STATE OF ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2007 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............................................................................................... 38 40 42 44 45 46 47 48 Proprietary Fund Financial Statements: Statement of Net Assets ........................................................................................................................................... Statement of Revenues, Expenses and Changes in Fund Net Assets ....................................................................... Statement of Cash Flows.......................................................................................................................................... 50 54 56 Fiduciary Fund Financial Statements: Statement of Fiduciary Net Assets ........................................................................................................................... Statement of Changes in Fiduciary Net Assets ........................................................................................................ 60 61 Component Unit Financial Statements: Combining Statement of Net Assets ........................................................................................................................ Combining Statement of Revenues, Expenses and Changes in Fund Net Assets .................................................... 62 63 Universities – Affiliated Component Unit Financial Statements: Combining Statement of Financial Position............................................................................................................. Combining Statement of Activities .......................................................................................................................... 64 65 Notes to the Financial Statements .............................................................................................................................. 66 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 125 144 146 149 154 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.......................................... Budgetary Comparison Schedule, Expenditures............................................................................................... 162 164 166 Non-major Debt Service Funds: Combining Balance Sheet ................................................................................................................................. Combining Statement of Revenues, Expenditures and Changes in Fund Balances.......................................... 178 180 Non-major Capital Projects Funds: Combining Balance Sheet ................................................................................................................................. Combining Statement of Revenues, Expenditures and Changes in Fund Balances.......................................... 184 185 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................................................................................................................ 188 190 192 Internal Service Funds: Combining Statement of Net Assets ................................................................................................................. Combining Statement of Revenues, Expenses and Changes in Fund Net Assets ............................................. Combining Statement of Cash Flows................................................................................................................ 196 198 200 Fiduciary Funds: Pension and Other Employee Benefit Trust Funds: Combining Statement of Fiduciary Net Assets ................................................................................................. Combining Statement of Changes in Fiduciary Net Assets .............................................................................. 204 206 Investment Trust Funds: Combining Statement of Fiduciary Net Assets ................................................................................................. Combining Statement of Changes in Fiduciary Net Assets .............................................................................. 210 211 Agency Funds: Combining Statement of Assets and Liabilities ................................................................................................ Combining Statement of Changes in Assets and Liabilities ............................................................................. 215 216 Non-major Universities – Affiliated Component Units: Combining Statement of Financial Position...................................................................................................... Combining Statement of Activities ................................................................................................................... 220 222 ii STATE OF ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS (CONCLUDED) STATISTICAL SECTION (Not Covered by the Independent Auditors' Report) Page Financial Trends: Schedule 1 – Net Assets by Component for the Last Six Fiscal Years .................................................................... Schedule 2 – Changes in Net Assets for the Last Six Fiscal Years.......................................................................... Schedule 3 – Fund Balances, Governmental Funds for the Last Six Fiscal Years................................................... Schedule 4 – Changes in Fund Balances, Governmental Funds for the Last Six Fiscal Years ............................... 228 229 231 232 Revenue Capacity: Schedule 5 – Net Taxable Sales by Classification for the Last Ten Fiscal Years .................................................... Schedule 6 – Sales Tax Revenue Payers by Classification, Current Year and Nine Years Ago.............................. Schedule 7 – Personal Income by Industry for the Last Ten Calendar Years .......................................................... Schedule 8 – Personal Income Tax Rates for the Last Ten Calendar Years ............................................................ Schedule 9 – Personal Income Tax Filers and Liability by Income Level for the Taxable Years 2004 and 1997 .. 234 237 238 240 240 Debt Capacity: Schedule 10 – Ratios of Outstanding Debt by Type for the Last Ten Fiscal Years ................................................. Schedule 11 – Legal Debt Margin Information, Arizona Transportation Board Highway Revenue Bonds for the Last Ten Fiscal Years .......................................................................................................... Schedule 12 – Legal Debt Margin Information, Arizona State University, for the Last Two Fiscal Years............. Schedule 13 – Legal Debt Margin Information, University of Arizona, for the Last Fiscal Year ........................... Schedule 14 – Legal Debt Margin Information, Northern Arizona University, for the Last Fiscal Year ................ Schedule 15 – Pledged-Revenue Coverage, Arizona Transportation Board Highway Revenue Bonds for the Last Ten Fiscal Years .......................................................................................................... Schedule 16 – Pledged-Revenue Coverage, Arizona Transportation Board Transportation Excise Tax Revenue Bonds for the Last Ten Fiscal Years ................................................................................ Schedule 17 – Pledged-Revenue Coverage, School Facilities Board State School Improvement Revenue Bonds for the Last Six Fiscal Years ........................................................................................................... Schedule 18 – Pledged-Revenue Coverage, School Facilities Board State School Trust Revenue Bonds for the Last Four Fiscal Years ......................................................................................................... Schedule 19 – Pledged-Revenue Coverage, Arizona State University Revenue Bonds for the Last Ten Fiscal Years .......................................................................................................... Schedule 20 – Pledged-Revenue Coverage, University of Arizona Revenue Bonds for the Last Ten Fiscal Years .......................................................................................................... Schedule 21 – Pledged-Revenue Coverage, Northern Arizona University Revenue Bonds for the Last Ten Fiscal Years .......................................................................................................... 242 244 244 245 245 246 246 247 247 248 249 249 Demographic and Economic Information: Schedule 22 – Demographic and Economic Statistics for the Last Ten Calendar Years ......................................... Schedule 23 – Principal Employers, Current Year and Nine Years Ago ................................................................. 250 250 Operating Information: Schedule 24 – State Employees by Function for the Last Four Fiscal Years........................................................... Schedule 25 – Operating Indicators by Function for the Last Ten Fiscal Years...................................................... Schedule 26 – Capital Asset Statistics by Function for the Last Ten Fiscal Years .................................................. 251 252 254 iii INTRODUCTORY SECTION INTRODUCTORY SECTION JANET NAPOLITANO WILLIAM BELL GOVERNOR DIRECTOR ARIZONA DEPARTMENT OF ADMINISTRATION OFFICE OF THE DIRECTOR 100 NORTH 15th AVENUE • SUITE 401 PHOENIX, ARIZONA 85007 Phone: (602) 542-1500 June 16, 2008 The Honorable Janet Napolitano, Governor of the State of Arizona; Members of the Legislature; Ruth V. McGregor, 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, 2007. 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. 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. 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. -1- 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 113,998 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, four national parks, eighteen national monuments, and over 20.000 million acres of Native American reservations and tribal communities are located in Arizona. 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 superior courts, justice of the peace courts, and municipal courts are excluded from the State’s reporting entity. 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 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. -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) $20 $18 $16 $14 $12 $10 $8 $6 $4 $2 $0 2003 2004 2005 Revenues 2006 2007 Expenditures The General Fund ended the June 30, 2007, fiscal year with $1.1 billion in unreserved fund balance and a $841.391 million reserved fund balance for a total fund balance of $1.9 billion. This compares to the previous year’s total fund balance of $2.3 billion. Included in the $841.391 million reserved fund balance is $673.531 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) $2,500 $2,000 $1,500 $1,000 $500 $0 2003 2004 2005 -3- 2006 2007 ECONOMIC CONDITION AND OUTLOOK The following economic summary is excerpted from the Arizona Department of Economic Security’s Arizona’s Workforce, released on September 6, 2007. The Arizona Department of Economic Security, Research Administration’s (RA’s) forecast update for 2007-08 shows Arizona’s economy is expected to continue adding jobs over the two-year period. This forecast update calls for growth of 113,700 nonfarm jobs, with growth rates of 2.40% in 2007 and 1.70% in 2008. This suggests that the economy is slowing more than RA’s earlier forecasts had predicted. RA’s forecast in April was 3.70% for 2007 and 3.00% for 2008. Arizona’s economy is nevertheless expected to perform better than the national economy over the two-year period. Global Insight forecasts that the nation’s nonfarm jobs will grow by 1.40% in 2007 and by 1.10% in 2008. Economic expansion outside of the United States helps maintain growth in Arizona industries dependent on exports, such as natural resources and mining and tourism-related industries. Arizona’s population growth is expected to continue at about the same pace of 6.10% over two years, according to RA’s Population Statistics Unit. While job growth rates are projected to decrease during 2007-08, Arizona’s economy is expected to experience improving growth trends as some of the affects subside in the housing and finance (mortgage) industries. Population growth will eventually remove the surplus of unsold homes on the current market and provide the impetus of increasing demand for housing. Natural resources and mining is projected to continue its strong growth, with 13.30% in 2007 and 6.00% in 2008. Almost 2,000 new jobs are expected to be added in Arizona’s fastest growing industry. Demand for copper and other natural resource material is expected to remain strong in both the United States and abroad. In Arizona’s rural areas and smaller urban counties, mining activity is projected to bolster other parts of the local economy. Construction is projected to lose 2,400 jobs in 2007 and 12,100 jobs in 2008. The slowdown in the housing market and a tightening lending market hastens the construction employment losses. Much of the recent impacts from the sub-prime lending and adjustable-rate mortgage loans are expected to cause various private sector driven adjustments to lending practices. Manufacturing forecasts call for a loss of about 900 jobs in 2007 and 300 in 2008. At .60% of its overall employment, manufacturing’s losses over the two-year forecast period are relatively small. Recent losses in this sector have been the result of Arizona factory closures and consolidations in the computer and electronic parts sector. Continued military demand is expected to support aerospace product and parts and fabricated metal job growth. Trade, transportation, and utilities employment is expected to have lower job growth than forecast in April 2007 as a result of the reduction in the growth rate of consumer spending and wavering consumer confidence. Despite this slowdown, trade, transportation, and utilities is forecast to add the largest number of jobs of any major industry group - 27,000 during the forecast period. As has been the case for several earlier years, higher fuel and energy process are expected to continue to challenge transportation companies and consumers. Information is forecast to lose slightly more than 600 jobs in 2007 and then gain 300 jobs in 2008. Recent employment trends in this industry have begun to shift away from several years of losses. Job growth in the financial activities industry is projected to slow in 2007 as the financial industry adjusts with credit tightening and restructuring. In 2008, economic and population growth is forecast to bolster this industry despite weakness in the housing market. The financial activities group is forecast to add 2,200 jobs this year and 3,300 jobs in 2008. Professional and business services is forecast to add 24,400 jobs, with 3.90% growth in 2007 and 2.20% next year. The slowing rates of growth are a result of the overall slowdown in the economy. Job growth is expected to be fairly good in professional, scientific, and technical services, while the other sectors will bear more of the brunt of the economic slowdown. -4- Educational and health services is projected to gain 23,000 jobs during the forecast period. The forecast for this industry is only slightly below that of the April 2007 figures. New health care facilities and schools continue to need staffing and will be necessary to meet population demands. Leisure and hospitality is forecast to add more than 21,500 jobs. This industry is projected to do well from the domestic traveler seeking to explore Arizona and the Southwest, and from travelers from foreign markets taking advantage of the lower value of the U.S. dollar. This industry reached new record highs in 2006 and 2007, despite drought-related weather conditions in the Southwest. Other services is projected to add almost 8,700 jobs during the forecast period and represents the second largest percentage gain of any major industry group with increases of 5.10% in 2007 and 3.30% in 2008. Government job growth is projected to slow slightly, as demand for public services continues from a growing population. Government is forecast to add more than 17,500 jobs over the forecast period. In conclusion, Arizona’s economy showed considerable job growth in 2006 — the fastest job growth state in the nation at 5.40%. However, considerable signs of a slowing national and local economy have caused RA’s forecast update to show downward revisions to growth in 2007 and 2008. Regardless, over the forecast period, Arizona’s economy is expected to outpace the national economy, which is expected to grow by 1.40% in 2007 and 1.10% in 2008, compared to Arizona’s 2.50% and 1.70% growth, respectively. MAJOR INITIATIVES The Governor’s fiscal year 2007 Budget reflects a balanced approach. It emphasizes strategic tax relief and economic incentives that offer enduring benefits to taxpayers and to the State at large. It also modernizes State assets and strengthens vital programs that, during the last three years, bore the brunt of our fiscal austerity. Children The FY 2007 Budget provided additional funding of; (1) $7.850 million to increase Child Care provider rates to the 75th percentile of the 2000 Market Rate Survey; (2) $19.530 million for KidsCare Outreach, to reach young, needy children and provide them with proper medical insurance; and (3) $2.149 million for Adoptions Services caseload growth. Education The FY 2007 Budget provided additional funding of $80.000 million to expand Voluntary Full Day Kindergarten to all school districts and $43.875 million to comply with court orders for English language learners. Law Enforcement The FY 2007 Budget provided additional funding of $38.400 million for salary increases for law enforcement personnel within the Department of Corrections, Department of Public Safety, and the Department of Juvenile Corrections; this funding is in addition to the Statewide salary increase for State workers. College Students The FY 2007 Budget sought to improve access to and the quality of University education by raising the match for financial aid to 2:1, increasing the State’s contribution from $2.161 million to $7.161 million to help more Arizonans afford a college degree and minimize tuition. Healthcare The FY 2007 Budget provided additional funding of; (1) $61.089 million for growth in the Arizona Long-Term Care System; (2) $17.400 million for an increase in the developmentally disabled population receiving long-term care services; (3) $8.184 million for the purchase of vaccines for children and for first time, high-risk, low-income adults; and (4) $1.565 million for Dual Eligible Medicare Part-D co-pays for physical and mental health medications, to ensure that elderly low-income persons continue to receive medication. -5- Public Safety The FY 2007 Budget provided $10.000 million from the General Fund to expand multi-jurisdiction immigration control efforts, including local law enforcement grants; and $7.000 million from the General Fund for an additional 100 sworn officer positions in the Gang and Immigration Intelligence Team Enforcement Mission, of which 50 are for border security and immigration. Tax Reductions The FY 2007 Budget provided total tax and other revenue reductions of $448.000 million primarily including; (1) a 5.00% reduction ($156.000 million) in individual income tax rates; (2) a three year elimination (FY07 impact of $215.000 million) of a 42 cent property tax, the County Equalization Tax; (3) an increase in the threshold for businesses to pay Transaction Privilege Tax estimated payments from $100 thousand to $1.000 million, resulting in a one-time revenue loss of $55.000 million; and (4) other new tax reductions of $18.000 million, primarily including a $10.000 million corporate income tax credit for donations to private school tuition organizations and a $5.000 million health insurance premium tax credit. Businesses The FY 2007 Budget provided $35.000 million to fund Innovation Arizona, which will invest in science-based research with strategic value to Arizona’s long-term competitiveness and quality of life. Transportation The FY 2007 Budget increased transportation spending by $345.00 million including; (1) $245.00 million from the General Fund deposited to the Statewide Transportation Acceleration Needs Account (STAN); (2) $62.00 million from the State Highway Fund deposited into the STAN; and (3) $38.00 million in additional Highway User Revenue Fund monies distributed to local jurisdictions. Arizona Veterans The FY 2007 Budget provided $10.000 million to build the Southern Arizona State Veterans’ Home and $1.125 million for 25 new veteran benefit counselors, support staff, and veteran outreach programs statewide. State Employees The operation of State government is made possible through the 70,500 State employees who devote their working lives to public service. The FY 2007 Budget recognizes the value of State employees and provided; (1) $129.687 million for a $1,650 per FTE salary adjustment and a 2.50% performance adjustment; (2) pay raises for law enforcement personnel at the Department of Public Safety ($2.768 million), Department of Juvenile Corrections ($1.510 million), and Department of Corrections ($25.751 million); (3) $3.100 million in pay raises for psychiatrists and nurses at the Arizona State Hospital; and (4) $28.700 million to cover increased health insurance premium costs for State employees. Initiatives such as those discussed above clearly illustrate the dynamic impact that can occur when State Government optimizes its existing resources for the benefit of the people it serves and makes the most prudent investments in its 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 * ELECTED OFFICIALS - 10 - DEPARTMENT OF ECONOMIC SECURITY OTHER BOARDS, COMMISSIONS, AND AGENCIES BOARD OF REGENTS ARIZONA STATE UNIVERSITY AHCCCS UNIVERSITY OF ARIZONA STATE OF ARIZONA PRINCIPAL STATE OFFICIALS JUNE 30, 2007 ELECTED OFFICIALS Janet Napolitano, Governor Tom Horne, Superintendent of Public Instruction Senator Timothy S. Bee, President of the Senate Mike Gleason, 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 Jeff Hatch-Miller, Commissioner – Corporation Commission Joe Hart, State Mine Inspector Gary Pierce, Commissioner – Corporation Commission Dean Martin, State Treasurer APPOINTED OFFICIALS Executive Officials Legislative Officials William Bell, Director – Department of Administration Michael E. Braun, Executive Director – Legislative Council Dora B. Schriro, Director – Department of Corrections Richard Stavneak, Director – Joint Legislative Budget i Debra K. Davenport, CPA, Auditor General – Office of the Auditor General Tracy L. Wareing, Director – Department of Economic Security Gale Garriott, Director – Department of Revenue GladysAnn Wells, Director – Arizona State Library, Archives and Public Records Roger Vanderpool, Director – Department of Public Safety University Officials Susan Gerard, Director – Department of Health Services Michael M. Crow, President – Arizona State University Anthony D. Rodgers, Director – Arizona Health Care Cost Containment System Dr. John D. Haeger, President – Northern Arizona University Victor Mendez, Director – Department of Transportation Robert Shelton, President – University of Arizona Judicial Officials Ruth V. McGregor, Chief Justice – Supreme Court - 11 - FINANCIAL SECTION FINANCIAL SECTION INDEPENDENT AUDITORS’ REPORT INDEPENDENT AUDITORS’ REPORT STATE OF ARIZONA OFFICE OF THE AUDITOR GENERAL DEBRA K. DAVENPORT, CPA AUDITOR GENERAL WILLIAM THOMSON DEPUTY AUDITOR GENERAL Independent Auditors’ Report The Honorable Janet Napolitano, Governor State of Arizona The Honorable Timothy S. Bee, 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, business-type 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, 2007, 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, additions, and other financing sources, as applicable, 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/Additions/ Other Financing Sources 2.31% 62.57% 15.30% 13.16% 1.29% 11.28% .21% 4.07% 1.72% .40% 100.00% 100.00% 100.00% 100.00% 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/Additions/ Other Financing Sources 16.54% 17.91% 100.00% 100.00% 100.00% 100.00% .08% .99% 66.23% 13.17% 2.45% .91% 2.09% 5.19% 51.21% 9.13% 1.78% .61% Those financial statements were audited by other auditors whose reports thereon have been furnished to us, and our opinions, insofar as they relate to the amounts included for those entities, are 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) 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, 2007, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in conformity with U.S. generally accepted accounting principles. The financial statements of the Healthcare Group of Arizona, a nonmajor enterprise fund, are included as part of the State’s business-type activities and aggregate remaining fund information. As discussed in Note 9, the Healthcare Group of Arizona has incurred significant recurring operating losses and has a fund deficit of $23.7 million at June 30, 2007, that raise substantial doubt about its ability to continue operations. Management’s plans in regard to these matters are also described in Note 9. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. As described in Note 8, the State’s Northern Arizona University increased its capitalization threshold for equipment, which represents a change in the application of an accounting principle. The Management’s Discussion and Analysis on pages 23 through 34, the Budgetary Comparison Schedules on pages 125 through 148, the Infrastructure Assets information on pages 149 through 153, and the Schedule of Agent Retirement Plans’ Funding Progress on page 154, are not required parts 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 statements and schedules, and statistical section listed in the table of contents are presented for purposes of additional analysis and are not required parts of the basic financial statements. The combining 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 the 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 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 June 16, 2008 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, 2007. 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 $22.0 billion (reported as net assets). Of this amount, $992.255 million is unrestricted, $6.3 billion is restricted for specific purposes (restricted net assets), and $14.7 billion is invested in capital assets, net of related debt. • The State’s total net assets increased in fiscal year 2007 by $2.0 billion. Net assets of governmental activities increased by $1.7 billion, while net assets of the business-type activities increased by $330.948 million. Fund Level: • As of the close of the fiscal year, the State’s governmental funds reported combined ending fund balances of $6.3 billion, an increase of $756.846 million from the beginning of the year. Approximately 30% of the combined fund balances, or $1.9 billion, is available to meet the State’s current and future needs (unreserved fund balance). • As of the close of the fiscal year, unreserved fund balance for the General Fund was $1.1 billion, or 6%, of total General Fund expenditures. • The enterprise funds reported net assets at year end of $3.1 billion, an increase of $316.864 million during the year. • The Land Endowments Fund reported fund balance at year end of $2.5 billion, an increase of $410.968 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 $6.0 billion, an increase of $348.796 million (less than 6%). Changes during the year included the addition of revenue bonds and certificates of participation of $474.530 million and $171.146 million, respectively. Also, the State retired $186.425 million of revenue bonds, $42.570 million of grant anticipation notes, and $243.730 million of certificates of participation. More detailed information regarding the government-wide financial statements, fund level financial statements, and long-term debt activity can be found beginning on page 26. 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 38-40) present 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 Statements of Activities (pages 42-44) present 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). Additionally, long-term assets and liabilities are reported regardless of when these assets are expected to be converted to cash, or when the liability is expected to be liquidated (e.g., capital assets and bonded debt). 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 40) and a statement of activities (page 44). See pages 67-70 and 110-122 for more information on discretely presented component units. Fund Financial Statements (Reporting the State’s Major Funds) The fund financial statements begin on page 45 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 46 and 48-49) 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 45 and 47 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 - 24 - (enterprise and internal service) utilize accrual accounting; the same method used by private sector businesses. 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 52-55. Proprietary fund financial statements can be found on pages 50-59 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 60. These funds, which include pensions and other employee benefit trust funds, 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 60-61 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 67 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 125 of this report. Other Supplementary Information Other supplementary information includes combining financial statements for non-major governmental, non-major enterprise, all internal service funds, all fiduciary funds, and non-major universities – affiliated component units. 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. A budgetary expenditure comparison schedule for the non-major special revenue funds is also included. Other supplementary information begins on page 158 of this report. - 25 - 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. State of Arizona-Primary Government Net Assets as of June 30, 2007 and 2006 (expressed in thousands) Business-type Activities Primary Government Total 2006, as 2006, as 2007 2006 2007 restated 2007 restated $ 4,742,906 $ 4,723,241 $ 1,979,651 $ 1,804,687 $ 6,722,557 $ 6,527,928 15,812,417 14,989,475 3,094,701 2,881,535 18,907,118 17,871,010 4,781,778 3,555,772 1,065,324 937,469 5,847,102 4,493,241 25,337,101 23,268,488 6,139,676 5,623,691 31,476,777 28,892,179 Governmental Activities Current assets Capital assets Other non-current assets Total Assets Current liabilities Non-current liabilities Total Liabilities 2,287,944 4,131,458 6,419,402 2,157,620 3,887,329 6,044,949 637,782 2,428,517 3,066,299 539,784 2,341,478 2,881,262 2,925,726 6,559,975 9,485,701 2,697,404 6,228,807 8,926,211 Net assets: Invested in capital assets, net of related debt 13,500,218 12,878,151 1,180,518 1,140,959 14,680,736 14,019,110 Restricted net assets 4,742,094 3,560,868 1,575,991 1,400,455 6,318,085 4,961,323 Unrestricted net assets 675,387 784,520 316,868 201,015 992,255 985,535 Total Net Assets $ 18,917,699 $ 17,223,539 $ 3,073,377 $ 2,742,429 $ 21,991,076 $ 19,965,968 The largest portion of the State’s net assets (67%) represents capital assets, net of related debt of $14.7 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. Refer to page 103 for explanation of Businesstype Activities restatement. The State’s net assets also include $6.3 billion (29%) 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 by federal regulations for 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 balance of the State’s net assets of $992.255 million (4%) represents unrestricted net assets. The State’s net assets increased $2.0 billion during the current fiscal year. This increase was primarily caused by gains on sale of trust land and increases for sales taxes, tobacco taxes, unrestricted investment earnings, fair value of endowment investments, and capital assets for governmental activities. Additionally, net assets were further increased by business-type activities’ increases for the Universities Fund, the Unemployment Compensation Fund, and the Industrial Commission’s Special Fund. - 26 - State of Arizona-Primary Government Changes in Net Assets for Fiscal Years Ended June 30, 2007 and 2006 (expressed in thousands) Governmental Activities 2007 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 Excess (deficiency) before contributions, special items and transfers Contributions to permanent endowments Special item - intergovernmental transfer of Sundome Center for the Performing Arts Transfers Change in Net Assets Net Assets - July 1, as restated Net Assets - June 30 $ Business-type Activities 2006, as 2007 restated 2006 798,332 $ 721,759 $ 2,050,461 $ Primary Government Total 2006, as 2007 restated 1,906,465 $ 2,848,793 $ 2,628,224 8,536,030 7,941,223 883,373 852,788 9,419,403 8,794,011 354,255 388,646 27,981 30,056 382,236 418,702 6,537,584 4,636,447 358,205 43,736 1,826,893 529,629 6,322,311 4,548,843 248,122 43,035 1,857,293 575,946 79,223 - 54,550 - 6,616,807 4,636,447 358,205 43,736 1,826,893 529,629 6,376,861 4,548,843 248,122 43,035 1,857,293 575,946 261,099 172,311 103,362 49,050 364,461 221,361 11,711 212,253 451,501 24,557,675 12,293 235,610 567,364 23,634,756 77,841 3,222,241 58,816 2,951,725 11,711 290,094 451,501 27,779,916 12,293 294,426 567,364 26,586,481 802,659 9,789,699 175,609 5,984,196 1,401,513 583,304 193,862 781,542 9,057,733 159,766 5,304,555 1,279,129 386,777 187,947 - - 802,659 9,789,699 175,609 5,984,196 1,401,513 583,304 193,862 781,542 9,057,733 159,766 5,304,555 1,279,129 386,777 187,947 2,864,543 191,674 - 2,658,636 172,439 - 2,960,790 248,111 2,762,557 226,171 2,864,543 191,674 2,960,790 248,111 2,658,636 172,439 2,762,557 226,171 21,987,059 19,988,524 23,669 363,508 176,486 3,772,564 (18,300) 377,104 136,894 3,484,426 23,669 363,508 176,486 25,759,623 (18,300) 377,104 136,894 23,472,950 2,570,616 3,646,232 (550,323) (532,701) 2,020,293 3,113,531 - - 4,815 3,803 4,815 3,803 876,456 330,948 2,742,429 3,073,377 $ (7,874) 774,492 237,720 2,504,709 2,742,429 $ (876,456) 1,694,160 17,223,539 18,917,699 $ (774,492) 2,871,740 14,351,799 17,223,539 $ - 27 - 2,025,108 19,965,968 21,991,076 $ (7,874) 3,109,460 16,856,508 19,965,968 Change in Net Assets Governmental Activities – Net assets increased by $1.7 billion, or 10%. This increase was partially attributed to the increases in earned general tax revenues in excess of related expenses. However, some revenues were used to purchase capital assets, which will be expensed over time. The State recorded $622.067 million of additional capital assets, net of any related debt used to acquire those assets, for governmental activities during the fiscal year. Reported sales tax and tobacco tax revenue increased by $215.273 million, or 3%, and $110.083 million, or 44%, as compared to fiscal year 2006, respectively. Several key elements have led to this increase. The State ranked second, nationally, in terms of the number of jobs added during fiscal year 2007, as reported by Arizona’s Department of Economic Security, Research Administration. Furthermore, annual estimates of the U.S. Census Bureau show that Arizona ranked second, nationally, in population growth, with a 2.7% increase, during fiscal year 2007. Additionally, during fiscal year 2007, personal income growth in Arizona, as reported by the U.S. Bureau of Economic Analysis, increased 6.4%, ranking Arizona tenth among all states in percentage change. Also, in December of 2006, proposition 203 increased the tobacco tax on cigarettes by $0.039 per cigarette, which creates and funds the Early Childhood Development and Health Fund. The increase in the tobacco tax from proposition 203 created revenue of $74.445 million, or 30% more tobacco tax revenue, as compared to fiscal year 2006. Additionally, the State’s improved efforts in tax enforcement resulted in the collection of $585.930 million for fiscal year 2007 (an increase of $55.929 million from the prior fiscal year). Another significant contributor to the net asset increase was auction sales of 4,262 acres in State trust land for gross sales of $453.655 million. In many of these auctions there was intense, competitive bidding which raised the total sales price by approximately 14% above the appraised value. In addition, unrestricted investment earnings increased $88.788 million, or 52%, compared to fiscal year 2006. A comparison of the net cost (income) of services by function for the State’s governmental activities is shown below for fiscal years 2007 and 2006. Net cost (income) is the total cost less revenues generated by the activities and shows the financial burden placed upon the State’s taxpayers by each of these functions. Governmental Activities (expressed in thousands) Total Cost of Services 2007 2006 Functions/Programs: 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 $ 802,659 9,789,699 175,609 5,984,196 1,401,513 583,304 193,862 2,864,543 191,674 $ 21,987,059 - 28 - $ 781,542 9,057,733 159,766 5,304,555 1,279,129 386,777 187,947 2,658,636 172,439 $ 19,988,524 Net Cost (Income) of Services 2007 2006 $ 497,769 2,809,369 (2,167) 4,698,423 1,154,915 382 83,534 2,864,543 191,674 $ 12,298,442 $ 525,480 2,454,326 (678) 4,247,978 985,492 (200,657) 93,880 2,658,636 172,439 $ 10,936,896 Expenses and Program Revenues Governmental Activities for Fiscal Year 2007 (in millions of dollars) $10,000 $9,000 $8,000 $7,000 $6,000 Expenses $5,000 Program Revenues $4,000 $3,000 $2,000 $1,000 G en er al G ov er nm H ea en lth t & In W sp ec el fa tio re n & Re gu la tio n Ed uc Pr at ot io ec n tio n & Sa fe ty Tr an sp or ta N tio at ur n In a l ter Re go so vt ur .R ce e s ve In nu ter e es Sh to ar n in Lo g ng -te rm De bt $0 Business-type Activities – The net assets increased by $330.948 million, or 12%. This increase was primarily caused by the net increase of the Unemployment Compensation Fund of $125.119 million; a net increase in the Universities Fund of $135.459 million; and a decrease in the Industrial Commission’s Special Fund deficit of $71.123 million. The increase in net assets from the Unemployment Compensation Fund resulted from the collection of more unemployment assessments than benefits paid during the fiscal year as well as interest earnings on cash deposited with the U.S. Treasury. The increase in net assets for the Universities Fund was primarily attributed to increases in non-operating revenues; including an increased share of state sales tax revenues, increased State appropriations (transfers in), investment income, and gain on sale of capital assets. The Industrial Commission’s Special Fund deficit decreased primarily due to an increase in investment income. In addition, during fiscal year 2007, $8.000 million was transferred from the Industrial Commission’s Administrative Fund to the Special Fund. A comparison of the net cost (income) of services by function for the State’s business-type activities is shown on the next page for fiscal years 2007 and 2006. Net cost (income) is the total cost less revenues generated by the activities and shows the financial burden placed upon the State’s taxpayers by each of these functions. - 29 - Business-type Activities (expressed in thousands) Total Cost of Services 2006, as restated 2007 Functions/Programs: Universities Unemployment Compensation Industrial Commission Special Fund Lottery Other Total Business-type Activities Net Cost (Income) of Services 2006, as restated 2007 $ 2,960,790 248,111 $ 2,762,557 226,171 $ 1,031,059 (127,137) $ 961,344 (132,076) 23,669 363,508 176,486 $ 3,772,564 (18,300) 377,104 136,894 $ 3,484,426 (19,072) (98,692) 24,591 810,749 (52,394) (91,593) 9,836 $ 695,117 $ 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, 2007, unreserved fund balance of the General Fund was $1.1 billion, while total fund balance closed the year at $1.9 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 5% of total expenditures and other financing uses, while total fund balance represents 10% of the same amount. The fund balance of the State’s General Fund decreased $343.039 million during the fiscal year. The primary source of the decrease in fund balance is from the increase in transfers out. Transfers out from the General Fund increased $369.864 million from fiscal year 2006, an increase of 40%. The increase is primarily due to the transfer of $245.000 million to the Transportation and Aviation Planning, Highway Maintenance and Safety Fund in order to accelerate the construction of certain critical projects on the State highway system. Another explanation of the decrease in fund balance is that expenditures increased by $1.7 billion, while revenues only increased by $732.290 million. In particular, sales tax revenues only increased $239.267 million from fiscal year 2006, an increase of 4%. Sales taxes paid by retail stores and construction contractors increased approximately $71.913 million and $75.240 million, respectively, when compared to fiscal year 2006 sales tax receipts. Health and welfare expenditures and intergovernmental revenue (including federal grants and county funding) increased by $676.098 million, or 8%, and $300.542 million, or 4%, as compared to fiscal year 2006, respectively. Overall program enrollment in the State’s various healthcare programs increased 1.2%. Further, the cost of healthcare programs, including the Social Security Act Titles XIX (Medicaid) and XXI (State Children’s Health Insurance Program), were major contributing factors to an increase in health and welfare expenditures during fiscal year 2007. Utilization and inflationary trends for healthcare costs are incorporated into a rate development process for the managed care organization capitation rates. The capitation rates were increased by a weighted average of 5.6% for the contract period of October 2006 to September 2007, primarily due to pharmacy, physician, and inpatient costs. Additionally, utilization and inflationary trends of the Arizona Long Term Care System (ALTCS) contributed to an increase in health and welfare expenditures. The ALTCS capitation rate increased by 5.7% due to utilization and inflation adjustments for contract year July 2006 through June 2007. The resulting rate was subsequently increased an additional 3% to implement a legislated 4.1% provider rate increase. Additionally, the ALTCS caseload grew by approximately 6.5% during this period. - 30 - Education expenditures increased $582.863 million, or 12%, compared to fiscal year 2006. The increase can be primarily attributed to an increase in State assistance for kindergarten through twelfth grade (K-12) operating expenditures largely to support an increase of 21,960 student enrollments and a 4.4% inflation adjustment. Additionally, programs supported by federal grant aid increased by approximately $25.000 million during fiscal year 2007. Protection and safety expenditures increased $129.588 million, or 11%, compared to fiscal year 2006. The increase can primarily be attributed to a one-time expenditure of $97.800 million from the General Fund to reduce the Highway User Revenue Fund and State Highway Fund monies for Highway Patrol to their respective $10.000 million statutory caps. Transportation and Aviation Planning, Highway Maintenance and Safety Fund The Transportation and Aviation Planning, Highway Maintenance and Safety Fund is responsible for the repair and maintenance of existing roads, paying the debt service for roads that are built from the issuance of revenue bonds, and providing technical assistance with road construction provided by contractors hired by the Arizona Department of Transportation (ADOT). Total fund balance increased $379.530 million during fiscal year 2007. The fund balance increase was primarily due to the transfer of $245.000 million of General Fund monies in order to accelerate the construction of certain critical projects on the State highway system. Also, distributions to other State agencies were $49.600 million less than fiscal year’s 2006 distributions due to 2005 Senate Bill 1513, Chapter 286, which required an additional $49.600 million to be transferred from the Highway User Revenue Fund to the Department of Public Safety in fiscal year 2006. Land Endowments Fund The fund was established when the federal government granted Arizona 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-12. The Land Endowments Fund total fund balance increased $410.968 million during fiscal year 2007. Endowment investments increased $455.304 million, net of payable for securities purchased, at fiscal year end, due to receipts from land sales and a net increase in the fair value of investments of $253.150 million. 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 125. Differences between the original budget of $15.2 billion and the final amended budget of $16.9 billion resulted in a $1.7 billion increase in appropriations for the General Fund, before adjustments. Some of the primary reasons for the General Fund appropriations $1.7 billion increase were: 1. $251.162 million of prior fiscal year obligations that were paid in the current fiscal year per ARS §35-191 2. $191.294 million for the Department of Education’s Basic State Aid and Additional State Aid payments to school districts which was deferred in prior fiscal years 3. $118.050 million to the Department of Education for full-day kindergarten funding 4. $191.000 million to the Department of Education to payoff K-12 rollover that shifted from the FY06 appropriation 5. $100.000 million to the Department of Education for the additional 2.4% above the minimum inflation factor required by Proposition 301 6. $215.200 million to the Department of Education for Basic State Aid because the county equalization assistance rate did not exceed 8 cents - 31 - 7. $20.000 million for the Parks Board Growing Smarter transfer to the Land Conservation Fund per ARS §41511.23 8. $86.284 million to the School Facilities Board for the Building Renewal Fund 9. $62.066 million to the Department of Corrections primarily for increased correctional officers’ salaries and employee related expenses, and inmate healthcare costs 10. $35.000 million to the Department of Commerce for the purpose of strengthening medical, scientific, and engineering research programs and infrastructure to promote statewide economic development 11. $50.000 million that was appropriated in advance to the School Facilities Board by Laws 2005, Chapter 287, and not included in the FY 2007 General Appropriation Act. The difference between the final budget and actual expenditures was $746.835 million, after adjustments. Of this amount, $162.657 million will continue as legislative multiple fiscal year spending authority for fiscal year 2008 and beyond, depending upon the budgetary guidelines of the Legislature. The remaining $584.178 million represents the unused portion of the State’s legislatively authorized annual operating budget. Additional budgetary information can be found on pages 147-148 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, 2007 totaled $18.9 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 7% increase for businesstype activities. Depreciation charges of the governmental and business-type activities for the fiscal year totaled $314.941 million. Major capital asset activity during the current fiscal year included the following: • The Universities’ additions to capital assets totaled $414.238 million and included increased investments in instruction, research, student housing, and campus police facilities. • The ADOT started or completed roads and bridges totaling $1.2 billion during the fiscal year. For the government-wide financial statement presentation, all depreciable assets were depreciated from the acquisition date to the end of the current fiscal year. Capital asset purchases of the governmental funds are reported in the fundlevel financial statements as expenditures. Capital assets for the governmental and business-type activities as of June 30, 2007 are presented below (expressed in thousands): Governmental Activities Land Buildings Improvements other than buildings Equipment Collections (non-depreciable) Infrastructure Construction in progress Less accumulated depreciation Total 2007 $ 2,368,725 1,677,197 2006 $ 2,227,782 1,527,996 Business-type Activities 2006, as 2007 restated $ 153,038 $ 143,587 3,431,338 3,101,431 138,329 732,690 9,861,750 2,121,158 (1,087,432) $ 15,812,417 133,624 696,119 9,386,364 2,036,194 (1,018,604) $ 14,989,475 3,600 1,209,996 35,311 326,218 100,398 (2,165,198) $ 3,094,701 - 32 - 3,601 1,143,858 34,159 305,975 163,030 (2,014,106) $ 2,881,535 Total 2007 $ 2,521,763 5,108,535 2006, as restated $ 2,371,369 4,629,427 141,929 1,942,686 35,311 10,187,968 2,221,556 (3,252,630) $ 18,907,118 137,225 1,839,977 34,159 9,692,339 2,199,224 (3,032,710) $ 17,871,010 As provided by GASB Statement 34, the State has elected to record its infrastructure assets, that the ADOT is responsible for maintaining, using the modified approach. Assets accounted for under the modified approach include 6,817 center lane miles (18,573 travel lane miles) and 4,648 bridges. 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’s serviceability rating goal is 3.23 for the overall system. The most recent assessment indicated that an overall rating of 3.87 was achieved for fiscal year 2007. The State manages its bridges using the Arizona Bridge Information and Storage System. 