STATE OF ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2008 Janice K. Brewer 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 8 9 FINANCIAL SECTION INDEPENDENT AUDITORS' REPORT....................................................................................................................... 15 MANAGEMENT’S DISCUSSION AND ANALYSIS................................................................................................... 21 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 – Proprietary Funds........................................................................................ Combining Statement of Revenues, Expenses and Changes in Fund Net Assets – Proprietary Funds.................... 63 64 Universities – Affiliated Component Unit Financial Statements: Combining Statement of Financial Position............................................................................................................. Combining Statement of Activities .......................................................................................................................... 65 66 Notes to the Financial Statements .............................................................................................................................. 68 i STATE OF ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS (CONTINUED) FINANCIAL SECTION - CONTINUED 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 Benefit Plans’ Funding Progress......................................................................................................................... Page 133 154 156 159 164 COMBINING FINANCIAL STATEMENTS AND SCHEDULES Non-major Governmental Funds: Combining Balance Sheet ........................................................................................................................................ Combining Statement of Revenues, Expenditures and Changes in Fund Balances ................................................. 168 169 Non-major Special Revenue Funds: Combining Balance Sheet ................................................................................................................................. Combining Statement of Revenues, Expenditures and Changes in Fund Balances.......................................... Budgetary Comparison Schedule, Expenditures............................................................................................... 172 174 176 Non-major Debt Service Funds: Combining Balance Sheet ................................................................................................................................. Combining Statement of Revenues, Expenditures and Changes in Fund Balances.......................................... 192 194 Non-major Capital Projects Funds: Combining Balance Sheet ................................................................................................................................. Combining Statement of Revenues, Expenditures and Changes in Fund Balances.......................................... 198 200 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................................................................................................................ 204 206 208 Internal Service Funds: Combining Statement of Net Assets ................................................................................................................. Combining Statement of Revenues, Expenses and Changes in Fund Net Assets ............................................. Combining Statement of Cash Flows................................................................................................................ 212 214 216 Fiduciary Funds: Pension and Other Employee Benefit Trust Funds: Combining Statement of Fiduciary Net Assets ................................................................................................. Combining Statement of Changes in Fiduciary Net Assets .............................................................................. 220 222 Investment Trust Funds: Combining Statement of Fiduciary Net Assets ................................................................................................. Combining Statement of Changes in Fiduciary Net Assets .............................................................................. 226 227 Agency Funds: Combining Statement of Assets and Liabilities ................................................................................................ Combining Statement of Changes in Assets and Liabilities ............................................................................. 231 232 ii STATE OF ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS (CONCLUDED) FINANCIAL SECTION - CONCLUDED Non-major Universities – Affiliated Component Units: Combining Statement of Financial Position............................................................................................................. Combining Statement of Activities .......................................................................................................................... Page 236 238 STATISTICAL SECTION (Not Covered by the Independent Auditors' Report) Financial Trends: Schedule 1 – Net Assets by Component for the Last Seven Fiscal Years................................................................ Schedule 2 – Changes in Net Assets for the Last Seven Fiscal Years ..................................................................... Schedule 3 – Fund Balances, Governmental Funds for the Last Seven Fiscal Years .............................................. Schedule 4 – Changes in Fund Balances, Governmental Funds for the Last Seven Fiscal Years .......................... 244 246 250 252 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 2005 and 1998 .. 256 259 260 262 262 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 Three Fiscal Years........... Schedule 13 – Legal Debt Margin Information, University of Arizona, for the Last Two Fiscal Years ................. Schedule 14 – Legal Debt Margin Information, Northern Arizona University, for the Last Two Fiscal Years ...... 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 Seven Fiscal Years....................................................................................................... Schedule 18 – Pledged-Revenue Coverage, School Facilities Board State School Trust Revenue Bonds for the Last Five 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 .......................................................................................................... 264 266 266 267 267 268 268 269 269 270 271 271 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 ................................................................. 272 272 Operating Information: Schedule 24 – State Employees by Function for the Last Five 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 .................................................. 273 274 276 iii INTRODUCTORY SECTION INTRODUCTORY SECTION JANICE K. BREWER WILLIAM BELL GOVERNOR DIRECTOR ARIZONA DEPARTMENT OF ADMINISTRATION OFFICE OF THE DIRECTOR 100 NORTH 15th AVENUE • SUITE 401 PHOENIX, ARIZONA 85007 (602) 542-1500 May 26, 2009 The Honorable Janice K. Brewer, 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, 2008. 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 Management’s Discussion and Analysis (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 comprised of five justices. Article 6, Section 5 of the Arizona State Constitution describes the types of cases and matters handled by the Supreme Court. 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 separate columns 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) $22 $20 $18 $16 $14 $12 $10 $8 $6 $4 $2 $0 2004 2005 2006 Revenues 2007 2008 Expenditures The General Fund ended the June 30, 2008 fiscal year with $108.914 million in unreserved fund balance and a $252.708 million reserved fund balance for a total fund balance of $361.622 million. This compares to the previous year’s total fund balance of $1.9 billion. Included in the $252.708 million reserved fund balance is $147.212 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 2004 2005 2006 -3- 2007 2008 ECONOMIC CONDITION AND OUTLOOK The following economic summary is excerpted from the Arizona Department of Commerce’s Arizona’s Workforce, released on October 2, 2008. The Arizona Department of Commerce, Research Administration’s (RA) updated forecast projects a continued loss of nonfarm jobs for the calendar years 2008-09 forecast period, with a decrease of more than 47,000 jobs (-1.80%). For 2008, RA forecasts a loss of 34,000 jobs (-1.30%), and in 2009, RA projects employment reductions of 13,500 (-0.50%). In contrast, the previous forecast released in May 2008 projected a loss of 9,200 nonfarm jobs (-0.30%) for the entire two-year forecast period. Global Insight, a major economics forecasting and consulting firm based in Waltham, MA., projects that national nonfarm employment will remain unchanged in 2008 and then have a slight loss of 150,000 jobs (-0.10%) in 2009. RA expects an Arizona recovery will be delayed until late 2009 and early 2010 because of higher commodity prices (especially for food and energy), stagnant incomes, and the effects of the crisis in finance and housing. Stagnant incomes and rising prices have reduced the real spending power of the consumer and damaged the industries dependent on consumer spending such as trade, transportation, leisure, and hospitality. Indicators of the continued downturn in the housing market include rising rates of mortgage foreclosures, declining sales of new and existing homes, higher inventories of unsold houses, falling housing starts, and a continued decline in home prices. The reduction of credit availability, as a result of widening financial market instability, has served to compound the downturn in housing by increasing the difficulty in securing home loans for many buyers. As a result of tighter credit, less money is available to make loans, not only for houses, but also other consumer and business purchases. Because of this reduced spending, firms are expected to decrease output and employment. Unfortunately, the current financial crisis has spread to other parts of the world and is contributing to the slowdown in global economic growth. Besides financial turbulence, higher commodity prices (especially for food and energy) have also contributed to a global economic slowdown. RA projects economic and financial problems in Asia and Europe will impact Arizona by reducing demand for the State’s exports and limiting the supply of imported capital available for domestic lending. As a result of worsening problems in the financial and housing markets, job losses in construction are projected to deepen during the 2008-09 forecast period to number more than 44,000, or a decline of almost 20.00%. RA projects a loss of 31,000 jobs in 2008 and 13,000 jobs for 2009. The downturn in the construction industry is projected to contribute to the reduction of employment in the professional and business services industry group. Companies in this major industry group hire many construction employees through the employment services sector, with its many contract and temporary labor service firms. As a result, RA projects a loss of more than 7,000 jobs (1.90%) for the forecast period. Job losses in financial activities are forecast to total more than 10,000 jobs (-5.70%) from 2008 to 2009. Recent merger and acquisition activity in the financial services industry is projected to contribute to employment decreases. Slowing economic growth in the domestic and international economy has reduced the demand for goods produced in Arizona’s factories. RA forecasts a reduction of almost 6,000 jobs (-3.30%), in manufacturing in 2008 and 2009 as a consequence of decreased demand. The trade, transportation, and utilities industry group is forecast to have job losses as a result of curtailed business and consumer spending in response to the economic downturn. During the forecast period, RA projects that total job decreases will number 7,000 (-1.30%). The other services industry group is projected to have a total reduction of 1,600 jobs (-1.70%) over the two-year period. Increased demand for repair services, however, is forecast to bolster this major industry as a result of financially stressed businesses and consumers delaying the purchases of new equipment and machinery. Information job reductions are forecast to number 1,400 (-3.30%) in 2008 and 2009. -4- (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 -8- 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, 2008 ELECTED OFFICIALS – as of June 30, 2008 Janet Napolitano, Governor Senator Timothy S. Bee, President of the Senate Representative James P. Weiers, Speaker of the House Janice K. Brewer, Secretary of State Terry Goddard, Attorney General Joe Hart, State Mine Inspector Dean Martin, State Treasurer Tom Horne, Superintendent of Public Instruction Mike Gleason, Chairman – Corporation Commission William A. Mundell, Commissioner – Corporation Commission Kristin K. Mayes, Commissioner – Corporation Commission Jeff Hatch-Miller, Commissioner – Corporation Commission Gary Pierce, Commissioner – Corporation Commission APPOINTED OFFICIALS – as of June 30, 2008 Executive Officials William Bell, Director – Department of Administration Dora B. Schriro, Director – Department of Corrections Tracy L. Wareing, Director – Department of Economic Security Gale Garriott, Director – Department of Revenue Roger Vanderpool, Director – Department of Public Safety Susan Gerard, Director – Department of Health Services Anthony D. Rodgers, Director – Arizona Health Care Cost Containment System Victor Mendez, Director – Department of Transportation Judicial Officials Ruth V. McGregor, Chief Justice – Supreme Court Legislative Officials Michael E. Braun, Executive Director – Legislative Council Richard Stavneak, Director – Joint Legislative Budget C Debra iK. Davenport, CPA, Auditor General – Office of the Auditor General GladysAnn Wells, Director – Arizona State Library, Archives and Public Records University Officials Michael M. Crow, President – Arizona State University Dr. John D. Haeger, President – Northern Arizona University Robert Shelton, President – University of Arizona ELECTED OFFICIALS – as of May 26, 2009 Janice K. Brewer, Governor Senator Robert Burns, President of the Senate Representative Kirk Adams, Speaker of the House Ken Bennett, Secretary of State Terry Goddard, Attorney General Joe Hart, State Mine Inspector Dean Martin, State Treasurer Tom Horne, Superintendent of Public Instruction Kristin K. Mayes, Chairman – Corporation Commission Paul Newman, Commissioner – Corporation Commission Gary Pierce, Commissioner – Corporation Commission Sandra D. Kennedy, Commissioner – Corporation Commission Bob Stump, Commissioner – Corporation Commission APPOINTED OFFICIALS – as of May 26, 2009 Executive Officials William Bell, Director – Department of Administration Charles Ryan, Interim Director – Department of Corrections Neal Young, Director – Department of Economic Security Gale Garriott, Director – Department of Revenue Roger Vanderpool, Director – Department of Public Safety Will Humble, Interim Director – Department of Health Services Anthony D. Rodgers, Director – Arizona Health Care Cost CContainment i SSystem John Halikowski, Director – Department of Transportation Judicial Officials Ruth V. McGregor, Chief Justice – Supreme Court Legislative Officials Michael E. Braun, Executive Director – Legislative Council Richard Stavneak, Director – Joint Legislative Budget C Debra iK. Davenport, CPA, Auditor General – Office of the Auditor General GladysAnn Wells, Director – Arizona State Library, Archives and Public Records University Officials Michael M. Crow, President – Arizona State University Dr. John D. Haeger, President – Northern Arizona University Robert Shelton, President – University of Arizona -9- FINANCIAL SECTION FINANCIAL SECTION INDEPENDENT AUDITORS’ REPORT INDEPENDENT AUDITORS’ REPORT 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 29.00% 20.33% 100.00% 100.00% 100.00% 100.00% .08% 1.51% 63.28% 11.80% 2.72% .77% 4.61% 18.29% (3.13)% (1.53)% 3.68% (.11)% 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 Greater Arizona Development Authority and 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, 2008, 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 10, the Healthcare Group of Arizona has incurred significant recurring operating losses and has a fund deficit of $15.797 million at June 30, 2008, that raise substantial doubt about its ability to continue operations. Management’s plans in regard to these matters are also described in Note 10. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. As described in Note 1, the State implemented the provisions of the Governmental Accounting Standards Board (GASB) Statement Nos. 45 Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions; 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues; and 50, Pension Disclosures (an amendment of GASB Statements No. 25 and No. 27), for the year ended June 30, 2008, which represent changes in accounting principles. In addition, as described in Note 9, the State reclassified the Greater Arizona Development Authority from a special revenue fund to a discretely presented component unit. This constitutes a change in reporting entity. The Management’s Discussion and Analysis on pages 21 through 33, the Budgetary Comparison Schedules on pages 133 through 158, the Infrastructure Assets information on pages 159 through 163, and the Schedule of Agent Retirement Plans’ Funding Progress on page 164 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 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 financial 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 financial 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 May 26, 2009 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, 2008. 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 $21.6 billion (reported as net assets). Of this amount, a deficit of $916.892 million exists for unrestricted net assets, $6.6 billion is restricted for specific purposes (restricted net assets), and $15.9 billion is invested in capital assets, net of related debt. • The State’s total net assets decreased in fiscal year 2008 by $336.201 million. Net assets of governmental activities decreased by $435.877 million, while net assets of the business-type activities increased by $99.676 million. Fund Level: • As of the close of the fiscal year, the State’s governmental funds reported combined ending fund balances of $5.5 billion, a decrease of $776.048 million from the beginning of the year. Approximately 19% of the combined fund balances, or $1.0 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 $108.914 million, or less than 1%, of total General Fund expenditures. • The Land Endowments Fund reported fund balance at year end of $2.5 billion, an increase of $89.667 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. • The enterprise funds reported net assets at year end of $3.2 billion, an increase of $94.494 million during the year. Long-term Debt: • The State’s total long-term primary government debt increased during the fiscal year to $6.7 billion, an increase of $683.706 million (more than 11%). Changes during the year included the addition of revenue bonds, grant anticipation notes, and certificates of participation of $850.400 million, $68.000 million, and $239.176 million, respectively. Also, the State retired $386.480 million of revenue bonds, $52.580 million of grant anticipation notes, and $94.685 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 24. 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. - 21 - 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 Greater Arizona Development Authority, 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 69-72 and 117-129 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 168 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. - 22 - • Proprietary funds – When the State charges customers for the services it provides, whether to outside customers or to other agencies within the State, these services are generally reported in proprietary funds. Proprietary funds (enterprise and internal service) utilize accrual accounting; the same method used by private sector businesses. 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 are reported using accrual accounting and include pension and other employee benefit trust, investment trust, and agency funds. 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 69 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 benefit plans’ funding progress schedules. Required supplementary information begins on page 133 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 168 of this report. - 23 - 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, 2008 and 2007 (expressed in thousands) Current assets Capital assets Other non-current assets Total Assets Current liabilities Non-current liabilities Total Liabilities Net assets: Invested in capital assets, net of related debt Restricted net assets Unrestricted net assets Total Net Assets Business-type Activities Primary Government Total Governmental Activities 2007, as 2007, as 2007, as 2008 restated 2008 restated 2008 restated $ 3,980,247 $ 4,733,190 $ 1,897,597 $ 1,979,651 $ 5,877,844 $ 6,712,841 16,801,737 15,812,417 3,321,857 3,100,360 20,123,594 18,912,777 5,269,246 4,773,723 973,408 1,065,324 6,242,654 5,839,047 26,051,230 25,319,330 6,192,862 6,145,335 32,244,092 31,464,665 2,745,864 4,892,380 7,638,244 2,287,944 4,182,523 6,470,467 611,537 2,424,104 3,035,641 637,782 2,450,008 3,087,790 14,530,867 13,500,218 1,387,655 1,186,177 4,987,365 4,734,039 1,581,212 1,575,991 (1,105,246) 614,606 188,354 295,377 $ 18,412,986 $ 18,848,863 $ 3,157,221 $ 3,057,545 3,357,401 7,316,484 10,673,885 2,925,726 6,632,531 9,558,257 15,918,522 14,686,395 6,568,577 6,310,030 (916,892) 909,983 $ 21,570,207 $ 21,906,408 The largest portion of the State’s net assets (74%) represents capital assets, net of related debt of $15.9 billion. The State uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the State’s investment in its capital assets is reported net of accumulated depreciation and related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. The State’s net assets also include $6.6 billion (30%) 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. After accounting for the above net asset restrictions, the State has a remaining negative balance of $916.892 million (4%) reported as unrestricted net assets. The State’s net assets decreased $336.201 million, after beginning net asset restatements, during the current fiscal year. This decrease was primarily caused by decreases in revenues for sales taxes, income taxes, and trust land sales, while expenses increased for most functions. Refer to Note 9 on page 109 for explanations of Governmental and Businesstype Activities restatements. - 24 - State of Arizona-Primary Government Changes in Net Assets for Fiscal Years Ended June 30, 2008 and 2007 (expressed in thousands) Governmental Activities 2007, as restated 2008 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 Gain on sale of trust land Miscellaneous revenue 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, extraordinary items, and transfers Contributions to permanent endowments Special item: Asset impairment of donated historical treasures Extraordinary item: Insurance recovery, net of impairment loss Transfers Change in Net Assets Net Assets - July 1, as restated Net Assets - June 30 $ Business-type Activities 818,567 $ 798,332 $ Primary Government Total 2007, as restated 2008 2,125,875 $ 2,050,461 $ 2007, as restated 2008 2,944,442 $ 2,848,793 9,190,910 523,898 8,536,030 354,255 898,441 38,029 883,373 27,981 10,089,351 561,927 9,419,403 382,236 6,270,419 4,205,426 413,333 36,732 1,800,920 559,440 6,537,584 4,636,447 358,205 43,736 1,826,893 529,629 72,945 - 79,223 - 6,343,364 4,205,426 413,333 36,732 1,800,920 559,440 6,616,807 4,636,447 358,205 43,736 1,826,893 529,629 243,160 243,328 39,763 103,362 282,923 346,690 13,574 196,953 214,751 11,711 451,501 212,253 64,564 77,841 13,574 196,953 279,315 11,711 451,501 290,094 24,488,083 24,539,904 3,239,617 3,222,241 27,727,700 27,762,145 982,382 10,884,297 185,996 6,242,173 1,510,615 670,173 250,258 802,659 9,789,699 175,609 5,984,196 1,401,513 583,304 193,862 - - 982,382 10,884,297 185,996 6,242,173 1,510,615 670,173 250,258 802,659 9,789,699 175,609 5,984,196 1,401,513 583,304 193,862 3,023,836 179,795 - 2,864,543 191,674 - 3,227,481 356,333 2,960,790 248,111 3,023,836 179,795 3,227,481 356,333 2,864,543 191,674 2,960,790 248,111 23,929,525 21,987,059 14,824 372,740 162,300 4,133,678 23,669 363,508 176,486 3,772,564 14,824 372,740 162,300 28,063,203 23,669 363,508 176,486 25,759,623 558,558 2,552,845 (894,061) (550,323) (335,503) 2,002,522 - - 3,927 4,815 3,927 4,815 - - (20,100) - (20,100) - (994,435) (435,877) 18,848,863 18,412,986 $ (876,456) 1,676,389 17,172,474 18,848,863 $ - 25 - 15,475 994,435 99,676 3,057,545 3,157,221 $ 876,456 330,948 2,726,597 3,057,545 $ 15,475 (336,201) 21,906,408 21,570,207 $ 2,007,337 19,899,071 21,906,408 Change in Net Assets Governmental Activities – Net assets decreased by $435.877 million, or 2%. This decrease was primarily attributed to decreases in earned general tax revenues, coupled with increases in the costs of services for the State’s governmental activities. Reported income tax and sales tax revenues decreased by $431.021 million, or 9%, and $267.165 million, or 4%, as compared to fiscal year 2007, respectively. Several key elements of the economy have led to this decrease. Higher food and energy prices, falling home values, stagnant incomes, and contracting credit have combined to erode business and consumer confidence. Arizona‘s unemployment rate increased from 3.7% in July of 2007 to 5.5% in June of 2008. In addition, tax law reductions took effect in fiscal year 2008 that resulted in a 5% reduction in individual income tax rates and implementation of a new corporate income tax enhanced sales factor. Another significant contributor to the net asset decrease was auction sales of only 1,994 acres in State trust land, with gross sales of $125.997 million. This was a decrease of $327.658 million, or 72%, as compared to fiscal year 2007. Land sales were impacted substantially by the housing market slow-down and repercussions in the credit industry. A comparison of the net cost (income) of services by function for the State’s governmental activities is shown below for fiscal years 2008 and 2007. 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 2008 2007 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 $ 982,382 10,884,297 185,996 6,242,173 1,510,615 670,173 250,258 3,023,836 179,795 $ 23,929,525 - 26 - $ 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 Net Cost (Income) of Services 2008 2007 $ 698,543 3,001,882 8,825 5,179,662 1,245,745 (82,861) 140,723 3,023,836 179,795 $ 13,396,150 $ 497,769 2,809,369 (2,167) 4,698,423 1,154,915 382 83,534 2,864,543 191,674 $ 12,298,442 Expenses and Program Revenues Governmental Activities for Fiscal Year 2008 (in millions of dollars) $11,000 $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 ev s In e 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 $99.676 million, or 3%. This increase was primarily caused by the net increase in the Universities Fund of $77.266 million. Net student tuition and fees increased due to increased tuition rates and enrollment. Also, transfers-in increased due to an increase in State appropriations related to funding for enrollment growth, faculty retention and pay increases, and increased health insurance costs. Increased revenues were offset by increases in salaries, wages, and benefits paid to University employees as well as decreased endowment earnings on investments, resulting from the overall declining investment markets. 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 2008 and 2007. 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. - 27 - Business-type Activities (expressed in thousands) Total Cost of Services 2008 2007 Functions/Programs: Universities Unemployment Compensation Industrial Commission Special Fund Lottery Other Total Business-type Activities Net Cost (Income) of Services 2008 2007 $ 3,227,481 356,333 $ 2,960,790 248,111 $ 1,178,885 (741) $ 1,031,059 (127,137) 14,824 372,740 162,300 $ 4,133,678 23,669 363,508 176,486 $ 3,772,564 (10,623) (100,197) 4,009 $ 1,071,333 (19,072) (98,692) 24,591 810,749 $ 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, 2008, unreserved fund balance of the General Fund was $108.914 million, while total fund balance closed the year at $361.622 million. 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 less than 1% of total expenditures and other financing uses, while total fund balance represents 2% of the same amount. The fund balance of the State’s General Fund decreased $1.6 billion during the fiscal year. The primary source of the decrease in fund balance is that expenditures increased by $1.8 billion, while revenues only increased by $299.053 million. Although intergovernmental revenues increased $998.636 million from the prior fiscal year, sales tax revenues decreased $216.957 million (4%) and income tax revenues decreased $454.320 million (10%). In particular, sales taxes paid by retail stores and construction contractors decreased by 4% and 10%, respectively, when compared to fiscal year 2007 sales tax receipts. In addition, tax law reductions took effect in fiscal year 2008 that resulted in a 5% reduction in individual income tax rates and implementation of a new corporate income tax enhanced sales factor. Health and welfare expenditures and intergovernmental revenue (including federal grants and county funding) increased by $1.2 billion, or 13%, and $998.636 million, or 13%, as compared to fiscal year 2007, respectively. The increase in expenditures in fiscal year 2008 can be attributable to increased enrollment in the Arizona Health Care Cost Containment System’s (AHCCCS) programs and associated provider reimbursement inflation. Overall program enrollment in the various AHCCCS programs increased 5.1%, primarily due to growth in the Social Security Act Title XIX Waiver Group childless adults, Title XIX families and children, and long term care program populations. 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 6.7% for the contract period of October 2007 to September 2008, primarily due to transportation costs, dental rates, cesarean births, rural healthcare costs due to physician and specialty shortages, and new and more expensive health care technologies. Education expenditures increased $310.059 million, or 6%, compared to fiscal year 2007. 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 26,756 student enrollments and a 2.0% inflation adjustment. Furthermore, the fiscal year 2008 - 28 - budget provided for an additional $80.000 million in a new Kindergarten “Group B” Weight funding for the second year of a two year phase-in. Additionally, programs supported by federal grant aid increased by approximately $27.261 million during fiscal year 2008. 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 grant anticipation notes, and providing technical assistance with road construction provided by contractors hired by the Arizona Department of Transportation (ADOT). Total fund balance decreased $24.341 million during fiscal year 2008. The fund balance decrease was due, in part, to the transfer of $26.705 million to the General Fund due to 2008 House Bill 2620, Chapter 53, which required the transfer in order to help the State balance the General Fund during Fiscal Year 2008. 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 $89.667 million during fiscal year 2008. Endowment investments increased $78.415 million, at fiscal year end, due to receipts from land sales of $249.970 million and a net decrease in the fair value of investments of $117.736 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 27. 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 133. Differences between the original budget of $16.7 billion and the final amended budget of $17.0 billion resulted in a $281.720 million net increase in appropriations for the General Fund, before adjustments. Some of the primary reasons for the General Fund appropriations net increase were: 1. $314.812 million of prior fiscal year obligations that were paid in the current fiscal year per ARS §35-191 2. $272.000 million decrease for the deferral of the Department of Education’s Basic State Aid and Additional State Aid payments to school districts 3. $79.910 million to AHCCCS primarily for Acute Proposition 204 and Acute Base Special Line Items 4. $37.052 million to the Department of Corrections primarily for increased correctional officers’ salaries and employee related expenses 5. $25.000 million to the Arizona 21st Century Competitive Initiative Fund, which was further appropriated in the amount of $25.000 million from this fund to the Department of Commerce for the purpose of strengthening medical, scientific, and engineering research programs and infrastructure to promote statewide economic development 6. $20.000 million for the Parks Board “Growing Smarter” transfer to the Land Conservation Fund per ARS §41511.23 to provide grants to purchase State trust land for conservation purposes 7. $34.625 million to the Universities Fund to make debt service payments associated with the financing of research infrastructure projects - 29 - The difference between the final budget and actual expenditures was $607.434 million, after adjustments. Of this amount, $103.320 million will continue as legislative multiple fiscal year spending authority for fiscal years 2009 and beyond, depending upon the budgetary guidelines of the Legislature. The remaining $504.114 million represents the unused portion of the State’s legislatively authorized annual operating budget. Additional budgetary information can be found on pages 156-158 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, 2008 totaled $20.1 billion, net of accumulated depreciation. The total primary government increase in capital assets for the current period was 6%, with a 6% 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 $317.577 million. Major capital asset activity during the current fiscal year included the following: • The Universities’ additions to capital assets totaled $502.090 million and included increased investments in instruction, research, student housing, conference center, athletic, and campus police facilities and equipment. • The ADOT started or completed roads and bridges totaling $1.4 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, 2008 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 2008 $ 2,513,888 1,709,900 2007 $ 2,368,725 1,677,197 Business-type Activities 2007, as 2008 restated $ 166,613 $ 153,038 3,713,932 3,437,270 136,246 772,238 10,108,526 2,719,856 (1,158,917) $ 16,801,737 138,329 732,690 9,861,750 2,121,158 (1,087,432) $ 15,812,417 4,811 1,282,525 15,853 346,268 125,230 (2,333,375) $ 3,321,857 3,600 1,209,996 35,311 326,380 100,373 (2,165,608) $ 3,100,360 Total 2008 $ 2,680,501 5,423,832 2007, as restated $ 2,521,763 5,114,467 141,057 2,054,763 15,853 10,454,794 2,845,086 (3,492,292) $ 20,123,594 141,929 1,942,686 35,311 10,188,130 2,221,531 (3,253,040) $ 18,912,777 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 6,785 center lane miles (18,546 travel lane miles) and 4,637 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 3.91 was achieved for fiscal year 2008. 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. - 30 - It is the policy of the State to maintain a Condition Rating Index (CRI) of 92.5% or better. In fiscal year 2008, a CRI of 93.4% 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 2008 (expressed in thousands): Project Description Major median widening on Interstate 10 from Sarival to State Route Loop 101 in Maricopa County. Major widening of Interstate 17 from Jomax Road to Carefree Highway at State Route 74 in Maricopa County. Major widening of Interstate 17 from State Route Loop 101 to Jomax Road in Maricopa County. Construction of HOV lanes on State Route Loop 101 from Princess Drive to State Route Loop 202 (Red Mountain) in Maricopa County. Major widening of Interstate 10 from the Picacho Peak traffic interchange to the Pinal Air Park in Pinal County North of Tucson. Construction of new roads at State Route 179 at the north forest boundary to the city of Sedona in Coconino County. Major widening of State Route Loop 101 from State Route Loop 202 (Red Mountain) to State Route Loop 202 (Santan) in Maricopa County. Construction of a 3-way roadway and bridge approach on US 191 south of Clifton in Greenlee County. Construction of new roadway on US 93 at the Wickenburg bypass in Maricopa County. Construction of 64th Street traffic interchange on State Route Loop 101 in Maricopa County. Capacity additions at the intersections of State Route 89 and State Route 69 in Yavapai County. Contract Start Date Contract Amount Current Year Expenditures 12/24/07 $ 80,600 $ 01/23/08 74,382 10,775 12/24/07 67,864 14,408 07/24/07 47,467 16,575 09/24/07 44,122 11,534 10/22/07 39,921 9,567 06/23/08 31,241 - 08/20/07 27,709 15,539 11/19/07 26,971 7,078 09/24/07 23,643 19,366 10/22/07 23,590 8,240 15,235 In addition to many smaller projects, the following major highway construction projects had expenditures in excess of $20.000 million in fiscal year 2008 (expressed in thousands): Project Description Interstate 10 from Price Road to 29th Street within the City of Tucson in Pima County. State Route Loop 202 (Red Mountain) from Power Road to University Drive within the City of Mesa in Maricopa County. State Route Loop 101 (Agua Fria) and Interstate 17 interchange in Maricopa County. US 60 roadway widening from Apache Junction to Globe in Pinal County. State Route Loop 303 from Happy Valley Road to Interstate 17, north of Surprise in Maricopa County. Interstate 17 Jomax Road and Dixiletta Drive interchanges in Maricopa County. State Route 179 south of Sedona in Coconino and Yavapai Counties. State Route 51 from Shea Boulevard to State Route Loop 101 (Pima) in Maricopa County. Interstate 17 from Jomax Road to Carefree Highway in Maricopa County. Interstate 10 from the Marana interchange to the Cortaro Road interchange in Pima County. State Route Loop 101 (Pima) in the City of Phoenix in Maricopa County. Project Expenditures $ 80,226 71,500 39,308 38,737 34,906 34,462 32,047 28,446 28,326 20,443 20,233 Capital assets financed by debt instruments do not generate funds to repay the debt instruments. More detailed information regarding capital assets are on pages 90 and 91. 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 - 31 - 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 totaling $563.950 million to finance the costs of right-of-way purchase, design, and construction of federal, state, and local highways and to pay the costs of issuing the bonds. • The School Facilities Board issued $82.880 million of revenue refunding bonds, and used the remaining Series 2004A debt service reserve funds of $12.304 million to advance refund $88.630 million of previously issued Series 2004A revenue bonds with a total outstanding principal balance prior to the refunding of $190.970 million. • The Universities issued revenue and revenue refunding bonds totaling $203.570 million to fund the acquisition, construction, or renovation of capital facilities and infrastructure. Furthermore, proceeds were used to refund previously issued revenue bonds with a total outstanding balance of $120.970 million. • The ADOT issued $68.000 million of grant anticipation notes to pay a portion of the costs of certain controlledaccess highways in Maricopa County and to pay the costs of issuance. • The Department of Administration issued $238.990 million of certificates of participation 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. State of Arizona-Primary Government Outstanding Major Long-Term Debt as of June 30, 2008 (expressed in thousands) Revenue bonds Grant anticipation notes Certificates of participation Total Governmental Activities 2008 2007 $ 2,759,070 $ 2,328,840 298,280 282,860 1,135,640 959,865 $ 4,192,990 $ 3,571,565 Business-type Activities 2008 2007 $ 902,255 $ 868,565 903,843 935,127 $ 1,806,098 $ 1,803,692 Total 2008 $ 3,661,325 $ 298,280 2,039,483 $ 5,999,088 $ 2007 3,197,405 282,860 1,894,992 5,375,257 More detailed information regarding long-term debt begins on page 96. ECONOMIC CONDITION AND OUTLOOK Arizona’s economy, along with the rest of the nation, began to contract in fiscal year 2008, as problems in the financial and housing markets began to develop, along with a resulting decline in labor markets. As previously mentioned, higher food and energy prices, falling home values, stagnant incomes, and contracting credit have combined to erode business and consumer confidence. Consequently, Arizona’s unemployment rate increased from 3.7% in July of 2007 to 5.5% in June of 2008. Arizona’s economy is projected to continue losing jobs in calendar years 2008 and 2009. The Arizona Department of Commerce, Research Administration (RA), forecasts a loss of 47,000 jobs (-1.8%) for the calendar year 2008-2009 forecast period. In addition, RA expects an Arizona recovery will be delayed until late 2009 and early 2010 because of higher commodity prices, especially for food and energy, stagnant incomes and the effects of the crisis in finance and housing. Further deterioration in Arizona’s economic conditions during fiscal year 2009 has resulted in a continued downward trend in the State of Arizona’s General Fund tax revenue collections. For the first nine months of fiscal year 2009, the State’s sales tax and income tax revenues declined $405.000 million and $436.750 million, or 12.2% and 15.4% below the same nine month period during the previous fiscal year, respectively. To address the General Fund fiscal year 2009 - 32 - budget impact created by these revenue shortfalls, the Legislature enacted laws that included measures such as the reduction in State agencies General Fund spending authority, transfer of amounts from other funds, draw of the remaining amount in the Budget Stabilization Fund, and temporary suspension of cash payments to K-12. Additionally, the State plans to use $250.000 million in federal stimulus funds through The American Recovery and Reinvestment Act of 2009 as part of the measures to balance the fiscal year 2009 budget. Further, the decline in tax revenues has created problems in the management of the State’s cash flow needs. As a result, on April 15, 2009 through April 27, 2009, and May 13, 2009 through May 26, 2009, the State Treasurer issued Treasurer’s Warrant Notes in lieu of immediate redemption of warrants presented to the State Treasurer for payment of authorized General Fund expenditures. Budget difficulties are expected to carry into fiscal year 2010 as the State continues to address the impacts of the economic downturn. 