,500 8,000,000 1,512,800 300,000 131,149 1,577,386 6,749,114 1,510,488 299,618 25,576 60,069,800 26,132,300 59,765,600 6,406,300 20,541,100 18,562,600 4,825,600 6,111,700 25,576 60,069,800 25,952,660 59,216,096 6,401,675 20,541,100 18,120,031 4,825,600 5,939,994 442,500 442,501 77,300 12,685 71,383 5,877 462,500 187,796 28,749 28,588 14,542 24,212 1,000,000 38,000 50,000 50,000 50,000 100,000 100,000 125,000 2,970,000 500,000 450,000 845,300 100,000 1,484,318 478,600 3,258,000 600,000 176,600 350,000 800,000 4,134 71,377 150,000 29,424,800 100,000 2,500,000 255,200 462,500 187,796 28,749 28,588 14,542 24,212 1,000,000 24,485 50,000 50,000 50,000 100,000 97,388 93,750 2,664,476 500,000 379,708 823,349 62,617 845,542 0 2,938,618 471,526 159,500 177,526 600,000 4,134 0 78,930 29,424,800 0 2,500,000 125,714 (Continued) - 214 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2005 (Expressed in Dollars) University of Arizona Poison Center University of Arizona Poison Control Center PS/ERE Industrial Commission Administrative Adjustments General Fund Transfer 2nd Regular Session Chapter 275 Operating Lump Sum Appropriation Criminal Justice Commission Crime Victim Compensation Special AG Transfer FY00 - 01 Drug and Gang Prevention Resource Center Operating Lump Sum Appropriation State Aid to County Attorneys State Aid to Indigent Attorneys Victim Compensation and Assistance Land Department Natural Resource Conservation Districts Department of Emergency and Military Affairs Emergency Response Fund Medical Examiners Board Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY03 - 04 Performance Based Incentive Program Medical Student Loans Board Medical Student Loans Board of Massage Therapy Operating Lump Sum Appropriation FY03 - 04 Naturopathic Board Inspections and Evaluation Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY03 - 04 Nursing Care Examiners Board Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY03 - 04 Optometry Board Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY03 - 04 Osteopathic Examiners Board Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY03 - 04 Occupational Therapy Examiners Board Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY03 - 04 Commission for Post Secondary Education Arizona College and Career Guide Arizona Minority Education Policy Analysis Center Family College Savings Program Leveraging Educational Assistance Partnership Operating Lump Sum Appropriation Twelve Plus Partnership Pioneer's Home Equipment Food Other Operating Expenditures Other Operating Expenditures Personal Services/Employee Related Expenses Personal Services/Employee Related Expenses FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 1,050,000 225,000 787,500 168,750 12,233 2,000,000 16,949,900 12,233 2,000,000 16,242,419 8,202 266,600 556,800 706,500 670,800 3,900,000 0 266,600 554,575 706,500 670,800 3,593,569 320,000 319,999 132,700 125,987 4,933,600 327,423 170,960 4,719,252 67,468 106,626 283,400 283,400 9,947 9,947 19,600 395,300 2,271 19,196 366,706 1,773 370,000 13,669 332,744 303 176,000 7,050 174,509 6,999 496,500 44,821 476,231 35,337 219,300 32,073 176,096 1,512 21,200 150,000 86,900 2,143,700 342,600 119,600 13,882 32,692 18,371 1,625,117 335,394 99,664 12,000 202,200 388,911 10,500 315,571 784,818 12,000 186,632 388,903 10,500 315,571 784,818 (Continued) - 215 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2005 (Expressed in Dollars) Personal Services/Employee Related Expenses Personal Services/Employee Related Expenses Prescription Drugs Professional and Outside Services Travel - In State Pharmacy Board Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY03 - 04 Podiatry Examiners Board Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY03 - 04 Parks Board