STATE OF ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2010 Janice K. Brewer GOVERNOR PREPARED BY ARIZONA DEPARTMENT OF ADMINISTRATION 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.................. 62 63 Universities – Affiliated Component Units Financial Statements: Combining Statement of Financial Position ....................................................................................................... Combining Statement of Activities..................................................................................................................... 64 65 Notes to the Financial Statements......................................................................................................................... 66 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 133 158 160 163 167 COMBINING FINANCIAL STATEMENTS AND SCHEDULES Non-major Governmental Funds: Combining Balance Sheet .................................................................................................................................. Combining Statement of Revenues, Expenditures and Changes in Fund Balances ............................................. 172 173 Non-major Special Revenue Funds: Combining Balance Sheet ........................................................................................................................... Combining Statement of Revenues, Expenditures and Changes in Fund Balances....................................... Budgetary Comparison Schedule, Expenditures .......................................................................................... 176 178 180 Land Endowments Fund: Budgetary Comparison Schedule, Expenditures .......................................................................................... 196 Non-major Debt Service Funds: Combining Balance Sheet ........................................................................................................................... Combining Statement of Revenues, Expenditures and Changes in Fund Balances....................................... 198 200 Non-major Capital Projects Funds: Combining Balance Sheet ........................................................................................................................... Combining Statement of Revenues, Expenditures and Changes in Fund Balances...................................... 204 206 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........................................................................................................... 210 212 214 Internal Service Funds: Combining Statement of Net Assets ............................................................................................................ Combining Statement of Revenues, Expenses and Changes in Fund Net Assets .......................................... Combining Statement of Cash Flows........................................................................................................... 218 220 222 Fiduciary Funds: Pension and Other Employee Benefit Trust Funds: Combining Statement of Fiduciary Net Assets............................................................................................. Combining Statement of Changes in Fiduciary Net Assets ......................................................................... 226 228 Investment Trust Funds: Combining Statement of Fiduciary Net Assets............................................................................................. Combining Statement of Changes in Fiduciary Net Assets ......................................................................... 232 233 Agency Funds: Combining Statement of Assets and Liabilities........................................................................................... Combining Statement of Changes in Assets and Liabilities......................................................................... 237 238 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 242 244 STATISTICAL SECTION (Not Covered by the Independent Auditors' Report) Financial Trends: Schedule 1 – Net Assets by Component for the Last Nine Fiscal Years .............................................................. Schedule 2 – Changes in Net Assets for the Last Nine Fiscal Years ................................................................... Schedule 3 – Fund Balances, Governmental Funds for the Last Nine Fiscal Years ............................................. Schedule 4 – Changes in Fund Balances, Governmental Funds for the Last Nine Fiscal Years .......................... 250 252 256 258 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 2007 and 2000.. 262 265 266 268 268 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 Five Fiscal Years ........... Schedule 13 – Legal Debt Margin Information, University of Arizona, for the Last Four Fiscal Years.............. Schedule 14 – Legal Debt Margin Information, Northern Arizona University, for the Last Four 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 Nine Fiscal Years .................................................................................................... Schedule 18 – Pledged-Revenue Coverage, School Facilities Board State School Trust Revenue Bonds for the Last Seven 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 ..................................................................................................... 