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 Arizona 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.az.gov/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 70. - 33 - BASIC FINANCIAL STATEMENTS BASIC FINANCIAL STATEMENTS (This page intentionally left blank) STATE OF ARIZONA STATEMENT OF NET ASSETS JUNE 30, 2008 (Expressed in Thousands) 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 Buildings, equipment, and other depreciable, net of accumulated depreciation Total Noncurrent Assets Total Assets $ 6,354 - $ 193,307 1,032,075 COMPONENT UNITS TOTAL PRIMARY GOVERNMENT $ 199,661 1,032,075 GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES $ - $ 10,267 - 2,257,324 244,690 2,502,014 10,374 195,803 - 78,034 47,810 57,166 - 78,034 47,810 57,166 - - 5,240 104,906 13,688 662,135 144,986 61,416 289,072 697,979 3,100 10,718 45,252 46,426 5,877,844 10,374 10,406 96,621 12,702 5,380 455,013 591,459 141,416 44,070 174,182 94,412 620,065 18 14,309 36,638 3,980,247 70,676 3,570 17,346 114,890 (94,412) 77,914 3,100 10,700 30,943 9,788 1,897,597 55 18,904 18,959 - - 1,688,015 46,368 2,937 - 74,178 38,018 37,844 1,688,015 120,546 40,955 37,844 8,800 - 113,409 893,151 21,048 2,617,672 - 52,503 9,184 438,619 285,962 18,196 945,654 9,184 21,048 438,619 2,903,634 18,196 - 897,763 97,101 56,970 15,335,152 307,696 15,642,848 - 64,419 1,466,585 22,070,983 3,014,161 4,295,265 4,480,746 26,366,248 8,800 132,061 1,361,723 26,051,230 6,192,862 32,244,092 19,174 1,816,736 The Notes to the Financial Statements are an integral part of this statement. (Continued) - 38 - STATE OF ARIZONA STATEMENT OF NET ASSETS JUNE 30, 2008 (Expressed in Thousands) 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 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 $ 580,012 35,412 858,266 6,640 545,977 143,639 90,570 52,126 263,150 170,072 2,745,864 $ 155,173 1,419 83,024 47,810 257 6,855 79,704 107,751 26,639 88,913 13,992 611,537 COMPONENT UNITS TOTAL PRIMARY GOVERNMENT $ 735,185 36,831 941,290 47,810 6,897 552,832 223,343 198,321 78,765 352,063 184,064 3,357,401 GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES $ - $ 33,328 45,496 5,770 34,910 6,852 126,356 Noncurrent Liabilities: Unearned deferred revenue Contracts payable Accrued insurance losses Funds held for others Long-term debt Other long-term liabilities Total Noncurrent Liabilities 57,195 311,801 4,441,133 82,251 4,892,380 24,970 14,877 355,499 55,850 1,920,783 52,125 2,424,104 82,165 14,877 667,300 55,850 6,361,916 134,376 7,316,484 - 2,321 10,340 1,057,670 10,169 1,080,500 Total Liabilities 7,638,244 3,035,641 10,673,885 - 1,206,856 14,530,867 1,387,655 15,918,522 - 41,789 53,212 970,202 36,496 6,207 1,072,996 10,045 53,212 976,409 1,072,996 46,541 8,800 26,984 69,305 3,523,725 264,466 153,383 333,771 3,677,108 - - 334,425 (1,105,246) 74,115 188,354 10,374 321,576 219,531 NET ASSETS Invested in capital assets, net of related debt Restricted for: Federal grants Capital projects Unemployment Compensation Debt service Permanent funds and University funds: Expendable Nonexpendable Loans and other financial assistance: Expendable Other purposes Unrestricted (deficit) Total Net Assets $ 18,412,986 $ 3,157,221 The Notes to the Financial Statements are an integral part of this statement. - 39 - 74,115 334,425 (916,892) $ 21,570,207 $ 19,174 $ 609,880 STATE OF ARIZONA STATEMENT OF FINANCIAL POSITION UNIVERSITIES - AFFILIATED COMPONENT UNITS JUNE 30, 2008 (Expressed in Thousands) ASSETS Cash and cash equivalent investments $ Receivables: Pledges receivable Other receivables Total receivables 204,746 18,571 223,317 Investments: Investments in securities Investments held in trust for Universities Other investments Total investments 988,716 111,108 60,764 1,160,588 Net direct financing leases Property and equipment, net of accumulated depreciation Licenses Other assets 124,136 365,317 5,570 47,912 Total Assets 2,010,203 LIABILITIES Liability under Universities' endowment trust agreements Bonds payable Unearned revenue Other liabilities 93,405 599,089 38,661 95,562 Total Liabilities 826,717 NET ASSETS Permanently restricted Temporarily restricted Unrestricted Total Net Assets 83,363 722,396 404,068 57,022 $ 1,183,486 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, 2008 (Expressed in Thousands) PROGRAM REVENUES EXPENSES FUNCTIONS/PROGRAMS PRIMARY GOVERNMENT: Governmental Activities: General government Health and welfare Inspection and regulation Education Protection and safety Transportation Natural resources Intergovernmental revenue sharing Interest on long-term debt Total Governmental Activities $ Business-type Activities: Universities Unemployment Compensation Industrial Commission Special Fund Lottery Other Total Business-type Activities 982,382 10,884,297 185,996 6,242,173 1,510,615 670,173 250,258 3,023,836 179,795 23,929,525 OPERATING GRANTS AND CONTRIBUTIONS CHARGES FOR SERVICES $ 3,227,481 356,333 14,824 372,740 162,300 4,133,678 190,374 93,208 159,857 60,693 101,401 149,560 63,474 818,567 $ 1,167,696 302,631 25,447 472,937 157,164 2,125,875 93,465 7,789,203 17,314 1,001,818 163,469 79,746 45,895 9,190,910 CAPITAL GRANTS AND CONTRIBUTIONS $ 842,871 54,443 1,127 898,441 4 523,728 166 523,898 38,029 38,029 Total Primary Government $ 28,063,203 $ 2,944,442 $ 10,089,351 $ 561,927 COMPONENT UNITS: Governmental Activities: Greater Arizona Development Authority $ 549 $ - $ - $ - $ 30,506 481,974 28,821 541,301 $ 24,588 498,827 28,132 551,547 $ 48,063 48,063 $ 17,126 17,126 Business-type Activities: Water Infrastructure Finance Authority University Medical Center Arizona Power Authority Total Business-type Activities $ $ $ $ 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 Special Item: Asset impairment of donated historical treasures Extraordinary Item: Insurance recovery, net of impairment loss Transfers Total General Revenues, Contributions, Special Items, Extraordinary Items, 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 COMPONENT UNITS TOTAL GOVERNMENTAL BUSINESS-TYPE PRIMARY GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES GOVERNMENT ACTIVITIES ACTIVITIES $ (698,543) (3,001,882) (8,825) (5,179,662) (1,245,745) 82,861 (140,723) (3,023,836) (179,795) (13,396,150) $ $ (13,396,150) (698,543) (3,001,882) (8,825) (5,179,662) (1,245,745) 82,861 (140,723) (3,023,836) (179,795) (13,396,150) (1,178,885) 741 10,623 100,197 (4,009) (1,071,333) (1,178,885) 741 10,623 100,197 (4,009) (1,071,333) (1,071,333) (14,467,483) $ (549) $ 6,270,419 4,205,426 413,333 36,732 1,800,920 559,440 243,160 13,574 196,953 214,751 - 72,945 39,763 64,564 3,927 - $ 6,343,364 4,205,426 413,333 36,732 1,800,920 559,440 282,923 13,574 196,953 279,315 3,927 42,145 33,979 (689) 75,435 1,023 929 - 11,640 4 - (20,100) (20,100) - - (994,435) 15,475 994,435 15,475 - - - 12,960,273 (435,877) 18,848,863 1,171,009 99,676 3,057,545 1,952 1,403 17,771 11,644 87,079 522,801 18,412,986 $ 3,157,221 14,131,282 (336,201) 21,906,408 $ 21,570,207 $ 19,174 $ 609,880 - 43 - STATE OF ARIZONA STATEMENT OF ACTIVITIES UNIVERSITIES - AFFILIATED COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2008 (Expressed in Thousands) UNRESTRICTED REVENUES Contributions Rental revenue Sales and services Net investment income Net assets released from restrictions Capital lease revenue Licensing 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 Depreciation and amortization Other expenses Total Expenses Increase (Decrease) in Net Assets Net Assets - Beginning, as restated Transfers Net Assets - Ending 13,752 50,420 26,490 6,196 118,267 12,400 6,335 30,810 TEMPORARILY PERMANENTLY RESTRICTED RESTRICTED $ 82,835 $ (2,427) (12,007) 325 210,815 50,420 26,604 (2,729) 12,400 6,335 35,411 264,670 5,860 68,726 339,256 95,393 7,624 22,904 23,247 - - 95,393 7,624 22,904 23,247 56,019 9,950 19,387 - - 56,019 9,950 19,387 23,990 12,099 13,159 - - 23,990 12,099 13,159 283,772 - - 283,772 (19,102) 75,990 134 $ 114,228 $ 114 (6,498) (106,260) 4,276 TOTAL 57,022 5,860 398,292 (84) $ 404,068 The Notes to the Financial Statements are an integral part of this statement. - 44 - 68,726 653,720 (50) $ 722,396 55,484 1,128,002 $ 1,183,486 STATE OF ARIZONA BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2008 (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 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 3,615 TOTAL $ 5,053 874,586 93,322 95,663 1,009,788 2,073,359 496,492 10,378 89,631 565,625 146,317 3,488 69,819 5,435 10,922 22,320 50,603 20,000 7,132 118,153 926,299 21,145 545 - 25,148 7,417 26,508 18 64,455 95 591,459 141,383 937,221 159,604 616,228 18 231,317 10,715 55 - - - 55 13,633 216 2,937 21,048 152 904,770 21,312 2,617,672 - 769,612 46,152 20 1,688,015 46,368 2,937 21,048 2,617,672 21,484 $ 2,225,968 $ 1,205,635 $ 3,779,505 $ 1,952,828 $ 9,163,936 $ 264,267 436,745 6,640 375,470 143,580 47,652 514,770 75,222 1,864,346 $ 125,984 19,721 139,514 100,267 10,922 3,310 399,718 $ 66,872 35,412 208 1 12,292 1,048,306 71,690 1,234,781 $ 37,341 56,896 30,993 58 13,945 999 853 141,085 $ 494,464 35,412 513,570 6,640 545,977 143,639 174,156 1,574,997 147,765 3,310 3,639,930 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 1,410 AVIATION PLANNING, HIGHWAY LAND MAINTENANCE & ENDOWMENTS SAFETY FUND FUND $ 147,212 1,914 103,320 262 108,914 696,382 97,100 27,132 (14,697) 2,544,365 359 - 556,820 238,985 46,326 35,236 - 147,212 1,253,202 238,985 1,914 2,544,365 247,105 35,236 27,394 94,217 361,622 805,917 2,544,724 934,376 1,811,743 . 1,952,828 934,376 5,524,006 2,225,968 $ 1,205,635 $ 3,779,505 The Notes to the Financial Statements are an integral part of this statement. - 45 - $ $ 9,163,936 STATE OF ARIZONA RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2008 (Expressed in Thousands) Total fund balances - governmental funds $ 5,524,006 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. 16,724,651 Certain receivables are not available to pay for current period expenditures and, therefore, are deferred in the governmental funds. 1,574,997 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. (255,600) 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. 36,725 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. 10,713 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 Notes payable Premium on debt Deferred amount on refundings (2,759,070) (298,280) (1,135,640) (243,997) (8,908) (19,528) (242,816) 13,145 (4,695,094) 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. (327,854) Accrued interest on long-term obligations is not due and payable from current financial resources and, therefore, is not reported in the governmental funds. (15,882) 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 (165,695) 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 noncurrent assets 2,019 Net assets of governmental activities $ The Notes to the Financial Statements are an integral part of this statement. - 46 - 18,412,986 STATE OF ARIZONA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2008 (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 GOVERNMENTAL FUNDS - $ 57 (106,950) 40,227 58,278 (8,388) 574,417 107 330,109 106 106,166 55,159 205,965 85,977 30,874 133,504 87,309 82,628 1,692,321 TOTAL $ 6,278,181 4,174,966 413,333 36,732 1,802,572 559,440 9,499,419 447,090 135,879 167,329 167,309 94,004 115,587 263,443 24,155,284 570,895 1,241,109 3 5,430 45,975 5,027 - 131,552 309,083 123,709 588,235 103,053 59,312 124,946 - 966,512 10,874,581 184,451 6,240,862 1,447,372 630,283 242,893 3,026,563 44,543 43,197 59,983 20,452,911 393 1,417 726,310 2,540,124 323 56,758 216,292 166,242 320,335 2,142,759 261,228 210,856 1,106,951 25,192,552 323,109 416,587 (1,136,417) 3,146 (716,684) (1,561,477) 1,923,099 $ 253,741 13,822 1,801,551 612,940 125,969 44,228 940 10,042 2,863,233 LAND ENDOWMENTS FUND 834,957 10,560,068 60,742 5,606,652 1,339,292 76 117,947 1,785,454 (844,793) 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 Proceeds from notes and loans Bonds issued Refunding bonds issued Payment to refunded bond escrow agent Grant anticipation notes issued Certificates of participation issued Premium on debt issued Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning, as restated Fund Balances - Ending 5,450,023 4,174,859 83,224 22,910 915 453,274 8,831,263 115,156 112,624 95,288 33,805 6,695 115,587 112,495 19,608,118 TRANSPORTATION & AVIATION PLANNING, HIGHWAY MAINTENANCE & SAFETY FUND 361,622 4,687 (399,899) 28,233 19,529 (347,450) (24,341) 830,258 $ 805,917 $ The Notes to the Financial Statements are an integral part of this statement. - 47 - (65,146) (450,438) (1,037,268) 273 (95,430) 249,970 154,813 89,667 2,455,057 476,224 (242,338) 20,410 563,950 82,880 (86,547) 68,000 238,990 48,972 1,170,541 720,103 1,091,640 897,771 (1,874,084) 249,970 28,233 23,556 19,529 563,950 82,880 (86,547) 68,000 238,990 48,972 261,220 (776,048) 6,300,054 2,544,724 $ 1,811,743 $ 5,524,006 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, 2008 (Expressed in Thousands) Net change in fund balances - total governmental funds $ (776,048) 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 1,106,951 Infrastructure adjustment (25,488) Depreciation expense (99,412) 982,051 The net revenue of internal service funds is included with governmental activities in the Statement of Activities. 3,695 Some revenues reported in the Statement of Activities are not currently available at yearend and are not reported as revenue in the governmental funds. Income taxes 30,460 Tobacco settlement 11,000 Accrued right-of-way lease revenue 14,188 Accrued interest on land sales contracts 53,435 Other revenue 2,292 111,375 Certain revenues that are reported as resources in the funds, but were earned in prior fiscal years, are not reported in the Statement of Activities. Sales taxes (7,762) Operating grants (5,759) (13,521) 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. In FY 2008, mortgage payments exceeded gains resulting from current year land sales. (53,017) 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. Compensated absences (26,126) Other noncurrent expenses (37) (26,163) 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. AHCCCS accrued programmatic costs 2,529 The Notes to the Financial Statements are an integral part of this statement. (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, 2008 (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 (563,950) Refunding bonds issued (82,880) Grant anticipation notes issued (68,000) New certificates of participation issued (238,990) Proceeds from notes and loans (19,529) Bond issuance costs 3,447 Premium on debt issued (48,972) (1,018,874) 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 261,228 Payment to refunded bond escrow agent 86,547 Debt premium/discount amortization 23,859 Amortization of bond issuance costs (759) Amortization of deferred amount (3,974) 366,901 Payments made from debt service reserve accounts to complete debt refundings are reported as expenditures in the governmental funds, however, reserve account balances were included in the face value of the original debt and, therefore, are included in the calculation of deferred loss on refundings in the Statement of Net Assets. 9,794 Accrued interest on long-term obligations is not due and payable from current financial resources and, therefore, is not reported in the governmental funds. (1,043) 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. (23,556) Change in net assets of governmental activities $ The Notes to the Financial Statements are an integral part of this statement. - 49 - (435,877) STATE OF ARIZONA STATEMENT OF NET ASSETS PROPRIETARY FUNDS JUNE 30, 2008 (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 others 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: Land and other non-depreciable Buildings, equipment, and other depreciable, net of accumulated depreciation Total Noncurrent Assets Total Assets 156,632 164,245 BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS INDUSTRIAL UNEMPLOYMENT COMMISSION COMPENSATION SPECIAL FUND LOTTERY $ 1,032,075 - $ 35,683 763 $ OTHER 55,850 $ 992 23,832 57,066 - 47,810 - - 78,034 100 951 3,514 90,813 77,577 3,100 10,700 20,375 9,329 594,302 65,980 9,860 1,107,915 4,696 1,928 532 91,412 5,173 3,514 64,537 691 13,832 8,512 337 33,966 7,054 459 167,809 18,904 74,178 38,018 37,843 - 1 - - 32,230 9,184 143,000 285,962 10,448 - 295,619 - 7,748 20,273 - 298,042 - 2,997 983 5,674 2,975,476 3,923,285 4,517,587 1,107,915 17,442 316,059 407,471 3,019 11,750 76,287 18,224 44,171 211,980 The Notes to the Financial Statements are an integral part of this statement. - 50 - TOTAL ENTERPRISE FUNDS $ 193,307 1,032,075 244,690 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS $ 1,301 183,965 78,034 47,810 57,166 - 70,676 3,570 17,346 114,890 77,914 3,100 10,700 33,966 30,943 9,788 2,025,975 33 14,578 1,813 1,940 3,594 4,441 211,665 18,904 74,178 38,018 37,844 - 52,503 9,184 438,619 285,962 18,196 - 307,696 - 3,014,161 4,295,265 6,321,240 77,086 77,086 288,751 (Continued) - 51 - STATE OF ARIZONA STATEMENT OF NET ASSETS PROPRIETARY FUNDS JUNE 30, 2008 (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 University funds: Expendable Nonexpendable Loans and other financial assistance: Expendable Unrestricted (deficit) Total Net Assets $ BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS INDUSTRIAL UNEMPLOYMENT COMMISSION COMPENSATION SPECIAL FUND LOTTERY OTHER 141,999 53,685 32,155 96,659 88,807 12,748 426,053 20,928 257 13,276 458 34,919 6,700 1,419 47,810 26,639 82,568 4,323 6,855 34,273 19,025 321 64,797 2,151 8,411 72,170 11,092 106 923 94,853 24,970 55,850 1,920,500 52,043 2,053,363 2,479,416 34,919 355,499 355,499 438,067 64,797 14,877 283 82 15,242 110,095 1,339,319 - 20,439 4,002 23,895 6,207 10,045 1,072,996 - - - - 264,466 153,383 - - - - 264,751 - 7,488 74,115 3,875 2,038,171 $ 1,072,996 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 - (51,035) $ (30,596) $ 11,490 $ 101,885 TOTAL ENTERPRISE FUNDS GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS 155,173 1,419 83,024 47,810 257 6,855 79,704 91,653 107,751 26,639 88,913 13,992 703,190 85,542 961 1,414 52,126 2,769 9,210 152,022 24,970 14,877 355,499 55,850 1,920,783 52,125 2,424,104 3,127,294 311,801 3,110 77,418 392,329 544,351 1,387,655 71,207 6,207 1,072,996 10,045 - 264,466 153,383 - 74,115 225,079 $ 3,193,946 (326,807) $ (255,600) (36,725) $ 3,157,221 - 53 - STATE OF ARIZONA STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2008 (Expressed in Thousands) UNIVERSITIES OPERATING REVENUES Sales and charges for services: Student tuition and fees, net of scholarship allowances of $214,933 Auxiliary enterprises, net of scholarship allowances of $12,108 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 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 Intergovernmental Gifts and donations Gain (loss) on sale of capital assets Investment income (loss) 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, Special Items, Extraordinary Items, and Transfers 767,344 BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS INDUSTRIAL UNEMPLOYMENT COMMISSION COMPENSATION SPECIAL FUND LOTTERY $ - $ - $ - 300,371 5,411 2,260 22 308,064 23,627 1,820 25,447 472,937 115 473,052 154,774 1,127 635 1,755 2,319 160,610 799,825 132,681 1,991,191 200,458 3,124,155 (1,360,934) 356,333 356,333 (48,269) 7,666 1,288 8,954 16,493 309,554 6,095 11,166 316 56 2,391 329,578 143,474 112,189 3,796 29,286 8,145 1,849 290 6,662 162,217 (1,607) 72,945 167,166 142,272 (449) 57,299 (28,356) 25,233 (90,256) (18,252) 327,602 49,032 49,032 (23,697) 2,005 (5,870) (27,562) 1,170 (42,162) (1,000) (41,992) 3 6,161 410 (83) 6,491 (1,033,332) 763 (11,069) 101,482 4,884 15,475 1,073,267 - (2,805) Change in Net Assets Total Net Assets - Beginning, as restated 77,266 1,960,905 (2,042) 1,075,038 $ - 325,556 74,796 456,416 105,373 33,736 1,763,221 Capital grants and contributions Contributions to permanent endowments Special Item: Asset impairment of donated historical treasures Extraordinary Item: Insurance recovery, net of impairment loss Transfers in Transfers out Total Net Assets - Ending $ OTHER 38,029 3,927 - - - - (20,100) - - - - 2,038,171 $ 1,072,996 $ 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 intergral part of this statement. - 54 - 19,000 - (101,339) 7,355 (1,043) 7,931 (38,527) 143 11,347 11,196 90,689 (30,596) $ 11,490 $ 101,885 TOTAL ENTERPRISE FUNDS $ 767,344 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS $ - 325,556 74,796 472,937 154,774 300,371 23,627 462,954 105,373 635 1,755 2,260 1,820 36,192 2,730,394 901,112 50 901,162 1,585,567 3,796 132,681 2,026,572 19,311 203,911 346 9,053 3,981,237 (1,250,843) 713,853 34,690 34,020 14,254 68,073 14,054 878,944 22,218 72,945 167,166 142,272 (446) 88,795 (28,356) 28,818 (42,162) (90,256) (25,205) 313,571 (132) 371 46 (263) 22 (937,272) 22,240 38,029 3,927 4,759 - (20,100) - 15,475 1,099,622 (105,187) (18,122) 94,494 3,099,452 8,877 (264,477) $ 3,193,946 $ 94,494 5,182 $ 99,676 $ (255,600) - 55 - STATE OF ARIZONA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2008 (Expressed in Thousands) UNIVERSITIES CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Receipts from assessments Receipts from student tuition and fees Receipts from sales and services of auxiliary enterprises Receipts from sales and services of educational departments Receipts from interfund services / premiums Receipts from federal and local governments Receipts from student loans collected Receipts from repayment of loans to local governments Receipts from settlement income Receipts from other Funds Payments to suppliers, prize winners, claimants, insurance companies, or beneficiaries Payments to employees Payments to retirees Payments for scholarships and fellowships Payments for student loans issued Payments for loans to local governments Other receipts (payments) Net Cash Provided (Used) by Operating Activities CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Custodial funds received Office rental receipts Share of State sales tax receipts Grants and contributions received Proceeds from interfund loans Transfers from other Funds Custodial funds disbursed Grants and contributions disbursed Distributions to local governments Payments of interfund loans 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 Net Cash (Used) by Capital and Related Financing Activities $ 743,666 BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS INDUSTRIAL UNEMPLOYMENT COMMISSION SPECIAL FUND LOTTERY COMPENSATION $ 303,796 - $ 24,501 - $ OTHER 262,697 - $ 153,677 - 310,851 - - - - 74,283 552,827 33,256 5,411 - - - 934 - - - 1,821 - - 7,715 65,000 (774,811) (1,942,387) (127,762) (34,862) 34,694 (1,130,245) (354,892) 2,282 (43,403) (32,798) (6,476) (123,819) (6,088) 10,413 143,203 (128,696) (28,734) (26,038) (721) 43,137 337,836 72,432 692,047 1,038,642 (336,832) (392,082) 30,866 (2,879) - 2,005 19,000 (2,668) (42,162) (105,464) - 10 50,000 7,353 (156,160) (1,045) 400 1,442,909 (2,879) 18,337 (147,626) (99,442) 200 - - 92,566 44,566 20,372 (419,618) - (92,589) - - - (91,527) 10,000 - 1 - (436,030) - The Notes to the Financial Statements are an integral part of this statement. - 56 - (568) - (567) (163) (163) 386 (3,857) (19) (3,490) TOTAL ENTERPRISE FUNDS $ 416,374 328,297 743,666 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS $ - 310,851 - 74,283 559,172 33,256 895,339 - 7,715 1,821 65,000 - (1,415,016) (1,977,209) (127,762) (34,862) (26,038) 46,668 (993,784) (788,026) (34,539) (10,685) 43 62,132 337,836 2,005 72,432 692,057 50,000 1,064,995 (336,832) (392,082) (42,162) (156,160) (109,388) 28,598 (18,122) 1 1,211,299 (18,121) 200 1,031 92,952 44,566 20,372 (424,206) (19,259) (92,589) (263) (91,546) 10,001 (2,672) 51 (440,250) (21,112) (Continued) - 57 - STATE OF ARIZONA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2008 (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 314,893 44,307 49,031 188,359 13,334 620 6,583 (216,599) 142,601 49,031 (5,490) (224,560) (1,358) (29,715) 620 (3) (81) 6,499 Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning 19,235 394,724 2,749 1,029,326 (18,421) 102,677 Cash and Cash Equivalents - Ending RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation and amortization Loss on sale of capital assets Net changes in assets and liabilities: (Increase) decrease in receivables, net of allowances (Increase) in due from U.S. Government Decrease in due from local governments Decrease in due from other Funds (Increase) decrease in inventories, at cost (Increase) decrease in other assets Increase (decrease) in accounts payable Increase (decrease) in accrued liabilities Increase in due to U.S. Government Increase (decrease) in due to others Increase in due to other Funds Increase (decrease) in deferred revenue Increase (decrease) in accrued insurance losses Increase in other liabilities Net Cash Provided (Used) by Operating Activities $ 413,959 $ $ (1,360,934) $ 200,458 - 1,032,075 84,256 $ 55,850 $ (48,269) $ 16,493 $ 143,474 $ 2,654 (1,028) 267 2,973 - $ (1,130,245) $ 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 Loss on disposal of capital assets, net Asset impairment of collections Change in fair value of investments Unrealized loss on endowments Refinancing of long-term debt Amortization of bond discount and issuance costs Amortization of bond premium Insurance reimbursement receivable Amortization of deferred rent Total Noncash Investing, Capital and Non-capital Financing Activities $ 743 $ 17,002 (3,933) (20,100) (11,925) (8,292) 120,970 (2,250) 1,402 10,700 4,900 - 109,217 - $ (53,296) 156,154 $ - (14,700) (2,321) (3,739) 27,805 13,971 (233) 9,448 - (3,966) 59,816 (43,403) $ 102,858 (1,607) 1,288 - 316 44 1,849 17 724 (5,972) (19,009) - (403) 432 (620) (829) 789 - (19,498) (193) 79 64,795 242 (46) (841) (3,343) 3,792 (2,192) 83 (6,476) $ 143,203 $ 43,137 $ - $ (38,818) - 35 - $ 560 - $ (38,818) $ 35 $ 560 The Notes to the Financial Statements are an integral part of this statement. - 58 - TOTAL ENTERPRISE FUNDS $ $ GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS 503,252 113,875 365 (5,490) (441,162) (1,439) 169,036 365 (53,699) 1,742,697 23,264 162,002 1,688,998 $ 185,266 (1,250,843) $ 22,218 203,911 61 14,254 - (31,223) (193) 79 64,795 (1,647) (4,405) 20,163 10,389 267 2,740 3,792 7,256 (19,009) 83 (6,125) (813) 345 186 190 9,798 105 491 19,822 1,661 $ (993,784) $ 62,132 $ 743 $ 17,002 (3,933) (20,100) (50,148) (8,292) 120,970 (2,250) 1,402 10,700 4,900 4,759 - $ 70,994 $ 4,759 - 59 - STATE OF ARIZONA STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2008 (Expressed in Thousands) PENSION AND OTHER ASSETS Cash Cash and pooled investments with State Treasurer Receivables, net of allowances: Accrued interest and dividends Securities sold Forward contract receivable Contributions Court fees 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 Property and equipment, net of accumulated depreciation Total Assets LIABILITIES Accounts payable and other current liabilities Payable for securities purchased Obligation under securities loan agreements Due to local governments Due to others Total Liabilities NET ASSETS Held in trust for: Pension benefits Pool participants Total Net Assets $ 192,422 $ - $ 29,474 - - 230,724 96,868 545,803 1,599,699 72,649 362 10,721 2,326,102 13,695 13,695 140 140 - - 78,655 1,641,778 - - 3,794,246 5,238,817 3,220,990 21,754,146 513,861 1,331,594 619,758 38,115,190 2,472,284 8,768 788,151 1,642,653 4,886 4,248 4,920,990 13,362 13,362 - - 3,344,377 5,174 - - 40,638,888 4,934,685 3,696,732 1,643,729 1,326,041 1,040 - 5,125,840 - 13,359 - 172,732 3,524,000 8,095,610 14,399 3,696,732 32,543,278 - 4,920,286 - 32,543,278 $ 4,920,286 $ 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, 2008 (Expressed in Thousands) PENSION AND OTHER ADDITIONS: Member contributions Employer contributions Transfers from other Funds Member purchase of service credit Court fees EMPLOYEE BENEFIT INVESTMENT TRUST FUNDS TRUSTS $ 1,058,197 1,178,548 164,194 101,429 4,155 $ Investment income (loss): Net decrease in fair value of investments Interest income Dividends Real estate Other investment income Securities lending income Total investment income (loss) (3,367,770) 382,355 429,898 23,785 15,148 206,762 (2,309,822) (4,918) 168,312 163,394 Less investment expenses: Investment activity expenses Securities lending expenses Net investment income (loss) 90,038 175,277 (2,575,137) 2,880 160,514 Capital share and individual account transactions: Shares sold Reinvested interest income Shares redeemed Net capital share and individual account transactions - Other additions Total Additions - 948,149 10,683 - (57,931) DEDUCTIONS: Retirement and disability benefits Death benefits Refunds to withdrawing members, including interest Administrative expense Dividends to investors Transfers to other Funds Other deductions Total Deductions Change in net assets held in trust for: Pension benefits Pool participants Net Assets - Beginning Net Assets - Ending 6,910,735 176,870 (6,139,456) 1,108,663 2,420,601 22,648 - 128,548 39,347 164,194 14,023 160,514 - 2,789,361 160,514 (2,847,292) 35,390,570 $ 32,543,278 948,149 3,972,137 $ 4,920,286 The Notes to the Financial Statements are an integral part of this statement. - 61 - (This page intentionally left blank) STATE OF ARIZONA COMBINING STATEMENT OF NET ASSETS COMPONENT UNITS - PROPRIETARY FUNDS JUNE 30, 2008 (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 $ 190,382 5,240 - UNIVERSITY MEDICAL CENTER $ 10,267 104,906 10,414 ARIZONA POWER AUTHORITY $ 5,421 3,274 TOTAL $ 10,267 195,803 5,240 104,906 13,688 10,284 5,001 210,907 18 89,093 12,702 3,001 230,401 104 2,527 2,379 13,705 10,406 96,621 12,702 5,380 455,013 897,763 97,101 4,566 106,862 15,833 6,547 36,571 113,409 897,763 97,101 56,970 101 (101) 999,430 64,419 355,090 (223,215) 318,989 1,332 (1,146) 43,304 64,419 356,523 (224,462) 1,361,723 1,210,337 549,390 57,009 1,816,736 8,948 27,420 65 36,433 30,404 35,915 5,770 4,040 6,720 82,849 2,924 633 3,450 67 7,074 33,328 45,496 5,770 34,910 6,852 126,356 Noncurrent Liabilities: Unearned deferred revenue Accrued insurance losses Long-term debt Other long-term liabilities Total Noncurrent Liabilities 2,321 787,713 790,034 10,340 223,828 10,169 244,337 46,129 46,129 2,321 10,340 1,057,670 10,169 1,080,500 Total Liabilities 826,467 327,186 53,203 1,206,856 - 41,603 186 41,789 321,576 62,294 26,984 153,617 3,620 26,984 321,576 219,531 Noncurrent Assets: Restricted assets: Investments held by trustee Loans and notes receivable, net of allowances Investments Other noncurrent assets Capital assets: Land and other non-depreciable Buildings, equipment, and other depreciable 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 $ 383,870 $ The Notes to the Financial Statements are an integral part of this statement. - 63 - 222,204 $ 3,806 $ 609,880 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS COMPONENT UNITS - PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2008 (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 $ 48,063 9,893 14,695 72,651 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 (Loss) 1,102 675 75 28,654 30,506 42,145 NON-OPERATING REVENUES (EXPENSES) Investment income Other non-operating revenue Interest expense Other non-operating expense Total Non-Operating Revenues (Expenses) Income (Loss) Before Contributions 10,035 10,035 52,180 Capital grants and contributions Change in Net Assets Total Net Assets - Beginning Total Net Assets - Ending $ UNIVERSITY MEDICAL CENTER $ 498,827 498,827 $ 111,856 227,685 78,450 23,722 7,581 26,989 476,283 22,544 17,126 52,180 331,690 34,941 187,263 $ 222,204 The Notes to the Financial Statements are an integral part of this statement. - 64 - TOTAL 28,132 28,132 $ 26,886 31 1,595 28,512 (380) 962 (4,463) (1,228) (4,729) 17,815 - 383,870 ARIZONA POWER AUTHORITY 138,742 228,787 79,125 75 23,753 7,581 57,238 535,301 64,309 643 4 (309) 338 (42) 11,640 4 (4,772) (1,228) 5,644 69,953 - 17,126 (42) 3,848 $ 3,806 526,959 48,063 9,893 14,695 599,610 87,079 522,801 $ 609,880 STATE OF ARIZONA COMBINING STATEMENT OF FINANCIAL POSITION UNIVERSITIES - AFFILIATED COMPONENT UNITS JUNE 30, 2008 (Expressed in Thousands) ARIZONA STATE UNIVERSITY FOUNDATION ASSETS Cash and cash equivalent investments $ 7,541 UNIVERSITY OF ARIZONA FOUNDATION $ 61,039 ARIZONA CAPITAL FACILITIES FINANCE CORPORATION $ 215 OTHER COMPONENT UNITS $ 14,568 TOTAL $ 83,363 Receivables: Pledges receivable Other receivables Total receivables 137,555 1,636 139,191 15,873 15,873 5,444 5,444 51,318 11,491 62,809 204,746 18,571 223,317 Investments: Investments in securities Investments held in trust for Universities Other investments Total investments 443,597 68,181 53,858 565,636 356,262 37,744 5,913 399,919 31,590 750 32,340 157,267 5,183 243 162,693 988,716 111,108 60,764 1,160,588 28,220 - 46,736 49,180 124,136 21,393 18,460 3,670 3,868 218,336 5,010 121,918 5,570 20,574 365,317 5,570 47,912 780,441 484,369 308,081 437,312 2,010,203 68,086 83,075 4,390 29,816 19,474 3,859 298,534 5,671 33,118 5,845 217,480 28,600 28,769 93,405 599,089 38,661 95,562 185,367 23,333 337,323 280,694 826,717 350,575 220,198 24,301 329,649 113,166 18,221 (29,242) 42,172 70,704 43,742 722,396 404,068 57,022 Net direct financing leases Property and equipment, net of accumulated depreciation Licenses 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 $ 595,074 $ 461,036 The Notes to the Financial Statements are an integral part of this statement. - 65 - $ (29,242) $ 156,618 $ 1,183,486 STATE OF ARIZONA COMBINING STATEMENT OF ACTIVITIES UNIVERSITIES - AFFILIATED COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2008 (Expressed in Thousands) ARIZONA STATE UNIVERSITY FOUNDATION REVENUES Contributions Rental revenue Sales and services Net investment income Capital lease revenue Licensing 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 Depreciation and amortization Other expenses Total Expenses Increase (Decrease) in Net Assets Net Assets - Beginning, as restated Net Assets - Ending $ 98,519 801 17,175 (1,421) 7,479 ARIZONA CAPITAL FACILITIES FINANCE CORPORATION UNIVERSITY OF ARIZONA FOUNDATION $ 74,191 (1,587) 10,662 $ 16,117 447 1,217 9,770 OTHER COMPONENT UNITS $ 38,105 33,502 8,982 (938) 12,400 6,335 7,500 TOTAL $ 210,815 50,420 26,604 (2,729) 12,400 6,335 35,411 122,553 83,266 27,551 105,886 339,256 30,814 12,929 44,376 12,783 - 7,604 - 12,599 7,624 10,121 10,318 95,393 7,624 22,904 23,247 22,300 2,217 4,019 5,943 - 10,328 13,607 19,372 4,007 3,563 56,019 9,950 19,387 1,665 9,480 - 9,037 1,597 23,990 1,397 2,082 23,990 12,099 13,159 79,405 67,121 42,173 95,073 283,772 43,148 551,926 16,145 444,891 (14,622) (14,620) 10,813 145,805 55,484 1,128,002 (29,242) $ 156,618 595,074 $ 461,036 The Notes to the Financial Statements are an integral part of this statement. - 66 - $ $ 1,183,486 (This page intentionally left blank) STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS INDEX Page Note 1. Summary of Significant Accounting Policies --------- 69 A. Reporting Entity ------------------------------------- 69 B. Basis of Presentation-------------------------------- 73 C. Measurement Focus and Basis of Accounting ----------------------------------------- 75 D. Deposits and Investments -------------------------- 75 E. Taxes Receivable------------------------------------ 76 F. Inventories ------------------------------------------- 76 G. Property Tax Calendar------------------------------ 77 H. Capital Assets---------------------------------------- 77 I. Investment Earnings -------------------------------- 77 J. Scholarship Allowances---------------------------- 78 K. Deferred Revenue ----------------------------------- 78 L. Compensated Absences ---------------------------- 78 M. Long-Term Obligations ---------------------------- 78 N. New Accounting Pronouncements ---------------- 79 Note 2. Deposits and Investments-------------------------------- 79 A. Deposits and Investment Policies ----------------- 79 B. Custodial Credit Risk – Deposits and Investments ------------------------ 80 C. Interest Rate Risk ----------------------------------- 81 D. Credit Risk------------------------------------------- 83 E. Concentration of Credit Risk ---------------------- 84 F. Foreign Currency Risk ----------------------------- 85 G. Unemployment Compensation -------------------- 85 H. Securities Lending ---------------------------------- 85 I. Derivatives ------------------------------------------ 87 J. State Treasurer’s Separately Issued Financial Statements ------------------------------ 87 Page F. Actuarial Methods and Assumptions -------- 96 Note 7. Long-Term Obligations ----------------------------- 96 A. Revenue Bonds --------------------------------- 96 B. Grant Anticipation Notes --------------------- 102 C. Certificates of Participation ------------------ 102 D. Leases ------------------------------------------- 105 E. Compensated Absences----------------------- 106 F. Changes in Long-Term Obligations -------- 107 Note 8. Interfund Transactions------------------------------108 Note 9. Fund Reclassification and Corrections of Errors -----------------------109 A. Fund Financial Statements ------------------- 109 B. Government-Wide Statements --------------- 109 Note 10. Fund Deficit ---------------------------------------- 110 A. Industrial Commission Special Fund ------- 110 B. Healthcare Group of Arizona ---------------- 110 C. Risk Management Fund ---------------------- 112 D. Retiree Sick Leave Fund --------------------- 112 Note 11. Joint Venture --------------------------------------- 112 Note 12. Commitments, Contingencies, and Compliance ----------------------------------112 A. Risk Management Insurance Losses --------112 B. Litigation ---------------------------------------114 C. Accumulated Sick Leave ---------------------115 D. Unclaimed Property ---------------------------115 E. Construction Commitments ------------------115 F. Arizona State Lottery -------------------------115 Note 3. Receivables/Deferred Revenue ------------------------- 88 A. Taxes Receivable ----------------------------------- 88 B. Deferred Revenue----------------------------------- 89 Note 13. Tobacco Settlement--------------------------------115 Note 4. Capital Assets --------------------------------------------- 90 Note 15. Subsequent Events---------------------------------116 Note 5. Pension Benefits ----------------------------------------- 91 A. Participating Employers---------------------------- 91 B. Contributions, Benefits, and Refund Payments ---------------------------------- 91 C. Funding Policy -------------------------------------- 92 D. Annual Pension Cost ------------------------------- 92 E. Funded Status and Funding Progress------------- 92 F. Actuarial Methods and Assumptions ------------- 93 G. Universities’ Retirement Plans -------------------- 93 Note 16. Discretely Presented Component Unit Disclosures ----------------------------------------117 A. Summary of Significant Accounting Policies ----------------------------------------117 B. Deposits and Investments --------------------119 C. Program Loans---------------------------------122 D. Pledges Receivable----------------------------122 E. Direct Financing Lease Agreements --------123 F. Capital Assets ----------------------------------124 G. Long-Term Obligations-----------------------124 H. Accounting Changes and Correction of Errors --------------------------128 I. Conduit Debt -----------------------------------129 J. Related Party Transactions -------------------129 Note 6. Other Post-Employment Benefits-----------------------94 A. Plan Description------------------------------------- 94 B. Contributions, Benefits, and Refund Payments ---------------------------------- 94 C. Funding Policy --------------------------------------95 D. Annual OPEB Cost ---------------------------------95 E. Funded Status and Funding Progress-------------95 - 68 - Note 14. Public-Private Partnership------------------------116 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 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 separate columns 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 220 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, certain employees of the State’s Department of Corrections and Department of Juvenile Corrections, and judiciary, probation, surveillance and juvenile detention officers. The CORP is jointly administered by the Fund Manager of - 69 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 the PSPRS and 23 local boards according to the 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 3300 North Central Avenue Phoenix, Arizona 85012-0250 (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: Governmental Fund: Greater Arizona Development Authority (GADA) – The purpose of the GADA is to provide cost-effective access to capital for local communities, certain special districts, and tribal governments for public infrastructure projects. The GADA was created by an act of the Arizona Legislature in 1997 and is a body, corporate and politic, of the State. The GADA is governed by a nine member Board of Directors consisting of four State of Arizona agency heads and five members, one of which shall be a representative of a tribal nation in Arizona, appointed by the Governor of the State. Members appointed by the Governor serve staggered five year terms. The GADA fund was originally capitalized with General Fund appropriations and requests for additional capitalization of the GADA must be approved by the Arizona Legislature. Complete financial statements may be obtained from the GADA’s administrative office at 1700 West Washington Street, Executive Tower, Suite 600, Phoenix AZ 85007, (602) 771-1100. Proprietary Funds: 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 - 70 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 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. 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 and Downtown Phoenix Student Housing, LLC – These foundations provide facilities for use by students of ASU. 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 67.00% 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. - 71 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 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 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, Mesa Student Housing, LLC and Downtown Phoenix 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, 9030 South Rita Road, Suite 302, Tucson, Arizona 85747 NAU Foundation and NACFFC – Northern Arizona University, Comptroller's Office, P.O. Box 4069, Flagstaff, Arizona 86011 The financial statements of the U of A Foundation are not publicly available. For information regarding the U of A Foundation's financial statements, contact the U of A Comptroller at the following address: University of Arizona, Financial Services, P.O. Box 3310, Tucson, Arizona 85722-3310. Related Organizations Related organizations are legally separate entities for which the State is not considered to be financially accountable, and that do not meet the criteria established by GASB 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 - 72 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 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 11, 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. 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. - 73 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 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. 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 1.50% 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 - 74 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 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 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, except for the Transportation and Aviation Planning, Highway Maintenance and Safety Fund, as well as certain non-major governmental funds administered by the ADOT, which consider revenues to be available if collected within 60 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 un-deposited 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 - 75 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 management pool and a demand deposit account. investments are described in Note 2. The operations and investments of the State Treasurer’s pooled • 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 Mellon (BNY Mellon) 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 BNY Mellon’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. 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’ publicly traded investments are reported at fair value determined by the custodial agents. The agents’ 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 directly owned by the ASRS is based on independent appraisals. Real estate, private equity, and opportunistic partnership investments are valued based on the partnership’s financial statements. 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 (loss) includes net appreciation (depreciation) in the fair value of investments, interest income, dividend income, income from real estate and private partnerships, 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 as determined by the fixed income broker/dealers. Directed real estate and venture capital investments were historically reported at cost but were marked-to-market during the fiscal year using appraisals to estimate the fair market value. Investment income is recognized as earned. E. TAXES RECEIVABLE Taxes receivable include amounts owed by taxpayers for prior periods 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, 2008. Sales and motor vehicle and fuel tax receivables represent amounts that are earned by the State in the fiscal period ended June 30, 2008, 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 - 76 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 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 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 (years) 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 (years) 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. 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 7, respectively. I. INVESTMENT EARNINGS Investment earnings are composed of interest, dividends, and net changes in fair value of applicable investments. - 77 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 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. 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 generally forfeits accumulated annual leave in excess of 240 hours as of the last day of the last pay period for a calendar year, unless the Director of the Department of Administration authorizes an exception. Uncovered State employees shall forfeit accumulated annual leave in excess of 320 hours as of the end of each calendar year, 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 un-forfeited 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 12.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 7. - 78 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 N. NEW ACCOUNTING PRONOUNCEMENTS GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. This Statement establishes standards for the measurement, recognition, and display of other postemployment benefits (OPEB) expense/expenditure and related liabilities (assets), note disclosures, and if applicable, required supplementary information. The requirements of this Statement are effective for periods beginning after December 15, 2006. In applying the requirements of this standard, the State has provided expanded OPEB disclosures in the notes to the financial statements and the required supplementary information. There was no effect on the government-wide financial statements or the fund financial statements in this year of implementation. GASB Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues. This Statement establishes accounting and financial reporting standards for transactions in which a State sells or pledges future cash flows generated by collecting specific future revenues. In addition, this Statement establishes accounting and financial reporting standards that apply to transfers of assets and future revenues within the State. The requirements of this Statement are effective for periods beginning after December 15, 2006. The State has implemented the requirements of this standard, but they had no material effect on the financial statements. GASB Statement No. 50, Pension Disclosures - an amendment of GASB Statements No. 25 and No. 27. This Statement more closely aligns the financial reporting requirements for pensions with those for OPEB and enhances information disclosed in the notes to the financial statements or the required supplementary information. The requirements of this Statement are effective for periods beginning after June 15, 2007. The State has implemented the requirements of this standard. NOTE 2. DEPOSITS AND INVESTMENTS A. DEPOSITS AND INVESTMENT POLICIES The State’s deposits and investments are primarily under the control of the State Treasurer, the Retirement Systems, the Universities, and the Commission. These entities maintain the majority of the deposits and investments of the primary government. The investment policies of these organizations are defined according to State statutes or a governing board or both and are described below. The ARS §35-312, §35-313, and §35-314 authorize the State Treasurer to invest operating, trust, and permanent endowment fund monies. Monies deposited with the State Treasurer by State agencies are invested by the State Treasurer in a pooled fund. Any interest earned is allocated monthly into each respective fund based on average daily cash balances. There is no income from investments associated with one fund that is assigned to another fund. The State statutes and the State Treasurer’s investment policies designed to administer these statutes restrict investments to obligations of the U.S. Government and its agencies, obligations or other evidence of indebtedness of the State and certain local government 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. - 79 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 The ASRS invests in short-term securities, obligations of the U.S. government or agencies of the U.S. government, corporate bonds, common and preferred stocks (domestic and foreign), mortgages, real estate, private equity and opportunistic investments. 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 30.00% 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 Department of Commerce. The ASRS Board has not formally adopted more restrictive policies for the various types of risks. Per ARS §38-848, §38-803A(4), and §38-883A(4), the PSPRS, the EORP, and the CORP, respectively, may not invest at any given time more than 80.00% of the combined assets of the system or other plans that the fund manager manages in corporate stocks, based on cost value of such stocks irrespective of capital appreciation. In addition, the PSPRS, the EORP, and the CORP investments shall be restricted to stocks and exchange traded funds that, except for bank and insurance stocks and membership interests in limited liability companies, 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, 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 20.00% of the combined assets of the system or other plans that the fund manager manages shall be invested in foreign securities, based on the cost value of the stocks irrespective of capital appreciation, or 5) an exchanged traded fund that is recommended by the chief investment officer of the system, that is registered under the Investment Company Act of 1940, and that is both traded on a public exchange and based on a publicly recognized index. Not more than 5.00% of the voting stock of any one corporation shall be owned by the system and other plans that the fund manager administers, except that this limitation does not apply to membership interests in limited liability companies. The ABOR governs the investment policies of the Universities. The Universities are generally limited to investing their pooled operating funds and capital projects funds in collateralized certificates of deposit and repurchase agreements with commercial banks, U.S. Treasury securities and other Federal agency securities, or in the LGIP administered by the State Treasurer. For endowment investments, ABOR policy dictates that these funds are to be invested under the direction of an investment committee designated by the president of each university. The investment committee is responsible for defining, developing, and implementing investment objectives, policies, and restrictions. However, if donors restrict the investments, ABOR policy requires the University to invest those funds separately as directed by the donor, and the individual endowments bear all changes in value. Per ARS §23-1065, the Commission’s investment committee is responsible for prescribing investment policies and supervising the investment activities of the Commission. The Commission requires that their investment policy be responsive to the unpredictable nature of the incidence and severity of claims, the long periods over which losses may be paid, and the effect on both claims and losses of increases in treatment and rehabilitation costs. The investment committee may invest in any legal investment authorized under ARS §38-719. B. CUSTODIAL CREDIT RISK – DEPOSITS AND INVESTMENTS Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, the deposits or collateral securities may not be recovered from an outside party. The State Treasurer, the Retirement Systems, and the Universities’ deposits of State treasury monies 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 and the Retirement Systems 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, 2008, some State agencies have uncollateralized and uninsured deposits in the - 80 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 amount of $463 thousand and $1.402 million in deposits collateralized with securities held by the pledging financial institution’s trust department or 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, 2008, the State had $40.206 million in securities that were uninsured, not registered in the State’s name and held by a counterparty or 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. 