FY88 - 89 Pass-Thru Grants FY89 - 90 Pass-Thru Grants FY90 - 91 Pass-Thru Grants Land, Buildings and Improvement Control FY89 - 90 Land, Buildings and Improvement Control FY89 - 90 Land, Buildings and Improvement Control FY90 - 91 Land, Buildings and Improvement Control FY90 - 91 Land, Buildings and Improvement Control FY90 - 91 Off-Highway Vehicle Parks Operations Operating Lump Sum Appropriation Operating Lump Sum Appropriation Department of Public Safety Administrative Adjustments Administrative Adjustments DNA Testing FY02 - 03 DNA Testing FY03 - 04 Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Patrol Officers FY02 - 03 Remote Officer Housing Sworn Officer Salary Adjustments Sworn Officer Salary Adjustments Sworn Officer Salary Adjustments Sworn Officer Salary Adjustments Sworn Officer Salary Adjustments Physical Therapy Examiners Board Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY03 - 04 Private Post-Secondary Education Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY03 - 04 Board of Respiratory Care Examiners Operating Lump Sum Appropriation Respiratory Care Examiners Appropriation Racing Department Operating Lump Sum Appropriation Operating Lump Sum Appropriation FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 384,000 945,100 436,400 129,300 25,000 271,515 852,455 279,943 71,921 22,240 1,378,800 88,052 1,323,813 87,753 107,000 13,958 93,939 3,063 10,436 40,191 2,067,639 4,388 258,697 1,500 19,258 32,684 692,100 460,300 1,250,000 0 0 0 0 0 0 0 0 677,186 346,641 1,220,269 24 28 1,437,087 995,081 30,543,200 20,305,500 1,211,800 3,950,800 2,204,200 2,550,700 51,600,400 2,365,800 41,570 360,000 2,136,900 141,500 15,000 1,200 615,900 24 28 13,569 962 30,543,200 20,253,174 1,211,800 3,950,800 2,186,909 2,550,700 51,600,400 2,365,800 0 88,842 2,136,900 141,500 15,000 1,200 615,900 264,600 12,047 262,348 10,226 263,500 10,069 246,022 6,619 203,500 28,224 189,514 2,589 77,200 371,400 77,135 371,372 (Continued) - 216 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2005 (Expressed in Dollars) Registrar of Contractors Incentive Pay Office of Administrative Hearing Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY03-04 Department of Revenue Administrative Adjustments Administrative Adjustments Administrative Adjustments Ladewig vs State of Arizona - Administrative Costs Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Structural Pest Control Board Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY03 - 04 Schools for the Deaf and the Blind Administrative Adjustments Operating Lump Sum Appropriation - Administration Operating Lump Sum Appropriation - Phoenix Operating Lump Sum Appropriation - Phoenix Operating Lump Sum Appropriation - SW/Admin Operating Lump Sum Appropriation - Tucson Operating Lump Sum Appropriation - Tucson Voucher Fund Adjustment School Facilities Board Building Inspections General Fund Transfer 2nd Regular Session Chapter 275 General Fund Transfer 2nd Regular Session Chapter 275 Supreme Court Administrative Adjustments Administrative Adjustments Case Processing - State Aid Community Punishment Confidential Intermediary FY01- 02 Confidential Intermediary FY02 - 03 Court Appointed Special Advocate Drug Study Foster Care Review Board Juvenile Crime Reduction Model Court Operating Lump Sum Appropriation State Aid to the Courts Psychologist Examiners Board Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY03 - 04 Technical Registration Board Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY03 - 04 Residential Utilities Consumer's Office Operating Lump Sum Appropriation Professional Witnesses Professional Witnesses FY00 - 01 Professional Witnesses FY01 - 02 Professional Witnesses FY02 - 03 FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 113,500 