270 272 272 273 273 274 274 275 275 276 277 277 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 ............................................................. 278 278 Operating Information: Schedule 24 – State Employees by Function for the Last Seven 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 .............................................. 279 280 282 iii INTRODUCTORY SECTION INTRODUCTORY SECTION Janice K. Brewer Scott A. Smith Governor Director ARIZONA DEPARTMENT OF ADMINISTRATION OFFICE OF THE DIRECTOR 100 NORTH FIFTEENTH AVENUE i ROOM 401 PHOENIX, ARIZONA 85007 (602) 542-1500 March 4, 2011 The Honorable Janice K. Brewer, Governor of the State of Arizona; Members of the Legislature; Rebecca White Berch, 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, 2010. 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 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 summarizes 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 2006 2007 2008 Revenues 2009 2010 Expenditures The General Fund ended the June 30, 2010 fiscal year with a deficit of $825.081 million in unreserved fund balance and a $70.350 million reserved fund balance for a total fund balance deficit of $754.731 million. This compares to the previous year’s total fund balance deficit of $978.278 million. Graph 2 summarizes the General Fund Balance (Deficit) for the last five fiscal years: Graph 2 General Fund Balance (Deficit) for last 5 fiscal years (Dollars in millions) $3,000 $2,000 $1,000 $0 ($1,000) 2006 2007 2008 -3- 2009 2010 ECONOMIC CONDITION AND OUTLOOK The following economic summary is excerpted from the Arizona Department of Commerce’s Arizona’s Workforce, released on October 7, 2010. The Arizona Department of Commerce, Research Administration’s (RA) updated forecast revises Arizona’s nonfarm job losses in 2010 to 25,700, or 1.1%, compared to 50,400, or 2.1%, forecasted earlier. Factors that contributed to the reduced losses include: (i) Federal government economic stimulus program spending that began in 2009, (ii) continued employment gains in the Educational and Health Services sector, (iii) improved job growth in: Professional and Business Services; Trade, Transportation, and Utilities; Leisure and Hospitality; and Natural Resources and Mining sectors, and (iv) stronger than originally anticipated economic growth in the rest of the world. However, for 2011, Arizona’s nonfarm job growth has been revised downward to 16,500, or 0.7%, from 23,100, or 1.0%, forecasted earlier. Although the decline in spending from federal government economic stimulus programs was expected, reasons for this revision include but are not limited to: (i) the lackluster growth in the private sector as observed by the two indicators of business and consumer spending, (ii) large state and local government budget deficits, (iii) slowdown in population growth, and (iv) limited consumer and small business lending by banks. These factors will limit nonfarm job growth in the overall economy. The current set of problems inhibiting growth in the economy is expected to continue through 2011. These problems include high levels of unemployment, large debt loads, reduced income and wealth, weak housing and commercial real estate markets, rising health care costs, and budget deficits in state and local governments. Also, recent U.S. Gross Domestic Product (GDP) figures in 2010 have shown a slowing trend of economic growth and Arizona’s personal income figures have demonstrated near historic lows in over-theyear growth. In the national economy, the ending of specific federal stimulus programs caused further slowing of economic growth. For example, recent expiration of federal tax credits for home purchases contributed to a large reduction in home sales across the country. In 2009, the end of the “cash for clunkers”new automobile incentive purchase program resulted in a reduction in motor vehicle sales and production. In 2010, job losses in Professional and Business Services are forecast to total 1,100, or 0.3%, as a result of the overall weakness in the Arizona economy. However, employment growth is projected to return in 2011 with an increase of 9,600 jobs, or 2.8%. In 2010, the forecast number of job gains in Educational and Health Services is 8,400, or 2.6%. These projected gains are less in 2011 (6,100, or 1.8%). In 2010, projected job gains in Trade, Transportation, and Utilities are 2,700, or 0.6%. These gains increase to 3,100 jobs, or 0.6%, in 2011. In 2010, the Construction sector is expected to lose 15,200 jobs, or 11.8%. However, in 2011 Construction is expected to gain 2,100 jobs, or 1.8%. In 2010, forecast growth in employment for the Leisure and Hospitality sector is 1,100 jobs, or 0.4%. These job gains are projected to increase to 2,100, or 0.8%, for 2011. Manufacturing employment levels are forecast to have a decrease of 4,600 jobs, or 3.0%, in 2010. However, employment gains are projected