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 Certificates 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 Securities-Full Faith U.S. Agency Mortgage Backed Securities U.S. Treasury Securities Other Total Debt Securities - 81 - Fair Value $ 6,763 5,041 4,871 45,358 187,752 27,819 2,103,472 4,965 42,641 5,286 61,569 2,462,625 3,831,033 17,256 1,193,318 1,245,585 8,687 $ 11,254,041 Weighted Average Maturity (in years) 5.50 0.96 31.31 0.08 0.68 17.29 2.63 16.75 16.62 6.12 0.07 0.00 1.16 1.46 17.49 1.29 5.73 3.04 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 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 Collateralized mortgage obligations (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 $ 154,132 $ Effective Duration (in years) 3.10 138,406 423,709 1,692,490 963,399 1,118,674 2,171,528 195,745 6,858,083 3.90 3.90 3.80 3.90 3.00 3.60 2.70 3.58 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 Type Corporate bonds Collateralized bond obligations (CBO’s) Collateralized debt obligations (CDO’s) International fixed income fund Money market mutual funds Repurchase agreements U.S. Agency Securities U.S. Treasury Securities Other investments Total Debt Securities Investment Maturities (in years) 6-10 11-15 16-20 $ 64,047 $ 18,491 $ 60,150 Fair Value $ 430,407 Less than 1 $ 15,274 1-5 $ 60,884 47,402 - 12,548 - 13,599 5,470 15,785 10,191 12,583 177,323 81,904 987,080 3,438 17,569 $ 1,767,897 177,323 81,904 44,047 79 639 $ 319,266 596,306 825 3,676 $ 674,239 6,322 12,583 97,372 223 10,142 $ 190,689 74,365 372 775 $ 107,602 57,984 1,006 550 $ 125,160 3,869 117,006 933 1,787 350,941 - 82 - More than 20 $ 211,561 $ STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 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 LIBOR plus/minus fixed basis point which resets from monthly to quarterly. Corporate asset backed securities with coupon tied to LIBOR plus/minus fixed basis point which resets monthly. Mortgage backed securities - when interest rates fall, mortgages are refinanced and paid off early and the reduced stream of future interest payments diminishes 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 $ 1,469,492 $ 583,560 Total $ 2,053,052 158,366 - 158,366 - 1,264,312 1,264,312 - 9,230 118,794 9,230 118,794 $ 1,627,858 $ 1,975,896 $ 3,603,754 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 by at least two nationally recognized statistical rating organizations and that the ratings assigned by at least two of the rating organizations be of the two highest rating categories for short-term obligations. Corporate bonds, debentures, and notes must carry a minimum Baa or better rating from Moody’s Investor Service (Moody’s) or a BBB or better rating from Standard and Poor’s Rating Service (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. 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 P-1 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 ABOR, except for ASU which is more stringent than that of the ABOR in that it does not permit investment grade corporate bonds in the operating funds. Also, ASU’s capital projects and bond debt service funds are invested by the bond trustee in accordance with the applicable financing indenture. In addition, 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, at the time of purchase. Beyond the requirements established by the ABOR, 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). - 83 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 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, 2008. 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 notes & bonds Government agencies Government bonds Government mortgage backed securities International fixed income fund Money market mutual funds Mortgages Non-government backed CMO's U.S. Agency Mortgage Backed Securities U.S. Agency Securities Other investments Total Fair Value $ 357,500 6,763 5,041 47,402 38,339 AAA $ 337,134 28,148 AA $ 3,575 5,041 - 138,406 138,385 428,580 45,358 4,208,242 963,399 1,118,674 BBB $ 1,007 12,548 3,869 21 - - - - - - 418,913 467,184 897,174 1,110,108 1,499 843,557 30,299 681 1,122 2,039,730 19,532 1,277 462,921 1,168 40 53,208 1,309 - 7,046 332,587 13,715 - 45,358 - 9,055 202 6,568 2,206,042 12,583 238,892 28,537 2,205,919 195,590 21,987 12,583 3,805 2,745 - - - - 123 43,302 - 196,904 196,381 109 46 4 - - - 364 740,839 4,629,097 26,256 740,839 2,544,859 5,636 6,950 1,213 1,526 - - - 2,077,180 - 108 17,881 $ 15,436,854 $9,308,257 $909,333 $ 2,112,415 $ 481,557 $ 64,427 $ 353,961 $2,122,538 $ 84,366 $ BB $ B Not Rated A 15,168 24,947 6,322 3 9,907 - $ A1 613 - $ - $ 6,763 - 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 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 the combined assets of the system or other plans that the fund manager manages shall be invested in corporate stock issued by any one corporation, other than corporate stock issued by corporations chartered by the U.S. government or corporate stock issued by a bank or insurance company. ASU and NAU have no formal policy in regards to the concentration of credit risk. At June 30, 2008, more than 5.00% of the Governmental Activities’ total investments were held in the following single issues (expressed in thousands): Issuer Description Federal Home Loan Mortgage Corporation Federal Home Loan Bank Federal National Mortgage Association $ Fair Value 938,831 742,056 686,168 Percentage 14.14% 11.18% 10.33% At June 30, 2008, more than 5.00% of the Business-type Activities’ total investments were held in the following single issue (expressed in thousands): Issuer Description Federal Home Loan Bank $ Fair Value 203,804 - 84 - Percentage 8.00% STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 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 30.00% 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 has not adopted a formal policy that is more restrictive. The following table summarizes the State’s foreign currency risk as of June 30, 2008 (expressed in thousands): Currency Australian Dollar British Pound Sterling Canadian Dollar Czech Koruna Danish Krone Euro Currency Hong Kong Dollar Japanese Yen Malaysian Ringit New Mexican Peso New Taiwan Dollar New Zealand Dollar Norwegian Krone South African Rand Singapore Dollar South Korean Won Swedish Krona Swiss Franc Thailand Baht Various mutual funds Total Foreign Currency Risk by Investment Type at Fair Value Fixed Other Short Term Income Equities Investments Total $ 2,815 $ $ 98,308 $ - $ 101,123 (768) 621,690 620,922 (776) 23,458 22,682 6,018 6,018 30 36,505 36,535 3,105 3,039 1,145,797 4,084 1,156,025 (1,010) 62,714 32 61,736 11,083 815,235 826,318 622 622 5,067 5,067 16,003 16,003 314 2,884 10,860 14,058 91 23,373 23,464 13,050 13,050 131 47,807 47,938 24,664 24,664 36 47,407 47,443 700 320,785 321,485 1,233 1,233 17,147 75,754 7,172 100,073 $ 15,751 $ 23,070 $ 3,396,350 $ 11,288 $ 3,446,459 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. 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, 2008. Northern - 85 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 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, 2008 for loaned securities collateralized by cash and non-cash collateral was $46.588 million and $799 thousand, respectively. As part of the securities lending transactions, Northern Trust received cash and non-cash collateral valued at $47.810 million and $823 thousand, respectively at June 30, 2008. 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 36 days as of June 30, 2008. 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 the lender or the 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, 2008, the Commission had $47.810 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, 2008, the fair value of securities on loan was $4.6 billion. The associated fair value of the invested collateral was $4.8 billion, of which $3.8 billion was invested cash collateral. Securities lending payable at June 30, 2008 was $3.8 billion. The ASRS does not have the ability to pledge or sell the collateral unless there is a borrower default. 3. Public Safety Personnel Retirement System, Elected Officials’ Retirement Plan, and Corrections Officer Retirement Plan The PSPRS, the EORP, and the CORP are permitted by ARS Title 38, Chapter 5, Articles 4, 3, 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, 2008, the fair values of securities on loan for the PSPRS, the EORP, and the CORP were $1.0 billion, $60.132 million, and $234.109 million, respectively. At June 30, 2008, the fair value of the associated collateral for the PSPRS, the EORP, and the CORP were $1.0 billion, $61.810 million, and $240.882 million, respectively. 4. University of Arizona During the fiscal year, the U of A elected to discontinue participation in securities lending. This investment option remains available to the U of A. - 86 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 I. DERIVATIVES A derivative instrument is a financial instrument or other contract with all three of the following characteristics: • It has (1) one or more underlyings and (2) one or more notional amounts or payment provisions or both. Those terms determine the amount of the settlement or settlements, and in some cases, whether or not a settlement is required. • It requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors. • Its terms require or permit net settlement, it can readily be settled net by means outside the contract, or it provides for delivery of an asset that puts the recipient in a position not substantially different from net settlement. The principal categories of derivatives employed and their uses during the year were as follows: Category Currency forward contracts Futures contracts Purpose Hedge currency risk of investments denominated in foreign currencies. Reduce transaction costs; obtain market exposure; enhance returns. Derivatives are reported at fair value. The fair value of currency forward contracts is determined by interpolating the spot rate and the forward rates based upon number of days to maturity. The interpolated rate is used to determine the unrealized gain/loss at the valuation date. The fair value of futures contracts is determined by calculating the difference between the closing Bloomberg market price on valuation date and the original futures trade price. Futures are settled daily. Generally, derivatives are subject to both 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, 2008, the ASRS had $680.000 million 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 ASRS. Refer to Note 7.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 or website at: Arizona State Treasurer’s Office 1700 W. Washington St. Phoenix, Arizona 85007-2812 (602) 604-7800 or (877) 365-8310 http://www.aztreasury.gov The Treasurer’s financial statements are audited by the Office of the Auditor General. - 87 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 NOTE 3. RECEIVABLES/DEFERRED REVENUE A. TAXES RECEIVABLE The following table summarizes taxes receivable at June 30, 2008 (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 $ 460,154 175,257 7,823 643,234 (146,742) $ 496,492 Transportation & Aviation Planning, Highway Maintenance & Safety Fund $ 69,819 69,819 $ 69,819 - 88 - Unemployment Compensation Fund $ 65,980 65,980 $ 65,980 Industrial Commission Special Fund $ 4,696 4,696 $ 4,696 Non-Major Governmental Funds $ 2,104 23,044 25,148 $ 25,148 Government-wide Total $ 462,258 175,257 69,819 30,867 65,980 4,696 808,877 (146,742) $ 662,135 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 B. DEFERRED REVENUE At June 30, 2008, 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 premium taxes Advance land lease payments Public assistance overpayments Vaccine & commodity food supplement Advance county acute & long term care payments Federal grants Other Transportation & Aviation Planning, Highway Maintenance & Safety Fund: Loans & notes receivable for asset purchases and construction 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 Unavailable Unearned $ $ Total Current Deferred Revenue for Governmental Funds Noncurrent Deferred Revenue for Governmental Funds: General Fund: Advance land lease payments Land Endowments Fund: Land sales receivable 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 $ 95,967 109,899 57,002 4,140 1,361 246,401 - Total Deferred Revenue 45,307 291 2,186 21,878 136 - 10,922 136,977 16,918 - 19,919 136,977 16,918 19,919 999 - 809 44 999 809 44 680,586 90,570 771,156 - 5,424 5,424 894,411 - 51,771 894,411 51,771 894,411 57,195 1,574,997 $ 147,765 $ 36,248 6,029 4,900 46,275 1,751 1,456 8,047 2,974 71 $ 107,751 Noncurrent Deferred Revenue for Proprietary Funds: Universities: IBM lease related to acquisition of research park Total Noncurrent Deferred Revenue for Proprietary Funds - 89 - 95,967 109,899 57,002 4,140 45,307 291 1,361 2,186 21,878 246,401 136 10,922 Unearned Total Current Deferred Revenue for Proprietary Funds $ $ 24,970 $ 24,970 951,606 $ 1,722,762 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 NOTE 4. CAPITAL ASSETS Capital asset activities for the fiscal year ended June 30, 2008 were as follows (expressed in thousands): Primary Government Beginning Balance Additions Retirements Governmental Activities: Non-depreciable capital assets: Land Construction in progress Infrastructure Total Non-depreciable Capital Assets $ 2,368,725 2,121,158 9,855,141 14,345,024 $ 269,921 865,250 254,652 1,389,823 $ Depreciable capital assets: Buildings Improvements other than buildings Equipment Infrastructure Total Depreciable Capital Assets 1,677,197 138,329 732,690 6,609 2,554,825 35,124 1,836 72,938 509 110,407 Less accumulated depreciation for: Buildings Improvements other than buildings Equipment Infrastructure Total Accumulated Depreciation (506,242) (67,729) (509,107) (4,354) (1,087,432) 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 $ 2,513,888 2,719,856 10,101,408 15,335,152 (3,731) (634) (43,732) (48,097) 1,310 (3,285) 10,342 8,367 1,709,900 136,246 772,238 7,118 2,625,502 (39,918) (4,016) (69,635) (97) (113,666) 2,233 419 40,817 43,469 (2,792) 14 1,489 1 (1,288) (546,719) (71,312) (536,436) (4,450) (1,158,917) 1,467,393 (3,259) (4,628) 7,079 1,466,585 $ 15,812,417 $ 1,386,564 8,032 $ 16,801,737 (405,276) $ Ending Balance 15 939 (1) 953 $ (124,773) (267,491) (8,384) (400,648) Adjustments & Reclassifications $ Beginning Balance (As restated) Additions Retirements Adjustments & Reclassifications $ $ $ $ 153,038 100,373 35,311 288,722 24,327 160,689 1,837 186,853 (10,882) (30,941) (21,295) (63,118) 130 (104,891) (104,761) Ending Balance $ 166,613 125,230 15,853 307,696 Depreciable capital assets: Buildings Improvements other than buildings Equipment Infrastructure Total Depreciable Capital Assets 3,437,270 3,600 1,209,996 326,380 4,977,246 205,066 1,211 109,475 4,206 319,958 (24,395) (29,756) (216) (54,367) 95,991 (7,190) 15,898 104,699 3,713,932 4,811 1,282,525 346,268 5,347,536 Less accumulated depreciation for: Buildings Improvements other than buildings Equipment Infrastructure Total Accumulated Depreciation (1,226,567) (2,385) (830,174) (106,482) (2,165,608) (110,700) (115) (81,865) (11,231) (203,911) 10,972 25,012 187 36,171 (4,509) (1) 4,406 77 (27) (1,330,804) (2,501) (882,621) (117,449) (2,333,375) Total Depreciable Capital Assets, Net 2,811,638 116,047 (18,196) 104,672 3,014,161 $ 3,100,360 $ 302,900 (89) $ 3,321,857 Total Business-type Activities Capital Assets, Net - 90 - $ (81,314) $ STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 Refer to Note 9.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 $ 23,825 16,917 1,771 656 45,921 17,189 7,387 $ 113,666 Depreciation expense was charged to business-type activities as follows (expressed in thousands): Lottery Industrial Commission Special Fund Universities Other Total Business-type Activities $ $ 316 1,288 200,458 1,849 203,911 NOTE 5. PENSION BENEFITS The State participates in the ASRS, the PSPRS, the EORP, and the CORP. Benefits are established by State statutes and provide retirement, death, and survivor 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, 2008 is shown below: Employer Cities and towns Counties and county agencies State Special districts School districts Charter schools Community college districts Dispatchers ASRS 77 15 1 86 235 159 10 - PSPRS 139 24 1 56 - EORP 21 15 1 - CORP 14 1 8 B. CONTRIBUTIONS, BENEFITS, AND REFUND PAYMENTS For the ASRS, the 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. Pension benefit and refund payments are recognized when due and payable in accordance with the terms of the plan. For the PSPRS, the EORP, and the CORP, member and employer contributions are recognized when due, pursuant to formal commitments, as well as statutory or contractual requirements. Pension 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. - 91 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 C. FUNDING POLICY The contribution requirements of plan members and the State are established by Title 38, Chapter 5 of the ARS. These contribution requirements may be amended by the Arizona State Legislature. Cost-sharing plans For the year ended June 30, 2008, active ASRS members and the State were each required by statute to contribute at the actuarially determined rate of 9.10% and 8.05% of the members' annual covered payroll, respectively. The State's contributions to the ASRS for the years ended June 30, 2008, 2007, and 2006 were $162.121 million, $142.382 million, and $100.254 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 17.99% of the members’ annual covered payroll, as determined by actuarial valuation. The State’s contributions to EORP for the years ended June 30, 2008, 2007, and 2006 were $2.230 million, $1.789 million, and $2.140 million, respectively, which were equal to the required contributions for these years. Agent plans For the year ended June 30, 2008, 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 9.60 - 27.96%. Active CORP members were required by statute to contribute 7.96% of the members' annual covered payroll and the participating State agencies were required to contribute at actuarially determined rates of 5.63 - 5.89%. D. ANNUAL PENSION COST The State’s annual pension costs, pension contributions made, and excess other post-employment benefit (OPEB) contributions applied to pensions (see Note 6.A. and B. for explanation) for each of the agent, multiple-employer defined benefit pension plans for the year ended June 30, 2008, is as follows (expressed in thousands): PSPRS CORP Pension Contributions Made Required Excess OPEB Contributions Contributions $ 25,879 $ 600 26,405 2,603 Annual Pension Costs $ 25,879 26,405 The State’s annual pension cost and the percentage of annual pension cost contributed to each of the agent, multiple-employer defined benefit pension plans for the year ended June 30, 2008, is as follows. The preceding years contain both pensions and OPEB information. (expressed in thousands) PSPRS CORP Fiscal Year Ended 6/30/08 6/30/07 6/30/06 Annual Pension/ OPEB Cost $ 25,879 19,993 15,878 Percentage of Annual Cost Contributed 102% 100% 100% 6/30/08 6/30/07 6/30/06 26,405 17,494 17,472 110% 100% 100% E. FUNDED STATUS AND FUNDING PROGRESS The State’s funded status for each of the agent, multiple-employer defined benefit pension plans, as of the most recent actuarial valuation, is as follows (expressed in thousands). - 92 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 Plan PSPRS CORP Actuarial Valuation Date 6/30/2008 6/30/2008 Actuarial Value of Plan Assets $ 547,255 755,559 Actuarial Accrued Liability (AAL) $ 824,620 869,342 (Unfunded) AAL $ (277,365) (113,783) Funded Ratio 66.4% 86.9% Annual Covered Payroll $ 101,422 376,819 (Unfunded) AAL as Percentage of Covered Payroll (273.5)% (30.2)% The required schedule of funding progress immediately following the notes to the financial statements presents multi-year trend information about whether the actuarial value of the plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. F. ACTUARIAL METHODS AND ASSUMPTIONS The State’s actuarial methods and significant assumptions for each of the agent, multiple-employer defined benefit pension plans for the most recent actuarial valuation as of 6/30/08 and actuarial valuation as of 6/30/06 that was used to determine the fiscal year 2008 annual required contribution are as follows: 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 6/30/06 projected unit credit CORP 6/30/06 projected unit credit PSPRS 6/30/08 projected unit credit CORP 6/30/08 projected unit credit 8.50% 5.50 – 8.50% 5.00% None level percent open 8.50% 5.50 – 8.50% 5.00% None level percent open 30 years for unfunded actuarial accrued liability, 20 years for excess smoothed market value 30 years for unfunded actuarial accrued liability, 20 years for excess smoothed market value 8.50% 5.50 – 8.50% 5.00% None level percent closed for unfunded actuarial accrued liability, open for excess 28 years for unfunded actuarial accrued liability, 20 years for excess smoothed market value 8.50% 5.50 – 8.50% 5.00% None level percent closed for unfunded actuarial accrued liability, open for excess 28 years for unfunded actuarial accrued liability, 20 years for excess smoothed market value G. UNIVERSITIES’ RETIREMENT PLANS Faculty, academic professionals, service professionals, and administrative staff 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, 2008, 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 8.55% contribution for the ASRS defined contribution plan. - 93 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 Contributions to these plans for the year ended June 30, 2008, were as follows (expressed in thousands): Plan TIAA/CREF VALIC Fidelity ASRS University Contributions $ 30,358 3,240 12,602 72 Employee Contributions $ 30,358 3,240 12,602 63 Total Contributions $ 60,716 6,480 25,204 135 NOTE 6. OTHER POST-EMPLOYMENT BENEFITS A. PLAN DESCRIPTION Cost-sharing plans In addition to the pension benefits described, the ASRS provides health insurance premium supplemental benefits and disability benefits to retired members, disabled members, and eligible dependents through the Health Benefit Supplement Fund (HBS) and the Long Term Disability Fund (LTD), which are cost-sharing, multiple-employer defined benefit post-employment plans. Title 38, Chapter 5 of the ARS assigns the authority to establish and amend the benefit provisions of the HBS plan and the LTD plan to the Arizona State Legislature. The ASRS issues a publicly available financial report that includes the financial information and disclosure requirements for the HBS plan and the LTD plan. Information on how to obtain this report is included in Note 1.A. The EORP, by statute, is a cost-sharing, multiple employer plan. However, because of its statutory structure, in accordance with GASB Statement No. 43. Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans (GASB 43), paragraphs 5 and 41, the EORP’s health insurance premium subsidy benefit (OPEB) is considered an agency plan for these purposes. Information on how to obtain the EORP’s publicly available financial report is included in Note 1.A. However, the EORP’s OPEB benefit is relatively insignificant to the State’s financial statements and, therefore, is not further described. Agent plans In addition to pension benefits described, the PSPRS and the CORP each offer a health insurance premium subsidy benefit to retired members and survivors, which are agent, multi-employer defined benefit post-employment plans. Title 38, Chapter 5 of the ARS assigns the authority to establish and amend the benefit provisions for each of the health insurance subsidy benefits to the Arizona State Legislature. The PSPRS and the CORP do not administer a separate healthcare plan as defined under IRC § 401(h) or an equivalent agreement. In addition, the PSPRS 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 benefit is reported as an agency fund. There are no accumulated assets or liabilities, so only contributions and benefit distributions are presented in these funds. All assets of the PSPRS and the CORP are available to pay both pension benefits and the health insurance subsidy benefits. The PSPRS and the CORP each issue publicly available financial reports that include the financial information and disclosure requirements for the health insurance subsidy benefits. Information on how to obtain these reports is included in Note 1.A. B. CONTRIBUTIONS, BENEFITS, AND REFUND PAYMENTS Cost-sharing plan The ASRS recognition of contributions for the HBS plan and the LTD plan are the same as the pension benefit in Note 5.B. Benefit and refund payments are recognized when due and payable in accordance with the terms of the HBS plan and LTD plan. Agent plans The PSPRS and the CORP recognition of employer contributions and refunds for the health insurance subsidy benefit are the same as the pension benefit in Note 5.B. Contributions in excess of the health insurance subsidy payments are reported as excess pension contributions in the pension benefit plan. Health insurance subsidy benefits are recognized when due and payable in accordance with the terms of the plan. - 94 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 C. FUNDING POLICY The contribution requirements of plan members and the State are established by Title 38, Chapter 5 of the ARS. These contribution requirements are established and may be amended by the Arizona State Legislature. Cost-sharing plan For the year ended June 30, 2008, active ASRS members and the State were each required by statute to contribute at the actuarially determined rate of 0.50% of the members’ annual covered payroll for LTD. In addition to the 0.50% for LTD, the State also contributed 1.05% for the HBS. The State’s contributions for LTD to the ASRS for the years ended June 30, 2008, 2007, and 2006 were $10.070 million, $9.429 million, and $8.688 million, respectively, for the primary government which were equal to the required contributions for these years. The State’s contributions for the HBS to the ASRS for the years ended June 30, 2008, 2007, and 2006 were $21.146 million, $19.802 million, and $19.634 million, respectively, for the primary government which were equal to the required contributions for these years. Agent plans For the year ended June 30, 2008, the PSPRS participating State agencies were required to contribute at actuarially determined rates of 0.88 – 3.10% of annual covered payroll. The CORP participating State agencies were required to contribute at actuarially determined rates of 1.06 – 1.15% of annual covered payroll. D. ANNUAL OPEB COST The State’s annual OPEB costs and contributions made for each of the agent, multiple-employer defined benefit pension plans for the year ended June 30, 2008, is as follows (expressed in thousands): PSPRS CORP Annual OPEB Costs $ 2,350 4,301 OPEB Contributions Made $ 1,750 1,698 The State’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for each of the agent, multiple-employer defined benefit pension plans for the year ended June 30, 2008, is as follows. Information about preceding years will be added over the next two years (expressed in thousands): PSPRS CORP Fiscal Year Ended 6/30/08 6/30/08 Annual OPEB Cost (AOC) $ 2,350 4,301 Percentage of AOC Contributed 74.5% 39.5% Net OPEB Obligation $ 600 2,603 E. FUNDED STATUS AND FUNDING PROGESS The State’s funded status for each of the agent, multiple-employer defined benefit post-employment plans, as of the year ended June 30, 2008, is as follows (expressed in thousands): Plan PSPRS CORP Actuarial Valuation Date 6/30/2008 6/30/2008 Actuarial Value of Plan Assets - Actuarial Accrued Liability (AAL) $ 30,584 40,596 (Unfunded) AAL $ (30,584) (40,596) Funded Ratio 0.0% 0.0% Annual Covered Payroll $ 101,422 376,819 (Unfunded) AAL as Percentage of Covered Payroll (30.2)% (10.8)% Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and healthcare cost trends. Actuarially determined amounts are subject to continual revision as actual results are compared with past - 95 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 expectations and new estimates are made about the future. The required schedule of funding progress immediately following the notes to the financial statements presents multi-year trend information about whether the actuarial value of the plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. F. ACTUARIAL METHODS AND ASSUMPTIONS Projections of benefits for financial reporting purposes are based on the plan and include the types of benefits provided at the time of each valuation. The actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. The State’s actuarial methods and significant assumptions for each of the agent, multiple-employer defined post-employment plans for the most recent actuarial valuation as of 6/30/08 and actuarial valuation as of 6/30/06 that was used to determine the fiscal year 2008 annual required contribution are as follows: 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 6/30/06 projected unit credit CORP 6/30/06 projected unit credit PSPRS 6/30/08 projected unit credit CORP 6/30/08 projected unit credit 8.50% 5.50 – 8.50% 5.00% None level percent open 8.50% 5.50 – 8.50% 5.00% None level percent open 30 years for unfunded actuarial accrued liability, 20 years for excess not applicable 30 years for unfunded actuarial accrued liability, 20 years for excess not applicable 8.50% 5.50 – 8.50% 5.00% None level percent closed for unfunded actuarial accrued liability, open for excess 28 years for unfunded actuarial accrued liability, 20 years for excess not applicable 8.50% 5.50 – 8.50% 5.00% None level percent closed for unfunded actuarial accrued liability, open for excess 28 years for unfunded actuarial accrued liability, 20 years for excess not applicable NOTE 7. LONG-TERM OBLIGATIONS A. REVENUE BONDS Governmental Activities 1. Arizona Department of Transportation The ADOT has issued Senior and Subordinated Lien Highway Revenue Bonds to provide funds for acquisition of right-of-way, design, 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 $1.5 billion. During the year, Highway Revenue Bonds totaling $193.950 million were issued to finance portions of the ADOT’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 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 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 had been in place since 1980. The ADOT has pledged future motor vehicle and related fuel fees and taxes to repay $1.6 billion in outstanding Highway Revenue Bonds issued since 1993. Proceeds from the bonds finance portions of the ADOT’s Five Year Transportation Facilities - 96 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 Construction Program. The bonds are payable solely from motor vehicle and related fuel fees and taxes and are payable through 2033. The total principal and interest remaining to be paid on the bonds is $2.5 billion. Principal and interest paid for the current year and total pledged revenues were $136.200 million and $658.600 million, respectively. The annual principal and interest payments on the bonds required 20.70% of the pledged revenues. The Maricopa County Regional Area Road 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. During the year, Transportation Excise Tax Revenue Bonds totaling $370.000 million were issued to pay the costs of design, right-of-way purchase, or construction of certain freeways and other routes within Maricopa County, Arizona and the costs of issuing the bonds. On September 21, 2007, the ADOT adopted a Master Resolution relating to Transportation Excise Tax Revenue Bonds. 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. No debt service reserve is required for the outstanding bonds. Transportation Excise Tax Revenue Bonds aggregating $200.475 million are subject to redemption prior to their maturity dates at the option of the ADOT in whole or in part, at any time, on or after July 1, 2017. These bonds may be redeemed at par, plus accrued interest to the date fixed for redemption. Transportation Excise Tax Revenue Bonds aggregating $150.480 million are not subject to redemption. The ADOT has pledged future transportation excise taxes to repay $350.955 million in outstanding Transportation Excise Tax Revenue Bonds issued since 2007. Proceeds from the bonds pay the costs of design, right-of-way purchase, or construction of certain freeways and other routes within Maricopa County, Arizona. The bonds are payable solely from transportation excise taxes and are payable through 2025. The total principal and interest remaining to be paid on the bonds is $527.300 million. Principal and interest paid for the current year and total pledged revenues were $29.700 million and $253.700 million, respectively. The annual principal and interest payments on the bonds required 11.70% of the pledged revenues. 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, 2008 totaled $212.880 million. 2. School Facilities Board On October 3, 2007, the SFB issued State School Trust Revenue Refunding Bonds Series 2007 (the Series 2007 Bonds) for $82.880 million. The Series 2007 Bonds include $82.880 million of serial bonds with interest rates ranging from 4.00% to 5.00% and maturity dates ranging from 2015 to 2018. The Series 2007 Bonds are not subject to redemption prior to their stated maturity dates. The SFB realized net proceeds of $86.547 million after receipt of net issue premium of $5.264 million and payment of $1.597 million for underwriters’ discount, bond insurance, and other issuance costs. In addition, $12.304 million of funds held in reserve for the Series 2004A State School Trust Revenue Bonds were used to complete the refunding. The net proceeds, along with the remaining Series 2004A debt service reserve funds, were used to advance-refund $88.630 million of the Series 2004A State School Trust Revenue Bonds with a total outstanding principal balance prior to the refunding of $190.970 million. The advance-refunding resulted in a debt service savings of $5.917 million and a net present value benefit of $2.252 million (difference between the present values of the old debt and new debt service payments) for the SFB. The advance-refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $2.853 million. This loss on refunding is being amortized using the straight-line method as a charge to interest expense. The refunded maturities of the Series 2004A Bonds will be paid by investments held in an irrevocable trust with a fair value of $98.851 million. As a result, the refunded debt is considered to be defeased and is not included in the accompanying financial statements. 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 - 97 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 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, 2008 totaled $535.310 million. The SFB has pledged portions of its gross revenues towards payment of debt related to State school improvement revenue bonds, State school improvement revenue refunding bonds, State school trust revenue bonds, and State school trust revenue refunding bonds outstanding at June 30, 2008. These bonds finance the correction of existing deficiencies in school facilities in the State of Arizona. These pledged revenues include Education Transaction Privilege Taxes approved by voters as part of Proposition 301 and expendable State School Trust Revenues. Expendable State School Trust Revenues include State Trust Lands’ land lease revenue, interest earnings on land sales financed over time, and a formula distribution from the State’s Permanent Fund prescribed by the State’s Constitution. Pledged revenues do not include sales of State Trust Lands, sales of natural products derived from State Trust Lands, or royalties from minerals extracted from State Trust Lands. These revenues are held in perpetuity for the benefit of various beneficiaries of the State Land Trust and are not available to pay debt service. Expendable State School Revenues in excess of $72.263 million are not available to pay debt service on the State school trust revenue bonds and State school trust revenue refunding bonds per the debt documents. During fiscal year 2008, total expendable trust revenues exceeded the maximum allowable amount to pay debt service by $101.411 million. This excess is not included in total pledged revenues. At June 30, 2008, pledged revenues totaled $718.091 million of which 12.14% ($87.178 million) was required to cover current year debt service. Future pledged revenues required to pay all future debt service on these bonds through final maturity of July 1, 2021 is $1.0 billion. 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. On January 15, 2008, the U of A sold System Revenue Bonds Series 2008A (2008A Bonds) for $43.105 million dated January 30, 2008. 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 with maturity on or after June 1, 2019, are subject to optional redemption without premium. The 2008A Bonds with maturity on June 1, 2030, June 1, 2033, and June 1, 2040 (the Term Bonds) are subject to mandatory sinking fund redemption without premium pursuant to the debt documents. The 2008A Bonds sold at a premium of $1.349 million. The U of A realized net proceeds of $42.713 million after payment of $1.741 million for issuance costs, underwriter discounts, and interest rate management fees. The net proceeds were used to finance the Deferred Renovation, Building Renewal and Infrastructure Project, the Student Recreation Center Expansion Project, the Tree Ring Laboratory Project, and the Hazardous Waste Facility Enclosure Project. On April 10, 2008, the U of A sold System Revenue Refunding Bonds Series 2008B (2008B Bonds) for $18.090 million dated April 30, 2008. 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 sold at a premium of $489 thousand. The U of A realized net proceeds of $18.397 million after payment of $182 thousand for issuance costs and underwriter discounts. The net proceeds were used to redeem the outstanding System Revenue Bonds Series 1998 totaling $17.970 million. The redemption generated a net present value benefit of $1.069 million (difference between the present values of the old debt and the new debt service payments) for the U of A. The redemption reduced the U of A’s debt service by $1.064 million. The redemption resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $395 thousand. This difference, reported in the accompanying financial statements as a deduction from long-term debt, is being charged to operations through the year 2018 using the straight-line method. 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, 2008, the outstanding principal balance of the refunded bonds was $3.025 million, which will be paid by investments - 98 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 held in an irrevocable trust with a fair value of $3.149 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 principal balance of System Revenue Bonds Series 2000A. The System Revenue Bonds Series 1998 outstanding principal was redeemed on June 1, 2008. At June 30, 2008, the total outstanding principal balance of the refunded System Revenue Bonds Series 2000A was $14.210 million, which will be paid by investments held in an irrevocable trust with a total fair value of $14.665 million. Accordingly, the trust account assets and liability for these defeased bonds are not included in the accompanying financial statements. The U of A has pledged portions of its gross revenues towards the payment of debt related to all system revenue and system revenue refunding bonds outstanding at June 30, 2008. The bonds generally provide financing for various capital projects of the U of A. These pledged revenues include student tuition and fees, auxiliary enterprise revenue, sales and service revenue, and other operating revenues such as indirect cost recovery and certain investment income. Pledged revenues do not include State appropriations, gifts, endowment income, or other restricted revenues. At June 30, 2008, pledged revenues totaled $632.400 million, of which 5.70% ($36.200 million) was required to cover current year debt service. Future pledged revenues required to pay all remaining debt service for the system revenue and system revenue refunding bonds through final maturity of June 1, 2040 is $477.200 million. b. Northern Arizona University On July 24, 2007, the NAU sold System Revenue Bonds Series 2007 (2007 Bonds) for $38.695 million dated August 7, 2007 for construction of a new residence hall, expansion of a multi-use dining and activity facility, and other qualified capital projects. The 2007 Bonds include $19.620 million of serial bonds with interest rates ranging from 4.25% to 5.00% and maturity dates ranging from June 1, 2008 to June 1, 2027. The 2007 Bonds also include $19.075 million of term bonds, with an interest rate of 5.00% and maturing on June 1, 2032 and 2037 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 2007 Bonds were sold with net original issue premium of $1.226 million. The NAU realized net proceeds of $39.503 million after payment of $418 thousand for issuance costs, underwriter discounts, and bond insurance. The costs associated with this issue were recorded in the current fiscal year. The 2007 Bonds have an average interest rate of 4.93%. 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, 2008, $41.190 million of such bonds outstanding are considered defeased. The NAU has pledged portions of its gross revenues towards the payment of debt related to various student housing and senior lien system revenue bonds outstanding at June 30, 2008. The bonds generally provide financing for various capital projects of the NAU. 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. At June 30, 2008, pledged revenues totaled $143.700 million, of which 11.90% ($17.100 million) was required to cover current year debt service. Future pledged revenues required to pay all remaining debt service for the system revenue bonds through final maturity of June 1, 2040 is $253.600 million. c. Arizona State University At June 30, 2008, 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. Certain system revenue bonds of the ASU were defeased through advance-refundings by depositing sufficient U.S. Government securities to pay all future debt service in an irrevocable trust. Accordingly, the liabilities for these defeased bonds are not included in the accompanying financial statements. The principal amount of all such bonds outstanding at June 30, 2008 was $46.900 million. The ASU issued $103.680 million of Variable Rate Demand System Revenue Refunding Bonds, Series 2008A and 2008B (2008 Bonds), to refund the outstanding 2003 Variable Rate Demand System Revenue Bonds totaling $103.000 million in June 2008. The net proceeds of $103.000 million, after the net deduction of $680 thousand for underwriting fees and other issuance costs, - 99 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 were used to call the 2003 Variable Rate Demand System Revenue Bonds. Both series have a final maturity date of July 1, 2034. Both series 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, 2008 was 1.45% for the Series 2008A and 1.53% for the Series 2008B 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 to the remarketing agents. To provide credit and liquidity support for the bonds, the ASU entered into an Irrevocable Letter of Credit and Reimbursement Agreement (LOC) with Lloyds TSB Bank, PLC, upon execution of the refunding bonds. The LOC expires on June 18, 2009 and, upon request by the ASU and approval by the Bank, may be extended for at least one year. Assuming all of the Series 2008A and Series 2008B Bonds are not resold within 90 days, the ASU would be responsible to make quarterly installment principal payments of $5.200 million over a five-year period, plus interest to be calculated as established in the letter of credit. The ASU has agreed to pay TSB Bank, PLC, an annual commitment fee for the letter of credit of .50% per annum on the stated amount which consists of outstanding principal of the bonds, plus 51 days of interest, at an assumed rate of 12.00% per annum. Effective January 1, 2007, the ASU entered into a swap agreement on $103.000 million, notional amount, relating to the 2008 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 2008 Bonds. The intention of the swap was to effectively change the variable rate interest on the 2008 Bonds to a synthetic fixed rate. 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 receives payments from the counterparty based on the SIFMA Municipal Swap Index set weekly. The SIFMA rate at June 30, 2008 was 1.55%. At June 30, 2008, the synthetic fixed interest rate on the bonds was: 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 SIFMA Spread to SIFMA Rates (%) 3.91 (1.55) 2.36 1.49 3.85 As of June 30, 2008, the swap had a fair value of $(2.300) million, which represents the cost to the ASU to terminate the swap. The fair value was developed by an independent third party, with no vested interest in the transaction, using the zero-coupon 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, 2008, the ASU was not exposed to credit risk because the swap had a negative fair value. However, should interest rates change and the fair value of the swap becomes positive, the ASU would be exposed to credit risk in the amount of the derivative’s fair value. The swap counterparty was rated A+ by Fitch, A by Standard & Poor’s, and A1 by Moody’s Investor Services as of June 30, 2008. 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 SIFMA 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 SIFMA. 