869,500 8,564,100 497,420 113,500 869,500 8,492,132 495,479 500 14 78 3,000,000 1,478,900 391,800 448,500 500 14 78 2,165,890 1,459,247 360,994 445,507 1,931,100 1,479 1,905,651 315 131,735 1,878,400 263,700 5,132,300 677,300 1,047,500 5,730,000 511,500 131,735 1,867,555 177,385 4,806,636 430,791 658,857 5,076,237 511,500 400,000 1,756,500 278,000 0 1,756,500 236,834 94 39,991 3,035,800 1,830,400 52,813 297,076 2,704,600 38,514 235,700 5,144,000 514,300 433,600 1,840,400 94 39,991 1,420,039 600,000 52,813 121,332 2,431,633 0 232,866 3,167,194 463,936 116,442 1,840,399 326,100 51,702 265,406 1,300 1,370,000 57,548 1,255,369 34,647 1,023,200 145,000 2,270 62,996 17,047 984,279 7,909 0 30,704 7,104 (Continued) - 217 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES OTHER GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2005 (Expressed in Dollars) FINAL BUDGET (Appropriations) Professional Witnesses FY03 - 04 Professional Witnesses FY97 - 98 Professional Witnesses FY98 - 99 Professional Witnesses FY99 - 00 Veteran's Services Department Administrative Adjustments Operating Lump Sum Appropriation Veterinary Medical Examiners Board Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY03 - 04 Water Resources Department General Fund Transfer 2nd Regular Session Chapter 275 Weights and Measures Department Administrative Adjustments Oxygenated Fuel - Operating Lump Sum Appropriation Vapor Recovery - Operating Lump Sum Appropriation Total Other Governmental Funds Budgetary Expenditures $ - 218 - ACTUAL EXPENDITURE AMOUNTS 100,694 10,604 11,977 49,324 60,130 0 0 0 161 625,800 161 589,723 400,900 24,862 384,169 10,418 2,000,000 2,000,000 22,045 783,539 496,561 22,045 780,600 485,570 863,892,545 $ 779,067,064 STATISTICAL SECTION (Not Covered by the Independent Auditors’ Report) STATISTICAL SECTION STATE OF ARIZONA REVENUES BY SOURCE ALL GOVERNMENTAL FUND TYPES FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2005 (Expressed in Thousands) SOURCE 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 Taxes: Sales $5,410,383 $4,985,424 $4,555,389 $4,424,528 $4,019,574 $3,854,075 $3,508,327 $3,210,019 $3,060,258 $2,868,455 3,528,565 2,818,778 2,387,369 2,410,342 2,879,011 2,820,067 2,648,271 2,460,630 2,289,563 1,933,554 Tobacco 237,430 223,804 - - - - - - - - Property 46,148 50,455 37,470 49,611 47,987 50,490 52,785 55,354 51,185 198,035 1,758,950 1,613,952 1,563,876 1,493,259 1,332,917 1,360,117 1,412,052 1,332,059 1,287,636 1,196,683 - - - - 175,733 177,607 191,327 223,517 225,102 239,481 493,501 539,218 632,896 543,055 508,499 491,379 493,760 443,999 487,921 445,526 3,211,114 Income Motor vehicle and fuel Unemployment Other 7,714,012 7,159,976 6,141,218 5,182,770 4,421,940 3,987,414 3,758,126 3,362,720 3,444,011 Licenses, fees and permits Intergovernmental 335,760 349,938 320,564 327,006 221,063 204,976 189,657 175,335 194,410 173,311 Earnings on investments 190,499 131,715 111,771 136,513 266,400 232,849 205,875 217,620 179,276 152,795 Sales and charges for services 154,251 161,170 111,438 140,568 78,684 58,203 47,910 56,662 28,111 24,096 Fines, forfeitures and penalties 121,123 120,032 96,192 98,349 87,620 80,466 80,210 63,425 57,000 56,702 Gaming 67,658 57,517 - - - - - - - - Tobacco Settlement 93,933 92,550 - - - - - - - - 430,097 313,220 337,930 320,870 397,017 323,888 191,446 169,685 215,337 205,691 $20,582,310 $18,617,749 $16,296,113 $15,126,871 $14,436,445 $13,641,531 $12,779,746 $11,771,025 $11,519,810 $10,705,443 Other Total Revenues STATE OF ARIZONA EXPENDITURES BY FUNCTION ALL GOVERNMENTAL FUND TYPES FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2005 (Expressed in Thousands) FUNCTION General government 2005 $758,149 2004 $718,229 2003 $689,603 2002 $486,154 2001 $1,970,048 2000 $1,762,922 1999 $1,605,452 1998 $1,445,878 1997 $1,336,854 1996 $1,277,101 Health and welfare 8,419,913 7,733,516 6,652,661 5,788,774 5,131,426 4,556,141 4,304,739 4,005,762 4,057,734 3,790,039 146,523 136,189 139,863 129,226 119,643 117,034 109,154 102,032 98,445 95,675 Education 4,852,099 4,702,609 4,882,516 4,188,501 3,473,005 3,188,645 2,829,105 2,591,121 2,400,212 2,220,246 Protection and safety Inspection and regulation 1,132,473 1,028,134 925,667 892,986 855,421 845,645 777,636 687,696 627,322 571,325 Transportation 564,574 717,463 463,756 401,372 1,829,350 1,811,957 1,748,482 1,499,551 1,307,624 1,287,309 Natural resources 175,593 153,533 163,946 140,600 116,732 100,718 94,399 97,377 90,417 87,252 2,335,828 2,144,438 2,159,691 2,190,160 - - - - - - 381,512 327,595 297,508 270,850 227,408 192,563 180,157 167,590 168,815 151,652 200,731 188,247 140,613 125,594 91,364 91,222 89,323 89,272 99,150 103,562 710,688 695,289 1,041,038 1,127,716 339,421 302,790 320,621 237,698 250,144 253,753 $19,678,083 $18,545,242 $17,556,862 $15,741,933 $14,153,818 $12,969,637 $12,059,068 $10,923,977 $10,436,717 $9,837,914 Intergovernmental revenue sharing Debt service: Principal Interest and other fiscal charges Capital outlay Total Expenditures Note: The State implemented the Governmental Accounting Standards Board's Statement No. 34, Basic Financial Statements - Management Discussion and Analysis - for State and Local Governments in fiscal year 2002. This statement required fund reclassifications in the governmental fund types for fiscal years 2002 and thereafter. - 221 - STATE OF ARIZONA PROPERTY TAX LEVIES, COLLECTIONS, TAXABLE PROPERTY ASSESSED AND ESTIMATED ACTUAL VALUE FOR THE LAST TEN PROPERTY TAX YEARS (Expressed in Thousands) (1) Property Tax Year 2005 2004 2003 2002 2001 2000 $ Collections (1) Taxable Property Percent of Property Related to Taxable Property Estimated Assessed to Tax Levies 13,036 12,400 13,629 13,802 17,905 22,532 Property Tax Year $ 13,036 12,400 13,629 13,802 17,905 22,532 $ Assessed Value 46,040,109 41,874,701 38,294,937 34,854,286 32,528,311 29,944,135 $ Actual Value 377,727,673 341,712,184 309,396,454 277,595,500 256,712,786 234,908,258 Actual Value 12.19 % 12.25 12.38 12.56 12.67 12.75 1999 1998 24,059 27,129 24,059 27,129 27,483,100 25,682,910 216,336,711 202,817,004 12.70 12.66 1997 28,650 28,650 24,277,784 189,751,599 12.79 1996 32,759 28,828 22,811,159 176,486,243 12.93 (1) Taxable property estimated actual value and assessed value amounts reflect limited (primary) values. Source: Department of Revenue Annual Financial Report STATE OF ARIZONA HIGHWAY CONSTRUCTION REVENUE BOND COVERAGE FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2005 (Expressed in Thousands) (1) Fiscal Year 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 (1) Pledged $ Principal 44,265 51,155 44,490 45,365 52,055 46,270 43,805 43,405 40,970 $ 38,430 Interest 60,459 53,149 41,932 38,534 36,581 33,994 31,090 33,266 36,148 38,770 $ Total 104,724 104,304 86,422 83,899 88,636 80,264 74,895 76,671 77,118 77,200 $ Revenue 461,763 557,854 540,540 523,326 513,890 528,721 509,935 468,240 468,542 429,825 Coverage 4.4 5.3 6.3 6.2 5.8 6.6 6.8 6.1 6.1 5.6 For fiscal year 1996, net of 7% distributed to cities with a population greater than 300,000 persons. For fiscal years 1997 and after, includes vehicle license tax revenues distributed directly to the State Highway Fund. Fiscal year 2005 is net of a $118 million distribution to the State General Fund. Source: The Arizona Department of Transportation Comprehensive Annual Financial Report statistical section. - 222 - STATE OF ARIZONA MARICOPA COUNTY ROAD CONSTRUCTION REVENUE BOND COVERAGE FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2005 (Expressed in