for Manufacturing in 2011 with an increase of 1,900 jobs, or 1.3%, because of expansion of economic activity in the State, nation, and the rest of the world. In 2010, projected job losses in Other Services sector total 2,000, or 2.1%, and in 2011, a gain of 1,800 jobs, or 2.0%, is expected. In 2010, the forecast growth in Natural Resources and Mining employment is an increase of 200 jobs, or 1.8%. These projected gains increase to 1,400 jobs, or 12.3%, for 2011. In 2010, job losses in Financial Activities sector are forecast to total 5,300, or 3.2%. These projected reductions in employment decline for 2011 to 2,600 jobs, or 1.6%. In 2010, forecast reductions in Government employment are 7,500 jobs, or 1.8%. These projected losses will increase in 2011 to 7,900 jobs, or 1.9%. In 2010, employment reductions in the Information sector are projected to number 2,500 jobs, or 6.4%. These forecast job losses decrease to 1,100, or 2.9%, in 2011. Educational and Health Services is the sector with the largest projected job gains for the 2009 to 2011 forecast time period (14,500 jobs, 4.4%). During the most recent economic downturn, Educational and Health Services is one of the few sectors in the Arizona economy with employment growth. Fewer employment opportunities during a recession persuade many people to return to school to upgrade skills and enhance their knowledge to be better prepared for greater employment opportunities that become available when the economy begins to recover. As part of the economic stimulus program, the federal government has provided more resources to support Educational and Health Services. An increasing elderly population continues to bolster demand for health care services in the State of Arizona. In addition, high levels of unemployment have created greater demand for social assistance services. The subsectors with most rapid pace of projected job growth are health care and social assistance followed by private educational services. Projected increases in employment for Professional and Business Services from 2009 to 2011 are 8,500 jobs, or 2.5%. These gains are a consequence of an observed and anticipated overall improvement in the economy. Businesses are motivated to hire contingent -4- labor during the beginning, uncertain stages of an economic recovery as a cost savings measure. The subsectors with the largest forecast gains include: professional and technical services, employment services, and services to buildings and dwellings. Subsectors with projected job losses are management of companies and enterprises and business support services. Job gains of 5,800, or 1.2%, are forecast in Trade, Transportation, and Utilities from 2009 to 2011. Wholesale and retail trade are the subsectors with the largest projected increase in employment. The largest forecast employment increases in retail trade are in the discount outlet and superstore subsectors. Though we are observing a start of an employment increase in retail, slow growth in consumer spending continues to persist. High levels of unemployment, large debt loads, and reduced wealth and income have caused the forecast job growth in retail trade to be limited. Because of a weaker economy and future uncertainty, consumers are reducing debt and increasing personal savings. However, debt reduction and increased savings are limiting economic growth because less money is available for the purchase of goods and services. Job losses are projected in the subsectors of transportation, warehousing, and utilities. Energy conservation and generation projects through the federal government stimulus programs are bolstering employment in the utilities subsectors. In the Leisure and Hospitality sector, growth of 3,100 jobs, or 1.2%, is forecast during the 2009 to 2011 time frame. Besides improvements in the overall national and state economies, economic growth in the rest of the world is projected to increase foreign travel and tourism spending in the State of Arizona. Food services and drinking places is the subsector with the largest amount of projected job gains. However, job losses are forecast in the subsectors of art, entertainment and recreation, and accommodation. Growth of 1,600 jobs, or 14.3%, in the Natural Resources and Mining sector is forecasted during 2009 to 2011. A majority of these projected job gains are in the subsector of metal ore mining because of the expansion of economic activity and industrial output in the U.S. and the rest of the world increasing the demand for metallic mineral ores such as copper and molybdenum that are mined in the State of Arizona. The forecast rate of growth is high despite the relatively small number of projected job gains because of the comparatively small base of employment in this sector, 11,100 jobs in 2009. Government is the sector with the largest forecast job losses at 15,400, or 3.6%, during the 2009 to 2011 projections time frame. Employment reductions in the federal government are forecast as a result of the layoffs of temporary Census 2010 workers. State and local government projected reductions in employment are the result of the ongoing budget deficit crisis. These reductions