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 agent at rates higher than the SIFMA 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. - 100 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 Securities and cash restricted for bond debt service held by the trustee at June 30, 2008 totaled $27.400 million. The ASU has pledged portions of its gross revenues towards the payment of debt related to various senior lien system revenue bonds outstanding at June 30, 2008. The related revenue bonds are primarily for new academic and research facilities, academic and laboratory renovations, and infrastructure improvements. 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. At June 30, 2008, pledged revenues totaled $638.700 million, of which 6.10% ($39.100 million) was required to cover current year debt service. Future pledged revenues required to pay all remaining debt service for system revenue bonds through final maturity of July 1, 2036 is $633.700 million. In addition, the ASU has pledged the same revenues on a subordinate basis to secure the Series 2006 Arizona State University Research Park, Inc. Development Refunding Bonds. Research Park bonds outstanding at June 30, 2008 were $11.600 million with annual debt service requirements of approximately $1.200 million through July 1, 2021. The ASU presently plans to issue approximately $70.000 million in senior lien bonds and $33.000 million in subordinated lien bonds for the Stimulus Plan for Economic and Educational Development (SPEED). Up to 80.00% of the related debt service of these subordinated lien bonds will be paid from Arizona State Lottery Commission revenues, with the balance being the responsibility of the ASU. Summary of Revenue Bonds The following schedule summarizes revenue bonds outstanding at June 30, 2008 (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, 2008 Dates Issued Maturity Dates 1994-2008 2001-2008 2009-2033 2009-2021 3.30-6.00% .14-5.75% $1,974,860 784,210 1992-2008 2009-2040 1.49-6.50% 902,255 Principal and interest debt service payments on revenue bonds outstanding at June 30, 2008 are as follows (expressed in thousands): Annual Debt Service Governmental Activities Fiscal Year 2009 2010 2011 2012 2013 2014-2018 2019-2023 2024-2028 2029-2033 2034-2038 2039-2040 Total Total Principal $ 128,540 135,525 142,615 150,040 157,810 938,585 732,615 272,305 101,035 $ 2,759,070 Total Interest $ 138,118 130,808 123,646 116,172 108,440 415,001 190,926 54,122 15,647 $ 1,292,880 Business-type Activities Total $ 266,658 266,333 266,261 266,212 266,250 1,353,586 923,541 326,427 116,682 $ 4,051,950 Total Principal $ 47,275 50,965 53,235 43,290 48,705 233,450 149,760 129,165 95,540 45,835 5,035 $ 902,255 - 101 - Total Interest $ 39,233 36,749 34,298 31,797 29,719 113,579 70,948 41,173 19,497 4,658 351 $ 422,002 Net Payments (Receipts) on Swap Agreement $ 2,448 2,448 2,397 2,342 2,286 10,472 8,566 6,136 3,039 164 $ 40,298 Total 88,956 90,162 89,930 77,429 80,710 357,501 229,274 176,474 118,076 50,657 5,386 $ 1,364,555 $ STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 B. GRANT ANTICIPATION NOTES Grant Anticipation Notes are issued by the ADOT 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 $282.860 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 2001-2008 2009-2016 2.50-5.25% Outstanding Balance at June 30, 2008 $ 298,280 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 2009 Governmental Activities Total Total Principal Interest $ 24,050 $ 14,491 Total Debt Service $ 38,541 2010 25,170 13,367 2011 70,570 12,191 82,761 2012 43,885 8,762 52,647 2013 35,340 6,641 41,981 2014-2016 Total 99,265 $ 38,537 7,697 298,280 $ 63,149 106,962 $ 361,429 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. 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, on any date on or after March 1, 2018, at a price equal to principal plus accrued interest to the redemption date, without premium. Additionally, the Series 2008A COPs are subject to extraordinary redemption, prior to maturity, on any interest payment date from the net proceeds of insurance or condemnation awards, at a price equal to principal plus accrued interest to the redemption date, without premium. The State realized net proceeds of $238.855 million after receipt of $11.846 million net original issue premium, deposit to US Bank’s Interest Account of $9.205 million for capitalized interest, and payment of $2.776 million of bond insurance, underwriters’ discount, and issuance - 102 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 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. 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, 2008 totaled $311.130 million. Business-Type Activities 3. University of Arizona The U of A utilizes COPs and various capital leases to acquire buildings, equipment, and land. The COPs are generally callable, and the capital leases are subject to prepayment. In fiscal year 2003, the U of A refunded, in advance of maturity, a portion of outstanding COPs Series 2001B. At June 30, 2008, the outstanding principal balance for the COPs Series 2001B was $3.795 million, which will be paid by investments held in an irrevocable trust with a fair market value of $3.998 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, 2008, 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 $23.258 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 COP Series 1999. At June 30, 2008, the total outstanding principal balance for the COP Series 1999 was $3.290 million, which will be paid by investments held in an irrevocable trust with a fair value of $3.318 million. Accordingly, the trust account assets and liability for these defeased COPs are not included in the accompanying financial statements. In fiscal year 2007, the U of A refunded, in advance of maturity, a portion of outstanding COPs Series 2001A, 2001B, and 2002A. At June 30, 2008, the total outstanding principal balance for the COPs Series 2001A, 2001B, and 2002A was $59.195 million, which will be paid by investments held in an irrevocable trust with a fair value of $60.736 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, 2008, 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, 2008 was $65.400 million. Securities and cash restricted for COP debt service held by the trustee at June 30, 2008 totaled $12.800 million. - 103 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 A summary of the COPs issued as of June 30, 2008 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 4000 Bed Prison, Wastewater Upgrades, Forensic Unit 2008A 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 2008 2012 2023 2011 2012 2019 2028 2003 2004 2004 2005 2005 2005 2005 2005 2014 2015 2019 2017 2020 2018 2019 2020 Original Amount Issued $ $ 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 2004 2005 2005 2005 2020 2009 2012 2014 2022 2023 2022 2031 2029 2024 2024 2022 2006 372,730 194,610 47,160 190,040 47,585 201,125 80,055 53,045 1,670,525 4,500 5,620 5,165 103,800 22,495 80,275 110,115 15,810 65,890 $ Interest Rates 15,730 44,940 44,910 9,455 26,695 238,990 4.00 – 5.25 4.00 – 5.50 3.40 – 5.50 3.00 – 5.00 3.00 – 5.25 3.25 – 5.00 136,950 93,310 38,725 112,200 42,755 199,630 78,640 52,710 $ 1,135,640 3.00 – 5.00 2.75 – 5.25 2.25 – 5.00 4.00 – 5.25 4.75 – 5.00 2.50 – 5.00 2.50 – 5.00 2.50 – 5.00 1,160 4,615 4,450 24,680 11,580 78,360 107,355 15,310 64,580 6.89 5.75 8.00 4.75 2.36 4.89 4.36 4.52 4.15 21,607 18,635 31,695 21,425 76,965 29,845 10,615 153,960 42,020 12,660 14,825 16,330 3,963 175 3,060 2,185 19,700 27,780 10,615 147,125 36,575 12,660 14,825 16,330 5.13 – 5.30 5.00 4.10 – 4.45 4.75 – 5.00 4.38 – 5.50 3.30 – 5.13 3.50 – 5.00 3.77 – 5.25 3.60 – 5.25 4.00 – 5.00 5.00 4.13 – 5.00 2025 29,460 27,935 3.38 – 5.00 2006 2006 2007 2025 2031 2031 58,650 18,240 105,080 57,930 17,785 105,080 3.63 – 5.00 4.00 – 5.00 3.50 – 4.50 2005 2006 2006 2030 2030 2030 $ 36,665 39,235 12,130 903,843 2.50 – 5.13 3.00 – 5.00 4.00 – 4.50 $ 37,585 40,255 12,445 1,165,967 $ 2,836,492 $ 2,039,483 - 104 - $ 57,930 63,270 75,295 16,725 31,965 238,990 Outstanding Balance $ STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 Principal and interest debt service requirements on COPs outstanding at June 30, 2008 are as follows (expressed in thousands): Annual Debt Service Governmental Activities Fiscal Year Total Principal 2009 $ Business-type Activities Total Amount Required Total Interest 65,805 $ 51,622 $ Total Principal 117,427 $ 31,210 Total Amount Required Total Interest $ 41,620 $ 72,830 2010 77,540 50,289 127,829 32,315 40,288 72,603 2011 80,980 46,643 127,623 28,605 39,187 67,792 2012 84,970 42,648 127,618 34,802 38,433 73,235 2013 88,905 38,508 127,413 36,506 36,960 73,466 2014-2018 512,885 120,934 633,819 215,619 155,056 370,675 2019-2023 153,440 31,214 184,654 252,136 97,513 349,649 2024-2028 71,115 9,152 80,267 174,445 43,444 217,889 2029-2033 Total $ 1,135,640 $ - - 391,010 $ 1,526,650 98,205 $ 903,843 7,208 $ 499,709 105,413 $ 1,403,552 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.) - 105 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 The future minimum lease payments for long-term capital leases as of June 30, 2008 are summarized below (expressed in thousands): Annual Debt Service Governmental Fiscal Year 2009 $ 30,281 Activities $ 17,306 2010 29,289 16,613 2011 27,373 16,387 2012 27,054 16,120 2013 26,990 15,980 2014-2018 117,072 68,790 2019-2023 111,278 63,402 2024-2028 86,899 62,280 2029-2033 6,961 59,835 2034-2038 - 13,801 2039-2043 - 3,866 2044-2048 - 1,363 463,197 355,743 (122,247) (176,691) (91,074) - Total minimum lease payments Less: amount representing interest Less: amount representing executory costs Obligations under Capital Leases 2. Business-type Activities $ 249,876 $ 179,052 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 1,025,963 Infrastructure - Equipment Less: accumulated depreciation $ 6,366 477,111 Improvements other than buildings Carrying Value $ 1,088 53,761 2,420 - 70,928 23,983 558,060 1,110,073 (162,801) (110,306) 395,259 $ 999,767 E. 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 2008, the State paid for compensated absences as follows: 83.28% from the General Fund, 10.96% from other funds, and 5.76% from other major funds. - 106 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 F. CHANGES IN LONG-TERM OBLIGATIONS The following is a summary of changes in Long-Term Obligations (expressed in thousands): Balance July 1, 2007, as restated Increases Balance June 30, 2008 Decreases Due Within One Year Due Thereafter Governmental Activities: Long-term Debt: Revenue bonds $ 2,328,840 $ 646,830 (216,600) $ 2,759,070 Grant anticipation notes 282,860 68,000 (52,580) 298,280 24,050 274,230 Certificates of participation 959,865 238,990 (63,215) 1,135,640 65,805 1,069,835 Capital leases 242,209 20,410 (12,743) 249,876 14,820 235,056 10,644 3,146 (4,882) 8,908 4,455 4,453 3,309 19,529 - 22,838 3,310 19,528 225,071 48,972 (31,227) 242,816 26,144 216,672 Installment purchase contracts Notes payable Premiums and discounts on debt Deferred amounts on refundings $ $ 128,540 $ 2,630,530 (14,266) (2,853) 3,974 (13,145) (3,974) (9,171) 4,038,532 1,043,024 (377,273) 4,704,283 263,150 4,441,133 224,141 271,932 (243,750) 252,323 170,072 82,251 224,141 271,932 (243,750) 252,323 170,072 82,251 $ 4,262,673 $ 1,314,956 $ (621,023) $ 4,956,606 $ 433,222 $ 4,523,384 $ $ $ Total Long-term Debt Other Long-term Liabilities: Compensated absences Total Other Long-term Liabilities Total Long-term Obligations Business-type Activities: Long-term Debt: Revenue bonds 868,565 $ 203,570 Certificates of participation 935,127 186 (31,470) 903,843 31,210 872,633 Capital leases 166,780 55,508 (43,236) 179,052 6,516 172,536 Installment purchase contracts 9,544 7,119 (3,639) 13,024 3,533 9,491 Notes payable 1,354 - (332) 1,022 348 674 Premiums and discounts on debt 39,582 3,064 (4,435) 38,211 1,688 36,523 Deferred amounts on refundings (29,211) (1,043) 2,543 (27,711) (1,657) (26,054) 1,991,741 268,404 (250,449) 2,009,696 88,913 1,920,783 Total Long-term Debt $ (169,880) 902,255 47,275 $ 854,980 Other Long-term Liabilities: Compensated absences Total Other Long-term Liabilities Total Long-term Obligations 64,566 73,293 (71,742) 66,117 13,992 52,125 64,566 73,293 (71,742) 66,117 13,992 52,125 $ 2,056,307 $ 341,697 (322,191) $ 2,075,813 102,905 $ 1,972,908 $ $ The above long-term obligations relating to governmental activities include internal service funds. Amounts for capital leases and compensated absences differ from those in the Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets because $5.879 million of capital leases and $86.628 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. - 107 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 NOTE 8. INTERFUND TRANSACTIONS INTERFUND BALANCES AND TRANSFERS Interfund Receivables/Payables Interfund balances as of June 30, 2008 are as follows (expressed in thousands): Due To Due From General Fund General Fund $ - Transportation & Aviation Planning, Highway Maintenance & Safety Fund $ - 63,002 544 11,414 21 17,812 52,170 1,354 $ 146,317 20,000 20,000 Land Endowments Fund $ 545 Non-Major Non-Major Governmental Enterprise Funds Funds $ 45,698 $ 8 Internal Service Funds $ 1,401 Total Due To $ 47,652 1 478 60 1,940 100,267 12,292 13,945 458 19,025 72,170 1,414 $ 267,223 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 $ 545 $ $ 3,307 11,747 2,053 437 1,213 64,455 33,958 $ 33,966 $ 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. Interfund Transfers Transfers for the year ended June 30, 2008 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 Non-Major Enterprise Funds Internal Service Funds Total Transfers In $ General Fund Transportation & Aviation Planning, Land Highway Maintenance Endowments & Safety Fund Fund NonNon-Major Industrial Major Governmental Universities Commission Enterprise Funds Fund Special Fund Funds - $ 263 $ 273 $ 55,364 $ 1,073,267 $ 116,532 141 205,413 545 74,821 1,043 18,092 416,587 $ 4,424 4,687 $ 273 $ 283,367 95,289 13,396 2,260 26,518 30 476,224 $ 1,073,267 $ - Total Transfers Out $ 7,250 $ 1,136,417 19,000 105 19,000 $ 7,355 399,899 95,430 242,338 2,805 101,339 1,043 18,122 $ 1,997,393 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. - 108 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 NOTE 9. FUND RECLASSIFICATION AND CORRECTIONS OF ERRORS A. FUND FINANCIAL STATEMENTS Fund Balances and Net Assets have been restated as follows (expressed in thousands): Fund Balances/Net Assets, as previously reported Fund Reclassification: Greater Arizona Development Authority Fund Prior year corrections of errors Fund Balances/Net Assets, as restated Governmental Funds Non-major Governmental $ 1,109,411 Proprietary Funds Internal Universities Service $ 1,955,246 $ (191,921) (17,771) $ 1,091,640 5,659 $ 1,960,905 (72,556) $ (264,477) B. GOVERNMENT-WIDE STATEMENTS Government-wide Net Assets have been restated as follows (expressed in thousands): Net Assets, as previously reported Fund Reclassification: Greater Arizona Development Authority Fund Prior year corrections of errors Net Assets, as restated 1. Governmental Activities $ 18,917,699 Business-type Activities $ 3,073,377 (17,771) (51,065) $ 18,848,863 (15,832) $ 3,057,545 Fund Reclassification Based on GASB 14, the GADA is a discretely presented component unit. However, in prior years the GADA was included in the Special Revenue Funds (Non-major Governmental) due to its relative insignificance to the State’s financial statements. At fiscal year end 2008, the GADA has been reclassified as a discretely presented component unit, which constitutes a change in reporting entity. The amount of fund balance reclassified from Non-major Governmental Funds to a Component Unit – Governmental Fund was $17.771 million. 2. Prior Year Corrections of Errors a. NAU In fiscal year 2008, the NAU made a correction to the method it uses to calculate capitalized interest for construction in progress. The correction was made to capitalize additional interest expense in prior years. The cumulative effect of corrections for fiscal years 2003 through 2007 was to increase capital assets net of accumulated depreciation in the amount of $5.659 million. b. Retiree Sick Leave Fund (RASL) In fiscal year 2008, the State applied the provisions of GASB Statement No. 16 - Accounting for Compensated Absences (GASB 16) to accrue the liability for accumulated sick leave benefits in the RASL fund (See Note 12.C for a more detailed description of the RASL benefit). In prior fiscal years, this accrued liability was calculated based on approved applications received by fiscal year end. The application of GASB 16 resulted in a restatement of beginning net assets for the Internal Service Funds of $72.556 million for the fund level proprietary financial statements. In the Government-wide financial statements, application of GASB 16 resulted in restatements of beginning net assets for Governmental Activities and Business-type Activities in the amounts of $51.065 million and $21.491 million, respectively. The restatement of both Governmental Activities and Business-type Activities reflects the fact that both governmental funds and enterprise funds participate in the RASL program. - 109 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 NOTE 10. FUND DEFICIT A. INDUSTRIAL COMMISSION SPECIAL FUND The Industrial Commission Special Fund (Special Fund) deficit decreased in the amount of $7.931 million from $38.527 million to $30.596 million during fiscal year 2008. The main contributor to the Special Fund deficit continues to be the insolvent carrier liability, which was $242.771 million at June 30, 2008. 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. A 1.50% Special Fund assessment, under ARS §23-1065(A), was levied beginning in calendar year 2004 because of the growth in insolvent carrier liabilities. Furthermore, 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 2008, $19.000 million was transferred from the Administrative Fund to the Special Fund. B. HEALTHCARE GROUP OF ARIZONA As of June 30, 2008, the Healthcare Group of Arizona (HCG) had a fund deficit of $15.797 million as a result of significant losses in prior fiscal years. In fiscal year 2008, the HCG revenues were sufficient to cover all expenses incurred in that year. The HCG received a $7.250 million General Fund subsidy in order to reduce its liabilities owed to its contracted HMOs for reconciliations incurred in fiscal years 2006 and 2007. In fiscal year 2007, management projected a net loss of $2.000 - $8.000 million for fiscal year 2008. This was a conservative estimate as the HCG recognized a net gain of $693 thousand before a $7.250 million General Fund subsidy. In fiscal years 2006 and 2007, the HCG was unable to cover its costs due to the Preferred Point of Service (PPOS) operating at net medical losses (medical costs were more than premiums received). The elimination of the availability of the PPOS program in Maricopa and Pima Counties in fiscal year 2009 is projected to bring the remaining PPOS program to a break even point, thus allowing the HCG to begin to accumulate reserves for the purpose of eliminating its reconciliation liabilities. Many other actions were taken to address the HCG's losses in fiscal years 2006 and 2007 and to address the deficit. The significant actions and events are as follows: • Eliminated Zero Deductible Plans: The zero dollar deductible plans were eliminated and 4,939 members either terminated their coverage or were transitioned into a minimum of $500 deductible plan as of January 1, 2007, thereby requiring a higher cost sharing. • Focus on Wellness Care: To ensure the HCG members continued to stay healthy and receive quality, wellness-focused care, the HCG implemented changes to the benefit plans eliminating the requirement to meet their deductible for wellness care. Members pay only a co-payment for preventive/wellness visits, PCP visits, urgent care, and basic lab and x-ray services. • Groups of ‘One’ Guaranteed Issue: The HCG has been the only healthcare coverage option in the State of Arizona that is guaranteed issue for groups of one, resulting in a higher medical risk profile compared to other small business health care coverage available within the State. At June 30, 2008, groups of one totaled 5,596 groups. To address their increased cost of care, employer groups with only ‘one’ employee were further community rated as a separate group, adjusting their premiums to cover a higher cost of care. • Higher Medical Costs: Hospital participation in the HCG program is not mandatory. Although the HCG does not provide routine coverage at out-of-network facilities, costs for services at non-participating hospitals rose faster than projected mostly related to care received as a result of an emergency room visit at a non-contracted facility. The coinsurance applied to out-of-network facilities was increased by 20.00% to cover this added cost. The Preferred Provider Organization (PPO) product was also transitioned to a PPOS tiered network, with the higher cost hospitals placed at a separate tier associated with a higher coinsurance. • Hospital Default Rate: Effective September 19, 2007, Laws 2007, Chapter 263 (HB 2789) placed a default rate for payment of 114.00% of the AHCCCS reimbursement rate if a contract does not exist between a Healthcare Group contractor and a hospital provider. The impact of this was a cost savings of approximately $3.200 million in calendar year 2006 and estimated cost savings of $2.500 and $3.000 million in calendar years 2007 and 2008. - 110 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 • Higher Utilization of Services: “Bare Period” requirements result in higher medical utilization for new members who have been without continuous coverage; and, in turn, utilize services upon enrollment at a higher rate than members who had continuous coverage. Although a 12-month pre-existing conditions policy remains in effect, a benefit dollar maximum of $100 thousand was placed on members during their first 12-months of enrollment. • Administrative Costs: In fiscal year 2008, the HCG reduced its administrative expense to approximately $5.200 million from the approximate $8.100 million expended in fiscal year 2007. This was accomplished largely by moving more communications to an electronic format, utilizing a fulfillment vendor for mailings, and eliminating administrative functions being performed at the HCG that were redundant with the HMO's operations. Additional reductions occurred in the usage of consultants and contracted/temporary labor and elimination of some FTE positions helped reduce personnel type costs by over 50.00%. Health plan contracts were also amended to decrease the relative amount of their administrative payments, thus reducing reconciliation costs. • Change in Fiscal Year 2009 - PPOS availability: Effective October 2008, Laws 2008, Chapter 288 (HB 2275) restricts the PPOS program to counties with a population of less than 500 thousand, thus eliminating the PPOS option in Maricopa and Pima Counties. To the extent that the PPOS costs were more than premiums collected, funds had to be reallocated in order to pay these medical claims. It is projected in fiscal year 2009 that the PPOS program in the remaining rural counties will operate on a break even basis with medical costs equaling the medical premiums received, resulting in a medical loss ratio reduction of approximately 35.00% in fiscal year 2009 compared to fiscal year 2008. For fiscal year 2009, management is projecting that the HCG will continue to operate without incurring additional losses. Further, it is projected that the HCG will not incur any additional reconciliation liability in fiscal year 2009. The following table summarizes the HCG reconciliation liability activity as of June 30, 2008 (in thousands of dollars): Balance June 30, 2007 Payments made Accruals and adjustments Balance June 30, 2008 $ $ FY 06 5,051 5,156 105 - $ $ Reconciliation Period FY 07 FY 08 17,458 $ 2,354 (227) 4,324 14,877 $ 4,324 $ $ Total 22,509 7,510 4,202 19,201 The reconciliation liability will be paid by allocating 2.00% of medical premium revenues for a reconciliation reserve, from residual earnings, and from any State subsidies provided by the Legislature. Reconciliation payment terms differ by each plan, such as, accruing 1.00% per month or repayment within 60 days of final reconciliation. 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 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’s General Fund to cover these operating costs. There can be no assurances that the Legislature will approve such a subsidy from the State’s General Fund. Even though deficit reduction measures resulted in a net gain for fiscal year 2008, a fiscal year 2008 General Fund subsidy of $7.250 million was required to pay down a portion of the prior fiscal year reconciliation liabilities and a net deficit of $15.797 million still exists as of June 30, 2008. A $5.000 million General Fund subsidy was passed by the Legislature for fiscal year 2009. However, there is no assurance that future subsidies will be provided to continue to pay down prior year losses. It is not anticipated in the foreseeable future that operations will generate sufficient cash flow to significantly pay down the remaining prior deficit. If a General Fund subsidy is not provided in fiscal year 2010, or if the fiscal year 2009 General Fund subsidy is reduced due to the condition of the State’s General Fund, or the current favorable medical loss trend does not continue, each health plan contractor will have to make its own decision as to whether their organization is willing to carry the medical loss liability from the HCG line of business until or if premiums are adequate to recover their prior year losses. Should the health plan elect to call the prior year reconciliation liabilities before the HCG has sufficient funds to provide such payments and new terms are not negotiated, or the Legislature does not provide the HCG with additional subsidies, it raises substantial doubt in the HCG’s ability to continue as a going concern. - 111 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 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 The Risk Management Fund (RMF) deficit of $307.374 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. D. RETIREE SICK LEAVE FUND The RASL pays retirees for their accumulated sick leave upon retirement from State service when they meet certain criteria. During fiscal year 2008, the State, as described in Note 9 – Fund Reclassification and Corrections of Errors, applied the provisions of GASB 16 to the RASL. This results in a liability in the RASL which is significantly greater than the actual funding of the RASL, because the liability is based upon an estimate of the total RASL benefit earned by existing employees at the balance sheet date; however, State agencies pay for only one year based on a .40% charge on gross payroll. The $74.604 million fund deficit is primarily due to the above funding mechanism. NOTE 11. 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, INAF Astrophysical Observatory, 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, 2008, the U of A has made cash contributions of $18.159 million toward the project’s construction costs, which were recorded as long-term investments on the Statement of Net Assets. The U of A’s financial interest represents its future viewing/observation rights. As of December 31, 2007, the assets have been substantially completed and the telescope has entered the commissioning phase. During calendar year 2007, the telescope has become operational for research purposes, thus depreciation of the property and equipment has commenced. The U of A recorded its proportionate share of the use of the viewing/observation rights, $676 thousand in calendar year 2007, as a reduction in its investment. At June 30, 2008, the investment totaled $17.483 million. According to the audited financial statements of the LBT for the year ended December 31, 2007, assets, liabilities, revenues, and expenses totaled $121.000 million, $3.000 million, $12.000 million, and $10.000 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 12. 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 (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 - 112 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 carriers, or self-insured employers. The workers’ compensation claims paid by the Special Fund 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. There are no non-incremental claims adjustment expenses included in the liability for claims and adjustments. The management and payment of these losses is accomplished through the funding mechanism of the Risk Management Fund (internal service fund) and the 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 Special Fund. To provide funding for workers’ compensation claims, the Special Fund 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 §231065(A) because of a deficit net assets balance resulting from an increase in accrued insurance losses due to insolvent insurance carriers. AMI Risk Consultants, Inc. was retained to evaluate the medical and compensation related liabilities of the Special Fund as of June 30, 2008. The estimated loss reserve of $382.138 million is $19.010 million lower than the $401.148 million reserve estimate at June 30, 2007. The most significant category of change was the insolvent carrier claims that decreased in the amount of $21.939 million from $264.710 million at June 30, 2007 to $242.771 million at June 30, 2008. 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 only Special Fund assessment levied in 2008 was the 1.50% assessment under ARS §23-1065(A). The .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, were not levied in 2008. The Special Fund has filed pending proof of claim requests with ancillary receivers and liquidators holding deposits and surety bonds of several insolvent companies. Since the actual amount that will ultimately be received cannot be determined, the Special Fund will continue to recognize receipt of insolvent carrier deposits (no insurance settlement income) as revenue at the time received rather than recording a receivable. Occasionally, the Risk Management Section agrees with claimants to purchase an annuity contract to settle specific claims when it is determined that it is in the best interest of the State to do so. In these instances, the State requires the claimant to sign an agreement releasing the State from any further obligation. As a result of these requirements, the likelihood that the State will be required to make future payments on these claims is remote. There have been no significant reductions in the current fiscal year insurance coverage. There have been no settlements that have exceeded insurance premium coverage in the last three years. The following table presents the changes in claims liabilities balances (short- and long-term combined) during fiscal years ended June 30, 2007 and June 30, 2008 (expressed in thousands): - 113 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 Fiscal Year Risk Management Fund: 2007 2008 Industrial Commission Special Fund: 2007 2008 Beginning Balance $ 367,200 344,105 410,243 401,148 Current Year Claims and Changes in Estimates $ 46,276 84,363 15,684 7,576 Ending Balance Claims Payments $ 69,371 64,541 24,779 26,586 $ 344,105 363,927 401,148 382,138 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 plaintiffs added a new plaintiff district, Tempe Union High School District, and the case was transferred to the active calendar and set for trial. The State objected, and sought dismissal of the cases. The motions were argued in September, 2008, and the court issued an order requiring a further evidentiary hearing on the status of the plaintiff districts’ alleged capital needs and financial resources for late February 2009. 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 Arizona State Legislature was required to fund according to the Building Renewal Fund Formula, which was ultimately suspended by the Arizona State 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 by the plaintiffs. The Court of Appeals issued an opinion concluding that the Lassen vs. State of Arizona ex rel Highway Dept. did not apply retroactively to past dispositions of rights of way. The plaintiff’s claim for damages for breach of fiduciary duty was deemed to be time barred by statute of limitations, ARS §12-821.01(A). A petition for review was filed by plaintiffs, but not on the claim of damages for breach of fiduciary duty. The State filed a cross-petition. The State Supreme Court accepted the petition and cross-petition. The parties filed supplemental briefs and the matter was argued to the Arizona Supreme Court on December 11, 2008. The potential outcome is uncertain at this time. If this case were to have an unfavorable outcome, it is possible that the State would have to pay the Land Endowments Fund between $500.000 million and $1.0 billion. The State has a variety of claims pending against it that arose during the normal course of its activities. Management believes, based on advice of legal counsel, losses, if any, resulting from settlement of these claims will not have a material effect on the financial position of the State. All losses for any unsettled litigation or contingencies involving workers’ compensation, medical malpractice, construction and design, highway operations, employment practices, criminal justice, fidelity and surety, environmental property damage, general liability, environmental liability, building and contracts, auto liability, or auto physical damage are determined on an actuarial basis and included in the Accrued Insurance Losses of the internal service funds and the Industrial Commission Special Fund. - 114 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 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. State employees are eligible to receive payment for an accumulated sick leave balance of at least 500 hours, 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 RASL Fund is accounted for in the financial statements as an internal service fund and accounts for the retiree accumulated sick leave liability of $84.903 million. 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, except that 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 2008, $33.684 million was deposited in the Housing Fund, $12.249 million was deposited in the Racing Fund, $173 thousand was deposited in the Victim Restitution Fund, and $9.755 million was deposited in the General Fund. A total of approximately $600.245 million (net of refunds issued) has been collected since inception of the fund. The State is also holding securities valued at $19.544 million, and mutual funds of $1.504 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, 2008, $142.918 million of this liability is included as Due to Others in the General Fund. E. CONSTRUCTION COMMITMENTS The ADOT had outstanding commitments under construction contracts of approximately $1.1 billion at June 30, 2008. 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 may incur future liabilities on these annuities. Aggregate future payments to prize winners on existing annuities totaled approximately $98.655 million at June 30, 2008. Approximately $76.927 million of the total aggregate future payments at June 30, 2008 relate to annuities purchased from five separate insurance companies, of which approximately $22.410 million relates to a single insurance company. NOTE 13. 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 $115.587 million and $126.587 million in the fund statements and the government-wide statements in fiscal year 2008, 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 - 115 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 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, 2008. NOTE 14. 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, 2008, the State has paid Accenture $144.794 million towards the $157.702 million contract cost. Included in the $157.702 million contract cost is capitalized interest charges of $7.000 million and application support charges of $47.739 million. NOTE 15. SUBSEQUENT EVENTS In July 2008, NAU issued approximately $43.100 million of System Revenue Bonds for the purpose of constructing a residence life warehouse, expanding the distance learning facility, expanding recreational fields, replacing the turf in the Skydome athletic facility, and various infrastructure improvements. These bonds are secured by a first lien on certain gross revenues and are on parity with the Series 1997 System Revenue Bonds, the Series 2002 System Revenue Bonds, the Series 2003 System Revenue Bonds, the Series 2004 System Revenue and Refunding Bonds, the Series 2005 System Revenue Bonds, the Series 2006 System Revenue Refunding Bonds, and the Series 2007 System Revenue Bonds. On September 25, 2008, the ADOT issued $181.050 million of Highway Revenue Bonds, Series 2008B to finance portions of the ADOT’s five-year capital program and pay the costs of issuance. The Series 2008B Bonds were issued as senior lien bonds and mature from July 1, 2023 through July 1, 2033. Net proceeds totaled $187.471 million (after receipt of $7.550 million reoffering premium and payment of $1.130 million in underwriting fees and issuance costs). The Bonds were rated AAA and Aa1 by Standard & Poor’s Ratings Services and Moody’s Investors Service, respectively. In November of 2008, the ASU issued $104.100 million in senior lien bonds to fund the (previous) construction of the Polytechnic Academic Complex. The bonds have a 20 year maturity at an interest rate of 5.89%. On November 14, 2008, the SFB, through The Bank of New York Mellon Trust Company, NA (BNY), issued COPs Series 2008 for $580.035 million. The 2008 COPs include $430.835 million of serial certificates with interest rates ranging from 4.00% to 5.75% and maturity dates ranging from 2011 to 2024. The 2008 COPs also include two term certificates consisting of $89.655 million, with an interest rate of 5.13% due September 1, 2021, and $59.545 million, with an interest rate of 5.25% due September 1, 2023. The 2008 COP certificates maturing on or after September 1, 2019 are subject to optional prepayment, prior to maturity, without premium. The 2008 COP term certificates maturing on September 1, 2021 and September 1, 2023 are subject to mandatory prepayment without premium. The State realized net proceeds of $581.000 million after receipt of $11.960 million net original issue premium, deposit to BNY Certificate Account of $8.096 million for capitalized interest, and payment of $2.899 million of issuance costs, including underwriters’ discount. The 2008 COPs are being issued to: (i) finance the costs of acquiring leasehold interests in school sites and certain school facilities, which will be subleased to various schools districts within the State, as well as the costs of other new school facilities, (ii) pay capitalized interest with respect to the 2008 COPs, and (iii) pay the costs of issuance. On April 7, 2009, the ASU issued System Revenue Bonds, Series 2009A (2009A Bonds) for $36.250 million. The 2009A Bonds include $36.250 million of serial bonds with interest rates ranging from 2.00% to 5.00% and maturity dates ranging from 2011 to 2030. The 2009A Bonds maturing on or before July 1, 2019 are not subject to optional redemption prior to their stated maturities. The 2009A Bonds maturing on or after July 1, 2020 are subject to redemption at the option of the ASU on July 1, 2019, and on any date thereafter, at a redemption price equal to principal plus accrued interest to the redemption date, without premium. The ASU realized net proceeds of $37.000 million, after receipt of $1.117 million net original issue premium and payment of $367 thousand for bond issuance costs, including underwriters’ discount. The 2009A Bonds are being issued to acquire, construct, equip, and improve various projects at the ASU and pay the costs of issuance. - 116 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 On April 15, 2009 through April 27, 2009, May 13, 2009 through May 20, 2009, and May 22, 2009 through May 26, 2009, pursuant to ARS §35-185.01 and §35-185.02, the State Treasurer issued Treasurer’s Warrant Notes (TWNs) in lieu of immediate redemption of warrants presented to the State Treasurer for payment of authorized General Fund expenditures. TWNs are issued only in the event the State Treasurer has insufficient funds to redeem warrants presented for payment of authorized expenditures of the State’s General Fund. TWNs are issued daily depending on cash flow needs, and are redeemed the next business day. Any time TWNs are outstanding, all monies which would normally be deposited into the State General Fund, except amounts sufficient to pay constitutional officers of the State, shall be deposited into the TWN Redemption Fund to redeem outstanding TWNs. At May 26, 2009, the outstanding balance of the TWNs was approximately $10.629 million. On April 23, 2009, the ADOT issued Grant Anticipation Notes Series 2009A (2009A GANs) for $55.420 million, with interest rates ranging from 2.50% to 5.00% and maturity dates ranging from 2014 to 2017. The 2009A GANs were issued at a premium. The 2009A GANs are not subject to redemption prior to their stated maturity. Approximately $62.000 million of the proceeds from the issuance of the 2009A 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 2009A 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 2009A GANs. On April 28, 2009, the U of A issued System Revenue Bonds, Series 2009A for $202.370 million to finance the Sixth Street Residence Halls and the Residence Life Building Renewal Phase 3 & 4, including capitalized interest. Subsequent to June 30, 2008, world markets have continued to experience significant losses due to worldwide capital market and economic uncertainty. As a result, the ASRS investments have declined by approximately 26% subsequent to June 30, 2008 through November 18, 2008, the date of the ASRS’ separately issued Independent Auditor’s Report. A sustained loss of that magnitude will have the effect of reducing the July 1, 2009 actuarially determined funded status of the ASRS and significantly reducing the market value funded status of the ASRS for the same period. The overall result will have the effect of increasing contribution rates effective July 1, 2010. 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. 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: • Unrestricted net assets include assets and contributions that are not restricted by donors or for which such restrictions have expired. - 117 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 3. • 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 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. - 118 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 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 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 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, 2008, uninsured, uncollateralized deposits included in cash and cash equivalents were approximately $13.709 million. 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 UMC does not have a formal policy regarding custodial credit risk for investments. The investments of the UMC are uninsured, unregistered, and held by brokers in the UMC’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 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, 2008 (expressed in thousands): Investment Type Corporate asset backed securities Corporate collateralized mortgage obligations Corporate notes Guaranteed investment contracts Money market mutual funds Repurchase agreements U.S. Agency Securities U.S. Agency Mortgage Backed Securities U.S. Treasury Securities Total Fair Value $ 15,616 1,489 63,165 97,100 5,239 33,132 42,867 28,353 5,017 Investment Maturities (in years) Less than 1 1-5 6-10 More than 10 $ 15,616 $ $ - $ 1,489 63,165 13,577 83,523 5,239 33,132 42,867 28,353 5,017 - $ $ 291,978 165,036 $ 13,577 $ 83,523 $ 29,842 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, 2008 (expressed in thousands): - 119 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 Investment Type Commercial paper Corporate fixed income Guaranteed investment contracts Money market mutual funds Structured notes U.S. Treasury Securities Total Fair Value $ 15,615 608 4,243 2,314 23,355 77,841 Less than 1 $ 15,615 2,314 77,841 $ $ 123,976 Investment Maturities (in years) 1-5 6-10 More than 10 $ - $ $ 608 4,243 23,355 - 95,770 $ 23,963 $ - $ 4,243 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, 2008 (expressed in thousands): Investment Type Corporate securities Guaranteed investment contracts Money market mutual funds Repurchase agreements U.S. Agency Securities Total Fair Value $ 80,270 97,100 5,239 33,132 71,220 $ 286,961 AAA 25,953 97,100 33,132 46,380 $ 202,565 $ AA $ 21,071 $ 21,071 A $ 33,246 $ 33,246 A1 $ 24,839 $ 24,839 Not Rated $ 5,239 1 $ 5,240 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, 2008 (expressed in thousands): Investment Type Alternative investments Commercial paper Corporate fixed income Guaranteed investment contracts Managed futures Money market mutual funds Structured notes Other Total e. Fair Value $ 2,208 15,615 608 4,243 26,600 2,314 23,355 19,660 $ 94,603 AAA $ $ 608 608 AA $ 4,243 18,237 $ 22,480 A $ $ 5,118 5,118 Not Rated $ 2,208 15,615 26,600 2,314 19,660 $ 66,397 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, 2008, an investment in Bayerische Landesbank (fair value of $40.586 million) was approximately 13.90% of the WIFA’s total investments, an investment in AIG Matched Funding Corp. (fair value of $25.153 million) was approximately 8.61% of the WIFA’s total investments, an investment in Royal Bank of Canada (fair value $15.158 million) was approximately 5.19% of the WIFA’s total investments, and an investment in DEPFA Bank (fair value $16.205 million) was approximately 5.55% of the WIFA’s total investments. - 120 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 f. Foreign Currency Risk The UMC’s investment policy permits it to invest a portion of its holdings in international equities, alternative, and managed future investments. The UMC’s current holdings in international securities totaled approximately $40.156 million, or 31.77% of total investments not held by trustee. The following table summarizes the UMC’s foreign currency risk as of June 30, 2008 (expressed in thousands): Currency Australian Dollar Bermuda Dollar Brazil Real British Pound Sterling Canadian Dollar Cayman Islands Dollar Chilean Peso Chinese Yuan Danish Krone Euro Hong Kong Dollar Indian Rupee Indonesian Rupiah Japanese Yen Malaysian Ringgit Netherlands Antilian Guilder New Taiwan Dollar New Zealand Dollar Philippine Peso Russian Ruble Singapore Dollar South African Rand South Korean Won Swedish Krona Swiss Franc Thailand Baht Other Total Foreign Currency Risk by Investment Type at Fair Value (Expressed in Thousands) Fixed Income Equities Total $ $ 1,638 $ 1,638 320 320 950 950 1 5,185 5,186 1,779 1,779 260 260 59 59 1,260 1,218 2,478 143 143 3,626 12,633 16,259 460 460 18 18 178 178 1 5,883 5,884 46 46 100 100 227 227 47 47 12 12 529 529 368 368 135 135 315 315 143 143 1,716 1,716 41 41 474 391 865 $ 5,362 $ 34,794 $ 40,156 - 121 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 2. Universities-Affiliated Component Units a. Investment Summary Investments of the Universities-affiliated component units include the following amounts at June 30, 2008. 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 REIT fund, real estate, and timber partnerships Absolute return limited partnerships and funds Other investments Total Investments b. ASU Foundation $ 52,023 291,172 91,290 62,970 $ 497,455 ASU Foundation Investments Held in Trust $ 610 51,462 13,401 2,708 $ 68,181 U of A Foundation $ 70,646 132,117 20,470 22,473 121,501 26,799 $ 394,006 NAU Foundation $ 18,867 14,804 29,279 9,207 $ 72,157 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. 