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 92.5% or better. In fiscal year 2007, a CRI of 93.6% was obtained. In addition to many smaller projects, each of the following major highway construction projects in excess of $20.000 million were started during fiscal year 2007 (expressed in thousands): Project Description Construction on Interstate 10 from Price Road to 29th Street within the City of Tucson in Pima County. Construction of State Route Loop 179 south of Sedona in Coconino and Yavapai Counties. Construction of two traffic interchanges and related bridge work on Interstate 17 within the City of Phoenix in Maricopa County. Construction of HOV lanes on State Route Loop 101 and State Route 51 within the City of Phoenix in Maricopa County. Construction on Interstate 10 north of Tucson in Pima and Pinal Counties. Construction on US 60 east of Apache Junction in Pinal County. Contract Start Date Contract Amount Current Year Expenditures 09/18/06 $ 200,300 $ 07/24/06 30,352 12,066 03/23/07 35,778 1,559 04/23/07 40,207 989 06/19/07 06/22/07 21,893 40,530 - 28,463 In addition to many smaller projects, the following major highway construction projects had expenditures in excess of $15.000 million in fiscal year 2007 (expressed in thousands): Project Description State Route Loop 202 from Power Road to University Drive within the City of Mesa in Maricopa County. US 60 from Gilbert Road to Power Road within the City of Mesa in Maricopa County. State Route Loop 202 from University Drive to Southern Avenue within the City of Mesa in Maricopa County. Interstate 10 from Price Road to 29th Street within the City of Tucson in Pima County. State Route Loop 101 and Interstate 17 interchange in Maricopa County. State Route 179 south of Sedona in Coconino and Yavapai Counties. State Route Loop 202 and US 60 interchange within the City of Mesa in Maricopa County. Intersection of Interstate 40 and North Park Drive within the City of Winslow in Navajo County. Project Expenditures $ 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. - 33 - 91,392 44,977 43,008 31,392 28,866 26,147 23,591 17,316 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. Major long-term debt activity during the current fiscal year included the following: • The ADOT issued revenue bonds for $325.000 million to finance portions of the Transportation Board’s Five Year Transportation Facilities Construction Program and pay the costs of issuing the bonds. • The Universities issued revenue bonds for $149.530 million to fund the acquisition, construction, or renovation of capital facilities and infrastructure. Furthermore, proceeds were used to refund the Northern Arizona University’s previously issued revenue bonds with a total outstanding balance of $41.130 million. • The Universities issued $171.146 million of certificates of participation to current-refund previously issued certificates of participation with a total outstanding principal of $41.400 million and refund previously issued certificates of participation with a total outstanding principal of $124.595 million in advance of maturity. State of Arizona-Primary Government Outstanding Major Long-Term Debt as of June 30, 2007 (expressed in thousands) Revenue bonds Grant anticipation notes Certificates of participation Total Governmental Activities 2007 2006 $ 2,328,840 $ 2,106,700 282,860 325,430 959,865 1,020,810 $ 3,571,565 $ 3,452,940 Business-type Activities 2007 2006 $ 868,565 $ 802,600 935,127 946,766 $ 1,803,692 $ 1,749,366 Total 2007 2006 $ 3,197,405 $ 2,909,300 282,860 325,430 1,894,992 1,967,576 $ 5,375,257 $ 5,202,306 More detailed information regarding long-term debt begins on page 91. ECONOMIC CONDITION AND OUTLOOK Arizona’s economy continued to outpace the nation in fiscal year 2007, with growth in labor markets, population, and personal income. As previously mentioned, the State ranked second, nationally, in terms of the number of jobs added during fiscal year 2007, as reported by Arizona’s Department of Economic Security, Research Administration. Furthermore, annual estimates of the U.S. Census Bureau show that Arizona ranked second, nationally, in population growth, with a 2.7% increase, during fiscal year 2007. Additionally, during fiscal year 2007, personal income growth in Arizona, as reported by the U.S. Bureau of Economic Analysis, increased 6.4%, ranking Arizona tenth among all states in percentage change. Arizona’s economy is projected to continue adding jobs in fiscal year 2007. However, job growth is expected to slow in the second half of 2007 with further slowing in 2008 as a result of a slowdown in the housing market and tightening credit markets. Nevertheless, Arizona’s economy was projected to grow at a faster rate than the nation in 2007 and 2008, according to the forecast update of the Arizona Department of Economic Security, Research Administration. 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 68. - 34 - BASIC FINANCIAL STATEMENTS BASIC FINANCIAL STATEMENTS (This page intentionally left blank) STATE OF ARIZONA STATEMENT OF NET ASSETS JUNE 30, 2007 (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 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 $ 8,569 3,228,764 $ - 149,582 1,029,326 256,286 130,137 132,606 99,076 - $ 158,151 1,029,326 3,485,050 COMPONENT UNITS $ 19,554 90,626 130,137 132,606 99,076 - 62,129 92,818 19,660 573,411 101,374 20,802 128,464 117,128 530,500 61 89 12,746 20,998 4,742,906 75,851 4,159 11,732 103,545 (117,128) 68,373 122 30,392 5,592 1,979,651 649,262 105,533 32,534 232,009 598,873 183 89 43,138 26,590 6,722,557 8,816 83,178 11,218 2,626 390,625 2,644 1,207,257 2,965 3,250 - 18,417 105,649 38,647 31,136 21,061 1,207,257 108,614 41,897 31,136 145,122 966,137 60,268 2,539,257 - 38,373 6,239 494,057 316,294 16,512 1,004,510 6,239 60,268 494,057 2,855,551 16,512 682,375 80,896 49,011 14,345,024 288,747 14,633,771 30,180 1,467,393 20,594,195 2,805,954 4,160,025 4,273,347 24,754,220 115,005 1,102,589 25,337,101 6,139,676 31,476,777 1,493,214 The Notes to the Financial Statements are an integral part of this statement. (Continued) - 38 - STATE OF ARIZONA STATEMENT OF NET ASSETS JUNE 30, 2007 (Expressed in Thousands) PRIMARY GOVERNMENT TOTAL PRIMARY GOVERNMENT GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES LIABILITIES Current Liabilities: Accounts payable and other current liabilities Payable for securities purchased 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 $ 514,466 51,105 699,354 20,279 6,947 358,957 126,862 67,264 52,272 247,167 143,271 2,287,944 $ 111,731 1,463 74,423 132,606 9 9,304 72,260 105,879 30,856 89,253 9,998 637,782 $ 626,197 52,568 773,777 132,606 20,279 6,956 368,261 199,122 173,143 83,128 336,420 153,269 2,925,726 COMPONENT UNITS $ 46,517 25,276 2,572 32,855 5,848 113,068 Noncurrent Liabilities: Unearned deferred revenue Contracts payable Accrued insurance losses Funds held for others Long-term debt Other long-term liabilities Total Noncurrent Liabilities 39,946 291,833 3,791,365 8,314 4,131,458 29,870 18,031 370,292 53,268 1,902,488 54,568 2,428,517 69,816 18,031 662,125 53,268 5,693,853 62,882 6,559,975 2,629 10,590 836,923 7,203 857,345 Total Liabilities 6,419,402 3,066,299 9,485,701 970,413 13,500,218 1,180,518 14,680,736 35,714 40,737 1,003,824 38,804 8,505 1,075,038 11,119 40,737 1,012,329 1,075,038 49,923 9,948 21,290 3,467,467 169,972 675,387 210,635 199,471 71,211 12 316,868 231,925 3,666,938 71,211 169,984 992,255 273,096 204,043 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 Total Net Assets $ 18,917,699 $ The Notes to the Financial Statements are an integral part of this statement. - 39 - 3,073,377 $ 21,991,076 $ 522,801 STATE OF ARIZONA STATEMENT OF FINANCIAL POSITION UNIVERSITIES - AFFILIATED COMPONENT UNITS JUNE 30, 2007 (Expressed in Thousands) ASSETS Cash and cash equivalent investments $ Receivables: Pledges receivable Other receivables Total receivables 180,666 18,389 199,055 Investments: Investments in securities Investments held in trust for Universities Other investments Total investments 982,338 8,924 70,429 1,061,691 Net direct financing leases Property and equipment, net of accumulated depreciation Other assets 111,081 279,144 44,853 Total Assets 1,790,956 LIABILITIES Liability under Universities' endowment trust agreements Bonds payable Unearned revenue Other liabilities 100,184 475,040 29,893 57,416 Total Liabilities 662,533 NET ASSETS Permanently restricted Temporarily restricted Unrestricted Total Net Assets 95,132 653,720 398,173 76,530 $ 1,128,423 The Notes to the Financial Statements are an integral part of this statement. - 40 - (This page intentionally left blank) STATE OF ARIZONA STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) PROGRAM REVENUES CHARGES FOR SERVICES 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 802,659 9,789,699 175,609 5,984,196 1,401,513 583,304 193,862 2,864,543 191,674 21,987,059 $ 2,960,790 248,111 23,669 363,508 176,486 3,772,564 200,495 76,869 158,022 47,615 91,477 158,019 65,835 798,332 OPERATING GRANTS AND CONTRIBUTIONS $ 1,069,339 325,081 42,741 462,200 151,100 2,050,461 104,323 6,903,461 19,754 1,238,158 155,121 70,879 44,334 8,536,030 CAPITAL GRANTS AND CONTRIBUTIONS $ 832,411 50,167 795 883,373 72 354,024 159 354,255 27,981 27,981 $ 25,759,623 $ 2,848,793 $ 9,419,403 $ 382,236 $ 30,033 428,327 28,607 $ 20,545 442,569 28,301 $ 12,710 - $ - $ 486,967 $ 491,415 $ 12,710 $ - General Revenues: Taxes: Sales Income Tobacco Property Motor vehicle and fuel Other Unrestricted investment earnings Unrestricted grants and contributions Gain on sale of trust land Miscellaneous Contributions to permanent endowments 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. - 42 - NET (EXPENSE) REVENUE AND CHANGES IN NET ASSETS PRIMARY GOVERNMENT TOTAL GOVERNMENTAL BUSINESS-TYPE PRIMARY COMPONENT ACTIVITIES ACTIVITIES GOVERNMENT UNITS $ (497,769) (2,809,369) 2,167 (4,698,423) (1,154,915) (382) (83,534) (2,864,543) (191,674) (12,298,442) $ $ (12,298,442) (497,769) (2,809,369) 2,167 (4,698,423) (1,154,915) (382) (83,534) (2,864,543) (191,674) (12,298,442) (1,031,059) 127,137 19,072 98,692 (24,591) (810,749) (1,031,059) 127,137 19,072 98,692 (24,591) (810,749) (810,749) (13,109,191) $ 3,222 14,242 (306) 17,158 6,537,584 4,636,447 358,205 43,736 1,826,893 529,629 261,099 11,711 451,501 212,253 (876,456) 13,992,602 1,694,160 17,223,539 $ 18,917,699 79,223 103,362 77,841 4,815 876,456 1,141,697 330,948 2,742,429 $ 3,073,377 6,616,807 4,636,447 358,205 43,736 1,826,893 529,629 364,461 11,711 451,501 290,094 4,815 15,134,299 2,025,108 19,965,968 $ 21,991,076 31,037 8,330 39,367 56,525 466,276 $ 522,801 - 43 - STATE OF ARIZONA STATEMENT OF ACTIVITIES UNIVERSITIES - AFFILIATED COMPONENT UNITS JUNE 30, 2007 (Expressed in Thousands) UNRESTRICTED REVENUES Contributions Rental revenue Sales and services Net investment income 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 Net Assets - Beginning, as restated Transfers Cumulative effect of accounting changes Net Assets - Ending 16,907 30,506 23,424 8,728 112,219 22,295 26,380 TEMPORARILY PERMANENTLY RESTRICTED RESTRICTED $ 74,611 $ 35,365 (15,622) 717 202,673 30,506 23,424 114,895 22,295 31,825 240,459 90,088 95,071 425,618 82,537 6,680 20,116 17,967 - - 82,537 6,680 20,116 17,967 47,263 7,904 13,793 - - 47,263 7,904 13,793 19,928 20,674 - - 19,928 20,674 236,862 - - 236,862 3,597 73,069 (136) $ 111,155 $ 70,802 (96,597) 4,728 TOTAL 76,530 90,088 314,368 157 (6,440) $ 398,173 The Notes to the Financial Statements are an integral part of this statement. - 44 - 95,071 563,459 (21) (4,789) $ 653,720 188,756 950,896 (11,229) $ 1,128,423 STATE OF ARIZONA BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2007 (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 Payable for securities purchased 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 Matured notes payable Total Liabilities $ OTHER GOVERNMENTAL FUNDS $ $ - $ 28 5,052 TOTAL $ 6,230 1,872,859 147,349 48,006 1,000,853 3,069,067 492,846 42,058 78,392 478,175 61 254,878 3,053 62,122 3,268 7,623 9,154 49,544 20,001 5,757 51,698 979,316 4,757 367 - 18,443 4,324 27,701 89 83,238 156 573,411 101,348 986,939 120,004 527,719 61 89 358,484 8,966 2,644 - - - 2,644 40,210 188 3,250 60,268 213 957,037 8,128 2,539,257 - 210,010 2,777 1 1,207,257 2,965 3,250 60,268 2,539,257 8,342 $ 3,330,245 $ 1,269,983 $ 3,623,429 $ 1,352,644 $ 9,576,301 $ 272,243 261,698 20,279 6,947 115,974 126,832 63,087 486,143 53,943 1,407,146 $ 112,728 9,970 130,374 175,721 7,623 3,309 439,725 $ 18,112 51,105 198 1 13,269 1,033,700 51,987 1,168,372 $ 35,641 81,415 112,609 29 11,056 1,203 1,280 243,233 $ 438,724 51,105 353,281 20,279 6,947 358,957 126,862 263,133 1,528,669 107,210 3,309 3,258,476 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 1,150 AVIATION PLANNING, HIGHWAY LAND MAINTENANCE & ENDOWMENTS SAFETY FUND FUND $ 673,531 4,931 162,657 272 1,081,708 769,407 54,267 25,757 (19,173) 2,454,564 493 - 207,081 5,288 39,842 34,421 - 673,531 976,488 5,288 4,931 2,454,564 257,259 34,421 26,029 1,062,535 1,923,099 830,258 2,455,057 822,779 1,109,411 . 1,352,644 822,779 6,317,825 3,330,245 $ 1,269,983 $ 3,623,429 The Notes to the Financial Statements are an integral part of this statement. - 45 - $ $ 9,576,301 STATE OF ARIZONA RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2007 (Expressed in Thousands) Total fund balances - governmental funds $ 6,317,825 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 governmental funds. 15,743,932 Certain receivables are not available to pay for current period expenditures and, therefore, are deferred in the governmental funds. 1,528,669 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. (191,921) The allocation of the internal service fund accumulated net loss results in an amount due from business-type activities, which is not reported in the governmental funds. 20,416 Deferred issue costs are reported as current expenditures in the governmental 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. 8,025 Long-term debt is not due and payable from current financial resources and, therefore, is not reported in the governmental funds. These amounts consist of: Revenue bonds Grant anticipation notes Certificates of participation Capital leases Installment purchase contracts Premium on debt Deferred amount on refundings (2,328,840) (282,860) (959,865) (233,658) (10,644) (225,071) 14,266 (4,026,672) Accrued liabilities for AHCCCS programmatic costs and reimbursements are not due and payable from current financial resources and, therefore, are not reported in the governmental funds. (330,383) Accrued interest on long-term obligations is not due and payable from current financial resources and, therefore, is not reported in the governmental funds. (14,839) Other long-term liabilities are not due and payable from current financial resources and, therefore, are not reported in the governmental funds. Those liabilities consist of: Compensated absences (139,893) Other long-term assets are not available to pay for current-period expenditures and, therefore, are not reported in the governmental funds. Those assets consist of: Other non-current assets 2,540 Net assets of governmental activities $ The Notes to the Financial Statements are an integral part of this statement. - 46 - 18,917,699 STATE OF ARIZONA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2007 (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 Proceeds from sale of capital assets Capital lease and installment purchase contracts Bonds issued Premium on bonds 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 $ $ 5,666,980 4,629,179 98,436 28,433 686 438,539 7,832,627 113,730 172,435 84,465 25,809 6,751 90,258 120,737 19,309,065 $ 65 267,292 34,778 33,240 335,375 598,724 41 259,769 6,297 91,090 51,372 198,128 40,145 25,703 158,114 88,020 100,435 1,617,838 $ 6,527,968 4,629,220 358,205 43,736 1,828,701 529,629 8,313,720 442,236 528,024 158,318 183,923 94,771 90,258 264,440 23,993,149 740,098 9,333,871 60,107 5,296,593 1,258,908 1,188 28,610 1,645,335 518,692 1,217,883 6 5,213 45,428 3,627 7 - 139,415 340,142 113,790 641,492 95,904 4,438 156,975 - 879,519 9,679,226 173,897 5,983,513 1,358,439 524,318 185,592 2,863,218 46,773 47,966 187,812 18,647,261 2,472 575,286 2,314,333 94 54,375 173,700 144,879 228,808 2,039,543 220,473 195,317 992,000 23,055,512 661,804 416,538 281,000 (421,705) 248,191 (297,489) 10,162 2,128 (37,008) 379,530 450,728 24 (69,145) 199,089 129,968 410,968 2,044,089 463,430 (130,843) 47,304 325,000 26,201 731,092 309,387 800,024 198,960 (1,287,356) 83,553 (1,004,843) (343,039) 2,266,138 $ 262,264 15,303 1,821,718 429,656 130,378 48,152 13,372 10,028 2,730,871 TOTAL 1,923,099 $ 830,258 The Notes to the Financial Statements are an integral part of this statement. - 47 - $ 2,455,057 $ 1,109,411 937,637 910,605 (1,784,833) 199,089 10,162 132,985 325,000 26,201 (180,791) 756,846 5,560,979 $ 6,317,825 STATE OF ARIZONA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) Net change in fund balances - total governmental funds $ 756,846 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 992,000 Infrastructure Adjustment (57,818) Depreciation expense (109,769) 824,413 The net income of internal service funds is included with governmental activities in the Statement of Activities. 39,679 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 65,654 Income taxes 7,227 Sales taxes 9,616 Accrued interest on land sales contracts 21,128 Other revenue 1,600 105,225 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. 252,412 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. AHCCCS accrued programmatic costs (93,313) Compensated absences (17,964) Other noncurrent expenses (4,184) (115,461) Certain expenditures that are reported in the governmental 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 76,116 Kerr vs. Killian lawsuit 15,000 The Notes to the Financial Statements are an integral part of this statement. 91,116 (Continued) - 48 - STATE OF ARIZONA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) 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 (325,000) Premium on bonds issued (26,201) (351,201) 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 220,473 Debt premium/discount amoritization 21,089 Amortization of bond issuance costs 959 Amoritization of deferred amount (3,566) 238,955 Accrued interest on long-term obligations is not due and payable from current financial resources and, therefore, is not reported in the governmental funds. (14,839) 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. (132,985) Change in net assets of governmental activities $ The Notes to the Financial Statements are an integral part of this statement. - 49 - 1,694,160 STATE OF ARIZONA STATEMENT OF NET ASSETS PROPRIETARY FUNDS JUNE 30, 2007 (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 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 101,390 169,268 BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS INDUSTRIAL UNEMPLOYMENT COMMISSION COMPENSATION SPECIAL FUND LOTTERY $ 1,029,326 - $ 47,549 1,828 $ OTHER 59,816 $ 643 25,374 79,306 98,979 - 53,300 - - 130,137 97 1,293 4,017 82,685 68,229 19,150 5,181 629,498 70,433 8,061 1,107,820 5,418 2,073 1,202 111,370 4,265 3,946 68,027 793 7,715 7,332 144 122 99,041 7,296 411 279,105 18,417 105,649 38,647 31,135 - 1 - - 30,306 6,239 196,447 316,294 9,384 - 297,610 - 7,128 8,067 - 278,982 - 2,996 1,056 5,713 2,768,501 3,800,001 4,429,499 1,107,820 18,163 318,770 430,140 3,099 11,283 79,310 16,191 29,971 309,076 The Notes to the Financial Statements are an integral part of this statement. - 50 - TOTAL ENTERPRISE FUNDS $ 149,582 1,029,326 256,286 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS $ 2,339 159,663 130,137 132,606 99,076 - 75,851 4,159 11,732 103,545 68,373 122 99,041 30,392 5,592 2,195,820 26 8,460 1,000 2,285 3,780 4,631 182,184 18,417 105,649 38,647 31,136 - 38,373 6,239 494,057 316,294 16,512 - 288,747 - 2,805,954 4,160,025 6,355,845 68,485 68,485 250,669 (Continued) - 51 - STATE OF ARIZONA STATEMENT OF NET ASSETS PROPRIETARY FUNDS JUNE 30, 2007 (Expressed in Thousands) UNIVERSITIES LIABILITIES Current Liabilities: Accounts payable and other current liabilities Payable for securities purchased Accrued liabilities Obligations under securities loan agreements 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 Contracts payable 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 Universities Fund: Expendable Nonexpendable Loans and other financial assistance: Expendable Other Unrestricted (deficit) Total Net Assets $ BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS INDUSTRIAL UNEMPLOYMENT COMMISSION COMPENSATION SPECIAL FUND LOTTERY OTHER 91,851 43,877 79,306 28,472 92,594 89,253 8,785 434,138 21,956 9 10,303 514 32,782 12,756 1,463 53,300 30,856 98,375 4,125 9,304 33,485 20,701 348 67,963 2,999 8,590 174,538 13,285 865 200,277 29,870 53,268 1,902,466 54,511 2,040,115 2,474,253 32,782 370,292 370,292 468,667 67,963 18,031 22 57 18,110 218,387 1,133,322 - 21,159 4,155 21,882 8,505 11,119 1,075,038 - - - - 210,635 199,471 - - - - 392,194 - 1,955,246 $ 1,075,038 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. - 52 - (59,686) $ (38,527) $ 7,192 11,347 71,211 12 (2,416) $ 90,689 TOTAL ENTERPRISE FUNDS GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS 111,731 1,463 74,423 132,606 9 9,304 72,260 195,753 105,879 30,856 89,253 9,998 833,535 75,743 1,575 924 52,272 2,672 7,666 140,852 29,870 18,031 370,292 53,268 1,902,488 54,568 2,428,517 3,262,052 291,833 5,879 4,026 301,738 442,590 1,180,518 59,934 8,505 1,075,038 11,119 - 210,635 199,471 - 71,211 12 337,284 $ 3,093,793 (251,855) $ (191,921) (20,416) $ 3,073,377 - 53 - STATE OF ARIZONA STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) UNIVERSITIES OPERATING REVENUES Sales and charges for services: Pledged student tuition and fees, net of scholarship allowances of $191,960 Pledged auxiliary enterprises, net of scholarship allowances of $9,328 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 Gifts and donations Gain 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 698,573 $ $ - $ - $ - 322,919 6,265 2,162 22 331,368 24,405 18,336 42,741 462,200 100 462,300 147,526 795 665 2,909 2,587 154,482 719,225 122,437 1,847,506 189,951 2,879,119 (1,084,615) 248,111 248,111 83,257 15,668 1,232 16,900 25,841 303,113 6,118 11,052 260 53 2,478 323,074 139,226 123,502 4,040 29,504 9,727 1,888 467 7,274 176,402 (21,920) - - - 79,223 102,580 18,589 55,055 31,347 26,359 (82,215) (13,540) 217,398 43,902 43,902 41,928 2,123 (6,769) 37,282 772 (40,434) (39,662) (867,217) 127,159 63,123 99,564 8,000 - (99,482) 27,981 4,815 969,880 - Change in Net Assets Total Net Assets - Beginning, as restated 135,459 1,819,787 $ - OTHER 300,759 70,007 603,490 94,994 26,681 1,794,504 Capital grants and contributions Contributions to permanent endowments Transfers in Transfers out Total Net Assets - Ending BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS INDUSTRIAL UNEMPLOYMENT COMMISSION COMPENSATION SPECIAL FUND LOTTERY 1,955,246 (2,040) 125,119 949,919 $ 1,075,038 71,123 (109,650) $ 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. - 54 - (38,527) $ 1 6,379 607 (84) 6,903 (15,017) 98 - 82 11,265 11,347 (14,919) 105,608 $ 90,689 TOTAL ENTERPRISE FUNDS $ 698,573 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS $ - 300,759 70,007 462,200 147,526 322,919 24,405 610,550 94,994 665 2,909 2,162 18,336 29,390 2,785,395 825,352 55 825,407 1,409,619 4,040 122,437 1,883,128 20,779 193,331 520 9,752 3,643,606 (858,211) 659,431 31,680 33,777 11,841 28,751 7,926 773,406 52,001 79,223 102,580 18,590 226 147,264 31,347 29,861 (40,434) (82,215) (20,393) 265,823 333 700 (356) 903 (592,388) 52,904 27,981 4,815 977,978 (101,522) 3,087 (2,228) 316,864 2,776,929 $ 3,093,793 $ 316,864 14,084 $ 330,948 53,763 (245,684) $ (191,921) - 55 - STATE OF ARIZONA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2007 (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 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 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 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 Transfers from other funds 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 receipts (payments) Net Cash (Used) by Capital and Related Financing Activities $ 36,972 BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS INDUSTRIAL UNEMPLOYMENT COMMISSION COMPENSATION SPECIAL FUND LOTTERY $ 323,893 - $ 18,335 23,545 - $ OTHER 248,496 - $ 152,237 - 300,375 - - - - 64,414 687,047 704,418 - 6,265 - - - 722 39,208 (720,114) (1,831,154) (128,216) (38,143) 28,134 (896,267) (246,765) 2,184 85,577 (24,560) 17,320 (144,778) (6,131) 40,594 138,181 (124,208) (29,199) (5,797) 299 33,262 335,218 71,170 471,878 949,879 (322,701) (359,332) 7,899 (2,283) - 2,124 8,000 (2,725) (40,434) (94,456) - 206 95 (65) 401 (2,283) 7,399 (134,890) 637 1,154,011 35,063 - 136,341 15,761 20,000 (381,229) - (81,825) - (67,642) (8,708) - (25) (332,239) - (867) The Notes to the Financial Statements are an integral part of this statement. - 56 - (842) - (738) (738) (2,763) (18) (2,781) TOTAL ENTERPRISE FUNDS $ 419,068 347,438 36,972 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS $ - 300,375 - 64,414 687,047 711,405 39,208 824,974 - (1,260,425) (1,866,484) (128,216) (38,143) (5,797) 71,211 (621,927) (723,798) (31,680) (10,527) 39 59,008 335,218 2,124 71,170 472,084 957,974 (322,701) (359,332) (40,434) (96,804) 5,575 (2,228) 1 1,024,874 35,063 (2,227) 349 136,341 15,761 20,000 (385,572) (7,651) (81,825) (356) (67,660) (8,733) (2,579) 699 (336,625) (9,538) (Continued) - 57 - STATE OF ARIZONA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) UNIVERSITIES BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS INDUSTRIAL UNEMPLOYMENT COMMISSION COMPENSATION SPECIAL FUND LOTTERY OTHER 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 386,949 44,847 43,902 131,804 14,801 674 6,055 (394,110) 37,686 43,902 3,550 (173,364) (3,811) (27,020) 674 (55) (83) 5,917 Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning (36,809) 431,533 127,196 902,130 (3,168) 105,845 3,227 56,589 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 (Increase) in due from U.S. Government (Increase) in due from local governments Decrease in due from other Funds (Increase) in inventories, at cost 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 (Decrease) in accrued insurance losses Increase (decrease) in other liabilities Net Cash Provided (Used) by Operating Activities 37,035 119,119 $ 394,724 $ 1,029,326 $ 102,677 $ 59,816 $ 156,154 $ (1,084,615) $ 83,257 $ 25,841 $ 139,226 $ (21,920) 189,951 - $ SCHEDULE OF NONCASH INVESTING, CAPITAL AND NON-CAPITAL FINANCING ACTIVITIES Gifts and conveyances of capital assets $ Assets acquired under capital leases Contribution of capital assets from other funds Change in fair value of investments Amortization of bond discount and issuance costs Amortization of deferred amount on refunding and bond premium Gain on disposal of capital assets, net Amortization of deferred rent Refinancing of long-term debt Total Noncash Investing, Capital and Non-capital Financing Activities $ - 1,232 - 260 7 (9,101) (1,373) 987 (9,213) 4,828 830 11,439 - (3,325) 5,646 (1) - (896,267) $ 85,577 $ 17,320 $ 13,337 $ 34,674 11,643 (2,082) - $ 27,226 - $ 1,366 7,903 4,900 208,240 279,981 (760) 102 (9,095) - $ - The Notes to the Financial Statements are an integral part of this statement. - 58 - (679) (1,049) 188 1,599 (1,371) - $ 27,226 1,888 - 138,181 (1,068) (73) (2) 34,083 (242) 204 (1,353) 16,234 (135) 4,043 1,594 9 $ - $ (8) - $ (8) $ 33,262 (221) (221) TOTAL ENTERPRISE FUNDS GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS 518,753 110,279 333 3,550 (567,529) (3,894) 61,159 333 127,481 1,615,216 $ $ 1,742,697 47,576 114,426 $ 162,002 (858,211) $ 52,001 193,331 7 11,841 - (14,933) (73) (2) 34,083 (2,664) 1,379 (8,865) 25,337 (1) 695 4,043 13,033 (9,095) 9 (1,576) (1,000) 1,182 (808) 2,545 19,594 172 (1,194) (23,095) (654) $ (621,927) $ 59,008 $ 13,337 $ 34,674 38,640 (2,082) 3,087 - 1,366 7,903 4,900 208,240 $ 306,978 $ 3,087 - 59 - STATE OF ARIZONA STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2007 (Expressed in Thousands) PENSION AND OTHER ASSETS Cash Cash and pooled investments with State Treasurer Prepaid benefits Short-term investments Receivables, net of allowances: Accrued interest and dividends Securities sold Forward contract receivable Contributions Court fees Due from other Funds Miscellaneous receivables Total receivables EMPLOYEE BENEFIT INVESTMENT AGENCY TRUST FUNDS TRUSTS FUNDS $ 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 Money market mutual funds Other investments 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 Due to other Funds Total Liabilities NET ASSETS Held in trust for: Pension benefits Pool participants Total Net Assets $ 29,465 $ - $ 34,879 129,917 - - 270,062 5,096 83,657 714,828 1,343,784 47,710 364 1,917 8,771 2,201,031 12,463 12,463 388 388 - - 76,257 2,598,595 - - 3,543,247 4,760,485 2,869,522 259,460 24,604,918 597,327 1,697,578 241,130 41,172,262 1,049,028 1,192,271 1,719,928 5,125 44 3,966,396 - - - 2,789,482 4,917 5,127 - - 43,537,802 3,978,859 3,181,081 1,375,800 1,528,690 - - 189,584 13,614 5,240,825 1,917 6,722 - 11,202 2,966,681 - 8,147,232 6,722 3,181,081 35,390,570 - 3,972,137 - 35,390,570 $ 3,972,137 $ - The Notes to the Financial Statements are an integral part of this statement. - 60 - STATE OF ARIZONA STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS FOR THE YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) PENSION AND OTHER ADDITIONS: Member contributions Employer contributions Member purchase of service credit Court fees EMPLOYEE BENEFIT INVESTMENT TRUST FUNDS TRUSTS $ 941,555 1,006,903 109,910 3,978 Investment income: Net increase in fair value of investments Interest income Dividends Real estate Other investment income Securities lending income Total investment income 4,574,527 415,804 366,704 12,508 7,954 229,237 5,606,734 Less investment expenses: Investment activity expenses Security lending expenses Net investment income 61,685 219,559 5,325,490 Capital share and individual account transactions: Shares sold Reinvested interest income Shares redeemed Net capital share and individual account transactions 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 $ 3,935 183,650 187,585 2,846 184,739 - Other additions Net Assets - Ending $ 5,526,293 171,745 (4,957,937) - 740,101 12,972 - 7,400,808 924,840 2,311,045 21,590 - 103,381 38,705 16,245 184,740 - 2,490,966 184,740 4,909,842 30,480,728 740,100 3,232,037 35,390,570 $ 3,972,137 The Notes to the Financial Statements are an integral part of this statement. - 61 - STATE OF ARIZONA COMBINING STATEMENT OF NET ASSETS COMPONENT UNITS JUNE 30, 2007 (Expressed in Thousands) WATER INFRASTRUCTURE FINANCE AUTHORITY ASSETS Current Assets: Cash $ Cash and pooled investments with State Treasurer Cash held by trustee Short-term investments Restricted investments held by trustee Receivables, net of allowances: Interest Other Inventories, at cost Other current assets Total Current Assets 85,370 62,129 - UNIVERSITY MEDICAL CENTER $ 19,554 92,818 16,555 ARIZONA POWER AUTHORITY $ 5,256 3,105 TOTAL $ 19,554 90,626 62,129 92,818 19,660 8,703 3,724 159,926 76,227 11,218 216,372 113 3,227 2,626 14,327 8,816 83,178 11,218 2,626 390,625 682,375 80,896 3,301 138,575 5,756 6,547 39,954 145,122 682,375 80,896 49,011 101 (101) 766,572 30,180 319,272 (204,467) 289,316 1,327 (1,127) 46,701 30,180 320,700 (205,695) 1,102,589 926,498 505,688 61,028 1,493,214 6,919 25,900 46 32,865 42,898 17,685 2,572 3,835 5,721 72,711 3,619 672 3,120 81 7,492 46,517 25,276 2,572 32,855 5,848 113,068 Noncurrent Liabilities: Unearned deferred revenue Accrued insurance losses Long-term debt Other long-term liabilities Total Noncurrent Liabilities 2,629 559,314 561,943 10,590 227,921 7,203 245,714 49,688 49,688 2,629 10,590 836,923 7,203 857,345 Total Liabilities 594,808 318,425 57,180 970,413 - 35,514 200 35,714 273,096 58,594 9,948 141,801 3,648 9,948 273,096 204,043 Noncurrent Assets: Restricted assets: Investments held by trustee Loans and notes receivable, net of allowances Investments Other noncurrent assets Capital assets: Land and other nondepreciable Depreciable buildings, property and equipment Less: accumulated depreciation Total Noncurrent Assets Total Assets LIABILITIES Current Liabilities: Accounts payable and other current liabilities Accrued liabilities Current portion of accrued insurance losses Current portion of long-term debt Current portion of other long-term liabilities Total Current Liabilities NET ASSETS Invested in capital assets, net of related debt Restricted for: Debt service Loans and other financial assistance Unrestricted Total Net Assets $ 331,690 $ 187,263 The Notes to the Financial Statements are an integral part of this statement. - 62 - $ 3,848 $ 522,801 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) WATER INFRASTRUCTURE FINANCE AUTHORITY OPERATING REVENUES Sales and charges for services Intergovernmental Licenses, fees, and permits Earnings on investments Total Operating Revenues $ 12,710 7,686 12,859 33,255 OPERATING EXPENSES Cost of sales and benefits Personal services Contractual services Aid to local governments Depreciation and amortization Insurance Other Total Operating Expenses Operating Income 1,024 931 37 8 28,033 30,033 3,222 NON-OPERATING REVENUES (EXPENSES) Investment income Other non-operating revenue Interest expense Other non-operating expense Total Non-Operating Revenues (Expenses) 15,671 15,671 Change in Net Assets Total Net Assets - Beginning Total Net Assets - Ending UNIVERSITY MEDICAL CENTER $ 442,569 442,569 331,690 $ 99,222 209,136 66,395 20,170 3,458 24,644 423,025 19,544 187,263 The Notes to the Financial Statements are an integral part of this statement. - 63 - $ 31,037 8,330 (3,841) (1,797) 33,729 531 3,317 $ 3,848 470,870 12,710 7,686 12,859 504,125 125,885 210,160 67,326 37 20,217 3,458 54,246 481,329 22,796 795 42 (336) 501 37,101 150,162 $ 28,301 28,301 TOTAL 26,663 39 1,569 28,271 30 14,571 8,288 (3,505) (1,797) 17,557 18,893 312,797 $ ARIZONA POWER AUTHORITY 56,525 466,276 $ 522,801 STATE OF ARIZONA COMBINING STATEMENT OF FINANCIAL POSITION UNIVERSITIES - AFFILIATED COMPONENT UNITS JUNE 30, 2007 (Expressed in Thousands) ARIZONA STATE UNIVERSITY FOUNDATION ASSETS Cash and cash equivalent investments $ 15,786 UNIVERSITY OF ARIZONA FOUNDATION ARIZONA CAPITAL FACILITIES FINANCIAL CORPORATION $ $ 63,365 279 OTHER COMPONENT UNITS $ 15,702 TOTAL $ 95,132 Receivables: Pledges receivable Other receivables Total receivables 109,570 1,267 110,837 24,683 24,683 6,009 6,009 46,413 11,113 57,526 180,666 18,389 199,055 Investments: Investments in securities Investments held in trust for Universities Other investments Total investments 485,781 58,295 544,076 361,396 11,073 372,469 35,532 811 36,343 99,629 8,924 250 108,803 982,338 8,924 70,429 1,061,691 28,815 - 46,989 35,277 111,081 20,198 21,542 3,980 4,580 211,498 6,651 43,468 12,080 279,144 44,853 741,254 469,077 307,769 272,856 1,790,956 72,822 84,095 4,597 27,814 21,347 2,839 300,700 5,705 15,984 6,015 90,245 19,591 10,779 100,184 475,040 29,893 57,416 189,328 24,186 322,389 126,630 662,533 305,516 213,673 32,737 308,815 120,364 15,712 (14,620) 39,389 64,136 42,701 653,720 398,173 76,530 Net direct financing leases Property and equipment, net of accumulated depreciation Other assets Total Assets LIABILITIES Liability under Universities' endowment trust agreements Bonds payable Unearned revenue Other liabilities Total Liabilities NET ASSETS Permanently restricted Temporarily restricted Unrestricted (deficit) Total Net Assets $ 551,926 $ 444,891 The Notes to the Financial Statements are an integral part of this statement. - 64 - $ (14,620) $ 146,226 $ 1,128,423 STATE OF ARIZONA COMBINING STATEMENT OF ACTIVITIES UNIVERSITIES - AFFILIATED COMPONENT UNITS JUNE 30, 2007 (Expressed in Thousands) ARIZONA STATE UNIVERSITY FOUNDATION REVENUES Contributions Rental revenue Sales and services Net investment income 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 (Decrease) in Net Assets Net Assets - Beginning, as restated Cumulative effect of accounting changes Net Assets - Ending $ 105,853 495 14,072 55,074 6,202 ARIZONA CAPITAL FACILITIES FINANCIAL CORPORATION UNIVERSITY OF ARIZONA FOUNDATION $ 60,094 44,163 10,711 $ 10,364 285 1,567 9,507 OTHER COMPONENT UNITS $ 36,726 19,647 9,067 14,091 22,295 5,405 TOTAL $ 202,673 30,506 23,424 114,895 22,295 31,825 181,696 114,968 21,723 107,231 425,618 32,760 13,226 32,994 13,100 - - 16,783 6,680 7,016 4,741 82,537 6,680 20,116 17,967 18,356 2,245 4,070 4,938 - 7,431 8,378 17,406 2,966 3,170 47,263 7,904 13,793 6,968 - 11,906 19,928 1,800 19,928 20,674 73,555 55,102 27,715 80,490 236,862 108,141 443,785 - 59,866 396,254 (11,229) (5,992) (8,628) - 26,741 119,485 - 188,756 950,896 (11,229) 551,926 $ 444,891 The Notes to the Financial Statements are an integral part of this statement. - 65 - $ (14,620) $ 146,226 $ 1,128,423 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS INDEX Page Page Note 1. Summary of Significant Accounting Policies --------- 67 A. Reporting Entity ------------------------------------- 67 B. Basis of Presentation-------------------------------- 71 C. Measurement Focus and Basis of Accounting ----------------------------------------- 72 D. Deposits and Investments -------------------------- 73 E. Taxes Receivable------------------------------------ 74 F. Inventories ------------------------------------------- 74 G. Property Tax Calendar------------------------------ 74 H. Capital Assets---------------------------------------- 74 I. Investment Earnings -------------------------------- 75 J. Scholarship Allowances---------------------------- 75 K. Deferred Revenue ----------------------------------- 75 L. Compensated Absences ---------------------------- 75 M. Long-Term Obligations ---------------------------- 76 N. New Accounting Pronouncements ---------------- 76 Note 6. Long-Term Obligations ----------------------------- 91 A. Revenue Bonds --------------------------------- 91 B. Grant Anticipation Notes ---------------------- 95 C. Certificates of Participation ------------------- 96 D. Leases -------------------------------------------- 99 E. Litigation --------------------------------------- 100 F. Compensated Absences----------------------- 100 G. Changes in Long-Term Obligations -------- 101 Note 2. Deposits and Investments-------------------------------- 76 A. Deposits and Investment Policies ----------------- 76 B. Custodial Credit Risk – Deposits and Investments ------------------------ 78 C. Interest Rate Risk ----------------------------------- 78 D. Credit Risk------------------------------------------- 80 E. Concentration of Credit Risk ---------------------- 81 F. Foreign Currency Risk ----------------------------- 82 G. Unemployment Compensation -------------------- 82 H. Securities Lending ---------------------------------- 82 I. Derivatives ------------------------------------------ 84 J. State Treasurer’s Separately Issued Financial Statements ------------------------------ 85 Note 7. Interfund Transactions------------------------------102 Note 8. Accounting Changes and Restatements ----------103 A. Fund Financial Statements ------------------- 103 B. Government-Wide Statements --------------- 103 Note 9. Fund Deficit------------------------------------------ 103 A. Industrial Commission Special Fund ------- 103 B. Healthcare Group------------------------------ 103 C. Risk Management Fund ---------------------- 104 Note 10. Joint Venture --------------------------------------- 104 Note 11. Commitments, Contingencies, and Compliance ----------------------------------105 A. Risk Management Insurance Losses --------105 B. Litigation ---------------------------------------106 C. Accumulated Sick Leave ---------------------107 D. Unclaimed Property ---------------------------107 E. Construction Commitments ------------------107 F. Arizona State Lottery -------------------------108 Note 3. Receivables/Deferred Revenue ------------------------- 85 A. Taxes Receivable ----------------------------------- 85 B. Deferred Revenue----------------------------------- 86 Note 12. Tobacco Settlement--------------------------------108 Note 4. Capital Assets --------------------------------------------- 87 Note 14. Conduit Debt ---------------------------------------108 Note 5. Retirement Plans and Other Post-Employment Benefits---------------------------------------------------88 A. Participating Employers---------------------------- 88 B. Contributions, Benefits, and Refund Payments ---------------------------------- 88 C. Funding Policy -------------------------------------- 89 D. Annual Pension Cost ------------------------------- 89 E. Trend Information ---------------------------------- 89 F. Universities’ Retirement Plans -------------------- 90 G. Post-Employment Benefits ------------------------ 90 Note 15. Subsequent Events---------------------------------109 - 66 - Note 13. Public-Private Partnership------------------------108 Note 16. Discretely Presented Component Unit Disclosures ----------------------------------------110 A. Summary of Significant Accounting Policies ----------------------------------------110 B. Deposits and Investments --------------------112 C. Program Loans---------------------------------115 D. Pledges Receivable----------------------------115 E. Direct Financing Lease Agreement ---------115 F. Capital Assets ----------------------------------116 G. Long-Term Obligations-----------------------117 H. Accounting Changes and Restatements ----120 I. Related Party Transactions -------------------121 J. Subsequent Events ----------------------------121 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies of the State of Arizona (the State) conform to U.S. Generally Accepted Accounting Principles (GAAP) applicable to governmental units adopted by the Governmental Accounting Standards Board (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 – Discretely Presented Component Unit Disclosures. 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 the GASB. GASB Statement No. 14, The Financial Reporting Entity 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 Statement No. 39, Determining Whether Certain Organizations Are Component Units (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 following blended component units: The Arizona State Retirement System (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 administered in accordance with provisions of Arizona Revised Statutes (ARS) Title 38, Chapter 5, Article 2. The 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 Public Safety Personnel Retirement System (PSPRS) is an agent, multi-employer public employee retirement system that benefits fire fighters and police officers employed by the State and its political subdivisions. The PSPRS is jointly administered by the Fund Manager and 210 local boards according to the provisions of ARS Title 38, Chapter 5, Article 4. The Fund Manager is a five-member board appointed by the Governor and approved by the Senate to serve a fixed three-year term. Each eligible group participating in the system has a five-member local board. All members serve a fixed four-year term. The Elected Officials’ Retirement Plan (EORP) is a cost-sharing, multi-employer public employee retirement plan that benefits all State and county elected officials and judges and certain elected city officials. The Fund Manager of the PSPRS administers the EORP plan according to the provisions of ARS Title 38, Chapter 5, Article 3. The Corrections Officer Retirement Plan (CORP) is an agent, multi-employer public employee retirement plan that benefits county detention officers and certain employees of the State’s Department of Corrections and Department of Juvenile Corrections. The CORP is jointly administered by the Fund Manager of the PSPRS and 20 local boards according to the - 67 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 provisions of ARS Title 38, Chapter 5, Article 6. Each employer member participating in the CORP has a five-member local board. All members serve a fixed four-year term. 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 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 State reports the following discretely presented component units: University Medical Center (UMC) – The UMC is the primary teaching hospital for the College of Medicine, the 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. 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 ten 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 Street, Suite 290, Phoenix, Arizona 85007, (602) 364-1310. 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 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 Foundation (ASU Foundation) – The ASU Foundation's resources are disbursed at the discretion of the Foundation's independent board of directors, in accordance with donor directions and Foundation policy. - 68 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 Arizona Capital Facilities Finance Corporation (ACFFC) – The ACFFC provides facilities for either the use by students of ASU or ASU itself. University of Arizona Foundation (U of A Foundation) – The U of A Foundation supports the U of A through various fundraising 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: Arizona State University 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. Arizona State University Research Park, Inc. (ASU Research Park) – ASU Research Park manages a research park to promote and support research activities in coordination with ASU. Mesa Student Housing, LLC – Mesa Student Housing, LLC provides facilities for either the use by students of ASU or ASU itself. Collegiate Golf Foundation – This foundation operates an ASU-owned golf course. University of Arizona Alumni Association (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. University of Arizona Law College Association (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. University of Arizona Campus Research Corporation (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 32.00% 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. 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, 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 – Alumni Association, University of Arizona, P.O. Box 210109, Tucson, Arizona 85721-0109 The Law Association – Law College Association, University of Arizona, P.O. Box 210176, Tucson, Arizona 85721-0176 CRC - University of Arizona Science and Technology Park, 9040 South Rita Road, Suite 302, Tucson, Arizona 85747 - 69 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 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 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) – 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. The State cannot abrogate the rights of the Authority until all bonds, together with the interest thereon, are fully paid and discharged and all agreements are fully performed. 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 Sports and Tourism 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 re-appointed 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. 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. 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. GAAP, the financial activities of this joint venture are not included in the State’s financial statements. - 70 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 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 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 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. - 71 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 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 and Other Employee Benefit Trust Funds – account for the activities of the ASRS, the PSPRS, the EORP, and the CORP, for which the State acts as a trustee. These retirement and other post-employment benefit plans accumulate resources to pay pension, health insurance premium subsidies, and long-term disability 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, property collected by the State, and payment of the health insurance subsidy by the PSPRS, the EORP, and the CORP, where the State acts as an agent for distribution to other governments and organizations. 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. The agency funds are custodial in nature and do not have a measurement focus. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the - 72 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 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 yearend. 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 Financial Accounting Standards Board (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) – 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 – consists of a centralized management of most State cash resources maintained by the State Treasurer. 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 capital projects and bond debt service funds invested by the trustee in accordance with the applicable financing indenture, generally limited to United States Treasury securities and other Federal agency securities, certificates of deposit, commercial paper, and money market funds. • 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 recognized data vendors who provide values that are either exchange based or matrix based. Rules and tolerance levels within BONY’s security master database are used to determine reasonable accuracy. 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. The State Treasurer - 73 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 also compares all equity prices to Bloomberg’s Index Alert. All bonds are priced using an evaluated price, the closing exchange price or the most recent exchange or quoted bid, except securities with a remaining maturity of 90 days or less are priced at amortized cost (amortizing premium/accreting discount on a straight-line to maturity method). The official price is normally the last traded price. 