Thousands) Fiscal Year 2005 2004 2003 2002 2001 2000 1999 1998 1997 Principal $ 208,625 199,400 190,415 163,455 156,865 128,805 106,765 82,765 78,015 Interest $ 14,318 23,553 31,533 35,445 40,035 42,609 43,251 40,512 45,248 1996 76,955 46,209 (1) $ Pledged (1) Total 222,943 222,953 221,948 198,900 196,900 171,414 150,016 123,277 123,263 Revenue $ 316,806 288,600 268,721 267,563 264,722 248,596 229,470 209,263 192,257 Coverage 1.4 1.3 1.2 1.3 1.3 1.5 1.5 1.7 1.6 123,164 178,413 1.4 Bond coverage ratio is based upon total Transportation Excise Taxes collected within Maricopa County. Source: The Arizona Department of Transportation Comprehensive Annual Financial Report statistical section. STATE OF ARIZONA ARIZONA STATE UNIVERSITY REVENUE BOND COVERAGE FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2005 (Expressed in Thousands) (1) Fiscal Year 2005 Debt Service Requirements Gross Revenues $ 383,756 Principal $ Interest 1,340 $ 16,260 Total $ 17,600 Coverage 21.80 2004 325,626 - 13,754 13,754 23.68 2003 297,691 9,695 9,575 19,270 15.45 2002 274,596 9,785 12,139 21,924 12.52 2001 261,328 8,995 11,766 20,761 12.59 2000 242,764 9,640 12,245 21,885 11.09 1999 233,404 9,205 12,685 21,890 10.66 1998 210,397 8,780 13,113 21,893 9.61 1997 196,143 8,330 13,563 21,893 8.96 1996 183,167 7,750 14,144 21,894 8.37 (1) Gross Revenues consist of pledged revenues for the bonds issued. Source: Arizona State University - 223 - STATE OF ARIZONA NORTHERN ARIZONA UNIVERSITY REVENUE BOND COVERAGE FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2005 (Expressed in Thousands) (1) Fiscal Year 2005 Debt Service Requirements Gross Revenues $ 110,981 Principal $ 10,065 Interest $ 6,060 Total $ Coverage 16,125 6.88 6.42 2004 103,192 10,294 5,778 16,072 2003 85,294 9,426 5,066 14,492 5.89 2002 82,839 6,932 3,949 10,881 7.61 2001 78,907 6,214 5,246 11,460 6.89 2000 75,852 6,119 5,488 11,607 6.54 1999 73,467 6,075 5,810 11,885 6.18 1998 71,743 5,743 6,145 11,888 6.03 1997 70,036 5,677 4,859 10,536 6.65 1996 68,336 5,372 5,207 10,579 6.46 (1) Gross Revenues include only revenues that are pledged for debt service payments under the System Revenue Bond Indenture. Source: Northern Arizona University STATE OF ARIZONA UNIVERSITY OF ARIZONA REVENUE BOND COVERAGE FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2005 (Expressed in Thousands) (1), (2) Fiscal Year 2005 2004 2003 2002 2001 2000 1999 1998 $ (1), (2) Direct Net Revenue Gross Operating Available for Revenues 830,077 778,939 726,258 670,326 710,423 674,330 650,201 605,197 $ Expenses 774,014 727,161 667,627 625,664 663,284 625,318 580,292 555,733 $ Debt Service 56,063 51,778 58,631 44,662 47,139 49,012 69,909 49,464 Debt Service Requirements $ Principal 11,815 10,970 12,625 9,946 12,415 11,700 10,714 9,830 $ Interest 11,817 11,706 12,156 15,500 16,359 13,081 14,869 14,463 $ Total 23,632 22,676 24,781 25,446 28,774 24,781 25,583 24,293 Coverage 2.37 2.28 2.37 1.76 1.64 1.98 2.73 2.04 1997 577,412 535,178 42,234 9,360 14,935 24,295 1.74 1996 563,623 513,444 50,179 9,491 15,421 24,912 2.01 (1) Gross Revenues and Direct Operating Expenses include Current Operating Unrestricted Funds only since these are the funds that are pledged for debt service payments under the System Revenue Bond Indentures. Also excluded from expenses is interest, depreciation, and amortization. (2) Fiscal Year 2002 Gross Revenues and Direct Operating Expenses include accounting changes applied to Scholarship and Allowance due to implementation of GASB 34/35. Source: University of Arizona - 224 - STATE OF ARIZONA ECONOMIC INDICATORS FOR THE LAST TEN CALENDAR YEARS (1) Calendar (2), (3) Unemployment Rate Year Ended Arizona 5.00 % 5.70 6.00 4.70 4.00 December 31 2004 2003 2002 2001 2000 U.S. 5.50 6.00 5.80 4.80 