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 2008 are as follows (expressed in thousands): Clean Water Fund Drinking Water Fund Total Beginning Balance $ 462,232 220,143 $ 682,375 Increases $ 171,853 93,002 $ 264,855 Decreases $ (33,360) (16,107) $ (49,467) Ending Balance $ 600,725 297,038 $ 897,763 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. Unconditional promises as of June 30, 2008 include the following (expressed in thousands): - 122 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 Gross pledges receivable Present value discount Allowance for uncollectible pledges Net Pledges Receivable ASU Foundation $ 170,905 (27,200) (6,150) $ 137,555 Sun Angel Foundation $ 11,043 (1,070) $ 9,973 The discount rates for the ASU Foundation's pledges receivable range from 3.80% to 10.90%, while the Sun Angel Foundation uses a discount rate of 5.14%. E. DIRECT FINANCING LEASE AGREEMENTS 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 $28.220 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 on the Series 2004 Bonds, as well as all fees and expenses 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 2008, the ASU remitted payments totaling $1.800 million which is recorded as rental revenue in the accompanying financial statements. 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 interest rate in effect at June 30, 2008 was 10%. The average interest rate for fiscal year 2007 and 2008 was 4.34% and 4.82%, respectively. Lease payments commenced once the Capitalized Interest Accounts had been fully utilized, which was 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 Building facility. 3. NACFFC On May 19, 2005, the NAU entered into a lease purchase agreement with the NACFFC. During the 28 year lease term, the NAU will make lease payments on two apartment style student housing complexes, Pine Ridge Village and McKay Village. The NACFFC recorded a sales-type lease receivable of $13.225 million in fiscal year 2005 for the Pine Ridge complex. The agreement also provided for the NAU's lease purchase agreement of the McKay Village complex for $22.685 million in fiscal year 2007. Upon expiration of the lease, the real property will become the sole property of the NAU without further cost. On September 1, 2006, the NAU entered into a lease purchase agreement with the NACFFC. During the 30 year lease term, the agreement provides for the NAU lease purchase of the convention center/parking garage complex for $12.400 million in fiscal year 2008. Upon expiration of the lease, the real property will become the sole property of the NAU without further cost. - 123 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 F. CAPITAL ASSETS Capital asset activity for the UMC for the fiscal year ended June 30, 2008 was as follows (expressed in thousands): University Medical Center Beginning Balance Non-depreciable capital assets: Land Construction in progress Total Non-depreciable Capital Assets $ 5,617 24,563 30,180 Additions $ Adjustments & Reclassifications Retirements 2,372 52,679 55,051 $ - $ 19 (20,831) (20,812) Ending Balance $ 8,008 56,411 64,419 Depreciable capital assets: Buildings Improvements other than buildings Equipment Total Depreciable Capital Assets 184,848 791 133,633 319,272 6,671 56 12,612 19,339 (56) (4,277) (4,333) 19,043 (19) 1,788 20,812 210,562 772 143,756 355,090 Less accumulated depreciation for: Buildings Improvements other than buildings Equipment Total Accumulated Depreciation (104,160) (348) (99,959) (204,467) (8,621) (56) (14,267) (22,944) 56 4,140 4,196 - (112,781) (348) (110,086) (223,215) 114,805 (3,605) (137) 20,812 131,875 Total Depreciable Capital Assets, Net Total UMC Capital Assets, Net $ 144,985 $ 51,446 $ (137) $ - $ 196,294 Capital assets for the Universities-affiliated component units for the fiscal year ended June 30, 2008 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 $ 17,397 7,084 24,481 (3,088) $ 21,393 ACFFC 187,954 39,750 15,359 661 243,724 (25,388) $ 218,336 $ 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. On April 1, 2008, the WIFA issued $238.710 million of Water Quality Revenue Bonds, Series 2008A (2008A Bonds). The 2008A Bonds include $238.710 million of serial bonds with interest rates ranging from 3.00% to 5.00% and maturity dates ranging from October 1, 2009 to October 1, 2028. The 2008A Bonds maturing on or after October 1, 2019 are subject to optional redemption without premium on or after October 1, 2018. The 2008A Bonds were sold with net original issue premium of $19.039 million. The WIFA realized net proceeds of $240.000 million after payment of $1.544 million for underwriters’ discounts and issuance costs, and deposit to a debt service reserve fund of $16.205 million. The net proceeds from the 2008A - 124 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 Bonds are being used to fund certain loans by the WIFA to finance water quality projects and to reimburse the WIFA for monies previously loaned for those purposes. 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, 2008 totaled $91.215 million. The $6.926 million deferred amount on retirement of bonds is being amortized over the lives of the defeased bonds on a straightline basis. The amortization for the year ended June 30, 2008 is $554 thousand. 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, 2008 is $2.484 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, 2008 is $258 thousand. b. University Medical Center The UMC is subject to certain financial covenants under the Master Trust Indenture (the Indenture). 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 $15.882 million at June 30, 2008, 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 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. - 125 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 Summary of Revenue Bonds The following schedule summarizes revenue bonds outstanding at June 30, 2008 (expressed in thousands): Revenue Bonds Outstanding Component Units: Water Infrastructure Finance Authority University Medical Center Arizona Power Authority Dates Issued Maturity Dates Interest Rates 1995-2008 1993-2006 2001-2004 2009-2029 2009-2036 2009-2018 2.00-6.10% 4.82-5.53% 5.00-5.25% Outstanding Balance at June 30, 2008 $ 770,260 229,130 49,015 Principal and interest debt service payments on revenue bonds outstanding at June 30, 2008 are as follows (expressed in thousands): Fiscal Year 2009 2010 2011 2012 2013 2014-2018 2019-2023 2024-2028 2029 Total Annual Debt Service Water Infrastructure Finance Authority Principal Interest Total $ 27,420 29,095 31,520 39,455 37,060 210,965 231,480 151,765 11,500 $ 770,260 $ 35,623 35,327 33,995 32,386 30,575 123,414 69,050 17,230 288 $ 377,888 Fiscal Year 2009 2010 2011 2012 2013 2014-2018 Total $ $ Annual Debt Service University Medical Center Principal Interest Fiscal Year 63,043 64,422 65,515 71,841 67,635 334,379 300,530 168,995 11,788 1,148,148 2009 2010 2011 2012 2013 2014-2018 2019-2023 2024-2028 2029-2033 2034-2036 Total $ 4,040 4,145 4,295 4,515 4,745 27,620 35,310 45,065 57,515 41,880 $ 229,130 Annual Debt Service Arizona Power Authority Principal Interest $ 3,450 3,815 4,220 4,585 4,810 28,135 $ 49,015 - 126 - $ 2,447 2,265 2,065 1,844 1,603 3,844 $ 14,068 Total $ $ 5,897 6,080 6,285 6,429 6,413 31,979 63,083 $ 11,590 11,390 11,186 10,973 10,748 49,947 42,424 32,901 20,747 5,253 $ 207,159 Total $ $ 15,630 15,535 15,481 15,488 15,493 77,567 77,734 77,966 78,262 47,133 436,289 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 d. Changes in Long-Term Obligations The following is a summary of changes in long-term obligations for the component units (expressed in thousands): Balance July 1, 2007 Increases Decreases Balance June 30, 2008 Due Within One Year Due Thereafter $ 557,450 35,244 (7,480) 585,214 $ 238,710 19,039 257,749 $ (25,900) (2,484) 554 (27,830) $ 770,260 51,799 (6,926) 815,133 $ 27,420 27,420 $ 742,840 51,799 (6,926) 787,713 46 46 69 69 (50) (50) 65 65 65 65 - Total Long-term Obligations $ 585,260 $ 257,818 $ (27,880) $ 815,198 $ 27,485 $ 787,713 University Medical Center: Long-term Debt: Revenue bonds Revenue bond premium and discounts Total Long-term Debt $ 232,966 (1,210) 231,756 $ Water Infrastructure Finance Authority: Long-term Debt: Revenue bonds Revenue bond premium Deferred amounts, net Total Long-term Debt Other Long-term Liabilities: Compensated absences Total Other Long-term Liabilities 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 11,846 1,078 12,924 $ 244,680 $ Other Long-term Liabilities: Compensated absences Total Other Long-term Liabilities Total Long-term Obligations 52,135 2,115 (1,442) 52,808 52,889 $ 6,721 4,776 11,497 $ $ 81 81 $ 190 190 11,687 $ - $ 36 36 $ 36 - 127 - (4,026) (52) (4,078) $ 229,130 (1,262) 227,868 (5,722) (1,810) (7,532) (11,610) (3,120) (341) 232 (3,229) 4,040 4,040 $ 225,090 (1,262) 223,828 12,845 4,044 16,889 6,720 6,720 6,125 4,044 10,169 $ 244,757 $ 10,760 $ 233,997 $ $ (50) (50) $ (3,279) 49,015 1,774 (1,210) 49,579 $ 67 67 $ 49,646 3,450 3,450 $ 67 67 $ 3,517 45,565 1,774 (1,210) 46,129 $ 46,129 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 2. Universities-Affiliated Component Units A summary of bonds payable as of June 30, 2008 include the following (expressed in thousands): Final Maturity Amount ASU Foundation: Series 2004A Variable Rate Revenue Bonds 2034 $ 22,420 Series 2004B Variable Rate Revenue Bonds 2022 10,835 Series 2003 Lease Revenue Term Bonds 2034 47,020 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 2004A Variable Rate Demand Lease Revenue Bonds 2034 20,175 Series 2004B Variable Rate Demand Lease Revenue Bonds 2034 14,825 Series 2004 Variable Rate Demand Revenue Bonds 2030 51,605 ACFFC: Series 2003 Serial and Term Bonds 2035 13,305 Series 2002 Bonds 2018 26,470 Series 2000 Serial and Term Bonds 2032 10,265 Unamortized bond premium 839 Downtown Phoenix Student Housing: Series 2007B Serial Bonds 2012 785 Series 2007 Serial Bonds 2042 9,080 Series 2007 Tax-Exempt Bonds 2042 119,039 Unamortized Bond Discount (1,294) NACFFC: Series 2008 Refunding Bonds 2033 36,780 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 ASU Foundation 2009 1,723 ACFFC $ 3,060 $ NACFFC - $ 620 2010 1,799 5,410 700 785 2011 1,875 6,025 755 850 2012 1,988 6,615 530 915 2013 1,755 7,380 710 985 Thereafter 73,935 270,044 124,915 45,025 83,075 $ 298,534 Total H. $ Downtown Phoenix Student Housing $ $ 127,610 $ 49,180 ACCOUNTING CHANGES AND CORRECTION OF ERRORS Net Assets for the Universities-affiliated component units have been restated as follows (expressed in thousands): Restatement of Net Assets Net assets, June 30, 2007, as previously reported Change in application of an accounting principle Prior year correction of errors Unrestricted Temporarily Restricted Permanently Restricted $ 76,530 (654) 114 $ 398,173 119 $ 653,720 - $ 1,128,423 (654) 233 Net assets, July 1, 2007, as restated $ 75,990 $ 398,292 $ 653,720 $ 1,128,002 - 128 - Total STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2008 The accompanying financial information for fiscal year 2007 has been restated for the Mesa Student Housing, LLC and the ASU Alumni Association (Association). The restatement for the Mesa Student Housing, LLC reflects management's change in method of depreciation of the leasehold improvements to the terms of the underlying lease, whereas the assets had been previously depreciated over 40 years in prior years. The required adjustments have been reflected as prior period adjustments in the financial statements for the year ended June 30, 2008. The net effect to beginning accumulated depreciation and unrestricted net assets was a change of $654 thousand. Also, during fiscal year 2008, the Association’s management reviewed its membership agreements and accounting policy for membership dues. Upon this review, the Association's management determined that, based upon the level of tangible benefits provided to its members, the Association's membership dues meet the definition of contributions as the dues represent voluntary nonreciprocal transfers of assets from its members to the Association. In conformity with SFAS No. 116, contributions should be recognized as revenues or gains in the period received or receivable. In previous years, the membership dues were accounted for as exchange transactions. As a result of the SFAS No. 116 reinterpretation, the temporarily restricted and unrestricted net asset balances as of July 1, 2007 were restated. The prior period adjustment resulted in increases in unrestricted net assets of $114 thousand and temporarily restricted net assets of $119 thousand as of July 1, 2007. I. CONDUIT DEBT During the year ended June 30, 2008, the Greater Arizona Development Authority (GADA) issued $26.505 million of Bonds, Series 2007B for public infrastructure projects in the communities of the City of Cottonwood, the City of El Mirage, the City of Wilcox, Apache County, and the Three Points Fire District. During the year ended June 30, 2008, the GADA issued $27.760 million of Bonds, Series 2008A for public infrastructure projects in the communities of the City of Williams, Lake Havasu City, the City of Safford, the City of Show Low, Douglas, the Picture Rocks Fire District, Pinal County, the Rio Rico Fire District, and Thatcher. The GADA’s bond structure allows it to lower borrowing costs for Arizona’s communities by issuing and selling bonds tax-exempt 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, which is held by the State Treasurer. Some borrowers also have separate, additional reserve funds, 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, 2008, the remaining balance in the appropriations account was $19.174 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 enforceable against the State. The only exposure to the State is related to the restricted net assets of $8.800 million in the Pledged Collateral Reserve Fund. As such, the Series 2007B and 2008A bonds do not constitute a legal debt of the State and are not enforceable against the State. At June 30, 2008, the total outstanding face value of all bonds issued by the GADA was $352.085 million. J. 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 $28.780 million for the year ended June 30, 2008. At June 30, 2008, future commitments under mission support agreements totaled approximately $13.500 million, payable through June 30, 2013. 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 $9.970 million for the year ended June 30, 2008. This amount is included in other operating revenue in the accompanying combined financial statements. - 129 - REQUIRED SUPPLEMENTARY INFORMATION REQUIRED SUPPLEMENTARY INFORMATION STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2008 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) GENERAL FUND General Accounting Office Assistant Attorney General Salary Adjustments 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 Relief General Relief FY06 - 07 Health Insurance Adjustments HR Pro Rata Adjustments LP and PLTO Adjustments 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 Rent Adjustments Retirement Adjustments Risk Management Adjustments Salary Adjustments Telecommunications Adjustments Woolsey Flood District Department of Administration Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Arizona Financial Information System Building Renewal COSF FY00 - 01 Building Renewal FY05 - 06 Building Renewal FY06 - 07 Building Renewal FY06 - 07 Building Renewal FY07 - 08 Cash Transfer to General Fund $ 2,595,800 1,060,600 423,800 133,400 510,100 11,204,000 591,200 1,505,700 3,198,900 797,600 703,900 924,800 4,669,700 13,146,500 4,305,200 1,372,400 0 0 20,245,000 242,100 995,100 0 8,401,400 3,334,600 620,500 5,370,400 57,528,300 4,196,900 4,412,300 19,593,500 6,052,000 4,820,400 5,722,700 2,801,000 16,000,000 1,753,000 68,755,000 5,509,800 0 0 0 0 0 1,032,400 10,186 408,017 2,594,259 2,625,144 7,257,100 0 The Notes to Required Supplementary Information are an integral part of this schedule. - 133 - FINAL BUDGET (Appropriations) $ 5,300 1,060,600 423,800 133,400 510,100 11,204,000 591,200 1,505,700 3,198,900 797,600 703,900 924,800 4,669,700 13,146,500 4,305,200 1,372,400 179,821 0 35,600 0 3,200 4,000,000 8,401,400 3,334,600 620,500 5,370,400 57,528,300 4,196,900 4,412,300 19,593,500 6,052,000 4,820,400 5,722,700 10,900 481,200 300 0 0 43,626 127,174 86,755 128,527 52,305 1,115,200 10,186 408,017 2,534,417 2,625,144 6,382,750 4,170,200 ACTUAL EXPENDITURE AMOUNTS $ 0 1,060,600 423,800 133,400 510,100 11,204,000 591,200 1,505,700 3,198,900 797,600 703,900 924,800 4,669,700 13,146,500 4,305,200 1,372,400 179,821 (16,811) 0 0 0 4,000,000 8,401,400 3,334,600 620,500 5,370,400 57,528,300 4,196,900 4,412,300 19,593,500 6,052,000 4,820,400 5,722,700 0 0 0 0 0 43,625 127,174 86,755 128,527 52,305 1,039,613 0 370,141 2,330,062 1,192,922 1,572,762 4,170,200 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2008 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Classification Pilot Program FY93 - 94 County Attorneys' Immigration Enforcement DJC HVAC and Electrical Renovations ENSCO HB1464 Personnel Reform FY98 - 99 HRIS Certificate of Participation Old Health Laboratory Renovation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund PLTO 1 Backfill Agency Relocations FY01 - 02 PLTO 1 Backfill Agency Relocations FY02 - 03 PLTO 1 Backfill Space Renovations FY01 - 02 PLTO 1 Backfill Space Renovations FY02 - 03 PLTO 1 Backfill Space Renovations FY02 - 03 PLTO 1 Project Management FY01 - 02 PLTO 1 Project Management FY02 - 03 PLTO 1 Project Management FY03 - 04 Prison Cell Locks/Door Replacement Prison Cell Locks/Door Replacement FY06 - 07 Relocation Relocation FY00 - 01 Relocation FY01 - 02 Relocation FY02 - 03 Relocation FY06 - 07 Relocation FY99 - 00 State Boards Lump Sum Appropriation State Surplus Property Sales Proceeds Statewide Telecommunications Mgmt Contract Lease Pymt Utilities Utilities Utilities Supplemental Radiation Regulatory Agency Administrative Adjustments General Fund Transfer to NEMF - SB 1037 Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Office of Equal Opportunity Operating Lump Sum Appropriation Attorney General Administrative Adjustments Administrative Adjustments Crane Elementary School Case FY03 - 04 HB2620 Cash Transfer to General Fund Legal Arizona Workers Act Military Installation/Planning FY05 - 06 Military Installation/Planning FY06 - 07 The Notes to Required Supplementary Information are an integral part of this schedule. - 134 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 122,454 0 885,000 7,289,400 273,045 4,239,100 2,207,000 20,250,200 5,503,700 13,761,200 1,222,100 429,600 46,600 0 0 0 0 4 243,490 847 348,161 106,402 1 55,659 144,694 5,200,000 5,102,162 60,000 60,000 59,026 59,775 60,000 46,526 260,000 3,000,000 851,800 625,700 5,733,800 1,466,100 122,454 2,430,000 885,000 7,289,400 273,045 4,239,100 1,207,000 19,489,400 5,606,800 14,103,500 1,262,600 451,700 46,600 108,900 8,000 9,700 2,200 4 243,490 847 348,161 106,402 1 55,659 144,694 3,200,000 5,102,162 60,000 60,000 59,026 59,775 60,000 46,526 284,600 3,000,000 851,800 625,700 5,733,800 1,466,100 0 2,430,000 309,991 7,289,400 0 4,239,100 0 18,899,371 4,895,704 13,559,453 1,205,488 151,019 46,600 108,900 8,000 9,700 2,200 0 0 0 0 0 0 0 0 1,274,868 883,600 149 0 0 1,625 26,617 0 263,914 1,504,053 851,739 625,700 5,733,800 1,346,252 0 0 1,593,900 0 4,790 592,241 1,570,900 4,300 4,790 592,200 1,548,574 4,300 245,200 249,200 249,200 0 0 22,055 0 0 2 37,037 278,150 13,461 22,055 158,400 100,000 2 37,037 278,150 13,461 1,066 158,400 3,997 0 37,037 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2008 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Military Installation/Planning FY07 - 08 Operating Lump Sum Appropriation Operating Lump Sum Appropriation Property Tax Supplemental State Grand Jury Department of Agriculture Administrative Adjustments Agricultural Employment Relations Board Animal Damage Control Operating Lump Sum Appropriation Red Imported Fire Ant Arizona State University Biomedical Informatics Downtown Phoenix Campus Operating Lump Sum Appropriation - Main Campus Operating Lump Sum Appropriation - East Campus Operating Lump Sum Appropriation - West Campus Phx Biomedical Campus Schematic Design Research Infrastructure Lease Purch-Pymt-Polytechnic Research Infrastructure Lease-Purch Pymt Student and Faculty Retention 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 Operating Lump Sum Appropriation FY07 - 08 Procurement Study Department of Financial Institutions 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 Math and Science Teacher Initiative Operating Lump Sum Appropriation Student Financial Assistance Western Interstate Commission Office WICHE Student Subsidies Corporation Commission Administrative Adjustments HB2620 Cash Transfer to General Fund Operating Lump Sum Appropriation Operating Lump Sum Appropriation Railroad Warning Systems Court of Appeals Division I Administrative Adjustments Division I - Operating Lump Sum Appropriation The Notes to Required Supplementary Information are an integral part of this schedule. - 135 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 0 21,653,300 12,337,200 301 160,000 100,000 23,894,000 13,319,800 301 177,600 67,633 23,715,572 13,127,629 0 177,600 0 23,300 65,000 11,784,000 23,200 21,648 23,300 65,000 11,804,300 23,200 21,648 17,000 65,000 11,776,377 23,200 3,017,800 33,297,800 329,794,500 23,778,500 51,719,500 5,250,000 0 0 15,064,000 3,017,800 34,333,800 338,697,500 24,554,200 52,739,000 0 917,000 13,555,000 15,064,000 3,017,800 34,333,800 338,697,500 24,554,200 52,739,000 0 917,000 13,555,000 15,064,000 148,319 293,330 375,518 405,827 584,183 2,083,792 17,891,900 300,000 148,319 293,330 375,518 405,827 584,183 2,083,792 17,883,200 291,000 148,319 0 0 0 0 0 17,480,086 0 75,000 3,757,100 0 3,883,300 0 3,882,742 166,000 90,198 167,300 0 125,459 0 0 90,000 213,700 2,250,000 2,322,000 10,041,200 116,000 4,115,000 641 90,000 213,700 1,375,000 2,398,600 10,041,200 116,000 4,115,000 641 90,000 213,700 1,375,000 191,489 10,041,200 116,000 4,104,281 0 0 5,542,500 48,300 47,510 218 500 5,697,900 51,100 47,510 218 500 5,655,587 47,899 0 0 9,500,400 1,500 9,761,100 1,500 9,761,042 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2008 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) 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 Operating Expenditures All Other Personal Services All Other PS and ERE Cash Transfer to General Fund Correctional Officer PS and ERE County Jail Beds Electronic Monitoring of Sex Offenders Employee Related Expenditures Health Care All Other Operating Expenditures Health Care PS and ERE Non-Health Care All Other Operating Expenditures Non-Health Care All Other Operating Expenditures Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund 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 Federal Reed Act Grant 4050 ADM Finger Imaging ADM Finger Imaging ADM High Performance Bonus FY00 - 01 ADM Lease Purchase Equipment ADM Lease Purchase Equipment ADM Operating Lump Sum Appropriation ADM Operating Lump Sum Appropriation ADM Operating Lump Sum Appropriation ADM Public Assistance Collections ADM Statewide Cost Allocation Plan Fund ADM Workforce Investment Act - Operating Lump Sum Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Tri-agency Disaster Recovery Coolidge Environment Impact Study FY96 - 97 DACS - TANF Short-Term Crisis Services FY99 - 00 DACS Adult Services DACS Community and Emergency Services DACS Coordinated Homeless Program DACS Coordinated Homeless Program The Notes to Required Supplementary Information are an integral part of this schedule. - 136 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 0 1,091,900 12,302 1,131,800 12,302 811,380 4,229,000 4,321,700 4,319,033 0 0 798,900 94,374,186 0 389,675,991 866,200 634,331 303,600 70,083,700 47,738,023 180,000 113,274,200 0 0 23,827,000 52,478,300 87,299,400 9,910,588 0 831,045 95,198,130 800,000 426,727,681 825,600 634,331 324,355 68,183,700 52,697,689 180,000 108,751,900 0 6,000 19,390,100 52,959,500 66,079,600 9,910,588 (225,400) 328,253 95,181,520 800,000 426,698,781 679,229 538,106 123,284 66,019,432 52,644,850 180,000 107,213,154 (9,592) 6,000 19,351,486 51,108,308 65,377,738 659,600 162,000 16,600 259,200 459,400 276,600 21,489 1,138,000 661,000 32,766,600 5,015,200 1,127,000 250,900 1,000,000 0 0 0 0 0 0 0 0 271,500 4,948 2 19,277,700 5,424,900 1,155,400 1,649,500 751,719 167,900 17,300 259,200 461,293 127,500 21,489 1,138,000 661,000 33,874,039 5,105,800 1,148,000 258,700 1,000,000 260,000 10,316,543 4,705,916 16,325,301 8,879,472 15,686,543 271,500 7,728,426 271,500 0 2 19,277,700 5,424,900 1,155,400 1,649,500 751,719 150,094 3,431 0 461,293 99,655 0 1,138,000 376,050 33,870,139 5,091,335 949,208 174,410 0 0 10,316,543 4,705,916 16,325,301 8,879,472 15,686,543 271,500 7,728,426 271,500 0 0 16,771,983 4,836,820 1,141,264 1,484,885 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2008 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) DACS Coordinated Hunger Program DACS Coordinated Hunger Program DACS Domestic Violence Prevention DACS Domestic Violence Prevention DACS Grandparent Kinship Care DACS Hopi Assisted Living Center DACS Hopi Senior Center Kykotsmovi FY00 - 01 DACS Lifespan Respite Care Program DACS Marriage and Comm. Skills Prog Fund DACS Marriage Handbook FY00 - 01 DACS Marriage Skills Training FY00 - 01 DACS Navajo Nation Multipurpose Center DACS Navajo Nation Senior Centers DACS Navajo Senior Center DACS Navajo Senior Center - Bird Springs FY98 - 99 DACS Navajo Senior Center - Dilcon FY98 - 99 DACS Navajo Senior Center - White Cone FY98 - 99 DACS Operating Lump Sum Appropriation DACS Operating Lump Sum TANF DACS Serving Homeless Excess DACS Serving Homeless Excess DACS Tribal Senior Center - Navajo FY01 - 02 DACS Marriage and Communication Skills FY00 - 01 DACS-Navajo Nation Multipurpose Facility FY06 - 07 Day Care Subsidy Care TANF DBME Document Management DBME Eligibility System Upgrade (ASRP) DBME FLSA Supplemental - TANF DBME General Assistance FY07 - 08 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 DCSE Attorney General Legal Services DCSE Attorney General Legal Services DCSE Central Payment Processing DCSE Central Payment Processing DCSE County Participation DCSE Genetic Testing DCSE Genetic Testing DCSE Operating Lump Sum Appropriation DCSE Operating Lump Sum Appropriation DCYF Permanent Guardianship Subsidy DCYF Adoption Service Family Preservation Project DCYF Adoption Services - Academic Tutoring DCYF Adoption Services (DCFS) DCYF Adoption Services Family Preservation FY05 - 06 DCYF Adoption Services TANF DCYF Attorney General Legal Services DCYF Attorney General Legal Services DCYF Child Support Services TANF - SSBG DCYF Children Support Services 1,514,600 500,000 8,326,700 6,620,700 331,457 142,500 22,097 0 1,200,000 540 9,301 1,000,000 45,000 0 0 0 0 6,579,400 239,600 36,289 0 0 20,983 450,000 8,020,300 494,600 963,300 508,900 3,060,800 24,671,100 10,017,400 45,850,800 79,297,200 4,288,700 32,200 718,200 9,239,000 444,700 3,275,700 6,845,200 122,400 360,000 7,596,900 44,355,500 859,300 1,000,000 300,000 36,242,200 1,000,000 10,686,100 10,765,900 50,400 5,371,700 45,403,300 The Notes to Required Supplementary Information are an integral part of this schedule. - 137 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 1,514,600 500,000 8,326,700 6,620,700 331,457 142,500 0 249,924 950,000 540 9,301 1,000,000 45,000 350,000 65,000 30,000 30,000 6,827,232 247,500 36,485 169,946 46,351 20,983 450,000 53,320,300 494,478 85,000 858,900 2,130,800 26,620,267 11,728,300 85,200,800 33,997,200 4,365,168 17,200 818,119 9,672,500 444,700 3,375,700 8,045,200 122,400 360,000 7,719,508 50,874,200 859,300 1,000,000 0 37,362,667 1,000,000 11,886,100 12,190,468 52,200 5,371,700 40,803,300 1,480,955 376,234 7,126,972 5,985,303 331,457 142,500 0 51,162 950,000 0 0 1,000,000 0 205,241 0 0 0 6,822,432 218,599 35,486 169,939 0 0 0 49,699,401 494,478 0 508,900 1,979,917 26,620,267 11,578,300 84,969,295 33,984,038 3,859,876 14,773 818,119 8,596,969 444,700 2,146,452 6,707,953 122,400 158,520 7,719,508 44,145,914 644,475 289,476 0 37,362,667 0 11,886,100 12,190,468 200 3,956,198 40,803,300 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2008 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) DCYF Children Support Services DCYF Comprehensive Med and Dental (DCFS) DCYF CPS Appeals DCYF CPS Substance Abuse Treatment DCYF Education and Training Vouchers DCYF Education and Training Vouchers FY06 - 07 DCYF Emergency Placement DCYF Emergency Placement DCYF Emergency Placement TANF - SSBG DCYF Family Builders TANF (DCYJ) DCYF Foster Care Placement DCYF Foster Care Placement DCYF Foster Care Placement TANF - SSBG DCYF Healthy Families DCYF Healthy Families DCYF Homeless Youth Intervention DCYF Independent Living Maintenance DCYF Intensive Family Services DCYF Joint Substance Abuse Treatment DCYF Operating Lump Sum Appropriation DCYF Operating Lump Sum Appropriation DCYF Permanent Guardianship Subsidy DCYF Resident Placement TANF - SSBG DCYF Residential Placement DCYF Residential Placement DCYF Substance Abuse Treatment DCYF Substance Abuse Treatment DDD Arizona Training Program At Coolidge DDD Case Management DDD Children's Autism Intensive Behavior DDD Children's Autism Intensive-Toddlers 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 LTC Services DDD State Funded LTC Services DERS CCA Sliding Fee Scales TANF FY98 - 99 DERS Daycare Subsidy DERS Daycare Subsidy DERS Federal Reed Act Grant 4050 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 Summer Youth Employment and Training DERS Transitional Child Care DERS Vocational Rehabilitation Services DERS Workforce Investment Act Operating Lump Sum DERS Workforce Investment Act Programs 10,757,400 2,057,000 705,200 224,500 700,000 38,687 672,700 2,180,100 2,333,700 5,200,000 1,148,700 17,139,500 5,074,400 8,715,800 5,034,200 400,000 3,136,000 1,985,600 5,000,000 59,309,900 29,106,000 7,192,300 9,833,300 6,543,400 1,333,300 2,000,000 600,000 546,900 4,366,000 1,800,000 500,000 556,481 35,799,400 848,100 294,900 3,984,700 762,900 24,148,700 2,544,378 69,785,800 84,482,900 3,236,500 1,284,200 1,823,300 2,000,000 17,613,100 9,471,900 5,712,800 10,108,000 1,250,000 36,193,000 5,214,400 2,210,200 48,040,600 The Notes to Required Supplementary Information are an integral part of this schedule. - 138 - FINAL BUDGET (Appropriations) 23,515,700 2,057,000 732,097 224,500 375,000 (109,280) 672,700 2,180,100 2,333,700 5,200,000 2,190,400 21,739,500 5,074,400 5,715,800 5,034,200 400,000 3,136,000 1,985,600 5,000,000 61,372,911 31,444,200 6,492,300 9,833,300 6,543,400 1,333,300 2,000,000 600,000 81,482 4,531,153 0 500,000 556,481 35,870,199 848,100 174,900 3,865,785 2,962,900 24,152,800 2,544,378 73,785,800 39,182,900 3,236,500 784,200 1,425,200 2,000,000 17,387,600 9,775,435 5,897,400 10,508,800 1,250,000 32,193,000 4,714,400 2,022,600 48,040,600 ACTUAL EXPENDITURE AMOUNTS 17,551,761 2,057,000 732,097 224,500 329,241 (109,281) 654,959 2,180,100 2,333,700 5,181,458 2,018,679 21,579,195 4,862,908 5,715,800 5,034,200 367,650 3,136,000 1,985,600 4,241,793 61,372,911 27,895,548 6,308,072 9,833,300 6,543,400 1,301,990 1,835,800 600,000 77,494 4,531,153 0 205,281 508,607 34,451,341 0 153,657 3,865,785 2,921,746 22,064,496 120,644 68,370,623 38,751,417 0 735,812 1,425,200 57,839 15,845,824 9,720,620 4,271,838 10,443,474 1,250,000 29,727,999 4,714,400 0 33,066,709 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2008 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) DERS Workforce Investment Act-Discretionary DES Statewide Building Renewal FY92 - 93 HB2620 Cash Transfer to General Fund LTC Arizona Training Program-Coolidge LTC Arizona Training Program-Coolidge LTC Case Management LTC Case Management LTC Fee-For-Service and Reinsurance LTC Fee-For-Service and Reinsurance 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 Statewide Building Renewal FY06 - 07 Summer Youth Program FY00 - 01 Department of Juvenile Corrections Administrative Adjustments Building Renewal FY91 - 92 Building Renewal FY94 - 95 Operating Lump Sum Appropriation Operating Lump Sum Appropriation Department of Transportation Operating Lump Sum Appropriation Department of Education Accountability Measures FY00 - 01 Achievement Testing Additional State Aid to Schools Administrative Adjustments Adult Education Assistance AIMS Intervention; Dropout Prevention Alternative Teacher Development Program Arizona Government Education Fund Arizona Master Teacher Program Basic State Aid Entitlement Basic State Aid Base Level Increase Chemical Abuse Compensatory Instruction Fund Deposit Disabled Pupil Scholarships Displaced Pupils Choice Grant Program Employee Discipline and Risk Mgmt Techniques English Language Acquisition Services English Language Acquisition Services FY05 - 06 English Language Acquisition Services FY06 - 07 English Learner Classroom Bonus Fund FY02 - 03 English Learner Classroom Bonus Fund FY03 - 04 English Learner FTE FY02 - 03 English Learner FTE FY03 - 04 FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 3,614,000 20 0 16,344,600 5,421,400 12,742,700 37,703,200 1,237,600 3,669,000 189,667,600 562,266,000 4,444,200 13,475,700 38,561,000 113,636,900 2,184,400 10,772,100 31,951,700 0 0 32,446 3,614,000 0 25,000,000 17,513,200 5,690,699 13,261,339 36,185,400 1,237,600 9,669,000 203,268,878 610,285,700 4,486,384 18,315,300 38,585,118 98,520,000 2,184,400 12,446,505 36,891,400 355,000 25,000 0 2,633,973 0 25,000,000 15,876,947 5,690,699 13,261,339 32,740,325 1,237,600 5,195,262 203,268,878 565,283,951 4,486,384 17,561,041 38,585,118 97,001,835 2,184,400 12,446,505 31,892,016 355,000 25,000 0 0 39 3,794 77,945,300 2,682,500 255,190 39 0 80,353,700 2,682,500 255,190 0 0 79,764,326 2,337,239 82,900 84,600 75,995 50 7,900,200 359,013,100 0 4,468,900 5,550,000 1,000,000 0 3,000,000 3,804,249,700 0 819,900 10,000,000 2,500,000 2,500,000 0 4,964,500 928,537 4,605,441 3,113 0 2,389 2,634 The Notes to Required Supplementary Information are an integral part of this schedule. - 139 - 0 7,905,900 366,134,800 9,568,789 4,477,900 5,550,000 984,173 100,000 2,606,232 3,485,128,000 46,000,000 720,728 10,000,000 2,500,000 2,500,000 400,000 5,025,500 928,537 4,605,441 (3) (150,466) 0 0 0 7,905,900 366,134,800 9,568,789 4,477,900 5,550,000 984,173 100,000 2,606,232 3,395,435,835 46,000,000 717,604 10,000,000 0 0 399,998 5,025,500 928,537 1,341,279 (1,020) (150,466) 0 0 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2008 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) English Learner FTE FY04 - 05 English Learner Instruction FY02 - 03 English Learner Instruction FY03 - 04 English Learner Instruction FY04 - 05 English Learner Materials and Supplies FY02 - 03 English Learner Materials and Supplies FY03 - 04 English Learner Materials and Supplies FY04 - 05 English Learner Pilot English Learner Pilot English Learner Teacher English Learner Teacher English Learner Teacher Extended School Year Family Literacy Family Literacy Program FY98 - 99 Gifted Support Information Technology Math and Science Initiatives Non-Formula Programs-Operating '08 Non-Formula Programs-Operating '08 Operating Lump Sum - Administration Operating Lump Sum Appropriation Operating Lump Sum Appropriation Optional Performance Incentive Programs Other Funds Cash Transfer to General Fund Other State Aid to Districts '07 Parental Choice for Reading Success Physical Education Pilot Program Physical Education Pilot Program FY06 - 07 Reading First Initiative School Accountability School Finance Admin '07 School Safety Program School Safety Program FY00 - 01 School Safety Program FY02 - 03 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 Standards for Professional Development Design Teacher Certification Vocational Education Extended Year Department of Commerce Agriculture Preservation District Apprenticeship Services Office Arizona 21st Century Competitive Initiative Fund Commerce And Econ Development Commission Commerce And Econ Development Commission FY05 - 06 Greater Arizona Development Authority HB2620 Cash Transfer to General Fund International Trade Offices Military Base Economic Research Study Military Installation GF Transfer Military Installation Operating FY04 - 05 The Notes to Required Supplementary Information are an integral part of this schedule. - 140 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 645 294,672 8,953 1,007,407 690 213,317 203,922 26,799 342 4,499,979 2,350,741 115 500,000 1,009,100 1,373 3,380,100 2,493,700 2,500,000 1,123,100 212,000 6,330,500 685,800 371,900 120,000 0 983,900 1,000,000 110,000 449,379 0 39,400 2,133,400 6,722,700 2,044 67,484 131,489 581,600 35,235,500 19,446,300 11,400,500 150,000 1,746,600 600,000 645 (105) 0 (68,484) 0 0 (1,134) 0 0 4,341,094 19,786 (356,214) 500,000 928,275 0 3,260,257 2,493,700 1,871,543 989,499 217,700 6,672,187 438,869 383,600 0 23,000 983,900 1,000,000 85,832 449,379 664,139 39,400 1,989,008 6,728,300 0 67,484 131,489 581,600 35,237,700 18,372,049 11,467,200 0 1,782,200 138,443 645 (105) 0 (68,484) 0 0 (1,134) 0 0 897,122 19,786 (356,214) 499,976 928,275 0 3,260,257 2,493,700 2,250 989,499 217,700 6,670,855 314,768 326,821 0 23,000 686,005 975,000 85,832 426,606 664,139 39,400 1,989,008 6,103,579 0 67,484 123,661 581,600 35,237,700 18,372,049 11,467,200 0 1,782,200 39,104 26,747 179,200 0 0 22,447,000 2,000,000 0 1,330,500 0 0 24,830 26,747 188,800 25,000,000 25,000,000 22,447,000 931,000 1,300 997,200 50,000 4,540,000 0 0 188,421 25,000,000 25,000,000 7,634,998 931,000 1,300 799,765 0 4,540,000 0 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2008 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Military Installation Operating FY05 - 06 Military Installation Operating FY06 - 07 Military Installation Operating FY07 - 08 Motion Picture Development Motion Picture Production Tax Incentive Admin NAFTA Agreement Projects FY95 - 96 NAFTA Projects - Initial Phase FY95 - 96 Operating Lump Sum Appropriation Operating Lump Sum Appropriation Rural Economic Development State Board of Equalization Operating Lump Sum Appropriation Department of Environmental Quality Administrative Adjustments Air Quality Management and Analysis Aquifer Protection Permit Program Arizona Pollution Discharge Elimination Counties Travel Deduction Plan Drinking Water Regulation Program Drinking Water Revolving Loan Program Operating Lump Sum Appropriation Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Relief Bill Cash Transfer FY08 Surface Water Regulation Program Underground Water Regulation Program Waste Control and Management Water Infrastructure Finance Authority Water Supply Development Fund Game and Fish Department Wildlife Habitat Restoration Projects FY06 - 07 Arizona Geological Survey Administrative Adjustments Earth Fissure Maps Operating Lump Sum Appropriation Government Information Technology Agency Administrative Adjustments E-Health Initiative Operating Lump Sum Appropriation Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund SW Information Security & Privacy Office Governor's Office Administrative Adjustments Arizona - Sonora Study Border Volunteer Corps Emergency 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 The Notes to Required Supplementary Information are an integral part of this schedule. - 141 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 6,172 5,114 0 337,700 0 37,777 19,874 4,018,900 139,500 323,900 6,172 5,114 75,000 354,100 180,000 0 0 4,036,700 144,700 323,600 0 0 68,180 335,036 111,899 0 0 3,544,228 140,394 319,433 653,500 656,000 638,934 0 511,900 0 1,481,800 1,676,900 1,627,100 893,200 4,354,900 10,531,100 0 0 1,175,600 2,064,100 1,973,900 1,551,900 250,000 61,293 0 788,700 0 1,676,900 0 669,900 12,766,200 12,397,600 78,200 932 0 0 0 1,425,200 0 61,293 0 787,903 0 1,676,825 0 669,900 12,763,088 2,714,363 78,200 932 0 0 0 1,425,200 0 1,891,832 1,891,832 1,891,832 0 80,697 1,073,900 1,247 80,697 1,102,300 1,247 80,519 1,101,121 0 1,500,000 3,700,000 2,755,800 0 0 126,933 1,399,900 3,700,000 2,809,000 32,000 500,000 126,933 851,471 348,599 2,799,460 32,000 497,428 0 5,200 34,705 0 504 7,783 2,209,900 2,520 92,829 63,886 250,143 38,983 0 0 1,450,024 0 0 2,244,200 2,520 92,829 63,886 250,143 38,983 0 0 0 0 0 2,230,740 2,520 92,829 63,886 250,143 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2008 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Operating Lump Sum Appropriation FY07 - 08 Arizona Health Care Cost Containment System Administrative Adjustments Administrative Adjustments Administrative Adjustments Arizona 211 Phone System Board of Nursing Breast and Cervical Cancer Breast and Cervical Cancer Breast and Cervical Cancer Trmt Federal Admin FY01 - 02 Breast and Cervical Cancer Trmt Federal Prog FY01 - 02 Breast and Cervical Cancer Trmt State Prog Budget Neutrality Compliance Capitation Capitation Chip - Parents Chip - Services Claims Computer System Replacement Claims Computer System Replacement Critical Access Hospitals Critical Access Hospitals DES Eligibility DES Eligibility DES Eligibility System Upgrade DES Eligibility System Upgrade 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/Acute Dual Eligible Part D Copay Subsidy-LTC Fee for Service Fee for Service Graduate Medical Education Graduate Medical Education Healthcare Group Admin and Reinsurance Hospital Loan Residency Program Hospital Loan Residency Program - GF Indian Advisory Council Indian Advisory Council Kidscare Administration FY07 - 08 Long Term Care Board of Nursing Medical Clawback Payments Medical Clawback Payments - Acute Care Medical Clawback Payments - LTC Medicare Premiums Medicare Premiums Mental Health - Adults FY91 - 92 321,938 146,246 7,134,800 0 0 0 3,400,000 104,900 503,300 1,628,100 52,730 745,860 73 0 524,283,200 1,306,680,700 9,172,700 27,416,400 500,000 1,590,900 573,400 1,126,600 25,494,700 28,203,500 1,300,000 1,300,000 148,700 196,600 8,837,900 21,512,100 1,724,700 3,992,800 1,029,700 470,300 104,085,800 393,280,700 14,894,000 29,262,600 8,000,000 1,000,000 0 113,600 113,400 2,153,800 104,800 9,277,700 27,022,000 11,151,200 26,897,500 65,031,100 45,368 The Notes to Required Supplementary Information are an integral part of this schedule. - 142 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 321,938 146,246 7,274,500 321,938 (335,457) 6,621,096 58,159,258 123,374,544 44,846,915 1,279,400 104,900 253,300 798,100 52,730 745,860 0 7,026,800 555,841,177 1,365,701,600 7,902,700 26,601,000 0 0 573,400 1,126,600 30,966,700 30,820,700 100,000 100,000 154,000 203,800 8,837,923 21,512,100 2,224,700 5,368,300 2,640,000 949,000 90,085,800 344,780,700 13,394,000 29,262,600 7,250,000 0 (100,000) 116,600 116,300 2,867,500 104,800 9,277,700 26,734,557 11,151,200 26,947,500 65,031,100 45,368 58,159,258 123,374,544 44,846,915 1,260,262 104,800 239,737 744,323 0 0 0 7,026,800 553,831,898 1,361,521,414 7,783,190 26,562,743 0 0 573,400 1,125,400 30,966,700 27,423,400 94,889 55,589 111,094 129,327 0 4,202,300 2,018,057 4,847,220 2,602,098 870,445 90,085,800 342,208,464 0 0 7,250,000 0 (100,000) 107,811 102,846 2,745,112 104,800 9,277,700 26,734,556 9,947,540 26,936,248 64,817,968 0 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2008 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) New and Expanded Grad Medical Educ Program New and Expanded Grad Medical Educ Program Office Of Administrative Hearings Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY05 - 06 Proposition 204 - Capitation Proposition 204 - Capitation Proposition 204 - Capitation Proposition 204 - Capitation Proposition 204 - County Hold Harmless Proposition 204 - Fee-for-Service Proposition 204 - Reinsurance Proposition 204 Admin Oper 100% FPL Expansion Proposition 204 Admin Oper 100% FPL Expansion FY05 - 06 Proposition 204 Admin Oper 100% FPL Expansion Proposition 204 Fee-For-Service Proposition 204 Medicare Proposition 204 Pass Through Admin Proposition 204 Pass Through Admin Proposition 204 Pass Through Admin Proposition 204-Reinsurance Reinsurance Reinsurance Relief Bill Cash Transfer FY08 Rural Hospital Reimbursement Rural Hospital Reimbursement Temporary Medical Coverage Temporary Medical Coverage Ticket to Work Ticket to Work Office Of Administrative Hearings Operating Lump Sum Appropriation Operating Lump Sum Appropriation Arizona Historical Society Field Services and Grants Operating Lump Sum Appropriation Papago Park Museum Papago Park Museum House of Representatives Operating Lump Sum Appropriation FY00 - 01 Operating Lump Sum Appropriation FY01 - 02 Operating Lump Sum Appropriation FY02 - 03 Operating Lump Sum Appropriation FY03 - 04 Operating Lump Sum Appropriation FY04 - 05 Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Operating Lump Sum Appropriation FY07 - 08 Department of Health Services 90/91 Environmental Assess Phoenix Abstinence Funding Administrative Adjustments The Notes to Required Supplementary Information are an integral part of this schedule. - 143 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 8,000,000 8,000,000 269,700 27,568,700 133,949,500 40,196,900 965,380,300 0 147,411,200 61,455,100 667,884,700 92,004,100 4,825,600 35,529,200 36,917,200 5,490,600 0 5,539,100 140,007,400 18,906,600 19,696,500 16,400,500 2,683,100 72,523,800 36,475,800 71,656,700 0 4,100,900 8,057,200 8,350,000 1,976,400 2,713,300 5,330,300 8,000,000 8,000,000 271,300 28,763,700 133,949,500 39,056,800 965,380,300 0 162,031,000 61,455,100 753,731,200 114,004,100 4,825,600 33,529,200 15,917,200 5,678,000 0 4,717,500 134,537,400 19,376,600 16,664,700 16,137,300 2,683,100 26,523,800 40,678,243 68,871,700 15,833 4,100,900 8,057,200 9,575,900 1,976,400 2,068,300 4,105,300 7,041,465 3,505,176 211,724 28,335,316 133,949,500 36,478,480 908,026,145 (29) 155,966,524 57,773,983 752,519,376 114,004,100 0 32,311,365 13,863,344 5,160,253 (5) 4,598,086 131,668,493 19,276,716 16,662,033 14,222,233 2,683,100 24,590,801 29,039,689 66,922,067 15,833 4,100,900 8,057,200 7,946,645 1,975,387 2,060,459 4,094,045 1,213,900 14,500 1,284,500 14,500 1,284,500 14,500 80,000 2,339,900 1,978,900 193,200 71,439 2,357,661 2,001,100 193,200 71,439 2,357,661 2,001,100 193,200 587,324 425,313 842,055 593,819 1,012,781 1,901,541 2,004,484 13,854,800 587,324 425,313 842,055 593,819 1,012,781 1,901,541 2,004,484 13,855,200 145,129 0 0 0 3,113 0 6,742 12,152,113 8,849 1,500,000 0 0 1,500,000 28,286 0 1,109,149 28,286 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2008 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) 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 FY92 - 93 Arizona Statewide Immunization Information System Arnold v. Sarn Arnold v. Sarn Ash Condensate Receiver FY95 - 96 ASH Corrective Action Plan Supplemental FY04 - 05 Assurance and Licensure Assurance and Licensure Assurance and Licensure Assurance and Licensure Attorney General Legal Services Autism Research Breast and Cervical Cancer Screening Building Renewal FY91 - 92 Building Renewal FY96 - 97 Cash Transfer to General Fund Cash Transfer to General Fund Cash Transfer to General Fund Cash Transfer to General Fund Children BHS-Tobacco Litigation FY00 - 01 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 FY96 - 97 Community Health Centers Community Placement Treatment Community Placement Treatment Contract Compliance Contract Compliance County Nutrition Services County Prenatal Services Grant County Public Health County Tuberculosis Provider Care and Control Court Monitoring Crisis Intervention Training Grants Diabetes Prevention and Control Direct Grants Dual Eligible Part D Copay Subsidy Electronic Medical Records Health Start Hepatitis C Surveillance High Risk Perinatal Services Indirect Cost Fund Indirect Costs