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 the 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, the 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. Net investment income includes net appreciation (depreciation) in the 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. 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. Directed real estate and venture capital investments are reported at cost. Investment income is recognized as earned. E. TAXES RECEIVABLE Taxes receivable include amounts owed by taxpayers for the 2006 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, 2007. Sales and motor vehicle and fuel tax receivables represent amounts that are earned by the State in the fiscal period ended June 30, 2007, 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. This approach is discussed further in the Required Supplementary Information portion of this report. The State has adopted a - 74 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 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 government-wide 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 Threshold Life (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 $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. Except for Arizona State University (ASU), 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. The ASU capitalizes all works of art and historical treasures with a unit cost of $5,000 or more. Additional disclosures related to capital assets and assets acquired through capital leases are provided in Notes 4 and 6, respectively. I. INVESTMENT EARNINGS Investment earnings are 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 the GASB. In the governmental fund financial statements, liabilities for compensated absences are not accrued, because they are not considered due and payable. - 75 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 In general, State employees accrue vested annual leave at a variable rate based on years of service. Except for uncovered State employees and 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. Uncovered State employees may accumulate up to 320 hours of vacation, and any vacation hours in excess of the maximum amount that are unused at December 31 are forfeited, unless an exception is authorized. 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. For sick leave policy, 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. Bond issuance costs and deferred gains or losses on debt refundings are charged to expense in the period incurred unless those costs are deemed to be material to the State’s financial statements by management, in which case, they are deferred and amortized using either the straight-line method or the effective interest method. 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 PRONOUNCEMENTS GASB Statement No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans. This Statement establishes uniform financial reporting standards for other postemployment benefit (OPEB) plans and supersedes the interim guidance included in GASB Statement No. 26, Financial Reporting for Postemployment Healthcare Plans Administered by Defined Benefit Pension Plans. The requirements of this Statement for OPEB plan reporting are effective for periods beginning after December 15, 2005. The PSPRS, the EORP, and the CORP have implemented the requirements of this standard, but they had no material effect on the financial statements. ASRS early implemented the requirements of this standard in 2006. 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 - 76 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 government subdivisions, negotiable certificates of deposit, bonds, debentures and notes issued by U.S. corporations, commercial paper 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, Local Government Investment Pool – Long Term, 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 80.00% 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 5.00% of the voting stock of any one corporation may be owned. No more than 20.00% 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 10.00% 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 1.00% 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 70.00% of the respective pension fund at any given time 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 10.00% of the respective pension fund 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 5.00% 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 Regents’ 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. - 77 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 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’ deposits with financial institutions are required by State statutes to be entirely covered by the Federal Depository Insurance Corporation (FDIC) or, alternatively, collateralized for amounts in excess of the amount insured. Surety collateral for the Universities, the ASRS, the PSPRS, the EORP, and the CORP must be equal to at least 100.00% of the bank balance required to be collateralized (102.00% for the State Treasurer). 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, 2007, some State agencies have uncollateralized and uninsured deposits in the amount of $2.756 million and $4.567 million in deposits 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, 2007, the State had $34.547 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 effective 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 five years and operating fund monies shall not be invested for a duration of longer than three 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 policy for operating funds limits the maximum maturity of any fixed rate issue to five 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 three years, with the additional limitation that certificates of deposit and commercial paper have maximum maturities of 360 days and 270 days, respectively. The Commission approves and contracts with different investment managers of fixed income equities in order to manage the exposure to interest rate risk with each different fund manager focusing on different goals of yield periods or duration of maturities of their particular portion of the investment pool. Beyond this requirement, the Commission does not have a formal policy. - 78 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 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 mortgage backed securities 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 U.S. Agency zeroes & strips securities Other Total Debt Securities Fair Value $ 6,115 4,994 3,904 2,337,985 6,462 58,165 1,410,078 12,524 26,216 4,883 62,758 2,295,401 2,518,747 1,205,518 788,650 19,358 8,870 $ 10,770,628 Weighted Average Maturity (in years) 6.50 .09 32.20 0.07 6.12 19.41 1.85 12.36 17.62 5.98 0.09 0.01 1.44 17.63 1.62 .63 5.93 2.88 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. This 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 Asset backed securities CMO's of government agencies Commercial mortgage backed Corporate bonds Government agencies Government bonds Government mortgage backed Non-government backed CMO's Total Debt Securities Fair Value $ 165,519 109,398 531,022 1,354,427 500,359 948,615 2,508,289 125,576 $ 6,243,205 - 79 - Effective Duration (in years) 2.00 2.50 4.10 3.40 4.50 1.80 4.20 2.20 3.24 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 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 three years and the final maturity of any floating rate issue may not exceed five 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 Collateralized bond obligations (CBO’s) Collateralized debt obligations (CDO’s) Commercial paper International fixed income fund Money market mutual funds Repurchase agreements U.S. Agency securities U.S. Treasury securities Other investments Total Debt Securities Fair Value $ 651,403 Less than 1 $ 3,097 1-5 $ 122,607 6-10 $ 78,372 11-15 $ 60,154 16-20 $ 87,871 More than 20 $ 299,302 44,579 - 846 11,954 14,743 - 17,036 12,128 259,460 11,344 84,606 77,440 744,139 596 13,439 259,460 84,606 77,440 82,026 855 85,744 177 5,161 7,999 11,344 191,291 419 4,677 163,598 406 53,374 106 4,129 168,106 2,234 $ 1,899,134 $ 507,484 $ 214,535 $ 306,056 $ 238,901 $ 141,351 $ 490,807 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 basis point which resets from monthly to semi-annually. 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. Other securities with high sensitivity to rate changes. Total Corporate Securities U.S. Agency Securities $ 1,003,576 $ Total 54,869 $ 1,058,445 - 1,245,688 1,245,688 - 71,539 167,930 71,539 167,930 1,540,026 $ 2,543,602 $ 1,003,576 $ 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 from Moody’s or a BBB or better rating from 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 its 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. - 80 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 The PSPRS, the EORP, and the CORP’s investment policy is specific as to permissible credit quality ranges, exposure levels within individual 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 20.00% or less of the fair value of the fixed income portfolio. The Universities’ policies mirror that of the Board of Regents. The ASU’s policy requires that capital projects and bond debt service funds are invested by the bond trustee in accordance with the applicable financing indenture, generally limited to U.S. Treasury securities and other Federal agency securities, certificates of deposit (minimum rating of P-1/A-1), commercial paper (minimum rating of P-1/A-1+), and money market funds rated AAAm or better invested in short-term debt securities. When investing endowment funds, U of A policy requires corporate bonds and notes to be of investment grade quality, rated Baa or higher by Moody’s Investor Service, at the time of purchase. Beyond the requirements established by the Board of Regents, the NAU does not have a formal policy with respect to credit risk. The Commission’s investment policy requires that purchases of fixed income securities will consist of U.S. Treasury or Federal Agency obligations or those bonds rated not less than BA by Moody’s or BB by S & P except for fixed income managers who have been hired to manage funds in a specialized manner (high yield). 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, 2007. The ratings are presented using S & P’s rating scale (expressed in thousands): Investment Type Asset backed securities Bond mutual funds Certificates of deposit CBO’s CDO’s CMO's of government sponsored entities Commercial mortgage backed securities Commercial paper Corporate bonds Government agencies Government bonds Government mortgage backed securities International fixed income fund Money market mutual funds Mortgages Municipal bonds Non-government backed CMO's U.S. Agency mortgage backed securities U.S. Agency securities U.S. Agency zeroes & strips Other investments Total Fair Value $ 172,148 6,115 4,994 44,579 71,490 109,398 534,926 2,597,445 3,413,740 500,359 948,615 2,529,738 11,344 147,364 11,019 970 125,576 885,245 3,249,671 19,358 21,339 $15,405,433 AAA $ 164,487 59,362 109,398 531,892 399,826 491,060 902,688 2,508,289 66,472 970 125,545 885,245 2,515,826 19,358 2,917 $8,783,335 AA $ 4,099 4,994 1,991 647,613 9,299 4,825 11,019 14,757 632 $699,229 A $ 2,306 31,779 8,000 280 259,460 1,771,555 17,896 31 517 $2,091,824 BBB $ 877 12,800 4,128 763 488,193 21,131 $527,892 BB $ 60,353 2,075 $62,428 B $ 379 42,713 $43,092 A1 $ 2,337,985 718,992 $3,056,977 Not Rated $ 6,115 3,487 21,449 11,344 80,892 96 17,273 $ 140,656 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 5.00% 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 that 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 5.00% 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 that are fully guaranteed by the U.S. Government. The ASU and the NAU have no formal policy in - 81 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 regards to the concentration of credit risk. At June 30, 2007, more than 5.00% of the governmental activities’ total investments were held in the following single issuers (expressed in thousands): Issuer Description Federal Home Loan Mortgage Corporation Federal Home Loan Bank Federal National Mortgage Association Fair Value $ 902,835 710,929 881,437 Percentage 12.80% 10.08% 12.50% 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 formal policy regarding foreign currency risk. The ASRS is the primary State agency that has foreign currency risk. Per ARS §38-719, no more than 20.00% 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, 2007 (expressed in thousands): Foreign Currency Risk by Investment Type at Fair Value Currency Australian Dollar British Pound Sterling Canadian Dollar Czech Koruna Danish Krone Euro Currency Hong Kong Dollar Indonesian Rupiah Japanese Yen New Mexican Peso New Taiwan Dollar New Zealand Dollar Norwegian Krone Singapore Dollar South Korean Won Swedish Krona Swiss Franc Thailand Baht Various mutual funds Total Short Term Fixed Income Equities Real Estate Total $ 208 148 349 529 1,950 205 13,537 338 288 459 3 492 4,760 $ 9,183 1,687 2,849 13,044 $ 86,454 692,300 13,938 5,610 26,488 1,351 53,236 4,597 907,890 26,136 14,225 21,171 33,825 81,282 23,196 345,882 1,980 91,013 $ 51 58 351 - $ 86,662 692,448 14,287 5,610 27,017 3,352 53,499 4,597 930,610 1,687 26,136 17,412 21,459 34,635 81,282 23,199 346,374 1,980 108,817 $ 23,266 $ 26,763 $ 2,430,574 $ 460 $ 2,481,063 G. UNEMPLOYMENT COMPENSATION Pursuant to Section 904 of the Social Security Act (42 U.S.C. §1104), unemployment insurance contributions from Arizona employers are deposited in an unemployment trust fund account with the Secretary of the Treasury of the United States. 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 enterprise fund, has been established for this purpose. 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. - 82 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 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, 2007. 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 102.00% of the market value of securities loaned plus accrued interest. International securities are loaned for collateral valued at 105.00% of the market value of securities loaned plus accrued interest. The market value at June 30, 2007 for loaned securities collateralized by cash and non-cash collateral was $52.205 million and $1.852 million, respectively. As part of the securities lending transactions, Northern Trust received cash and non-cash collateral valued at $53.300 million and $1.898 million, respectively at June 30, 2007. 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 100 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 39 days as of June 30, 2007. 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, 2007, the Commission had $53.300 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 102.00% of the market value of the loaned securities and maintain collateral at no less than 100.00% 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, 2007, the ASRS, including the Health Benefit Supplement Fund, had $3.5 billion outstanding as payable for securities on loan. The ASRS does not have the ability to pledge or sell the collateral unless there is a borrower default. - 83 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 3. Public Safety Personnel Retirement System, Elected Officials’ Retirement Plan and Corrections Officer Retirement Plan The EORP, the PSPRS, and the CORP are permitted by ARS Title 38, Chapter 5, Articles 3, 4, and 6, respectively, 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 102.00% 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, 2007, the fair values of securities on loan were (expressed in millions): PSPRS EORP CORP 4. $ 1,296.443 101.547 257.100 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 102.00% of the market value of the loaned securities and accrued interest, and maintain collateral at no less than 100.00% 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, 2007, 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, 2007, 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, 2007, cash collateral received from borrowers was invested in the Enhanced Yield Business Trust and the Cash Collateral Investment Term Trust, which had a weighted average maturity of 15 days and 9 days, respectively, and represented 99.00% and 1.00% 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 custodian’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, 2007, cash collateral investments totaled $79.306 million with a corresponding market value of securities on loan of $77.522 million. Securities lent for cash collateral included corporate stocks, corporate bonds, and U.S. government and agency notes and 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. 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. - 84 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 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 interest rate risk and credit risk. The derivatives utilized by ASRS internal investment managers typically have no greater interest rate risk than their physical counterparts, and in many cases are offset by exposure elsewhere in the portfolio. As of June 30, 2007, the ASRS had $1.6 billion in temporary investments held as collateral for equity and fixed income derivatives which may have a positive or negative notional value. 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. Refer to Note 6.A.3.c for information on derivatives utilized by ASU. 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: Arizona State Treasurer’s Office 1700 W. Washington St. Phoenix, Arizona 85007-2812 The Treasurer’s financial statements are audited by the Office of the Auditor General. NOTE 3. RECEIVABLES/DEFERRED REVENUE A. TAXES RECEIVABLE The following table summarizes taxes receivable at June 30, 2007 (expressed in thousands): 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 General Fund $ 474,998 151,232 7,563 633,793 (140,947) $ 492,846 Transportation & Aviation Planning, Unemployment Highway Maintenance Compensation & Safety Fund Fund $ $ 62,122 70,433 62,122 70,433 $ 62,122 $ 70,433 - 85 - Industrial Commission Special Fund $ 5,418 5,418 $ 5,418 Non-Major Governmental Funds $ 2,449 15,994 18,443 $ 18,443 Government-wide Total $ 477,447 151,232 62,122 23,557 70,433 5,418 790,209 (140,947) $ 649,262 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 B. DEFERRED REVENUE At June 30, 2007, 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 Other 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 Noncurrent Deferred Revenue for Governmental Funds: General Fund: Advance land lease payments Land Endowments Fund: Advance land lease payments Total Noncurrent Deferred Revenue for Governmental Funds Total Current and Noncurrent Deferred Revenue for Governmental Funds 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 Other Total Current Deferred Revenue for Proprietary Funds Unavailable $ Total Deferred Revenue Unearned 103,729 79,439 46,002 3,813 1,533 251,441 186 $ 45,504 291 1,867 464 102 - 7,623 1,030,970 2,730 - 17,756 1,030,970 2,730 17,756 1,203 1,528,669 1,236 44 67,264 1,203 1,236 44 1,595,933 - 5,715 5,715 - 34,231 39,946 34,231 39,946 107,210 $ 1,635,879 $ 1,528,669 $ $ Total Noncurrent Deferred Revenue for Proprietary Funds - 86 - 103,729 79,439 46,002 3,813 45,504 291 1,533 1,867 464 251,441 288 7,623 Unearned Noncurrent Deferred Revenue for Proprietary Funds: Universities: IBM lease related to acquisition of research park $ 36,128 5,763 4,900 42,838 1,498 1,467 $ 10,054 3,196 35 105,879 $ 29,870 $ 29,870 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 NOTE 4. CAPITAL ASSETS Capital asset activities for the fiscal year ended June 30, 2007 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 $ 2,227,782 2,036,194 9,379,755 13,643,731 Additions Retirements $ $ 165,432 596,349 488,033 1,249,814 (24,779) (482,599) (12,647) (520,025) Adjustments & Reclassifications $ Ending Balance 290 (28,786) (28,496) $ 2,368,725 2,121,158 9,855,141 14,345,024 Depreciable capital assets: Buildings Improvements other than buildings Equipment Infrastructure Total Depreciable Capital Assets 1,527,996 133,624 696,119 6,609 2,364,348 10,493 3,609 71,984 86,086 (442) (114) (39,744) (40,300) 139,150 1,210 4,331 144,691 1,677,197 138,329 732,690 6,609 2,554,825 Less accumulated depreciation for: Buildings Improvements other than buildings Equipment Infrastructure Total Accumulated Depreciation (458,373) (63,549) (492,423) (4,259) (1,018,604) (57,837) (4,198) (59,480) (95) (121,610) 376 16 37,528 37,920 9,592 2 5,268 14,862 (506,242) (67,729) (509,107) (4,354) (1,087,432) 1,345,744 (35,524) (2,380) 159,553 1,467,393 $ 14,989,475 $ 1,214,290 131,057 $ 15,812,417 Beginning Balance (As restated) Additions Retirements $ $ $ Total Depreciable Capital Assets, Net Total Governmental Activities Capital Assets, Net Business-type Activities: Non-depreciable capital assets: Land Construction in progress Collections Total Non-depreciable Capital Assets 143,587 163,030 34,159 340,776 13,566 157,927 1,223 172,716 $ (522,405) (4,451) (418) (71) (4,940) $ Adjustments & Reclassifications $ 336 (220,141) (219,805) Ending Balance $ 153,038 100,398 35,311 288,747 Depreciable capital assets: Buildings Improvements other than buildings Equipment Infrastructure Total Depreciable Capital Assets 3,101,431 3,601 1,143,858 305,975 4,554,865 126,221 109,225 10,789 246,235 (6,476) (43,087) (291) (49,854) 210,162 (1) 9,745 219,906 3,431,338 3,600 1,209,996 326,218 4,971,152 Less accumulated depreciation for: Buildings Improvements other than buildings Equipment Infrastructure Total Accumulated Depreciation (1,123,046) (2,251) (792,684) (96,125) (2,014,106) (105,768) (134) (76,938) (10,491) (193,331) 2,624 39,448 165 42,237 18 (16) 2 (1,226,172) (2,385) (830,174) (106,467) (2,165,198) 2,540,759 52,904 (7,617) 219,908 2,805,954 $ 2,881,535 $ 225,620 103 $ 3,094,701 Total Depreciable Capital Assets, Net Total Business-type Activities Capital Assets, Net - 87 - $ (12,557) $ STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 Refer to Note 8.B. for explanation of Business-type Activities restatement. 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 $ 22,831 21,093 1,591 564 50,186 16,962 8,383 121,610 $ Depreciation expense was charged to business-type activities as follows (expressed in thousands): Lottery Industrial Commission Special Fund Universities Other Total Business-type Activities $ $ 260 1,232 189,951 1,888 193,331 NOTE 5. RETIREMENT PLANS AND OTHER POST-EMPLOYMENT BENEFITS 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. A. PARTICIPATING EMPLOYERS The number of participating government employers as of June 30, 2007 is shown below: Employer Cities and towns Counties and county agencies State Special districts School districts Charter schools Community college districts Dispatchers ASRS 76 15 1 85 235 172 10 - PSPRS 134 24 1 51 - EORP 21 15 1 - CORP 13 1 6 B. CONTRIBUTIONS, BENEFITS, AND REFUND PAYMENTS The ASRS 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. Benefit and refund payments are recognized when due and payable in accordance with the terms of the retirement health benefit supplement and long-term disability plan. PSPRS, EORP, and CORP financial statements are prepared using the accrual basis of accounting. Member and employer contributions are recognized when due, pursuant to formal commitments, as well as statutory or contractual requirements. Pension and health insurance subsidy benefits are recognized when due and payable in accordance with the terms of the Plan. Refunds are due and payable by state law within 20 days of receipt of a written application for a refund. Refunds are recorded when paid. - 88 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 C. 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, 2007, active ASRS members and the State were each required by statute to contribute at the actuarially determined rate of 9.10% (8.60% retirement and 0.50% long-term disability) of the members’ annual covered payroll. The State’s contributions to the ASRS for the years ended June 30, 2007, 2006, and 2005 were $171.613 million, $128.575 million, and $93.148 million, respectively, for the primary government which were equal to the required contributions for these years. 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 18.55% of the members’ annual covered payroll, as determined by actuarial valuation. The State’s contributions to EORP for the years ended June 30, 2007, 2006, and 2005 were $1.953 million, $2.140 million, and $1.010 million, respectively, which were equal to the required contributions for these years. Agent plans – For the year ended June 30, 2007, 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 7.84 – 30.40%. 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 4.33 – 4.66%. D. 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, 2007, 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 7.84 – 30.40% 7.65% $19,993 $19,993 6/30/05 projected unit credit 4.33 – 4.66% 8.50% $17,494 $17,494 6/30/05 projected unit credit 8.50% 5.50 – 8.50% 5.00% None level percent open 30 years smoothed market value 8.50% 5.50 – 8.50% 5.00% None level percent open 30 years smoothed market value E. 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): PSPRS CORP Contributions Required and Contributions Made Fiscal Year Annual Pension Percentage of Ended Cost (APC) APC Contributed 6/30/07 $19,993 100% 6/30/06 15,878 100% 6/30/05 6,442 100% 6/30/07 6/30/06 6/30/05 17,494 17,472 12,754 100% 100% 100% - 89 - Net Pension Obligation $ 0 0 0 0 0 0 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 F. 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 four 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), or the ASRS. The ASRS is a defined benefit plan and the other three plans are defined contribution plans. The three 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. In a defined contribution plan, benefits depend solely on amounts contributed to the plan plus investment earnings. Contributions made by employees vest immediately and the Universities’ contributions vest no later than after five years of full-time employment. Employees and Universities’ contributions and associated returns earned on investments may be withdrawn starting upon termination of employment, death, or retirement. The distribution of employee contributions and associated investment earnings are made in accordance with the employee’s contract with the applicable insurance and annuity company. Universities’ contributions and associated investment earnings must be distributed to the employee in the form of an annuity paid over the employee’s life. The Arizona State Legislature establishes and may amend active plan members’ and the Universities’ contribution rates. For the year ended June 30, 2007, 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 8.16% contribution for the ASRS defined contribution plan. Contributions to these plans for the year ended June 30, 2007, were as follows (expressed in thousands): Plan TIAA/CREF VALIC Fidelity ASRS University Contributions $ 29,529 3,215 10,978 100 Employee Contributions $ 29,529 3,215 10,978 85 Total Contributions $ 59,058 6,430 21,956 185 G. POST-EMPLOYMENT BENEFITS In addition to the pension benefits described, the ASRS administers the Health Benefit Supplement Fund (HBS) and the Long Term Disability Fund, which are defined benefit cost-sharing, multiple-employer post-employment benefit plans. Although the assets of the HBS plan are commingled with assets of the Retirement Fund, each plan’s assets may be used only for the payment of benefits to the members of the plan, in accordance with terms of the plan. 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. The employees and member employers each contributed .50% of compensation in FY 2007. 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 are eligible for health insurance benefits through the ASRS. As of June 30, 2007, approximately 53,970 coverage agreements currently exist for retired and disabled members and their dependents. 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 Program. This assistance is provided to those members who elect group coverage through either the Retiree Group Insurance Program or their former member employer. In FY 2007 the employer’s retirement contribution of 8.60% of compensation included 1.05% for the Health Premium Insurance Supplement. The amount of the monthly subsidy the ASRS provides to 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 area of the State where no health maintenance organization is available. - 90 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 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 $470. The ASRS, as the employer, made contributions to the Health Benefit Supplement Fund and the Long Term Disability Fund in the amounts of $118 thousand and $51 thousand, respectively for FY 2007. The contributions were equal to the required contributions. The projected unit credit method is the actuarial cost method used in the valuations for the funding requirements. 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. In addition to pension benefits described, the PSPRS, the CORP, and the EORP offer a health insurance premium subsidy. For the PSPRS and the CORP, the subsidy program is an agent, multi-employer defined benefit post-employment plan. For the EORP, the subsidy program is a cost-sharing, multiple-employer defined benefit post-employment plan. The subsidized health benefits are provided and administered by the ASRS, Arizona Department of Administration or the participating employer of the retired member. The PSPRS, the EORP, and the CORP do not administer a separate healthcare plan as defined under IRC § 401(h) or an equivalent agreement. In addition, the PSPRS, the EORP, and the CORP are not statutorily authorized to maintain a separate account for the health insurance subsidy assets and benefits payments. Therefore, in accordance with GASB Statement No. 43, the health insurance subsidy is reported as an agency fund. All assets of the PSPRS, the EORP, and the CORP are available to pay both pension benefits and the health insurance subsidy. The health insurance subsidy is funded through employer contributions based on an annual actuarial valuation determined using the projected unit credit actuarial funding method. Contributions are separately accounted for by the employer but are not segregated by contribution type. Contributions in excess of the health insurance subsidy payments are reported in the pension plan. Therefore, no accumulated assets or liabilities to participating employers are reported in the agency fund. Pursuant to ARS §38-857 and ARS §38-906 for the PSPRS and the CORP, respectively, the fund manager shall pay part of the single or family coverage premium of any group health insurance for each retired member or survivor of the PSPRS and the CORP who receives a pension and who has elected to participate in the coverage provided or administered by a participating employer of the PSPRS or the CORP. The amount of the subsidy provided to retired participants is dependent upon 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 area of the State where no health maintenance organization is available. The amount of the monthly subsidy paid on a member’s and their dependents’ behalf toward the cost of group health insurance by the PSPRS and the CORP ranges from $100 to $470. Pursuant to ARS §38-817 for the EORP, the benefit description is the same as the PSPRS and the CORP, except the retired member must have eight or more years of credited service to receive the full benefit. Those retired members who had between five and eight years of credited service will receive a proportionate share of the subsidies. 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 $1.2 billion. During the year, Highway Revenue Bonds totaling $325.000 million were issued to finance portions of the Transportation Board’s Five Year Transportation Facilities Construction Program and pay the costs of issuing the bonds. The Highway Revenue Bonds are secured by a prior lien on and a pledge of motor vehicle and related fuel fees and taxes. On September 21, 2006, House Bill 2206, Chapter 284, became effective and eliminated the restriction that limited the principal amount of the Highway Revenue Bonds that could be outstanding at any time to $1.3 billion. Also during fiscal year 2007, the - 91 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 ADOT received legislative authority to begin issuing Highway Revenue Bonds with maturities of up to 30 years in length, replacing the 20 year maturity requirement that has been in place since 1980. 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. There were no Transportation Excise Tax Revenue Bonds issued in prior years and outstanding at the start of the fiscal year or issued during the fiscal year. 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, 2007 totaled $212.880 million. 2. School Facilities Board In prior fiscal years, the SFB 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 SFB at June 30, 2007 totaled $446.680 million. 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 semi-annually. 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 is secured by a pledge of tuition and fees, sales and services, auxiliary enterprises, and other charges. On April 12, 2007, the U of A sold System Revenue Bonds Series 2007 (2007 Bonds) for $31.010 million dated April 1, 2007. The 2007 Bonds include $23.570 million of serial bonds with interest rates ranging from 4.00% to 5.00% and maturity dates ranging from 2008 to 2028. The 2007 Bonds also include a term bond consisting of $7.440 million with an interest rate of 4.375% due June 1, 2032. The 2007 Bonds with maturity on or after June 1, 2018 are subject to optional redemption without premium. The 2007 Bonds with maturity on June 1, 2032 are subject to mandatory sinking fund redemption without premium pursuant to the debt documents. The 2007 Bonds sold at a discount of $55 thousand. The U of A realized net proceeds of $30.600 million after payment of $355 thousand for issuance costs, underwriter discounts, and bond insurance. The net proceeds were used to finance the Intercollegiate Athletics Facilities Project, the Law Commons Project, and the Residence Life Building Renewal Phase IIA and IIIA Project. 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, 2007, the outstanding principal balance of the refunded bonds was $3.695 million, which will be paid by investments held in an irrevocable trust with a fair value of $3.745 million. Accordingly, the trust account assets and liability for these defeased bonds are not included in the accompanying financial statements. In fiscal year 2005, the U of A refunded, in advance of maturity, a portion of outstanding System Revenue Bonds Series 1998 and the remaining portion of System Revenue Bonds Series 2000A. At June 30, 2007, the total outstanding principal balance of the refunded bonds was $28.285 million, which will be paid by investments held in an irrevocable trust with a total fair value of $29.307 million. Accordingly, the trust account assets and liability for these defeased bonds are not included in the accompanying financial statements. - 92 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 b. Northern Arizona University On December 12, 2006, the NAU sold System Revenue and Refunding Bonds Series 2006 (2006 Bonds) for $42.260 million dated December 1, 2006. The 2006 Bonds include $20.600 million of serial bonds with interest rates ranging from 4.00% to 5.00% and maturity dates ranging from June 1, 2008 to June 1, 2027. The 2006 Bonds also include $21.660 million of term bonds, with an interest rate of 4.50% and maturing on June 1, 2031 and 2034 and are subject to annual sinking fund contributions. The bonds maturing on or after June 1, 2018 are subject to optional redemption without premium on June 1, 2017. The 2006 Bonds were sold with net original issue premium of $1.803 million and had accrued interest of $110 thousand. The NAU realized net proceeds of $43.713 million after payment of $460 thousand for issuance costs, underwriter discounts, and bond insurance. The costs associated with this issue were recorded in the current fiscal year. The 2006 Bonds have an average interest rate of 4.68%, and the refunded portion of the Series 2002 System Revenue Bonds and the Series 2003 System Revenue Bonds had average interest rates of 5.00% and 5.50%, respectively. Although the recognition of the difference between the reacquisition price and the net carrying amount of the old debt of $1.194 million, which was reported in the financial statements as a deferred charge for the year ended June 30, 2007, the NAU reduced its aggregate debt service payments by $3.658 million over the next 27 years and obtained an economic gain (i.e., the difference between the present values of the old and new debt service payments) of $2.266 million. The proceeds were used to refund $17.410 million of the Series 2002 Bonds and $23.720 million of the Series 2003 Bonds. 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 accompanying financial statements. At June 30, 2007, $41.245 million of such bonds outstanding are considered defeased. c. Arizona State University At June 30, 2007, the ASU held a combination of fixed and variable rate bonds. The 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 the ASU were defeased through advance-refunding 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 the accompanying financial statements. The principal amount of all such bonds outstanding at June 30, 2007 was $46.900 million. The ASU has outstanding two series of variable rate demand system revenue bonds, Series 2003A and 2003B, totaling $103.000 million, with final maturities of July 1, 2034. 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 ABOR on behalf of the ASU, to a different or alternate adjustable rate mode, or a fixed rate pursuant to the bond indenture. The interest rate in effect on June 30, 2007 was 3.70% for the Series 2003A bonds and 3.72% 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 ASU 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, the 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. The ASU is in the process of terminating the current Standby Purchase Agreement and entering into a new agreement. Effective January 1, 2007, the ASU entered into a swap agreement on $103.000 million, notional amount, relating to the 2003 variable rate demand system revenue bonds (2003 Bonds). The $103.000 million in bond principal is not exchanged; it is only the basis on which the interest payments are calculated. The notional amount under the swap decreases as principal payments are made on the 2003 Bonds so the notional amount equals the principal outstanding under the bonds. The intention of the swap is to effectively change the variable rate interest on the 2003 Bonds to a fixed rate of 3.91%. The swap agreement expires on July 1, 2034. Under the terms of the swap agreement, the ASU pays the counterparty interest calculated at a fixed rate of 3.91% and - 93 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 receives payments from the counterparty based on the BMA Municipal Swap Index that is set weekly. The BMA rate at June 30, 2007 was 3.73%. At June 30, 2007, the synthetic fixed interest rate on the bonds is shown below: Interest Rate Swap Fixed payment to counterparty Variable payment from counterparty Net interest rate swap payments Variable-rate bond coupon payments Synthetic fixed interest rate on bonds Terms Fixed BMA Spread to BMA Rates (%) 3.91 (3.73) .18 3.71 3.89 As of June 30, 2007, the swap had a fair value of $2.722 million, which represents the cost to the counterparty to terminate the swap. The fair value was developed by an independent third party, with no vested interest in the transaction, using the zerocoupon discounting method. This method calculates the future payments required by the swap, assuming the current forward rates implied by the yield curve are the market’s best estimate of future spot interest rates. These payments are then discounted using the spot rates implied by the current yield curve for a hypothetical zero-coupon rate bond due on the date of each future net settlement on the swaps. As of June 30, 2007, the ASU was exposed to credit risk of the counterparty on the termination payment because the swap had a positive fair value. The swap counterparty was rated AA- by Fitch and Standard & Poor’s and Aa3 by Moody’s Investor Services as of June 30, 2007. Based on current ratings, the counterparty was not required to provide collateral. In the event a rating downgrade occurs, the counterparty may be required to provide collateral if the ASU’s overall exposure exceeds predetermined levels. Collateral may be held by the ASU or a third party custodian. The swap exposes the ASU to basis risk should the weekly BMA rate paid by the counterparty fall below the weekly interest rate due on the bonds which is also a variable rate with a spread to BMA. This basis risk can be the result of a downgrade of the ASU’s rating or the pricing of the ASU’s bonds by the remarketing agents at rates higher than the BMA index. The ASU continues to pay interest to the bondholders at the variable rate provided by the bonds. However, during the term of the swap agreement, the ASU effectively pays a fixed rate on the debt. If a default occurs regarding the swap agreement, the nondefaulting party may designate a date to terminate the agreement. The ASU will revert to a variable rate if the counterparty defaults or if the swap is terminated. A termination of the swap agreement may also result in the ASU making or receiving a termination payment. In February 2007, the ASU issued $76.260 million in system revenue bonds at an average interest rate of 4.46%. The bonds were issued primarily to fund classroom and laboratory renovations and deferred maintenance, infrastructure upgrades, land acquisition, site preparation, and construction of a new University Police Department facility. The bonds were issued at a premium with a net addition of $2.100 million for bond premium, underwriting fees, and other issuance costs. Securities and cash restricted for bond debt service held by the trustee at June 30, 2007 totaled $24.200 million. The ASU has pledged portions of its gross revenues towards the payment of debt related to various system revenue bonds outstanding at June 30, 2007. These pledged revenues include student tuition and fees, certain auxiliary enterprise revenue, investment income, and indirect cost recovery revenue. Pledged revenues do not include state appropriations, gifts, endowment income, or other restricted revenues. The ASU presently plans to issue approximately $33.000 million in system revenue bonds during fiscal year 2008. - 94 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 Summary of Revenue Bonds The following schedule summarizes revenue bonds outstanding at June 30, 2007 (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, 2007 Dates Issued Maturity Dates 1994-2007 2001-2006 2008-2026 2008-2021 3.40-6.00% .14-5.75% $1,490,600 838,240 1992-2007 2008-2040 2.50-6.50% 868,565 Principal and interest debt service payments on revenue bonds outstanding at June 30, 2007 are as follows (expressed in thousands): Annual Debt Service Governmental Activities Fiscal Year 2008 2009 2010 2011 2012 2013-2017 2018-2022 2023-2027 2028-2032 2033-2037 2038-2042 Total Total Principal $ 108,925 114,715 121,080 127,520 134,220 788,525 726,255 207,600 $ 2,328,840 Total Interest $ 117,001 111,407 105,790 99,277 92,528 351,602 144,443 22,719 $ 1,044,767 Business-type Activities Total Principal $ 47,865 46,215 49,820 52,035 41,560 238,145 145,825 117,715 84,200 42,740 2,445 $ 868,565 Total $ 225,926 226,122 226,870 226,797 226,748 1,140,127 870,698 230,319 $ 3,373,607 Total Interest $ 41,744 37,844 35,449 32,978 30,467 117,913 71,298 41,074 18,424 3,453 244 $ 430,888 Net Payments on Swap Agreement at .18% $ 186 186 186 183 178 823 685 509 284 38 $ 3,258 Total 89,795 84,245 85,455 85,196 72,205 356,881 217,808 159,298 102,908 46,231 2,689 $ 1,302,711 $ 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 $325.430 million. Grant Anticipation Notes currently outstanding are as follows (expressed in thousands): Grant Anticipation Notes Outstanding Governmental Activities: Department of Transportation Dates Issued Maturity Dates Interest Rates 2001-2005 2008-2016 2.50-5.25% - 95 - Outstanding Balance at June 30, 2007 $ 282,860 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 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 Fiscal Year 2008 Governmental Activities Total Total Principal Interest $ 36,565 $ 13,300 Total Debt Service $ 49,865 2009 29,990 11,832 2010 31,350 10,468 41,822 41,818 2011 32,785 9,034 41,819 2012 34,360 7,461 41,821 2013-2017 117,810 12,613 130,423 Total $ 282,860 $ 64,708 $ 347,568 C. CERTIFICATES OF PARTICIPATION Governmental Activities 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. 2. School Facilities Board In prior fiscal years, the SFB refinanced various COPs through advance-refunding arrangements. Under the terms of the refundings, sufficient assets to pay all principal, redemption premiums, if any, and interest on the refunded COPs have been placed in irrevocable trust accounts at commercial banks and invested in U.S. 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 COPs are not reflected in the accompanying financial statements. Refunded COPs for the SFB at June 30, 2007 totaled $311.130 million. Business-Type Activities 3. University of Arizona On April 17, 2007, the U of A issued Refunding COPs Series 2007A, 2007B, and 2007D (2007A-D) for $12.035 million, $50.150 million, and $42.895 million, respectively, dated April 1, 2007 at a net discount of $1.684 million. The 2007A-D COPs consist of $105.080 million of serial and term certificates with interest rates ranging from 3.50% to 4.50% and maturity dates ranging from 2009 to 2031. The 2007D COPs include three term certificates consisting of $7.440 million due June 1, 2024, $8.370 million due June 1, 2027, and $12.800 million due June 1, 2031, all with an interest rate of 4.00%. The 2007A-D Certificates maturing on or after June 1, 2018 are subject to optional redemption prior to maturity without premium. The 2007D Certificates maturing on June 1, 2024, June 1, 2027, and June 1, 2031 are subject to mandatory sinking fund redemption in part on June 1 of the years 2022 through 2031 without premium. There are also extraordinary redemption dates pursuant to the debt instruments. - 96 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 The U of A realized net proceeds from the 2007A-D COPs of $104.241 million after payment of $1.300 million for issuance costs, underwriter discounts, and insurance. The U of A contributed $2.145 million toward the refunding. The net proceeds and U of A’s contributed funds were used for the following: • Refund in advance a portion of the outstanding principal on the COPs Series 2001A, 2001B, and 2002A totaling $59.195 million. The advance-refunding generated a combined net present value economic gain of $2.060 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 $1.548 million in year one, $39 thousand in year two, and $300 thousand in year three. In addition, annual debt service decreases by an average of $27 thousand in years four through ten and by an average of $4 thousand in years eleven through nineteen. The advance refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $3.315 million. This difference, reported in the accompanying financial statements as a deduction from long-term debt, is being amortized to interest expense through the year 2025 using the straight-line method. The refunded COPs Series 2001A, 2001B, and 2002A will be paid by investments held in an irrevocable trust with a combined fair value of $61.139 million. Accordingly, the trust account assets and liability for these defeased COPs are not included in the accompanying financial statements. • Current-refund the variable rate COPs Series 2004B with an outstanding principal balance of $41.400 million. At the time of the refunding, the effective rate of the refunded 2004B variable rate COPs was 3.69% and the maximum annual interest rate could not exceed 12.00%. Depending on what the future changes might have been in the variable rates of the refunded 2004B COPs, the difference in debt service payments resulting from changes in variable interest rates compared to 2007D COPs’ average fixed interest rate of 4.00% over the next 24 years is ($2.393 million) to $62.528 million. The difference between the present values of the old and new debt service payments results in a range of an economic loss of $107 thousand to an economic gain of $3.254 million. The current refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $608 thousand. This difference, reported in the accompanying financial statements as a deduction from long-term debt, is being amortized to interest expense through the year 2031 using the straight-line method. In fiscal year 2003, the U of A refunded, in advance of maturity, a portion of outstanding COPs Series 2001B. At June 30, 2007, the outstanding principal for the COPs Series 2001B was $4.645 million, which will be paid by investments held in an irrevocable trust with a fair market value of $4.675 million. Accordingly, the trust account assets and liability for these defeased COPs are not included in the accompanying financial statements. In fiscal year 2005, the U of A refunded, in advance of maturity, a portion of outstanding COPs Series 1999 and 2001A. At June 30, 2007, the total outstanding principal balance for the COPs Series 1999 and 2001A was $22.740 million, which will be paid by investments held in an irrevocable trust with a fair value of $23.563 million. Accordingly, the trust account assets and liability for these defeased COPs are not included in the accompanying financial statements. In fiscal year 2006, the U of A refunded, in advance of maturity, a portion of outstanding COPs Series 1999A and 1999. At June 30, 2007, the total outstanding principal balance for the COPs Series 1999A and 1999 was $3.290 million, which will be paid by investments held in an irrevocable trust with a fair value of $3.346 million. Accordingly, the trust account assets and liability for these defeased COPs are not included in the accompanying financial statements. 