4.00 Per Capita Personal Income % $ Arizona 28,609 27,193 26,494 26,214 25,660 $ U.S. 33,041 31,487 30,814 30,575 29,845 1999 4.50 4.20 24,057 27,939 1998 4.30 4.50 23,216 26,883 1997 4.60 5.00 21,861 25,334 1996 5.50 5.40 20,823 24,175 1995 5.30 5.60 19,929 23,076 (1) Arizona unemployment rate estimates for years 1995 through 2003 have been revised. (2) Per capita personal income is total personal income divided by total midyear population estimates of the Bureau of the Census. (3) Per capita personal income estimates for years 2000 through 2003 have been revised. Source: Arizona Department of Economic Security's website, www.workforce.az.gov Bureau of Economic Analysis STATE OF ARIZONA MAJOR PRIVATE EMPLOYERS FISCAL YEAR ENDED JUNE 30, 2005 Number of Employer Employees Wal-Mart Stores Inc 23,418 Banner Health 15,950 Bashas' Inc. 13,595 Honeywell International Inc. 13,479 Wells Fargo & Company 12,259 America West Airlines 11,904 Raytheon Company 10,300 Kroger Co. 9,758 Intel Corporation 9,525 Albertsons Inc. 9,500 Source: The Arizona Republic's Website: www.azcentral.com/business - 225 - STATE OF ARIZONA POPULATION BY COUNTY FOR THE LAST TEN YEARS County 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 3,524,175 3,396,875 3,296,250 3,192,125 3,072,149 2,913,475 2,806,100 2,720,525 2,634,625 2,528,700 Pima 931,210 910,950 890,545 870,610 843,746 845,775 823,900 789,650 780,750 758,575 Pinal 219,780 201,565 192,395 186,795 179,727 165,400 157,675 150,375 144,150 139,000 Yavapai 196,760 186,885 180,260 175,305 167,517 155,900 148,500 142,075 134,600 130,300 Mohave 180,210 170,805 166,465 161,580 155,032 142,925 138,625 133,550 127,700 125,150 Yuma 181,470 175,045 169,760 165,280 160,895 139,650 135,200 129,275 124,950 121,975 Cochise 130,220 126,160 124,040 121,435 117,755 124,575 123,750 119,650 114,925 112,000 Coconino 129,570 128,925 125,420 122,770 116,320 122,825 121,625 117,475 113,475 110,750 Navajo 107,420 103,790 101,615 99,780 97,470 93,400 92,500 89,225 84,300 82,875 Apache 71,320 70,625 70,105 69,880 69,423 66,950 66,350 55,500 64,475 63,750 Gila 54,060 53,555 53,015 52,420 51,335 50,150 49,175 47,450 45,300 44,525 Graham 36,020 34,490 34,070 34,065 33,489 35,750 34,700 32,575 31,150 30,050 Greenlee 8,350 8,595 8,605 8,590 8,547 9,225 9,125 8,875 8,650 8,525 21,135 20,715 20,365 19,935 19,715 19,250 19,000 17,625 18,200 16,700 Maricopa La Paz Santa Cruz 41,985 40,890 39,840 39,325 38,381 39,100 37,800 36,350 35,050 34,275 Total 5,833,685 5,629,870 5,472,750 5,319,895 5,131,501 4,924,350 4,764,025 4,590,175 4,462,300 4,307,150 Note: Population figures represent midyear population estimates. Source: Arizona Department of Economic Security STATE OF ARIZONA SCHEDULE OF BANK AND SAVINGS AND LOAN DEPOSITS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2005 (Expressed in Millions) Banks Savings and Loans Fiscal Year 2005 2004 2003 2002 2001 2000 1999 1998 $ State 9,356 7,272 6,307 5,124 4,518 4,454 4,031 3,331 $ Federal 56,727 49,042 44,902 39,899 39,673 36,000 33,660 32,844 $ Total (1) Deposits 66,083 56,314 51,209 45,023 44,191 40,454 37,691 36,175 State $ N/A N/A N/A N/A N/A N/A N/A N/A Federal $ 6,723 5,495 4,757 3,793 3,129 2,768 2,480 2,138 Deposits $ 6,723 5,495 4,757 3,793 3,129 2,768 2,480 2,138 Total 1997 2,724 31,611 34,335 N/A 1,738 1,738 1996 9,746 23,912 33,658 22 1,289 1,311 (1) Missing information is not available as only Federal Savings and Loans are required to report to the Federal Deposit Insurance Corporation. Information on State Savings and Loans is no longer reported by the Arizona Banking Department. Source: Federal Deposit Insurance Corporation - 226 - STATE OF ARIZONA ASSESSED VALUE OF NEW COMMERCIAL AND RESIDENTIAL CONSTRUCTION FOR THE LAST TEN CALENDAR YEARS