AHCCCS - CRS 0 0 0 105,200 33,000 21,517,000 42,274,900 1,125,000 3,000,000 3,140 503,200 27,500,000 9,823,600 4,700 398,060 9,692,800 805,100 331,100 902,600 394,900 2,400,000 1,345,500 3,548 30 0 0 0 0 1 9,351,800 116,973,100 229,819,400 3,587,000 11,655 10,464,900 5,574,100 1,130,700 2,461,100 4,835,400 330,300 1,148,500 200,000 1,410,500 197,500 250,000 400,000 460,300 802,600 300,000 226,600 397,800 4,980,600 7,763,300 0 The Notes to Required Supplementary Information are an integral part of this schedule. - 144 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 19,475 60,179 167,353 105,200 33,000 21,517,000 42,274,900 1,125,000 3,000,000 3,140 517,500 27,500,000 9,823,600 0 398,060 10,004,300 829,200 340,300 950,200 394,900 2,400,000 1,348,600 3,548 0 400,000 17,189,900 500,000 6,100,000 1 9,351,800 116,973,100 229,819,400 3,587,000 0 10,481,300 5,574,100 1,130,700 1,961,100 4,835,400 330,300 1,148,500 200,000 1,410,500 197,500 250,000 400,000 460,300 802,600 300,000 226,600 409,300 4,980,600 8,035,000 350,000 19,475 60,179 167,353 105,200 30,713 21,517,000 0 1,089,256 3,000,000 0 495,982 27,400,617 0 0 0 9,850,921 811,667 320,360 0 394,900 2,400,000 1,045,786 0 0 400,000 17,189,900 500,000 6,100,000 0 9,133,311 116,973,100 0 3,587,000 0 10,381,406 5,546,230 1,125,047 1,961,100 0 321,835 988,876 200,000 1,035,462 197,500 0 347,829 460,300 802,600 168,255 162,217 249,874 4,144,352 7,648,518 350,000 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2008 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Institutions for Mental Disease Institutions for Mental Disease Kidney Program Laboratory Services Loan Repayment Medicaid Special Exemption Payments Medicaid Special Exemption Payments Medicaid Special Exemption Payments Medicaid Special Exemption Payments BHS Medicare Clawback Payments Mental Health - Non-Title XIX Mental Health and Substance Abuse State Match for Title XIX Mental Health and Substance Abuse State Match for Title XIX Methamphetamine Prevention Services Non-Renal Disease Management Program 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 Osteoporosis Prevalence Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Poison Control Center Funding Prop 204 - Administration Prop 204 - Children's Behavioral Health Services Prop 204 - General Mental Health and Substance Abuse Prop 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 Reg of Hear Aid Dispensers, Audiologists, and SL Pathologists Reimbursement to Counties Relief Bill Cash Transfer FY08 Renal and Non-Renal Disease Management Renal Disease Management Program Rural Detoxification and Follow-up Services Rural Modular Dental Buildings Scorpion Anti-venom Senior Food Program Seriously Emotionally Handicapped Child Seriously Mentally Ill Non-Title XIX Seriously Mentally Ill State Match for Title XIX Seriously Mentally Ill State Match for Title XIX Sexually Violent Persons 4,813,200 3,454,500 50,500 4,227,700 100,000 459,300 902,400 12,293,600 6,257,200 9,771,900 2,447,300 31,879,100 62,633,500 130,000 100,000 13,764,400 50,143,600 4,450,100 3,704,100 5,599,700 4,842,200 2,103,300 4,857,700 1,000,000 1,578,100 201,942 0 0 0 925,000 2,130,200 1,550,300 29,575,900 54,532,000 4,404,600 3,045,900 58,108,400 107,140,100 62,243 67,900 0 468,000 16,667 1,950,000 200,000 150,000 600,000 500,000 30,691,900 57,425,700 112,825,400 11,269,100 The Notes to Required Supplementary Information are an integral part of this schedule. - 145 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 0 3,454,500 50,500 4,357,900 100,000 459,300 902,400 13,293,600 6,257,200 9,771,900 2,447,300 31,879,100 65,155,300 130,000 0 14,766,900 51,732,100 4,528,800 3,684,200 5,760,700 4,901,900 2,181,000 5,063,900 1,000,000 1,578,100 201,942 2,900 2,500 58,600 925,000 2,130,200 1,550,300 29,575,900 54,532,000 4,404,600 3,045,900 60,844,000 114,740,100 62,243 67,900 482 468,000 16,667 1,950,000 200,000 150,000 600,000 50,000 33,505,100 57,425,700 124,225,400 11,395,700 0 0 46,292 4,125,023 63,838 459,300 0 0 6,257,200 9,771,900 2,444,063 31,879,100 0 130,000 0 14,656,959 51,249,338 4,523,864 3,633,156 5,731,180 4,535,374 0 0 1,000,000 1,558,821 172,112 2,900 2,500 58,600 693,750 2,130,200 1,550,300 29,575,900 54,532,000 0 0 0 0 0 67,900 482 393,516 16,667 1,613,717 168,266 125,735 297,593 7,650 33,366,927 57,425,700 0 10,880,255 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2008 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) STD Control Subventions Substance Abuse Non-Title XIX TANF Prenatal Services FY99 - 00 Telemedicine Teratogen Program U of A Poison Control Center Funding Vaccines Valley Fever Vital Records - Archiving, Cust Svc, Ops Vital Records Electronic Systems Vital Records Maintenance Women's Services Youth Methamphetamine Prevention Program Arizona Commission on the Arts Community Service Projects Operating Lump Sum Appropriation Arizona Commission of Indian Affairs Administrative Adjustments Operating Lump Sum Appropriation Occupational Safety & Health Board 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 and Employee Rel Exp Personal Services and Employee Rel Exp Department of Insurance Managed Care and Dental Plan Oversight Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Arizona Criminal Justice Commission Administrative Adjustments Criminal Justice Information Systems Operating Lump Sum Appropriation Rural State Aid to County Attorneys Rural State Aid to Indigent Defense Joint Legislative Budget Committee Operating Lump Sum Appropriation FY06 - 07 Operating Lump Sum Appropriation FY07 - 08 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 Grants-in-Aid FY07 - 08 Historical Advisory Commission Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY01 - 02 Operating Lump Sum Appropriation FY03 - 04 Operating Lump Sum Appropriation FY04 - 05 Operating Lump Sum Appropriation FY05 - 06 The Notes to Required Supplementary Information are an integral part of this schedule. - 146 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 26,300 12,135,400 47,270 260,000 60,000 1,275,000 10,410,400 300,000 18,903 0 500,300 500,000 500,000 26,300 12,135,400 47,270 260,000 60,000 1,275,000 8,863,100 300,000 18,903 891,558 499,700 501,500 500,000 23,048 12,053,661 0 191,927 60,000 1,275,000 8,848,759 261,581 2,188 880,637 471,089 385,452 285,799 1,463,100 625,000 1,363,100 667,600 1,360,340 663,110 0 223,300 2,260 234,300 2,260 212,301 1,000 6,947 4,800 4,800 4,800 3,354 1,000 75 53 1,000 0 4,800 4,800 4,800 3,354 1,000 0 0 0 0 0 0 0 558 0 0 0 601,700 6,764,100 0 635,600 6,732,400 7,100 627,300 6,605,799 7,100 0 900,000 994,200 157,700 150,100 157,581 0 894,200 157,700 150,100 157,581 0 760,136 157,700 149,885 1,815,203 2,948,600 1,815,203 2,938,400 1,815,203 727,763 1,237 400 87,071 91,764 651,400 50,000 662,500 2,924 4 2,728 15 1,237 400 87,071 91,764 651,400 50,000 675,800 2,924 4 2,728 15 1,237 400 58,363 13,746 570,424 3,317 596,195 0 0 2,728 0 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2008 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Operating Lump Sum Appropriation FY06 - 07 Operating Lump Sum Appropriation FY06 - 07 Operating Lump Sum Appropriation FY07 - 08 Other Funds Cash Transfer to General Fund Statewide Radio Reading Service for the Blind Legislative Council Arizona Centennial Celebration Juvenile Study FY97 - 98 Ombudsman-Citizens Aid Office FY06 - 07 Ombudsman-Citizens Aid Office FY07 - 08 Ombudsman-Citizens Aid Office FY93 - 94 Ombudsman-Citizens Aid Office FY94 - 95 Ombudsman-Public Access Laws Operating Lump Sum Appropriation FY06 - 07 Operating Lump Sum Appropriation FY07 - 08 Operating Lump Sum Appropriation FY99 - 00 State Archives and History Building State Archives and History Building FY05 - 06 State Archives and History Building FY06 - 07 Land Department Administrative Adjustments CAP User Fees Community Protection Initiative Fund Due Diligence Fund Earth Fissure Maps Environmental County Grants Fire Suppression Operating Expenses In/Out of State Fire Costs Inmate Fire Crews Natural Resource Conservation Districts Operating Lump Sum Appropriation Department of Liquor Licenses and Control Improvement of Data Processing System FY05 - 06 Improvement of Data Processing System FY06 - 07 Operating Lump Sum Appropriation Law Enforcement Merit System Operating Lump Sum Appropriation Department of Emergency Management & Military Affairs 2007 Monsoons Arizona Pre-Suppression Wildfire Resources Arizona/Mexico International Border Security Aspen Fire Emergency Bellemont/Prescott Boilers FY02 - 03 Brins Wildfire Emergency Civil Air Patrol February 2005 Winter Storms and Flooding FY06 - 07 February 2005 Winter Storms and Flooding FY07 - 08 Forest Health Emergency - Pine Bark Beetle FY02 - 03 Forest Health Emergency - Pine Bark Beetle FY03 - 04 Glassy-Winged Sharpshooter Emergency Glassy-Winged Sharpshooter Emergency Guardsmen Tuition Reimbursement Hazard Materials Contingency Hazard Materials Contingency FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 363 76,877 6,787,900 0 97,000 363 76,877 6,785,300 4,800 97,000 353 76,877 6,778,517 4,800 97,000 2,450,000 19,520 3,942 593,000 43,000 95,169 104,885 735,039 4,983,100 886,420 8,000,000 7,764,890 15,000,000 2,450,000 19,520 3,942 593,000 43,000 95,169 104,885 735,039 4,935,500 886,420 6,000,000 7,764,890 15,000,000 0 0 3,942 465,098 0 0 104,885 73,304 4,833,987 0 0 7,764,345 12,564,859 0 1,268,600 0 500,000 182 250,000 2,653,900 0 974,300 430,000 17,121,700 51,212 1,143,600 993,200 500,000 182 200,000 2,850,200 2,000,000 1,208,400 390,000 16,307,600 51,212 1,143,600 993,200 0 0 200,000 2,844,401 2,000,000 1,189,945 390,000 16,295,074 1,250,000 1,110,966 3,534,100 0 1,110,966 3,487,900 0 135,796 3,464,471 74,200 76,900 76,855 0 35,789 124,677 679,880 8,724 6,960 54,200 631,223 0 12,341 45,879 361,685 1,567 1,446,000 0 4,344 The Notes to Required Supplementary Information are an integral part of this schedule. - 147 - 361,625 28,179 124,677 679,880 8,724 (11,097) 54,200 631,223 677,689 12,341 45,879 361,685 1,567 1,446,000 50,000 4,344 229,839 28,179 (3,990) 18,337 0 (11,097) 27,100 544,133 2,386 41 0 112,061 0 1,317,319 0 524 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2008 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) January 2008 Severe Precipitation La Paz County Summer Monsoon Emergency La Paz/Maricopa Counties Storm Emergency FY01 - 02 La Paz/Maricopa Counties Storm Emergency FY03 - 04 Military Gift Package Postage Mitigation Projects 2004 Emergency Funds Navajo, Gila and Coconino Counties Rodeo Fire Nogales and 52nd Street Building Renewal FY01 - 02 Nogales Wash Flooding 2007 Northern Arizona Winter Storm Emergency 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 Operating Lump Sum Operating Lump Sum Operation Good Neighbor Pima County Flash Flood Emergency Project Challenge Construction Project Challenge Construction FY05 - 06 Project Challenge Construction FY06 - 07 Project Challenge Program 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 Service Contracts FY06 - 07 Summer 2006 Monsoons and Flooding Summer 2006 Monsoons and Flooding Uniform and Equipment Allowances Mine Inspector Administrative Adjustments Operating Lump Sum Appropriation Department of Building and Fire Safety Administrative Adjustments Operating Lump Sum Appropriation Mines and Mineral Resources Operating Lump Sum Appropriation Medical Student Loans Board HB2620 Cash Transfer to General Fund Medical Student Financial Assistance Medical Student Financial Assistance Medical Student Financial Assistance FY06 - 07 Medical Student Loans FY05 - 06 Northern Arizona University NAU - Yuma Operating Lump Sum Appropriation Research Infrastructure Lease-Purch Pymt Student and Faculty Retention The Notes to Required Supplementary Information are an integral part of this schedule. - 148 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 0 261,296 59,434 105,336 100,000 217,224 323,080 12,032 0 0 390,899 158,931 1,940 0 0 0 1,708 1,910,332 1,848,900 926,068 156,246 95,049 0 500,000 500,000 1,804,800 50,000 1,325 0 70,209 106,977 1,215,000 309,901 0 772,594 0 200,000 261,296 59,434 105,336 100,000 217,224 323,080 12,032 200,000 166,445 390,899 158,931 1,940 384,984 56,408 333,615 1,708 1,924,000 1,982,200 945,600 156,246 1,997 100,000 500,000 500,000 1,769,800 50,000 0 160,000 70,209 60 1,215,000 309,901 734,217 772,594 250,000 27,365 206,052 563 72 100,000 135,570 3,978 0 129,741 0 309,697 158,761 0 384,984 56,408 333,615 0 1,922,734 1,979,094 945,600 1,652 1,997 0 316,506 0 1,769,800 0 0 150,985 69,780 60 1,215,000 309,901 1,589 209,536 220,431 0 1,828,400 8,930 1,886,600 8,930 1,635,342 0 3,789,500 20,437 3,611,500 20,437 3,610,096 839,900 962,700 924,197 0 1,500,000 309,800 0 3,944 179,000 1,500,000 309,800 1,176,852 3,944 179,000 1,500,000 155,261 342,965 0 2,383,900 141,687,800 0 4,736,000 2,383,900 145,253,600 5,900,000 4,736,000 2,383,900 145,253,600 5,900,000 4,736,000 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2008 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Navigable Streams Adjudication Commission Administrative Adjustments Operating Lump Sum Appropriation Operational Supplemental Personnel Board Administrative Adjustments Operating Lump Sum Appropriation State Capitol Post-Conviction Public Defender Operating Lump Sum Appropriation FY06 - 07 Operating Lump Sum Appropriation FY07 - 08 Commission for Postsecondary Education Case Managers Leveraging Educational Assistance Prtshp Postsecondary Education Grant Program Private Postsecondary Ed Student Financial Asst Prog Prescott Historical Society Building Renewal-Sharlot Hall Reroof FY01 - 02 Maintenance And Workshop Facility FY06 - 07 Operating Lump Sum Appropriation Arizona Pioneers' Home Administrative Adjustments All Other Operating Expenditures PS/Employee Related Expenses (ERE) Board of Executive Clemency Administrative Adjustments Operating Lump Sum Appropriation State Parks Board Acquisition And Development FY91 - 92 Administrative Adjustments Administrative Adjustments Arizona Trail Kartchner Caverns State Park Land Conservation Fund-General Fund Operating Lump Sum Appropriation Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Tonto Lodge Roof Replacement FY04 - 05 Department of Public Safety Building Renewal - Project 917051 FY06 - 07 Building Renewal FY04 - 05 Building Renewal FY04 - 05 Building Renewal FY04 - 05 Building Renewal FY05 - 06 Carpet Replacement Project DPS Headquarters Fire Alarm GITEM - County Attorneys for Prosecution GITEM - State Gang Intelligence Database GITEM GITEM - Gang Intelligence Team Enforcement GITEM - Gang Intelligence Team Enforcement FY06 - 07 GITEM Supplemental FY05 - 06 Highway Patrol Safety Equipment Microwave Communication System Microwave Communication System FY06 - 07 The Notes to Required Supplementary Information are an integral part of this schedule. - 149 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 0 173,600 0 4,380 180,800 200,000 4,380 174,900 42,487 0 357,900 257 372,400 257 348,962 196,616 721,700 196,616 720,800 196,616 581,845 100,000 1,220,800 5,300,000 800,000 100,000 1,220,800 1,606,500 800,000 98,137 1,220,800 1,606,500 800,000 19 398,231 734,000 19 398,231 762,600 0 0 762,600 0 828,000 408,000 36 769,700 427,300 36 769,697 354,280 0 1,087,400 1,308 1,097,400 1,308 1,096,979 107,100 0 0 125,000 2,535,800 0 7,775,000 4,832,500 0 99,966 107,100 8,050 29,292 125,000 2,535,800 20,000,000 7,741,700 5,088,300 80,100 99,966 0 8,050 29,292 125,000 2,439,075 20,000,000 7,659,358 4,807,758 80,100 468 4,615 2 5,802 3,318 11,639 0 0 0 0 18,916,600 10,000,000 8,713,391 331,709 3,000,000 0 1,497,273 12,615 2 5,802 3,318 11,639 80,350 120,000 1,000,000 1,000,000 19,799,700 10,000,000 8,713,391 331,709 3,000,000 1,000,000 1,497,273 8,047 0 0 0 11,422 44,961 37,766 65,939 20,187 16,965,696 288,896 5,178,932 331,709 2,731,093 637,843 811,502 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2008 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Motor Vehicle Fuel Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Statewide Emergency Water System Repairs FY06 - 07 Statewide HVAC Replacements Statewide Interoperability - Phase II Statewide Interoperability Design Statewide Roof Replacements Storage/Retrieval of ID Fingerprints Sworn Officer Salary Adjustments Department of Racing Administrative Adjustments Operating Lump Sum Appropriation Independent Redistricting Commission Operating Lump Sum Appropriation FY03 - 04 Real Estate Department Operating Lump Sum Appropriation Rangers' Pension Operating Lump Sum Appropriation Department of Revenue Administrative Adjustments Administrative Adjustments BRITS Operations Cash Transfer to General Fund Cash Transfer to General Fund Kerr v. State of Arizona Lawsuit Legal Arizona Workers Act - Employer Notice Litigation Expenses Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY07 - 08 Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Tax Credit Administration Town Population Less Than 1500 Unclaimed Property Administration Unclaimed Property Contract Auditor Fees Schools for the Deaf and Blind Administrative Adjustments Capital and Building Renewal Projects FY05 - 06 Operating Lump Sum - Phoenix Operating Lump Sum - Preschool/Outreach Operating Lump Sum - Regional Cooperatives Operating Lump Sum - Tucson School Bus Replacement-Phoenix School Bus Replacement-Tucson School Facilities Board Building Renewal Energy and Water Savings Pilot Program Full Day Kindergarten Capital Grants New School Facilities New School Facilities Debt Service Operating Lump Sum Appropriation The Notes to Required Supplementary Information are an integral part of this schedule. - 150 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 3,704,200 129,058,100 205,000 296,200 0 0 2,509,048 1,329,400 0 0 2,000,000 3,704,200 92,520,900 205,000 296,200 10,898 54,000 2,509,048 1,383,300 200,000 125,000 2,000,000 3,702,603 92,111,400 0 291,257 10,898 50,209 2,150,547 893,375 200,000 125,000 2,000,000 0 2,747,900 692 2,690,400 692 2,673,745 1,299,081 1,299,081 367,690 4,363,000 4,390,300 4,365,461 13,400 13,400 13,400 0 0 2,223,700 0 0 0 0 886,521 419,600 71,263,800 0 0 0 850,000 1,629,000 0 31,913 1,452,821 1,703,170 1,132,800 1,000,000 0 70,000 886,521 427,800 71,845,330 15,200 3,100 30,000 850,000 1,654,000 2,770,000 31,913 1,452,821 1,703,170 1,132,800 1,000,000 6,813 69,898 886,521 284,423 71,699,104 15,200 3,100 30,000 850,000 1,645,355 2,762,338 0 11,070 5,160,200 3,024,800 1,420,100 10,388,700 450,000 180,000 1,441,291 11,070 2,609,900 1,344,400 5,701,500 11,660,800 427,900 202,100 1,441,291 (11,112) 2,498,363 1,014,035 4,793,394 11,059,086 427,451 202,100 86,283,500 0 484,205 370,000,000 71,967,200 1,856,900 43,141,800 2,500,000 484,205 362,000,000 71,967,200 1,948,400 43,141,800 2,500,000 0 362,000,000 71,967,200 1,822,277 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2008 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Senate Operating Lump Sum Appropriation FY05 - 06 Operating Lump Sum Appropriation FY06 - 07 Operating Lump Sum Appropriation FY07 - 08 Supreme Court Administrative Adjustments Administrative Adjustments Adult Intensive Probation Adult Standard Probation Automation Automation Case and Cash Management System Case and Cash Management System Cash Transfer to General Fund Commission on Judicial Conduct Community Punishment County Reimbursements Court Appointed Special Advocate Courts Building Cooling Tower Renovation FY06 - 07 Courts Building Design Chiller & Thermal Storage Domestic Relations Drug Court Drug Court FY06 - 07 Foster Care Review Board Fourth Floor Chiller FY01 - 02 Global Position and Monitoring System GPS Global Position and Monitoring System GPS FY06 - 07 HVAC Storage Tank FY01 - 02 Integrated Family Court Interstate Compact Judges Compensation Judicial Nomination and Performance Review Juvenile Family Counseling Juvenile Intensive Probation Juvenile Standard Probation Juvenile Treatment Services Model Court Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Probation Surcharge Progressively Increasing Consequences Repair/Rehab Cooling Tower, Courts Bldg FY04 - 05 Rural State Aid to the Courts Special Water Master State Aid Secretary of State Administrative Adjustments Administrative Adjustments Election Services Elections Video Recording of Ballots Help America Vote Act Help America Vote Act - Federal Funds The Notes to Required Supplementary Information are an integral part of this schedule. - 151 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 93,409 1,228,652 9,193,000 93,409 1,228,652 9,183,100 93,409 1,228,652 7,531,548 0 0 11,316,500 13,626,800 0 0 151,700 1,365,600 0 450,100 524,400 246,000 102,000 96,634 0 752,800 1,000,000 51 2,369,700 2,528 750,000 413,562 1,211 314 640,400 17,732,500 314,100 660,400 10,130,900 4,995,500 22,454,000 514,300 12,771,200 687,000 2,849,100 0 0 2,723,800 10,168,500 5,311 418,500 20,000 84,700 23,314 9,747 11,610,100 14,130,469 4,565,100 7,855,300 151,700 3,865,600 1,500,000 459,800 543,300 238,800 102,000 112,578 65,000 746,400 1,013,600 51 2,444,800 2,528 356,800 413,562 1,211 314 658,100 17,650,200 326,200 660,400 10,064,541 5,348,190 22,504,700 507,300 12,914,800 676,500 2,782,000 26,000 83,300 3,421,500 10,334,300 5,311 150,000 20,000 0 23,314 9,747 11,606,261 14,108,858 2,914,705 6,851,446 134,554 2,948,747 1,500,000 458,240 534,432 238,412 102,000 112,578 12,275 687,828 992,867 (96,826) 2,324,296 0 228,624 346,696 0 0 639,874 17,640,919 322,364 655,136 9,830,926 5,291,314 22,470,492 463,938 12,848,090 565,115 2,010,317 26,000 83,300 3,421,044 10,334,300 5,197 150,000 0 0 0 0 4,361,000 0 204,958 15,000,000 1,321 18,100 4,387,800 75,000 204,958 15,002,000 1,321 18,100 4,366,684 75,000 204,958 2,648,438 (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2008 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Operating Lump Sum Appropriation Operating Lump Sum Appropriation Office of Tourism City Of Yuma - Arizona Welcome Center FY06 - 07 State Treasurer Administrative Adjustments Community College Reimbursement ARS 15-1469.01 Corporate Income Tax Transfer Justice of the Peace Salaries FY07 - 08 Operating Lump Sum Appropriation Operating Lump Sum Appropriation Rural County Reimbursement Subsidy Transfer to Tourism Fund Tax Appeals Board Operating Lump Sum Appropriation University of Arizona Agriculture Arizona Cooperative Extension Clinical Rural Rotation Clinical Teaching Support Liver Research Institute Operating Lump Sum - Health Sciences Center Operating Lump Sum-Main Campus Phoenix Biomedical Campus Schematic Design Phoenix Medical Campus Research Infrastructure Facilities Sierra Vista Campus Student and Faculty Retention Telemedicine Network Department of Veterans' Services Administrative Adjustments FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 2,660,600 94,800 2,631,700 98,200 2,605,662 0 1,940,500 440,500 320,808 0 0 0 3,122,500 3,240,100 33,800 1,200,000 0 257,537 3,111,586 13,000,000 2,218,300 3,230,400 33,800 1,200,000 15,874,622 257,537 3,111,586 13,000,000 1,905,936 3,219,765 33,800 1,200,000 15,874,622 305,200 310,500 269,434 33,606,600 11,728,500 504,100 9,812,200 525,200 53,194,200 270,149,700 5,250,000 12,009,600 0 3,745,300 10,000,000 2,213,100 34,897,000 12,236,900 437,200 9,919,900 542,600 55,009,700 275,369,400 0 12,164,100 14,253,000 3,850,600 10,000,000 2,230,700 34,897,000 12,236,900 437,200 9,919,900 542,600 55,009,700 275,369,400 0 12,164,100 14,253,000 3,850,600 10,000,000 2,230,700 0 291 291 3,457,900 3,457,900 3,237,080 100,000 100,000 100,000 0 100,000 84,709 Nursing Home Project FY91 - 92 3,605 0 0 Nursing Home Project FY91 - 92 18,934 0 0 Nursing Home Project FY91 - 92 13,284 0 0 2,034,300 2,122,400 2,121,947 277,587 Arizona State Veterans' Home City of Tucson - Downtown WW II Memorial Military Family Relief Fund Operating Lump Sum Appropriation Southern Arizona Cemetery 272,100 279,100 10,000,000 0 0 10,000 10,000 10,000 3,104,000 3,186,200 2,997,635 29,200 29,200 29,200 2,105,000 2,105,000 2,104,876 0 7,105 7,105 Arizona Water Protection Fund Deposit 1,000,000 0 0 Assured and Adequate Water Supply Admin 1,700,000 1,700,000 1,693,822 Automated Groundwater Monitoring 500,000 506,200 505,975 Conservation and Drought Program 500,000 500,000 499,047 1,565 1,565 0 Southern Arizona Veterans Home FY06 - 07 Telemedicine Project Veterans Benefits Counselors Veterans' Organizations Contracts Department of Water Resources Adjudication Support Administrative Adjustments Dam Repair - City of Williams FY06 - 07 The Notes to Required Supplementary Information are an integral part of this schedule. - 152 - (Continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2008 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) Operating Lump Sum Appropriation Rural Water Studies Rural Water Studies FY06 - 07 Upper San Pedro Water District Technical Assistance FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 15,372,400 15,945,300 15,937,215 1,999,100 2,006,600 1,340,586 284,794 284,794 284,794 0 250,000 250,000 Department of Weights and Measures Administrative Adjustments 0 24,226 24,226 1,651,600 1,604,700 1,603,354 16,723,395,714 17,005,115,299 15,723,366,114 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, Medicaid Special Exemption, and Contract Compliance that were duplicate expenditure authorizations Total General Fund Budgetary Expenditures after Adjustments (649,009,800) $ 16,074,385,914 The Notes to Required Supplementary Information are an integral part of this schedule. - 153 - (674,314,800) $ 16,330,800,499 0 $ 15,723,366,114 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, 2008 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) TRANSPORTATION AND AVIATION PLANNING, HIGHWAY MAINTENANCE AND SAFETY FUND Department of Administration Highway Hazards Assessments Department of Transportation 2003 Asbestos & Lead Inspections FY02 - 03 Abandoned Vehicle Administration Airport Planning and Development Airport Planning and Development FY 05 - 06 Airport Planning and Development FY 06 - 07 Alternate Truck Route - Douglas Chino Road FY03 - 04 Arizona - Mexico Border Points FY97 - 98 Asbestos and Lead Inspections FY01 - 02 Attorney General Legal Services Building Renewal Building Renewal Building Renewal FY04 - 05 Building Renewal FY05 - 06 Building Renewal FY05 - 06 Building Renewal FY06 - 07 Building Renewal FY06 - 07 Cash Transfer to ADOA - Highway Hazards Assessment Cash Transfer to General Fund Cash Transfer to General Fund Cash Transfer to General Fund Cash Transfer to General Fund De-Icer Buildings De-Icer Buildings FY06 - 07 Douglas Maintenance Yard Admin Adjustment FY90 - 91 Douglas Weigh Station FY03 - 04 East Valley Maintenance Yard FY02 - 03 Far Southeast Valley Multiuse Facility Far Southeast Valley Multiuse Facility Fraud Investigation Grand Canyon Airport Modular Housing FY 06 - 07 Grand Canyon Airport Restroom Renovation Grand Canyon Airport Water Storage Tank Renovation Highway Construction Highway Construction FY06 - 07 Highway Maintenance Highway Maintenance Highway Maintenance FY 06 - 07 Highway to DPS Transfer Highway to DPS Transfer - Double Load HURF to DPS Transfer - Double Load Lump Sum Appropriation-Motor Vehicle Lump Sum Appropriation-Motor Vehicle Lump Sum Appropriation-Motor Vehicle Lump Sum Appropriation-Motor Vehicle Lump Sum Appropriation-Motor Vehicle Modular Trailer Operating Expenses FY00 - 01 Motor Carrier Towing Regulation FY04 - 05 MVD Computer System Assessment FY06 - 07 $ 150,000 589,466 999,000 25,306,000 278,784 5,687,108 250,000 569 108,288 2,737,700 141,100 3,777,100 62,295 365 952,985 24,327 2,110,735 150,000 0 0 0 0 1,850,000 1,478,000 2,000 178,000 311,734 5,190,000 1,511,900 993,400 2,485,998 210,000 635,000 239,801,800 31,936,272 126,432,900 558,700 2,204,500 0 10,000,000 10,000,000 68,600 1,685,300 2,195,500 136,900 384,900 7,519 11,108 0 The Notes to Required Supplementary Information are an integral part of this schedule. - 154 - FINAL BUDGET (Appropriations) $ 150,000 589,466 1,039,800 25,306,000 278,784 5,687,108 250,000 569 108,288 3,052,600 141,100 3,777,100 62,295 365 952,985 24,327 2,110,735 150,000 18,100,000 2,000,000 1,100,000 5,400,000 1,850,000 1,478,000 2,000 178,000 311,734 5,190,000 1,511,900 993,400 2,485,998 210,000 635,000 309,801,800 31,936,272 128,695,100 558,700 2,204,500 826,000 10,000,000 10,000,000 71,700 1,694,400 2,222,600 143,300 384,900 7,519 11,108 500,000 ACTUAL EXPENDITURE AMOUNTS $ 145,000 0 977,961 16,640,555 278,784 5,687,108 0 0 10,290 3,052,600 57,706 2,205,950 49,995 365 940,491 12,063 1,498,206 150,000 18,100,000 2,000,000 1,100,000 5,400,000 50,871 1,352,283 0 0 176,217 5,506 1,645 360,314 25,781 1,056 28,533 256,246,630 31,936,272 125,490,135 558,636 2,202,551 826,000 10,000,000 10,000,000 71,700 1,553,173 2,022,066 143,300 351,657 0 0 499,841 (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, 2008 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) MVD Electronic Certificate of Title Sys FY01 - 02 MVD Electronic Certificate of Title Sys FY02 - 03 MVD One-Time Trailer Fees Implementation FY01 - 02 MVD Security Enhancement Issues FY01 - 02 MVD 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 FY03 - 04 Nogales Port of Entry FY98 - 99 Oil/Asphalt Storage Tanks Oil/Asphalt Storage Tanks FY05 - 06 Oil/Asphalt Storage Tanks FY06 - 07 On-Line Verification of Social Security Numbers FY00 - 01 Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation-HWYS Operating Lump Sum Appropriation-Motor Vehicle Operating Lump Sum Appropriation-Motor Vehicle Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Payson Motor Vehicle Division Service Center Payson MVD Service Center FY05 - 06 Roads of Regional Significance Congestion Mitigation Safety, Security, Traffic Management and Control FY03 - 04 Safford Vehicle Maintenance Shop San Luis Inspection Station San Luis Poe Connector Road FY03 - 04 FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 4,852 13,488 43,724 1 958,487 247,800 75,000 188,400 222,500 300,000 2 1,365,000 5,342 1,177,500 797 2,567,600 41,141,100 133,742,200 1,584,800 98,939,400 0 0 0 0 1,229,400 889,081 0 18,000 3,215,000 0 200,000 4,852 13,488 43,724 1 958,487 279,600 78,300 197,100 232,100 300,000 2 1,365,000 5,342 1,177,500 797 2,625,100 42,409,600 137,915,800 1,599,400 102,780,900 16,800 14,300 37,000 37,200 1,229,400 889,081 10,000,000 18,000 3,215,000 2,000,000 200,000 0 0 0 0 175,378 188,037 74,779 194,646 232,100 0 0 33,095 0 992,729 0 2,585,888 42,409,173 133,482,018 1,535,624 102,220,210 16,800 14,300 37,000 37,200 0 17,354 10,000,000 0 3 0 0 1,564,100 1,564,100 1,564,100 54,000 54,000 0 SEF to DPS Transfer - Double Load Site Improvement - Nogales Inspection Station FY03 - 04 Special Projects FY98 - 99 Sprinklers/Fire Alarms FY05 - 06 Statewide Transportation Acceleration Needs - Highway Surprise Motor Vehicle Division Service Center Surprise Motor Vehicle Division Service Center FY06 - 07 30,868 30,868 0 980,417 980,417 950 62,000,000 62,000,000 62,000,000 3,956,300 3,956,300 176 910,694 910,694 546 Traffic Safety Improvement Agreements 0 600,000 600,000 Transport Acceleration Interest Reimbursement Account 0 10,000,000 10,000,000 Vehicle Wash Systems 2,021,300 2,021,300 70,188 Vehicles and Heavy Equipment Fuel Surcharge 1,000,000 1,000,000 1,000,000 Total Transportation and Aviation Planning, Highway Maintenance and Safety Fund Budgetary Expenditures $ 844,243,006 The Notes to Required Supplementary Information are an integral part of this schedule. - 155 - $ 976,947,006 $ 871,693,535 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION – BUDGETARY COMPARISON SCHEDULES JUNE 30, 2008 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, 2007 that affect available appropriations during fiscal year 2008. The final budget represents any appropriation bills passed during fiscal year 2008 for fiscal year 2008 plus the original budget. Appropriation bills passed after the end of fiscal year 2008 for fiscal year 2008 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): . General Fund Transportation & Aviation Planning, Highway Maintenance & Safety Fund Uses/outflows of resources Actual expenditure amounts (budgetary basis) “total charges to appropriations” from the budgetary comparison schedule $ 15,723,366 $ 871,694 Differences – budget to GAAP: Increase in unpaid incurred expenditures from fiscal year end 2007 to fiscal year end 2008. 277,790 417,073 Increase in unpaid payroll expenditures from fiscal year end 2007 to fiscal year end 2008. For budgetary reporting, final June 2008 payroll expenditures were charged to fiscal year 2009 budget. 7,539 - Distributions to counties and cities of sales taxes are recognized as expenditures on the modified accrual basis, but have no effect on budgetary expenditures. 1,100,915 - Distribution to counties and cities for Urban Revenue Sharing, derived from the State’s income tax collections, is recognized as an expenditure on the modified accrual basis, but has no effect on budgetary expenditures. 684,539 - Capital leases and installment purchase contracts initiated during the fiscal year, which are not reported in budgetary expenditures. 3,146 - Programs which are not controlled by legislative appropriations but have disbursed cash or incurred obligations during fiscal year 2008. 3,792,033 1,651,256 (1,136,417) (399,899) Transfers to other funds are outflows of budgetary resources but are not expenditures for financial reporting purposes. Total expenditures, as reported on the Statement of Revenues, Expenditures and Changes in Fund Balances $ 20,452,911 $ 2,540,124 There were no expenditures in excess of appropriations or allotments in the individual budget accounts for the year. - 156 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION – BUDGETARY COMPARISON SCHEDULES JUNE 30, 2008 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 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 “larger” 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). 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. During the fiscal year, $671.212 million in supplemental appropriations, net of mid-year reversions and adjustments, 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 $281.720 million and $132.704 million, respectively, and those amounts are included in the Budgetary Comparison Schedules. - 157 - STATE OF ARIZONA REQUIRED SEPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION – BUDGETARY COMPARISON SCHEDULES JUNE 30, 2008 State agencies are responsible for exercising budgetary control and ensuring that expenditures do not exceed appropriations. The ADOA’s 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 $229.819 million Department of Health Services Children’s Behavioral Health State Match for Title XIX on page 144. 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 the General Fund’s budget (appropriation) totals on page 153. - 158 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2008 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 6,785 center lane miles (18,546 travel lane miles) of roads and 4,637 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 2009 and beyond was adopted by the Transportation Board on June 23, 2008. 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 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: - 159 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2008 Numerical Rating 5 4 3 2 1 0 PSR Excellent Good Fair Poor Very Poor Impassable Weaver/AASHTO Scale Perfect Very Good Good Fair Poor Very Poor 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 2008, an overall rating of 3.91 was achieved, as shown in the following graph: Condition Level - Roads 5 PSR 4 3 Actual Level 2 Desired Level 1 0 2004 2005 2006 2007 2008 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 2004 through 2008 were as follows: Fiscal Year 2004 2005 2006 2007 2008 Estimated Expenditures (in millions) $198.5 $235.7 $218.5 $216.4 $260.7 - 160 - Actual Expenditures (in millions) $218.5 $195.0 $211.5 $196.5 $247.9 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2008 Bridges Bridges constitute a significant portion of all infrastructure assets in Arizona. As of June 30, 2008, the State owns and maintains 4,637 bridges with an approximate total deck area of 44,440,010 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 2008, the CRI was computed at 93.4%. - 161 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2008 Condition Levels - Bridges 95% CRI 94% 93% Actual Level 92% Desired Level 91% 90% 2004 2005 2006 2007 2008 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 25 20 % of bridges built in corresponding decade 15 10 5 0 < 1930 30s 40s 50s 60s Figure 3 - 162 - 70s 80s 90s 2000s STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2008 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 2004 through 2008 were as follows: Fiscal Year 2004 2005 2006 2007 2008 Estimated Expenditures (in millions) $ 8.7 $ 7.4 $10.6 $17.1 $13.4 - 163 - Actual Expenditures (in millions) $ 9.2 $11.0 $11.3 $22.5 $18.1 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION AGENT BENEFIT PLANS’ FUNDING PROGRESS JUNE 30, 2008 Analysis of the funding progress for each of the agent, multiple-employer defined benefit pension plans, as of the most recent actuarial valuations, is as follows (expressed in thousands). Plan PSPRS CORP Actuarial Valuation Date 6/30/2008 6/30/2007 6/30/2006 Actuarial Value of Plan Assets $ 547,255 537,999 569,832 6/30/2008 6/30/2007 6/30/2006 755,559 713,382 674,749 Actuarial Accrued Liability (AAL) $ 824,620 799,950 735,393 (Unfunded)/ Funding Excess $ (277,365) (261,951) (165,561) Funded Ratio 66.4% 67.3% 77.5% Annual Covered Payroll $ 101,422 89,498 80,887 869,342 800,128 626,328 (113,783) (86,746) 48,421 86.9% 89.2% 107.7% 376,819 369,337 295,772 (Unfunded)/ Funding Excess AAL as Percentage of Covered Payroll (273.5)% (292.7)% (204.7)% (30.2)% (23.5)% 16.4% Analysis of the funding progress for each of the agent, multiple-employer defined benefit post-employment plans, as of the most recent actuarial valuations, is as follows (expressed in thousands). Plan PSPRS CORP Actuarial Valuation Date 6/30/2008 6/30/2007 6/30/2006 Actuarial Value of Plan Assets - 6/30/2008 6/30/2007 6/30/2006 - Actuarial Accrued Liability (AAL) $ 30,584 31,344 29,223 (Unfunded) AAL $ (30,584) (31,344) (29,223) Funded Ratio 0.0% 0.0% 0.0% Annual Covered Payroll $ 101,422 89,498 80,887 40,596 38,753 36,005 (40,596) (38,753) (36,005) 0.0% 0.0% 0.0% 376,819 369,337 295,772 - 164 - (Unfunded) AAL as Percentage of Covered Payroll (30.2)% (35.0)% (36.1)% (10.8)% (10.5)% (12.2)% 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, 2008 (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 $ $ - $ TOTAL - $ 3,615 992,947 16,841 - 1,009,788 25,148 2,455 26,508 18 63,151 95 664 1,304 - 4,298 - 25,148 7,417 26,508 18 64,455 95 1,188 20 2,607 13,820 - 765,817 32,332 - 769,612 46,152 20 $ 1,115,145 $ 35,236 $ 802,447 $ 1,952,828 $ 30,725 56,870 30,993 58 13,945 999 853 134,443 $ - $ 6,616 26 6,642 $ 37,341 56,896 30,993 58 13,945 999 853 141,085 Fund Balances: Reserved for: Highway construction Other construction Continuing appropriations Debt service Unreserved Total Fund Balances Total Liabilities and Fund Balances 3,615 CAPITAL PROJECTS FUNDS DEBT SERVICE FUNDS 46,326 934,376 980,702 $ 1,115,145 35,236 35,236 $ 35,236 - 168 - 556,820 238,985 795,805 $ 802,447 556,820 238,985 46,326 35,236 934,376 1,811,743 $ 1,952,828 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2008 SPECIAL (Expressed in Thousands) 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 Refunding bonds issued Payment to refunded bond escrow agent Grant anticipation notes issued Certificates of participation issued Premium on debt issued Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning, as restated Fund Balances - Ending $ 508,602 107 330,109 106 106,166 55,159 205,965 63,977 30,874 133,504 87,309 82,628 1,604,506 $ DEBT SERVICE FUNDS CAPITAL PROJECTS FUNDS 65,815 4,330 70,145 $ 17,670 17,670 TOTAL $ 574,417 107 330,109 106 106,166 55,159 205,965 85,977 30,874 133,504 87,309 82,628 1,692,321 131,552 309,083 123,709 588,235 103,053 124,946 - 59,312 - 131,552 309,083 123,709 588,235 103,053 59,312 124,946 4,737 547 53,850 1,439,712 211,555 159,472 371,027 6,223 266,485 332,020 216,292 166,242 320,335 2,142,759 164,794 (300,882) (314,350) (450,438) 183,062 (232,414) 20,410 (28,942) 135,852 844,850 293,162 (2,267) 82,880 (86,547) 8,771 5,698 301,697 815 34,421 (7,657) 563,950 68,000 230,219 43,274 897,786 583,436 212,369 476,224 (242,338) 20,410 563,950 82,880 (86,547) 68,000 238,990 48,972 1,170,541 720,103 1,091,640 980,702 $ 35,236 - 169 - $ 795,805 $ 1,811,743 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, 2008 (Expressed in Thousands) PUBLIC SAFETY & CORRECTIONAL ENVIRONMENTAL PROGRAMS PROTECTION 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 $ 3,526 $ 14 HEALTHCARE & SOCIAL SERVICES $ - TOBACCO TAX & HEALTHCARE $ - JUDICIAL & LEGAL SERVICES $ REGULATING & LICENSING - $ 22 123,440 78,204 36,432 253,416 51,015 79,904 4,849 279 24 18 4,326 95 237 2 7,832 - 1,163 35 8,412 2,074 - 19,136 767 764 - 87 1 1,447 - 100 3,063 75 - - - 1,188 19 - - - $ 136,557 $ 86,289 $ 49,323 $ 274,083 $ 52,550 $ 83,164 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 8,847 607 22 192 39 9,707 $ 5,225 35,373 40,598 $ 1,758 13,481 719 999 809 17,766 $ 4,198 485 11,766 16,449 $ 2,456 1,102 13 3,571 $ 2,410 3,273 33 920 6,636 Fund Balances: Reserved for: Continuing appropriations Unreserved Total Fund Balances Total Liabilities and Fund Balances 5,582 121,268 126,850 $ 136,557 1,334 44,357 45,691 $ 86,289 - 172 - 567 30,990 31,557 $ 49,323 257,634 257,634 $ 274,083 62 48,917 48,979 $ 52,550 9,290 67,238 76,528 $ 83,164 GROUNDWATER BUSINESS EDUCATIONAL PROTECTION & STATE PARKS PROGRAMS CONSERVATION DEVELOPMENT DEVELOPMENT GAME & FISH $ 51 $ 2 $ - $ - $ - CLEAN ELECTIONS SYSTEM $ - TOTAL $ 3,615 39,994 69,836 51,484 125,619 54,556 29,047 992,947 153 2,026 233 - 245 323 - 335 21 34,330 - 34 12,959 11,747 - 183 - - 25,148 2,455 26,508 18 63,151 95 - - 1 - - - 1,188 20 $ 42,457 $ 70,406 $ 86,171 $ 150,359 $ 54,739 $ 29,047 $ 1,115,145 $ 3,082 1,771 3 326 5,182 $ 2,393 190 5 2,588 $ 292 263 2 5 562 $ 12 190 30,993 31,195 $ 29 107 2 138 $ 23 28 51 $ 30,725 56,870 30,993 58 13,945 999 853 134,443 6,000 31,275 37,275 $ 42,457 2,435 65,383 67,818 $ 70,406 85,609 85,609 $ 86,171 21,056 98,108 119,164 $ 150,359 54,601 54,601 $ - 173 - 54,739 28,996 28,996 $ 29,047 46,326 934,376 980,702 $ 1,115,145 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2008 (Expressed in Thousands) PUBLIC SAFETY & CORRECTIONAL ENVIRONMENTAL PROGRAMS PROTECTION 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, as restated Fund Balances - Ending $ 17,029 6,071 54,646 7,141 15,192 4,343 8,667 67,281 12,204 192,574 $ 2,920 416 51,947 3,969 91 1,381 453 61,177 HEALTHCARE & SOCIAL SERVICES $ 6,540 10,965 18,876 9,805 697 617 10,944 23,434 1,940 83,818 TOBACCO TAX & HEALTHCARE $ 313,073 588 7,094 11 42 320,808 JUDICIAL & LEGAL SERVICES $ 1,662 7,311 1,330 16,904 38,240 580 66,027 REGULATING & LICENSING $ 48,012 836 74,004 1,390 1,180 2,266 9,812 6,114 143,614 28,024 103,053 17,987 1,178 77,351 1,415 1,025 3,623 83,182 - 627 148,550 102 7,329 - 59,660 27 - 1,805 122,165 - 4,615 10,342 164,021 165 81,134 398 87,203 1,381 157,989 8 68 59,763 98 1,702 125,770 28,553 (19,957) (3,385) 162,819 6,264 17,844 12,649 (51,754) 50,808 (39,696) 5,496 (18,408) (1,222) 3,547 (11,579) 553 (54,054) (39,105) (10,552) 137,402 11,112 (8,845) 54,536 (12,912) (16,297) 47,854 (1,222) 161,597 96,037 (8,032) (1,768) 50,747 (53,501) (35,657) 112,185 126,850 $ 45,691 - 174 - $ 31,557 $ 257,634 $ 48,979 $ 76,528 GAME & FISH $ $ 21,621 34,166 2,384 1,636 3,365 6,695 7,427 77,294 GROUNDWATER STATE PARKS BUSINESS EDUCATIONAL PROTECTION & PROGRAMS CONSERVATION DEVELOPMENT DEVELOPMENT $ 2,977 3,290 270 6,537 $ 2,338 4,263 3,615 403 35,911 46,530 $ 485,033 107 106 2,269 101 33,359 1,336 47,368 308 569,987 $ 6,199 2,506 40 10,451 19,196 CLEAN ELECTIONS SYSTEM $ 10,016 6,928 16,944 TOTAL $ 508,602 107 330,109 106 106,166 55,159 205,965 63,977 30,874 133,504 87,309 82,628 1,604,506 66,265 20,464 32,328 282 580,906 - 18,923 4,307 - 131,552 309,083 123,709 588,235 103,053 124,946 24 503 38,386 105,178 1,219 21,683 32,610 36 189 581,131 18,923 4,307 4,737 547 53,850 1,439,712 (27,884) (15,146) 13,920 (11,144) 273 12,637 164,794 10,764 (10,435) 20,405 (6,454) 3,762 (19,510) 74,478 (369) 600 (27) (18,906) 183,062 (232,414) 20,410 20,739 (7,145) 44,420 13,951 (1,195) 69,013 (15,748) (1,828) 87,437 74,109 62,965 56,199 (18,906) (6,269) 35,265 20,410 (28,942) 135,852 844,850 37,275 $ 67,818 $ 85,609 $ 119,164 573 846 53,755 $ - 175 - 54,601 $ 28,996 $ 980,702 STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2008 (Expressed in Dollars) NON-MAJOR SPECIAL REVENUE FUNDS Board of Accountancy Administrative Adjustments Cash Transfer to General Fund Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Department of Administration Administrative Adjustments Administrative Adjustments Archives and History Building FY04 - 05 Department of Corrections Fort Grant Landfill Closure FY01 - 02 Government Building Defibrillators FY01 - 02 Government Building Defibrillators FY02 - 03 New Prison Complex FY99 - 00 Operating Lump Sum Appropriation Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Pioneers' Home Plumbing Renovations FY01 - 02 Pioneers' Home Plumbing Renovations FY03 - 04 Yuma Prison Water Treatment Plant Upgrade FY06 - 07 Radiation Regulatory Agency MRTB Assistant FY02 - 03 Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Attorney General Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Cash Transfer to General Fund Cash Transfer to General Fund Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Risk Management ISA Victims Rights Implementation Fund Victims Rights/Non Reverting-HB2427 FY 00- 01 Department of Agriculture Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments $ FINAL BUDGET (Appropriations) 5,128 2,056,000 2,346,600 10,300 ACTUAL EXPENDITURE AMOUNTS $ 5,128 2,056,000 1,488,430 10,300 212 9,266 227,256 43,123 16 293 260,698 735,000 575,100 6,700 6,100 6,000 2,590 262,957 2,189,000 212 9,266 134,105 0 0 0 0 693,676 573,867 6,700 6,100 6,000 0 0 175,243 11,375 288,800 3,000 0 284,963 3,000 641 13 3,936 6 1,000,000 500,000 2,214,900 239,900 4,870,400 6,681,100 3,300 4,700 47,000 400 5,600 94,800 116,200 9,843,500 3,277,400 93,567 641 13 3,936 6 1,000,000 500,000 2,134,798 142,607 3,640,007 6,669,829 3,300 4,700 47,000 400 5,600 94,800 116,200 9,138,483 3,242,851 31,837 23 77 460 537 72 4,699 23 77 460 537 72 4,699 (Continued) - 176 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2008 (Expressed in Dollars) Administrative Adjustments Administrative Adjustments Cash Transfer to General Fund Cash Transfer to General Fund Cash Transfer to General Fund Cash Transfer to General Fund Cash Transfer to General Fund Cash Transfer to General Fund Cash Transfer to General Fund Cash Transfer to General Fund 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 Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Wine Promotion FY93 - 94 Acupuncture Board of Examiners Cash Transfer to General Fund Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund State Board of Appraisal Cash Transfer to General Fund Operating Lump Sum Appropriation Operating Lump Sum Appropriation FY06 - 07 Other Funds Cash Transfer to General Fund Automobile Theft Authority Automobile Theft Authority Grants Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Reimbursable Programs Board of Barbers Administrative Adjustments Cash Transfer to General Fund Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Department of Financial Institutions Cash Transfer to General Fund Other Funds Cash Transfer to General Fund FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 