4. Arizona State University At June 30, 2007, the ASU has issued fixed rate COPs. The ASU’s non-bonded debt consists of various issues of COPs that are generally callable at a prescribed date with interest payable semi-annually. Certain COPs of the ASU have been 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 COPs are not included in the accompanying financial statements. The principal amount of all such COPs outstanding at June 30, 2007 was $65.400 million. In December 2006, the ASU issued $65.890 million of refunding COPs, with an average interest rate of 4.15% to refund a portion of the outstanding 2002 COPs totaling $65.400 million with an average interest rate of 4.75%. The net proceeds of $70.800 million, after the net addition of $4.900 million for 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 2014 through 2026 maturities of the 2002 COPs on July 1, 2012. The refunded debt is considered defeased and related liabilities are not included in the accompanying financial statements. The issuance of the refunding COPs at a lower interest rate than the rate for the refunded debt resulted in a $2.900 million reduction in future debt service payments, with an economic gain of $2.300 million based upon the present value savings. Securities and cash restricted for COP debt service held by the trustee at June 30, 2007 totaled $14.200 million. - 97 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 A summary of the COPs issued as of June 30, 2007 is as follows (expressed in thousands): Project Governmental Activities: Department of Administration: Refunding Certificates of 92A, 92C, & 1091 Health Lab/HRIS 2002A Refunding Certificates of 92B Refunding Certificates of 93B 1000 Bed Prison 2004B School Facilities Board: New School Construction 2003A New School Construction 2003B New School Construction 2004A New School Construction 2004B New School Construction 2004C Refunding Certificates of 2003A Refunding Certificates of 2003B Refunding Certificates of 2004B Total Governmental Activities: Business-Type Activities: Arizona State University: Towers Project Downtown Center – 1999A Downtown Center – 1999B 2002 Certificates of Participation 2004 West Campus – Refunding 2004 Certificates of Participation 2005A Certificates of Participation 2006 Certificates of Participation 2006 Refunding Certificates of Participation University of Arizona: Fixed Student Union A Parking Garage/Residence Hall Park Student Union/Ln Svcs/6th St Gar/TEP Bldg. 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 1994A Refund COPS 1999A Refund COPS 1999 Refund COPS 2001A Refund COPS 1999, 1999A&B, 2000A, 2001A&B, 2002A&B, 2003A&B, 2004A Refund COPS 1999A&B, 2000A, 2001A&B, 2002A&B, 2003A&B, 2004A Biomed Rsch Collab Bldg. Project Refund COPs 2001A&B, 2002A, 2004B Northern Arizona University: 2004 Certificates of Participation 2005 Certificates of Participation 2006 Certificates of Participation Total Business-Type Activities: Total Certificates of Participation Issue Date Final Maturity Date 2001 2002 2003 2004 2004 2012 2023 2011 2012 2019 2003 2004 2004 2005 2005 2005 2005 2005 2014 2015 2019 2017 2020 2018 2019 2020 Original Amount Issued $ $ 372,730 194,610 47,160 190,040 47,585 201,125 80,055 53,045 1,431,535 4,500 5,620 5,165 103,800 22,495 80,275 110,115 15,810 65,890 $ $ $ Interest Rates 27,120 48,970 54,045 11,580 28,510 4.00 – 5.25 4.00 – 5.50 3.13 – 5.50 3.00 – 5.00 3.00 – 5.25 143,840 104,475 41,595 121,910 45,195 200,390 79,355 52,880 959,865 2.75 – 5.00 2.25 – 5.25 2.00 – 5.00 3.50 – 5.25 3.00 – 5.00 2.50 – 5.00 2.50 – 5.00 2.50 – 5.00 1,500 4,780 4,575 27,760 17,130 80,275 110,115 15,810 65,890 6.89 5.75 8.00 4.75 2.36 4.89 4.36 4.52 4.15 1991 1999 1999 2002 2004 2005 2005 2006 2007 2011 2025 2025 2027 2010 2031 2031 2031 2027 1999 1999 2001 2001 2002 2002 2003 2004 2020 2009 2012 2014 2022 2023 2022 2031 21,607 18,635 31,695 21,425 76,965 29,845 10,615 153,960 3,777 345 3,565 2,185 23,580 28,320 10,615 151,315 5.13 – 5.30 5.00 4.00 – 4.45 4.75 – 5.00 4.13 – 5.50 3.10 – 5.13 3.50 – 5.00 2.62 – 5.25 2004 2005 2005 2005 2029 2024 2024 2022 42,020 12,660 14,825 16,330 39,380 12,660 14,825 16,330 3.60 – 5.25 4.00 – 5.00 5.00 4.13 – 5.00 2006 2025 29,460 28,500 3.25 – 5.00 2006 2006 2007 2025 2031 2031 58,650 18,240 105,080 58,290 18,240 105,080 3.63 – 5.00 4.00 – 5.00 3.50 – 4.50 2005 2006 2006 2030 2030 2030 $ 37,585 40,255 12,445 935,127 2.50 – 5.00 3.00 – 5.00 4.00 – 4.50 $ 37,585 40,255 12,445 1,165,967 $ 2,597,502 $ 1,894,992 - 98 - $ 57,930 63,270 75,295 16,725 31,965 Outstanding Balance STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 Principal and interest debt service requirements on COPs outstanding at June 30, 2007 are as follows (expressed in thousands): Annual Debt Service Governmental Activities Fiscal Year Total Principal 2008 $ Total Interest 63,215 2009 Business-type Activities Total Amount Required $ 65,805 45,202 42,417 $ Total Principal 108,417 $ 108,222 31,470 Total Interest $ 31,210 43,156 Total Amount Required $ 74,626 41,620 72,830 72,603 2010 68,580 39,425 108,005 32,315 40,288 2011 71,680 36,120 107,800 28,605 39,186 67,791 2012 75,265 32,530 107,795 34,802 38,433 73,235 2013-2017 434,070 101,741 535,811 203,379 165,293 368,672 2018-2022 178,975 10,724 189,699 257,846 109,945 367,791 2023-2027 2,275 58 2,333 186,540 52,468 239,008 2028-2032 Total $ 959,865 $ - - 308,217 $ 1,268,082 128,960 $ 935,127 12,662 $ 543,051 141,622 $ 1,478,178 D. LEASES 1. Leases The State has entered into capital lease agreements for the acquisition of buildings, telephone systems, copy machines, and other equipment. Capital lease 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. • The lease term is equal to 75.00% or more of the useful life 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 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.) - 99 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 The future minimum lease payments for long-term capital leases as of June 30, 2007 are summarized below (expressed in thousands): Annual Debt Service Governmental Fiscal Year 2008 $ Activities 27,706 2009 $ 14,171 28,872 12,432 2010 27,874 11,573 2011 25,958 11,403 11,172 2012 25,636 2013-2017 115,466 50,865 2018-2022 103,142 48,397 2023-2027 96,536 49,490 2028-2032 4,620 50,799 19,662 2033-2037 - 2038-2042 - 2,967 2043-2047 - 1,784 Total minimum lease payments Less: amount representing interest Less: amount representing executory costs Obligations under Capital Leases 2. Business-type Activities $ 455,810 284,715 (118,948) (117,935) (94,653) - 242,209 $ 166,780 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 (expressed in thousands): Land Governmental Business-type Activities Activities $ 6,513 Construction in progress Buildings 1,025,219 - 53,762 Infrastructure Less: accumulated depreciation Carrying Value $ 5,684 442,825 Improvements other than buildings Equipment $ - 3,653 - 69,314 24,848 522,305 1,109,513 (138,451) (89,442) 383,854 $ 1,020,071 E. LITIGATION The Ladewig vs. Arizona Department of Revenue and the Kerr vs. Killian lawsuits have been settled as of June 30, 2007, and therefore no liability is reported in the accompanying financial statements. The State paid these settlements 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 2007, the State paid for compensated absences as follows: 83.39% from the General Fund, 10.61% from other funds, and 6.00% from other major funds. - 100 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 G. CHANGES IN LONG-TERM OBLIGATIONS The following is a summary of changes in Long-Term Obligations (expressed in thousands): Balance July 1, 2006 Increases $ 2,106,700 $ 325,000 - $ 2,328,840 325,430 - (42,570) - 282,860 36,565 246,295 1,020,810 - (60,945) - 959,865 63,215 896,650 129,808 123,721 (11,320) - 242,209 12,746 229,463 6,815 9,264 (5,435) - 10,644 4,324 6,320 - 3,309 - - 3,309 3,309 - Premiums and discounts on debt 219,958 26,201 (21,088) - 225,071 21,649 203,422 Deferred amounts on refundings (17,832) - 3,566 - (14,266) (3,566) (10,700) 3,791,689 487,495 (240,652) - 4,038,532 247,167 3,791,365 134,346 241,528 (224,289) - 151,585 143,271 8,314 Decreases Reclassifications Balance June 30, 2007 Due Within One Year Due Thereafter Governmental Activities: Long-term Debt: Revenue bonds Grant anticipation notes Certificates of participation Capital leases Installment purchase contracts Notes payable Total Long-term Debt $ (102,860) $ $ 108,925 $ 2,219,915 Other Long-term Liabilities: Compensated absences Ladewig vs. Arizona Department of Revenue Settlement 76,116 - (76,116) - - - - Kerr vs. Killian Settlement 15,000 - (15,000) - - - - 225,462 241,528 (315,405) - 151,585 143,271 8,314 $ 4,017,151 $ 729,022 $ (556,056) $ - $ 4,190,117 $ 390,438 $ 3,799,679 $ $ $ - $ $ Total Other Long-term Liabilities Total Long-term Obligations Business-type Activities: Long-term Debt: Revenue bonds 802,600 $ 149,530 Certificates of participation 946,766 171,146 Capital leases 113,388 10,279 Installment purchase contracts Notes payable Premiums and discounts on debt Deferred amounts on refundings Total Long-term Debt (83,565) 868,565 (182,785) - 935,127 61,220 (6,474) (1,354) 1,582 (2,317) - - - - 38,331 8,611 (7,360) (21,606) (10,088) 1,889,758 382,001 47,865 $ 820,700 31,470 903,657 166,780 7,567 159,213 9,544 2,336 7,208 1,354 1,354 332 1,022 39,582 1,575 38,007 2,483 - (29,211) (1,892) (27,319) (280,018) - 1,991,741 89,253 1,902,488 Other Long-term Liabilities: Compensated absences Total Other Long-term Liabilities Total Long-term Obligations 62,835 71,998 (70,267) - 64,566 9,998 54,568 62,835 71,998 (70,267) - 64,566 9,998 54,568 $ 1,952,593 $ 453,999 - $ 2,056,307 99,251 $ 1,957,056 $ (350,285) $ $ 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 $8.551 million of capital leases and $11.692 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. - 101 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 NOTE 7. INTERFUND TRANSACTIONS INTERFUND BALANCES AND TRANSFERS Interfund Receivables/Payables Interfund balances as of June 30, 2007 are as follows (expressed in thousands): Due To Due From General Fund General Fund $ - Transportation & Aviation Planning, Highway Maintenance & Safety Fund $ - 70,271 330 9,091 2 19,852 154,538 794 $ 254,878 20,000 1 20,001 Land Endowments Fund $ 367 Non-Major Non-Major Governmental Enterprise Funds Funds $ 61,022 $ 5 Internal Service Funds $ 1,693 Total Due To $ 63,087 466 126 2,285 175,721 13,269 11,056 514 20,701 174,538 924 $ 459,810 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 $ 367 $ $ 6,414 12,939 1,499 512 849 3 83,238 99,036 $ 99,041 $ 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 $33.900 million between the General Fund and the Transportation & Aviation Planning, Highway Maintenance & Safety Fund is not due until fiscal year 2009. Interfund Transfers Transfers for the year ended June 30, 2007 are as follows (expressed in thousands): Transferred To Transferred From General Fund Transportation & Aviation Planning, Highway Maintenance & Safety Fund Land Endowments Fund Non-Major Governmental Funds Unemployment Compensation Fund Lottery Fund Internal Service Funds Total Transfers In General Fund $ Transportation & Aviation Planning, Land Highway Maintenance Endowments & Safety Fund Fund - $ 32,380 310 90,461 17 73,595 2,197 $ 198,960 $ NonMajor Industrial Non-Major Governmental Universities Commission Enterprise Special Fund Funds Funds Fund 246,591 $ 24 $ 70,861 $ 1,600 248,191 $ 24 $ 265,109 68,835 30,684 2,023 25,887 31 463,430 $ 969,880 $ 969,880 $ - $ 8,000 8,000 $ Total Transfers Out - $ 1,287,356 98 98 297,489 69,145 130,843 2,040 99,482 2,228 $ 1,888,583 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. - 102 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 NOTE 8. ACCOUNTING CHANGES AND RESTATEMENTS A. FUND FINANCIAL STATEMENTS Net Assets have been restated as follows (expressed in thousands): Net Assets, as previously reported Change in accounting principle Net Assets, as restated Universities $ 1,823,202 (3,415) $ 1,819,787 B. GOVERNMENT-WIDE STATEMENTS Government-Wide Net Assets have been restated as follows (expressed in thousands): Net Assets, as previously reported Change in accounting principle Net Assets, as restated Business-type Activities of Primary Government $ 2,745,844 (3,415) $ 2,742,429 The change in accounting principle in fiscal year 2007 was due to the NAU increasing its capitalization threshold for equipment from $2,500 to $5,000. NOTE 9. FUND DEFICIT A. INDUSTRIAL COMMISSION SPECIAL FUND The Industrial Commission Special Fund deficit decreased in the amount of $71.123 million from $109.650 million to $38.527 million during fiscal year 2007. The main contributor to the Special Fund deficit continues to be the insolvent carrier liability, which was $264.710 million at June 30, 2007. The Special Fund is responsible for paying all current and future Arizona workers’ compensation claims of insolvent insurance carriers and self-insured plans. Some of the claims expense will be recovered over a period of years as the Special Fund receives liquidation distributions from the insolvent companies. The 2007 calendar year assessments percentage for the State Compensation Fund and privately owned insurance companies that provide workers’ compensation insurance is 2.50%, the largest amount currently authorized in Arizona law. In 2005, ARS §23-1081(B) was amended to permit a surplus in the Industrial Commission Administrative Fund to be transferred to the Special Fund when the Special Fund is not actuarially sound. During fiscal year 2007, $8.000 million was transferred from the Administrative Fund to the Special Fund. B. HEALTHCARE GROUP The Healthcare Group (HCG) incurred an operating loss of $20.701 million in 2007 and $6.137 million in 2006. As of June 30, 2007 the HCG had a fund deficit of $23.740 million. Additionally, current liabilities exceeded current assets by $5.838 million at June 30, 2007. Two factors were the primary contributors to the decrease in net assets in 2007 and 2006. The most significant were the $17.458 million in HMO medical costs in excess of capitation paid (reconciliation costs) for the HMO model insurance contractors in 2007 and the $3.257 million PPO medical expense in excess of PPO premium revenue. In response to the decreases in net assets and liquidity concerns described above, the HCG has implemented the following intensive initiatives: • In March 2007, the HCG introduced a Point-of-Service (POS) plan and began “tiering” its hospital network. When a member requires inpatient or outpatient care from a hospital provider, their coinsurance payment will be dependent - 103 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 upon the level or “tier” of the hospital they choose. Hospitals will be classified into tiers based on the discounts that they offer to the HCG. Members will incur less out of pocket costs if they choose a Tier 1 hospital vs. a Tier 2 or Tier 3 hospital. • Premium, deductible, and co-payment increases were implemented effective September 1, 2007 for new and renewing HMO members, for all health plan options and tiers, with a continued emphasis on increasing the actuarially determined premium rates for groups with one employee, in order to cover the costs of their historically disproportionate consumption of services. • The HCG reviewed and tightened pharmacy formularies and Pharmacy Benefit Managers (PBMs) at one health plan and for the PPO to encourage use of generic and lower cost drugs. • The HCG implemented strategies to mitigate member migration/fall out due to the premium increase, elimination of $0 deductible, and increases to co-payments and coinsurance. • The HCG eliminated 49% of its staff as of February 2008 due to an enrollment freeze passed by the Legislature effective September 19, 2007 – through reengineering of job assignments and duties. • Contract negotiations are underway with the health plans to address increasing medical loss ratios, improve medical management practices, and include incentives for medical management by the health plan. • The HCG is conducting ongoing and concurrent review of premium revenue and plan benefit design for implementation. Management represents that successful implementation of these operating improvements will improve the financial performance of the HCG for fiscal year 2008; however, they anticipate a continued operating deficit of $2.000 - $8.000 million. There can be no assurance that these operating improvements will occur or will provide sufficient cash to fund operating expenses. Additionally, if there is an adverse change in enrollment and the premium increases are not sufficient to fund the reserves for past losses and future medical claims experience costs, then the HCG will be required to further scale back administrative expenditures to the level supported by actual enrollment and/or require a subsidy from the State General Fund to cover these operating costs. There can be no assurances that the Legislature will approve such a subsidy from the State General Fund. Accordingly, the accompanying financial statements have been prepared assuming that the HCG will continue as a going concern. The matters discussed above raise substantial doubt about the HCG’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the HCG be unable to continue as a going concern. C. RISK MANAGEMENT FUND Risk Management Fund (RMF) - The RMF deficit of $299.841 million is primarily due to the RMF receiving annual funding only for expected paid claims (self-insured and excess insurance expenditures, legal and other claim related expenditures, and administrative expenditures), and not being funded for non-current accrued insurance losses. Accrued insurance losses of the RMF are not considered when determining funding for each fiscal year. 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 LBT’s construction costs and annual operating costs. As of June 30, 2007, 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 - 104 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 ended December 31, 2006, assets, liabilities, revenues, and expenses totaled $118.000 million, $3.000 million, $11.000 million, and $4.000 million, respectively. The LBT’s separate audited financial statements can be obtained from the University of Arizona Comptroller at the University of Arizona, Financial Services, P.O. Box 3310, Tucson, AZ 85722-3310. 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 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 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, 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 Commission Special Fund. To provide funding for workers’ compensation claims, the 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 year 2004, this 1.50% assessment was levied under ARS §23-1065(A) because of a deficit net assets balance resulting from an increase in accrued insurance losses due to defunct insurance carriers. AMI Risk Consultants, Inc. was retained to evaluate the medical and compensation related liabilities of the Special Fund as of June 30, 2007. The estimated loss reserve of $401.148 million is $9.095 million lower than the $410.243 million reserve estimate at June 30, 2006. The most significant category of change was the medical and compensation claims that decreased in the amount of $10.631 million from $98.386 million at June 30, 2006 to $87.755 million at June 30, 2007. The reserves were discounted at an assumed rate of three and one-half percent for the compensation claims and zero percent for the medical claims. For medical benefits, it was assumed that the inflation in medical costs will equal the investment return earned by the Special Fund on those reserves. The total of all three assessments for the Industrial Commission Special Fund in 2007 is 2.50%. This includes the 1.50% assessment under ARS §23-1065(A), .50% assessment under ARS §23-966(D), based on the insolvent carrier losses, and .50% assessment under ARS §23-1065(F) based on the total apportionment liability. The 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 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 - 105 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 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, 2006 and June 30, 2007 (expressed in thousands): Fiscal Year Risk Management Fund: 2006 2007 Industrial Commission Special Fund: 2006, as restated 2007 Current Year Claims and Changes in Estimates Beginning Balance $ 301,600 367,200 $ 455,655 410,243 135,364 46,276 (30,570) 15,684 Ending Balance Claims Payments $ 69,764 69,371 14,842 24,779 $ 367,200 344,105 410,243 401,148 B. LITIGATION In Roosevelt Elementary School District No. 66 vs. State of Arizona and Somerton Elementary School District No. 11 vs. State of Arizona, the plaintiffs are seeking a declaration that Arizona’s funding of the Building Renewal Fund for school district capital resources under ARS §15-2031 is unconstitutional. The actions were originally commenced in 1999 and 2002, but they were remanded by the Arizona Court of Appeals after its decision in Roosevelt Elem. Sch. Dist. v. State of Arizona, 205 Ariz. 594, 74 P.3d 258 (App. 2003). On remand, plaintiffs substituted some parties, leaving the plaintiff school districts as Globe Unified School District, Williams Unified School District, and Sierra Vista Unified School District, and discovery recommenced. In October, 2006, the court granted the State summary judgment, finding that the named school districts had failed to seek emergency funding under ARS §15-2022. The court indicated that if the districts proved subsequently that they had sought emergency funding and been rejected, and had exhausted all sources of State funding available to them for their facility needs, they might reinstate their claims. Plaintiff Globe Unified School District is no longer a party. The court later agreed to stay the judgment against plaintiffs through June 1, 2007, and plaintiffs successfully sought even further continuance on the inactive calendar. The State has recommenced discovery, having served written requests for production and interrogatories. The plaintiffs are not seeking damages. However, they are seeking a declaration that would require the State to provide additional funding for building maintenance and renewal needs. The plaintiffs are likely to argue that the Legislature was required to fund according to the Building Renewal Fund Formula, which was ultimately suspended by the Legislature. The formula-calculated amounts that were not funded for just the 1999-2000, 2001-2002, and 2002-2003 fiscal years amounted to almost $186.000 million. 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 in excess of $200.000 million. In Mayer 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 600 rights of way that were issued to governmental entities without appraisal or auction, and without the payment of any compensation. In January 2007, the court granted motions to dismiss on the ground that the plaintiffs’ claims were barred by laches. An appeal was filed and in May 2008, the Court of Appeals, Division II, reversed the trial court dismissal for laches, but determined that the Lassen case, which held that the State must be compensated in money for rights of way across State lands, did not apply retroactively. A petition for review will likely be filed in the Arizona Supreme Court. The State previously moved to dismiss on statute of limitations grounds and for lack of standing and justiciability, but the motion was denied, and on appeal the Court of Appeals rejected the State’s arguments. If a petition for review is filed by the plaintiffs, the State will likely cross-petition on the State’s arguments rejected by the Court of Appeals. The Court of Appeals determined that Lassen does not apply retroactively. Although the State may not agree with the framing of the analysis and the extent of the effect of the ruling, there is a greater probability that there will be some limitation on the application of the Lassen decision. With respect to the State’s other arguments, the State will pursue those positions. 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. - 106 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 In Liquid Titan vs. Arizona Department of Weights and Measures, et al., the plaintiff alleges defamation against the Arizona Department of Weights and Measures (ADWM), the former director, and the current director. The complaint arises from a press release issued by the ADWM relating to fuel quality and record violations. The complaint has been served with discovery. The State has answered the complaint, provided Rule 26.1 disclosure, and has prepared a draft motion for summary judgment. The State’s response is to maintain that there was a reasonable basis of belief of the Director in issuing the press release. The potential outcome is uncertain at this time. If this case were to have an unfavorable outcome, the State could incur losses ranging from $9.200 million to $15.000 million. 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 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. 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. 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 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. Under ARS §41-2407, monies from unclaimed victim restitution payments are deposited in the Victim Compensation and Assistance Fund for the purpose of establishing, maintaining, and supporting programs that compensate and assist victims of crime. The balance is to be deposited in the General Fund. For fiscal year 2007, $2.551 million was deposited in the Utility Assistance Fund, $40.973 million was deposited in the Housing Fund, $14.899 million was deposited in the Racing Fund, $1.250 million was deposited in the Victim Restitution Fund, and $11.704 million was deposited in the General Fund. A total of approximately $491.658 million has been remitted since inception of the fund. The State is also holding securities valued at $55.023 million, and mutual funds of $5.246 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, 2007, this amount, reported as Due to Others in the General Fund, is $125.369 million. E. CONSTRUCTION COMMITMENTS The ADOT had outstanding commitments under construction contracts of approximately $873.795 million at June 30, 2007. - 107 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 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’s, Duff & Phelps, or Weiss. The Lottery remains contingently liable on all annuities. Aggregate future payments to prize winners on existing annuities totaled approximately $126.954 million at June 30, 2007. Approximately $97.439 million of the total aggregate future payments at June 30, 2007 relate to annuities purchased from five separate insurance companies, of which approximately $34.112 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 $90.258 million and $93.353 million in the fund statements and the government-wide statements in fiscal year 2007, 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, 2007. NOTE 13. PUBLIC-PRIVATE PARTNERSHIP The state of Arizona has entered into a partnership agreement with Accenture. The purpose of this partnership is to fund the Department of Revenue’s technology needs. The 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 had created a system that increases the State’s efficiency in collecting tax revenues. As of June 30, 2007, the State has paid Accenture $127.195 million towards the $153.730 million contract cost. Included in the $153.730 million contract cost is capitalized interest charges of $7.000 million and application support charges of $37.877 million. NOTE 14. CONDUIT DEBT During the year ended June 30, 2007, the Greater Arizona Development Authority (GADA) issued $36.520 million Infrastructure Revenue Bonds, Series 2006B for public infrastructure projects in the communities of the Drexel Heights Fire District, the Maricopa Fire District, the City of Show Low, the City of Somerton, the Town of Quartzite, and the Apache Junction Fire District. During the year ended June 30, 2007, the GADA issued $40.145 million Infrastructure Revenue Bonds, Series 2007A for public infrastructure projects in the communities of the City of Apache Junction, the Town of Buckeye, the Northwest Fire District, the Town of Chino Valley, the Town of Eagar, the Town of Parker, the Town of Snowflake, the Chino Valley Fire District, the Golden Ranch Fire District, and the Mayer Fire District. The GADA’s bond structure allows it to lower borrowing costs for Arizona’s communities by issuing and selling bonds as AAA rated tax-exempt debt and by sharing financing costs among several borrowers. Eligible applicants include cities, towns, counties, Indian tribes, and certain special districts. Principal and interest are payable semiannually. Loans are secured by the Pledged Collateral Reserve Fund, a requirement that is calculated and deposited by the GADA from the GADA Fund and an Agreement Reserve Fund, both of which are held by the Trustee. An intercept mechanism of state-shared revenues for political subdivisions enhances the security of the GADA bonds. In 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, 2007, the remaining balance in the appropriations account was $17.771 million including interest earned. Although issued in the name of the GADA, loans funded through the GADA bonds are solely the obligation of the underlying borrowers and are documented by loan repayment agreements. Pursuant to ARS §41-1554.08, the GADA’s bonds do not constitute nor create a general, special, or other obligation or other indebtedness of the State or any governmental unit within the meaning of any constitutional or statutory debt limitation. The bonds do not constitute a legal debt of the State and are not - 108 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 enforceable against the State. The only exposure to the State is related to the restricted net assets of $8.055 million in the Pledged Collateral Reserve Fund. The Series 2006B and 2007A bonds do not constitute a legal debt of the State and are not enforceable against the State. At June 30, 2007, the total outstanding face value of all bonds issued by the GADA was $304.930 million. NOTE 15. SUBSEQUENT EVENTS On November 1, 2006, the State entered into a lease purchase agreement with Arizona Wildlife Finance Corporation (AWFC), for the purpose of construction, occupancy, and ownership of an administrative facility and related parking facilities located in Phoenix, Arizona (the project). The State began occupying the building in November 2007. The first scheduled lease payment of $481 thousand will occur in fiscal year 2008. The lease is not a general obligation or indebtedness of the State. If the State Legislature fails to appropriate monies or there is a failure to renew for any subsequent fiscal period with respect to the project, or the Arizona Game and Fish Department fails to otherwise allocate available monies for any subsequent fiscal period with respect to the project, this lease shall terminate at the end of the then current fiscal period and the State shall be relieved of any subsequent obligation under this lease. The State shall have the right, during the lease term and upon 90 days prior written notice, to purchase the AWFC’s right, title, and interest in the project. On November 1, 2006, AWFC transferred its leasehold interests to Wells Fargo Bank. In July 2007, the NAU issued approximately $38.700 million of System Revenue Bonds for the purpose of constructing a new residence hall and renovation of the NAU dining hall on the mountain campus. These bonds are secured by a first lien on certain gross revenues and are on parity with the Series 2002 System Revenue Refunding Bonds, the Series 1997 System Revenue Bonds, the Series 2002 System Revenue Bonds, the Series 2003 System Revenue Bonds, the Series 2004 System Revenue and Refunding Bonds, the Series 2005 System Revenue Bonds, and the Series 2006 System Revenue and Refunding Bonds. On September 21, 2007, the ADOT adopted a Master Resolution relating to Transportation Excise Tax Revenue Bonds (Maricopa County Regional Area Road Fund). Also on September 21, 2007, the ADOT adopted the First Supplemental Resolution authorizing the issuance of the first series of bonds under the Master Resolution in an amount not to exceed $370.000 million. On November 6, 2007, the ADOT priced $370.000 million in Transportation Excise Tax Revenue Bonds (Maricopa County Regional Area Road Fund) 2007 Series to pay for the costs of design, right-of-way purchase, or construction of certain freeways and other routes within Maricopa County, Arizona and to pay the costs of issuing the 2007 Series Bonds. The 2007 Series Bonds were issued as senior lien bonds and mature from July 1, 2008 through July 1, 2025. Net proceeds totaled $387.404 million (after receipt of $20.429 million reoffering premium and payment of $1.897 million in underwriting fees and costs of issuance). The bonds were rated AA+ and Aa2 by Standard & Poor’s Ratings Services and Moody’s Investors Service, respectively. On October 3, 2007, the SFB issued $82.880 million of State School Trust Revenue Refunding Bonds, Series 2007, with interest rates ranging from 4.00% to 5.00%, and maturity dates ranging from 2015 to 2018. The Series 2007 Bonds will not be subject to redemption prior to their stated maturity dates. The Series 2007 Bonds are being issued to refund and redeem, in advance of maturity, a portion of the Series 2004A State School Trust Revenue Bonds with a total outstanding principal balance of $88.630 million and pay the costs of issuance of the 2007 Series Bonds. The SFB realized net proceeds of $86.547 million after receipt of $5.264 million original issuance premium and payment of $1.597 million for issuance costs. The net proceeds from the sale of the 2007 Series Bonds, together with $12.304 million of cash transferred from the Debt Service Reserve Fund, were deposited into a special trust account with a depository trustee and used to purchase U.S. government securities, the maturing principal 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 January 1, 2008, the ADOT issued Grant Anticipation Notes Series 2008A (the Series 2008A GANs) for $68.000 million, with interest rates ranging from 4.00% to 5.00% and maturity dates ranging from 2012 to 2015. The Series 2008A GANs were issued at a premium. Approximately $71.766 million of the proceeds from the issuance of the Series 2008A GANs will be used to pay a portion of the construction costs of certain controlled-access highways within Maricopa County, Arizona to be constructed by the ADOT, and for which the Series 2008A Grant Agreement has been executed with the Federal Highway Administration. The balance of the proceeds will be used to pay the cost of issuing the Series 2008A GANs. On January 15, 2008, the U of A issued System Revenue Bonds Series 2008A (the 2008A Bonds) for $43.105 million. The 2008A Bonds include $20.915 million of serial bonds with interest rates ranging from 4.00% to 5.00% and maturity dates ranging from 2008 to 2027. The 2008A Bonds also include three term bonds consisting of $5.420 million with an interest rate of 4.25% due June 1, 2030, $6.180 million with an interest rate of 5.00% due June 1, 2033, and $10.590 million with an interest rate of 4.50% due June 1, 2040. The 2008A Bonds maturing on or after June 1, 2019 are subject to optional redemption without - 109 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 premium. The term bonds referred to above are subject to mandatory sinking fund redemption without premium pursuant to the debt documents. The U of A realized net proceeds of $42.713 million, after receipt of an original issue premium of $1.349 million and payment of $1.741 million of underwriters’ discount, bond issuance costs, and a termination payment on an interest rate management agreement. The net proceeds will be used to fund various building, equipment, and infrastructure renovation and renewal projects and to pay the costs of issuance. On April 10, 2008, the U of A issued System Revenue Refunding Bonds Series 2008B (the 2008B Bonds) for $18.090 million. The 2008B Bonds include $18.090 million of serial bonds with interest rates ranging from 3.50% to 4.50% and maturity dates ranging from 2009 to 2018. The 2008B Bonds are not subject to redemption prior to their stated maturity. The U of A realized net proceeds of $18.397 million after receipt of an original issue premium of $489 thousand, and payment of underwriters’ discount and bond issuance costs of $182 thousand. The net proceeds were used to refund, in advance of maturity, a $17.970 million principal portion of the Series 1998 System Revenue Bonds and pay the bond issuance costs. A portion of the net proceeds will be deposited into an irrevocable trust which will acquire government obligations, which, together with the interest earned, will be sufficient to pay all future debt service of the refunded bonds. However, should the monies and interest in the trust be insufficient to pay the refunded bonds’ debt service payments, the U of A will remain liable for the debt service payments of the refunded bonds. On April 30, 2008, the State, through US Bank, NA (US Bank), issued COPs Series 2008A for $238.990 million with interest rates ranging from 3.25% to 5.00% and maturity dates ranging from 2010 to 2028. The Series 2008A COPs maturing on or after September 1, 2018 are subject to optional redemption prior to maturity, without premium. The State realized net proceeds of $238.855 million after receipt of $11.847 million reoffering premium, deposit to US Bank’s Interest Account of $9.205 million capitalized interest, and payment of $2.777 million of bond insurance, underwriter’s discount, and issuance costs. Upon sale of the Series 2008A COPs, US Bank (the trustee bank) immediately withdrew $206.655 million from the Acquisition Fund and purchased the Lewis Prison Complex from the State. The remaining $32.200 million will remain in the US Bank’s Acquisition Fund for the Arizona State Hospital Forensic Unit. The net proceeds from the sale of the Lewis Prison Complex and the remaining issuance proceeds are being used to finance the following: (i) an approximately 4,000 bed prison expansion within the State, (ii) wastewater and water renovations and improvements at prisons throughout the State, and (iii) a new forensic unit and additional infrastructure improvements at the Arizona State Hospital. On May 6, 2008, the ADOT issued Highway Revenue Bonds Series 2008A (the Series 2008A Bonds) for $193.950 million, with interest rates ranging from 4.13% to 5.00% and maturity dates ranging from 2024 to 2034. The Series 2008A Bonds were issued at a premium. The Series 2008A Bonds are subject to redemption, prior to maturity, at the option of the ADOT, on or after July 1, 2018 without premium. Approximately $200.000 million of the proceeds from the issuance of the Series 2008A Bonds will be used to finance portions of the ADOT’s Five-Year Capital Program and pay the costs of issuing the bonds. NOTE 16. DISCRETELY PRESENTED COMPONENT UNIT DISCLOSURES 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. SUMMARY OF SIGNIFICANT ACCOUNTING 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 the UMC, which has elected to apply the provisions of all relevant pronouncements of the FASB, including those issued after November 30, 1989, unless those pronouncements conflict or contradict GASB pronouncements. - 110 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 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 the 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 increases or decreases in net assets 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. 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 - 111 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 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. The investments of the UMC are stated at fair value. b. Custodial Credit Risk - Deposits 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 the outside party. The UMC does not have a formal policy regarding custodial credit risk for deposits. The UMC holds deposits in excess of FDIC limits. At June 30, 2007, uninsured, uncollateralized deposits included in cash and cash equivalents were approximately $18.800 million. 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 WIFA does not have a formal policy regarding interest rate risk. The following table presents the interest rate risk for the WIFA utilizing the segmented time distribution method as of June 30, 2007 (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 $ 25,523 167 1,197 14,444 80,896 62,129 24,895 13,954 4,302 Less than 1 $ 25,523 62,129 - $ 227,507 $ 87,652 - 112 - 1-5 6-10 $ 167 14,444 13,577 24,895 4,302 $ 67,319 - $ 57,385 $ 67,319 More than 10 $ 1,197 13,954 $ 15,151 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 The UMC’s investment policy limits the portfolio duration related to debt securities to the Lehman Brothers Intermediate Government/Credit Index. This is an index based on all publicly issued intermediate government and corporate debt securities with average maturities of four to five years. The following table presents the estimated maturities of the UMC’s investments, utilizing the segmented time distribution method as of June 30, 2007 (expressed in thousands): Investment Maturities (in years) Investment Type Alternative investments Commercial paper Corporate fixed income Guaranteed investment contracts Managed futures Money market mutual funds Structured notes U.S. Treasury securities Other Fair Value $ 1,259 15,527 20,094 4,399 25,967 2,263 17,925 107,484 15,222 $ Total Less than 1 $ 1,259 15,527 25,967 2,263 14,594 210,140 $ 1-5 59,610 More than 10 $ 4,399 - 6-10 $ 20,094 17,925 107,484 - $ 628 $ 145,503 $ 628 $ 4,399 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 WIFA does not have a formal policy regarding 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, 2007 (expressed in thousands): Investment Type Fair Value Commercial paper $ 25,523 AAA AA $ - A $ - A1 $ - $ Not Rated 25,523 $ - Corporate securities 15,808 4,384 4,299 7,125 - Guaranteed investment contracts 80,896 80,896 - - - - Money market mutual funds 62,129 - - - - 62,129 U.S. Agency securities 38,849 37,520 - - 1,329 - $ 223,205 $ 122,800 Total $ 4,299 $ 7,125 $ 26,852 - $ 62,129 The UMC’s investment policy establishes ranges which limit the level of investments held in domestic and international equities, fixed income securities, and alternative investment strategies. Investment in fixed income securities is limited to investment grade securities with a credit rating of BBB, or equivalent, or better. The portfolio of fixed income securities must maintain an average rating of A or better at all times. The following table presents the UMC’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, 2007 (expressed in thousands): Investment Type Alternative investments Fair Value $ 1,259 AAA $ AA - $ A - $ Not Rated - $ 1,259 Commercial paper 15,527 - - - Corporate fixed income 20,094 11,600 - - 8,494 4,399 - - - 4,399 25,967 - - - 25,967 2,263 - - - 2,263 Guaranteed investment contracts Managed futures Money market mutual funds 15,527 Structured notes 17,925 - 15,935 1,990 - Other 15,222 - - - 15,222 Totals $ 102,656 $ 11,600 - 113 - $ 15,935 $ 1,990 $ 73,131 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 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 WIFA’s investment policy contains no limitations on the amount that can be invested in any one issuer. As of June 30, 2007, an investment in Bayerische Landesbank (fair value of $40.586 million) was approximately 17.84% of the WIFA’s total investments, an investment in AIG Matched Funding Corp. (fair value of $25.153 million) was approximately 11.06% of the WIFA’s total investments, and an investment in Royal Bank of Canada (fair value $15.158 million) was approximately 6.66% of the WIFA’s total investments. f. Foreign Currency Risk The UMC’s investment policy permits it to invest a portion of its holdings in international equities and both international alternative and managed future investments. The UMC’s current holdings in international securities totaled approximately $35.384 million or 32.64% of total investments. The following table summarizes the UMC’s foreign currency risk as of June 30, 2007 (expressed in thousands): Foreign Currency Risk by Investment Type at Fair Value (Expressed in Thousands) Currency Australian Dollar Bermuda Dollar Brazil Real British Pound Sterling Canadian Dollar Cayman Islands Dollar Chinese Yuan Euro Hong Kong Dollar Japanese Yen Mexican Peso Norwegian Krone Singapore Dollar South African Rand Swiss Franc Thailand Baht Other Total Fixed Income $ $ 2. Universities-Affiliated Component Units a. Investment Summary Equities 1,759 595 1,604 4,666 2,310 802 1,370 9,748 819 3,567 252 280 414 815 966 297 1,758 $ 32,022 10 12 1 3,326 9 1 3 3,362 $ Total $ $ 1,769 595 1,604 4,678 2,311 802 1,370 13,074 819 3,576 252 280 414 815 967 297 1,761 35,384 Investments of the Universities-affiliated component units include the following amounts at June 30, 2007. All investments are stated at fair value (expressed in thousands): 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 ASU Foundation $ 26,653 355,939 95,290 66,194 $ 544,076 - 114 - ACFFC $ 33,701 2,642 $ 36,343 U of A Foundation $ 64,621 163,032 18,027 18,876 83,766 13,074 $ 361,396 NAU Foundation $ 15,104 38,109 5,206 343 $ 58,762 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 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 the ASU Foundation investments, and a corresponding liability is presented for the fair value of the invested trust assets managed for the ASU. Not included in the ASU Foundation investments held in trust total is approximately $2.1 million in cash and cash equivalents held by the ASU Foundation on behalf of the ASU at fiscal year end. 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 2007 are as follows (expressed in thousands): Clean Water Fund Drinking Water Fund Total Beginning Balance $ 415,588 159,347 $ 574,935 Increases $ 75,196 71,066 $ 146,262 Decreases $ (28,552) (10,270) $ (38,822) Ending Balance $ 462,232 220,143 $ 682,375 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, 2007 (expressed in thousands): ASU Foundation Sun Angel Foundation U of A Foundation Law Association Universities-Affiliated Component Units Net Pledges Receivable $ 109,570 5,050 24,683 29,516 E. DIRECT FINANCING LEASE AGREEMENT 1. ASU Foundation The ASU Foundation leases a portion of the Fulton Center building (the ASU Foundation's headquarters) to the ASU under a direct financing lease. At the end of lease, the ASU Foundation and Affiliates will gift their portion of the building to the ASU and the ASU will receive title to the building. The ASU Foundation's net investment in this direct financing lease is $28.815 million. 