Commercial Construction Residential Construction Calendar Number of Year Ended Permits Percent December 31 2004 2003 2002 2001 2000 1999 Issued 63,329 57,387 56,100 54,785 53,877 48,536 Change 10.35 % 2.29 2.40 1.69 11.00 12.08 1998 1997 43,303 39,717 9.03 9.69 4,538,720 4,004,022 13.35 1.41 77,594 69,613 1996 36,209 10.87 3,948,490 33.15 1995 32,659 8.04 2,965,456 30.15 Source: Value (Expressed in Thousands) $ 4,998,731 4,104,953 3,946,678 5,038,963 4,784,452 4,107,783 Number of Value Percent Permits Percent Change 21.77 % 4.01 (21.68) 5.32 16.47 (9.49) Issued 111,665 94,260 83,019 75,863 74,629 80,432 Change 18.46 % 13.54 9.43 1.65 (7.21) 3.66 (Expressed Percent in Thousands) $ 14,096,089 10,646,256 8,583,036 7,508,550 6,863,290 7,263,997 Change 32.40 24.04 14.31 9.40 (5.52) 8.83 11.46 5.17 6,674,574 5,460,787 66,194 3.93 4,911,269 22.77 63,688 (0.59) 4,000,436 (15.26) % 22.23 11.19 W.P. Carey School of Business, Arizona State University Center for Business Research STATE OF ARIZONA PUBLIC SCHOOL ENROLLMENT - GRADES K-12 FOR THE LAST TEN ACADEMIC YEARS Academic Year 2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99 1997-98 1996-97 1995-96 Grades K-3 319,780 305,772 301,289 292,229 288,421 283,378 278,746 238,769 264,925 248,295 Grades 4-6 234,692 229,413 227,372 223,130 215,648 207,899 199,017 192,714 188,959 179,154 (1) (2) Total Grades Grades All 7-9 253,873 243,225 234,309 217,671 206,838 206,639 198,083 187,959 187,220 179,021 10-12 235,359 224,220 207,313 182,626 168,080 168,710 157,455 146,710 145,723 137,975 Grades 1,043,704 1,002,630 970,283 915,656 878,987 866,626 833,301 766,152 786,827 744,445 High School Dropouts (4) Total 19,694 23,291 26,516 28,375 28,862 26,097 31,844 27,999 30,294 26,401 (1) Includes ungraded elementary enrollment, except for academic years 1997-98 and 1998-99. (2) Includes ungraded secondary enrollment, except for academic years 1997-98 and 1998-99. (3) Percent of total high school unduplicated enrollment (Grades 9-12). (4) The 2004-05 data is collected solely through the Student Accountability Information System (SAIS). Because of this methodology, the reliability and accuracy of this data is appreciably increased and may not be comparable with previous academic years. Also, the 2003-04 data may not be comparable to previous academic years as a majority of SAIS data was excluded from these calculations due to the inability to verify accuracy. Furthermore, dropout data in Arizona does not coincide with current federal dropout data definitions used by the United States Department of Education (USDOE). Thus, Arizona statistics are not comparable to dropout statistics from other states using the USDOE standards. Note: These enrollment counts represent a head count of all active enrollments on October 1st of each school year. Please note these counts are not unduplicated counts; concurrently enrolled students are counted as having an active membership in each school. Also, be aware there was a change in data collection in 2003. From 2003 forward, concurrent enrollments in technology schools are included, which may additionally overstate aggregated enrollment figures. However, the high school dropout rates are calculated using an enrollment count that represents an unduplicated count of every student enrolled for any length of time during the twelve-month reporting period, which begins the first day of summer recess and ends the last day of school. Source: Arizona Department of Education - 227 - (3,4) Percent 6.90 7.40 8.50 9.50 9.80 11.10 12.20 11.50 12.80 12.20 % STATE OF ARIZONA AVERAGE STATE PRISON ADULT INMATE POPULATION FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2005 Incarceration Institution Florence Complex Lewis Complex Perryville Complex Phoenix