274 56 15,000 25,000 300,000 80,000 41,400 20,000 40,000 30,000 106,700 300,300 900,900 386,200 40,000 54,300 79,400 306,100 1,086,400 9,200 194,700 2,300 7,500 2,900 300 2,500 25,400 9,400 1,400 6,700 54,858 274 56 15,000 25,000 300,000 80,000 41,400 20,000 40,000 30,000 105,039 298,660 670,794 368,218 0 54,300 47,446 304,997 873,448 6,844 110,587 2,300 7,500 2,900 300 2,500 25,400 9,400 1,400 6,700 0 100,000 129,200 1,300 100,000 120,058 1,300 537,900 621,800 33,009 4,500 537,900 607,498 (880) 4,500 4,823,700 674,300 6,300 50,000 4,786,175 647,144 6,300 0 5,270 400,000 344,800 2,800 5,270 400,000 272,136 2,800 1,000,000 8,400 1,000,000 8,400 (Continued) - 177 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2008 (Expressed in Dollars) Board of Behavioral Health Examiners Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund State Board of Nursing Cash Transfer to General Fund CNA Investigations Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Board of Cosmetology Cash Transfer to General Fund Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Corporation Commission Administrative Adjustments Administrative Adjustments Administrative Adjustments Annual Reversion per ARS 10-122 Annual Reversion per ARS 44-3298 Cash Transfer to General Fund 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 Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Relief Bill Cash Transfer FY08 Util Audits - 2002-2003 - Non-Lapsing FY02 - 03 Util Audits - 2001-2002 - Non-Lapsing FY01 - 02 Utilities, Audits, Studies, Invest, Hear Utilities, Audits, Studies, Invest, Hear FY03 - 04 Utilities, Audits, Studies, Invest, Hear FY04 - 05 Utilities, Audits, Studies, Invest, Hear FY05 - 06 Utilities, Audits, Studies, Invest, Hear FY06 - 07 State Board of Chiropractic Examiners Cash Transfer to General Fund Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Department of Corrections Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Cash Transfer to General Fund Cash Transfer to General Fund Cash Transfer to General Fund Correctional Officer PS And Employee Related Expenses County Jail Beds Drug Treatment Pilot Program FY03 - 04 Health Care All Other Operating Expenditures FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 1,382,100 12,300 1,342,554 12,300 75,000 328,200 3,785,600 30,500 75,000 328,200 3,542,974 30,500 3,091,800 1,839,300 16,300 3,091,800 1,827,307 16,300 4,499 6,783 10,174 1,385,468 1,054,739 1,680,300 400,400 165,599 13,558,800 55,400 3,945,200 3,968,200 928,400 151,400 42,900 25,600 10,900 601 372,965 188,683 380,000 361,349 380,000 380,000 380,000 4,499 6,783 10,174 1,385,468 1,054,739 1,680,300 0 0 13,444,782 47,410 3,652,607 3,783,355 924,811 151,400 42,900 25,600 10,900 601 372,965 188,683 0 17,878 0 0 0 100,000 518,700 4,800 100,000 512,891 4,800 16,262 34,208 30,121 1,004,259 1,000,000 1,300,000 800,000 380,400 2,400 23,390 10,432,500 16,262 34,208 30,121 1,004,259 1,000,000 1,300,000 800,000 380,400 2,400 23,031 10,429,728 (Continued) - 178 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2008 (Expressed in Dollars) Non-Health Care All Other Operating Exp Non-Health Care All Other Operating Expenditures Non-Health Care All Other Operating Expenditures Non-Health Care All Other Operating Expenditures Non-Health Care All Other Operating Expenditures Other Funds Cash Transfer to General Fund Private Prison Per Diem Private Prison Per Diem Private Prison Per Diem Provisional Beds Provisional Beds 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 Administrative Adjustments Cash Transfer to General Fund Cash Transfer to General Fund DACS Community and Emergency Services DACS Domestic Violence Prevention DCYF Child Abuse Prevention DCYF Child Abuse Prevention FY05-06 DCYF Children Support Services DCYF Operating Lump Sum Appropriation DDD Autism Training and Oversight 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 Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Commission for the Deaf and Hard of Hearing Administrative Adjustments Cash Transfer to General Fund Interpreters for Certification and Licensure FY04 - 05 Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Department of Juvenile Corrections Cash Transfer to General Fund Operating Lump Sum Appropriation Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund FINAL BUDGET (Appropriations) 3,117,300 599,300 600,000 869,200 570,000 1,200 28,674,300 1,017,200 1,000,000 3,057,200 1,056,200 900,000 ACTUAL EXPENDITURE AMOUNTS 3,105,655 555,419 387,340 790,143 562,037 1,200 27,418,707 940,329 739,000 3,057,200 1,056,200 598,164 108,713 610,200 131,800 89,000 275,887 1,500,000 4 702 9,318 3,370 220,411 2,000,000 400,000 500,000 1,700,000 826,900 0 750,000 209,600 200,000 129,594 1,707,700 1,500,000 85,000 564,200 204,700 10,800 600 5,300 27,545 16 12,980 63,857 227,654 1,500,000 4 702 9,318 3,370 220,411 2,000,000 400,000 500,000 1,699,977 39,357 (1,100) 0 83,120 0 118,982 1,646,768 1,464,939 1,464 483,332 143,345 10,800 600 5,300 6,623 5,553,600 432,332 5,440,800 14,500 6,623 5,553,600 13,420 4,505,345 14,500 300,000 686,500 1,098,600 3,300 300,000 686,500 1,098,600 3,300 (Continued) - 179 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2008 (Expressed in Dollars) State Board of Dispensing Opticians Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund State Board of Dental Examiners Cash Transfer to General Fund Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Department of Education Achievement Testing - Proposition 301 Achievement Testing - Proposition 301 FY05 - 06 Achievement Testing - Proposition 301 FY06 - 07 Additional School Days - Proposition 301 Additional School Days - Proposition 301 FY06 - 07 Basic State Aid Entitlement Character Education - Proposition 301 Character Education - Proposition 301 FY04 - 05 Character Education - Proposition 301 FY05 - 06 Character Education - Proposition 301 FY06 - 07 Failing School Tutoring Fund FY04 - 05 Failing School Tutoring Fund - Proposition 301 Failing School Tutoring Fund FY03 - 04 Failing School Tutoring Fund FY05 - 06 Failing School Tutoring Fund FY06 - 07 Other Funds Cash Transfer to General Fund School Accountability - Proposition 301 School Accountability - Proposition 301 FY02 - 03 School Accountability - Proposition 301 FY03 - 04 School Accountability - Proposition 301 FY04 - 05 School Accountability - Proposition 301 FY05 - 06 School Accountability - Proposition 301 FY06 - 07 School Acct - School Safety - Proposition 301 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 Administrative Adjustments Administrative Adjustments Advertising And Promotion Arizona Sonora Trade Office CEDC Commission Economic Development Matching Funds International Trade Offices Lottery 1989 FY91- 92 Main Street Minority & Women Owned Business National Law Center/Free Trade Oil Overcharge Administration Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 126,300 1,100 121,356 1,100 4,200,000 1,136,800 9,000 4,200,000 1,101,867 9,000 2,340,300 424,692 2,340,300 86,280,500 7,190,042 45,220,700 200,000 129,000 200,000 200,000 888,595 1,500,000 90 776,430 556,294 6,800 4,659,700 12,527 26,446 39,611 107,432 3,517,199 7,800,000 4 6,658 4,210 226,719 576,134 424,692 2,340,300 71,900,417 7,190,042 45,220,700 0 129,000 159,864 0 888,595 1,108,049 90 776,430 556,294 6,800 1,058,987 12,527 26,446 39,611 107,221 3,040,400 7,797,624 4 6,658 4,210 226,719 3,143 13,947 659,200 25,000 286,100 104,000 714,300 1 130,000 128,400 200,000 184,800 186,900 2,500 4,300 1,100 2,000 3,143 13,947 450,302 25,000 275,845 101,692 692,694 0 122,291 94,665 200,000 6 172,806 2,500 4,300 1,100 2,000 (Continued) - 180 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2008 (Expressed in Dollars) Redi Matching Grants Small Business Advocate Department of Environmental Quality Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Administrative Adjustments Air Quality Management and Analysis Air Quality Management and Analysis Air Quality Program - Continuing FY01 - 02 Air Quality Program - Continuing FY02 - 03 Cash Transfer to General Fund Cash Transfer to General Fund Cash Transfer to General Fund Cash Transfer to General Fund Emissions Cap and Trading Program FY01 - 02 Emissions Cap and Trading Program FY02 - 03 Emissions Control Contractor Payment Emissions Control Program - Administration Hazardous Waste Reserve FY94 - 95 Hazardous Waste Reserve FY95 - 96 Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund 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 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 Visibility Index Development FY02 - 03 Waste Control and Management Waste Control and Management Waste Control and Management Waste Control and Management FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 45,000 125,800 44,928 110,686 5,035 181,985 1,471 5,170 56,505 5,065,100 5,991,500 186,035 182,451 3,000,000 5,088,700 28,419,700 1,097,100 70,576 266,582 33,239,600 4,231,300 64,000 29,273 19,700 53,100 20,400 63,100 5,300 47,000 2,700 8,000 22,500 18,500 200,000 200,000 3,170,956 165,000 1 18,857 22,000 7,500 80,589 10,099 795,000 2,325,800 1,278,300 500 5,035 181,985 1,471 5,170 56,505 4,792,795 5,705,541 0 0 3,000,000 5,088,700 28,419,700 1,097,100 0 0 30,707,764 2,662,488 0 0 19,700 53,100 20,400 63,100 5,300 47,000 2,700 8,000 22,500 0 0 0 1,449,224 165,000 0 0 3,273 0 0 0 189,128 1,938,134 882,299 0 (Continued) - 181 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2008 (Expressed in Dollars) Waste Control and Management Waste Tire Program Water Quality Program State Board of Funeral Directors & Embalmers Cash Transfer to General Fund Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Game and Fish Department Administrative Adjustments Administrative Adjustments Administrative Adjustments Becker Lake Facilities Improvements Becker Lake Wildlife Area Bridge Bellemont Shooting Range Improvement FY04 - 05 Black Canyon Dam Modifications FY05 - 06 Black Canyon Dam Modifications FY06 - 07 Boat Registration Kiosks Boat Shade Canopies Building Renewal Building Renewal FY02 - 03 Building Renewal FY05 - 06 Building Renewal FY06 - 07 Cash Transfer to General Fund Cash Transfer to General Fund Cash Transfer to General Fund Cluff Ranch Access Improvements FY06 - 07 DPS Microwave Communications System Facility Improvements FY01 - 02 Facility Improvements FY02 - 03 Flagstaff Shooting Range Development FY00 - 01 Flagstaff Shooting Range Planning FY01 - 02 Flagstaff Shooting Range Planning FY02 - 03 Flood Warning System Headquarters Construction Headquarters Expansion and Renovation FY02 - 03 Headquarters Paving FY04 - 05 Headquarters Security System FY03 - 04 House Rock Driveway Surfacing FY06 - 07 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 FY 93 - 94 Migratory Waterfowl Habitat FY05 - 06 Migratory Waterfowl Habitat FY06 - 07 Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation Operating Lump Sum Appropriation FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 137,300 224,900 5,906,500 10,384 47,674 3,706,690 100,000 349,900 4,000 100,000 349,856 4,000 12,213 864 5,000 120,000 52,000 800,000 499,000 298,000 240,000 195,000 474,000 1 24,194 99,698 2,827,600 4,732,700 395,000 50,000 207,000 32,467 5 53,549 459,179 499,900 321,860 80,000 48,692 1 4,188 25,000 297,502 350,000 4,763 5,229 73,000 85,931 84,986 65,976 1,302 100,000 100,000 27,888,000 4,234,800 329,800 43,400 16,000 12,213 864 5,000 45,116 0 0 0 3,474 0 117,427 338,578 0 24,194 99,527 2,827,600 4,732,700 395,000 43,593 207,000 2,175 0 20,200 0 0 223,395 80,000 47,043 0 0 19,999 0 350,000 739 5,229 3,500 7,812 19,771 2,997 0 6,239 0 25,028,681 3,753,521 234,591 21,189 0 (Continued) - 182 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2008 (Expressed in Dollars) Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Performance Based Incentives Program FY00 - 01 Performance Based Incentives Program FY02 - 03 Performance Incentive Pay Program Performance Incentive Pay Program 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 Regional (Flagstaff) Office Remodel/Expansion Robbins Butte Levee Seven Mile Shooting Range Shade Canopies FY04 - 05 Shooting Range Access Improvements Shooting Range Development Shooting Range Development FY02 - 03 Shooting Range Development/Grants Program FY05 - 06 Shooting Range Development/Grants Program FY06 - 07 Shooting Range Improvements Sierra Vista Shooting Range Improvement FY04 - 05 Silver Creek Hatchery Improvements FY04 - 05 Statewide Preventative Maintenance Statewide Preventative Maintenance FY04 - 05 Statewide Preventative Maintenance FY05 - 06 Tonto Creek Hatchery Improvements FY04 - 05 Tri-State Shooting Range Development FY04 - 05 W.C. Performance Based Incentives Program FY01 - 02 Watercraft Grant Program Watercraft Safety Education Program Yuma Office Fence FY06 - 07 Yuma Office Security System FY06 - 07 Department of Gaming Casino Operation Certification Joint Monitoring System Operating Lump Sum Appropriation Problem Gambling Problem Gambling Arizona Geological Survey Other Funds Cash Transfer to General Fund Governor's Office Cash Transfer to General Fund Arizona Health Care Cost Containment System Administrative Adjustments Capitation Cash Transfer to General Fund Children's Health Insurance Program - Parents Children's Health Insurance Program- Services Kidscare Administration Proposition 204 - Capitation Proposition 204 - Capitation FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 22,300 1,900 3,300 6,200 13 322 300,000 46,800 1,076 300,000 46,800 11 2,808,000 1,050,000 228,000 48,000 44,425 199,193 100,000 1,247 6,004 91,538 150,000 20,285 73,904 30,000 7 1 133,134 300,000 2 250,000 1,275,000 10,000 30,000 22,300 1,900 3,300 6,200 0 0 300,000 46,800 0 300,000 46,800 0 2,808,000 0 80,066 48,000 44,424 444 74,692 1,247 6,004 91,537 131,582 20,285 73,429 29,890 0 0 0 0 0 250,000 1,229,488 0 0 2,259,700 1,188,100 9,388,600 300,000 2,424,600 1,887,173 206,757 8,211,409 300,000 1,859,940 6,800 6,800 1,710,000 1,710,000 571,241 45,688,600 1,506,200 32,498,600 92,510,800 9,828,600 19,465,300 15,286,400 571,241 41,261,930 1,506,200 31,285,862 92,510,800 9,519,467 19,465,300 14,579,535 (Continued) - 183 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2008 (Expressed in Dollars) Proposition 204 - Medicare Relief Bill Cash Transfer FY08 Arizona Department of Housing Administrative Adjustments Cash Transfer to General Fund Cash Transfer to General Fund Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Homeopathic Medical Examiners Administrative Adjustments Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Department of Health Services 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 FY06 - 07 Autism Services - Intensive Early Intervention FY06 - 07 Cash Transfer to General Fund Cash Transfer to General Fund Cash Transfer to General Fund Child Fatality Review Team Community Health Centers EMS Operations Folic Acid High Risk Prenatal 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 Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Primary Trauma Centers - Southern Arizona FY06 - 07 Seriously Mentally Ill Non-Title XIX Statewide Emergency Medical Trauma System FY04 - 05 Substance Abuse Non-Title XIX Trauma Advisory Board FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 9,813,900 1,287 9,625,700 0 22,564 2,775,900 10,244,000 886,500 42,300 10,800 22,564 2,775,900 10,244,000 886,500 42,300 10,800 74 96,600 900 74 95,059 900 171,375 559,447 2,000 27,852 186 310,525 212 1,000,000 38,000 50,000 1,800,000 264,000 1,500,000 138,700 6,200,000 99,100 4,500,000 3,232,400 400,000 450,000 970,600 150,000 478,600 6,325,700 400,000 203,900 837,300 350,000 31,500 25,300 300 5,800 900 176,983 30,424,800 13,500 2,500,000 405,400 171,375 559,447 2,000 27,852 186 310,525 212 1,000,000 0 50,000 1,800,000 264,000 1,500,000 138,700 6,200,000 99,100 4,446,851 3,114,710 290,551 361,739 752,617 50,250 0 5,238,158 360,000 203,900 763,523 276,217 31,500 25,300 300 5,800 900 176,983 23,688,079 13,500 2,500,000 391,546 (Continued) - 184 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2008 (Expressed in Dollars) Industrial Commission of Arizona Administrative Adjustments Cash Transfer to General Fund Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Relief Bill Cash Transfer FY08 Department of Insurance Health Care Group Audit Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Arizona Criminal Justice Commission Cash Transfer to General Fund Cash Transfer to General Fund Crime Victim Compensation Special AG Transfer FY00 - 01 Drug And Gang Prevention Resource Center Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund State Aid to County Attorneys State Aid to Indigent Attorneys Victim Compensation and Assistance Land Department Natural Resource Conservation Districts Other Funds Cash Transfer to General Fund Department of Liquor Licenses and Control Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Division of Emergency Management & Military Affairs Operating Lump Sum-Emergency Response Fund Medical Examiners Board Administrative Adjustments Cash Transfer to General Fund Litigation Expenses FY06 - 07 Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Performance Based Incentive Program Mines and Mineral Resources Other Funds Cash Transfer to General Fund Naturopathic Physicians Board of Medical Examiners Cash Transfer to General Fund Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Nursing Care Examiners Board Administrative Adjustments Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund State Board of Optometry Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Arizona Board of Osteopathic Examiners Administrative Adjustments Cash Transfer to General Fund FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 55,739 3,530,900 19,869,500 163,500 306 55,739 3,530,900 18,439,997 163,500 306 200,000 18,900 900 4,000 102,116 18,900 900 4,000 2,000,000 1,200,000 8,202 305,800 939,200 15,800 500 1,052,500 999,200 4,100,000 2,000,000 1,200,000 0 305,800 896,244 15,800 500 1,052,500 997,841 4,011,310 260,000 27,500 260,000 27,500 500,000 11,500 500,000 11,500 132,700 55,592 111,676 1,350,000 326,000 5,821,700 51,800 147,663 111,676 1,350,000 190,499 5,502,991 51,800 147,499 1,700 1,700 1,000,000 606,800 6,100 1,000,000 591,365 6,100 75 377,600 1,200 75 315,167 1,200 202,200 1,900 187,679 1,900 98,460 250,000 98,460 250,000 (Continued) - 185 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2008 (Expressed in Dollars) Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Board of Occupational Therapy Examiners Administrative Adjustments Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Commission on Drug Education Cash Transfer to General Fund Commission for Postsecondary Education Arizona College and Career Guide Arizona Minority Educational Policy Analysis Center Family College Savings Program Leveraging Educational Assistance Partnership Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Twelve Plus Partnership Arizona Pioneers' Home All Other Operating Expenditures All Other Operating Expenditures Personal Services/Employee Related Expenditures Personal Services/Employee Related Expenditures Prescription Drugs State Board of Pharmacy Cash Transfer to General Fund Controlled Sub Prescrip Monitoring Program Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund State Board of Podiatry Examiners Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund State Parks Board Administrative Adjustments Cash Transfer to General Fund Cash Transfer to General Fund 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 Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Department of Public Safety Administrative Adjustments Cash Transfer to General Fund Cash Transfer to General Fund Cash Transfer to General Fund DNA Testing FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 692,100 6,500 691,795 6,500 20 244,800 2,200 20 225,254 2,200 2,000,000 2,000,000 21,200 100,300 152,600 2,818,700 404,000 2,600 130,800 1,699 13,699 111,245 2,265,654 192,886 2,600 102,639 35,800 92,000 3,312,600 1,659,000 210,000 28,385 44,955 3,264,464 1,625,472 190,940 2,500,000 395,795 2,509,300 20,000 2,500,000 395,795 2,268,838 20,000 143,500 800 108,342 800 1,160 4,100,000 1,500,000 10,436 40,191 2,067,639 4,388 258,697 1,500 19,258 32,684 692,100 537,500 2,323,800 3,600 27,000 18,600 1,160 4,100,000 1,500,000 0 0 0 0 0 0 0 0 688,168 347,404 2,274,266 3,600 27,000 18,600 13 700,000 300,000 600,000 1,980,000 13 700,000 300,000 600,000 805,335 (Continued) - 186 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2008 (Expressed in Dollars) 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 Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Patrol Officers FY02 - 03 Remote Officer Housing Sworn Officer Salary Adjustments Physical Therapy Examiners Board Cash Transfer to General Fund Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Private Postsecondary Education Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Board of Respiratory Care Examiners Administrative Adjustments Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Relief Bill Cash Transfer FY08 Department of Racing Cash Transfer to General Fund Cash Transfer to General Fund Operating Lump Sum Appropriation Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Real Estate Department Cash Transfer to General Fund Registrar of Contractors Cash Transfer to General Fund Incentive Pay Information Management System Office Of Administrative Hearing FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 1,258,331 936,236 231,300 52,000,000 21,083,100 1,564,100 5,881,400 3,293,100 3,769,100 2,725,400 10,000,000 3,290,300 230,000 96,300 28,600 6,900 11,700 23,600 6,100 17,700 30,400 12,100 44,200 15,100 14,600 41,570 2,474 672,900 0 193,615 231,300 51,770,000 19,454,536 1,557,200 5,857,795 2,714,407 3,752,400 2,713,300 9,955,800 3,275,700 230,000 96,300 28,600 6,900 11,700 23,600 6,100 17,700 30,400 12,100 44,200 15,100 14,600 0 0 672,900 100,000 390,300 3,400 100,000 363,244 3,400 334,600 3,500 304,412 3,500 323 263,200 2,700 520 323 228,960 2,700 520 125,000 440,000 66,800 446,900 200 3,100 125,000 440,000 62,877 440,203 200 3,100 5,000 5,000 2,066,300 113,700 3,683,000 1,002,300 2,066,300 50,988 593,946 1,002,300 (Continued) - 187 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2008 (Expressed in Dollars) Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Department of Revenue Operating Lump Sum Appropriation Structural Pest Control Commission Administrative Adjustments Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Schools for the Deaf and the Blind Administrative Adjustments Operating Lump Sum Appropriation - Phoenix Operating Lump Sum Appropriation - Preschool/Outreach Prog Operating Lump Sum Appropriation - Tucson Voucher Fund Adjustment - Phoenix Voucher Fund Adjustment - Preschool/Outreach Voucher Fund Adjustment - Tucson Supreme Court Administrative Adjustments Administrative Adjustments Case and Cash Management System Cash Transfer to General Fund Community Punishment Community Punishment Court Appointed Special Advocate Drug Study Juvenile Crime Reduction Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Reg Activities - Conf Intermediary State Aid State Aid Secretary of State Other Funds Cash Transfer to General Fund State Board of Psychologist Examiners Administrative Adjustments Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund State Board of Technical Registration Administrative Adjustments Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Residential Utility Consumer Office Administrative Adjustments Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Professional Witnesses Professional Witnesses FY 00 - 01 FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 10,667,000 132,500 10,023,213 132,500 630,500 628,523 17,948 2,875,300 26,600 17,948 2,491,374 26,600 91,316 5,660,900 2,501,100 5,654,900 186,500 309,000 5,200 91,316 5,660,900 2,501,100 5,654,900 186,500 290,800 5,200 195 3,382 2,500,000 1,500,000 1,830,400 500,000 3,449,200 38,514 5,187,800 484,200 48,600 800 6,800 4,700 4,400 600 147,839 3,053,600 3,945,300 195 3,382 2,277,829 1,500,000 956,015 499,999 2,675,769 0 5,095,818 423,511 48,600 800 6,800 4,700 4,400 600 0 2,230,049 3,919,656 500 500 713 386,700 4,600 713 367,635 4,600 37,947 1,753,200 13,400 6,745 1,455,812 13,400 208 1,168,100 13,800 131,200 2,270 208 1,124,823 13,800 16,736 2,270 (Continued) - 188 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2008 (Expressed in Dollars) Professional Witnesses FY 01 - 02 Professional Witnesses FY 02 - 03 Professional Witnesses FY 03 - 04 Professional Witnesses FY 04 - 05 Professional Witnesses FY 05 - 06 Professional Witnesses FY 06 - 07 Department of Veterans' Services Administrative Adjustments Operating Lump Sum Appropriation Veterinary Medical Examiners Board Administrative Adjustments Operating Lump Sum Appropriation Other Funds Cash Transfer to General Fund Department of Water Resources Administrative Adjustments Assured and Adequate Water Supply Admin Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Other Funds Cash Transfer to General Fund Department of Weights and Measures Administrative Adjustments Administrative Adjustments Operating Lump Sum Appropriation Operating Lump Sum Appropriation - Vapor Recovery Operating Lump Sum Appropriation - Oxygenated Fuel Other Funds Cash Transfer to General Fund Total Non-Major Special Revenue Funds Budgetary Expenditures $ - 189 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 30,560 9,943 29,054 91,129 128,373 119,576 27,651 4,326 12,859 37,368 0 0 221 747,400 221 677,269 21,404 477,700 4,300 21,404 449,539 4,300 21,565 1,118,900 3,600 3,200 4,100 8,300 5,700 21,565 4,643 3,600 3,200 4,100 8,300 5,700 456 21,220 135,000 639,098 895,702 10,100 456 21,220 133,239 595,715 892,288 10,100 1,081,747,688 $ 981,487,700 NON-MAJOR GOVERNMENTAL FUNDS DEBT SERVICE FUNDS The Department of Transportation Fund administers the payment of principal and interest on the Highway Revenue Bonds issued by the Arizona Department of Transportation Board and the retirement of previously issued revenue bonds. The Maricopa Regional Area Road Fund (RARF) administers the payment of principal and interest on the Arizona Transportation Excise Tax Revenue Bonds issued by the Arizona Department of Transportation Board and the retirement of previously issued revenue bonds. The Certificates of Participation Fund administers the payment of principal and interest on the certificates of participation issued by the State of Arizona (acting by and through the Director of the Department of Administration) and the retirement of previously issued certificates of participation. The School Facilities Debt Instrument Fund administers the payment of principal and interest on revenue bonds issued by the State of Arizona’s School Facilities Board and the retirement of previously issued revenue bonds. The Grant Anticipation Notes Fund administers the payment of principal and interest on grant anticipation notes issued by the Arizona Department of Transportation Board and the retirement of previously issued grant anticipation notes. STATE OF ARIZONA COMBINING BALANCE SHEET NON-MAJOR DEBT SERVICE FUNDS JUNE 30, 2008 (Expressed in Thousands) DEPARTMENT OF MARICOPA TRANSPORTATION RARF 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 $ 449 - $ 2,347 - 155 - SCHOOL FACILITIES DEBT INSTRUMENT CERTIFICATES OF PARTICIPATION $ 87 - 1,405 1,304 $ 13,820 15,436 59 - - Total Assets $ 2,796 $ 242 $ 16,529 $ 15,495 FUND BALANCES Reserved for debt service $ 2,796 $ 242 $ 16,529 $ 15,495 Total Fund Balances $ 2,796 $ 242 $ 16,529 $ 15,495 - 192 - GRANT ANTICIPATION NOTES $ TOTAL 1 - $ 173 - 16,841 664 1,304 2,607 13,820 $ 174 $ 35,236 $ 174 $ 35,236 $ 174 $ 35,236 - 193 - STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR DEBT SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2008 (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 Refunding bonds issued Payment to refunded bond escrow agent Certificates of participation issued Premiums on debt issued Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ 2,426 MARICOPA RARF $ 248 SCHOOL FACILITIES DEBT INSTRUMENT CERTIFICATES OF PARTICIPATION $ 125 $ 65,815 1,525 2,426 248 125 67,340 60,645 75,581 136,226 19,045 10,679 29,724 28,495 7,967 36,462 50,790 50,290 101,080 (133,800) (29,476) (36,337) (33,740) 134,246 134,246 446 2,350 29,718 29,718 242 - 40,689 (1,267) 8,771 434 48,627 12,290 4,239 20,910 (1,000) 82,880 (86,547) 5,264 21,507 (12,233) 27,728 2,796 $ 242 - 194 - $ 16,529 $ 15,495 GRANT ANTICIPATION NOTES $ $ TOTAL 6 $ 65,815 4,330 6 70,145 52,580 14,955 67,535 211,555 159,472 371,027 (67,529) (300,882) 67,599 67,599 70 104 293,162 (2,267) 82,880 (86,547) 8,771 5,698 301,697 815 34,421 174 $ 35,236 - 195 - NON-MAJOR GOVERNMENTAL FUNDS CAPITAL PROJECTS FUNDS The Department of Transportation Financed Fund administers the proceeds from the Highway Revenue Bonds issued by the Arizona Department of Transportation Board. These monies are expended for the construction of federal, state, and local highways. The Grant Anticipation Notes Financed Fund administers proceeds from Arizona Transportation Board Grant Anticipation Notes. These monies are expended for the acquisition of right-of-way purchase, or construction of certain controlled access highways within Maricopa County. The 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. The Maricopa Regional Area Road Debt Financed Fund (MRARF) administers the bond proceeds from the Transportation Board of the State of Arizona Transportation Excise Tax Revenue Bonds. These monies are spent on the construction of State highways within Maricopa County. STATE OF ARIZONA COMBINING BALANCE SHEET NON-MAJOR CAPITAL PROJECTS FUNDS JUNE 30, 2008 (Expressed in Thousands) GRANT ANTICIPATION NOTES FINANCED DEPARTMENT OF TRANSPORTATION FINANCED ASSETS Interest receivable Restricted assets: Cash and pooled investments with State Treasurer Cash held by trustee Total Assets LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and other current liabilities Accrued liabilities Total Liabilities $ $ 342 215,063 - $ 57,775 - 477 MRARF DEBT FINANCED $ 206,202 32,332 2,544 286,777 - $ 215,998 $ 58,117 $ 239,011 $ 289,321 $ - $ 6,616 6,616 $ 26 26 $ - Fund Balances: Reserved for: Highway construction Other construction Total Fund Balances Total Liabilities and Fund Balances 935 CERTIFICATES OF PARTICIPATION FINANCED 215,998 215,998 $ 215,998 51,501 51,501 $ 58,117 - 198 - 238,985 238,985 $ 239,011 289,321 289,321 $ 289,321 TOTAL $ 4,298 765,817 32,332 $ 802,447 $ 6,616 26 6,642 556,820 238,985 795,805 $ 802,447 - 199 - STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR CAPITAL PROJECTS FUNDS FOR THE YEAR ENDED JUNE 30, 2008 (Expressed in Thousands) GRANT ANTICIPATION NOTES FINANCED DEPARTMENT OF TRANSPORTATION FINANCED REVENUES Earnings on investments Total Revenues $ EXPENDITURES Current: Transportation Debt service: Interest and other fiscal charges Capital outlay Total Expenditures (Deficiency) of Revenues Over Expenditures 7,696 7,696 $ 1,277 1,277 MRARF DEBT FINANCED CERTIFICATES OF PARTICIPATION FINANCED $ 1,225 1,225 $ 7,472 7,472 37,865 3,479 - 17,968 1,147 159,330 198,342 437 17,809 21,725 2,776 2,915 5,691 1,863 86,431 106,262 (190,646) (20,448) (4,466) (98,790) OTHER FINANCING SOURCES (USES) Transfers out Bonds issued (1,592) 193,950 (279) - (3,468) - (2,318) 370,000 Grant anticipation notes issued Certificates of participation issued Premium on debt issued Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning 7,205 199,563 8,917 207,081 Fund Balances - Ending $ 215,998 68,000 4,228 71,949 51,501 $ - 200 - 51,501 230,219 11,412 238,163 233,697 5,288 $ 238,985 20,429 388,111 289,321 $ 289,321 TOTAL $ 17,670 17,670 59,312 6,223 266,485 332,020 (314,350) (7,657) 563,950 68,000 230,219 43,274 897,786 583,436 212,369 $ 795,805 - 201 - 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. The 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, 2008 (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: Land and other non-depreciable Buildings, equipment, and other depreciable, net of accumulated depreciation Total Noncurrent Assets Total Assets LIABILITIES Current Liabilities: Accounts payable and other current liabilities Accrued liabilities Due to others Due to other Funds Unearned deferred revenue Current portion of long-term debt Current portion of other long-term liabilities Total Current Liabilities Noncurrent Liabilities: 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 $ 673 $ 139 $ - $ EXPANSION 21 $ - 793 953 1,964 5,501 - - - - 404 - 77,630 - 7 1,694 337 8 2,942 2 6,456 6 4,437 3,404 128 9,067 8 499 708 248 3,427 81 6,007 670 13,832 33,900 126,032 - - - - 20,273 182 695 8 3,809 - 1,040 1,222 7,678 2,950 3,645 12,712 165 173 3,600 5,360 9,169 15,176 20,273 146,305 766 270 186 1,222 664 816 41 103 256 1,880 100 93 2,974 131 3,298 109 131 3 206 449 6 72,170 14 72,190 82 82 1,304 283 283 2,163 3,298 449 72,190 1,222 3,645 173 9,166 - 5,152 6,904 129 5,561 74,115 - 6,374 $ 10,549 $ - 204 - 302 $ 14,727 $ 74,115 HEALTHCARE GROUP OF ARIZONA $ OTHER - $ 159 $ 992 14,169 452 23,832 - 100 78,034 100 21 14,190 1,861 58 2,630 691 13,832 8,512 337 33,966 7,054 459 167,809 - - 20,273 - 980 5,674 103 103 14,293 8,606 9,586 12,216 18,224 44,171 211,980 329 6,707 8,047 130 15,213 183 388 30 601 2,151 8,411 72,170 11,092 106 923 94,853 14,877 14,877 30,090 601 14,877 283 82 15,242 110,095 103 9,586 23,895 2,029 74,115 3,875 (15,900) $ TOTAL (15,797) $ 11,615 $ 101,885 - 205 - STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS NON-MAJOR ENTERPRISE FUNDS FOR THE YEAR ENDED JUNE 30, 2008 (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) $ 28,611 28,611 9,472 5,034 1,613 357 1,430 17,906 (653) 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 Transfers out Change in Net Assets Total Net Assets - Beginning Total Net Assets - Ending 16,057 1,127 69 17,253 6,944 680 7,624 $ 12,409 1,537 13,946 $ 1,755 1,755 24,255 2,675 83 516 581 28,110 501 4,408 2,123 715 40 424 7,710 (86) 2,078 5,520 3,748 549 135 1,220 13,250 696 3 3,796 146 25 1 3,971 (2,216) 132 132 21 53 74 (18) 94 (1) 75 202 400 602 5,202 (82) 5,120 (521) 575 (11) 1,298 105 - (983) (416) 6,790 $ $ EXPANSION 6,374 - (408) 10,957 $ 10,549 - 206 - (60) (11) 313 $ 302 2,904 - 1,238 13,489 $ 14,727 2,904 71,211 $ 74,115 HEALTHCARE GROUP OF ARIZONA $ OTHER 77,042 77,042 $ 71,639 2,908 1,258 67 953 76,825 217 13,711 635 33 14,379 $ 334 10,880 703 320 155 2,053 14,445 (66) 154,774 1,127 635 1,755 2,319 160,610 112,189 3,796 29,286 8,145 1,849 290 6,662 162,217 (1,607) 466 10 476 12 12 3 6,161 410 (83) 6,491 693 (54) 4,884 7,250 - $ TOTAL - 7,943 (23,740) (54) 11,669 (15,797) $ 11,615 7,355 (1,043) 11,196 90,689 $ 101,885 - 207 - STATE OF ARIZONA COMBINING STATEMENT OF CASH FLOWS NON-MAJOR ENTERPRISE FUNDS FOR THE YEAR ENDED JUNE 30, 2008 ARIZONA (Expressed in Thousands) INDUSTRIES FOR THE BLIND CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Receipts from federal and local governments Receipts from repayment of loans to local governments Receipts from other Funds Payments to suppliers or insurance companies Payments to employees Payments for loans to local governments Other receipts (payments) Net Cash Provided (Used) by Operating Activities $ CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Grants and contributions received Proceeds from interfund loans Transfers from other Funds Payments of interfund loans Transfers to other Funds Other receipts Net Cash Provided (Used) by Non-capital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from capital debt, installment purchase contracts, and capital leases 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 ARIZONA HIGHWAYS MAGAZINE 15,448 $ 934 (9,440) (4,954) (2,976) (988) 28,063 $ (25,295) (2,171) 597 103 - (983) - 103 (248) - COLISEUM & EXPOSITION CENTER 12,456 $ (7,185) (5,499) 1,537 1,309 1,630 7,715 65,000 (27) (146) (26,038) (1) 48,133 - (60) 400 50,000 (156,160) (2) - (983) - 340 (106,162) 386 (852) (5) - 6,627 $ (5,369) (2,162) 686 (218) - (248) (466) (5) CASH FLOWS FROM INVESTING ACTIVITIES Interest and dividends from investments Purchase of investments Other (payments) Net Cash Provided by Investing Activities 136 136 67 67 93 (1) 92 Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning (997) 2,463 Cash and Cash Equivalents - Ending Reconciliation of operating income (loss) to net cash provided (used) by operating activities: Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation and amortization Loss on sale of capital assets Net changes in assets and liabilities: (Increase) decrease in receivables, net of allowances (Increase) in due from U.S. Government Decrease 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 Increase (decrease) in due to other Funds Increase (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 $ $ 1,466 (785) 1,877 1,092 $ (653) $ 501 $ 1,964 (2,711) - (19) - (2,730) - 202 202 (131) 2,095 $ 5,926 $ 77,630 (86) $ 696 $ (2,216) 40 - 549 - (588) (193) (116) 7 169 10 (4) (35) 41 (589) 9 (385) 491 41 13 (89) 349 (11) (160) (33) (222) (6) 47 (45) 41 7 14 $ 7 $ 7 597 $ $ 4 $ 11 $ 4 $ 11 - 208 - (52,505) 130,135 $ 516 - (988) $ 5,604 (80) 5,524 (879) 6,805 357 17 $ HIGHWAY EXPANSION & EXTENSION LOAN PROGRAM (218) $ (18,323) 79 64,796 1 3,796 - 1,309 $ 48,133 $ 18 $ 497 $ 18 $ 497 HEALTHCARE GROUP OF ARIZONA $ OTHER 75,034 $ (78,183) (2,888) (6,037) TOTAL 14,419 $ (3,197) (10,914) 33 341 153,677 934 7,715 65,000 (128,696) (28,734) (26,038) (721) 43,137 10 7,250 - - 10 50,000 7,353 (156,160) (1,045) 400 7,260 - (99,442) - 386 (3,857) - (19) (41) - (3,490) 467 467 14 (3) 11 6,583 (3) (81) 6,499 (41) - 1,649 12,520 352 259 (53,296) 156,154 $ 14,169 $ 611 $ 217 $ (66) $ 67 - $ 102,858 (1,607) 320 - 1,849 17 3 (554) (3,785) (2,006) 21 44 (1) 48 (34) 30 - (19,498) (193) 79 64,795 242 (46) (841) (3,343) 3,792 (2,192) 83 $ (6,037) $ 341 $ 43,137 $ 23 $ - $ 560 $ 23 $ - $ 560 - 209 - 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 Sick Leave Fund 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, 2008 (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: Buildings, equipment, and other depreciable, 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 $ - $ - $ - $ 1,301 TECHNOLOGY $ - 56,762 3,699 99,700 3,432 3,329 60 2 3,003 59,827 33 3,525 7,257 7,789 1,813 109,302 2,811 50 7,594 2,945 1,015 1,430 8,719 93 93 59,920 55,625 55,625 62,882 39 39 109,341 1,776 1,776 9,370 4,568 4,568 13,287 2,708 251 122 52,126 286 55,493 37 609 2,769 522 3,937 80,156 101 1,239 135 81,631 690 48 738 1,073 53 467 1,593 311,801 311,801 367,294 3,110 234 3,344 7,281 81,631 738 1,593 93 (307,467) 49,746 5,855 39 27,671 1,776 6,856 4,568 7,126 (307,374) $ 55,601 - 212 - $ 27,710 $ 8,632 $ 11,694 $ $ RETIREE MOTOR SICK LEAVE POOL - $ TOTAL - $ 1,301 10,299 6,744 183,965 10,299 973 873 69 8 8,667 33 14,578 1,813 1,940 3,594 4,441 211,665 10,299 14,985 14,985 23,652 77,086 77,086 288,751 7,719 7,719 878 33 911 85,542 961 1,414 52,126 2,769 9,210 152,022 77,184 77,184 84,903 911 311,801 3,110 77,418 392,329 544,351 (74,604) 14,985 7,756 (74,604) $ 22,741 71,207 (326,807) $ (255,600) - 213 - STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS INTERNAL SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2008 (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) $ 40,268 35 40,303 6,262 29,503 39 65,903 1,746 103,453 (149) 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 (127) 371 (263) 45 26 1,655 (148) (7,385) Change in Net Assets Total Net Assets - Beginning, as restated $ $ 12,832 14,439 156 9,030 605 1,612 38,674 1,629 1 1 Capital grants and contributions Transfers out Total Net Assets - Ending 103,304 103,304 3,975 (3,286) (7,533) (299,841) 2,344 53,257 (307,374) $ 55,601 - 214 - 702,751 4 702,755 $ $ 20,540 20,540 682,089 2,509 1,913 16 57 35 686,619 16,136 143 1,288 422 716 32 2,535 5,136 3,557 - - (26) (26) 16,136 3,557 (3) (168) 27,710 1,177 9,225 1,892 1,505 231 6,487 20,517 23 (154) 15,968 11,742 $ 8,693 8,693 TECHNOLOGY (395) 3,403 5,229 $ 8,632 (398) 12,092 $ 11,694 $ RETIREE MOTOR SICK LEAVE POOL 13,833 13,833 $ 12,216 106 4 3 12,329 1,504 1,504 $ TOTAL 11,723 11 11,734 $ 5,396 861 130 2,948 1,242 1,639 12,216 (482) 901,112 50 901,162 713,853 34,690 34,020 14,254 68,073 14,054 878,944 22,218 21 21 (132) 371 (263) 46 22 (461) 22,240 (3,484) 784 (3,250) 4,759 (18,122) (1,980) (72,624) (2,927) 25,668 8,877 (264,477) (74,604) $ 22,741 $ (255,600) - 215 - STATE OF ARIZONA COMBINING STATEMENT OF CASH FLOWS INTERNAL SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2008 (Expressed in Thousands) CASH FLOWS FROM OPERATING ACTIVITIES Receipts from interfund services / premiums Payments to suppliers or insurance companies Payments to employees Payments to retirees Other receipts Net Cash Provided by Operating Activities RISK MANAGEMENT $ CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Transfers 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 TRANSPORTATION EQUIPMENT 103,304 $ (76,562) (6,210) 20,532 40,268 $ (15,928) (14,413) 28 9,955 (154) - (7,384) (3,286) (168) (154) (43) 724 (9,477) (10) (1,697) - (263) - - - (2,672) 51 - - (11,637) Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning 13,105 43,657 $ 56,762 $ 3,699 (149) $ 1,629 Net Cash Provided 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 $ 6,362 (1,858) (1,267) 3,237 (168) - - 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) 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 Increase in accrued insurance losses Increase in other liabilities 700,002 $ (676,139) (2,494) 4 21,373 (3,286) - (43) $ TELECOMMUNICATION (7,385) 1 CASH FLOWS FROM INVESTING ACTIVITIES Interest and dividends from investments Net Cash Provided by Investing Activities Cash and Cash Equivalents - Ending EMPLOYEE BENEFITS (10) 365 365 - (4,603) 8,302 $ 39 - 21,195 78,505 $ 1,386 3,347 $ 99,700 $ 4,733 $ 16,136 $ 3,557 9,030 (3) 3 266 411 32 91 19,822 20 (1,697) 16 (7) (592) (202) 60 37 716 (2,749) (813) 8,302 13 453 15 (2,281) (50) 726 649 (101) 21 $ 20,532 $ 9,955 $ 21,373 $ 3,237 $ - $ 3,975 $ - $ - $ - $ 3,975 $ - $ - - 216 - RETIREE SICK LEAVE TECHNOLOGY $ 20,429 $ (9,540) (9,189) 1,700 13,833 $ (7) (106) (10,685) 3,035 TOTAL 11,141 $ (7,992) (860) 11 2,300 895,339 (788,026) (34,539) (10,685) 43 62,132 (395) - (3,484) - (3,250) - (18,122) 1 (395) (3,484) (3,250) (18,121) 307 (3,828) 1,031 (19,259) (4,204) - - - - (263) - - - (2,672) 51 (4,204) - - $ MOTOR POOL (3,521) - (2,899) 6,228 $ - (449) 10,748 $ $ 3,329 $ 10,299 $ $ 23 $ 1,504 $ 1,505 - (112) 1 107 (75) 166 49 36 (21,112) 365 365 (4,471) 11,215 $ 6,744 $ 185,266 (482) $ 22,218 2,948 1,531 23,264 162,002 14,254 (973) 391 (55) (1) 472 (1) 1 (6,125) (813) 345 186 190 9,798 105 491 19,822 1,661 $ 1,700 $ 3,035 $ 2,300 $ 62,132 $ - $ - $ 784 $ 4,759 $ - $ - $ 784 $ 4,759 - 217 - 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 (PSPRS) 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 (EORP) 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 (CORP) 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, 2008 (Expressed in Thousands) PENSION TRUST FUNDS ASRS ASSETS Cash $ Receivables, net of allowances: Accrued interest and dividends Securities sold Forward contract receivable Contributions Court fees Miscellaneous receivables Total receivables Investments, at fair value: Temporary investments Temporary investments from securities lending U.S. Government securities Corporate bonds Corporate 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 Total Liabilities PSPRS 23,304 $ EORP 95,337 $ CORP 5,974 $ 58,316 70,089 413,991 1,532,416 49,956 5,966 18,456 95,957 12,900 2,208 1,231 6,681 441 362 12 4,015 10,997 3,366 5 2,072,418 129,521 8,727 18,383 1,574,989 - - - 3,634,660 4,176,962 2,339,164 16,606,103 492,432 197,056 654,259 591,086 3,285,911 1,028,902 315,227 40,292 39,794 215,778 61,810 24,796 152,259 124,034 737,895 240,882 73,970 29,021,366 5,875,385 382,470 1,329,040 - 4,162 278 734 31,117,088 6,104,405 397,449 1,406,473 1,572,190 1,193,051 1,059 55,163 482 3,092 1,651 22,352 3,634,660 1,028,902 61,810 240,882 6,399,901 1,085,124 65,384 264,885 NET ASSETS Held in Trust for Pension Benefits $ 24,717,187 $ 5,019,281 $ - 220 - 332,065 $ 1,141,588 OTHER EMPLOYEE BENEFIT TRUST FUNDS HEALTH $ $ BENEFIT LONG-TERM SUPPLEMENT DISABILITY FUND FUND 2,430 $ TOTAL 7,061 $ 192,422 3,077 18,177 67,283 3,076 170 2,910 2,360 96,868 545,803 1,599,699 72,649 362 10,721 91,783 5,270 2,326,102 63,786 3,003 1,641,778 159,586 180,597 101,810 737,950 21,429 8,709 34,448 25,102 170,509 - 3,794,246 5,238,817 3,220,990 21,754,146 513,861 1,331,594 619,758 1,273,867 233,062 38,115,190 - - 5,174 1,368,080 245,393 40,638,888 68,125 52,383 222 - 1,643,729 1,326,041 159,586 - 5,125,840 280,094 222 8,095,610 1,087,986 $ 245,171 $ 32,543,278 - 221 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS PENSION AND OTHER EMPLOYEE BENEFIT TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2008 (Expressed in Thousands) PENSION TRUST FUNDS ASRS ADDITIONS: Member contributions Employer contributions Transfers from other Funds Member purchase of service credit Court fees $ Investment income (loss): Net (decrease) in fair value of investments Interest income Dividends Real estate 857,813 759,482 90,030 - $ (2,511,535) 254,353 313,367 22,769 Other investment income Less investment expenses: Investment activity expenses Security lending expenses Net investment income (loss) Other additions Total Deductions Change in net assets held in trust for pension benefits Net Assets - Beginning $ $ 4,356 7,276 1,045 4,155 $ (36,152) 7,696 5,347 - - 51,700 43,859 164,194 871 - (102,765) 17,871 16,817 - - - 38,078 (373,521) 2,379 (20,730) 7,311 (60,766) 77,936 130,401 (1,963,259) 5,485 32,500 (411,506) 2,052 368 (23,150) 1,082 6,192 (68,040) 1,696 (250,738) DEDUCTIONS: Retirement and disability benefits Death benefits Refunds to withdrawing members, including interest Administrative expense Transfer to other Funds Other deductions 97,157 221,733 9,483 - CORP 152,205 (1,754,922) 5,196 Total Additions EORP (582,953) 90,974 80,380 - 13,919 Securities lending income Total investment income (loss) Net Assets - Ending PSPRS 573 3,218 (81,437) (5,745) 195,802 1,768,219 22,648 418,386 - 31,607 - 48,973 - 104,387 29,195 164,194 12,990 7,885 4,662 143 64 355 5 16,212 1,103 864 2,101,633 431,076 32,031 67,152 (2,352,371) 27,069,558 (512,513) 5,531,794 (37,776) 369,841 24,717,187 $ 5,019,281 $ - 222 - 332,065 128,650 1,012,938 $ 1,141,588 OTHER EMPLOYEE BENEFIT TRUST FUNDS HEALTH BENEFIT SUPPLEMENT FUND $ LONG-TERM DISABILITY FUND 99,027 - $ (112,026) 11,339 13,978 1,016 47,171 47,171 - $ (22,339) 122 9 - 644 1,058,197 1,178,548 164,194 101,429 4,155 (3,367,770) 382,355 429,898 23,785 585 15,148 6,789 (78,260) (21,623) 206,762 (2,309,822) 3,483 5,816 (87,559) (21,623) 90,038 175,277 (2,575,137) - - 11,468 72,719 85,132 - 68,284 - 2,420,601 22,648 1,282 21 2,750 - 128,548 39,347 164,194 14,023 86,435 71,034 2,789,361 1,685 243,486 (2,847,292) 35,390,570 (74,967) 1,162,953 $ TOTAL 1,087,986 $ 245,171 10,683 (57,931) $ 32,543,278 - 223 - 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, 2008 (Expressed in Thousands) CENTRAL ARIZONA $ Investments, at fair value: U.S. Government securities Corporate bonds Corporate notes Repurchase agreements Money market mutual funds Other Total investments LOCAL LOCAL GOVERNMENT GOVERNMENT GOVERNMENT INVESTMENT INVESTMENT CONSERVATION INVESTMENT POOL- DISTRICT POOL WATER ASSETS Receivables, net of allowances: Accrued interest and dividends Total receivables LOCAL 1,019 1,019 $ POOL- LONG-TERM 4,405 4,405 $ 441 441 GOVERNMENT $ 7,830 7,830 TOTAL $ 13,695 13,695 65,821 8,768 33,778 4,881 113,248 1,913,126 737,902 4,248 2,655,276 37,557 16,471 5 54,033 455,780 1,642,653 2,098,433 2,472,284 8,768 788,151 1,642,653 4,886 4,248 4,920,990 114,267 2,659,681 54,474 2,106,263 4,934,685 LIABILITIES Payable for securities purchased Due to local governments 1,038 2,113 1,040 456 9,752 1,040 13,359 Total Liabilities 1,038 2,113 1,496 9,752 14,399 Total Assets NET ASSETS Held in trust for pool participants $ Net assets consist of: Participant shares outstanding Participants' net asset value (net assets/shares outstanding) 113,229 $ 113,229 $ 1.00 2,657,568 $ 2,657,568 $ 1.00 - 226 - 52,978 $ 53,007 $ 0.9995 2,096,511 2,096,511 $ 1.00 $ 4,920,286 4,920,315 STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS INVESTMENT TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2008 (Expressed in Thousands) ADDITIONS: Investment income: Net increase (decrease) in fair value of investments Interest income Total investment income LOCAL LOCAL CENTRAL ARIZONA LOCAL GOVERNMENT GOVERNMENT INVESTMENT $ WATER GOVERNMENT INVESTMENT CONSERVATION INVESTMENT POOL- POOL- DISTRICT POOL LONG-TERM GOVERNMENT 107 5,243 5,350 Less: Investment activity expenses Net investment income 73 5,277 Capital share and individual account transactions: Shares sold Reinvested interest income Shares redeemed Net capital share and individual account transactions 7,735 5,181 (5,483) Total Additions DEDUCTIONS: Dividends to investors Total Deductions Change in net assets held in trust for pool participants Net Assets - Beginning Net Assets - Ending $ $ (6,532) $ 91,927 85,395 190 1,549 1,739 1,466 83,929 23 1,716 4,240,878 97,010 (3,553,248) $ 1,317 69,593 70,910 TOTAL $ 1,318 69,592 27,264 1,458 (3,355) (4,918) 168,312 163,394 2,880 160,514 2,634,858 73,221 (2,577,370) 6,910,735 176,870 (6,139,456) 7,433 784,640 25,367 130,709 948,149 12,710 868,569 27,083 200,301 1,108,663 5,277 83,929 1,717 69,591 160,514 5,277 83,929 1,717 69,591 160,514 7,433 105,796 784,640 1,872,928 25,366 27,612 130,710 1,965,801 948,149 3,972,137 113,229 $ 2,657,568 - 227 - $ 52,978 $ 2,096,511 $ 4,920,286 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 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 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 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, 2008 (Expressed in Thousands) TREASURER CUSTODIAL SECURITIES FUND ASSETS Cash Cash and pooled investments with State Treasurer Receivables, net of allowances: Accrued interest Due from others Other investments Custodial securities in safekeeping Total Assets $ - OTHER TREASURER FUNDS $ OTHER FUNDS - $ 29,474 TOTAL $ 29,474 - 30,074 200,650 230,724 3,256,879 57 - 83 78,655 13,362 87,498 140 78,655 13,362 3,344,377 $ 3,256,879 $ 30,131 $ 409,722 $ 3,696,732 Due to local governments Due to others $ 3,256,879 $ 11,716 18,415 $ 161,016 248,706 $ 172,732 3,524,000 Total Liabilities $ 3,256,879 $ 30,131 $ 409,722 $ 3,696,732 LIABILITIES - 231 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUNDS FOR THE YEAR ENDED JUNE 30, 2008 (Expressed in Thousands) BALANCE JULY 1, 2007 TREASURER CUSTODIAL SECURITIES FUND Assets: Custodial securities in safekeeping Total Assets Liabilities: Due to others Total Liabilities OTHER TREASURER FUNDS Assets: Cash and pooled investments with State Treasurer Receivables, net of allowances: Accrued interest ADDITIONS BALANCE JUNE 30, 2008 DELETIONS $ 2,714,882 $ 2,809,408 $ 2,267,411 $ 3,256,879 $ 2,714,882 $ 2,809,408 $ 2,267,411 $ 3,256,879 $ 2,714,882 $ 2,809,408 $ 2,267,411 $ 3,256,879 $ 2,714,882 $ 2,809,408 $ 2,267,411 $ 3,256,879 $ 30,250 $ 597,616 $ 597,792 $ 30,074 105 57 105 57 Total Assets $ 30,355 $ 597,673 $ 597,897 $ 30,131 Liabilities: Due to local governments Due to others $ 10,248 20,107 $ 540,911 48,140 $ 539,443 49,832 $ 11,716 18,415 $ 30,355 $ 589,051 $ 589,275 $ 30,131 $ - $ 14,809 $ 14,809 $ - Total Assets $ - $ 14,809 $ 14,809 $ - Liabilities: Benefits payable $ - $ 14,809 $ 14,809 $ - $ - $ 14,809 $ 14,809 $ - Total Liabilities HEALTH INSURANCE SUBSIDY FUND Assets: Cash Total Liabilities (Continued) - 232 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUNDS FOR THE YEAR ENDED JUNE 30, 2008 (Expressed in Thousands) BALANCE JULY 1, 2007 OTHER FUNDS Assets: Cash Cash and pooled investments with State Treasurer Short-term investments Receivables, net of allowances: Accrued interest Due from others Other investments Custodial securities in safekeeping Total Assets $ 34,879 239,812 5,096 ADDITIONS $ 283 76,257 4,917 74,600 $ 728,192 5,960,768 - BALANCE JUNE 30, 2008 DELETIONS $ 77 78,655 13,362 87,498 733,597 5,999,930 5,096 $ 277 76,257 4,917 74,600 29,474 200,650 83 78,655 13,362 87,498 435,844 $ 6,868,552 $ 6,894,674 $ 409,722 179,389 $ 8,536,464 $ 8,554,837 $ 161,016 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: Accrued interest Due from others Other investments Custodial securities in safekeeping Total Assets Liabilities: Benefits payable Due to local governments Due to others Total Liabilities 256,455 1,130,838 1,138,587 248,706 $ 435,844 $ 9,667,302 $ 9,693,424 $ 409,722 $ 34,879 270,062 5,096 $ 743,001 6,558,384 - $ 748,406 6,597,722 5,096 $ 29,474 230,724 - 388 76,257 4,917 2,789,482 134 78,655 13,362 2,896,906 382 76,257 4,917 2,342,011 140 78,655 13,362 3,344,377 $ 3,181,081 $ 10,290,442 $ 9,774,791 $ 3,696,732 $ 189,637 2,991,444 $ 14,809 9,077,375 3,988,386 $ 14,809 9,094,280 3,455,830 $ 172,732 3,524,000 $ 3,181,081 $ 13,080,570 $ 12,564,919 $ 3,696,732 - 233 - 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 use by students of the ASU. 