2. ACFFC Pursuant to a Sublease Agreement, Nanotechnology Research, LLC, a wholly-owned subsidiary of ACFFC, leases its interest in the Research Park to the ASU, which will pay rent at times and in amounts sufficient to pay all principal and interest (after utilization of amounts held in the Capitalized Interest Accounts) on the Series 2004 Bonds, as well as all fees and expenses - 115 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 related to the Series 2004 Bonds. The Sublease Agreement is a net lease, and Nanotechnology is entitled to receive the rents and all other sums payable pursuant to the Sublease Agreement free from all taxes, charges, fees, and expenses, all of which will be paid by the ASU. During fiscal year 2007, the ASU remitted payments totaling $945 thousand which is recorded as rental revenue in the accompanying financial statements. There were no payments received during 2006, as sufficient funds remained in the Capitalized Interest Accounts. The Sublease Agreement commenced on April 7, 2004, and continued until June 30, 2005, with successive automatic annual renewals for the period July 1 through June 30 of each year without action on the part of Nanotechnology or the ASU, through the period ending March 31, 2034. The Sublease Agreement is subject to early termination by Nanotechnology or the ASU upon payment in full of the Series 2004 Bonds. Upon termination or expiration of the Sublease Agreement, Nanotechnology's interest in the premises, including all buildings and improvements on the leased premises, transfers to the ASU without further consideration. Therefore, the lease is classified as a direct financing capital lease. Lease payments are based on a variable interest rate currently determined on a weekly basis. The average interest rate approximates 4.54% at June 30, 2007. Lease payments commence once the Capitalized Interest Accounts are fully utilized, which occurred in fiscal year 2007. ACFFC's net investment in this direct financing lease is $35.000 million. In addition, there is a $12.000 million net investment in a direct financing lease by ACFFC for the Hassayampa Academic Village facility. F. CAPITAL ASSETS Capital asset activity for the UMC for the fiscal year ended June 30, 2007 was as follows (expressed in thousands): University Medical Center Beginning Balance Non-depreciable capital assets: Land Construction in progress Total Non-depreciable Capital Assets $ 6,001 30,071 36,072 Additions $ 145 29,244 29,389 Retirements $ (530) (115) (645) Adjustments & Ending Reclassifications Balance $ 1 (34,637) (34,636) $ 5,617 24,563 30,180 Depreciable capital assets: Buildings Improvements other than buildings Equipment Total Depreciable Capital Assets 150,719 790 119,614 271,123 3,698 10,888 14,586 (426) (647) (1,073) 30,857 1 3,778 34,636 184,848 791 133,633 319,272 Less accumulated depreciation for: Buildings Improvements other than buildings Equipment Total Accumulated Depreciation (97,421) (351) (87,564) (185,336) (7,166) (51) (13,040) (20,257) 427 54 645 1,126 - (104,160) (348) (99,959) (204,467) 85,787 (5,671) 53 34,636 114,805 $ 121,859 $ 23,718 - $ 144,985 Total Depreciable Capital Assets, Net Total UMC Capital Assets, Net $ (592) $ Capital assets for the Universities-affiliated component units for the fiscal year ended June 30, 2007 include the following (expressed in thousands): Buildings and improvements Furniture, fixtures, and equipment Construction in progress Other property and equipment Total cost or donated value Less: Accumulated Depreciation Total Property and Equipment, Net ASU Foundation $ 17,374 4,947 22,321 (2,123) $ 20,198 - 116 - ACFFC $ 186,110 38,488 2,942 509 228,049 (16,551) $ 211,498 CRC $ 13,212 622 13,834 (2,407) $ 11,427 NACFFC $ 9,209 9,209 $ 9,209 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 G. LONG-TERM OBLIGATIONS 1. Component Units a. Water Infrastructure Finance Authority The WIFA’s 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. In prior fiscal years, the WIFA 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. The amount outstanding on the refunded bonds for the WIFA at June 30, 2007 totaled $91.215 million. The $7.480 million deferred amount on retirement of bonds is being amortized over the lives of the defeased bonds on a straightline basis. Annual amortization is $381 thousand and $173 thousand for the 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, 2007 is $2.236 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, 2007 is $239 thousand. b. University Medical Center 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, 2007. 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, which totaled $20.042 million at June 30, 2007, are held by the trustee and are reflected as restricted investments held by trustee in the accompanying financial statements. These principally consist of guaranteed investment contracts, collateralized by U.S. Treasury Securities, and mortgage-backed government securities. The UMC is permitted to withdraw bond reserve funds totaling $4.399 million at June 30, 2007, related to the Series 1993 Bonds, as long as it is in compliance with its financial covenants as required by the bond indenture. The UMC is currently in compliance with these covenants; however, no funds have been withdrawn from the reserve fund since its inception. 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. Arizona Power Authority 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. - 117 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 Summary of Revenue Bonds The following schedule summarizes revenue bonds outstanding at June 30, 2007 (expressed in thousands): Revenue Bonds Outstanding Component Units: Water Infrastructure Finance Authority University Medical Center Arizona Power Authority Dates Issued Maturity Dates Interest Rates 1995-2006 1993-2007 2001-2004 2008-2027 2008-2036 2008-2018 2.00-6.10% 4.82-5.53% 5.00-5.25% Outstanding Balance at June 30, 2007 $ 557,450 232,966 52,135 Principal and interest debt service payments on revenue bonds outstanding at June 30, 2007 are as follows (expressed in thousands): Fiscal Year 2008 2009 2010 2011 2012 2013-2017 2018-2022 2023-2027 Total Annual Debt Service Water Infrastructure Finance Authority Principal Interest Total $ 25,900 27,420 26,845 28,020 33,865 158,240 152,010 105,150 $ 557,450 $ 26,172 25,007 23,820 22,579 21,114 82,728 44,071 10,875 $ 256,366 Fiscal Year 2008 2009 2010 2011 2012 2013-2017 2018-2022 Total $ $ Annual Debt Service University Medical Center Principal Interest Fiscal Year 52,072 52,427 50,665 50,599 54,979 240,968 196,081 116,025 813,816 2008 2009 2010 2011 2012 2013-2017 2018-2022 2023-2027 2028-2032 2033-2037 Total $ 3,835 4,040 4,145 4,295 4,515 26,280 33,630 42,915 54,780 54,531 $ 232,966 Annual Debt Service Arizona Power Authority Principal Interest $ 3,120 3,450 3,815 4,220 4,585 26,725 6,220 $ 52,135 - 118 - $ 2,611 2,447 2,265 2,064 1,844 5,284 163 $ 16,678 Total $ $ 5,731 5,897 6,080 6,284 6,429 32,009 6,383 68,813 $ 11,689 11,491 11,289 11,082 10,863 50,617 43,265 33,974 22,116 6,983 $ 213,369 Total $ $ 15,524 15,531 15,434 15,377 15,378 76,897 76,895 76,889 76,896 61,514 446,335 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 d. Changes in Long-Term Obligations The following is a summary of changes in long-term obligations for the component units (expressed in thousands): Water Infrastructure Finance Authority: Long-term Debt: Revenue bonds Revenue bond premium Deferred amounts, net Total Long-term Debt Balance July 1, 2006, as restated Increases $ $ Other Long-term Liabilities: Compensated absences Total Other Long-term Liabilities 582,560 37,479 (8,034) 612,005 59 59 Decreases Balance June 30, 2007 Due Within One Year Due Thereafter - $ (25,110) (2,235) 554 (26,791) $ 557,450 35,244 (7,480) 585,214 $ 25,900 25,900 $ 531,550 35,244 (7,480) 559,314 63 63 (76) (76) 46 46 46 46 - $ (26,867) $ 585,260 $ 25,946 $ 559,314 $ (3,824) (84) (3,908) $ 232,966 (1,210) 231,756 $ 3,835 3,835 $ 229,131 (1,210) 227,921 (1,788) (1,936) (3,724) 11,846 1,078 12,924 5,721 5,721 6,125 1,078 7,203 Total Long-term Obligations $ 612,064 $ 63 University Medical Center: Long-term Debt: Revenue bonds Revenue bond premium and discounts Total Long-term Debt $ 236,590 (1,126) 235,464 $ 200 200 Other Long-term Liabilities: Compensated absences Other Total Other Long-term Liabilities Total Long-term Obligations Arizona Power Authority: Long-term Debt: Revenue bonds Revenue bond premium and discounts Deferred amounts, net Total Long-term Debt 10,876 3,014 13,890 $ 249,354 $ 2,958 $ (7,632) $ 244,680 $ 9,556 $ 235,124 $ 54,960 2,474 (1,688) 55,746 $ - $ (2,825) (359) 246 (2,938) $ $ 3,120 3,120 $ Other Long-term Liabilities: Compensated absences Total Other Long-term Liabilities Total Long-term Obligations 2,758 2,758 68 68 $ 55,814 59 59 $ 59 - 119 - (46) (46) $ (2,984) 52,135 2,115 (1,442) 52,808 81 81 $ 52,889 81 81 $ 3,201 49,015 2,115 (1,442) 49,688 $ 49,688 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 2. Universities-Affiliated Component Units A summary of bonds payable as of June 30, 2007 include the following (expressed in thousands): Final Maturity Amount ASU Foundation: Series 2004B Variable Rate Revenue Bonds 2022 $ 11,275 Series 2004A Variable Rate Revenue Bonds 2034 22,420 Series 2003 Lease Revenue Term Bonds 2034 16,625 Series 2003 Lease Revenue Term Bonds 2028 10,575 Series 2003 Lease Revenue Term Bonds 2023 20,400 Capital Lease 2011 2,800 Series 2005A Variable Rate Demand Revenue Bonds 2045 96,700 Series 2005B Variable Rate Demand Revenue Bonds 2045 48,345 Series 2005 Tax Exempt 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 13,355 Series 2002 Bonds 2018 28,185 Series 2000 Serial and Term Bonds 2032 10,445 ACFFC: Unamortized bond premium 1,060 NACFFC: Series 2005 Variable Rate Demand Revenue Bonds 2033 35,345 North Campus Lease Revenue Serial and Term Bonds 2036 12,400 Scheduled future maturities of Universities-affiliated component units' bonds payable are as follows (expressed in thousands): Fiscal Year 2008 ASU Foundation $ ACFFC $ 1,945 NACFFC $ 355 2009 1,723 3,060 630 2010 1,799 5,410 695 2011 1,875 6,025 760 2012 1,988 6,615 830 75,690 277,645 44,475 84,095 $ 300,700 Thereafter Total H. 1,020 $ $ 47,745 ACCOUNTING CHANGES AND RESTATEMENTS Net Assets have been restated as follows (expressed in thousands): Restatement of Net Assets Net assets, June 30, 2006, as previously reported Restriction classification Prior year correction of errors Net assets, July 1, 2007, as restated Unrestricted Temporarily Restricted Permanently Restricted Total $ 72,668 401 $ 279,168 35,200 - $ 596,752 (35,200) 1,907 $ 948,588 2,308 $ 73,069 $ 314,368 $ 563,459 $ 950,896 The accompanying financial information for fiscal year 2006 has been restated to correct an error in the financial statements for the ASU Research Park in the calculation of rents receivable resulting in a $303 thousand understatement of previously reported deferred rents receivable. Additionally, there is a restatement of net assets between permanently restricted and temporarily restricted net assets for the ASU Foundation. During fiscal year 2007, the net asset balances of the Foundation's endowment - 120 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 funds were analyzed and reviewed in conjunction with the ASU Foundation board approved investment and spending policies, generally accepted accounting principles, and applicable Arizona Revised Statutes. As part of that process, it was determined that the net appreciation on endowed gifts previously categorized as permanently restricted net assets were, in fact, temporarily restricted. Consequently, the permanently restricted net assets of approximately $35.200 million, as of June 30, 2006, have been reclassified as temporarily restricted net assets to reflect this correction. During fiscal year 2007, the net appreciation on endowed gifts is included in temporarily restricted net investment return. During fiscal year 2007, management of the NAU Foundation determined that there was a beneficial interest in a perpetual trust that had not been recorded as an asset of the NAU Foundation. In addition, the NAU Foundation determined that the recording of revenue received from the Educational Broadcast System (EBS) licenses lease agreements was being recorded on a cash basis rather than an accrual basis. These errors resulted in a restatement of beginning net assets of $2.005 million. I. 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 mission and program support, 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 $24.525 million for the year ended June 30, 2007. 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 $9.700 million for the year ended June 30, 2007. These amounts are included in other operating revenue in the accompanying combined financial statements. University Physicians Healthcare (UPH) is a not-for-profit corporation whose members are physicians employed by both the UPH and the U of A, and who practice at the UMC. The UMC has agreements with the UPH whereby the UPH provides physician and medical directorship and other services to the UMC. The UMC paid the UPH approximately $9.191 million for these services for the year ended June 30, 2007. The UMC and the UPH share certain services and facilities within the hospital. Examples include information systems, medical records, and patient scheduling. The UPH reimburses the UMC for these services pursuant to written agreements between the parties. Charges to the UPH for the above services provided by the UMC were approximately $2.900 million for the year ended June 30, 2007. These amounts are included in other operating revenue in the accompanying combined financial statements. The UMC also has an agreement to provide healthcare services to members of an AHCCCS health plan owned by the UPH called University Family Care (UFC). The UFC, an AHCCCS funded HMO, manages approximately 15,000 members. The UMC provides healthcare services to the UFC members in the normal course of business. The UMC operates under a contract with the UFC at rates that are substantially the same as rates received from other unaffiliated AHCCCS HMOs. Such rates are generally at or below the maximum rates established by the AHCCCS. Net patient service revenue includes $7.084 million in 2007 from this payer, 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 2007, amounts incurred for services provided by UPH physicians totaled $3.064 million, and are included in professional services – medical, within the combined financial statements. As of June 30, 2007, accrued expenses include approximately $250 thousand payable to the UPH for these services. J. SUBSEQUENT EVENTS On April 15, 2008, the WIFA issued Water Quality Revenue Bonds Series 2008A (the Series 2008A Bonds) for $238.710 million, with interest rates ranging from 3.00% to 5.00% and maturity dates ranging from 2010 to 2029. The WIFA realized net proceeds of $240.000 million, after receipt of an original issue premium of $19.039 million, deposit to a reserve account of $16.205 million, and payment of $1.544 million of underwriters’ discount and bond issuance costs. The net proceeds will be used to fund certain loans made by the WIFA to finance water quality projects, to reimburse the WIFA monies previously loaned for those purposes, and pay the costs of issuance. - 121 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2007 On April 29, 2008, the NACFFC issued Refunding Bonds for $36.780 million. The net proceeds will be used to refund the Series 2005 Variable Rate Demand Revenue Bonds with an outstanding principal balance of $35.345 million and pay the costs of issuance. - 122 - REQUIRED SUPPLEMENTARY INFORMATION REQUIRED SUPPLEMENTARY INFORMATION STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2007 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) GENERAL FUND General Accounting Office Capital Outlay - Cochise Capital Outlay - Coconino Capital Outlay - Gila 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 Fund Transfers Laws 2006 Chpt 344 Sec 48 General Relief Nursing Education Demonstration Project Operating State Aid - Cochise Operating State Aid - Coconino Operating State Aid - Gila 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 Salary Adjustments Transfer to Tourism Fund Woolsey Flood District Department of Administration Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Annual Reversion per ARS 41-764C Arizona Financial Information System Building Renewal FY00 - 01 Building Renewal FY04 - 05 Building Renewal FY05 - 06 Building Renewal FY06 - 07 Building Renewal FY06 - 07 Classification Pilot Program Employee Wellness Program ENSCO HB1464 Personnel Reform HRIS Certificate of Participation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation $ 1,052,300 421,300 65,500 525,800 11,421,900 597,500 568,900 3,262,900 3,789,800 678,500 911,200 3,857,400 11,504,000 3,373,200 1,278,100 274,158,600 0 0 8,349,000 3,322,500 294,800 5,370,400 57,528,300 4,196,900 4,412,300 19,593,500 6,014,700 4,738,700 5,657,200 129,686,700 0 0 0 0 0 0 0 967,400 10,186 158,167 2,016,671 3,849,200 3,400,000 122,454 0 5,330,400 273,045 4,077,000 18,483,800 5,235,400 12,205,900 The Notes to Required Supplementary Information are an integral part of this schedule. - 125 - FINAL BUDGET (Appropriations) $ 1,052,300 421,300 65,500 525,800 11,421,900 597,500 568,900 3,262,900 3,789,800 678,500 911,200 3,857,400 11,504,000 3,373,200 1,278,100 274,158,600 472,245 4,000,000 8,349,000 3,322,500 294,800 5,370,400 57,528,300 4,196,900 4,412,300 19,593,500 6,014,700 4,738,700 5,657,200 164,600 14,763,621 39,550 222,968 54,041 26,909 171,537 35,039 1,032,400 10,186 178,167 1,925,457 2,737,200 3,400,000 122,454 500,000 5,330,400 273,045 4,077,000 19,802,900 5,508,700 12,980,800 ACTUAL EXPENDITURE AMOUNTS $ 1,052,300 421,300 65,500 525,800 11,421,900 597,500 568,900 3,262,900 3,789,800 678,500 911,200 3,857,400 11,504,000 3,373,200 1,278,100 274,158,600 472,245 4,000,000 8,349,000 3,322,500 294,800 5,370,400 57,528,300 4,196,900 4,412,300 19,593,500 6,014,700 4,738,700 5,657,200 0 14,763,621 39,550 222,968 54,041 26,909 171,537 35,039 1,031,024 0 178,167 1,517,440 142,940 774,856 0 344,301 5,329,400 0 4,077,000 19,645,159 5,143,508 12,559,130 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2007 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) 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 Backfill Space Renovations FY03 - 04 PLTO 1 Project Management FY01 - 02 PLTO 1 Project Management FY02 - 03 Prison Cell Locks and Door Replacement Relief Bill Relocation FY00 - 01 Relocation FY01 - 02 Relocation FY02 - 03 Relocation FY05 - 06 Relocation FY06 - 07 Relocation FY99 - 00 State Boards Lump Sum Appropriation FY05 - 06 State Boards Lump Sum Appropriation FY06 - 07 State Surplus Property Sales Proceeds Statewide Telecommunications Management Contract Lease Payment Utilities Utilities Supplemental Zuni Indian Tribe Water Right Settlement Administrative Adjustments Radiation Regulatory Agency Administrative Adjustments Off-Site Nuclear Emergency Response Plan Operating Lump Sum Appropriation Office of Equal Opportunity Administrative Adjustments Operating Lump Sum Appropriation Attorney General Administrative Adjustments Administrative Adjustments Administrative Adjustments Crane Elementary School Case FY03 - 04 Military Installation/Planning FY05 - 06 Military Installation/Planning FY06 - 07 Operating Lump Sum Appropriation Operating Lump Sum Appropriation Property Tax Supplemental Risk Management Interagency Service Agreement 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 Biomedical Informatics Downtown Phoenix Campus The Notes to Required Supplementary Information are an integral part of this schedule. - 126 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 1,156,800 399,000 4 243,453 106,402 847 348,161 144,694 1 55,659 5,200,000 0 60,000 59,866 59,775 60,000 60,000 46,526 23,321 172,100 3,000,000 894,000 5,733,800 0 0 0 1,189,900 418,300 4 243,453 106,402 847 348,161 144,694 1 55,659 5,200,000 3,373 60,000 59,866 59,775 60,000 60,000 46,526 23,321 180,800 3,044,700 894,000 5,733,800 1,700,000 796,000 18 1,113,804 212,136 0 (37) 0 0 0 0 0 0 97,838 3,373 0 840 0 10,447 0 0 23,227 176,865 1,681,777 894,000 5,733,800 1,700,000 796,000 18 0 0 1,361,000 285 520,190 1,530,900 285 520,190 1,449,720 0 220,900 2,132 245,700 2,132 245,617 0 0 0 29,648 35,175 0 18,236,400 11,282,100 301 8,621,500 160,100 73,125 238 1,207 29,648 35,176 100,000 22,496,900 12,027,300 301 9,214,200 160,100 73,125 238 1,207 7,593 35,174 62,963 21,838,011 11,545,033 0 8,416,328 160,100 0 23,300 65,000 10,112,800 23,200 7,039 23,300 65,000 11,258,100 23,200 7,039 14,364 48,750 11,247,055 23,200 1,000,000 18,604,300 1,000,000 32,440,900 1,000,000 32,440,900 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2007 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) East Campus Main Campus Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Senator Barry Goldwater Papers Virtual Water University West Campus Auditor General 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 FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Department of Financial Institutions Administrative Adjustments Document Imaging Operating Lump Sum Appropriation State Board of Nursing CNA Fingerprinting Fingerprinting Nursing Assistants Arizona Board of Regents Administrative Adjustments Arizona Teachers Incentive Program Arizona Transfer Articulation Support System Building Renewal Operating Lump Sum Appropriation Student Financial Assistance Western Interstate Commission Office WICHE Student Subsidies Corporation Commission Administrative Adjustments Operating Lump Sum Appropriation Operating Lump Sum Appropriation Railroad Warning Systems Court of Appeals Division I Administrative Adjustments 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 All Other Employee Related Expenditures All Other Personal Services All Other Personal Services Correctional Officer Employee Related Expenditures Correctional Officer Personal Services County Jail Beds Electronic Monitoring of Sex Offenders Employee Related Expenditures The Notes to Required Supplementary Information are an integral part of this schedule. - 127 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 176,200 10,080,000 294,602,100 18,088,600 45,419,900 529,000 0 343,800 176,200 10,080,000 309,493,400 19,804,700 48,752,000 529,000 500,000 343,800 176,200 10,080,000 309,493,400 19,804,700 48,752,000 529,000 500,000 343,800 233,944 293,330 375,664 405,827 584,558 14,499,300 233,944 293,330 375,664 405,827 584,558 17,891,900 85,625 0 146 0 375 15,808,108 0 75,000 3,350,100 1,218 75,000 3,658,900 1,218 6,782 3,658,497 161,400 90,198 166,000 90,198 151,486 0 0 90,000 213,700 20,000,000 2,194,700 2,161,200 112,000 3,570,700 2,312,568 90,000 213,700 20,000,000 2,322,000 7,161,200 112,000 3,570,700 2,312,568 90,000 213,700 20,000,000 2,321,349 7,161,200 112,000 3,509,433 0 44,100 5,133,000 47,510 40 48,600 5,543,200 47,510 40 46,132 5,474,087 0 0 8,659,900 34,023 9,363,900 34,023 9,362,357 0 712,700 11,899 785,100 11,899 752,768 3,933,700 4,192,600 4,191,827 0 25,596,252 71,128,500 1,179,600 88,319,333 245,427,400 2,518,500 0 253,800 6,351,021 27,464,811 68,529,600 1,226,500 104,694,885 275,188,700 1,014,100 750,000 287,900 6,351,021 26,919,523 68,529,593 671,374 102,644,062 274,720,261 914,294 115,669 206,454 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2007 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Health Care All Other Operating Expenditures Health Care Employee Related Expenditures Health Care Personal Services Non-Health Care All Other Operating Expenditures Non-Health Care All Other Operating Expenditures Non-Health Care All Other Operating Expenditures One Time Equipment Monies Overtime Compensatory Time Private Prison Per Diem Provisional Beds Department of Economic Security ADM Attorney General Legal Services 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 Operating Lump Sum Appropriation ADM Public Assistance Collections ADM Statewide Cost Allocation Plan Fund ADM Triagency Disaster Recovery FY06 - 07 ADM Triagency Disaster Recovery FY05 - 06 Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Coolidge Environmental Impact Study DACS Adult Services DACS Community and Emergency Services DACS Community-based Marriage and Communication Skills Program DACS Coordinated Homeless DACS Coordinated Homeless DACS Coordinated Hunger DACS Coordinated Hunger DACS Domestic Violence Prevention DACS Domestic Violence Prevention DACS Grandparent Kinship Care DACS Hopi Senior Center - Kykotsmovi DACS Maricopa County HTF DACS Marriage and Communication Skills FY00 - 01 DACS Marriage Handbook FY00 - 01 DACS Marriage Skills Training FY00 - 01 DACS Navajo Nation Multipurpose Facility DACS Navajo Senior Center DACS Navajo Senior Centers - St. Michael's DACS Operating Lump Sum Appropriation DACS Operating Lump Sum Appropriation The Notes to Required Supplementary Information are an integral part of this schedule. - 128 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 52,346,200 14,725,515 40,920,200 116,052,700 95,500 180,000 0 19,688,100 53,172,500 34,933,400 65,547,300 11,366,704 35,997,000 120,529,400 95,500 180,000 1,000,000 43,695,200 38,277,800 32,758,200 62,921,110 11,178,069 35,876,861 118,568,894 39,930 0 550,793 43,695,200 35,714,540 32,697,369 397,100 149,700 15,600 453,400 273,300 24,276 1,138,000 661,000 0 4,623,100 1,090,400 29,166,100 237,700 1,000,000 271,500 271,500 0 0 0 0 0 0 4,948 15,599,300 5,424,900 1,200,000 1,155,400 1,649,500 500,000 1,286,600 5,326,700 6,620,700 0 22,097 0 20,983 549 9,301 450,000 350,000 0 223,100 5,079,400 661,400 162,500 16,600 460,100 76,700 24,276 1,138,000 661,000 310,000 4,916,700 1,124,900 34,621,200 251,500 1,000,000 271,500 271,500 6,902,404 3,028,133 13,456,536 3,337,377 10,486,029 7,925,012 4,948 17,899,300 5,424,900 1,200,000 1,155,400 1,649,500 500,000 1,286,600 5,326,700 6,620,700 1,000,000 22,097 400,000 20,983 549 9,301 450,000 350,000 1,961 240,300 6,498,800 661,400 124,755 16,218 460,100 60,278 2,787 1,138,000 632,439 0 4,916,437 872,915 31,658,100 198,555 0 0 271,500 6,902,404 3,028,133 13,456,536 3,337,377 10,486,029 7,925,012 0 15,731,885 4,206,492 1,200,000 1,108,020 1,482,930 469,609 1,247,043 4,006,295 5,906,155 668,543 0 400,000 0 10 0 0 0 1,961 173,619 6,498,800 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2007 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) DACS Pima County HTF DACS Rural Areas HTF DACS Serving Homeless Excess Monies DACS TANF Short-Term Crisis Services FY99 - 00 DBME FLSA Supplement DBME General Assistance DBME Operating Lump Sum Appropriation DBME Operating Lump Sum Appropriation DBME TANF Cash Benefits DBME TANF Cash Benefits DBME Tribal Pass-Through Funding DBME Tuberculosis Control Payments 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 DCYF Adoption Services DCYF Adoption Services DCYF Adoption Services - Family Preservation Projects FY05 - 06 DCYF Adoption Services - Family Preservation Projects FY06 - 07 DCYF Attorney General Legal Services DCYF Attorney General Legal Services DCYF Children Support Services DCYF Children Support Services DCYF Children Support Services - SSBG DCYF Comprehensive Medical and Dental Program DCYF CPS Appeals DCYF CPS Emergency Placement DCYF CPS Emergency Placement DCYF CPS Emergency Placement - SSBG DCYF CPS Expedited Substance Abuse Treatment Fund Deposit DCYF CPS Residential Placement DCYF CPS Residential Placement DCYF CPS Residential Placement - SSBG DCYF Education and Training Vouchers DCYF Family Builders Program DCYF Foster Care Placement DCYF Foster Care Placement DCYF Foster Care Placement - SSBG DCYF Healthy Families DCYF Healthy Families DCYF Homeless Youth Intervention DCYF Intensive Family Services DCYF Joint Substance Abuse Treatment Fund - State GF DCYF Operating Lump Sum Appropriation DCYF Operating Lump Sum Appropriation DCYF Permanent Guardianship Subsidy DCYF Permanent Guardianship Subsidy DCYF Substance Abuse Treatment DCYF TANF Deposit to Joint Substance Abuse Treatment Fund 0 0 0 2 508,900 4,260,800 9,148,500 23,125,300 56,308,200 79,297,200 4,288,700 32,200 673,900 8,523,500 444,700 3,275,700 6,845,200 72,400 723,600 4,262,800 29,551,200 10,686,100 1,000,000 1,000,000 9,000,200 47,800 29,316,600 6,757,400 5,371,700 2,057,000 659,400 3,685,800 1,872,700 2,333,700 224,500 4,133,300 7,788,000 9,833,300 0 5,200,000 1,148,700 8,491,900 5,074,400 8,715,800 5,034,200 400,000 1,985,600 3,000,000 27,295,800 47,200,400 6,050,200 859,300 0 2,000,000 The Notes to Required Supplementary Information are an integral part of this schedule. - 129 - FINAL BUDGET (Appropriations) 200,000 250,000 36,289 2 758,900 2,060,800 10,054,800 30,502,200 42,308,200 79,297,200 4,288,700 32,200 719,700 9,270,000 444,700 3,725,700 7,495,200 72,400 273,600 4,478,100 32,251,200 10,836,100 1,000,000 1,000,000 11,341,500 50,500 51,167,800 8,727,400 5,371,700 2,057,000 711,200 1,880,100 1,102,700 2,333,700 224,500 2,933,300 11,754,600 9,833,300 500,000 5,200,000 1,148,700 14,818,300 5,074,400 5,715,800 5,034,200 400,000 1,985,600 3,000,000 34,200,800 61,541,300 5,550,200 859,300 2,000,000 2,000,000 ACTUAL EXPENDITURE AMOUNTS 8,381 250,000 0 0 696,152 1,797,599 10,054,800 30,444,849 42,208,739 79,114,443 3,633,306 23,418 719,700 7,762,537 444,700 2,375,199 6,295,221 72,400 165,981 4,478,100 32,251,200 10,686,100 0 18,749 11,341,500 7,801 51,167,800 6,468,618 3,490,251 2,057,000 711,200 1,880,100 994,685 2,024,561 224,500 2,826,153 11,754,600 8,876,533 461,313 5,200,000 1,119,902 14,818,300 5,074,400 5,715,800 5,034,200 375,050 1,985,600 2,806,275 29,378,400 61,541,300 5,482,257 700,000 1,400,000 1,808,352 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2007 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) DDD Arizona Training Program at Coolidge DDD Case Management DDD Dental Pilot Program DDD Home and Community Based Services DDD Home and Community Based Services DDD Institutional Services DDD Operating Lump Sum Appropriation DDD State Funded Long-Term Care Services DDD State Funded Long-Term Care Services DERS Child Care Sliding Fee Scales DERS Day Care Subsidy DERS Day Care Subsidy DERS Day Care Subsidy DERS Independent Living Rehabilitation Services 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 Transitional Child Care DERS Vocational Rehabilitation Services DERS Workforce Investment Act - Discretionary DERS Workforce Investment Act - Local Governments DES Property Conveyance 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 Medicare Clawback Payments LTC Operating Lump Sum Appropriation LTC Operating Lump Sum Appropriation Statewide Building Renewal FY04 - 05 Statewide Building Renewal FY05 - 06 Statewide Building Renewal FY06 - 07 Statewide Building Renewal FY92 - 93 Summer Youth Program FY00 - 01 DCSE Operating Lump Sum Appropriation Department of Juvenile Corrections Administrative Adjustments Adobe Mountain Well Renovation AMS Health Facility Upgrades Building Renewal FY91 - 92 Building Renewal FY94 - 95 DOA Building Renewal - Restore Fire Pump FY04 - 05 DOA Building Renewal - Restore Fire Pump FY05 - 06 The Notes to Required Supplementary Information are an integral part of this schedule. - 130 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 500,000 4,044,000 0 34,529,100 848,100 294,900 3,743,800 762,900 21,039,500 1,076,118 8,020,300 71,496,900 75,482,900 784,200 1,823,500 2,000,000 17,618,800 2,051,700 5,212,300 9,103,300 8,918,700 0 34,481,900 5,214,400 3,614,000 48,040,600 150,000 4,934,900 14,773,900 10,849,700 32,482,200 170,740,100 511,250,800 6,117,600 18,314,700 30,148,600 90,258,600 2,069,000 29,350,200 9,803,700 20,000 0 0 20 32,446 36,729,400 103,300 3,360,700 1,000,000 33,142,400 348,100 94,900 3,613,800 2,962,900 21,549,100 1,076,118 8,020,300 70,496,900 75,482,900 784,200 1,823,500 2,000,000 12,418,800 1,906,800 5,734,700 9,994,600 9,379,600 1,000,000 35,481,900 5,214,400 4,614,000 47,040,600 150,000 5,494,700 17,011,200 11,648,800 33,958,900 172,329,400 522,342,200 6,184,700 15,954,300 30,180,700 95,837,100 2,069,000 31,967,700 10,126,700 0 80,715 615,000 20 32,446 48,161,000 87,711 3,360,700 443,519 32,404,174 0 63,749 3,613,800 2,954,223 20,552,845 (1,468,260) 4,908,821 62,962,669 75,244,151 640,690 1,823,500 0 12,247,040 0 5,734,700 9,799,178 9,379,600 1,000,000 30,572,124 5,214,400 3,773,190 34,431,970 150,000 5,494,700 15,253,475 11,648,800 30,837,248 170,829,400 439,818,159 6,184,700 15,178,994 30,180,700 93,612,550 2,069,000 30,114,802 10,126,700 0 80,715 615,000 0 0 42,010,490 0 340,000 13,041 39 3,794 34,356 32,175 310,888 340,000 13,041 39 3,794 34,357 32,175 310,888 340,000 13,041 0 0 34,357 32,175 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2007 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Operating Lump Sum Appropriation Operating Lump Sum Appropriation Department of Transportation Intersection Improvement, Fire Suppression Operating Lump Sum Appropriation Statewide Transportation Acceleration Needs Account Department of Education Accountability Measures FY00 - 01 Achievement Testing Additional State Aid to Schools Administrative Adjustments Adult Education and GED AIMS Intervention; Dropout Prevention Alternative Teacher Development Program Arizona Master Teacher Program AZ Scholarships for Disabled Pupils Basic Aid and Additional State Aid Entitlement Basic State Aid Basic State Aid Base Level Increase Basic State Aid Conditional Repeal Basic State Aid Rollover Elimination FY05 - 06 Chemical Abuse Displaced Pupil Choice E-Learning Pilot Program English Language Acquisition Services FY05 - 06 English Language Acquisition Services FY06 - 07 English Learner Classroom Bonus Fund FY02 - 03 English Learner FTE FY02 - 03 English Learner FTE FY03 - 04 English Learner FTE FY04 - 05 English Learner Instruction FY02 - 03 English Learner Instruction FY03 - 04 English Learner Instruction FY04 - 05 English Learner Materials & Supplies FY02 - 03 English Learner Materials & Supplies FY03 - 04 English Learner Materials & Supplies FY04 - 05 English Learner Pilot FY03 - 04 English Learner Pilot FY04 - 05 English Learner Programs English Learner Teacher FY02 - 03 English Learner Teacher FY03 - 04 English Learner Teacher FY04 - 05 Extended School Year Family Literacy Family Literacy Program FY98 - 99 Gifted Program Funding Formula Gifted Support Information Technology Kindergarten Group B Weight Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Optional Performance Incentive Programs FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 2,638,300 74,126,200 2,638,300 79,848,300 2,638,300 79,532,909 1,105,000 74,700 307,000,000 1,105,000 82,900 307,000,000 1,105,000 82,896 307,000,000 50 7,887,300 324,224,300 0 4,451,000 5,550,000 0 0 0 0 2,920,987,100 0 0 0 806,200 0 0 0 0 0 2,389 2,634 106,239 283,540 8,268 987,640 70 217,809 229,346 342 11,513 332,600 1,104,156 4,499,709 4,246,698 500,000 1,004,900 1,373 0 1,367,400 2,500,000 0 5,758,600 1,998,800 1,275,800 725,700 120,000 50 7,900,200 324,224,300 5,172,815 4,468,900 5,550,000 2,000,000 1,000,000 2,500,000 191,293,800 2,920,987,100 100,000,000 215,200,000 191,000,000 819,900 2,500,000 3,000,000 2,555,000 4,610,000 0 2,389 2,634 106,239 283,540 8,268 987,639 70 217,809 229,346 342 11,513 354,500 1,104,156 4,499,709 4,246,698 500,000 1,009,100 1,373 2,000,000 1,380,100 2,500,000 118,050,000 6,145,500 2,133,400 1,334,300 757,600 120,000 The Notes to Required Supplementary Information are an integral part of this schedule. - 131 - 0 5,421,594 324,224,300 5,172,815 4,468,900 5,311,613 2,000,000 1,000,000 2,500,000 191,293,800 2,874,392,353 91,784,039 215,200,000 191,000,000 780,360 2,500,000 3,000,000 1,626,463 4,559 (3,113) 0 0 105,594 (11,132) (685) (19,768) (620) 4,492 25,424 0 (15,286) 354,500 1,104,041 2,148,968 (253,281) 401,008 1,009,100 0 1,879,037 1,279,269 6,300 118,050,000 6,136,146 2,133,400 1,203,421 634,295 0 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2007 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Other State Aid to Districts Parental Choice for Reading Success Physical Education Pilot Program Public School Transportation Costs School Accountability School Safety Program FY00 - 01 School Safety Program FY02 - 03 School Safety Program FY04 - 05 School Safety Program FY05 - 06 School Safety Program FY06 - 07 Small Pass-Through Programs Special Education Fund State Block Grant for Early Childhood Education State Block Grant for Vocational Education Statewide Compensatory Instruction Fund Teacher Certification Vocational Education Extended Year Department of Commerce Administrative Adjustments Agriculture Preservation District Apprenticeship Services Office Arizona 21st Century GF Transfer International Trade Offices Military Base Economic Impact Study Military Installation GF Transfer Military Installation Operating FY04 - 05 Military Installation Operating FY05 - 06 Military Installation Operating FY06 - 07 Motion Picture Development NAFTA Agreement Projects FY95 - 96 NAFTA Projects - Initial Phase FY95 - 96 Operating Lump Sum Appropriation Operating Lump Sum Appropriation Research Programs and Infrastructure Rural Economic Development State Board of Equalization Additional Board Members Designing and Programming Computer System Operating Lump Sum Appropriation Department of Environmental Quality Administrative Adjustments Air Permits Administration Program Air Quality Program Aquifer Protection Permit Program Arizona Pollution Discharge Elimination System Clean Water Revolving Loan Program Drinking Water Regulation Program Drinking Water Revolving Loan Program Hazardous Waste Program Maricopa, Pima and Pinal Counties Travel Deduction Plan Operating Lump Sum Appropriation Operating Lump Sum Appropriation Small Rural Water Systems Grant Solid Waste Program The Notes to Required Supplementary Information are an integral part of this schedule. - 132 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 983,900 1,000,000 0 0 38,400 2,044 67,484 45,453 1,651,897 6,709,700 581,600 35,232,300 19,424,600 11,256,800 0 1,438,100 600,000 983,900 1,000,000 600,000 5,500,000 39,400 2,044 67,484 45,453 1,651,897 6,722,700 581,600 35,236,200 19,446,300 11,400,500 10,000,000 1,551,000 600,000 632,763 941,220 150,621 5,500,000 39,400 0 0 45,453 1,651,897 6,591,211 581,600 35,236,200 19,446,300 11,400,500 10,000,000 1,550,007 529,971 0 26,747 165,100 0 352,500 250,000 0 24,830 6,172 0 309,300 37,777 19,874 2,853,700 131,100 0 304,000 2,429 26,747 179,200 35,000,000 378,000 250,000 4,825,000 24,830 6,172 80,600 337,700 37,777 19,874 3,043,800 139,200 35,000,000 323,900 2,429 0 176,305 35,000,000 374,423 200,000 4,825,000 0 0 75,486 326,235 0 0 2,914,625 97,456 12,553,000 278,175 0 323,200 584,500 30,000 323,200 623,500 21,345 247,143 623,402 0 148,400 226,900 0 672,000 1,551,900 1,649,000 893,200 1,674,500 1,676,900 9,969,400 4,097,500 0 21,100 95,647 0 0 788,700 0 1,551,900 0 893,200 0 1,676,900 10,485,700 11,635,000 750,000 0 95,647 0 0 781,637 0 1,551,900 0 893,200 0 1,676,825 3,506,588 11,621,126 750,000 0 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2007 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Surface Water Regulation Program Underground Water Regulation Program Game and Fish Wildlife Habitat Restoration and Enhancement Fund Wildlife Habitat Restoration Projects Arizona Geological Survey Administrative Adjustments Earth Fissure Maps Operating Lump Sum Appropriation Government Information Technology Agency Grants for Rural Health Care Providers Operating Lump Sum Appropriation Governor's Office Administrative Adjustments Arizona - Sonora Study Border Volunteer Corps FY94 - 95 Cash Reversion to General Fund Governor's Telecommunication Office of Sonora Operating Lump Sum Appropriation - OSPB 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 FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Arizona Health Care Cost Containment System Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Arizona 211 Phone System Board of Nursing Board of Nursing Breast and Cervical Cancer Breast and Cervical Cancer FY01 - 02 Breast and Cervical Cancer FY06 - 07 Breast and Cervical Cancer Treatment Fed Administration Breast and Cervical Cancer Treatment Fed Program Capitation Capitation Computer System Replacement Planning Computer System Replacement Planning Critical Access Hospitals Critical Access Hospitals DES Eligibility DES Eligibility DES Title XIX Pass Through DES Title XIX Pass Through Disproportionate Share Payments Disproportionate Share Payments DOA Data Center Charges DOA Data Center Charges Dual Eligible Part D Copay Subsidy FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 793,000 2,319,500 0 0 0 0 0 0 3,500,000 3,500,000 3,500,000 1,608,168 0 0 796,700 1,793 232,600 873,500 1,793 151,903 871,083 0 2,539,200 1,500,000 2,754,400 1,500,000 2,610,855 0 5,200 34,705 0 504 7,783 2,075,400 2,521 80,999 97,890 24,580 259,039 6,288,600 67 5,200 34,705 25,531 504 7,783 2,211,100 2,520 80,999 97,890 24,580 259,039 6,634,800 67 0 0 25,531 0 0 2,164,881 0 (11,830) 34,004 (225,563) (62,899) 6,488,554 0 0 0 0 0 104,800 104,900 959,100 73 292,700 52,730 745,860 471,666,800 1,244,377,500 0 0 567,800 1,132,200 22,441,700 25,000,400 137,600 183,100 48,107,900 95,369,400 1,724,700 3,992,800 1,029,700 45,852,500 99,983,252 34,691,478 2,395,400 1,900,000 169,600 234,400 665,600 73 203,100 52,730 745,860 479,102,200 1,240,442,100 200,000 1,800,000 570,010 1,132,200 30,857,600 31,330,200 148,900 196,700 48,107,939 95,369,400 2,139,900 4,842,200 1,629,700 The Notes to Required Supplementary Information are an integral part of this schedule. - 133 - 45,852,500 99,983,252 34,691,478 2,395,400 1,783,732 169,600 185,984 657,188 0 201,217 0 0 476,286,116 1,238,327,286 62,647 187,972 570,010 1,129,990 27,657,599 24,305,500 104,216 132,057 48,107,939 95,369,361 1,771,622 4,549,594 1,538,361 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2007 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Dual Eligible Part D Copay Subsidy Fee For Service Fee For Service Graduate Medical Education Graduate Medical Education Hospital Loan Residency Program Imaging System Equipment Imaging System Equipment Indian Advisory Council Indian Advisory Council KidsCare - Administration KidsCare - Children KidsCare - Parents Medical Clawback Payments Medical Clawback Payments Medical Clawback Payments Medicare Premiums Medicare Premiums Mental Health - Adults FY91 - 92 New and Expanded Graduate Medical Education Program New and Expanded Graduate Medical Education Program Office of Administrative Hearings Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Program Lump Sum Appropriation Proposition 204 - Administration Proposition 204 - AHCCCS Administration Proposition 204 - Capitation Proposition 204 - Capitation Proposition 204 - Capitation Proposition 204 - Capitation Proposition 204 - DES Eligibility Proposition 204 - Fee-for-Service Proposition 204 - Fee-for-Service Proposition 204 - Fee-for-Service Proposition 204 - Medicare Premiums Proposition 204 - Pass Through Administration Proposition 204 - Reinsurance Proposition 204 - Reinsurance Proposition 204 Pass Through Administration Reinsurance Reinsurance Rural Hospital Reimbursement Rural Hospital Reimbursement SSDI Temporary Medical Coverage Ticket to Work Ticket to Work Office of Administrative Hearings Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Historical Society Field Services and Grants The Notes to Required Supplementary Information are an integral part of this schedule. - 134 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 470,300 89,788,300 357,587,200 7,519,800 14,993,000 0 0 0 106,100 105,800 2,016,500 23,182,800 9,877,800 27,082,200 9,737,600 9,737,600 34,794,800 85,935,100 45,368 0 0 248,600 39,941,500 25,818,300 116,014,200 944,521,800 5,433,800 5,182,700 174,022,600 665,152,900 86,301,200 33,945,600 17,590,200 1,500,000 27,734,400 118,970,200 18,974,100 14,283,400 28,107,200 56,039,700 2,531,900 33,104,900 66,004,200 4,092,400 8,065,700 0 1,591,800 3,174,100 585,300 93,788,300 367,587,200 7,548,542 14,993,000 1,000,000 200,000 200,000 113,800 113,500 2,464,300 23,104,800 9,302,800 24,780,623 9,737,600 9,737,600 24,334,809 59,710,600 45,368 8,000,000 8,000,000 269,800 41,769,600 29,573,400 125,268,000 935,138,500 6,072,800 5,368,200 151,489,000 603,338,900 86,301,200 33,945,600 18,205,900 16,784,000 27,734,400 154,030,200 18,974,100 17,933,800 33,107,200 81,039,700 2,531,900 37,489,177 75,783,100 4,092,400 8,065,700 6,500,000 1,900,900 3,813,200 550,593 84,073,072 319,079,496 7,548,542 14,964,258 1,000,000 198,887 198,960 109,677 102,449 2,418,123 23,036,825 9,252,226 24,780,623 9,737,600 8,910,068 24,333,333 59,701,295 0 0 0 226,311 37,426,779 28,840,620 125,268,000 849,772,732 5,483,384 5,218,748 145,912,926 603,338,900 86,301,200 32,253,758 17,496,183 2,845,164 27,734,400 120,094,076 17,795,796 15,188,082 21,325,233 52,266,297 2,531,900 27,781,422 63,830,394 4,092,400 8,065,700 6,500,000 1,896,931 3,800,275 1,104,200 13,900 0 1,214,600 13,900 600 1,214,600 13,900 600 80,000 80,000 30,000 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2007 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) 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 FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Department of Health Services 90/91 Environmental Assess Phoenix Abstinence Funding Addiction Reduction and Recovery Fund Additional Vaccines ADM Assurance and Licensure Administrative Adjustments 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 Alzheimer Disease Research Arizona State Hospital Accreditation Arnold v. Sarn Arnold v. Sarn ASH Condensate Receiver Assurance and Licensure Assurance and Licensure Assurance and Licensure Attorney General Legal Services Autism Research AZ Statewide Immunization Info System Breast and Cervical Cancer Screening Building Renewal - Tucson FY00 - 01 Building Renewal - Tucson FY98 - 99 Building Renewal - Tucson FY99 - 00 Building Renewal FY91 - 92 Building Renewal FY96 - 97 Child Care Licensure Costs Child Care Licensure Costs Children's Behavioral Health - Tobacco Settlement Account Children's Behavioral Health Services Children's Behavioral Health State Match for Title XIX 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 The Notes to Required Supplementary Information are an integral part of this schedule. - 135 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 2,007,000 1,892,500 193,700 2,274,200 1,982,800 193,700 2,274,200 1,982,800 193,700 853,441 425,313 842,054 593,676 1,012,586 1,902,306 12,399,900 853,441 425,313 842,055 593,676 1,012,586 1,902,306 13,354,800 266,117 0 0 (143) (195) 765 11,350,316 8,849 1,500,000 0 0 750,100 0 0 0 0 105,200 33,000 37,627,700 18,872,500 1,125,000 4,000,000 3,140 27,500,000 9,968,900 4,700 8,489,600 302,300 812,600 394,900 0 472,400 1,091,200 6,109 2,221 37,168 3,548 30 0 0 159,639 9,351,800 193,384,500 96,993,600 3,587,000 11,655 10,426,600 5,574,100 1,130,700 8,849 1,500,000 2,500,000 4,400,000 802,200 4,720,104 9,418 367,386 1,405 105,200 33,000 37,627,700 18,872,500 1,125,000 4,000,000 3,140 27,500,000 9,968,900 4,700 9,132,400 329,800 863,400 394,900 7,100,000 503,200 1,095,500 6,109 2,221 37,168 3,548 30 400,000 36,000 159,639 9,351,800 193,384,500 96,993,600 3,587,000 11,655 10,464,900 5,574,100 1,130,700 0 897,414 2,500,000 4,244,493 773,914 4,720,104 9,418 367,386 1,405 105,200 31,080 0 18,872,500 1,062,500 4,000,000 0 27,500,000 0 0 9,103,583 230,606 0 394,900 4,700,000 493,288 952,642 0 0 0 0 0 375,124 36,000 159,638 9,344,749 0 96,993,600 3,587,000 0 10,014,564 5,574,100 1,130,700 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2007 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Corrective Action Plan FY04 - 05 Corrective Action Plan FY05 - 06 County Nutrition Services County Prenatal Services Grant County Public Health County Tuberculosis Provider Care and Control Court Monitoring Diabetes Education Diabetes Prevention and Control Direct Grants Dual Eligible Part D Copay Subsidy Health Start Hearing and Speech Professionals Regulation Hepatitis C Surveillance High Risk Perinatal Services High Risk Perinatal Services Supplemental Indirect Cost Fund Indirect Costs AHCCCS - Children's Rehabilitative Services Kidney Program Laboratory Services Laboratory Services Costs Loan Repayment Medicaid Special Exemption Payments Medicaid Special Exemption Payments Medicaid Special Exemption Payments Medicaid Special Exemption Payments Medicare Clawback Payments Mental Health - Non-Title XIX Mental Health and Substance Abuse State Match Title XIX Mental Health and Substance Abuse State Match Title XIX Methamphetamine Prevention Services Nonrenal Disease Management Program FY05 - 06 Nonrenal Disease Management Program FY06 - 07 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 FY05 - 06 Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Osteoporosis Prevalence Poison Control Center Funding Proposition 204 - Administration Proposition 204 - Children's Behavioral Health Services Proposition 204 - General Mental Health and Substance Abuse Proposition 204 - Seriously Mentally Ill Services Proposition 204 Administration Title XIX Match Proposition 204 CBHS Title XIX Match Proposition 204 GMH/SA Title XIX Match Proposition 204 SMI Title XIX Match 398,060 2,913,424 330,300 1,148,500 200,000 1,010,500 197,500 0 100,000 460,300 480,000 226,600 62,243 370,900 3,180,600 0 7,299,400 350,000 50,500 3,436,400 0 100,000 407,800 5,672,100 813,000 11,308,800 10,062,700 2,447,300 29,264,900 58,348,000 0 50,000 0 6,833,900 1,993,800 4,600,700 14,212,100 5,095,600 3,404,600 4,274,800 44,967,000 169,868 223,098 1,576,100 0 925,000 2,031,000 1,289,800 27,874,200 53,673,900 4,199,500 2,571,600 55,575,200 107,014,500 The Notes to Required Supplementary Information are an integral part of this schedule. - 136 - FINAL BUDGET (Appropriations) 398,060 2,913,424 330,300 1,148,500 200,000 1,010,500 338,767 1,000,000 100,000 460,300 480,000 226,600 62,243 397,800 3,180,600 1,800,000 7,705,300 350,000 50,500 3,707,700 520,000 100,000 407,800 5,672,100 813,000 11,308,800 10,062,700 2,447,300 29,264,900 58,348,000 500,000 50,000 100,000 6,833,900 2,103,300 4,857,700 14,999,800 5,599,700 3,704,100 4,308,833 47,793,595 169,867 223,098 1,576,100 300,000 925,000 2,130,200 1,289,800 27,874,200 53,673,900 4,404,600 2,571,600 55,575,200 107,014,500 ACTUAL EXPENDITURE AMOUNTS 0 0 315,076 987,538 200,000 837,715 338,767 751,900 53,940 460,300 480,000 223,723 0 352,692 2,305,985 912,930 7,273,289 182,647 46,292 3,451,144 420,767 63,677 407,800 5,672,100 0 0 10,062,700 2,447,300 29,264,900 0 370,000 49,999 0 6,833,900 0 0 14,828,954 5,475,571 3,479,943 4,235,503 47,386,637 169,559 219,245 1,542,584 98,058 925,000 2,130,200 1,289,800 27,874,200 53,673,900 0 0 0 0 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2007 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Reimbursement to Counties Renal and Non-Renal Disease Management Renal Disease Management Program Rural Detoxification and Follow-up Services Rural Modular Dental Buildings Scorpion Antivenom Seriously Emotionally Handicapped Children Seriously Mentally Ill Non-Title XIX Seriously Mentally Ill State Match for Title XIX Seriously Mentally Ill State Match for Title XIX Sexually Violent Persons SMI Housing Costs in Maricopa County STD Control Subventions Substance Abuse - Non-Title XIX TANF Perinatal Services Telemedicine Teratogen Program U of A Poison Control Center Funding Umbilical Cord Pamphlet Vaccines Vital Records Vital Records Electronic Systems Vital Records Maintenance Women's Services Arizona Commission on the Arts Arts Endowment Fund Community Service Projects Operating Lump Sum Appropriation Arizona Commission of Indian Affairs Administrative Adjustments Operating Lump Sum Appropriation Occupational Safety & Health Review Board Employee Related Expenditures FY91 - 92 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 Department of Insurance Managed Care and Dental Plan Oversight NCOIL Participation Operating Lump Sum Appropriation Arizona Criminal Justice Commission Administrative