Complex Tucson Complex Douglas Complex Winslow Complex Safford Complex Yuma Complex Misc Prison No Private Prisons 2005 7,877 3,999 2,914 892 3,654 2,345 1,712 1,607 2,250 46 5,414 2004 8,444 4,093 2,502 887 3,539 2,146 1,722 1,661 2,145 306 4,492 2003 8,624 4,555 2,415 906 3,931 2,147 1,807 1,757 2,199 157 2,400 2002 8,468 4,058 2,165 940 3,874 2,154 1,824 1,797 2,159 170 1,664 2001 8,176 3,656 1,885 957 3,607 2,130 1,791 1,624 2,048 154 1,423 2000 7,723 2,151 1,564 1,325 3,898 2,190 1,768 1,839 2,241 292 1,411 1999 7,794 978 2,653 1,256 4,016 2,183 1,635 1,778 2,226 240 1,410 1998 8,145 0 2,403 1,804 4,071 2,214 1,671 1,804 1,328 0 444 1997 7,693 0 2,581 1,275 3,966 1,944 1,736 1,979 764 0 445 1996 7,205 0 2,432 1,407 3,677 2,214 1,741 1,749 303 0 0 32,710 31,937 30,898 29,273 27,451 26,402 26,169 23,884 22,383 20,728 N/A N/A 6,271 5,814 5,268 N/A 4,773 4,555 2,581 2,248 Total Repeat Offenders Admitted (1) (1) Repeat offenders are those who have one or more prior adult Arizona commitments. 2005, 2004 and 2000 data not available. Source: Arizona Department of Corrections STATE OF ARIZONA PUBLIC HIGHER EDUCATION INSTITUTIONS' FULL-TIME STUDENT EQUIVALENT FALL ENROLLMENT FOR THE LAST TEN YEARS Institution Universities: Arizona State University Northern Arizona University University of Arizona Total (1) Fall 2005 Fall 2004 56,900 16,628 34,237 107,765 Fall 2003 Fall 2002 53,873 16,794 34,018 104,685 52,265 16,389 33,807 102,461 2,287 N/A 2,656 52,695 2,200 1,877 14,932 2,737 N/A 3,581 82,965 2,288 1,660 2,250 53,262 2,069 2,196 15,394 2,630 2,794 3,417 87,960 190,730 192,645 Community Colleges: Cochise County Coconino County Graham County (2) Maricopa County Mohave County Navajo County Pima County (2,3) Pinal County Yavapai County Yuma/La Paz Counties Total Total All Institutions Fall 2001 Fall 2000 Fall 1999 Fall 1998 Fall 1997 Fall 1996 49,980 17,189 33,089 100,258 47,086 17,057 32,460 96,603 44,637 17,107 30,981 92,725 43,910 17,293 31,008 92,211 42,946 17,484 30,733 91,163 43,105 17,183 30,403 90,691 40,910 17,193 29,724 87,827 2,273 1,433 2,213 51,098 1,765 2,122 15,198 2,533 2,559 3,209 84,403 2,303 1,459 2,064 48,678 1,922 2,119 14,832 2,407 2,503 3,179 81,466 2,387 1,378 2,869 44,693 1,856 2,095 13,469 2,436 2,403 3,120 76,706 2,141 1,449 2,828 42,320 1,763 1,875 12,656 2,220 2,272 2,922 72,446 2,173 1,454 2,762 41,104 1,876 1,444 13,281 2,213 2,343 2,889 71,539 2,453 1,308 2,623 39,435 1,788 1,624 13,061 2,011 2,322 2,773 69,398 2,419 1,364 2,300 37,265 1,671 1,711 12,898 2,032 2,348 2,762 66,770 2,267 1,485 2,279 37,064 1,805 1,744 12,526 2,071 2,254 2,759 66,254 186,864 181,724 173,309 165,171 163,750 160,561 157,461 154,081 (1) Fall 2005 data is not available for Coconino and Yavapai Counties. (2) Gila is independent of Pima, but in the past had been reported with Pima due to contracts. As of 2005, Gila is not included in Pima. The drop in the number in students is mainly due to this and not due to a decrease in enrollment. Gila is included in Graham County for Fall 2005. (3) Fall 2004 previously included the short session and open entry/open exit, therefore it was revised. Also, fall 2003 was revised. Sources: Arizona Board of Regents Community Colleges - 228 - ACKNOWLEDGMENTS The Comprehensive Annual Financial Report was prepared by the Department of Administration, Financial Services Division, Financial Reporting Section: Ron Santa Cruz Chris Freitag Evan Chang Michael J. Kallaur, CPA Dale Stomberg David Schahn Cody Johnson Kathryn Gauvin Marla Grossman Kim Daniels Special acknowledgment goes to: All fiscal and accounting personnel throughout the Arizona State government, whose dedicated efforts and cooperation contributed to the compilation of financial information that appears in the report.