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. Downtown Phoenix Student Housing, LLC provides facilities for use by students of the ASU. 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 and related properties. 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, 2008 (Expressed in Thousands) NORTHERN ARIZONA UNIVERSITY FOUNDATION ASSETS Cash and cash equivalent investments $ Receivables: Pledges receivable Other receivables Total receivables Investments: Investments in securities Investments held in trust for Universities Other investments Total investments Net direct financing leases Property and equipment, net of accumulated depreciation Licenses 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 $ 38 NORTHERN ARIZONA CAPITAL FACILITIES FINANCE CORP. MESA STUDENT HOUSING SUN ANGEL FOUNDATION SUN ANGEL ENDOWMENT $ $ $ $ 9 1,125 3,575 378 9,474 243 9,717 299 299 2 2 9,973 436 10,409 - 72,157 5,183 1 77,341 - 3,819 3,819 - 11,529 11,529 - 49,180 - - - 74 5,570 1,919 3,071 13,330 1,162 1,416 159 28 94,659 52,559 19,438 15,559 11,935 5,845 9,809 1,140 49,139 20 1,725 19,262 102 1,359 2,356 5,015 16,794 50,884 20,723 2,356 5,015 36,556 22,844 18,465 1,675 (1,285) 12,975 228 1,842 257 4,821 77,865 $ 1,675 - 236 - $ (1,285) $ 13,203 $ 6,920 COLLEGIATE GOLF FOUNDATION ARIZONA STATE UNIVERSITY RESEARCH PARK, INC. ARIZONA STATE UNIVERSITY ALUMNI ASSOCIATION DOWNTOWN PHOENIX STUDENT HOUSING $ $ $ $ $ 79 1,740 655 26 UNIVERSITY OF ARIZONA LAW COLLEGE ASSOCIATION $ 2,218 UNIVERSITY OF ARIZONA CAMPUS RESEARCH CORPORATION UNIVERSITY OF ARIZONA ALUMNI ASSOCIATION $ $ 2,557 2,168 TOTAL $ 14,568 103 103 7,978 7,978 143 65 208 - 31,728 31,728 1,377 1,377 988 988 51,318 11,491 62,809 - 1,528 1,528 14,645 14,645 44,374 44,374 5,251 242 5,493 - 3,964 3,964 157,267 5,183 243 162,693 - - - - - - - 49,180 209 186 7,345 2,289 345 88,181 6,850 111 - 11,219 4,467 33 98 121,918 5,570 20,574 577 20,880 15,853 139,431 39,550 19,620 7,251 437,312 76 593 11,640 13,499 1,728 1,626 237 127,610 11,805 64 9,815 893 2,695 14 2,575 52 5,845 217,480 28,600 28,769 669 26,867 1,863 139,415 64 13,403 2,641 280,694 (92) (5,987) 239 13,751 16 3,774 34,389 1,323 6,217 4,610 42,172 70,704 43,742 (92) $ (5,987) $ 13,990 $ 16 $ - 237 - 39,486 $ 6,217 $ 4,610 $ 156,618 STATE OF ARIZONA COMBINING STATEMENT OF ACTIVITIES NON-MAJOR UNIVERSITIES - AFFILIATED COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2008 (Expressed in Thousands) NORTHERN ARIZONA UNIVERSITY FOUNDATION REVENUES Contributions Rental revenue Sales and services Net investment income Capital lease revenue Licensing 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 Depreciation and amortization Other expenses Total Expenses Increase (Decrease) in Net Assets Net Assets - Beginning, as restated Net Assets - Ending $ 11,224 (3,226) 6,335 793 NORTHERN ARIZONA CAPITAL FACILITIES FINANCE CORP. MESA STUDENT HOUSING SUN ANGEL FOUNDATION SUN ANGEL ENDOWMENT $ $ $ $ 11,149 1,812 12,400 1,760 6,189 59 169 195 18,190 676 94 1,449 (451) 6 15,126 27,121 6,612 20,409 (445) 5,318 - - 10,061 - 5,000 408 2,890 - 2,346 1,863 3,748 1,199 1,139 963 - 134 - - 23,990 43 1,011 651 108 70 - 8,616 29,253 5,706 12,233 5,134 6,510 71,355 (2,132) 3,807 906 (2,191) 8,176 5,027 (5,579) 12,499 77,865 $ 1,675 - 238 - $ (1,285) $ 13,203 $ 6,920 COLLEGIATE GOLF FOUNDATION ARIZONA STATE UNIVERSITY RESEARCH PARK, INC. ARIZONA STATE UNIVERSITY ALUMNI ASSOCIATION DOWNTOWN PHOENIX STUDENT HOUSING $ $ $ $ 4,493 1 - 1,245 2,906 119 93 15 1 $ 7,275 219 48 UNIVERSITY OF ARIZONA CAMPUS RESEARCH CORPORATION UNIVERSITY OF ARIZONA ALUMNI ASSOCIATION $ $ 10,087 37 278 171 848 179 2,807 TOTAL $ 38,105 33,502 8,982 (938) 12,400 6,335 7,500 4,494 6,241 4,363 16 7,542 10,402 4,005 105,886 454 - 2,084 - - - 5,937 - 7,624 1,346 - 2,838 - 12,599 7,624 10,121 10,318 4,088 24 1,249 477 4,552 - - 34 39 - 991 - 683 115 - 19,372 4,007 3,563 73 - 630 150 - - 365 378 - 23,990 1,397 2,082 4,639 4,590 4,552 - 6,375 10,339 3,636 95,073 1,651 (7,638) (189) 14,179 16 - 1,167 38,319 63 6,154 369 4,241 10,813 145,805 (5,987) $ 13,990 (145) 53 $ 6,062 109 70 UNIVERSITY OF ARIZONA LAW COLLEGE ASSOCIATION (92) $ $ 16 $ - 239 - 39,486 $ 6,217 $ 4,610 $ 156,618 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 SEVEN FISCAL YEARS (2) FISCAL YEAR ENDED JUNE 30, 2008 (Expressed in Thousands) Fiscal Year 2008 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 $ 14,530,867 $ 53,212 970,202 36,496 69,305 3,523,725 334,425 (1,105,246) 2007, as 2006, as 2005, as 2004, as restated restated restated restated 13,500,218 $ 12,878,151 40,737 1,003,824 38,804 63,219 561,795 44,846 21,290 3,467,467 161,917 614,606 19,244 2,785,419 86,345 733,455 $ 11,825,961 $ 11,226,325 102,794 548,488 28,708 73,466 414,113 31,302 5,106 2,164,200 88,992 (463,515) 1,550,247 31,447 (684,492) $ 18,412,986 $ 18,848,863 $ 17,172,474 $ 14,300,734 $ 12,642,408 $ 1,387,655 $ 1,186,177 $ 1,146,618 $ 1,172,613 $ 1,169,198 6,207 1,072,996 10,045 8,505 1,075,038 11,119 6,106 949,919 9,198 2,657 820,383 8,203 3,023 796,119 16,940 264,466 153,383 74,115 188,354 210,635 199,471 71,211 12 295,377 189,746 178,001 67,423 62 179,524 171,976 163,922 64,875 84,248 157,595 153,073 63,500 115,986 $ 3,157,221 $ 3,057,545 $ 2,726,597 $ 2,488,877 $ 2,475,434 $ 15,918,522 $ 14,686,395 $ 14,024,769 $ 12,998,574 $ 12,395,523 $ 53,212 976,409 1,072,996 46,541 40,737 1,012,329 1,075,038 49,923 63,219 567,901 949,919 54,044 333,771 3,677,108 74,115 334,425 (916,892) 231,925 3,666,938 71,211 161,929 909,983 208,990 2,963,420 67,423 86,407 912,979 21,570,207 $ 21,906,408 $ 19,899,071 $ 102,794 551,145 820,383 36,911 73,466 417,136 796,119 48,242 177,082 2,328,122 64,875 88,992 (379,267) 157,595 1,703,320 63,500 31,447 (568,506) 16,789,611 (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) For fiscal year 2007, the $442,029 increase was primarily due to the transfer of $245,000 of General Fund monies in order to accelerate the construction of certain critical projects on the State highway system, and $185,000 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. - 244 - $ 15,117,842 Fiscal Year $ 2003, as 2002, as restated restated (2) 10,690,782 $ 108,268 495,663 30,470 10,043,985 158,424 589,996 51,861 20,082 1,395,750 21,080 (799,587) 56,697 1,243,389 24,132 358,806 $ 11,962,508 $ 12,527,290 $ 1,153,428 $ 1,165,306 21,842 893,470 24,715 33,515 1,055,543 30,153 143,683 141,281 63,249 2,763 251,415 258,954 95,146 277,195 $ 2,695,846 $ 2,915,812 $ 11,844,210 $ 11,209,291 $ 108,268 517,505 893,470 55,185 158,424 623,511 1,055,543 82,014 163,765 1,537,031 63,249 23,843 (548,172) 56,697 1,243,389 258,954 119,278 636,001 14,658,354 $ 15,443,102 - 245 - STATE OF ARIZONA SCHEDULE 2 CHANGES IN NET ASSETS (1) FOR THE LAST SEVEN FISCAL YEARS (2) FISCAL YEAR ENDED JUNE 30, 2008 (Expressed in Thousands) Fiscal Year 2008 EXPENSES Governmental Activities: General government Health and welfare Inspection and regulation Education Protection and safety Transportation (3) Natural resources Intergovernmental revenue sharing Interest on long-term debt Total Governmental Activities Expenses $ Business-type Activities: Universities Unemployment Compensation Industrial Commission Special Fund (4) Lottery Other Total Business-type Activities Expenses Total Primary Government Expenses PROGRAM REVENUES Governmental Activities: Charges for services: General government Inspection and regulation Transportation (5) Other activities Operating grants and contributions (6) Capital grants and contributions Total Governmental Activities Program Revenues Business-type Activities: Charges for services: Universities Lottery Other activities (7) Operating grants and contributions (8) Capital grants and contributions Total Business-type Activities Program Revenues Total Primary Government Program Revenues 982,382 10,884,297 185,996 6,242,173 1,510,615 670,173 250,258 3,023,836 179,795 23,929,525 $ 3,227,481 356,333 14,824 372,740 162,300 4,133,678 2007, as 2006, as restated restated 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 3,772,564 781,542 9,057,733 159,766 5,304,555 1,279,129 386,777 187,947 2,658,636 172,439 19,988,524 2004, as 2005 $ 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 restated $ 2,540,193 292,127 106,295 317,226 120,629 3,376,470 726,525 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 $ 28,063,203 $ 25,759,623 $ 23,472,950 $ 21,984,348 $ 20,893,393 $ 190,374 159,857 149,560 318,776 9,190,910 523,898 $ 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 $ 10,533,375 9,688,617 9,051,628 8,659,169 8,039,843 1,167,696 472,937 485,242 898,441 38,029 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 3,062,345 2,961,815 2,789,309 2,555,444 2,304,439 13,595,720 $ 12,650,432 $ 11,840,937 $ 11,214,613 $ 10,344,282 NET (EXPENSE) REVENUE Governmental activities Business-type activities $ (13,396,150) $ (1,071,333) (12,298,442) $ (810,749) (10,936,896) $ (695,117) (9,948,709) $ (821,026) (9,519,204) (1,029,907) Total Primary Government Net (Expense) $ (14,467,483) $ (13,109,191) $ (11,632,013) $ (10,769,735) $ (10,549,111) - 246 - Fiscal Year $ 2003, as 2002, as restated restated (2) 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 $ 19,613,134 $ 17,881,326 $ 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 $ 6,932,090 6,048,813 675,089 322,267 259,676 810,549 23,090 639,050 294,848 254,984 737,170 48,180 2,090,671 1,974,232 9,022,761 $ 8,023,045 $ (9,599,401) $ (990,972) (8,993,960) (864,321) $ (10,590,373) $ (9,858,281) (Continued) - 247 - STATE OF ARIZONA SCHEDULE 2 CHANGES IN NET ASSETS (1) FOR THE LAST SEVEN FISCAL YEARS (2) FISCAL YEAR ENDED JUNE 30, 2008 (Expressed in Thousands) Fiscal Year 2008 GENERAL REVENUES AND OTHER CHANGES IN NET ASSETS Governmental Activities: Taxes: Sales Income Tobacco (9) Property Motor vehicle and fuel (5) Other (9) Unrestricted investment earnings (10) Unrestricted grants and contributions Miscellaneous general revenues (6) Gain on sale of trust land Transfers Total Governmental Activities $ Business-type Activities: Sales taxes Unrestricted investment earnings Unrestricted grants and contributions (8) Miscellaneous general revenues (7) Contributions to permanent endowments Special items Extraordinary items Transfers Total Business-type Activities 6,270,419 $ 4,205,426 413,333 36,732 1,800,920 559,440 243,160 13,574 214,751 196,953 (994,435) 12,960,273 72,945 39,763 64,564 3,927 (20,100) 15,475 994,435 1,171,009 Total Primary Government $ CHANGE IN NET ASSETS Governmental activities (3) Business-type activities Total Primary Government 14,131,282 2007, as 2006, as restated restated 6,537,584 $ 4,636,447 358,205 43,736 1,826,893 529,629 243,328 11,711 212,253 451,501 (876,456) 13,974,831 79,223 103,362 77,841 4,815 876,456 1,141,697 2004, as 2005 restated 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 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 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 50,050 38,753 46,615 2,231 (6,880) 678,726 809,495 $ 15,116,528 $ 14,741,473 $ 12,441,504 $ $ (435,877) $ 99,676 1,676,389 330,948 $ 2,871,740 237,720 $ 1,658,326 13,443 $ 679,900 (220,412) $ (336,201) $ 2,007,337 $ 3,109,460 $ 1,671,769 $ 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) 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 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. (5) $31,804 of transportation's charges for services for fiscal year 2005 were classified as motor vehicle and fuel tax revenues. (6) 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. (7) 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. (8) 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. (9) Prior to fiscal year 2004, tobacco tax revenue was included in other tax revenue. (10) FY 07 Unrestricted investment earnings has been reduced by $17,771 due to reclassifying the Greater Arizona Development Authority to a component unit from primary government. - 248 - 11,008,599 Fiscal Year $ 2003, as 2002, as restated restated (2) 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 43,450 32,527 3 26,985 3,037 665,004 771,006 $ 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) - 249 - STATE OF ARIZONA SCHEDULE 3 FUND BALANCES, GOVERNMENTAL FUNDS (1) FOR THE LAST SEVEN FISCAL YEARS (2) FISCAL YEAR ENDED JUNE 30, 2008 (Expressed in Thousands) Fiscal Year 2007, as 2008 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 restated 2005 2004 $ 147,212 1,914 103,320 262 108,914 $ 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 $ 361,622 $ 1,923,099 $ 2,266,138 $ 1,310,402 $ 746,638 $ 1,253,202 238,985 2,544,365 143,785 35,236 27,132 $ 976,488 5,288 2,454,564 94,602 34,421 17,702 $ 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 25,138 919,679 $ 5,162,384 793,890 $ 4,376,955 657,371 $ 3,294,841 574,938 $ 2,891,226 (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. - 250 - 463,738 $ 2,373,257 Fiscal Year 2002, as 2003 restated (2) $ 13,737 101,944 87,131 598 343,012 $ 67,700 105,816 611 574,146 $ 546,422 $ 748,273 $ 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 38,382 444,301 $ 2,129,974 634,710 29,661 $ 2,542,269 - 251 - STATE OF ARIZONA SCHEDULE 4 CHANGES IN FUND BALANCES, GOVERNMENTAL FUNDS (1) FOR THE LAST SEVEN FISCAL YEARS (2) FISCAL YEAR ENDED JUNE 30, 2008 (Expressed in Thousands) Fiscal Year 2007, as 2008 REVENUES Taxes: Sales Income Tobacco (3) Property Motor vehicle and fuel Other (3) Intergovernmental Licenses, fees, and permits Earnings on investments (4,8) 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 $ 6,278,181 4,174,966 413,333 36,732 1,802,572 559,440 9,499,419 447,090 135,879 167,329 167,309 94,004 115,587 263,443 24,155,284 restated $ 6,527,968 4,629,220 358,205 43,736 1,828,701 529,629 8,313,720 442,236 510,253 158,318 183,923 94,771 90,258 264,440 23,975,378 2005 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 $ 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 18,617,749 966,512 10,874,581 184,451 6,240,862 1,447,372 630,283 242,893 3,026,563 879,519 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 2,144,438 261,228 210,856 1,106,951 25,192,552 220,473 195,317 992,000 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 18,545,242 919,866 1,706,636 904,227 72,507 (1,037,268) - 252 - Fiscal Year 2002, as 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 15,151,503 689,603 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 2,190,211 297,508 140,613 1,041,038 17,556,862 270,912 125,594 1,127,411 15,771,112 (1,260,749) (619,609) (Continued) - 253 - STATE OF ARIZONA SCHEDULE 4 CHANGES IN FUND BALANCES, GOVERNMENTAL FUNDS (1) FOR THE LAST SEVEN FISCAL YEARS (2) FISCAL YEAR ENDED JUNE 30, 2008 (Expressed in Thousands) Fiscal Year 2007, as 2008 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 Proceeds from notes and loans Refunding bonds issued Payment to refunded bond escrow agent Bonds issued Refunding grant anticipation notes issued Grant anticipation notes issued Refunding certificates of participation issued Payment to refunded certificates of participation escrow agent Certificates of participation issued Premium on debt issued Total Other Financing Sources (Uses) NET CHANGE IN FUND BALANCES DEBT SERVICE AS A PERCENTAGE OF NONCAPITAL EXPENDITURES restated 897,771 (1,874,084) 249,970 28,233 23,556 19,529 82,880 (86,547) 563,950 68,000 910,605 (1,784,833) 199,089 10,162 132,985 325,000 - 238,990 48,972 261,220 $ (776,048) $ 2.0% - 1.9% 2005 2004 812,083 (1,585,754) 284,293 11,118 1,011,456 (1,714,562) 274,127 - 940,050 (1,616,105) 149,001 - 3,543 596,160 (646,689) 118,250 - 5,350 224,283 (247,417) 210,577 104,385 24,349 107,940 (145,965) 389,746 22,633 177,322 334,225 16,725 (363,052) 237,625 100,509 177,506 (17,273) 273,735 48,834 370,992 - 26,201 (180,791) 739,075 2006 59,711 (347,285) $ 1,359,351 $ 1,081,733 2.2% (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. (8) In fiscal year 2008, the Greater Arizona Development Authority Fund was reclassified from a special revenue fund to a component unit. Fiscal year 2007 Earnings on investments has been restated to reflect this change. - 254 - 3.1% $ 443,499 2.9% Fiscal Year 2002, as 2003 $ restated (2) 1,053,862 (1,690,443) 88,066 - 848,252 (1,549,833) 51,265 - 101,473 90,530 (107,735) 662,975 - 4,167 74,250 (77,135) 148,350 - 75,295 71,051 (80,713) 372,730 80,563 646,603 (65,087) 68,203 14,816 (411,701) (614,146) $ 2.7% (1,031,310) 2.7% - 255 - STATE OF ARIZONA SCHEDULE 5 NET TAXABLE SALES BY CLASSIFICATION (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2008 (Expressed in Thousands) Fiscal Year 2008 CLASSIFICATION (9) Transporting (2) Mining, oil and gas Mining severance Timber severance (3) Utilities Communications Private car and pipelines Publishing Job printing Local advertising (4) Restaurants and bars Amusements Commercial lease (5) Personal property rentals Contracting Feed wholesale (6) Retail Hotel/motel Rental occupancy tax Use tax Use tax-utilities (10) Membership camping Agriculture equipment (7) Other Total Direct sales tax rate (8) $ $ 2007 48,713 216,675 1,752,522 9,237,779 3,669,683 16,021 122,652 391,038 9,663,959 1,146,344 (443) 3,995,697 20,156,299 52,626,993 2,405,705 (2,669) 6,837,880 12,461 52 112,297,361 5.60% $ $ 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 12,154 12 115,286,903 $ $ 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 16,582 2,785 108,713,425 5.60% 5.60% 2004 2003 $ 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 5,218,535 234 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 4,644,319 127 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 - $ 93,074,018 $ 83,582,870 $ 76,941,354 5.60% 5.60% 5.60% N/A = Not available (1) Net taxable sales are based upon tax receipts. (2) The transporting/towing and railroads/aircraft business classifications have been combined into one category and renamed "transporting." (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) Local advertising was phased out on January 1, 1986. (5) Commercial lease rate dropped to 0% effective July 1, 1997. (6) Feed wholesale dropped to 0% effective July 17, 1994 and was repealed effective October 1, 1994. (7) Agriculture equipment was phased out on July 1, 1988 and is not a current business classification. (8) A significant portion of the revenue base was subject to a sales tax rate of 5.6% for fiscal years 2002 thru 2008 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 2008, 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. (10) Use Tax-Utilities was not reported prior to fiscal year 2008. Fiscal years 2004-2008 were reported in fiscal year 2008. Information prior to 2004 is not available. Source: Arizona Department of Revenue Annual Report for fiscal years 2008 and prior. June 2008 Tax Facts report from Department of Revenue web site for fiscal year 2008. - 256 - Fiscal Year 2002 2001 2000 1999 $ 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 - $ 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 - $ 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 - $ 75,586,873 $ 75,997,661 $ 72,420,022 $ 65,638,142 5.60% 5.00% 5.00% N/A - 257 - (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 2008 Percentage Tax Percentage Collections (4) of Total Collections (5) of Total CLASSIFICATION Transporting (1) $ Non-metal mining, oil and gas Mining severance Timbering severance - ponderosa (2) Timbering severance - other (2) Utilities Communications Railroads and aircraft (1) Private car and pipelines Publishing Printing Restaurants and bars Amusements Commercial lease (3) Personal property rentals Contracting Feed wholesale (4) Retail Hotel/motel Rental occupancy tax (2) Use tax utilities Use tax License fees Membership camping Jet fuel tax Jet fuel use tax Non sufficient funds Telecommunications service assistance Education tax (5) Total (6) Fiscal Year 1999 Tax $ 2,418 6,761 43,752 5 461,455 183,289 800 6,125 19,528 482,664 57,247 (17) 199,569 1,006,520 2,628,261 132,163 (80) 623 340,535 562 3 4,636 1,045 (2) (245) 645,828 6,223,445 0.04 % 0.11 0.70 7.41 2.95 0.01 0.10 0.31 7.76 0.92 3.21 16.17 42.23 2.12 0.01 5.47 0.01 0.07 0.02 - $ 10.38 100.00 % 2,915 6,398 18,731 36 4 253,332 107,651 1,803 778 5,952 20,937 273,834 34,007 (205) 158,517 501,075 1 1,648,224 92,371 118 147,581 512 84 4,940 462 48 (205) - $ 3,279,901 0.09 % 0.20 0.57 7.72 3.28 0.05 0.02 0.18 0.64 8.35 1.04 (0.01) 4.83 15.28 50.27 2.82 4.50 0.02 0.15 0.01 (0.01) 100.00 % (1) Transporting/towing was combined with railroads/aircraft for confidentiality purposes beginning in fiscal year 2004. (2) Effective November 1, 2006 these rates were repealed. (3) Commercial lease rate dropped to 0% effective July 17, 1997. (4) Feed wholesale dropped to 0% effective July 17, 1994 and was repealed effective October 1, 1994. (5) 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. (6) Does not reflect the balance of undistributed estimated payments of $11,669 at the end of fiscal year 1999. Source: Arizona Department of Revenue Annual Report. - 259 - STATE OF ARIZONA SCHEDULE 7 PERSONAL INCOME BY INDUSTRY FOR THE LAST TEN CALENDAR YEARS (Expressed in Thousands) Calendar Year Ended December 31 2007 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) $ $ 2006 758,330 468,100 1,151,084 1,386,898 13,670,298 14,429,720 8,514,211 12,557,877 4,694,417 3,198,099 10,383,536 5,061,948 12,762,689 2,389,516 9,018,771 1,717,733 15,484,491 1,619,828 5,464,354 $ 2005 571,741 469,099 973,148 1,242,240 14,613,678 14,406,620 7,854,844 12,301,679 4,521,440 3,198,146 10,350,206 5,589,695 12,064,475 1,988,519 8,668,544 1,587,732 14,322,080 1,573,257 5,060,881 $ 2004 759,997 440,196 799,197 1,172,403 12,724,207 13,145,617 7,162,541 11,325,210 4,198,693 2,997,957 9,530,330 5,533,180 10,780,506 1,698,728 7,838,454 1,491,624 12,891,901 1,387,346 4,666,250 $ 2003 859,148 430,376 726,869 1,096,779 10,680,111 12,753,728 6,552,784 10,120,398 3,949,391 2,995,527 8,293,994 4,893,979 9,276,345 1,825,523 6,800,652 1,339,831 11,731,602 1,321,892 4,247,477 $ 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 $ 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 4,028,434 3,828,085 3,524,773 3,263,960 3,100,185 3,015,205 25,891,129 53,951,703 24,316,909 49,962,132 22,796,583 45,667,456 21,175,536 40,586,709 19,685,814 36,872,729 18,321,256 35,297,873 208,603,166 1.64% $ 199,465,150 $ 182,533,149 1.84% 2.00% $ 164,922,611 $ 150,582,313 1.73% (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. (3) Personal income estimates for years 2004 through 2006 were revised to reflect revisions made by the U.S. Bureau of Economic Analysis. Source: Arizona Department of Revenue Annual Report and the U.S. Bureau of Economic Analysis. - 260 - 1.54% $ 144,150,287 1.46% Calendar Year Ended December 31 2001 $ $ 2000 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 $ 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 $ 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 2,883,219 2,767,102 2,528,002 2,514,591 16,941,093 33,768,611 15,663,994 31,924,649 14,655,470 29,752,614 13,865,192 29,227,104 138,853,800 1.51% $ 132,557,859 1.74% $ 120,857,125 1.90% $ 113,370,224 1.85% - 261 - STATE OF ARIZONA SCHEDULE 8 PERSONAL INCOME TAX RATES FOR THE LAST TEN CALENDAR YEARS (Expressed in Thousands) Calendar Year Ended December 31 2007 AVERAGE EFFECTIVE RATE (3) Personal Income Tax Revenue (1) Personal Income (2) Average Effective Rate (3) $ $ 2006 3,414,304 208,603,166 1.64% TAX RATES ON THE PORTION OF TAXABLE INCOME IN RANGES (4) $0 - $10 $10 - $25 $25 - $50 $50 - $150 $150 and over 2.59% 2.88% 3.36% 4.24% 4.54% $ $ 2005 3,666,923 199,465,150 1.84% $ $ 2004 3,651,576 182,533,149 2.00% 2.73% 3.04% 3.55% 4.48% 4.79% 2.87% 3.20% 3.74% 4.72% 5.04% $ $ 2003 2,854,009 164,922,611 1.73% 2.87% 3.20% 3.74% 4.72% 5.04% $ $ 2,316,040 150,582,313 1.54% 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 Tax Tables 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 2005 AND 1998 (1) (Expressed in Thousands, Except Number of Filers) Taxable Year Ended December 31, 2005 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 1,679,552 509,349 242,518 16,366 68.61% 20.81% 9.91% 0.67% $ 473,941 709,542 1,148,106 1,204,255 13.40% 20.07% 32.47% 34.06% Total 2,447,785 100.00% $ 3,535,844 100.00% (1) The taxable year 2005 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 2005, filed from January 2006 forward (or 1998, filed from January 1999 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. - 262 - Calendar Year Ended December 31 2002 $ $ 2001 2,104,362 144,150,287 1.46% 2.87% 3.20% 3.74% 4.72% 5.04% $ $ 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% Taxable Year Ended December 31, 1998 Number of Percentage Filers of Total Percentage Liability (2) of Total 1,465,037 355,356 115,669 6,986 75.40% 18.29% 5.95% 0.36% $ 430,781 512,479 559,603 447,876 22.08% 26.27% 28.69% 22.96% 1,943,048 100.00% $ 1,950,739 100.00% - 263 - $ $ 2,098,349 113,370,224 1.85% 2.88% 3.24% 3.82% 4.74% 5.10% STATE OF ARIZONA SCHEDULE 10 RATIOS OF OUTSTANDING DEBT BY TYPE FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2008 (Expressed in Thousands) 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 (2) 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 (2) Total Business-type Activities Total Primary Government $ Debt as a Percentage of Personal Income (3) Amount of Debt per Capita (3) 2008 2007 2006 2005 2,759,070 $ 298,280 1,135,640 249,876 8,908 22,838 242,816 (13,145) 4,704,283 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 3,920,573 902,255 903,843 179,052 13,024 1,022 38,211 (27,711) 2,009,696 868,565 935,127 166,780 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 6,713,979 $ 3.2% $ Fiscal Year 1,057 6,030,273 $ 5,681,447 3.0% $ $ 5,692,311 3.1% 976 $ 2004 953 $ $ 2003 2,278,225 308,585 845,804 125,974 4,602 562 144,759 3,708,511 $ 756,781 641,315 80,338 5,038 80 28,184 (10,970) 1,500,766 $ 3.5% 990 $ 5,209,277 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 $ 4,227,214 3.5% 933 $ 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, some or all of the 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 2008 contains data for the calendar year ending December 31, 2007. - 264 - 2.9% 776 Fiscal Year $ 2002, as 2001, as restated (1) restated (2) 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 $ 3,358,811 633 $ 540,019 244,934 29,259 1,634 815,846 $ 2.4% $ 1,882,765 182,295 186,447 9,390 9,767 19,766 2,290,430 2000 (2) 3,106,276 1,337,108 201,639 21,115 6,415 1,566,277 $ 567,659 191,899 12,525 9,835 781,918 $ 2.3% $ 1999 (2) 601 $ 2,348,195 1,257,492 215,989 10,317 11,917 1,495,715 559,109 110,884 4,931 2,156 677,080 $ 1.9% 467 $ 2,172,795 1.9% 445 - 265 - 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, 2008 (Expressed in Thousands) Total Principal Outstanding Debt Limit (1) Fiscal Year 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 Highest Total Applicable to Annual Principal and Principal the Limit as (3) Principal Interest Payment and Interest Applicable Debt Limit $ 1,300,000 1,300,000 1,300,000 1,300,000 1,000,000 800,000 800,000 800,000 $ Highest Annual Principal and Interest Payment Debt Limit (1), (2) Total Principal to Limit 1,623,905 1,490,600 1,223,425 1,161,355 1,017,360 932,700 734,155 700,280 608,500 524,345 $ 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 Limit 219,539 317,570 312,204 230,882 278,927 270,270 261,663 256,945 264,361 254,968 76,575 138,645 282,640 367,300 265,845 99,720 191,500 275,655 $ $ Payment 146,754 137,149 121,025 115,633 106,220 99,923 86,496 82,712 N/A N/A Highest Annual Legal Debt $ Margin 72,785 180,421 191,179 115,249 172,707 170,347 175,167 174,233 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 1999 to 2000, information for calculating the legal debt margin information for the highest annual principal and interest payment limit is unavailable. (3) The Highest Annual Principal and Interest Payment debt limit is calculated by dividing pledged revenues for the Arizona Transportation Board Highway Revenue Bonds (see Schedule 15) by three. Fiscal year 2005 pledged revenues are net of a $118,000 distribution to the State General Fund. STATE OF ARIZONA SCHEDULE 12 LEGAL DEBT MARGIN INFORMATION (1), (2) ARIZONA STATE UNIVERSITY FOR THE LAST THREE FISCAL YEARS (3) FISCAL YEAR ENDED JUNE 30, 2008 (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 2008 46,404 5.70 % 2007 $ 1,880,769 2,017,544 $ 150,462 161,404 $ 115,000 97,800 $ 52,662 5.20 % 2006 1,724,528 137,962 91,400 46,562 5.30 % (1) Ten years of data is not available, but will be accumulated over time. (2) For fiscal years 2006, 2007, and 2008, projections are based upon the University's fiscal years 2008-2010, 2009-2011, and 2010-2012 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. - 266 - as a Percentage of Debt Limit 66.85 % 43.19 38.76 50.08 38.08 36.97 33.06 32.19 N/A N/A STATE OF ARIZONA SCHEDULE 13 LEGAL DEBT MARGIN INFORMATION UNIVERSITY OF ARIZONA FOR THE LAST TWO FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2008 (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 2008 $ 2007 1,681,132 $ 134,491 1,657,971 $ 89,100 132,638 $ 114,400 45,391 5.30 % 18,238 6.90 (1) Ten years of data is not available, but will be accumulated over time. (2) For fiscal years 2007 and 2008, projections are based upon the University's fiscal years 2009-2011 and 2010-2012 capital improvement plans. (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 TWO FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2008 (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 2008 2007 $ 430,360 410,811 $ 34,429 32,865 $ 27,500 $ 30,400 6,929 6.39 % 2,465 7.40 (1) Ten years of data is not available, but will be accumulated over time. (2) For fiscal years 2007 and 2008, projections are based upon the University's fiscal years 2009-2011 and 2010-2012 capital improvement plans. (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. - 267 - 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, 2008 (Expressed in Thousands) (1), (2) Fiscal Pledged Year 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 Revenue 658,616 635,140 624,408 461,763 557,854 540,540 523,326 513,890 528,721 509,935 $ Debt Service Principal $ 60,645 57,825 54,830 44,265 51,155 44,490 45,365 52,055 46,270 43,805 $ Interest 75,538 73,785 62,222 60,459 53,149 41,932 38,534 36,581 33,994 31,090 $ Total 136,183 131,610 117,052 104,724 104,304 86,422 83,899 88,636 80,264 74,895 Coverage 4.8 4.8 5.3 4.4 5.3 6.3 6.2 5.8 6.6 6.8 (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 $118,000 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, 2008 (Expressed in Thousands) (1) Fiscal Pledged Year 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 Revenue 253,742 262,264 316,491 316,806 288,600 268,721 267,563 264,722 248,596 229,470 $ Debt Service Principal $ 19,045 80,375 208,625 199,400 190,415 163,455 156,865 128,805 106,765 $ Interest 10,673 1,566 14,318 23,553 31,533 35,445 40,035 42,609 43,251 $ Total 29,718 81,941 222,943 222,953 221,948 198,900 196,900 171,414 150,016 (1) The Bonds are secured by transportation excise taxes collected by the Arizona Department of Revenue on behalf of Maricopa County. - 268 - Coverage 8.5 N/A 3.9 1.4 1.3 1.2 1.3 1.3 1.5 1.5 STATE OF ARIZONA SCHEDULE 17 PLEDGED-REVENUE COVERAGE SCHOOL FACILITIES BOARD STATE SCHOOL IMPROVEMENT REVENUE BONDS FOR THE LAST SEVEN FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2008 (Expressed in Thousands) (2) Fiscal Year 2008 2007 2006 2005 2004 2003 2002 (3) Debt Service Pledged $ Revenue 645,828 666,184 628,471 538,346 487,215 447,841 439,005 $ Principal 33,810 31,055 34,480 28,485 27,215 25,010 43,035 $ Interest 30,498 31,893 30,052 36,060 37,568 36,901 26,962 $ Total 64,308 62,948 64,532 64,545 64,783 61,911 69,997 Coverage 10.04 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 FIVE FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2008 (Expressed in Thousands) (2) Fiscal Year 2008 2007 2006 2005 2004 (3) Debt Service Pledged $ Revenue 72,263 72,263 72,263 72,263 64,903 $ Principal 14,470 13,980 13,440 13,740 - $ Interest 8,400 11,524 12,061 11,960 8,634 $ Total 22,870 25,504 25,501 25,700 8,634 Coverage 3.16 2.83 2.83 2.81 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, except that, under current statutes, the amount of State School Trust Revenues available to pay debt service on all State School Trust Revenue Obligations shall not exceed $72,263. Expendable trust revenues in excess of $72,263 must be deposited in the Classroom Site Fund. (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. - 269 - STATE OF ARIZONA SCHEDULE 19 PLEDGED-REVENUE COVERAGE ARIZONA STATE UNIVERSITY REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2008 (Expressed in Thousands) Debt Service Fiscal Year 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 $ (1) Net Payments Pledged (Receipts) On Revenue 580,102 505,890 458,177 383,756 325,626 297,691 274,596 261,328 242,764 233,404 $ Principal 17,125 14,625 11,205 1,340 9,695 9,785 8,995 9,640 9,205 $ Interest 21,339 17,313 16,307 16,260 13,754 9,575 12,139 11,766 12,245 12,685 $ Swap Agreements 186 $ - (1) Pledged revenues include student tuition and fees, auxiliary enterprises revenue, investment income, and indirect cost recovery revenue. (2) Pledged revenues prior to payment date of 2004 have been restated to include West and Polytechnic campuses. - 270 - Total 38,650 31,938 27,512 17,600 13,754 19,270 21,924 20,761 21,885 21,890 Coverage 15.01 15.84 16.65 21.80 23.68 15.45 12.52 12.59 11.09 10.66 STATE OF ARIZONA SCHEDULE 20 PLEDGED-REVENUE COVERAGE UNIVERSITY OF ARIZONA REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2008 (Expressed in Thousands) (1) Fiscal Year 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 $ (1), (2) Direct Net Revenue Gross Operating Available for Revenues 1,113,954 982,559 897,706 830,077 778,939 726,258 670,326 710,423 674,330 650,201 $ Expenses 1,005,572 899,084 836,657 774,014 727,161 667,627 625,664 663,284 625,318 580,292 Debt Service $ 108,382 83,475 61,049 56,063 51,778 58,631 44,662 47,139 49,012 69,909 Debt Service $ Principal 21,235 17,440 12,355 11,815 10,970 12,625 9,946 12,415 11,700 10,714 $ Interest 14,978 14,166 13,433 11,817 11,706 12,156 15,500 16,359 13,081 14,869 $ (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, 2008 (Expressed in Thousands) (1) Fiscal Year 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 Gross $ Revenues 143,733 136,100 129,608 110,981 103,192 85,294 82,839 78,907 75,852 73,467 Debt Service $ Principal 10,455 9,610 10,310 10,065 10,294 9,426 6,932 6,214 6,119 6,075 $ Interest 6,628 5,943 6,603 6,060 5,778 5,066 3,949 5,246 5,488 5,810 $ Total 17,083 15,553 16,913 16,125 16,072 14,492 10,881 11,460 11,607 11,885 Coverage 8.41 8.75 7.66 6.88 6.42 5.89 7.61 6.89 6.54 6.18 (1) Revenue bonds are repaid from pledged gross revenues that primarily consist of student tuition and fees and certain auxiliary revenues. - 271 - Total 36,213 31,606 25,788 23,632 22,676 24,781 25,446 28,774 24,781 25,583 Coverage 2.99 2.64 2.37 2.37 2.28 2.37 1.76 1.64 1.98 2.73 STATE OF ARIZONA SCHEDULE 22 DEMOGRAPHIC AND ECONOMIC STATISTICS FOR THE LAST TEN CALENDAR YEARS Calendar Year Ended December 31 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 Population (1) 6,353,421 6,178,251 5,961,239 5,750,475 5,585,512 5,449,195 5,303,632 5,166,810 5,023,823 4,883,342 Personal Income (2) (in thousands) $ 208,603,166 199,465,150 182,533,149 164,922,611 150,582,313 144,150,287 138,853,800 132,557,859 120,857,125 113,370,224 Per Capita Personal Income (3) $ 32,833 32,285 30,620 28,680 26,959 26,454 26,181 25,656 24,057 23,216 Unemployment Rate (4) 3.8 4.1 4.6 5.0 5.7 6.0 4.7 4.0 4.4 4.1 (1) These are midyear population estimates of the U.S. Bureau of the Census. Years 2000 through 2006 have been revised to reflect revisions made by the U.S. Bureau of the Census. (2) Personal income estimates for years 2004 through 2006 were revised to reflect revisions made by the U.S. Bureau of the Census. (3) Per capita personal income is total personal income divided by total midyear population estimates of the U.S. Bureau of the Census. Years 2000 through 2006 have been revised to reflect revisions in personal income and population estimates. (4) The unemployment rate for the years 1998, 1999, and 2004 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 Wells Fargo & Co. Arizona State University Fry's Food & Drug Stores Raytheon Missile Systems U.S. Postal Service Motorola University of Arizona Fort Huachuca Army Base Allied Signal Inc. American Express Corp. Banc One Corp. Total Calendar Year Ended December 31, 2007 Full-Time Percentage Equivalent of Total State Employees Rank Employment 50,079 1 1.88 % 30,174 2 1.13 17,020 3 0.64 14,453 4 0.54 14,057 5 0.53 14,000 6 0.53 12,727 7 0.48 11,780 8 0.44 9 0.42 11,184 11,000 10 0.41 186,474 7.00 % Calendar Year Ended December 31, 1998 Full-Time Percentage Equivalent of Total State Employees Rank Employment 63,961 1 3.03 % 11,900 5 0.56 9,000 9 0.43 13,300 3 0.63 12,963 4 0.61 10,772 6 0.51 18,500 2 0.88 10,520 7 0.50 10,312 8 0.49 9,000 9 0.43 9,000 9 0.43 9,000 9 0.43 188,228 (1) Formerly known as Samaritan Health Systems. Sources: The Business Journal, Book of Lists 2008 and 1999 (for Maricopa County employers). The Arizona Daily Star's Star 200 report for 2008 and 1999 (for Pima County employers, which include the U.S. Army Intelligence Center and Fort Huachuca, Raytheon Missile Systems, and the University of Arizona. Arizona Department of Economic Security's website, www.workforce.az.gov (for annual State employment). - 272 - 8.93 % STATE OF ARIZONA SCHEDULE 24 STATE EMPLOYEES BY FUNCTION (1) FOR THE LAST FIVE FISCAL YEARS (2) FISCAL YEAR ENDED JUNE 30, 2008 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 2008 2007 2006 2005 110.0 235.0 1,164.0 2,999.2 110.0 231.0 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 4,099.2 1,629.0 1,702.1 981.5 1,930.1 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 17,138.8 1,001.4 16,975.0 969.0 16,419.5 913.8 16,027.5 949.5 15,467.4 948.1 9,755.9 1,163.7 2,108.8 133.9 4,744.0 1,007.7 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 51,904.3 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). - 273 - 2004 STATE OF ARIZONA SCHEDULE 25 OPERATING INDICATORS BY FUNCTION FOR THE LAST TEN FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2008 2008 FUNCTIONS/PROGRAMS General government: Number of tax returns received (in millions) Health and welfare: Arizona Health Care Cost Containment System membership (2) 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) (3) Incident rate per 100 full-time workers (3) Education: Public school enrollment, grades K-12 (4) Protection and safety: Number of miles patrolled by the Highway Patrol State prison adult inmate population (5) Transportation: Number of registered vehicles (6) Number of driver licenses issued (7) Natural resources: Game and Fish Department's license and tag sales (8) Universities: University full-time equivalent students (9) 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 (10) 2007 2003 2002 5.5 5.5 6.0 6.0 5.3 6.3 1,136,585 1,075,125 1,065,444 1,075,873 971,292 955,600 791,000 80,221 82,408 93,553 105,517 122,577 121,193 109,547 600,549 537,072 546,424 546,369 521,992 442,320 355,722 101.8 4.6 99.4 4.6 97.0 4.9 87.1 4.7 85.7 4.8 95.9 5.1 113.1 5.9 1,132,963 1,106,207 1,084,247 1,043,704 1,002,630 970,283 915,656 20,282,212 37,088 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 6,733,610 1,200,227 $ 2004 5.6 N/A 38,897 $ Fiscal Year 2005 2006 896,143 $ 940,223 $ 897,159 $ 808,055 $ 835,669 $ 865,634 $ 898,453 113,092 110,580 107,765 104,685 102,461 100,258 96,603 226,772 185,397 161,869 200,282 227,585 255,579 255,303 2,748 118 3,265 133 2,744 124 3,281 102 3,300 139 2,954 150 3,986 121 472.9 21,646 $ 462.2 $ 26,914 468.7 21,600 $ 397.6 14,626 $ 366.6 $ 11,218 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) 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. (3) 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 2008 contains data for the calendar year ending December 31, 2007. One hundred full-time workers represent 200,000 hours worked (100 times 40 hours per week times 50 weeks per year). (4) 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 2008 contains data from the October 1, 2007 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, 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. (5) 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. (6) 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. (7) 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. (8) 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 2008 contains data for the calendar year ending December 31, 2007. (9) 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 2008 contains data for the fall 2007 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. (10) Approximate number of members enrolled as of June 1. Sources: The State Departments of Transportation, Public Safety, Corrections, Education, Game and Fish, Economic Security, 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. - 274 - 322.3 11,400 $ 294.8 12,100 Fiscal Year 2000 2001 N/A 609,000 1999 N/A N/A N/A N/A 93,857 89,770 95,556 277,192 257,989 260,736 112.8 6.0 111.8 6.1 878,987 111.4 6.2 866,626 N/A 27,451 833,301 N/A 26,402 N/A 26,169 4,639,405 973,476 4,407,098 967,086 $ 986,691 $ 918,038 92,725 92,211 91,163 187,697 155,675 161,006 N/A N/A $ 272.7 N/A 4,159,576 1,293,425 N/A N/A N/A $ 255.6 N/A N/A N/A $ 268.3 N/A - 275 - STATE OF ARIZONA SCHEDULE 26 CAPITAL ASSET STATISTICS BY FUNCTION FOR THE LAST TEN FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2008 Fiscal Year 2008 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) 2007 2006 2005 2004 2003 2002 10 10 10 10 10 10 10 6,785 4,637 6,817 4,648 6,922 4,676 6,816 4,608 6,912 4,488 6,801 4,463 6,650 4,378 9,260,253 9,262,781 9,267,377 9,269,723 9,271,580 9,279,243 9,266,158 1,669 36,000 1,663 34,946 1,002 20,154 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 2008 contains the number of center lane miles for the calendar year ending December 31, 2007. (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. - 276 - N/A N/A Fiscal Year 2001 2000 1999 10 10 10 N/A N/A N/A N/A N/A N/A 9,271,921 N/A N/A 9,273,846 N/A N/A 9,277,496 N/A N/A - 277 - 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, MBA Cody Johnson, MBA Gary Kern 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.