Adjustments Methamphetamine Interdiction Operating Lump Sum Appropriation Rural State Aid to County Attorneys Rural State Aid to Indigent Defense Joint Legislative Budget Committee Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 The Notes to Required Supplementary Information are an integral part of this schedule. - 137 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 67,900 468,000 0 0 0 150,000 500,000 30,691,900 54,391,100 108,444,300 9,971,700 0 26,300 12,135,400 47,270 260,000 0 1,275,000 30,000 3,784,300 23,785 0 500,000 500,000 67,900 468,000 200,000 2,500,000 200,000 150,000 500,000 30,691,900 54,391,100 108,444,300 11,269,105 2,500,000 26,300 12,135,400 47,270 260,000 60,000 1,275,000 30,000 3,784,300 23,785 2,224,549 500,000 500,000 67,900 325,222 183,333 550,000 200,000 150,000 0 30,668,081 54,391,100 0 10,964,165 2,500,000 21,987 12,135,398 0 164,518 45,000 1,275,000 11,118 3,688,692 4,882 1,332,991 215,092 143,666 2,000,000 1,263,100 555,100 2,000,000 1,263,100 625,000 2,000,000 1,263,100 624,377 0 205,100 4,005 224,400 4,005 221,927 75 1,000 6,947 4,800 4,800 4,800 3,354 1,000 53 75 1,000 6,947 4,800 4,800 4,800 3,354 1,000 53 0 0 0 0 0 0 0 0 0 525,600 25,000 5,822,100 601,700 25,000 6,571,100 601,103 25,000 6,508,566 0 0 994,200 157,700 150,100 183,255 3,000,000 994,200 157,700 150,100 183,255 3,000,000 795,662 157,700 150,100 1,658,374 2,775,000 1,658,374 2,949,000 1,658,374 1,133,797 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2007 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Department of Library, Archives and Public Records Grants-in-Aid FY03 - 04 Grants-in-Aid FY04 - 05 Grants-in-Aid FY05 - 06 Grants-in-Aid FY06 - 07 Historical Advisory Commission Operating Lump Sum Appropriation FY01 - 02 Operating Lump Sum Appropriation FY03 - 04 Operating Lump Sum Appropriation FY04 - 05 Operating Lump Sum Appropriation FY04 - 05 Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Operating Lump Sum Appropriation FY06 - 07 Statewide Radio Reading Service for the Blind Legislative Council Arizona Centennial Celebration Juvenile Study FY97 - 98 Ombudsman-Citizens Aide Office FY05 - 06 Ombudsman-Citizens Aide Office FY06 - 07 Ombudsman-Citizens Aide Office FY93 - 94 Ombudsman-Citizens Aide Office FY94 - 95 Ombudsman-Public Access Laws Operating Lump Sum Appropriation FY00 - 01 Operating Lump Sum Appropriation FY04 - 05 Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Operating Lump Sum Appropriation FY99 - 00 State Archives and History Building FY05 - 06 State Archives and History Building FY06 - 07 Land Department CAP User Fees Due Diligence Fund Deposit Earth Fissure Maps Environmental County Grants Fire Suppression Operating Expenses Fiscal Year 2006-2007 Fire Season Inmate Fire Crews In-State and Out-of-State Fire Costs Natural Resource Conservation Districts Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Department of Liquor Licenses and Control Illegal Liquor Sales Liability Improvement of Data Processing System FY05 - 06 Improvement of Data Processing System FY06 - 07 Operating Lump Sum Appropriation Law Enforcement Merit System Council Operating Lump Sum Appropriation Division of Emergency Management & Military Affairs Administrative Adjustments Aspen Fire Emergency AZ Pre-Suppression Wildfire Resources AZ/Mexico International Border Security The Notes to Required Supplementary Information are an integral part of this schedule. - 138 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 8,737 55,400 90,571 651,400 0 57,185 4,384 27,208 25,202 4,400 6,309,700 626,700 97,000 8,737 55,400 90,571 651,400 50,000 57,185 4,384 27,208 25,202 4,400 6,792,200 661,800 97,000 7,500 55,000 3,500 559,636 0 54,261 4,380 27,208 22,474 4,385 6,791,837 584,923 97,000 0 19,520 27,410 383,100 43,000 95,169 0 158,981 189,917 174,267 4,761,200 886,420 15,000,000 15,000,000 2,450,000 19,520 27,410 383,100 43,000 95,169 185,000 158,981 189,917 174,267 5,008,100 886,420 15,000,000 15,000,000 0 0 27,410 379,158 0 0 80,115 158,981 189,917 174,267 4,273,061 0 7,235,110 0 1,347,900 500,000 0 250,000 1,907,000 1,500,000 903,500 0 430,000 230,600 15,488,500 1,000 1,347,900 500,000 80,600 250,000 2,049,900 1,500,000 974,300 3,000,000 430,000 230,600 16,302,700 1,000 1,347,900 500,000 80,418 200,000 2,040,116 1,500,000 972,226 3,000,000 430,000 169,477 16,198,468 912 0 1,250,000 0 2,813,700 450,000 1,250,000 1,250,000 3,113,100 231,773 0 139,034 3,098,498 66,600 76,400 76,274 0 720,240 37,003 636,762 60,681 720,240 37,003 636,762 60,681 40,360 1,214 512,085 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2007 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Bellemont/Prescott Boilers FY02 - 03 Brins Wildfire Emergency Civil Air Patrol February 2005 Winter Storms and Flooding February 2005 Winter Storms and Flooding February 2005 Winter Storms and Flooding Forest Health Emergency - Pine Bark Beetle Forest Health Emergency - Pine Bark Beetle Glassy-Winged Sharpshooter Emergency Glassy-Winged Sharpshooter Emergency Guardsmen Tuition Reimbursement Hazard Materials Contingency Hazard Materials Contingency La Paz County Summer Monsoon Emergency La Paz County Summer Monsoon Emergency La Paz/Maricopa Counties Storm Emergency La Paz/Maricopa Counties Storm Emergency Military Gift Package Postage Mitigation Projects Navajo, Gila and Coconino Counties Rodeo Fire Nogales and 52nd Street Building Renewal FY01 - 02 Northern Arizona Winter Storm Emergency Northern Arizona Winter Storm Emergency Northern Arizona Winter Storm Emergency Nuclear Emergency Management Fund Nuclear Emergency Mgmt Fund - Buckeye Nuclear Emergency Mgmt Fund - Maricopa Off Site Nuclear Emergency FY89 - 90 Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operation Good Neighbor Pima County Flash Flood Emergency Project Challenge Project Challenge Construction FY05 - 06 Project Challenge Construction FY06 - 07 Replace Cooling Tower at Roosevelt FY05 - 06 Re-Roofing Mesa Armory FY97 - 98 Search and Rescue Search and Rescue September Terrorism Incident Emergency Service Contracts FY05 - 06 Service Contracts FY06 - 07 Summer 2006 Monsoons and Flooding Mine Inspector Administrative Adjustments Operating Lump Sum Appropriation Department of Building and Fire Safety Operating Lump Sum Appropriation Mines and Mineral Resources Administrative Adjustments Operating Lump Sum Appropriation The Notes to Required Supplementary Information are an integral part of this schedule. - 139 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 8,724 23,708 54,200 0 450,000 383,065 45,879 12,623 0 200,000 1,446,000 14,594 5,545 0 299,330 105,336 59,673 100,000 345,494 330,778 12,032 0 508,035 211,810 0 0 0 1,708 1,860,800 846,300 1,665,900 82,367 268,878 2,092,200 500,000 0 50,000 1,325 0 11,348 106,977 401,356 1,215,000 0 8,724 23,708 54,200 1,200,000 450,000 383,065 45,879 12,623 543,000 200,000 1,446,000 14,595 5,545 300,000 299,330 105,336 59,674 100,000 345,494 330,778 12,032 500,000 508,035 211,810 312,328 56,408 309,161 1,708 2,109,998 926,068 1,665,900 82,367 268,878 1,699,034 500,000 500,000 50,000 1,325 265,000 11,348 106,977 401,356 1,215,000 1,192,000 0 16,748 54,200 568,777 450,000 383,065 0 282 181,315 198,433 1,445,356 10,251 5,545 38,704 299,330 0 240 100,000 128,270 7,698 0 109,101 349,104 209,870 312,328 56,408 309,161 0 2,106,217 926,068 1,653,257 (73,879) 173,829 1,697,906 0 0 0 0 194,791 11,348 0 401,356 905,099 419,406 0 1,116,200 46 1,226,700 46 1,106,636 3,278,400 3,625,500 3,488,818 0 794,800 4,196 843,900 4,196 843,217 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2007 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Medical Student Loans Board Administrative Adjustments Medical Student Loans FY05 - 06 Medical Student Loans FY06 - 07 Medical Student Scholarships Medical Student Scholarships Fund Transfer Northern Arizona University NAU - Yuma Operating Lump Sum Appropriation University Discretionary Adjustment Virtual Water University Navigable Streams Adjudication Commission Administrative Adjustments Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Personnel Board Operating Lump Sum Appropriation State Capitol Post-Conviction Public Defender Operating Lump Sum Appropriation Commission for Postsecondary Education Leveraging Educational Assistance Partnership Postsecondary Education Grant Program Private Postsecondary Education Student Financial Assistance Prescott Historical Society Administrative Adjustments Building Renewal - Sharlot Hall Reroof Maintenance and Workshop Facility Operating Lump Sum Appropriation Arizona Pioneers' Home Employee Related Expenditures Food Other Operating Expenditures Personal Services Professional and Outside Services Travel In-State Board of Executive Clemency Administrative Adjustments Operating Lump Sum Appropriation State Parks Board Acquisition and Development Arizona Trail Fund Growing Smarter - Transfer to Land Conservation Fund Kartchner Caverns State Park Operating Lump Sum Appropriation Operating Lump Sum Appropriation Tonto Lodge Roof Replacement FY04 - 05 Department of Public Safety Additional Highway Patrol Personnel Administrative Adjustments Building Renewal FY04 - 05 Building Renewal FY04 - 05 Building Renewal FY04 - 05 Building Renewal FY05 - 06 Building Renewal FY06 - 07 The Notes to Required Supplementary Information are an integral part of this schedule. - 140 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 0 3,944 309,800 1,500,000 0 1,176,852 3,944 309,800 1,500,000 1,176,852 1,176,852 0 309,800 1,440,936 1,176,852 2,266,000 119,884,800 3,200,000 0 2,266,000 129,983,400 3,200,000 500,000 2,266,000 129,983,400 3,200,000 500,000 0 50,000 256,800 259 50,000 267,800 259 50,000 163,922 338,300 358,100 338,617 0 220,000 23,384 1,220,800 0 400,000 1,220,800 5,000,000 400,000 1,220,800 5,000,000 400,000 0 19 400,000 639,100 25,221 19 400,000 750,400 25,221 0 1,769 750,400 0 202,200 446,800 0 126,100 25,000 216,300 202,200 491,300 260,000 86,100 25,000 200,063 201,435 465,718 259,851 81,817 18,098 0 956,700 169 1,067,900 169 1,046,730 107,100 0 0 2,354,800 5,730,500 5,501,000 99,966 107,100 250,000 20,000,000 2,539,000 6,790,300 5,853,800 99,966 0 250,000 20,000,000 2,410,144 6,579,920 5,607,147 0 5,520,900 0 2 5,803 3,318 51,349 0 5,520,900 199,535 2 5,802 3,318 61,849 50,000 3,086,175 199,535 0 0 0 50,210 45,385 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2007 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Gang and Immigration Intelligence Team Enforcement Mission GITEM GITEM Supplemental FY05 - 06 Highway Patrol Safety Equipment Microwave Communication System Motor Vehicle Fuel Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Statewide Interoperability - Phase II Statewide Interoperability Design Department of Racing Operating Lump Sum Appropriation Independent Redistricting Commission Operating Lump Sum Appropriation FY03 - 04 Real Estate Department Administrative Adjustments Operating Lump Sum Appropriation Ranger's Pension Operating Lump Sum Appropriation Department of Revenue Administrative Adjustments Administrative Adjustments BRITS Operations Kerr v. State of Arizona Lawsuit Ladewig v. Arizona - Administrative Costs Operating Lump Sum Appropriation Operating Lump Sum Appropriation Tax Credit Administration Town Population Less Than 1,500 Unclaimed Property Administration Schools for the Deaf and the Blind Administrative Adjustments Capital and Building Renewal Projects FY05 - 06 Capital and Building Renewal Projects FY06 - 07 Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation School Bus Replacement School Bus Replacement School Facilities Board Building Renewal Full Day Kindergarten Capital Grants New School Facilities New School Facilities Debt Service Operating Lump Sum Appropriation Senate Operating Lump Sum Appropriation FY04 - 05 Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Supreme Court Administrative Adjustments The Notes to Required Supplementary Information are an integral part of this schedule. - 141 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 10,000,000 15,952,900 2,523,120 3,000,000 1,500,000 3,577,500 205,000 117,680,000 86,212 296,200 2,987,500 1,258,100 10,000,000 16,544,100 2,523,119 3,000,000 1,500,000 3,577,500 205,000 126,219,100 86,212 296,200 2,987,500 1,335,000 1,286,609 13,152,991 2,191,410 2,821,163 2,727 3,443,914 153,750 126,219,100 0 277,499 478,452 838,735 2,499,500 2,750,700 2,748,783 1,597,966 1,597,966 298,885 0 3,529,500 24,363 3,986,700 24,363 3,984,699 13,000 13,000 13,000 0 0 0 632,379 0 393,500 64,582,800 0 0 1,609,000 13,615 575 1,200,000 632,379 974,600 416,800 69,731,100 75,000 850,000 1,691,300 13,615 575 1,200,000 336,751 519,487 290,225 69,513,929 75,000 850,000 1,659,341 0 109,473 19,000,000 4,288,900 9,384,100 1,270,500 2,631,200 425,000 425,000 818,947 109,473 19,000,000 3,021,100 11,708,500 4,928,000 753,300 493,600 356,400 818,947 98,403 19,000,000 2,743,390 11,196,688 4,877,779 547,248 79,059 346,107 0 723,372 200,000,000 75,733,500 1,646,100 86,283,500 723,372 250,000,000 75,733,500 1,747,200 86,283,500 239,167 250,000,000 75,733,500 1,744,566 438,093 604,615 8,109,800 438,093 604,615 8,693,000 438,093 511,206 7,464,348 0 233,516 233,516 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2007 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Administrative Adjustments Adult Intensive Probation Adult Standard Probation Automation Automation Case and Cash Management System Case and Cash Management System Commission on Judicial Conduct Community Punishment County Reimbursements Court Appointed Special Advocate Courts Building Cooling Tower Renovation Domestic Relations Drug Court Foster Care Review Board Fourth Floor Chiller FY01 - 02 Global Position and Monitoring System HVAC Storage Tank FY01 - 02 Integrated Family Court Interstate Compact Judges Compensation Judicial Nominations and 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 Probation Surcharge Progressively Increasing Consequences Repair/Rehab Cooling Tower - Courts Building FY04 - 05 Rural State Aid to Courts Special Water Master State Aid Secretary of State Election Services Help America Vote Act Help America Vote Act - Federal Funds Operating Lump Sum Appropriation Operating Lump Sum Appropriation Office of Tourism City of Yuma - Arizona Welcome Center State Treasurer Administrative Adjustments Community College Out of County Tuition Reimbursement Community College Reimbursement Corporate Income Tax Transfer Justice of the Peace Salaries Operating Lump Sum Appropriation Tax Appeals Board Administrative Adjustments Operating Lump Sum Appropriation The Notes to Required Supplementary Information are an integral part of this schedule. - 142 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 0 10,427,000 11,769,300 4,540,500 7,796,700 151,700 1,365,600 286,400 436,200 246,000 110,300 0 643,800 0 1,425,600 2,528 0 1,211 0 587,400 16,046,500 229,000 660,400 13,496,800 7,845,200 22,184,800 652,500 2,839,400 13,044,100 2,723,800 9,551,500 110,487 418,500 20,000 84,700 24,726 11,393,400 13,334,904 4,556,600 7,835,500 151,700 1,365,600 387,100 524,400 246,000 110,300 447,000 753,100 1,000,000 2,124,400 2,528 750,000 1,211 850,000 640,500 17,206,800 314,400 660,400 10,068,551 5,080,645 22,454,200 687,400 2,861,700 12,878,300 3,423,800 10,168,500 110,487 418,500 20,000 84,700 24,726 11,368,699 13,315,896 2,725,542 6,139,524 87,657 704,512 386,690 522,411 240,264 102,000 350,366 709,966 999,949 2,119,923 0 336,438 0 849,686 640,363 16,151,351 302,384 652,339 10,024,975 5,069,922 22,423,465 484,721 2,319,717 12,738,607 3,325,643 10,168,500 105,176 418,500 0 40,141 4,304,400 419,525 20,000,000 162,400 2,555,700 4,361,000 419,525 20,000,000 164,900 2,713,000 4,300,590 214,567 12,277,739 0 2,684,300 2,000,000 2,000,000 59,500 0 0 0 0 2,949,000 2,616,400 300,334 1,000,000 3,217,698 15,000,000 2,949,000 2,820,300 300,334 1,000,000 3,217,698 15,000,000 2,595,065 2,809,474 0 277,900 25 307,500 25 272,085 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2007 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) University of Arizona Agriculture Arizona Cooperative Extension Clinical Rural Rotation Clinical Teaching Support Liver Research Institute Main Campus Operating Lump Sum Appropriation Operating Lump Sum Appropriation Phoenix Medical Campus Sierra Vista Campus Telemedicine Network Virtual Water University Uniform State Law Commission Operating Lump Sum Appropriation Department of Veterans' Services Administrative Adjustments Northern Arizona Cemetery Nursing Home Project FY91 - 92 Nursing Home Project FY91 - 92 Nursing Home Project FY91 - 92 Operating Lump Sum Appropriation Pearl Harbor Memorial Southern Arizona Cemetery Southern Arizona Veterans' Home Veterans' Benefits Counseling Veterans' Organizations Contracts Water Resources Department Adjudication Support Administrative Adjustments Assured and Adequate Water Supply Administration Automated Groundwater Monitoring Dam Repair - City of Williams Operating Lump Sum Appropriation Rural Water Studies FY05 - 06 Rural Water Studies FY06 - 07 Weights & Measures Department Administrative Adjustments Operating Lump Sum Appropriation Total General Fund Budgetary Expenditures before Adjustments Less: Department of Health Services appropriations for Children's Rehabilitative Services, Arnold v. Sarn, Assurance and Licensure, Title XIX State Match, and Medicaid Special Exemption that were duplicate expenditure authorizations Total General Fund Budgetary Expenditures after Adjustments FINAL BUDGET (Appropriations) 30,698,900 11,588,800 485,800 9,733,000 512,600 6,200,000 244,808,500 46,287,100 6,000,000 3,535,100 1,191,900 0 33,618,000 11,735,700 504,400 9,820,500 525,600 6,200,000 265,621,500 50,395,300 6,014,000 3,747,900 1,213,700 500,000 33,618,000 11,735,700 504,400 9,820,500 525,600 6,200,000 265,621,500 50,395,300 6,014,000 3,747,900 1,213,700 500,000 52,300 52,300 51,135 0 182,700 3,605 18,934 13,284 1,200,100 0 256,200 10,000,000 2,070,000 29,200 4,426 182,700 3,605 18,934 13,284 1,387,100 69,000 272,100 10,000,000 2,209,600 29,200 4,426 182,700 0 0 0 1,380,489 69,000 271,888 0 2,203,478 29,200 500,000 0 1,700,000 500,000 1,500,000 15,185,600 8,461 1,911,000 500,000 73,944 1,700,000 500,000 1,500,000 16,266,800 8,461 1,911,000 499,886 73,944 1,699,802 494,894 1,498,435 16,249,984 639 1,626,206 0 1,531,400 2,779 1,649,800 2,779 1,625,573 15,208,643,151 16,859,845,358 15,522,686,128 (590,068,600) $ ACTUAL EXPENDITURE AMOUNTS 14,618,574,551 The Notes to Required Supplementary Information are an integral part of this schedule. - 143 - (590,324,500) $ 16,269,520,858 0 $ 15,522,686,128 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, 2007 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) TRANSPORTATION AND AVIATION PLANNING, HIGHWAY MAINTENANCE AND SAFETY FUND Department of Transportation Abandoned Vehicle Administration Administrative Adjustments Airport Planning and Development FY05 - 06 Airport Planning and Development FY06 - 07 Alternate Truck Route - Douglas Chino Road Arizona-Mexico Border Points FY97 - 98 Asbestos and Lead Inspections FY01 - 02 Asbestos and Lead Inspections FY02 - 03 Attorney General Legal Services Building Renewal FY04 - 05 Building Renewal FY05 - 06 Building Renewal FY05 - 06 Building Renewal FY06 - 07 Building Renewal FY06 - 07 Cash Transfer to STAN Account De-Icer Buildings FY05 - 06 De-Icer Buildings FY06 - 07 Douglas Maintenance Yard Admin Adjustment FY90 - 91 Douglas Weigh Station East Valley Maintenance Yard FY02 - 03 Glendale Airport Civil Air Patrol Infrastructure Improvements Grand Canyon Airport Modular Housing Highway Construction FY05 - 06 Highway Construction FY06 - 07 Highway Maintenance FY04 - 05 Highway Maintenance FY05 - 06 Highway Maintenance FY05 - 06 Highway Maintenance FY06 - 07 Highway Maintenance FY06 - 07 Modular Trailer Operating Expenses Motor Carrier Towing Regulation Motor Vehicle - Electronic Certificate of Title System FY01 - 02 Motor Vehicle - Electronic Certificate of Title System FY02 - 03 Motor Vehicle - One-Time Trailer Fees Implementation Motor Vehicle - Security Enhancement Issues FY01 - 02 Motor Vehicle - Security Enhancement Issues FY02 - 03 New Third Party Funding New Third Party Funding New Third Party Funding New Third Party Funding Nogales Cyber Port Study Nogales Port of Entry FY98 - 99 Oil/Asphalt Storage Tanks FY05 - 06 Oil/Asphalt Storage Tanks FY06 - 07 On-Line Verification of Social Security Numbers Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation $ 930,800 0 2,310,020 20,464,200 250,000 569 128,179 589,465 2,574,800 475,723 41,913 3,073,564 75,800 3,627,100 62,000,000 724,924 1,478,000 2,000 178,000 311,771 200,000 2,500,000 63,314,310 226,273,000 2 2,843,158 193 112,919,500 558,700 7,519 11,108 4,852 13,488 43,724 1 1,083,571 176,800 88,400 201,800 204,700 300,000 2 637,524 1,587,600 797 2,029,800 38,817,700 121,750,900 90,740,300 61,500 The Notes to Required Supplementary Information are an integral part of this schedule. - 144 - FINAL BUDGET (Appropriations) $ 1,018,800 314,349 2,310,020 20,464,200 250,000 569 128,180 589,466 2,737,700 475,723 41,913 3,073,564 75,800 3,627,100 62,000,000 724,924 1,478,000 2,000 178,000 311,771 200,000 2,500,000 63,314,310 276,273,000 0 2,843,158 193 118,087,100 558,700 7,519 11,108 4,852 13,488 43,724 1 1,083,571 176,800 88,400 201,800 219,900 300,000 2 637,524 1,587,600 797 2,188,800 41,155,200 129,297,500 98,284,000 68,600 ACTUAL EXPENDITURE AMOUNTS $ 965,921 314,349 2,031,236 14,777,092 0 0 19,892 0 2,737,700 413,428 41,548 2,120,579 51,473 1,516,365 62,000,000 724,924 0 0 0 37 200,000 14,002 63,314,310 244,336,728 0 2,841,658 0 115,882,600 558,700 0 0 0 0 0 0 125,084 131,503 59,221 201,345 219,900 0 0 632,182 410,100 0 2,181,581 41,082,237 129,228,444 97,769,599 59,292 (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, 2007 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Payson Equipment Shop FY05 - 06 Payson MVD Service Center FY05 - 06 Safety, Security, Traffic Management and Control San Luis Poe Connector Road Site Improvement - Nogales Inspection Station Special Projects FY98 - 99 Sprinklers and Fire Alarms Surprise Motor Vehicle Division Service Center Third Party for Driver License Exams Traffic Safety Improvement Agreements Transfer to Department of Public Safety Transfer to Department of Public Safety Transfer to Department of Public Safety Transfer to Department of Public Safety Vehicles and Heavy Equipment Fuel Surcharge Total Transportation and Aviation Planning, Highway Maintenance and Safety Fund Budgetary Expenditures FINAL BUDGET (Appropriations) 1,348,600 3,560,800 131,500 383,300 882,537 896,475 18,000 200,000 54,000 30,868 1,203,800 2,736,200 0 200,000 826,000 10,000,000 1,512,000 10,000,000 1,000,000 $ 800,591,857 The Notes to Required Supplementary Information are an integral part of this schedule. - 145 - ACTUAL EXPENDITURE AMOUNTS 1,445,700 3,827,200 136,800 383,300 882,537 896,475 18,000 200,000 54,000 30,868 1,203,800 2,736,200 4,100 200,000 826,000 10,000,000 1,512,000 10,000,000 1,000,000 $ 874,306,706 1,348,864 2,973,078 111,774 383,300 882,537 7,394 0 0 0 0 223,383 1,825,506 4,100 200,000 826,000 10,000,000 1,512,000 10,000,000 1,000,000 $ 818,260,966 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION – BUDGETARY COMPARISON SCHEDULES JUNE 30, 2007 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, 2006 that affect available appropriations during fiscal year 2007. The final budget represents any appropriation bills passed during fiscal year 2007 for fiscal year 2007 plus the original budget. Appropriation bills passed after the end of fiscal year 2007 for fiscal year 2007 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): Ge n e ral Fu n d Tran sportati on & Avi ati on Pl an n i n g, Hi gh way Mai n te n an ce & S afe ty Fu n d 15,522,686 $ Use s/ou tfl ows of re sou rce s Act ual expendit ure amount s (budget ary basis) "t ot al charges t o appropriat ions" from t he budget ary comparison schedule $ 818,261 Differences - budget t o GAAP : Increase (decrease) in unpaid incurred expendit ures from fiscal year end 2006 t o fiscal year end 2007. (210,921) Increase in unpaid payroll expendit ures from fiscal year end 2006 t o fiscal year end 2007. For budget ary report ing, final June 2007 payroll expendit ures were charged t o fiscal year 2008 budget . 377,586 1,982 - Dist ribut ions t o count ies and cit ies of sales t axes are recognized as expendit ures on t he modified accrual basis, but have no effect on budget ary expendit ures. 1,094,104 - Dist ribut ion t o count ies and cit ies for Urban Revenue Sharing, derived from t he St at e's income t ax collect ions, is recognized as an expendit ure on t he modified accrual basis, but has no effect on budget ary expendit ures. 551,231 - Capit al leases and inst allment purchase cont ract s init iat ed during t he fiscal year, which are not report ed in budget ary expendit ures. 83,553 2,128 P rograms which are not cont rolled by legislat ive appropriat ions but have disbursed cash or incurred obligat ions during fiscal year 2007. 2,891,982 1,413,847 T ransfers t o ot her funds are out flows of budget ary resources but are not expendit ures for financial report ing purposes. T ot al expendit ures, as report ed on t he St at ement of Revenues, Expendit ures and Changes in Fund Balances (1,287,356) $ 18,647,261 (297,489) $ 2,314,333 There were no expenditures in excess of appropriations or allotments in the individual budget accounts for the year. - 146 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION – BUDGETARY COMPARISON SCHEDULES JUNE 30, 2007 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 the appropriation of certain state revenues (primarily tax and fee collections) from exceeding 7.41% of Arizona 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 four-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 1997, Chapter 210 required 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” seventeen 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 90.00% 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 Appropriation 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 Arizona 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 Appropriations 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 other line items. - 147 - STATE OF ARIZONA REQUIRED SEPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION – BUDGETARY COMPARISON SCHEDULES JUNE 30, 2007 During the fiscal year, $1.9 billion 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 $1.7 billion and $73.715 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 – General Accounting Office 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 expenditures 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. An example of this is found in the $193.385 million Department of Health Services Children’s Behavioral Health State Match for Title XIX on page 135. 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 143. - 148 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2007 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 6,817 center lane miles (18,573 travel lane miles) of roads and 4,648 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 2008 and beyond was adopted by the Transportation Board on June 15, 2007. 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 in the tables that follow, significant variances can occur. These variances are primarily due to the methodology used in the preparation of the Program. In this Program, the Estimated Expenditures for the current year are based on “programmed” projects which may or may not be spent in the current year of the Program. “Programmed” expenditures consist of those items that are planned for the future 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 Arizona 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 - 149 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2007 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: 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 2007, an overall rating of 3.87 was achieved, as shown in the following graph: Condition Level - Roads 5.00 PSR 4.00 3.00 Actual Level Desired Level 2.00 1.00 0.00 2003 2004 2005 2006 2007 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 ADOT. The estimated (as specified in the Program as programmed amounts) and actual expenditures for fiscal years 2003 through 2007 were as follows: Fiscal Year 2003 2004 2005 2006 2007 Estimated Expenditures (in millions) $243.5 $198.5 $235.7 $218.5 $216.4 - 150 - Actual Expenditures, as restated (in millions) $220.4 $218.5 $195.0 $211.5 $196.5 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2007 Bridges Bridges constitute a significant portion of all infrastructure assets in Arizona. As of June 30, 2007, the State owns and maintains 4,648 bridges with an approximate total deck area of 44,356,907 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 the 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 2007, the CRI was computed at 93.6%. - 151 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2007 Condition Levels - Bridges 95% 94% CRI 93% Actual Level Desired Level 92% 91% 90% 2003 2004 2005 2006 2007 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 providing products and services for a safe, efficient, and cost effective transportation system. Figure 3 indicates that approximately 60% of the bridges in the State were constructed prior to the 1970s while only 20% have been constructed in the last two decades. Age of the ADOT's Bridge Population 30 % of bridges built in corresponding decade 25 20 15 10 5 0 < 1930 30s 40s 50s 60s Figure 3 - 152 - 70s 80s 90s 2000s STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2007 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 2003 through 2007 were as follows: Fiscal Year 2003 2004 2005 2006 2007 Estimated Expenditures, as restated (in millions) $13.6 $ 8.7 $ 7.4 $10.6 $17.1 - 153 - Actual Expenditures, as restated (in millions) $16.2 $ 9.2 $11.0 $11.3 $22.5 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION AGENT RETIREMENT PLANS’ FUNDING PROGRESS JUNE 30, 2007 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 6/30/2007 6/30/2006 6/30/2005 Actuarial Value of Plan Assets $ 537,999 569,832 573,536 Actuarial Accrued Liability (AAL) $ 831,294 764,616 718,353 6/30/2007 6/30/2006 6/30/2005 713,382 703,316 674,749 838,881 743,593 696,396 - 154 - (Unfunded) AAL $ (293,295) (194,784) (144,817) Funded Ratio 64.7% 74.5% 79.8% Annual Covered Payroll $ 89,498 80,887 73,779 (Unfunded) AAL as Percentage of Covered Payroll (327.7)% (240.8)% (196.3)% (125,499) (40,277) (21,647) 85.0% 94.6% 96.9% 369,337 311,118 295,772 (34.0)% (12.9)% (7.3)% 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, long-term 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, 2007 (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 - $ 5,052 968,391 29,889 2,573 1,000,853 18,443 3,345 27,701 89 81,093 156 304 2,010 - 675 135 - 18,443 4,324 27,701 89 83,238 156 1,543 1 2,196 22 - 206,271 2,755 - 210,010 2,777 1 $ 1,105,814 $ 34,421 $ 212,409 $ 1,352,644 $ 35,601 81,415 112,609 29 11,056 1,203 1,280 243,193 $ - $ 40 40 $ 35,641 81,415 112,609 29 11,056 1,203 1,280 243,233 Fund Balances: Reserved for: Highway construction Other construction Continuing appropriations Debt service Unreserved Total Fund Balances Total Liabilities and Fund Balances 5,052 DEBT SERVICE FUNDS 39,842 822,779 862,621 $ 1,105,814 34,421 34,421 $ 34,421 - 158 - 207,081 5,288 212,369 $ 212,409 207,081 5,288 39,842 34,421 822,779 1,109,411 $ 1,352,644 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) SPECIAL REVENUE FUNDS REVENUES Taxes: Sales Income Tobacco Motor vehicle and fuel 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 Capital lease and installment purchase contracts Bonds issued Premium on bonds issued Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ 532,929 41 259,769 6,297 91,090 51,372 198,128 25,997 25,703 158,114 88,020 100,434 1,537,894 DEBT SERVICE FUNDS $ CAPITAL PROJECTS FUNDS 65,795 4,936 1 70,732 $ 9,212 9,212 TOTAL $ 598,724 41 259,769 6,297 91,090 51,372 198,128 40,145 25,703 158,114 88,020 100,435 1,617,838 139,415 340,142 113,790 641,492 95,904 156,975 - 4,438 - 139,415 340,142 113,790 641,492 95,904 4,438 156,975 4,495 2,350 61,442 1,556,005 169,205 140,937 310,142 1,592 167,366 173,396 173,700 144,879 228,808 2,039,543 (18,111) (239,410) (164,184) (421,705) 215,680 (117,784) 47,304 145,200 127,089 735,532 247,750 (11,711) 236,039 (3,371) 37,792 (1,348) 325,000 26,201 349,853 185,669 26,700 463,430 (130,843) 47,304 325,000 26,201 731,092 309,387 800,024 862,621 $ - 159 - 34,421 $ 212,369 $ 1,109,411 NON-MAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS 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; to increase the quality of, and access to, the early childhood development and health system that ensures a child entering school comes healthy and ready to succeed; and for 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 strategic water resources planning, Colorado River water management, drought management planning, dam safety, flood mitigation, administration of the Arizona Groundwater Management Code, and administration of water rights. 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, 2007 (Expressed in Thousands) PUBLIC SAFETY & CORRECTIONAL ENVIRONMENTAL PROTECTION PROGRAMS 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 Other Total Assets $ 4,980 $ 14 HEALTHCARE & SOCIAL SERVICES $ - TOBACCO TAX & HEALTHCARE $ - JUDICIAL & LEGAL SERVICES $ REGULATING & LICENSING - $ 26 132,543 108,572 54,045 95,408 52,439 114,024 4,176 468 26 89 4,707 156 515 10,727 - 575 85 8,282 7,756 - 13,692 375 482 - 178 1,799 - 178 3,261 191 - - - 1,543 - - - - $ 147,145 $ 119,828 $ 72,286 $ 109,957 $ 54,416 $ 117,680 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 9,070 614 10 10 39 9,743 $ 7,276 58,016 65,292 $ 3,229 16,646 2,118 1,203 1,236 24,432 $ 6,121 117 7,682 13,920 $ 2,459 988 222 3,669 $ 1,939 2,820 19 717 5,495 Fund Balances: Reserved for: Continuing appropriations Unreserved Total Fund Balances Total Liabilities and Fund Balances 4,801 132,601 137,402 $ 147,145 4,505 50,031 54,536 $ 119,828 - 162 - 594 47,260 47,854 $ 72,286 94 50,653 50,747 2,371 93,666 96,037 $ 109,957 $ 54,416 3,103 109,082 112,185 $ 117,680 GROUNDWATER STATE PARKS BUSINESS EDUCATIONAL PROTECTION & DEVELOPMENT DEVELOPMENT PROGRAMS CONSERVATION GAME & FISH $ 30 $ 2 $ - $ - $ - CLEAN ELECTIONS SYSTEM $ - TOTAL $ 5,052 45,821 70,996 63,679 142,008 53,542 35,314 968,391 264 2,103 433 - 420 282 - 467 21 41,668 - 17 14,008 13,048 - 378 - - 18,443 3,345 27,701 89 81,093 156 - - 1 - - - 1,543 1 $ 48,651 $ 71,700 $ 105,836 $ 169,081 $ 53,920 $ 35,314 $ 1,105,814 $ 2,361 1,581 289 4,231 $ 2,491 190 6 2,687 $ 406 212 5 5 628 $ 131 139 112,609 3 112,882 $ 95 66 4 165 $ 23 26 49 $ 35,601 81,415 112,609 29 11,056 1,203 1,280 243,193 5,292 39,128 44,420 $ 48,651 2,435 66,578 69,013 $ 71,700 1 105,207 105,208 $ 105,836 16,646 39,553 56,199 $ 169,081 53,755 53,755 $ - 163 - 53,920 35,265 35,265 $ 35,314 39,842 822,779 862,621 $ 1,105,814 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) PUBLIC SAFETY & CORRECTIONAL ENVIRONMENTAL PROTECTION PROGRAMS REVENUES Taxes: Sales Income Tobacco Motor vehicle and fuel 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 Capital lease and installment purchase contracts Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ 22,421 3 6,563 52,802 6,807 16,116 3,844 7,414 63,802 5,325 185,097 $ 6,257 2,449 227 42,235 4,266 64 2,069 326 57,893 HEALTHCARE & SOCIAL SERVICES $ 7,001 12,335 1 15,580 10,502 719 487 12,356 23,630 5,353 87,964 TOBACCO TAX & HEALTHCARE $ 240,871 502 1,516 91 242,980 JUDICIAL & LEGAL SERVICES $ 926 7,803 1,181 15,074 65,729 561 91,274 REGULATING & LICENSING $ 35,336 1,452 74,119 1,443 643 4,482 9,777 6,757 134,009 29,185 95,904 14,751 1,129 98,162 1,416 660 4,271 77,445 - 493 164,495 353 - 59,487 - 1,148 40 112,374 - 4,405 2,341 49,161 195,747 22 101,389 132 81,848 56 165,397 9 215 59,711 82 1,374 115,018 (10,650) (43,496) 6,116 77,583 31,563 18,991 54,233 (61,439) 56,800 (1,305) 7,641 (2,954) 13 (1,842) 3,656 (26,728) 549 (13,517) 46,955 39,749 29,099 108,303 55,495 11,999 42,537 4,687 10,803 37,051 (1,829) 75,754 20,283 (23,072) 8,491 42,256 217 (12,751) 6,240 105,945 137,402 $ 54,536 - 164 - $ 47,854 $ 96,037 $ 50,747 $ 112,185 GAME & FISH $ $ 22,683 35,937 2,016 357 150 6,751 3,255 71,149 GROUNDWATER STATE PARKS BUSINESS EDUCATIONAL PROTECTION & DEVELOPMENT DEVELOPMENT PROGRAMS CONSERVATION $ 3,031 3,284 248 6,563 $ 2,063 2,482 3,818 425 43,163 51,951 $ 503,507 38 40 1,634 66 412 1,195 47,862 25,768 580,522 $ 5,837 3,498 44 3,097 12,476 CLEAN ELECTIONS SYSTEM $ 9,526 6,490 16,016 TOTAL $ 532,929 41 259,769 6,297 91,090 51,372 198,128 25,997 25,703 158,114 88,020 100,434 1,537,894 62,323 16,304 32,658 233 641,139 - 62,704 11,044 - 139,415 340,142 113,790 641,492 95,904 156,975 8 6,701 69,032 3,274 19,578 35 32,926 472 641,611 62,704 11,044 4,495 2,350 61,442 1,556,005 2,117 (13,015) 19,025 (61,089) (50,228) 4,972 (18,111) 10,880 (3,141) 21,468 (880) 2,933 (3,051) 43,407 (443) 14,100 (25) (2,459) 215,680 (117,784) 132 7,871 9,988 34,432 20,588 7,573 61,440 (118) 18,907 86,301 42,964 (18,125) 74,324 14,075 (36,153) 89,908 (2,459) 2,513 32,752 47,304 145,200 127,089 735,532 44,420 $ 69,013 $ 105,208 $ 56,199 $ - 165 - 53,755 $ 35,265 $ 862,621 STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2007 (Expressed in Dollars) FINAL BUDGET (Appropriations) OTHER GOVERNMENTAL FUNDS Board of Accountancy Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Department of Administration Administrative Adjustments Archives and History Building FY04 - 05 Department of Corrections Fort Grant Landfill Closure Government Building Defibrillators FY01 - 02 Government Building Defibrillators FY02 - 03 New Prison Complex FY99 - 00 Operating Lump Sum Appropriation Operating Lump Sum Appropriation Pioneers' Home Plumbing Renovations FY01 - 02 Pioneers' Home Plumbing Renovations FY03 - 04 Yuma Prison Water Treatment Plant Upgrade Radiation Regulatory Agency Administrative Adjustments MRTB Assistant FY02 - 03 Operating Lump Sum Appropriation Attorney General Administrative Adjustments Administrative Adjustments Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Victims' Rights Victims' Rights/Non Reverting - HB2427 Department of Agriculture 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 FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 $ 590,422 2,287,400 ACTUAL EXPENDITURE AMOUNTS $ 394,701 1,003,907 712 232,756 43,123 16 293 260,698 717,000 575,100 2,590 262,957 2,189,000 712 5,500 0 0 0 0 651,758 565,834 0 0 0 281 11,375 281,800 281 0 275,124 246,955 196 2,135,000 318,000 4,585,200 6,497,500 3,266,400 131,699 246,955 196 1,341,950 314,068 3,821,455 6,497,134 3,256,639 38,132 78 6,154 401 71,700 291,300 721,300 274,800 21,400 53,100 79,400 290,800 1,042,800 9,200 186,100 54,858 78 6,154 401 67,544 289,918 584,347 274,240 21,400 41,310 73,300 290,480 861,947 7,666 113,258 0 18,625 106,900 18,625 96,680 (Continued) - 166 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2007 (Expressed in Dollars) FINAL BUDGET (Appropriations) State Board of Appraisal Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Automobile Theft Authority Administrative Adjustments Automobile Theft Authority Grants Operating Lump Sum Appropriation Reimbursable Programs Board of Barbers Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Board of Behavioral Health Examiners Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 State Board of Nursing Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Board of Cosmetology Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Corporation Commission Administrative Adjustments Administrative Adjustments Administrative Adjustments Annual Reversion per ARS 10-122 Annual Reversion per ARS 44-3298 Corporation Filings, Same Day Service Investigation and Prosecution of Security Fraud Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Utilities Audits, Studies, Investigations and Hearings FY01 - 02 Utilities Audits, Studies, Investigations and Hearings FY02 - 03 Utilities Audits, Studies, Investigations and Hearings FY03 - 04 Utilities Audits, Studies, Investigations and Hearings FY04 - 05 Utilities Audits, Studies, Investigations and Hearings FY05 - 06 Utilities Audits, Studies, Investigations and Hearings FY06 - 07 State Board of Chiropractic Examiners Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Department of Corrections Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Correctional Officer Personal Services Drug Treatment Pilot Program Employee Related Expenditures Health Care All Other Operating Expenditures Non-Health Care All Other Operating Expenditures Non-Health Care All Other Operating Expenditures ACTUAL EXPENDITURE AMOUNTS 75,020 586,200 74,993 553,191 2,874 4,530,500 671,100 50,000 2,874 4,529,769 670,085 0 40,441 300,500 259 230,480 272,025 1,366,200 952 1,203,325 6,148 3,398,400 6,103 3,392,054 80,558 1,673,600 80,188 1,662,463 9,429 13,463 6,580 1,284,304 977,599 400,400 165,599 12,720,600 3,714,900 3,416,900 893,900 369,620 379,999 379,999 380,000 380,000 380,000 9,429 13,463 6,580 1,284,304 977,599 0 0 12,515,650 3,454,850 3,336,696 887,530 180,937 7,034 18,650 0 0 0 23,141 509,200 23,141 474,860 3,494,342 46,263 48,834 19,792 334,834 640,814 302,500 229,372 63,600 10,250,000 599,300 600,000 3,494,342 46,263 48,834 19,792 334,834 640,814 302,500 205,982 63,600 10,250,000 218,125 258,958 (Continued) - 167 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2007 (Expressed in Dollars) FINAL BUDGET (Appropriations) Non-Health Care All Other Operating Expenditures Non-Health Care All Other Operating Expenditures Private Prison Per Diem Relief Bill State Charitable, Penal and Reformatory Land Earnings Department of Economic Security ADM Attorney General Legal Services ADM Operating Lump Sum Appropriation ADM Operating Lump Sum Appropriation ADM Operating Lump Sum Appropriation ADM Public Assistance Collections Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments DACS Community and Emergency Services DACS Domestic Violence Prevention DCYF Child Abuse Prevention DCYF Children Support Services DCYF Operating Lump Sum Appropriation DDD Autism Training and Oversight DERS Independent Living Rehabilitation Services DERS JOBS DERS Operating Lump Sum Appropriation DERS Operating Lump Sum Appropriation DERS Vocational Rehabilitation Services Commission for the Deaf and Hard of Hearing Interpreters for Certification and Licensure Operating Lump Sum Appropriation Department of Juvenile Corrections Operating Lump Sum Appropriation Operating Lump Sum Appropriation State Board of Dispensing Opticians Operating Lump Sum Appropriation State Board of Dental Examiners Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Department of Education Achievement Testing - Proposition 301 FY05 - 06 Achievement Testing - Proposition 301 FY06 - 07 Additional School Days - Proposition 301 FY05 - 06 Additional School Days - Proposition 301 FY06 - 07 Basic State Aid Entitlement Character Education - Proposition 301 FY04 - 05 Character Education - Proposition 301 FY05 - 06 Character Education - Proposition 301 FY06 - 07 Failing School Tutoring Fund FY03 - 04 Failing School Tutoring Fund FY04 - 05 Failing School Tutoring Fund FY05 - 06 Failing School Tutoring Fund FY06 - 07 Hayden Winkelman Bond Redemption FY07 School Accountability - Proposition 301 FY02 - 03 School Accountability - Proposition 301 FY03 - 04 ACTUAL EXPENDITURE AMOUNTS 869,200 570,000 28,674,300 37,582 1,165,100 821,010 569,418 28,640,784 37,582 138,384 105,100 608,600 130,000 87,700 267,500 1,019,128 2,200 12,490 382,172 233,587 500,000 1,700,000 824,900 750,000 209,600 200,000 1,707,700 1,500,000 85,000 551,300 204,700 33,154 6 13,135 65,775 257,184 1,019,128 2,200 12,490 382,172 233,587 500,000 1,699,953 35,683 750,000 62,125 70,406 1,284,511 0 19,153 376,395 165,745 488,501 5,391,300 56,169 4,076,234 685,300 1,094,900 685,300 1,094,900 110,100 109,775 80,267 1,026,500 80,267 1,026,441 1,910,908 2,340,300 7,190,042 86,280,500 45,220,700 129,000 200,000 200,000 1,388,436 1,387,346 1,432,925 1,500,000 1,865,400 12,527 2,873,404 1,486,216 0 7,190,042 79,090,458 45,220,700 0 0 0 1,388,346 498,751 656,495 943,706 1,865,400 0 2,846,958 (Continued) - 168 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2007 (Expressed in Dollars) FINAL BUDGET (Appropriations) School Accountability - Proposition 301 FY04 - 05 School Accountability - Proposition 301 FY05 - 06 School Accountability - Proposition 301 FY06 - 07 School Acct - School Safety - Proposition 301 FY03 - 04 School Acct - School Safety - Proposition 301 FY04 - 05 School Acct - School Safety - Proposition 301 FY05 - 06 School Acct - School Safety - Proposition 301 FY06 - 07 Department of Commerce Advertising and Promotion Arizona Sonora Economic Development Study Arizona Trade Office in Sonora 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 Department of Environmental Quality Administrative Adjustments 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 Emissions Cap & Trading Program FY01 - 02 Emissions Cap & Trading Program FY02 - 03 Emissions Control Contractor Payment Emissions Control Program - Administration Hazardous Waste Reserve FY94 - 95 Hazardous Waste Reserve FY95 - 96 Political Subdivisions Assistance FY01 - 02 Roadside Diesel Emissions Testing Program FY01 - 02 Roadside Diesel Emissions Testing Program FY02 - 03 School Bus and Air Quality Grants FY05 - 06 Solid Waste Program Solid Waste Program Solid Waste Program Solid Waste Program Transfers to Counties 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 ACTUAL EXPENDITURE AMOUNTS 724,815 3,373,056 4,659,700 4 39,806 324,045 7,800,000 685,204 3,265,624 1,142,501 0 33,148 319,835 7,573,281 659,200 6,139 25,000 274,600 104,000 966,800 1 130,000 121,000 200,000 175,600 658,800 45,000 118,800 625,766 6,139 25,000 270,930 103,500 966,066 0 113,978 120,985 200,000 122,669 602,199 38,257 114,279 26,837 24,470 251,355 527,208 2,947 22 40,008 5,816,200 4,773,900 186,035 182,451 70,576 266,582 31,739,600 4,179,700 64,000 29,273 18,500 200,000 200,000 3,220,000 780,000 2,169,500 1,263,100 137,300 165,000 1 18,857 22,000 7,500 80,589 26,837 24,470 251,355 527,208 2,947 22 40,008 5,037,436 3,144,161 0 0 0 0 29,999,751 2,532,143 0 0 0 0 0 49,044 246,924 1,792,329 765,559 6,457 165,000 0 0 2,308 0 0 (Continued) - 169 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2007 (Expressed in Dollars) FINAL BUDGET (Appropriations) Visibility Index Development FY02 - 03 Waste Tire Program Water Quality Program State Board of Funeral Directors & Embalmers Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Game and Fish Department Administrative Adjustments Administrative Adjustments Bellemont Shooting Range Improvement FY04 - 05 Black Canyon Dam Modifications FY05 - 06 Black Canyon Dam Modifications FY06 - 07 Building Renewal FY02 - 03 Building Renewal FY04 - 05 Building Renewal FY05 - 06 Building Renewal FY06 - 07 Cluff Ranch Access Improvements DPS Microwave Communications System Facility Improvements FY01 - 02 Facility Improvements FY02 - 03 Flagstaff Office Parking Gate Flagstaff Shooting Range Development FY00 - 01 Flagstaff Shooting Range Development FY99 - 00 Flagstaff Shooting Range Planning FY01 - 02 Flagstaff Shooting Range Planning FY02 - 03 Flood Warning System Headquarters Expansion and Renovation FY02 - 03 Headquarters Paving FY04 - 05 Headquarters Security System FY03 - 04 House Rock Driveway Surfacing Lake Havasu Shooting Range Development FY03 - 04 Lower Colorado Multi-Species Conservation Mesa Office Security System FY04 - 05 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 FY05 - 06 Migratory Waterfowl Habitat FY06 - 07 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 Incentive Pay Program FY03 - 04 Performance Incentive Pay Program FY06 - 07 Performance Incentive Pay Program FY06 - 07 Pinetop Warehouse and Paving FY03 - 04 Pittman - Robertson/Dingell - Johnson Act ACTUAL EXPENDITURE AMOUNTS 10,099 219,800 4,200,400 0 45,558 2,748,755 4,147 333,100 4,147 333,090 41,479 358 800,000 500,000 300,000 1 22,507 247,686 430,800 50,000 207,000 70,891 134 10,000 73,859 11,584 459,179 499,900 350,000 463,285 1 67 25,000 298,464 350,000 15,495 90,976 76,500 85,931 97,486 17,729 100,000 100,000 1,302 24,201,800 2,779,500 328,200 43,400 16,000 13 2 322 1,076 300,000 46,800 774 2,808,000 41,479 358 0 1,000 2,000 0 0 223,492 331,102 0 207,000 38,424 129 10,000 20,310 11,584 0 0 28,140 414,593 0 (4,121) 0 962 350,000 10,732 25,000 3,500 0 12,500 12,500 0 0 0 22,680,468 2,496,146 187,579 13,376 0 0 0 0 0 0 0 763 2,808,000 (Continued) - 170 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2007 (Expressed in Dollars) FINAL BUDGET (Appropriations) Shade Canopies FY04 - 05 Shooting Range Access Improvements Shooting Range Development FY01 - 02 Shooting Range Development FY02 - 03 Shooting Range Development/Grants Program FY05 - 06 Shooting Range Development/Grants Program FY06 - 07 Sierra Vista Shooting Range Improvement FY04 - 05 Silver Creek Hatchery Improvements FY04 - 05 Statewide Preventative Maintenance FY04 - 05 Statewide Preventative Maintenance FY05 - 06 Statewide Preventative Maintenance FY06 - 07 Tonto Creek Hatchery Improvements FY04 - 05 Tri-State Shooting Range Development FY04 - 05 Yuma Office Fence Yuma Office Security System Yuma Storage Canopy Department of Gaming Casino Operation Certification Operating Lump Sum Appropriation Problem Gambling Problem Gambling Arizona Health Care Cost Containment System Administrative Adjustments Capitation Children's Health Insurance Program - Children Children's Health Insurance Program - Parents KidsCare - Administration Proposition 204 - Capitation Proposition 204 - Capitation Proposition 204 - County Hold Harmless Proposition 204 - Medicare Arizona Department of Housing Operating Lump Sum Appropriation Homeopathic Medical Examiners Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Department of Health Services Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Alzheimer's Disease Research Assurance and Licensure Attorney General Legal Services Autism Services - Applied Behavioral Analysis Autism Services - Intensive Early Intervention Child Fatality Review Team Community Health Centers EMS Operations ACTUAL EXPENDITURE AMOUNTS 84,683 200,000 2,601 13,783 92,250 100,000 31,584 76,704 924 1 15,000 184,809 300,000 10,000 30,000 35,000 40,258 807 2,601 12,536 86,246 8,462 11,299 2,800 917 0 15,000 51,675 0 0 0 35,000 2,054,600 8,000,000 300,000 1,512,800 1,703,111 7,959,796 300,000 1,493,421 405,288 58,840,800 82,693,500 34,924,100 8,634,900 24,321,700 15,023,600 4,825,600 9,522,000 405,288 58,832,410 82,450,226 34,540,800 8,496,741 17,416,457 14,990,538 4,825,600 8,721,194 728,100 704,026 409 87,800 409 87,474 231,250 306,429 378,362 33,000 19,869 417 31,479 25,115 595 1,000,000 38,000 50,000 1,800,000 500,000 100,000 3,000,000 3,163,800 231,250 306,429 378,362 33,000 19,869 417 31,479 25,115 595 1,000,000 31,465 50,000 0 236,000 99,814 2,713,551 2,887,672 (Continued) - 171 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2007 (Expressed in Dollars) FINAL BUDGET (Appropriations) Folic Acid High Risk Perinatal Services Laboratory Services Loan Repayment Newborn Screening Fund - Indirect Costs Newborn Screening Program Nursing Care Institution Incentive Grants Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY05 - 06 Primary Trauma Centers AZ Relief Bill Cash Transfer Seriously Mentally Ill Non-Title XIX Statewide Emergency Medical Trauma System FY04 - 05 Substance Abuse - Non-Title XIX Trauma Advisory Board Industrial Commission of Arizona Administrative Adjustments Operating Lump Sum Appropriation Relief Bill Arizona Criminal Justice Commission Crime Victim Compensation Special AG Transfer 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 Division of Emergency Management & Military Affairs Operating Lump Sum Appropriation Medical Examiners Board Litigation Expenses Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Performance Based Incentive Program Naturopathic Physicians Board of Medical Examiners Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Nursing Care Examiners Board Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 State Board of Optometry Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Arizona Board of Osteopathic Examiners Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Board of Occupational Therapy Examiners Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Commission for Postsecondary Education Administrative Adjustments ACTUAL EXPENDITURE AMOUNTS 200,000 450,000 946,100 150,000 478,600 5,597,900 128,500 199,500 825,600 350,000 29,781 2,000,000 550 30,424,800 44,685 2,500,000 392,300 193,307 395,030 583,099 51,625 0 4,752,613 70,196 199,500 712,331 315,878 0 1,823,017 550 30,400,981 31,185 2,500,000 347,072 11,055 18,938,900 660 11,055 17,955,260 660 8,202 295,900 606,700 877,500 833,200 3,400,000 0 295,900 567,703 877,500 833,200 2,873,267 220,000 214,643 132,700 95,524 326,000 160,606 5,697,300 126,757 0 (14,321) 5,184,792 122,900 31,613 493,700 31,456 493,114 155,681 406,600 26,281 236,135 51,342 193,900 51,342 167,484 94,365 655,900 94,365 557,040 46,416 239,000 799 179,535 401 401 (Continued) - 172 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2007 (Expressed in Dollars) FINAL BUDGET (Appropriations) Arizona College and Career Guide Arizona Minority Educational Policy Analysis Center Family College Savings Program Leveraging Educational Assistance Partnership Operating Lump Sum Appropriation Twelve Plus Partnership Arizona Pioneers' Home Employee Related Expenditures Employee Related Expenditures Equipment Other Operating Expenditures Personal Services Personal Services Prescription Drugs Prescription Drugs Professional and Outside Services State Board of Pharmacy Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 State Board of Podiatry Examiners Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 State Parks Board FY88 - 89 Pass Thru Grants FY89 - 90 Pass Thru Grants FY90 - 91 Pass Thru Grants Land, Buildings and Improvements FY89 - 90 Land, Buildings and Improvements FY89 - 90 Land, Buildings and Improvements FY90 - 91 Land, Buildings and Improvements FY90 - 91 Land, Buildings and Improvements 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 Motor Vehicle Fuel 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 Physical Therapy Examiners Board Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 ACTUAL EXPENDITURE AMOUNTS 21,200 150,600 108,600 2,143,700 387,100 119,600 19,404 16,545 90,938 1,634,582 263,313 84,821 1,000,800 563,700 12,000 18,000 2,139,724 1,043,176 281,776 24,624 3,200 993,051 549,509 11,995 13,604 2,129,071 1,019,669 172,743 0 0 98,093 1,566,200 98,073 1,551,457 14,842 121,900 14,842 104,365 10,436 40,191 2,067,639 4,388 258,697 1,500 19,258 32,684 692,100 522,800 2,392,700 0 0 0 0 0 0 0 0 657,578 270,850 2,323,800 700 296 1,342,849 994,119 231,300 10,000,000 21,282,800 5,282,400 1,512,000 3,286,200 2,753,300 10,000,000 3,186,700 41,570 21,311 2,768,100 700 296 84,518 57,883 231,300 10,000,000 18,398,863 5,282,400 1,512,000 3,119,574 2,753,300 10,000,000 3,186,700 0 18,837 2,768,100 10,570 293,700 10,570 288,697 (Continued) - 173 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2007 (Expressed in Dollars) FINAL BUDGET (Appropriations) Private Postsecondary Education Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Board of Respiratory Care Examiners Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Department of Racing Administrative Adjustments Operating Lump Sum Appropriation Operating Lump Sum Appropriation Registrar of Contractors Incentive Pay Office of Administrative Hearings Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Department of Revenue Operating Lump Sum Appropriation Structural Pest Control Commission Childcare Facilities Notification Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Schools for the Deaf and the Blind Administrative Adjustments Administrative Adjustments Operating Lump Sum Appropriation - Phoenix Operating Lump Sum Appropriation - Preschool/Outreach Programs Operating Lump Sum Appropriation - Tucson Supreme Court Administrative Adjustments Community Punishment Community Punishment 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 State Aid State Board of Psychologist Examiners Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 State Board of Technical Registration Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Residential Utility Consumer Office Administrative Adjustments Operating Lump Sum Appropriation Professional Witnesses FY00 - 01 Professional Witnesses FY01 - 02 Professional Witnesses FY02 - 03 Professional Witnesses FY03 - 04 Professional Witnesses FY04 - 05 ACTUAL EXPENDITURE AMOUNTS 21,117 318,400 881 310,364 59 239,100 (525) 232,948 1,041 45,000 300,000 1,041 45,000 298,596 113,500 964,300 432,218 9,547,800 113,500 964,300 407,071 9,536,830 503,300 502,860 100,000 66,335 2,153,500 100,000 66,332 2,135,548 25,274 155,231 5,538,600 2,915,300 5,363,000 25,274 155,231 5,447,284 2,863,224 5,363,000 87 1,830,400 500,000 147,839 2,701,200 38,514 245,040 5,198,200 514,300 477,500 3,065,100 2,444,700 87 865,186 494,095 0 2,622,560 0 244,753 4,951,073 514,010 408,439 2,126,724 2,444,519 61,548 381,300 0 336,937 58,528 1,521,100 36,590 1,483,153 34 1,130,400 2,270 32,293 9,943 29,054 137,091 34 1,087,115 0 1,733 0 0 45,962 (Continued) - 174 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2007 (Expressed in Dollars) FINAL BUDGET (Appropriations) Professional Witnesses FY05 - 06 Professional Witnesses FY06 - 07 Professional Witnesses FY98 - 99 Professional Witnesses FY99 - 00 Department of Veterans' Services Administrative Adjustments Operating Lump Sum Appropriation Veterinary Medical Examiners Board Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Water Resources Department Assured and Adequate Water Supply Administration Weights and Measures Department Administrative Adjustments Administrative Adjustments Operating Lump Sum Appropriation Operating Lump Sum Appropriation - Oxygenated Fuel Operating Lump Sum Appropriation - Vapor Recovery Total Other Governmental Funds Budgetary Expenditures $ - 175 - ACTUAL EXPENDITURE AMOUNTS 128,373 145,000 2,195 41,062 0 25,424 2,195 41,062 2,454 721,000 2,454 677,919 35,041 442,900 1,246 401,416 1,100,000 156,614 3,529 17,762 115,200 884,000 561,800 3,529 17,762 109,400 847,012 557,479 881,973,919 $ 795,432,939 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 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, 2007 (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 $ 258 - SCHOOL FACILITIES DEBT INSTRUMENT CERTIFICATES OF PARTICIPATION $ 2,207 2,010 2,092 - $ 22 $ 4,239 GRANT ANTICIPATION NOTES 27,682 46 - $ 27,728 104 - $ 2,350 $ 2,350 $ 4,239 $ 27,728 $ 104 $ 2,350 $ 4,239 $ 27,728 $ 104 - 178 - $ - $ 104 TOTAL $ 29,889 304 2,010 2,196 22 $ 34,421 $ 34,421 $ 34,421 - 179 - STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR DEBT SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) DEPARTMENT OF TRANSPORTATION REVENUES Taxes: Sales Earnings on investments $ Other Total Revenues EXPENDITURES Debt service: Principal Interest and other fiscal charges Total Expenditures (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers in Transfers out Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ 2,274 SCHOOL FACILITIES DEBT INSTRUMENT CERTIFICATES OF PARTICIPATION $ 73 $ 65,795 2,584 GRANT ANTICIPATION NOTES $ 5 1 2,275 73 68,379 5 57,825 73,825 131,650 23,775 9,115 32,890 45,035 43,419 88,454 42,570 14,578 57,148 (129,375) (32,817) (20,075) (57,143) 129,709 (44) 129,665 290 2,060 33,851 33,851 1,034 3,205 27,042 (11,667) 15,375 (4,700) 32,428 57,148 57,148 5 99 2,350 $ - 180 - 4,239 $ 27,728 $ 104 TOTAL $ 65,795 4,936 1 70,732 169,205 140,937 310,142 (239,410) 247,750 (11,711) 236,039 (3,371) 37,792 $ 34,421 - 181 - 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. 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, 2007 (Expressed in Thousands) DEPARTMENT OF TRANSPORTATION FINANCED 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 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and other current liabilities Total Liabilities $ $ 2,573 - 206,271 - TOTAL $ 2,755 2,573 675 135 206,271 2,755 $ 207,081 $ 5,328 $ 212,409 $ - $ 40 40 $ 40 40 Fund Balances: Reserved for: Highway construction Other construction Total Fund Balances Total Liabilities and Fund Balances 675 135 CERTIFICATES OF PARTICIPATION FINANCED 207,081 207,081 $ 207,081 5,288 5,288 $ 5,328 - 184 - 207,081 5,288 212,369 $ 212,409 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR CAPITAL PROJECTS FUNDS FOR THE YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) CERTIFICATES OF PARTICIPATION 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 out Bonds issued Premium on bonds issued Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ 9,034 9,034 $ TOTAL 178 178 $ 9,212 9,212 4,438 - 4,438 1,592 166,220 172,250 1,146 1,146 1,592 167,366 173,396 (163,216) (968) (164,184) (1,348) 325,000 26,201 349,853 186,637 20,444 (968) 6,256 (1,348) 325,000 26,201 349,853 185,669 26,700 207,081 $ - 185 - 5,288 $ 212,369 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 50 or fewer employees and employees of political subdivisions. The Healthcare Group of Arizona processes premium billing, collections and fund disbursements, performs 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, 2007 (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: Loans and notes receivable, net of allowances Capital assets: Infrastructure, land, and other non-depreciable 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 Unearned deferred revenue Current portion of other long-term liabilities Total Current Liabilities Noncurrent Liabilities: Contracts Payable 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 Other Unrestricted (deficit) Total Net Assets HIGHWAY ARIZONA $ 381 $ 136 $ - $ EXPANSION 21 $ - 2,082 1,741 2,095 6,782 - - - - 2 - 130,135 - 12 1,104 144 5 2,826 10 6,564 20 3,848 3,413 128 9,286 14 403 1,057 237 3,806 47 36 6,888 746 7,715 122 98,979 237,697 - - - - 8,067 182 713 8 3,830 - 1,166 1,348 7,912 2,575 3,288 12,574 217 225 4,031 3,177 7,007 13,895 8,067 245,764 596 260 4 35 170 1,065 1,049 325 243 1,617 259 126 3,196 137 3,718 68 124 192 384 5 174,534 14 174,553 57 57 1,122 1,617 3,718 22 22 406 174,553 1,348 3,288 225 6,985 - 5,442 7,669 88 6,504 71,211 - 6,790 $ 10,957 - 188 - $ 313 $ 13,489 $ 71,211 HEALTHCARE GROUP OF ARIZONA $ OTHER - $ 105 $ 643 12,520 154 25,374 - 97 130,137 97 25 12,545 1 1,905 57 2,319 793 7,715 7,332 144 122 99,041 7,296 411 279,105 - - 8,067 - 980 5,713 129 129 12,674 8,927 9,907 12,226 16,191 29,971 309,076 892 7,328 10,054 109 18,383 135 422 557 2,999 8,590 174,538 13,285 865 200,277 18,031 18,031 36,414 557 18,031 22 57 18,110 218,387 129 9,907 21,882 1,762 71,211 12 (2,416) 12 (23,881) $ TOTAL (23,740) $ 11,669 $ 90,689 - 189 - STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS NON-MAJOR ENTERPRISE FUNDS FOR THE YEAR ENDED JUNE 30, 2007 (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 & 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) $ 27,144 27,144 11,026 4,519 1,265 405 1,021 18,236 (10) NON-OPERATING REVENUES (EXPENSES) Gain (Loss) on sale of capital assets Investment income Other non-operating revenue Other non-operating expense Total Non-Operating Revenues (Expenses) Income (Loss) Before Contributions and Transfers Transfers in Change in Net Assets Total Net Assets - Beginning Total Net Assets - Ending 17,361 795 70 18,226 $ $ 7,286 774 8,060 $ EXPANSION 12,663 1,716 14,379 $ 2,909 2,909 22,801 2,592 85 464 1,052 26,994 150 4,764 2,417 401 39 451 8,072 (12) 1,996 5,380 4,355 610 310 1,212 13,863 516 1 4,040 197 31 2 4,271 (1,362) 124 124 4 82 86 (3) 112 (1) 108 359 401 760 5,233 (83) 5,150 114 236 96 1,276 3,788 98 - - - - 212 6,578 236 10,721 96 217 1,276 12,213 3,788 67,423 6,790 $ 10,957 - 190 - $ 313 $ 13,489 $ 71,211 HEALTHCARE GROUP OF ARIZONA $ OTHER 70,007 70,007 $ 82,562 3,114 3,546 49 1,437 90,708 (20,701) 451 206 657 (20,044) - $ TOTAL 13,065 665 27 13,757 $ 352 11,285 44 321 157 2,099 14,258 (501) 123,502 4,040 29,504 9,727 1,888 467 7,274 176,402 (21,920) 18 18 1 6,379 607 (84) 6,903 (483) (15,017) - (20,044) (3,696) (483) 12,152 (23,740) $ 11,669 147,526 795 665 2,909 2,587 154,482 98 (14,919) 105,608 $ 90,689 - 191 - STATE OF ARIZONA COMBINING STATEMENT OF CASH FLOWS NON-MAJOR ENTERPRISE FUNDS FOR THE YEAR ENDED JUNE 30, 2007 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 Grants and contributions received Other receipts Net Cash Provided by Non-capital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition and construction of capital assets Principal paid on capital debt, installment purchase contracts, and capital leases Net Cash (Used) by Capital and Related Financing Activities ARIZONA CORRECTIONAL INDUSTRIES 17,209 $ 722 (11,703) (4,499) (2,212) (483) ARIZONA HIGHWAYS MAGAZINE 26,352 $ (24,699) (2,404) (751) HIGHWAY EXPANSION & EXTENSION LOAN PROGRAM COLISEUM & EXPOSITION CENTER 6,857 $ (5,568) (2,382) 769 (324) 12,684 $ (8,047) (5,421) 1,716 932 95 - - - 401 - 95 - - 401 - (201) (668) - (18) - - (1,846) - (18) - (1,864) - (201) (668) (18) CASH FLOWS FROM INVESTING ACTIVITIES Interest and dividends from investments Purchase of investments Other payments Net Cash Provided (Used) by Investing Activities 117 117 76 76 113 113 359 359 Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning (472) 2,935 (229) 2,324 (172) 6,977 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 Net changes in assets and liabilities: (Increase) decrease in receivables, net of allowances (Increase) in due from U.S. Government (Increase) in due from local governments (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 others Increase (decrease) in due to other Funds Increase in (decrease) 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 $ $ 3,634 39,208 (32) (197) (5,797) (1) 36,815 2,463 (1,343) 3,220 $ 1,877 $ (10) $ 150 $ 405 464 (187) (73) (451) (10) (264) 76 4 35 (8) (728) 242 (47) (1,020) 208 (20) 2,095 4,917 (83) 4,834 41,649 88,486 $ 6,805 $ (12) $ 516 $ 39 610 (37) (33) 62 19 19 (397) 16 21 216 (390) (4) (37) 130,135 (1,362) (2) 34,138 4,040 1 $ (483) $ (751) $ (324) $ 932 $ $ (7) $ (4) $ (11) $ 3 $ (207) $ (7) $ (4) $ (11) $ 3 $ (207) - 192 - 36,815 HEALTHCARE GROUP OF ARIZONA $ OTHER 71,963 $ (71,262) (3,057) (2,356) 152,237 722 39,208 (124,208) (29,199) (5,797) 299 33,262 - 95 (65) 206 401 141 - 637 (26) (4) (2,763) - (18) (26) (4) (2,781) 451 451 22 (55) (33) 6,055 (55) (83) 5,917 (1,790) 14,310 $ 13,538 $ (2,897) (11,239) 27 (571) (65) 206 - - $ TOTAL 12,520 (608) 867 $ (20,701) $ 49 259 37,035 119,119 $ (501) $ 156,154 (21,920) 321 1,888 (17) 411 15,889 1,956 57 (137) (55) (109) 46 (135) (1) - (1,068) (73) (2) 34,083 (242) 204 (1,353) 16,234 (135) 4,043 1,594 9 $ (2,356) $ (571) $ 33,262 $ 5 $ - $ (221) $ 5 $ - $ (221) - 193 - 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 Telecommunication Fund receives monies from State agencies for services related to administering the State’s contracts for the installation and maintenance of telecommunications equipment through the telecommunications program office. The Technology Fund receives monies from State agencies for services related to the implementation and operation of automation programs throughout the State. 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, 2007 (Expressed in Thousands) ASSETS Current Assets: Cash Cash and pooled investments with State Treasurer Receivables, net of allowances: Interest Other Due from U.S. Government Due from other Funds Inventories, at cost Other current assets Total Current Assets RISK TRANSPORTATION EMPLOYEE TELE- MANAGEMENT EQUIPMENT BENEFITS COMMUNICATION $ 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 $ - $ - $ - $ 2,339 TECHNOLOGY $ - 43,657 8,302 78,505 1,008 6,228 57 5 3,269 46,988 26 2,933 11,261 5,040 1,000 84,545 530 726 4,603 2,833 1,016 107 1,355 11,539 89 89 47,077 52,054 52,054 63,315 45 45 84,590 795 795 5,398 1,895 1,895 13,434 2,297 219 31 52,272 266 55,085 238 1,268 1 2,672 4,179 71,854 88 786 120 72,848 41 101 27 169 907 4 431 1,342 291,833 291,833 346,918 5,879 5,879 10,058 72,848 169 1,342 89 (299,930) 43,503 9,754 45 11,697 795 4,434 1,895 10,197 (299,841) $ 53,257 - 196 - $ 11,742 $ 5,229 $ 12,092 $ $ RETIREE MOTOR SICK LEAVE POOL - $ TOTAL - $ 2,339 10,748 11,215 159,663 10,748 1,264 14 7 12,500 26 8,460 1,000 2,285 3,780 4,631 182,184 10,748 13,607 13,607 26,107 68,485 68,485 250,669 6,790 6,790 406 1 32 439 75,743 1,575 924 52,272 2,672 7,666 140,852 4,026 4,026 10,816 439 291,833 5,879 4,026 301,738 442,590 (68) 13,607 12,061 (68) $ 25,668 59,934 (251,855) $ (191,921) - 197 - STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS INTERNAL SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) OPERATING REVENUES Sales and charges for services Other Total Operating Revenues RISK TRANSPORTATION EMPLOYEE TELE- MANAGEMENT EQUIPMENT BENEFITS COMMUNICATION $ OPERATING EXPENSES Cost of sales and benefits Personal services Contractual services Depreciation and amortization Insurance Other Total Operating Expenses Operating Income (Loss) 97,456 97,456 $ 43,126 52 43,178 5,323 30,835 56 26,418 1,635 64,267 33,189 $ 17,531 13,737 216 8,022 605 1,903 42,014 1,164 635,500 635,500 - - (6) (6) 3,275 (198) 11,315 Capital grants and contributions Transfers out (2,212) 2,314 - - 30,978 (330,819) 4,276 48,981 11,315 427 (299,841) $ 53,257 Total Net Assets - Ending $ - 198 - $ 18,672 18,672 6,554 8,210 1,026 970 187 1,917 18,864 (192) 1,962 Change in Net Assets Total Net Assets - Beginning $ 16 1,285 564 680 66 650 3,261 3,275 33,190 122 333 (356) 699 798 6,536 6,536 620,826 2,305 1,002 10 42 624,185 11,315 NON-OPERATING REVENUES (EXPENSES) Gain (loss) on sale of capital assets Investment income Interest expense Other non-operating revenue Total Non-Operating Revenues (Expenses) Income (Loss) Before Contributions and Transfers 1 1 $ TECHNOLOGY 11,742 (5) 23 (9) 3,270 1,959 $ 5,229 (184) 12,276 $ 12,092 $ RETIREE MOTOR SICK LEAVE POOL 13,186 13,186 $ 10,876 3 10,879 $ 825,352 55 825,407 9,940 43 4 4 9,991 3,195 4,564 777 130 2,103 1,429 1,821 10,824 55 - 110 110 3,195 165 52,904 750 (2) 3,087 (2,228) 3,195 (3,263) $ TOTAL (68) $ 659,431 31,680 33,777 11,841 28,751 7,926 773,406 52,001 226 333 (356) 700 903 913 24,755 25,668 53,763 (245,684) $ (191,921) - 199 - STATE OF ARIZONA COMBINING STATEMENT OF CASH FLOWS INTERNAL SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2007 (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 (Used) by Operating Activities RISK MANAGEMENT $ CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES 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 Interest paid on capital debt, installment purchase contracts and capital leases Principal paid on capital debt, installment purchase contracts and capital leases Other receipts Net Cash (Used) by Capital and Related Financing Activities EMPLOYEE BENEFITS TRANSPORTATION EQUIPMENT 97,925 $ (80,659) (5,282) 11,984 43,127 $ (20,173) (13,684) 36 9,306 TELECOMMUNICATION 634,346 $ (600,530) (2,304) 31,512 6,359 (3,090) (1,311) 1,958 (2,212) 1 - - (5) - (2,211) - - (5) (52) 349 (4,607) (28) (207) - (356) - - - (2,579) 699 - - (52) (6,494) (28) (207) CASH FLOWS FROM INVESTING ACTIVITIES Interest and dividends from investments Net Cash Provided by Investing Activities - 333 333 - - Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning 9,721 33,936 3,145 5,157 31,484 47,021 1,746 1,601 Cash and Cash Equivalents - Ending 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 (Increase) in due from U.S. Government (Increase) decrease in due from other Funds (Increase) decrease in inventories, at cost (Increase) decrease in other assets Increase (decrease) in accounts payable Increase in accrued liabilities Increase (decrease) in due to other Funds (Decrease) in accrued insurance losses Increase (decrease) in other liabilities Net Cash Provided (Used) by Operating Activities SCHEDULE OF NONCASH INVESTING, CAPITAL AND NON-CAPITAL FINANCING ACTIVITIES Contribution of capital assets from other funds Total Noncash Investing, Capital and Non-capital Financing Activities $ 43,657 $ 8,302 $ 78,505 $ 3,347 $ 33,189 $ 1,164 $ 11,315 $ 3,275 56 8,022 469 1,651 (329) 22 2 (23,095) 19 10 (15) (9) 4 139 1 - 680 (1,154) (1,000) 72 22,482 11 (225) 1 (177) (726) (93) (975) (26) $ 11,984 $ 9,306 $ 31,512 $ 1,958 $ - $ 2,314 $ - $ - $ - $ 2,314 $ - $ - - 200 - RETIREE SICK LEAVE TECHNOLOGY $ 18,844 $ (11,269) (8,278) (703) 824,974 (723,798) (31,680) (10,527) 39 59,008 (2) - (2,228) 1 (9) - (2) (2,227) (791) - (1,966) 349 (7,651) - - - (356) - - - (2,579) 699 - (1,503) 7,731 6,228 (1,966) (9,538) - - 333 333 2,616 8,132 367 10,848 47,576 114,426 $ 10,748 $ 11,215 $ 162,002 (192) $ 3,195 $ 55 $ 52,001 970 - (953) 1,125 (94) 823 (2,316) 2 (68) $ 11,187 $ (8,077) (778) 3 2,335 - - $ 13,186 $ (43) (10,527) 2,616 TOTAL (9) - (791) $ MOTOR POOL 2,103 (579) (703) $ 11,841 723 (412) 21 (1) (154) 1 (1) (1,576) (1,000) 1,182 (808) 2,545 19,594 172 (1,194) (23,095) (654) 2,616 $ 2,335 $ 59,008 $ 23 $ - $ 750 $ 3,087 $ 23 $ - $ 750 $ 3,087 - 201 - PENSION AND OTHER EMPLOYEE BENEFIT 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 (ASRS) 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. Other Employee Benefit Trust Funds account for health insurance premium subsidies and long-term disability benefits paid by the ASRS to State employees and employees of other governmental entities participating in the plans. The Health Benefit Supplement Fund is a benefit cost-sharing, multiple-employer post-employment benefit plan that provides for health insurance premium subsidies to eligible retired and disabled members. The Long-Term Disability Fund is a benefit cost-sharing, multiple-employer post-employment benefit plan that provides for long term disability benefits to eligible participants. STATE OF ARIZONA COMBINING STATEMENT OF FIDUCIARY NET ASSETS PENSION AND OTHER EMPLOYEE BENEFIT TRUST FUNDS JUNE 30, 2007 (Expressed in Thousands) PENSION TRUST FUNDS ASSETS Cash Prepaid benefits $ Receivables, net of allowances: Accrued interest and dividends Securities sold Forward contract receivable Contributions Court fees Due from other Funds 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 and other current liabilitites Payable for securities purchased Obligation under securities loan agreements Due to other Funds Total Liabilities STATE PUBLIC ELECTED CORRECTIONS RETIREMENT SAFETY OFFICIALS' OFFICER 18,299 129,917 $ 5,042 - $ 286 - $ 428 - 56,296 663,703 1,288,258 35,216 5,364 19,684 18,048 5,286 1,367 1,396 1,202 277 364 18 3,836 3,268 2,182 5 2,048,837 44,385 3,257 9,291 2,491,214 - - - 3,396,838 3,864,743 2,064,607 18,604,089 556,954 - 560,685 547,312 202,011 4,037,779 1,330,488 194,828 35,244 39,395 11,589 270,935 103,894 13,226 97,895 106,271 45,860 731,764 263,196 33,076 30,978,445 6,873,103 474,283 1,278,062 - 4,126 275 726 33,175,498 6,926,656 478,101 1,288,507 1,318,001 1,389,184 219 64,155 360 4,006 904 11,469 3,396,838 1,917 1,330,488 - 103,894 - 263,196 - 6,105,940 1,394,862 108,260 275,569 NET ASSETS Held in Trust for Pension Benefits $ 27,069,558 $ 5,531,794 $ - 204 - 369,841 $ 1,012,938 OTHER EMPLOYEE BENEFIT TRUST FUNDS HEALTH $ $ BENEFIT LONG-TERM SUPPLEMENT DISABILITY FUND FUND 789 - $ TOTAL 4,621 - $ 29,465 129,917 2,426 28,607 55,526 2,553 205 19 2,196 1,917 1,812 83,657 714,828 1,343,784 47,710 364 1,917 8,771 89,317 5,944 2,201,031 107,375 6 2,598,595 146,409 166,577 88,988 801,866 24,006 - 35,341 22,949 158,485 16,367 - 3,543,247 4,760,485 2,869,522 259,460 24,604,918 597,327 1,697,578 241,130 1,335,221 233,148 41,172,262 - - 5,127 1,425,327 243,713 43,537,802 56,089 59,876 227 - 1,375,800 1,528,690 146,409 - - 5,240,825 1,917 262,374 227 8,147,232 1,162,953 $ 243,486 $ 35,390,570 - 205 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS PENSION AND OTHER EMPLOYEE BENEFIT TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) PENSION TRUST FUNDS 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 PUBLIC ELECTED CORRECTIONS RETIREMENT SAFETY OFFICIALS' OFFICER 766,962 663,544 97,863 - $ 3,584,175 290,703 262,559 11,997 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 STATE $ 84,630 166,578 9,160 - $ 649,746 89,695 75,156 - 4,090 6,080 1,957 3,978 $ 43,615 6,114 4,800 - 41,355 22,710 930 - 115,077 16,746 13,002 - 7,064 - - - 142,707 4,299,205 64,286 878,883 4,533 59,062 11,638 156,463 57,437 136,124 4,105,644 1,426 61,933 815,524 109 4,355 54,598 259 11,354 144,850 9,685 1,640 1,191 456 5,643,698 1,077,532 71,894 210,301 1,650,818 21,590 439,336 - 28,717 - 39,717 - 77,910 29,817 13,651 8,709 3,971 121 128 340 20 16,634 732 2,063 1,793,786 452,137 29,205 59,146 3,849,912 23,219,646 625,395 4,906,399 42,689 327,152 151,155 861,783 27,069,558 $ 5,531,794 - 206 - $ 369,841 $ 1,012,938 OTHER EMPLOYEE BENEFIT TRUST FUNDS HEALTH $ BENEFIT LONG-TERM SUPPLEMENT DISABILITY FUND FUND 103,473 - $ 152,519 12,370 11,173 511 44,518 44,518 - $ 29,395 176 14 - (51) $ TOTAL 941,555 1,006,903 109,910 3,978 4,574,527 415,804 366,704 12,508 941 7,954 6,073 182,595 30,526 229,237 5,606,734 2,454 5,793 174,348 30,526 61,685 219,559 5,325,490 - - 12,972 277,821 119,562 7,400,808 83,236 - 69,221 - 2,311,045 21,590 1,270 108 2,575 282 103,381 38,705 16,245 84,614 72,078 2,490,966 193,207 969,746 47,484 196,002 4,909,842 30,480,728 1,162,953 $ 243,486 $ 35,390,570 - 207 - 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 – Long-Term 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, 2007 (Expressed in Thousands) LOCAL GOVERNMENT GOVERNMENT INVESTMENT INVESTMENT CONSERVATION INVESTMENT POOL – DISTRICT POOL WATER $ Investments, at fair value: U.S. Government securities Corporate bonds Repurchase agreements Money market mutual funds Other Total investments Total Assets LIABILITIES Due to local governments Total Liabilities LOCAL GOVERNMENT CENTRAL ARIZONA ASSETS Receivables, net of allowances: Accrued interest and dividends Total receivables LOCAL 835 835 $ POOL – GOVERNMENT LONG-TERM 6,565 6,565 $ 240 240 $ 4,823 4,823 TOTAL $ 12,463 12,463 70,214 30,964 4,646 105,824 712,547 1,154,702 1,867,249 20,487 6,605 479 44 27,615 245,780 1,719,928 1,965,708 1,049,028 1,192,271 1,719,928 5,125 44 3,966,396 106,659 1,873,814 27,855 1,970,531 3,978,859 863 886 243 4,730 6,722 863 886 243 4,730 6,722 NET ASSETS Held in trust for pool participants $ Net assets consist of: Participant shares outstanding Participants' net asset value (net assets/shares outstanding) 105,796 $ 105,796 $ 1.00 1,872,928 $ 1,872,928 $ 1.00 - 210 - 27,612 $ 27,935 $ 0.99 1,965,801 1,965,801 $ 1.00 $ 3,972,137 3,972,460 STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS INVESTMENT TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) ADDITIONS: Investment income: Net increase in fair value of investments Interest income Total investment income $ Less: Investment activity expenses Net investment income LOCAL LOCAL GOVERNMENT GOVERNMENT INVESTMENT WATER GOVERNMENT INVESTMENT CONSERVATION INVESTMENT POOL – POOL – DISTRICT POOL LONG-TERM GOVERNMENT 813 5,040 5,853 $ 493 89,687 90,180 85 5,768 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 $ $ 1,362 88,818 1,276 4,881 (4,404) Total Additions Net Assets - Ending LOCAL CENTRAL ARIZONA 172 1,330 1,502 $ 22 1,480 3,092,940 82,355 (2,716,592) 2,457 87,593 90,050 TOTAL $ 1,377 88,673 265 1,391 (14,732) 3,935 183,650 187,585 2,846 184,739 2,431,812 83,118 (2,222,209) 5,526,293 171,745 (4,957,937) 1,753 458,703 (13,076) 292,721 740,101 7,521 547,521 (11,596) 381,394 924,840 5,769 88,818 1,480 88,673 184,740 5,769 88,818 1,480 88,673 184,740 1,752 104,044 458,703 1,414,225 292,721 1,673,080 740,100 3,232,037 105,796 $ 1,872,928 - 211 - (13,076) 40,688 $ 27,612 $ 1,965,801 $ 3,972,137 AGENCY FUNDS Agency Funds account for the receipt and disbursement of various taxes, deposits, deductions, property collected by the State, and payment of the health insurance subsidy by the PSPRS, the EORP, and the CORP, 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 Health Insurance Subsidy Fund accounts for other post-employment benefit payments of the health insurance subsidy by the PSPRS, the EORP, and the CORP for eligible retired and disabled members. The Other Treasurer Funds account for other various deposits that are required to be made by other governmental units or organizations with the State Treasurer. 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, 2007 (Expressed in Thousands) TREASURER CUSTODIAL SECURITIES FUND ASSETS Cash Cash and pooled investments with State Treasurer Short-term investments Receivables, net of allowances: Accrued interest and dividends 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 - $ 34,879 TOTAL $ 34,879 - 30,250 - 239,812 5,096 270,062 5,096 2,714,882 - 105 - 283 76,257 74,600 4,917 388 76,257 2,789,482 4,917 $ 2,714,882 $ 30,355 $ 435,844 $ 3,181,081 $ 2,714,882 $ 580 10,254 19,521 $ 189,004 13,614 948 232,278 $ 189,584 13,614 11,202 2,966,681 $ 2,714,882 $ 30,355 $ 435,844 $ 3,181,081 - 215 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUNDS FOR THE YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) BALANCE JULY 1, 2006 TREASURER CUSTODIAL SECURITIES FUND Assets: Custodial securities in safekeeping ADDITIONS BALANCE JUNE 30, 2007 DELETIONS $ 2,578,150 $ 136,732 $ - $ 2,714,882 $ 2,578,150 $ 136,732 $ - $ 2,714,882 $ 2,578,150 $ 136,732 $ - $ 2,714,882 $ 2,578,150 $ 136,732 $ - $ 2,714,882 $ 38,059 111 $ 652,837 105 $ 660,646 111 $ 30,250 105 $ 38,170 $ 652,942 $ 660,757 $ 30,355 $ 392 18,210 19,568 $ 65,486 565,819 34,151 $ 65,298 573,775 34,198 $ 580 10,254 19,521 $ 38,170 $ 665,456 $ 673,271 $ 30,355 $ - $ 13,773 $ 13,773 $ - Total Assets $ - $ 13,773 $ 13,773 $ - Liabilities: Benefits payable $ - $ 13,773 $ 13,773 $ - $ - $ 13,773 $ 13,773 $ - 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 HEALTH INSURANCE SUBSIDY FUND Assets: Cash Total Liabilities (Continued) - 216 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUNDS FOR THE YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) BALANCE JULY 1, 2006 OTHER FUNDS Assets: Cash Cash and pooled investments with State Treasurer Short-term investments Receivables, net of allowances: Interest Due from others Custodial securities in safekeeping Other assets Total Assets $ 41,132 338,740 5,906 ADDITIONS $ 675 92,983 63,426 4,072 712,675 6,702,109 5,096 BALANCE JUNE 30, 2007 DELETIONS $ 275 76,257 74,600 4,917 718,928 6,801,037 5,906 $ 667 92,983 63,426 4,072 34,879 239,812 5,096 283 76,257 74,600 4,917 $ 546,934 $ 7,575,929 $ 7,687,019 $ 435,844 $ 187,882 $ 9,185,600 $ 9,184,478 $ 189,004 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 Due from others Custodial securities in safekeeping Other assets Total Assets Liabilities: Accounts payable and other current liabilities Benefits payable Accrued liabilities Due to local governments Due to others Total Liabilities 8,112 13,614 8,112 845 3,176 3,073 13,614 948 350,095 1,122,603 1,240,420 232,278 $ 546,934 $ 10,324,993 $ 10,436,083 $ 435,844 $ 41,132 376,799 5,906 $ 726,448 7,354,946 5,096 $ 732,701 7,461,683 5,906 $ 34,879 270,062 5,096 786 92,983 2,641,576 4,072 380 76,257 211,332 4,917 778 92,983 63,426 4,072 388 76,257 2,789,482 4,917 $ 3,163,254 $ 8,379,376 $ 8,361,549 $ 3,181,081 $ 188,274 8,112 19,055 2,947,813 $ 9,251,086 13,773 13,614 568,995 1,293,486 $ 9,249,776 13,773 8,112 576,848 1,274,618 $ 189,584 13,614 11,202 2,966,681 $ 3,163,254 $ 11,140,954 $ 11,123,127 $ 3,181,081 - 217 - NON-MAJOR UNIVERSITIES – AFFILIATED COMPONENT UNITS Component units affiliated with the Universities are legally separate, tax-exempt organizations controlled by separate Boards of Directors that meet the criteria established in GASB 39, with the exception of the Collegiate Golf Foundation and University of Arizona 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 Northern Arizona University 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. The Northern Arizona Capital Facilities Finance Corporation 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. Mesa Student Housing, LLC provides facilities for either the use by students of the ASU or the ASU itself. Sun Angel Foundation receives funds primarily through donations and dues, and contribute funds to the ASU for support of various programs. Sun Angel Endowment receives funds primarily through donations and dues, and contribute funds to the ASU for support of various programs. The Collegiate Golf Foundation operates an ASU-owned golf course. Arizona State University Research Park, Inc. is developing a research park to promote and support research activities in coordination with the ASU. The Arizona State University Alumni Association receives funds primarily through donations and dues, and contribute funds to the ASU for support of various programs. The University of Arizona Law College 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. The University of Arizona Campus Research Corporation 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. The University of Arizona 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. STATE OF ARIZONA COMBINING STATEMENT OF FINANCIAL POSITION NON-MAJOR UNIVERSITIES - AFFILIATED COMPONENT UNITS JUNE 30, 2007 (Expressed in Thousands) NORTHERN ARIZONA UNIVERSITY FOUNDATION ASSETS Cash and cash equivalent investments $ 3,346 NORTHERN ARIZONA CAPITAL FACILITIES FINANCE CORP. MESA STUDENT HOUSING SUN ANGEL FOUNDATION SUN ANGEL ENDOWMENT $ $ $ $ 24 538 1,371 454 Receivables: Pledges receivable Other receivables Total receivables 11,847 302 12,149 558 558 45 45 5,050 249 5,299 - Investments: Investments in securities Investments held in trust for Universities Other investments Total investments 58,762 3,721 62,483 5,203 5,203 3,635 3,635 - 12,018 12,018 - 35,277 - - - 88 760 9,209 2,565 14,351 983 260 79 27 78,826 52,836 19,552 7,009 12,499 6,015 1,456 47,778 1,251 19,583 86 1,420 1,982 - 7,471 49,029 21,089 1,982 - 34,193 25,025 12,137 3,807 (1,537) 4,803 224 1,843 923 9,733 Net direct financing leases Property and equipment, net of accumulated depreciation Other assets Total Assets LIABILITIES Liability under Universities' endowment trust agreements Bonds payable Unearned revenue Other liabilities Total Liabilities NET ASSETS Permanently restricted Temporarily restricted Unrestricted (deficit) Total Net Assets $ 71,355 $ 3,807 - 220 - $ (1,537) $ 5,027 $ 12,499 COLLEGIATE GOLF FOUNDATION ARIZONA STATE UNIVERSITY RESEARCH PARK, INC. ARIZONA STATE UNIVERSITY ALUMNI ASSOCIATION $ $ $ $ 130 1,601 761 UNIVERSITY OF ARIZONA LAW COLLEGE ASSOCIATION $ 3,618 UNIVERSITY OF ARIZONA CAMPUS RESEARCH CORPORATION UNIVERSITY OF ARIZONA ALUMNI ASSOCIATION $ $ 1,941 1,918 TOTALS $ 15,702 162 162 6,683 6,683 165 165 29,516 29,516 1,411 1,411 1,538 1,538 46,413 11,113 57,526 - 1,512 1,512 14,832 14,832 4,854 250 5,104 - 4,016 4,016 99,629 8,924 250 108,803 - - - - - - 35,277 185 213 7,783 2,419 218 117 - 11,427 4,721 48 95 43,468 12,080 690 19,998 15,976 38,355 19,500 7,615 272,856 70 567 12,325 13,754 1,557 1,931 99 36 10,537 468 2,341 22 3,282 70 6,015 90,245 19,591 10,779 637 27,636 2,030 36 13,346 3,374 126,630 53 (7,638) 96 13,850 3,353 33,289 1,677 6,154 4,241 39,389 64,136 42,701 53 $ (7,638) $ 13,946 $ 38,319 - 221 - $ 6,154 $ 4,241 $ 146,226 STATE OF ARIZONA COMBINING STATEMENT OF ACTIVITIES NON-MAJOR UNIVERSITIES - AFFILIATED COMPONENT UNITS JUNE 30, 2007 (Expressed in Thousands) NORTHERN ARIZONA UNIVERSITY FOUNDATION REVENUES Contributions Rental revenue Sales and services Net investment income 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 (Decrease) in Net Assets Net Assets - Beginning, as restated Net Assets - Ending $ 16,358 7,043 1,212 NORTHERN ARIZONA CAPITAL FACILITIES FINANCE CORP. $ 711 1,375 22,295 - MESA STUDENT HOUSING $ 5,577 145 195 119 SUN ANGEL FOUNDATION $ 14,294 553 361 1,069 SUN ANGEL ENDOWMENT $ 203 1,675 11 24,613 24,381 6,036 16,277 1,889 4,333 - - 14,850 - 408 303 1,856 - 295 1,446 3,996 1,214 883 938 - 92 - - 19,928 40 802 91 - 6,492 21,709 6,012 16,762 500 18,121 53,234 2,672 1,135 24 (1,561) (485) 5,512 (1,537) $ 5,027 71,355 $ 3,807 - 222 - $ 1,389 11,110 $ 12,499 ARIZONA STATE UNIVERSITY RESEARCH PARK, INC. COLLEGIATE GOLF FOUNDATION $ 4,550 7 - $ $ 1,267 2,677 2,049 21 UNIVERSITY OF ARIZONA LAW COLLEGE ASSOCIATION $ 4,377 689 74 UNIVERSITY OF ARIZONA CAMPUS RESEARCH CORPORATION $ 7,829 49 16 UNIVERSITY OF ARIZONA ALUMNI ASSOCIATION $ 227 1,142 515 2,838 TOTALS $ 36,726 19,647 9,067 14,091 22,295 5,405 4,557 5,708 6,014 5,140 7,894 4,722 107,231 - 1,933 - - 3,029 - 6,680 939 - 3,048 - 16,783 6,680 7,016 4,741 4,512 17 1,229 493 4,343 - 44 36 - 934 - 775 136 - 17,406 2,966 3,170 61 713 - 54 39 - 19,928 1,800 4,590 4,368 4,343 3,163 8,592 3,959 80,490 1,340 (8,978) 1,671 12,275 1,977 36,342 (698) 6,852 763 3,478 26,741 119,485 (7,638) $ 13,946 (33) 86 $ 5,530 133 45 ARIZONA STATE UNIVERSITY ALUMNI ASSOCIATION 53 $ $ 38,319 - 223 - $ 6,154 $ 4,241 $ 146,226 STATISTICAL SECTION (Not Covered by the Independent Auditors’ Report) STATISTICAL SECTION STATISTICAL SECTION This part of the State of Arizona’s Comprehensive Annual Financial Report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the State’s overall financial health. Financial Trends – Schedules 1 thru 4 contain trend information to help the reader understand how the State’s financial performance and well-being have changed over time. Revenue Capacity – Schedules 5 thru 9 contain information to help the reader assess the State’s most significant own-source revenues, the sales tax, and personal income tax. Debt Capacity – Schedules 10 thru 21 present information to help the reader assess the affordability of the State’s current levels of outstanding debt and the State’s ability to issue additional debt in the future. Demographic and Economic Information – Schedules 22 and 23 offer demographic and economic indicators to help the reader understand the environment within which the State’s financial activities take place and to help make comparisons over time and among other governments. Operating Information – Schedules 24 thru 26 contain service and infrastructure data to help the reader understand how the information in the State’s financial report relates to the services the State provides and the activities it performs. STATE OF ARIZONA SCHEDULE 1 NET ASSETS BY COMPONENT (1) FOR THE LAST SIX FISCAL YEARS (2) FISCAL YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) Fiscal Year 2006, as 2007 GOVERNMENTAL ACTIVITIES: Invested in capital assets, net of related debt (3) Restricted for: Federal grants Capital projects (4) Debt service Permanent funds: Expendable Nonexpendable Other purposes Unrestricted Total Governmental Activities Net Assets BUSINESS-TYPE ACTIVITIES: Invested in capital assets, net of related debt Restricted for: Capital projects Unemployment compensation Debt service University funds: Expendable (5) Nonexpendable (5) Loans and other financial assistance (5) Other purposes (5) Unrestricted Total Business-type Activities Net Assets PRIMARY GOVERNMENT: Invested in capital assets, net of related debt Restricted for: Federal grants Capital projects Unemployment compensation Debt service Permanent funds / University funds: Expendable (5) Nonexpendable (5) Loans and other financial assistance (5) Other purposes (5) Unrestricted Total Primary Government Net Assets $ 13,500,218 restated $ 2005 12,878,151 40,737 1,003,824 38,804 63,219 561,795 44,846 21,290 3,467,467 169,972 675,387 19,244 2,785,419 86,345 784,520 $ 11,825,961 $ 2004, as 2003, as 2002, as restated restated restated (2) 11,226,325 $ 10,690,782 102,794 548,488 28,708 73,466 414,113 31,302 108,268 495,663 30,470 5,106 2,164,200 88,992 (412,450) 1,550,247 31,447 (633,427) 20,082 1,395,750 21,080 (748,522) $ 10,043,985 158,424 589,996 51,861 56,697 1,243,389 24,132 409,871 $ 18,917,699 $ 17,223,539 $ 14,351,799 $ 12,693,473 $ 12,013,573 $ 12,578,355 $ 1,180,518 $ 1,140,959 $ 1,166,954 $ 1,163,539 $ 1,147,769 $ 1,159,647 8,505 1,075,038 11,119 6,106 949,919 9,198 2,657 820,383 8,203 3,023 796,119 16,940 21,842 893,470 24,715 33,515 1,055,543 30,153 210,635 199,471 71,211 12 316,868 189,746 178,001 67,423 62 201,015 171,976 163,922 64,875 105,739 157,595 153,073 63,500 137,477 143,683 141,281 63,249 2,763 272,906 258,954 95,146 298,686 $ 3,073,377 $ 2,742,429 $ 2,504,709 $ 2,491,266 $ 2,711,678 $ 2,931,644 $ 14,680,736 $ 14,019,110 $ 12,992,915 $ 12,389,864 $ 11,838,551 $ 11,203,632 $ 40,737 1,012,329 1,075,038 49,923 63,219 567,901 949,919 54,044 231,925 3,666,938 71,211 169,984 992,255 208,990 2,963,420 67,423 86,407 985,535 21,991,076 $ 19,965,968 $ 102,794 551,145 820,383 36,911 73,466 417,136 796,119 48,242 108,268 517,505 893,470 55,185 158,424 623,511 1,055,543 82,014 177,082 2,328,122 64,875 88,992 (306,711) 157,595 1,703,320 63,500 31,447 (495,950) 163,765 1,537,031 63,249 23,843 (475,616) 56,697 1,243,389 258,954 119,278 708,557 16,856,508 (1) This schedule reports using the accrual basis of accounting. (2) The State implemented GASB Statement 34 in fiscal year 2002. Therefore, ten years of data is not available, but will be accumulated over time. (3) For fiscal year 2006, net assets for governmental activities were increased by the capitalization of $302,375 of capital assets that were previously recorded as transportation expenses. (4) The $442,029 increase was primarily due to the transfer of $245.000 million of General Fund monies in order to accelerate the construction of certain critical projects on the State highway system, and $185.000 million in unspent bond proceeds related to highway construction. (5) For fiscal year 2002, net assets restricted for expendable University funds of $130,735 and for nonexpendable University funds of $137,854 were classified as net assets restricted for loans and other financial assistance of $175,661 and for other purposes of $92,928. - 228 - $ 15,184,739 $ 14,725,251 $ 15,509,999 STATE OF ARIZONA SCHEDULE 2 CHANGES IN NET ASSETS (1) FOR THE LAST SIX FISCAL YEARS (2) FISCAL YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) Fiscal Year 2006, as 2007 EXPENSES Governmental Activities: General government Health and welfare Inspection and regulation Education Protection and safety Transportation (8) Natural resources Intergovernmental revenue sharing Interest on long-term debt Total Governmental Activities Expenses $ Business-type Activities: Universities Unemployment Compensation Industrial Commission Special Fund (6) Lottery Other Total Business-type Activities Expenses Total Primary Government Expenses PROGRAM REVENUES Governmental Activities: Charges for services: General government Inspection and regulation Transportation (7) Other activities Operating grants and contributions (5) Capital grants and contributions Total Governmental Activities Program Revenues Business-type Activities: Charges for services: Universities Lottery Other activities (4) Operating grants and contributions (9) Capital grants and contributions Total Business-type Activities Program Revenues Total Primary Government Program Revenues 802,659 9,789,699 175,609 5,984,196 1,401,513 583,304 193,862 2,864,543 191,674 21,987,059 restated $ 2,960,790 248,111 23,669 363,508 176,486 3,772,564 2005 781,542 9,057,733 159,766 5,304,555 1,279,129 386,777 187,947 2,658,636 172,439 19,988,524 $ 2,762,557 226,171 (18,300) 377,104 136,894 3,484,426 646,452 8,494,206 149,238 4,853,458 1,171,340 589,966 184,538 2,335,828 182,852 18,607,878 $ 2,540,193 292,127 106,295 317,226 120,629 3,376,470 2004, as 2003, as 2002, as restated restated restated (2) 726,525 7,717,148 138,281 4,703,685 1,059,047 731,522 162,366 2,144,438 176,035 17,559,047 $ 2,355,418 397,657 167,331 303,996 109,944 3,334,346 694,173 6,848,087 141,673 4,795,566 982,839 598,375 175,312 2,159,691 135,775 16,531,491 $ 2,181,311 455,685 73,586 263,321 107,740 3,081,643 852,417 5,960,399 135,784 4,277,635 931,292 411,108 152,772 2,190,160 131,206 15,042,773 2,039,832 406,406 57,503 239,648 95,164 2,838,553 $ 25,759,623 $ 23,472,950 $ 21,984,348 $ 20,893,393 $ 19,613,134 $ 17,881,326 $ 200,495 158,022 158,019 281,796 8,536,030 354,255 $ 161,664 146,191 134,068 279,836 7,941,223 388,646 $ 139,486 133,073 88,296 256,804 7,544,370 497,140 $ 140,791 133,510 114,097 248,446 6,981,748 421,251 $ 106,876 120,045 112,466 192,332 5,940,007 460,364 $ 120,514 117,606 112,725 230,409 4,996,539 471,020 $ 9,688,617 9,051,628 8,659,169 8,039,843 6,932,090 6,048,813 1,069,339 462,200 518,922 883,373 27,981 962,967 468,697 474,801 852,788 30,056 863,042 397,561 440,646 834,421 19,774 778,047 366,582 305,221 836,076 18,513 675,089 322,267 259,676 810,549 23,090 639,050 294,848 254,984 737,170 48,180 2,961,815 2,789,309 2,555,444 2,304,439 2,090,671 1,974,232 12,650,432 $ 11,840,937 $ 11,214,613 $ 10,344,282 $ 9,022,761 $ 8,023,045 NET (EXPENSE) REVENUE Governmental activities Business-type activities $ (12,298,442) $ (810,749) (10,936,896) $ (695,117) (9,948,709) $ (821,026) (9,519,204) $ (1,029,907) (9,599,401) $ (990,972) (8,993,960) (864,321) Total Primary Government Net (Expense) $ (13,109,191) $ (11,632,013) $ (10,769,735) $ (10,549,111) $ (10,590,373) $ (9,858,281) (Continued) - 229 - STATE OF ARIZONA SCHEDULE 2 CHANGES IN NET ASSETS (1) FOR THE LAST SIX FISCAL YEARS (2) FISCAL YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) Fiscal Year 2006, as 2007 GENERAL REVENUES AND OTHER CHANGES IN NET ASSETS Governmental Activities: Taxes: Sales Income Tobacco (3) Property Motor vehicle and fuel (7) Other (3) Unrestricted investment earnings Unrestricted grants and contributions Miscellaneous general revenues (5) Gain on sale of trust land Transfers Total Governmental Activities $ Business-type Activities: Sales taxes Unrestricted investment earnings Unrestricted grants and contributions (9) Miscellaneous general revenues (4) Contributions to permanent endowments Special items Transfers Total Business-type Activities restated 6,537,584 $ 4,636,447 358,205 43,736 1,826,893 529,629 261,099 11,711 212,253 451,501 (876,456) 13,992,602 79,223 103,362 77,841 4,815 876,456 1,141,697 2005 2004, as 2003, as 2002, as restated restated restated (2) 6,322,311 $ 4,548,843 248,122 43,035 1,857,293 575,946 172,311 12,293 235,610 567,364 (774,492) 13,808,636 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 5,016,585 $ 2,800,461 223,804 50,455 1,613,952 539,218 24,227 8,502 281,109 319,517 (678,726) 10,199,104 54,550 49,050 58,816 3,803 (7,874) 774,492 932,837 57,584 40,311 5 26,017 2,955 707,597 834,469 50,050 38,753 46,615 2,231 (6,880) 678,726 809,495 Total Primary Government $ 15,134,299 $ 14,741,473 $ 12,441,504 $ CHANGE IN NET ASSETS Governmental activities (8) Business-type activities $ 1,694,160 330,948 $ 2,871,740 237,720 $ 1,658,326 13,443 $ Total Primary Government $ 2,025,108 $ 3,109,460 $ 1,671,769 $ 11,008,599 43,450 32,527 3 26,985 3,037 665,004 771,006 $ 679,900 $ (220,412) 459,488 $ (1) This schedule reports using the accrual basis of accounting. (2) The State implemented GASB Statement 34 in fiscal year 2002. Therefore, ten years of data is not available, but will be accumulated over time. (3) Prior to fiscal year 2004, tobacco tax revenue was included in other tax revenue. (4) Beginning in fiscal year 2005, settlement income for the Industrial Commission Special Fund is classified as a program revenue, charges for services. Prior to this, it was classified as a miscellaneous general revenue. In fiscal year 2005, settlement income was $41,554. (5) Beginning in fiscal year 2004, operating grants and contributions included Indian gaming revenue and tobacco settlement revenue. For fiscal year 2004, gaming revenue was $57,517 and this was the first year that gaming revenue was earned, as a result of Proposition 202. For fiscal year 2004, tobacco settlement revenue was $91,601. Prior to fiscal year 2004, tobacco settlement revenue was included in miscellaneous general revenues. (6) The Industrial Commission Special Fund's cost of sales and benefits expense decreased $125,828 during fiscal year 2006, primarily due to a decrease in insolvent carrier liabilities. During fiscal years 2005 and 2004, insolvent carrier liability increased, primarily as the result of $67,423 and $107,600, respectively, in Arizona workers' compensation claims from the defunct California domiciled Fremont Companies. (7) $31,804 of transportation's charges for services for fiscal year 2005 were classified as motor vehicle and fuel tax revenues. (8) For fiscal year 2006, net assets for governmental activities were increased by the capitalization of $302,375 of capital assets that were previously recorded as transportation expenses. (9) In fiscal year 2002, private gifts not restricted for capital purposes of $83,100 for the Universities were classified as general revenues. In future fiscal years, these gifts are classified as program revenues. - 230 - 4,551,804 $ 2,371,005 37,470 1,563,876 632,896 77,914 7,222 319,873 137,563 (665,004) 9,034,619 9,805,625 4,450,691 2,442,320 49,611 1,493,259 544,514 116,614 8,518 186,917 137,565 (709,916) 8,720,093 41,367 29,327 83,108 12,447 2,723 709,916 878,888 $ 9,598,981 (564,782) $ (219,966) (273,867) 14,567 (784,748) $ (259,300) STATE OF ARIZONA SCHEDULE 3 FUND BALANCES, GOVERNMENTAL FUNDS (1) FOR THE LAST SIX FISCAL YEARS (2) FISCAL YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) Fiscal Year 2002, as 2007 GENERAL FUND: Reserved for: Budget stabilization fund School facilities improvements Continuing appropriations Other fund balance reservations Unreserved Total General Fund ALL OTHER GOVERNMENTAL FUNDS: Reserved for: Highway construction Other construction School facilities improvements Permanent funds Continuing appropriations Debt service Other fund balance reservations Unreserved, reported in: Special revenue funds Capital projects funds Total All Other Governmental Funds 2006 2005 2004 2003 restated (2) $ 673,531 4,931 162,657 272 1,081,708 $ 651,020 110,149 69,861 302 1,434,806 $ 160,873 107,260 55,727 374 986,168 $ 13,545 96,714 74,973 377 561,029 $ 13,737 101,944 87,131 598 343,012 $ 67,700 105,816 611 574,146 $ 1,923,099 $ 2,266,138 $ 1,310,402 $ 746,638 $ 546,422 $ 748,273 $ 976,488 5,288 2,454,564 94,602 34,421 25,757 $ 426,015 6,256 2,043,591 118,671 37,792 5,145 $ 419,072 7,307 5,386 1,716,404 120,752 21,992 25,375 $ 321,401 41,165 17,808 1,361,366 114,948 27,693 25,138 $ 342,324 33,477 33,893 1,123,523 90,238 23,273 38,945 $ 277,321 53,088 262,654 1,082,018 103,312 61,123 38,382 803,606 $ 4,394,726 657,371 $ 3,294,841 574,938 $ 2,891,226 463,738 $ 2,373,257 (1) This schedule reports using the modified accrual basis of accounting. (2) Due to changes in the State's fund structure initiated when GASB Statement 34 was implemented, the fund balance information is available only beginning in fiscal year 2002. - 231 - 444,301 $ 2,129,974 634,710 29,661 $ 2,542,269 STATE OF ARIZONA SCHEDULE 4 CHANGES IN FUND BALANCES, GOVERNMENTAL FUNDS (1) FOR THE LAST SIX FISCAL YEARS (2) FISCAL YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) Fiscal Year 2002, as 2007 REVENUES Taxes: Sales Income Tobacco (3) Property Motor vehicle and fuel Other (3) Intergovernmental Licenses, fees, and permits Earnings on investments (4) Sales and charges for services Fines, forfeitures, and penalties Gaming (5) Tobacco settlement (6) Other (6) Total Revenues EXPENDITURES Current: General government Health and welfare Inspection and regulation Education Protection and safety Transportation (7) Natural resources Intergovernmental revenue sharing Debt service: Principal Interest and other fiscal charges Capital outlay (7) Total Expenditures Excess (Deficiency) of Revenues Over Expenditures $ 6,527,968 4,629,220 358,205 43,736 1,828,701 529,629 8,313,720 442,236 528,024 158,318 183,923 94,771 90,258 264,440 23,993,149 2006 $ 6,313,090 4,535,492 248,122 43,035 1,857,293 575,946 8,019,509 410,069 247,250 162,048 138,354 84,794 86,231 269,411 22,990,644 2005 $ 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 2004 $ 4,985,424 2,818,778 223,804 50,455 1,613,952 539,218 7,159,976 349,938 131,715 161,170 120,032 57,517 92,550 313,220 18,617,749 2003 $ 4,555,389 2,387,369 37,470 1,563,876 632,896 6,141,218 320,564 111,771 111,438 96,192 337,930 16,296,113 restated (2) $ 4,424,528 2,410,342 49,611 1,493,259 543,055 5,182,770 330,041 136,761 157,912 98,791 324,433 15,151,503 879,519 9,679,226 173,897 5,983,513 1,358,439 524,318 185,592 2,863,218 861,373 8,995,430 157,401 5,302,942 1,247,508 373,603 178,832 2,661,894 758,149 8,419,913 146,523 4,852,099 1,132,473 564,574 175,593 2,335,828 718,229 7,733,516 136,189 4,702,609 1,028,134 717,463 153,533 2,144,438 689,603 6,652,661 139,863 4,882,516 925,667 463,756 163,946 2,159,691 511,167 5,788,774 133,584 4,188,501 892,986 401,372 140,600 2,190,211 220,473 195,317 992,000 23,055,512 261,277 176,933 1,066,815 21,284,008 381,512 200,731 710,688 19,678,083 327,595 188,247 695,289 18,545,242 297,508 140,613 1,041,038 17,556,862 270,912 125,594 1,127,411 15,771,112 937,637 1,706,636 904,227 72,507 (1,260,749) (619,609) (Continued) - 232 - STATE OF ARIZONA SCHEDULE 4 CHANGES IN FUND BALANCES, GOVERNMENTAL FUNDS (1) FOR THE LAST SIX FISCAL YEARS (2) FISCAL YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) Fiscal Year 2002, as OTHER FINANCING SOURCES (USES) Transfers in Transfers out Proceeds from sale of trust land Proceeds from sale of capital assets Capital lease and installment purchase contracts Refunding bonds issued Payment to refunded bond escrow agent Bonds issued Premium on bonds issued Refunding grant anticipation notes 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 DEBT SERVICE AS A PERCENTAGE OF NONCAPITAL EXPENDITURES $ 2007 2006 2005 2004 2003 910,605 (1,784,833) 199,089 10,162 812,083 (1,585,754) 284,293 11,118 1,011,456 (1,714,562) 274,127 - 940,050 (1,616,105) 149,001 - 1,053,862 (1,690,443) 88,066 - 848,252 (1,549,833) 51,265 - 132,985 325,000 26,201 - 3,543 596,160 (646,689) 118,250 59,711 - 5,350 224,283 (247,417) 210,577 38,651 104,385 11,551 24,349 107,940 (145,965) 389,746 22,024 22,633 177,322 9,623 101,473 90,530 (107,735) 662,975 46,377 - 4,167 74,250 (77,135) 148,350 10,142 - - - 334,225 16,725 75,295 71,051 - - (363,052) 237,625 (17,273) 273,735 (80,713) 372,730 (65,087) 68,203 (180,791) (347,285) 50,307 177,506 17,187 370,992 34,186 646,603 4,674 (411,701) 756,846 1.9% $ 1,359,351 2.2% $ 1,081,733 $ 443,499 3.1% (1) This schedule reports using the modified accrual basis of accounting. (2) Due to changes in the State's fund structure initiated when GASB Statement 34 was implemented, the changes in fund balance information is available only beginning in fiscal year 2002. (3) Prior to fiscal year 2004, tobacco tax revenue was included in other tax revenue. Increase from fiscal year 2006 to fiscal year 2007 primarily due to Proposition 203, implemented December, 2006. (4) Increase from fiscal year 2006 to fiscal year 2007 primarily due to increase in Land Endowment fair market value of investments, larger cash balances available to invest, and market interest rates. (5) Beginning in fiscal year 2004, Indian gaming revenue was earned as a result of Proposition 202. (6) Prior to fiscal year 2004, tobacco settlement revenue was included in other revenue. (7) For fiscal year 2006, transportation expenditures were reduced and capital outlay was increased by $302,375 for addition of capital assets that were previously recorded as transportation expenditures. - 233 - 2.9% $ restated (2) (614,146) $ 2.7% (1,031,310) 2.7% STATE OF ARIZONA SCHEDULE 5 NET TAXABLE SALES BY CLASSIFICATION (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) Fiscal Year 2007 CLASSIFICATION (9) Transporting (6) Mining, oil and gas Mining severance Timber severance (3) Utilities Communications Private car and pipelines Publishing Job printing Local advertising (7) Restaurants and bars Amusements Commercial lease (4) Personal property rentals Contracting Feed wholesale (2) Retail Hotel/motel Rental occupancy tax Use tax Membership camping Agriculture equipment (5) Other Total Direct sales tax rate (8) $ $ 2006 43,351 255,531 1,743,361 8,609,034 3,513,667 19,679 129,681 397,802 9,619,785 1,086,364 (2) 3,927,824 22,415,051 55,009,403 2,411,634 1,065 6,091,507 12 115,274,749 $ $ 5.60% 2005 59,801 321,538 1,219,984 7,679,982 3,220,062 25,751 133,680 403,686 8,933,459 998,767 (120) 3,633,374 20,487,917 53,147,971 2,268,776 3,471 6,155,959 2,785 108,696,843 5.60% 2004 2003 2002 $ 53,371 317,202 656,631 6,828,179 2,934,858 14,832 134,925 367,010 7,939,964 872,520 919 3,242,363 16,044,847 46,378,344 2,063,973 2,414 5,218,535 2,897 - $ 67,486 287,787 261,623 6,430,306 2,809,508 15,920 128,911 348,924 7,202,034 813,489 (6,518) 3,174,945 13,156,490 (8) 42,409,055 1,831,153 4,202 4,644,319 2,998 119 $ 26,106 268,073 45,049 5,940,826 2,869,499 12,493 133,229 427,730 6,655,028 782,670 (7,579) 3,319,778 11,563,726 (67) 39,408,769 1,698,499 1,428 3,793,691 2,406 - $ 96,356 208,310 (4,264) 766 5,919,273 2,945,681 7,134 82,843 351,142 6,428,712 743,800 36,913 3,607,519 11,820,597 (1,806) 38,432,860 1,659,761 5,968 3,240,460 2,741 2,107 - $ 93,073,784 $ 83,582,743 $ 76,941,354 $ 75,586,873 5.60% 5.60% 5.60% 5.60% N/A = Not available (1) Net taxable sales are based upon tax receipts. (2) Feed wholesale dropped to 0% effective July 17, 1994 and was repealed effective October 1, 1994. (3) Effective July 13, 1995, the tax rate on timber severance was changed to a dollar amount per 1,000 board feet. Timber severance includes only sales subject to the repealed rate. (4) Commercial lease rate dropped to 0% effective July 1, 1997. (5) Agriculture equipment was phased out on July 1, 1988 and is not a current business classification. (6) The transporting/towing and railroads/aircraft business classifications have been combined into one category and renamed "transporting." (7) Local advertising was phased out on January 1, 1986. (8) A significant portion of the revenue base was subject to a sales tax rate of 5.6% for fiscal years 2002 thru 2007 and 5.0% for most of fiscal year 2001 (rate increased to 5.6% during fiscal year 2001 on June 1, 2001). For fiscal years 2000 thru 2007, the tax rate for non-metal mining, oil and gas was 3.125%, the mining severance was 2.5%, the timbering severance for ponderosa and other was $2.13 and $1.51 per thousand board feet, respectively, the hotel/motel tax was 5.5%, the rental occupancy tax was 3.0%, and the jet fuel and jet fuel use tax was $.0305 per gallon. Tax rates for fiscal years 1997 thru 1999 are not available. Per the Arizona Constitution, Article 9, Section 22, the Legislature can raise tax rates with an affirmative vote of two-thirds of the members of each house. (9) The names of the ten largest revenue payers are not available. Therefore, the categories are intended to provide alternative information regarding the sources of the State's revenue. Source: Arizona Department of Revenue Annual Report. - 234 - Fiscal Year 2001 $ $ 2000 138,656 224,834 168,695 5,814,282 2,870,089 15,486 124,462 402,934 6,300,820 760,838 182,691 3,658,549 11,250,538 (42) 38,282,337 1,871,009 4,897 3,922,953 2,420 1,213 - $ 75,997,661 $ 5.00% 1999 89,506 193,934 481,583 5,268,208 2,453,094 5,612 112,358 418,678 27 5,976,371 758,823 659,199 3,412,996 10,847,157 382 36,403,862 1,818,474 3,734 3,514,613 1,411 $ 94,360 204,731 749,257 5,066,644 2,153,028 15,556 119,042 418,740 (2) 5,476,713 680,141 (133,064) 3,170,338 10,021,561 270 32,964,475 1,679,515 3,931 2,951,224 1,682 - $ 100,970 190,473 1,082,898 (1) 4,923,558 1,919,237 12,774 110,593 405,093 5,095,504 672,757 386,200 2,909,346 8,568,022 (6,707) 30,469,141 1,609,506 4,211 2,729,476 1,622 - $ 65,638,142 $ 61,184,673 72,420,022 5.00% 1998 N/A N/A - 235 - (This page intentionally left blank) STATE OF ARIZONA SCHEDULE 6 SALES TAX REVENUE PAYERS BY CLASSIFICATION CURRENT YEAR AND NINE YEARS AGO (Expressed in Thousands) Fiscal Year 2007 Percentage Tax Percentage Collections (4) of Total Collections (5) of Total CLASSIFICATION Transporting (3) $ Non-metal mining, oil and gas Mining severance Timbering severance - ponderosa (6) Timbering severance - other (6) Utilities Communications Railroads and aircraft (3) Private car and pipelines Publishing Printing Restaurants and bars Amusements Commercial lease (2) Personal property rentals Contracting Feed wholesale (1) Retail Hotel/motel Rental occupancy tax (6) Use tax utilities Use tax License fees Membership camping Jet fuel tax Jet fuel use tax Non sufficient funds Telecommunications service assistance Education tax (4) Total Fiscal Year 1998 Tax $ (1,257) 7,979 43,549 9 2 430,153 175,521 939 6,478 19,870 480,515 54,256 196,194 1,118,584 2,747,814 132,476 32 605 302,256 129 1 4,857 906 9 (266) 666,184 6,387,795 (0.02) % 0.12 0.68 6.73 2.75 0.01 0.10 0.31 7.52 0.85 3.07 17.51 43.02 2.07 0.01 4.73 0.00 0.08 0.01 - $ 10.43 100.00 % 3,214 5,952 27,072 52 246,178 95,962 1,834 639 5,530 20,255 254,772 33,638 4,191 145,467 428,400 (31) 1,523,452 88,523 126 136,474 554 81 5,105 395 52 (132) - $ 3,027,755 0.11 % 0.20 0.89 8.13 3.17 0.06 0.02 0.18 0.67 8.41 1.11 0.14 4.80 14.15 50.32 2.92 4.51 0.02 0.17 0.01 100.00 % (1) Feed wholesale dropped to 0% effective July 17, 1994 and was repealed effective October 1, 1994. (2) Commercial lease rate dropped to 0% effective July 17, 1997. (3) Transporting/towing was combined with railroads/aircraft for confidentiality purposes beginning in fiscal year 2004. (4) The education tax is .6% of net taxable sales for most classifications. The ones that do not collect the education tax are nonmetal mining, oil and gas, mining and timbering severances, hotel/motel, rental occupancy, and jet fuel taxes. The Arizona Department of Revenue's annual report does not include the amount of education tax collected from each classification, rather it reports the total collected from all classifications. The education tax became effective June 1, 2001. (5) Does not reflect the balance of undistributed estimated payments of $5,262 at the end of fiscal year 1998. (6) Effective November 1, 2006 these rates were repealed. Source: Arizona Department of Revenue Annual Report. - 237 - STATE OF ARIZONA SCHEDULE 7 PERSONAL INCOME BY INDUSTRY FOR THE LAST TEN CALENDAR YEARS (Expressed in Thousands) Calendar Year Ended December 31 2006 CLASSIFICATION Farm earnings Forestry and fishing Mining Utilities Construction Manufacturing Wholesale trade Retail trade Transportation and warehousing Information Finance and insurance Real estate, rental, and leasing Professional and technical services Managing companies/enterprises Administrative and waste services Educational services Health care and social assistance Arts, entertainment, and recreation Accommodation and food services Other services, except public administration Government and government enterprises Other (1) Total Average effective rate (2) $ $ 2005 592,543 472,360 979,855 1,339,908 14,572,513 14,745,610 7,890,265 12,239,574 4,620,601 3,197,904 10,358,568 5,454,314 11,778,450 1,938,712 8,715,117 1,581,173 14,139,131 1,562,249 5,020,292 $ 2004 817,607 437,154 792,555 1,237,222 12,731,809 13,670,978 7,154,266 11,259,064 4,214,125 3,034,649 9,633,732 5,448,744 10,338,039 1,757,417 7,876,828 1,482,102 12,739,579 1,376,158 4,568,994 $ 2003 844,242 430,877 727,100 1,096,182 10,680,267 12,753,831 6,552,324 10,119,937 3,949,615 2,995,465 8,294,215 4,893,985 9,276,258 1,825,602 6,800,669 1,339,766 11,731,749 1,321,917 4,247,601 $ 2002 787,442 423,639 630,976 1,021,086 9,545,774 11,984,368 5,924,358 9,487,641 3,472,974 2,949,292 7,715,318 4,097,630 8,387,301 1,468,659 6,169,723 1,096,995 10,612,440 1,272,431 3,875,538 $ 2001 1,074,253 414,395 625,716 985,572 9,259,202 11,928,999 5,780,936 8,981,149 3,370,047 3,002,940 7,059,253 3,878,051 8,368,781 1,326,944 5,824,505 969,590 9,712,814 1,288,587 3,664,219 $ 835,578 436,315 695,290 921,738 8,931,571 12,340,155 5,777,683 8,689,514 3,310,838 3,045,121 6,732,336 3,536,667 8,422,829 1,337,701 5,757,981 789,291 8,903,971 1,244,280 3,552,018 3,798,692 3,503,872 3,264,100 3,100,185 3,015,205 2,883,219 24,292,105 47,719,055 22,751,512 44,051,315 21,174,212 40,621,481 19,685,814 36,872,729 18,321,256 35,297,873 16,941,093 33,768,611 197,008,991 1.86% $ 180,877,721 $ 164,941,395 2.02% 1.73% $ 150,582,313 $ 144,150,287 1.54% (1) Includes dividends, interest, rental income, personal current transfer receipts, adjustment for residence, and deductions for government social insurance. (2) The total direct rate for personal income is not available. Average effective rate equals tax collections for the fiscal year, ending the following June 30, divided by personal income. Source: Arizona Department of Revenue Annual Report and the U.S. Bureau of Economic Analysis. - 238 - 1.46% $ 138,853,800 1.51% Calendar Year Ended December 31 2000 $ $ 1999 684,054 380,894 705,517 828,466 8,568,315 12,727,071 5,565,928 8,260,397 3,158,729 3,155,092 6,245,588 3,484,281 7,971,913 1,162,843 5,540,650 743,767 8,422,567 1,145,902 3,450,140 $ 1998 925,960 378,954 794,728 779,816 7,558,776 11,218,882 4,998,428 7,528,294 2,949,668 2,571,155 5,491,049 3,402,939 6,815,267 1,055,653 4,856,712 642,796 7,722,022 1,021,478 3,208,462 $ 1997 871,124 361,450 818,430 725,958 6,527,894 11,065,815 4,509,740 6,990,221 2,686,803 2,141,810 5,060,138 2,650,800 6,266,015 1,041,441 4,131,402 609,346 7,257,866 925,328 3,121,756 $ 745,198 320,852 831,982 718,894 5,755,736 9,976,840 3,970,071 6,333,663 2,401,823 1,821,575 4,309,221 2,246,315 5,642,222 944,054 3,651,264 505,588 6,760,368 794,236 2,898,659 2,767,102 2,528,002 2,514,591 2,276,901 15,663,994 31,924,649 14,655,470 29,752,614 13,865,192 29,227,104 13,210,653 27,440,968 132,557,859 1.74% $ 120,857,125 1.90% $ 113,370,224 1.85% $ 103,557,083 1.80% - 239 - STATE OF ARIZONA SCHEDULE 8 PERSONAL INCOME TAX RATES FOR THE LAST TEN CALENDAR YEARS (Expressed in Thousands) Calendar Year Ended December 31 2006 AVERAGE EFFECTIVE RATE (3) Personal Income Tax Revenue (1) Personal Income (2) Average Effective Rate (3) $ $ 2005 3,666,923 197,008,991 1.86% TAX RATES ON THE PORTION OF TAXABLE INCOME IN RANGES (4) $0 - $10 $10 - $25 $25 - $50 $50 - $150 $150 and over 2.73% 3.04% 3.55% 4.48% 4.79% $ $ 2004 3,651,576 180,877,721 2.02% $ $ 2.87% 3.20% 3.74% 4.72% 5.04% 2003 2,854,009 164,941,395 1.73% 2.87% 3.20% 3.74% 4.72% 5.04% $ $ 2002 2,316,040 150,582,313 1.54% 2.87% 3.20% 3.74% 4.72% 5.04% $ $ 2,104,362 144,150,287 1.46% 2.87% 3.20% 3.74% 4.72% 5.04% (1) Personal income tax revenue includes income tax collections and refunds, on a cash basis, for the fiscal year ending the following June 30. (2) Personal income is reported on a calendar basis. (3) The total direct rate for personal income is not available. Average effective rate equals tax collections for the fiscal year, ending the following June 30, divided by personal income. (4) Amounts shown are for single and married filing separate returns. For all other filing status returns, double the amounts for the income tax ranges. Per the Arizona Constitution, Article 9, Section 22, the Legislature can raise tax rates with a vote of two-thirds of the members of each house. Source: Arizona Department of Revenue Annual Report and the U.S. Bureau of Economic Analysis. STATE OF ARIZONA SCHEDULE 9 PERSONAL INCOME TAX FILERS AND LIABILITY BY INCOME LEVEL FOR THE TAXABLE YEARS 2004 AND 1997 (1) (Expressed in Thousands, Except Number of Filers) Taxable Year Ended December 31, 2004 Number of Percentage Filers of Total Percentage Liability (2) of Total FEDERAL ADJUSTED GROSS INCOME LEVEL (3) $50 and under $50 - $100 $100 - $500 $500 and over 1,628,589 475,463 200,326 11,369 70.33% 20.53% 8.65% 0.49% $ 457,689 672,749 931,118 743,267 16.32% 23.99% 33.20% 26.50% Total 2,315,747 100.00% $ 2,804,823 100.00% (1) The taxable year 2004 is the most recent year for which data is available, and combines the number of filers of the Arizona Forms 140, 140A, 140NR (nonresident), and 140PY (part year resident) Individual Income tax returns. (2) Liability, as reported on Arizona Forms 140, 140A, 140NR (nonresident), and 140PY (part year resident) Individual Income tax returns for tax year 2004, filed from January 2005 forward (or 1997, filed from January 1998 forward). (3) The names of the ten largest revenue payers are not available. Therefore, the categories are intended to provide alternative information regarding the sources of the State's revenue. Source: Arizona Department of Revenue Annual Report. - 240 - Calendar Year Ended December 31 2001 $ $ 2000 2,090,646 138,853,800 1.51% 2.87% 3.20% 3.74% 4.72% 5.04% $ $ 1999 2,303,888 132,557,859 1.74% $ $ 2.87% 3.20% 3.74% 4.72% 5.04% 1998 2,291,883 120,857,125 1.90% 2.87% 3.20% 3.74% 4.72% 5.04% $ $ 1997 2,098,349 113,370,224 1.85% 2.88% 3.24% 3.82% 4.74% 5.10% Taxable Year Ended December 31, 1997 Number of Percentage Filers of Total Percentage Liability (2) of Total 1,442,618 322,391 95,712 5,602 77.30% 17.27% 5.13% 0.30% $ 412,823 464,724 470,264 341,104 24.44% 27.52% 27.84% 20.20% 1,866,323 100.00% $ 1,688,915 100.00% - 241 - $ $ 1,863,197 103,557,083 1.80% 2.90% 3.30% 3.90% 4.80% 5.17% STATE OF ARIZONA SCHEDULE 10 RATIOS OF OUTSTANDING DEBT BY TYPE FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) Fiscal Year 2002, as GOVERNMENTAL ACTIVITIES: Revenue bonds Grant anticipation notes Certificates of participation Capital leases Installment purchase contracts Notes payable Premiums and discounts on debt Deferred amount on refundings Total Governmental Activities $ BUSINESS-TYPE ACTIVITIES: Revenue bonds Certificates of participation Capital leases Installment purchase contracts Notes payable Premiums and discounts on debt Deferred amount on refundings Total Business-type Activities Total Primary Government $ Debt as a Percentage of Personal Income (3) Amount of Debt per Capita (3) 2007 2006 2005 2,328,840 $ 282,860 959,865 242,209 10,644 3,309 225,071 (14,266) 4,038,532 2,106,700 $ 325,430 1,020,810 129,808 6,815 219,958 (17,832) 3,791,689 2,170,845 363,970 1,054,677 126,676 6,926 197,479 3,920,573 868,565 935,127 166,780 9,544 1,354 39,582 (29,211) 1,991,741 802,600 946,766 113,388 10,279 38,331 (21,606) 1,889,758 768,000 860,759 120,361 7,276 30 36,133 (20,821) 1,771,738 6,030,273 $ 3.1% $ 978 5,681,447 $ 5,692,311 3.1% $ 954 2004 $ 2,278,225 308,585 845,804 125,974 4,602 562 144,759 3,708,511 5,209,277 3.5% $ 991 $ 756,781 641,315 80,338 5,038 80 28,184 (10,970) 1,500,766 $ 933 2,173,055 169,145 582,511 104,644 6,188 10,301 108,732 3,154,576 $ 597,238 429,144 31,923 3,823 129 21,686 (11,305) 1,072,638 $ 3.5% $ restated (1) 2003 4,227,214 1,782,510 182,295 231,904 8,517 10,228 38,859 32,700 2,287,013 596,403 422,010 37,758 3,832 20,794 (8,999) 1,071,798 $ 3,358,811 2.9% $ 776 2.4% $ Note: Details regarding the State's outstanding debt can be found in the notes to the financial statements. (1) The State of Arizona implemented GASB 34 in fiscal year 2002. (2) For fiscal years 2001 and prior, any premiums, discounts, or deferred amounts on refundings are combined in the respective revenue bond, grant anticipation note, or certificate of participation line items. (3) See Schedule 22 for personal income and population data. These ratios are calculated using personal income and population data for the calendar year that ends during that fiscal year. For example, fiscal year 2005 contains data for the calendar year ending December 31, 2004. - 242 - 634 Fiscal Year 2001, as restated (2) $ 1,882,765 182,295 186,447 9,390 9,767 19,766 2,290,430 2000 (2) $ 540,019 244,934 29,259 1,634 815,846 $ 3,106,276 601 $ 567,659 191,899 12,525 9,835 781,918 $ 2.3% $ 1,337,108 201,639 21,115 6,415 1,566,277 1999 (2) 2,348,195 467 $ 559,109 110,884 4,931 2,156 677,080 $ 1.9% $ 1,257,492 215,989 10,317 11,917 1,495,715 1998 (2) 2,172,795 585,413 118,129 5,711 2,085 711,338 $ 1.9% $ 445 1,257,156 242,052 11,883 15,107 1,526,198 2,237,536 2.2% $ 472 - 243 - STATE OF ARIZONA SCHEDULE 11 LEGAL DEBT MARGIN INFORMATION ARIZONA TRANSPORTATION BOARD HIGHWAY REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) Total Principal Outstanding Debt Limit (1) Fiscal Year 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 Highest Total Applicable to Annual Principal and Principal the Limit as (3) Principal Interest Payment and Interest Applicable to Limit 1,490,600 1,223,425 1,161,355 1,017,360 932,700 734,155 700,280 608,500 524,345 568,150 Debt Limit $ 1,300,000 1,300,000 1,300,000 1,300,000 1,000,000 800,000 800,000 800,000 800,000 $ Highest Annual Principal and Interest Payment Debt Limit (1), (2) Total Principal $ Legal Debt a Percentage Debt Margin of Debt Limit - % 94.11 89.34 78.26 71.75 73.42 87.54 76.06 65.54 71.02 Limit 317,570 312,204 230,882 278,927 270,270 261,663 256,945 264,361 254,968 234,120 76,575 138,645 282,640 367,300 265,845 99,720 191,500 275,655 231,850 $ Payment $ 137,149 121,025 115,633 106,220 99,923 86,496 82,712 N/A N/A N/A Highest Annual Legal Debt $ Margin 180,421 191,179 115,249 172,707 170,347 175,167 174,233 N/A N/A N/A (1) As stated in House Bill 2206 of the Second Regular Session of the Forty-seventh Legislature, the $1.3 billion debt limit is eliminated from ARS §28-7510 and the amount that pledged monies are required to exceed the highest annual principal and interest payments is amended from two to three times. The general effective date of this change was September 21, 2006. Prior to September 21, 2006, Arizona Revised Statutes restricted the total principal amount of Arizona Highway Revenue Bonds that could be outstanding at any time, excluding refunded bonds, from exceeding $1.3 billion. Also, the monies subjected to pledge for the preceding twelve months must have exceeded, by two times, the highest annual principal and interest payments on all of the outstanding Arizona Highway Revenue Bonds for the highest one year period during the life of the outstanding bonds. (2) For fiscal years 1998 to 2000, information for calculating the legal debt margin information for the highest annual principal and interest payment limit is unavailable. (3) The debt limit is calculated by dividing pledged revenues for the Arizona Highway Transportation Board Highway Revenue Bonds (see Schedule 15) by two. Fiscal year 2005 pledged revenues are net of a $118 million distribution to the State General Fund. STATE OF ARIZONA SCHEDULE 12 LEGAL DEBT MARGIN INFORMATION (1), (2) ARIZONA STATE UNIVERSITY FOR THE LAST TWO FISCAL YEARS (3) FISCAL YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) Projected Projected Amount of Total Projected Debt Service Projected Debt Debt Service as Fiscal Total Limit (8% of Service Applicable Legal a Percentage of Year (2) Expenditures Expenditures) (3) to Limit Debt Margin Debt Service Limit 2007 2006 $ 1,880,769 $ 1,724,528 150,462 137,962 $ 97,800 91,400 $ 52,662 5.20 % 46,562 5.30 % (1) Ten years of data is not available, but will be accumulated over time. (2) For fiscal years 2006 and 2007, projections are based upon the University's fiscal year 2008-2010 and 2009-2011 capital improvement plans, respectively. (3) Per ARS §15-1683, the projected debt service on bonds and certificates of participation outstanding and proposed to be issued, as shown in the University's most recent capital improvement plan reported to the Arizona Board of Regents, may not exceed, in any fiscal year shown in such capital improvement plan, more than eight percent of the University's total projected expenditures and mandatory transfers. - 244 - as a Percentage of Debt Limit 43.19 % 38.76 50.08 38.08 36.97 33.06 32.19 N/A N/A N/A STATE OF ARIZONA SCHEDULE 13 LEGAL DEBT MARGIN INFORMATION UNIVERSITY OF ARIZONA FOR THE LAST FISCAL YEAR (1) FISCAL YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) Projected Projected Amount of Total Projected Debt Service Projected Debt Debt Service as Fiscal Total Limit (8% of Service Applicable Legal a Percentage of Year (2) Expenditures Expenditures) (3) to Limit Debt Margin Debt Service Limit 2007 $ 1,657,971 $ 132,638 $ 114,400 $ 18,238 6.90 % (1) Ten years of data is not available, but will be accumulated over time. (2) For fiscal year 2007, projections are based upon the University's fiscal year 2009-2011 capital improvement plan. (3) Per ARS §15-1683, the projected debt service on bonds and certificates of participation outstanding and proposed to be issued, as shown in the University's most recent capital improvement plan reported to the Arizona Board of Regents, may not exceed, in any fiscal year shown in such capital improvement plan, more than eight percent of the University's total projected expenditures and mandatory transfers. STATE OF ARIZONA SCHEDULE 14 LEGAL DEBT MARGIN INFORMATION NORTHERN ARIZONA UNIVERSITY FOR THE LAST FISCAL YEAR (1) FISCAL YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) Projected Projected Amount of Total Projected Debt Service Projected Debt Debt Service as Fiscal Total Limit (8% of Service Applicable Legal a Percentage of Year (2) Expenditures Expenditures) (3) to Limit Debt Margin Debt Service Limit 2007 $ 410,811 $ 32,865 $ 30,400 $ 2,465 7.40 % (1) Ten years of data is not available, but will be accumulated over time. (2) For fiscal year 2007, projections are based upon the University's fiscal year 2009-2011 capital improvement plan. (3) Per ARS §15-1683, the projected debt service on bonds and certificates of participation outstanding and proposed to be issued, as shown in the University's most recent capital improvement plan reported to the Arizona Board of Regents, may not exceed, in any fiscal year shown in such capital improvement plan, more than eight percent of the University's total projected expenditures and mandatory transfers. - 245 - STATE OF ARIZONA SCHEDULE 15 PLEDGED-REVENUE COVERAGE ARIZONA TRANSPORTATION BOARD HIGHWAY REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) (1), (2) Fiscal Pledged Year 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 Revenue 635,140 624,408 461,763 557,854 540,540 523,326 513,890 528,721 509,935 468,240 $ Debt Service Principal $ 57,825 54,830 44,265 51,155 44,490 45,365 52,055 46,270 43,805 43,405 $ Interest 73,785 62,222 60,459 53,149 41,932 38,534 36,581 33,994 31,090 33,266 $ Total 131,610 117,052 104,724 104,304 86,422 83,899 88,636 80,264 74,895 76,671 Coverage 4.8 5.3 4.4 5.3 6.3 6.2 5.8 6.6 6.8 6.1 (1) The Highway Revenue Bonds are secured by a prior lien on and pledge of motor vehicle and related fuel fees and taxes. (2) 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. STATE OF ARIZONA SCHEDULE 16 PLEDGED-REVENUE COVERAGE ARIZONA TRANSPORTATION BOARD TRANSPORTATION EXCISE TAX REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) (1) Fiscal Pledged Year 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 Revenue 262,264 316,491 316,806 288,600 268,721 267,563 264,722 248,596 229,470 209,263 $ Debt Service Principal $ 0 80,375 208,625 199,400 190,415 163,455 156,865 128,805 106,765 82,765 $ Interest 0 1,566 14,318 23,553 31,533 35,445 40,035 42,609 43,251 40,512 Total $ 0 81,941 222,943 222,953 221,948 198,900 196,900 171,414 150,016 123,277 (1) The Bonds are secured by transportation excise taxes collected by the Arizona Department of Revenue on behalf of Maricopa County. - 246 - Coverage N/A 3.9 1.4 1.3 1.2 1.3 1.3 1.5 1.5 1.7 STATE OF ARIZONA SCHEDULE 17 PLEDGED-REVENUE COVERAGE SCHOOL FACILITIES BOARD STATE SCHOOL IMPROVEMENT REVENUE BONDS FOR THE LAST SIX FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) (2) Fiscal Year 2007 2006 2005 2004 2003 2002 (3) Pledged $ Revenue 666,184 628,471 538,346 487,215 447,841 439,005 Debt Service $ Principal 31,055 34,480 28,485 27,215 25,010 43,035 $ Interest 31,893 30,052 36,060 37,568 36,901 26,962 $ Total 62,948 64,532 64,545 64,783 61,911 69,997 Coverage 10.58 9.74 8.34 7.52 7.23 6.27 (1) No debt service payments were due prior to fiscal year 2002. (2) Pledged revenues consist of education transaction privilege tax revenues. These revenues result from a .6% increase in the State transaction privilege and use tax rate that was approved by a statewide vote at the November 2000 election. (3) Principal does not include sinking fund deposits of $1,270 each year, beginning in fiscal year 2003 and ending in fiscal year 2007, that will be sufficient to retire bonds with a par amount of $6,350 upon maturity, in fiscal year 2016. STATE OF ARIZONA SCHEDULE 18 PLEDGED-REVENUE COVERAGE SCHOOL FACILITIES BOARD STATE SCHOOL TRUST REVENUE BONDS FOR THE LAST FOUR FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) (2) Fiscal Year 2007 2006 2005 2004 (3) Pledged $ Revenue 139,234 90,097 85,195 64,903 Debt Service $ Principal 13,980 13,440 13,740 - $ Interest 11,524 12,061 11,960 8,634 $ Total 25,504 25,501 25,700 8,634 Coverage 5.46 3.53 3.31 7.52 (1) No debt service payments were due prior to fiscal year 2004. (2) Pledged revenues consist of expendable revenue from the State School Trust. This revenue includes the State Treasurer's formula distribution of earnings on permanent fund investments as specified in the Arizona Constitution. Additionally, the State Land Commissioner distributes interest received from financed sales of trust lands and revenue received from land trust leases. (3) Principal does not include sinking fund deposits of $1,538 each year, beginning in fiscal year 2006 and ending in fiscal year 2018, that will be sufficient to retire bonds with a par amount of $20,000 upon maturity, in fiscal year 2018. - 247 - STATE OF ARIZONA SCHEDULE 19 PLEDGED-REVENUE COVERAGE ARIZONA STATE UNIVERSITY REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) (1) Fiscal Pledged Year 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 Revenue $ 505,890 458,177 383,756 325,626 297,691 274,596 261,328 242,764 233,404 210,397 Debt Service Principal $ 14,625 11,205 1,340 9,695 9,785 8,995 9,640 9,205 8,780 $ Interest 17,313 16,307 16,260 13,754 9,575 12,139 11,766 12,245 12,685 13,113 $ Total 31,938 27,512 17,600 13,754 19,270 21,924 20,761 21,885 21,890 21,893 Coverage 15.84 16.65 21.80 23.68 15.45 12.52 12.59 11.09 10.66 9.61 (1) Pledged revenues include student tuition and fees, auxiliary enterprises revenue, investment income, and indirect cost recovery revenue. - 248 - STATE OF ARIZONA SCHEDULE 20 PLEDGED-REVENUE COVERAGE UNIVERSITY OF ARIZONA REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) (1) Fiscal (1), (2) Direct Net Revenue Gross Operating Available for Year 2007 2006 2005 2004 2003 2002 2001 2000 1999 Revenues $ 982,559 897,706 830,077 778,939 726,258 670,326 710,423 674,330 650,201 Expenses $ 899,084 836,657 774,014 727,161 667,627 625,664 663,284 625,318 580,292 1998 605,197 555,733 Debt Service $ 83,475 61,049 56,063 51,778 58,631 44,662 47,139 49,012 69,909 Debt Service $ 49,464 Principal 17,440 12,355 11,815 10,970 12,625 9,946 12,415 11,700 10,714 $ 9,830 Interest 14,166 13,433 11,817 11,706 12,156 15,500 16,359 13,081 14,869 $ 14,463 Total 31,606 25,788 23,632 22,676 24,781 25,446 28,774 24,781 25,583 Coverage 2.64 2.37 2.37 2.28 2.37 1.76 1.64 1.98 2.73 24,293 2.04 (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. Fiscal year 2002 Gross Revenues and Direct Operating Expenses include accounting changes applied to scholarship and allowance due to implementation of GASB Statements 34 and 35. (2) Payment of principal and interest on revenue bonds are secured by a pledge of tuition and fees, sales and services, auxiliary enterprises, and other charges. STATE OF ARIZONA SCHEDULE 21 PLEDGED-REVENUE COVERAGE NORTHERN ARIZONA UNIVERSITY REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2007 (Expressed in Thousands) (1) Fiscal Gross Year 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 Revenues $ 136,100 129,608 110,981 103,192 85,294 82,839 78,907 75,852 73,467 71,743 Debt Service Principal $ 9,610 10,310 10,065 10,294 9,426 6,932 6,214 6,119 6,075 5,743 $ Interest 5,943 6,603 6,060 5,778 5,066 3,949 5,246 5,488 5,810 6,145 $ Total 15,553 16,913 16,125 16,072 14,492 10,881 11,460 11,607 11,885 11,888 Coverage 8.75 7.66 6.88 6.42 5.89 7.61 6.89 6.54 6.18 6.03 (1) Revenue bonds are repaid from pledged gross revenues that primarily consist of student tuition and fees and certain auxiliary revenues. - 249 - STATE OF ARIZONA SCHEDULE 22 DEMOGRAPHIC AND ECONOMIC STATISTICS FOR THE LAST TEN CALENDAR YEARS Calendar Year Ended December 31 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 Population (1) 6,166,318 5,953,007 5,745,674 5,582,252 5,445,333 5,300,366 5,166,693 5,023,823 4,883,342 4,736,990 Personal Income (2) (in thousands) $ 197,008,991 180,877,721 164,941,395 150,582,313 144,150,287 138,853,800 132,557,859 120,857,125 113,370,224 103,557,083 Per Capita Personal Income (3) $ 31,949 30,384 28,707 26,975 26,472 26,197 25,656 24,057 23,216 21,861 Unemployment Rate (4) 4.1 4.6 4.9 5.7 6.0 4.7 4.0 4.5 4.3 4.6 (1) These are midyear population estimates of the U.S. Bureau of the Census. Years 2000 through 2005 have been revised to reflect revisions made by the U.S. Bureau of the Census. (2) Personal income estimates for years 2003 through 2005 were revised to incorporate newly available state-level source data. (3) Per capita personal income is total personal income divided by total midyear population estimates of the U.S. Bureau of the Census. Years 2000 through 2005 have been revised to reflect revisions in personal income and population estimates. (4) The unemployment rate for years 2002, 2004, and 2005 was revised. Sources: U.S. Bureau of Economic Analysis (for population, personal income, and per capita personal income figures). U.S. Bureau of the Census (also for population). Arizona Department of Economic Security's website, www.workforce.az.gov (for unemployment rates). STATE OF ARIZONA SCHEDULE 23 PRINCIPAL EMPLOYERS CURRENT YEAR AND NINE YEARS AGO Employer State of Arizona Wal-Mart Stores Inc. Banner Health (1) City of Phoenix Maricopa County Arizona State University Wells Fargo & Co. Fry's Food & Drug Stores Raytheon Missile Systems U.S. Postal Service Motorola University of Arizona Fort Huachuca Army Base Davis Monthan Air Force Base Total Calendar Year Ended December 31, 2006 Full-Time Percentage Equivalent of Total State Employees Rank Employment 49,305 1 1.84 % 28,800 2 1.07 16,400 3 0.61 14,166 4 0.53 13,274 5 0.49 12,083 6 0.45 11,800 7 0.44 11,780 8 0.44 9 0.42 11,184 11,000 10 0.41 179,792 6.70 % Calendar Year Ended December 31, 1997 Full-Time Percentage Equivalent of Total State Employees Rank Employment 59,719 1 2.93 % 10,128 9 0.50 11,788 4 0.58 12,184 3 0.60 11,259 5 0.55 10,782 6 0.53 19,642 2 0.96 10,416 7 0.51 10,321 8 0.51 8,362 10 0.41 164,601 (1) Formerly known as Samaritan Health Systems. Sources: The Business Journal, Book of Lists 2007 and 1998 (for Maricopa County employers). The Arizona Daily Star's Star 200 report for 2007 and 1998 (for Pima County employers, which include the U.S. Army Intelligence Center and Fort Huachuca, Raytheon Missile Systems, University of Arizona, and Tucson Unified School District). Arizona Department of Economic Security's website, www.workforce.az.gov (for annual State employment). - 250 - 8.08 % STATE OF ARIZONA SCHEDULE 24 STATE EMPLOYEES BY FUNCTION (1) FOR THE LAST FOUR FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2007 FULL-TIME EQUIVALENT EMPLOYEES General government: Lottery Arizona State Retirement System Department of Revenue All other Health and welfare: Department of Economic Security Arizona Health Care Cost Containment System Department of Health Services All other Inspection and regulation Education: Universities All other Protection and safety: Department of Corrections Department of Juvenile Corrections Department of Public Safety All other Department of Transportation Natural resources Total Fiscal Year 2007 2006 2005 (2) 110.0 231.0 1,148.0 2,957.5 110.0 221.0 1,146.0 2,898.6 110.0 199.0 1,024.0 2,944.3 110.0 197.0 1,134.0 3,003.0 3,874.4 1,617.3 1,680.4 859.9 1,853.7 3,953.7 1,583.5 1,735.5 858.5 1,827.3 3,902.7 1,574.5 1,734.5 924.2 1,818.5 3,592.9 1,530.1 1,701.5 933.2 1,815.3 16,975.0 969.0 16,419.5 913.8 16,027.5 949.5 15,467.4 948.1 9,726.9 1,195.7 2,065.8 125.4 4,703.5 967.3 9,726.9 1,160.5 1,901.8 127.4 4,649.0 926.9 10,322.4 1,151.5 1,872.0 120.6 4,626.0 903.2 10,295.4 1,214.4 1,853.0 149.6 4,605.0 856.9 51,060.8 50,159.9 50,204.4 49,406.8 (1) Full-time equivalent employees are categorized by the function of government that their respective agency generally serves. Information is not available to distinguish between governmental, business-type, or fiduciary activities. (2) Ten years of data is not available, but will be accumulated over time. Source: The Executive Budget (Detail). - 251 - 2004 STATE OF ARIZONA SCHEDULE 25 OPERATING INDICATORS BY FUNCTION FOR THE LAST TEN FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2007 2007 FUNCTIONS/PROGRAMS General government: Number of tax returns received (in millions) Health and welfare: Arizona Health Care Cost Containment System membership (6) Average monthly number of recipients of temporary assistance for needy families Average monthly number of persons receiving food stamp benefits Inspection and regulation: Nonfatal occupational injuries and illnesses: Total recordable cases (in thousands) (9) Incident rate per 100 full-time workers (9) Education: Public school enrollment, grades K-12 (2) Protection and safety: Number of miles patrolled by the Highway Patrol State prison adult inmate population (10) Transportation: Number of registered vehicles (3) Number of driver licenses issued (4) Natural resources: Game and Fish Department's license and tag sales (7) Universities: University full-time equivalent students (5) Unemployment compensation: Number of initial unemployment claims filed Industrial Commission special fund: No-insurance awards issued Number of vocational rehabilitation awards issued Lottery: Total lottery sales (in millions) Other business-type activities: Arizona Health Care Cost Containment System's Healthcare Group membership (8) 2006 2003 2002 2001 6.3 6.1 6.0 6.0 5.3 6.3 1,075,125 1,065,444 1,075,873 971,292 955,600 791,000 609,000 82,408 93,553 105,517 122,577 121,193 109,547 93,857 537,072 546,424 546,369 521,992 442,320 355,722 277,192 99.4 4.6 97.0 4.9 87.1 4.7 85.7 4.8 95.9 5.1 113.1 5.9 112.8 6.0 1,106,207 1,084,247 1,043,704 1,002,630 970,283 915,656 878,987 19,703,282 34,864 19,922,704 32,710 19,229,079 31,937 18,363,977 30,898 18,160,134 29,273 6,608,726 1,266,973 6,318,402 1,205,068 5,945,131 1,158,223 5,638,799 1,122,893 5,311,590 1,039,780 5,118,115 1,072,245 4,639,405 973,476 940,223 897,159 808,055 835,669 865,634 898,453 986,691 110,580 107,765 104,685 102,461 100,258 96,603 92,725 185,397 161,869 200,282 227,585 255,579 255,303 187,697 3,265 133 2,744 124 3,281 102 3,300 139 2,954 150 3,986 121 N/A 37,088 $ Fiscal Year 2004 2005 462.2 26,914 $ 468.7 $ 21,600 397.6 14,626 $ 366.6 11,218 $ 322.3 11,400 $ 294.8 12,100 N/A = Not available (1) Ten years of data may not be available for some statistics, but will be accumulated over time. Also, some figures may represent time periods other than a fiscal year (such as an academic or calendar year), as indicated in the notes below. (2) These enrollment counts represent a head count of all active enrollments on October 1st of each school year. The fiscal years above contain data for the academic year that occurs during that fiscal year. For example, fiscal year 2005 contains data from the October 1, 2004 enrollment figures. Please note that 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. (3) Count represents the total number of vehicles registered as of the end of the fiscal year. Starting with fiscal year 2002, a new category for "unassigned vehicles" was added to more fully reflect the total count of all registered vehicles (4) Count represents the number of driver licenses issued during that fiscal year, beginning July 1 and ending June 30. The drop in count from fiscal year 1999 to fiscal year 2000 was due to the change from a five-year driver license to an extended driver license, where expiration occurs on the licensee's 65th birthday. Although the extended driver license was fully implemented at all offices in July 1993, it was not until the end of 1999 that the last of the licenses with five-year expirations were converted to extended licenses. (5) Enrollment figures represent the number of full-time equivalent students for the fall semester. The fiscal years above contain data for the fall semester that occurs during that fiscal year. For example, fiscal year 2005 contains data for the fall 2004 semester. These figures are generated by calculating one full-time equivalent student for each 15 student credit hours produced in lower-division undergraduate courses, each 12 student credit hours produced in upper-division undergraduate courses, and each 10 student credit hours produced in graduate courses. (6) Approximate number of members enrolled as of June 1. Excludes membership in the Healthcare Group, which is listed separately as other business-type activities, beginning in fiscal year 2002. In November 2000, Arizona voters approved Proposition 204, the Healthy Arizona Initiative, which expanded eligibility to 100% of the federal poverty level. This added 142,800 members and accounted for 28.5% of the overall growth since March 1, 2001. (7) Numbers represent sales for licenses, stamps, and tags for the calendar year ended December 31. The fiscal years above contain data for the calendar year that ends during that fiscal year. For example, fiscal year 2005 contains data for the calendar year ending December 31, 2004. (8) Approximate number of members enrolled as of June 1. (9) Numbers represent total recordable cases and incident rates for the calendar year ended December 31. The fiscal years above contain data for the calendar year that ends during that fiscal year. For example, fiscal year 2005 contains data for the calendar year ending December 31, 2004. One hundred full-time workers represent 200,000 hours worked (100 times 40 hours per week times 50 weeks per year). (10) Beginning in 2007, the state prison inmate population on the 2 Year Prison Population Trend Report excludes the inmate count from the county jail. For fiscal years 2006 and prior, the number includes both the county jail and the outside count of inmates. Sources: The State Departments of Transportation, Public Safety, Corrections, Education, Game and Fish, Economic Security, and Revenue, the Industrial Commission of Arizona, Arizona Lottery, Arizona Health Care Cost Containment System, Arizona Board of Regents, and the U.S. Department of Labor. - 252 - N/A N/A 27,451 N/A N/A $ 272.7 N/A 2000 Fiscal Year 1999 N/A N/A N/A N/A N/A N/A 89,770 95,556 119,011 257,989 260,736 311,142 111.4 6.2 111.7 6.6 833,301 766,152 111.8 6.1 866,626 N/A 26,402 N/A 26,169 4,407,098 967,086 N/A 23,884 4,159,576 1,293,425 918,038 4,013,987 1,144,700 N/A N/A 92,211 91,163 90,691 155,675 161,006 158,243 N/A N/A $ 1998 255.6 N/A N/A N/A $ 268.3 N/A N/A N/A $ 250.7 N/A - 253 - STATE OF ARIZONA SCHEDULE 26 CAPITAL ASSET STATISTICS BY FUNCTION FOR THE LAST TEN FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2007 Fiscal Year 2007 FUNCTIONS/PROGRAMS Protection and safety: Number of adult prison facilities (3) Transportation: Public road mileage (center lane miles) (2) Number of bridges (2) Natural resources: State Trust acres Universities: Number of facilities (4) Gross square feet (in thousands) (4) 2006 2005 2004 2003 2002 2001 10 10 10 10 10 10 6,817 4,648 6,922 4,676 6,816 4,608 6,912 4,488 6,801 4,463 6,650 4,378 9,262,781 9,267,377 9,269,723 9,271,580 9,279,243 9,266,158 1,663 34,946 1,002 20,154 N/A N/A N/A N/A N/A N/A N/A N/A N/A = Not available Note: No capital asset indicators are available for the general government, health and welfare, inspection and regulation, education, unemployment compensation, Industrial Commission special fund, Lottery, and other business-type activity functions. (1) Ten years of data may not be available for some statistics, but will be accumulated over time. Also, some figures may represent time periods other than a fiscal year (such as a calendar year), as indicated in the notes below. (2) These are the number of center lane miles and bridges that the Arizona Department of Transportation accounts for under the modified approach, which is discussed in the Required Supplementary Information portion of this report. The number of center lane miles are for the calendar year ended December 31. The fiscal years above contain the number of center lane miles for the calendar year that ends during that fiscal year. For example, fiscal year 2005 contains the number of center lane miles for the calendar year ending December 31, 2004. (3) The Arizona Department of Corrections also contracts with private prison facilities to provide custody and treatment. (4) In addition to academic/support facilities, auxiliary enterprise facilities are also reported. These would include essentially self-supporting entities, such as residence halls and parking structures. Sources: The State Departments of Transportation, Land, and Corrections and the Universities. - 254 - 10 N/A N/A 9,271,921 N/A N/A Fiscal Year 2000 1999 1998 10 10 9 N/A N/A N/A N/A N/A N/A 9,273,846 N/A N/A 9,277,496 N/A N/A 9,280,421 N/A N/A - 255 - ACKNOWLEDGMENTS The Comprehensive Annual Financial Report was prepared by the Department of Administration, Financial Services Division, Financial Reporting Section: Ron Santa Cruz Michael J. Kallaur, CPA Chris Freitag Evan Chang Gary Kern Cody Johnson Kelly Page Gretchen Gilliam Konstantinos Katsiris 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.