at the state and local level are forecast to increase in 2011 as a result of reduced spending expected from the federal government economic stimulus programs. In contrast, we might observe lower losses if the federal government appropriates additional funds to assist state and local governments with their programs. However, the level of potential additional federal support after the end of the stimulus programs remains uncertain. The negative impacts of layoffs and spending reductions of state and local governments on their economies are less ambiguous. In the Construction sector, job losses of 13,100, or 10.2%, are forecast for 2009 to 2011. These losses are forecast across all subsectors and are the result of continued problems in the housing and commercial real estate markets. Indicators of problems in these real estate markets include high rates of mortgage foreclosures and delinquency, low home prices, large amounts of unsold home inventories, abandoned commercial projects, bank failures, high vacancy rates for commercial properties, declining commercial property rents, low volume of home sales, and low levels of new construction permits. Employment reductions in Construction for 2010 are projected to number 15,200 jobs, or 11.8%. Despite indicators of weakness in the overall Construction industry, signs of improvement are beginning to appear in real estate markets with reductions in mortgage foreclosure rates, declines in the amount of unsold home inventories, and stabilization in home prices. In addition, infrastructure expansion and improvement projects with a high proportion of support from the federal government are forecast to slightly boost Construction employment in 2011 across all subsectors. Examples of these infrastructure projects include roads, highways, bridges, and public mass transit. In 2011, projected gains in Construction employment are 2,100 jobs, or 1.8%. The Financial Activities sector is forecast to have job losses totaling 8,000, or 4.8%, from 2009 to 2011. Constrained spending, increased savings, and debt reduction by consumers and businesses in a weak economy are projected to result in employment reductions for most subsectors in Financial Activities. Continued problems in housing and commercial real estate markets also are anticipated to provide no assistance to job growth in the Financial Activities sector. Securities, commodity contracts, and investments is the only subsector to have projected employment increases. Employment levels in the Information sector are forecast to have a decrease of 3,600 jobs, or 9.1%, during the 2009 to 2011 time period. Job losses persist as a result of continued consolidation, technological changes, shifts in consumer preferences, and constrained growth in consumer and business spending. An example of all of these factors working together and resulting in employment losses is the shift of consumer video rentals from local area brick and mortar retail outlets to vending machines, mail order and return, and internet websites. -5- ARIZONA STATE GOVERNMENT ORGANIZATION ELECTORATE LEGISLATIVE BRANCH STATE HOUSE OF REPRESENTATIVES* STATE SENATE* JUDICIAL BRANCH EXECUTIVE BRANCH GOVERNOR* SUPREME COURT AUDITOR GENERAL LEGISLATIVE COUNCIL JOINT LEGISLATIVE BUDGET COMM. SECRETARY OF STATE* ATTORNEY GENERAL* BD. OF LIBRARY, ARCHIVES AND PUBLIC RECORDS DEPARTMENT OF LAW COURT OF APPEALS SUPERIOR COURTS MUNICIPAL COURTS JUSTICE OF THE PEACE COURTS* SUPERINTENDENT OF PUBLIC INSTRUCTION* STATE TREASURER* CORPORATION COMMISSION* STATE MINE INSPECTOR* DEPARTMENT OF EDUCATION DEPARTMENT OF ADMINISTRATION DEPARTMENT OF CORRECTIONS DEPARTMENT OF TRANSPORTATION AHCCCS DEPARTMENT OF REVENUE DEPARTMENT OF PUBLIC SAFETY DEPARTMENT OF HEALTH SERVICES DEPARTMENT OF ECONOMIC SECURITY OTHER BOARDS, COMMISSIONS, AND AGENCIES BOARD OF REGENTS ARIZONA STATE UNIVERSITY NORTHERN ARIZONA UNIVERSITY * ELECTED OFFICIALS -8- UNIVERSITY OF ARIZONA STATE OF ARIZONA PRINCIPAL STATE OFFICIALS JUNE 30, 2010 ELECTED OFFICIALS – as of June 30, 2010 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 Sandra D. Kennedy, Commissioner – Corporation Commission Paul Newman, Commissioner – Corporation Commission Gary Pierce, Commissioner – Corporation Commission Bob Stump, Commissioner – Corporation Commission APPOINTED OFFICIALS – as of June 30, 2010 Executive Officials David Raber, Interim Director – Department of Administration Charles L. Ryan, Director – Department of Corrections Neal Young, Director – Department of Economic Security Gale Garriott, Director – Department of Revenue Robert Halliday, Director – Department of Public Safety Will Humble, Director – Department of Health Services Tom Betlach, Director – Arizona Health Care Cost Containment System John Halikowski, Director – Department of Transportation GladysAnn Wells, Director – Arizona State Library, Archives and Public Records Judicial Officials Rebecca White Berch, Chief Justice – Supreme Court Legislative Officials Michael E. Braun, Executive Director – Legislative Council Richard Stavneak, Director – Joint Legislative Budget Committee Debra K. Davenport, CPA, Auditor General – Office of the Auditor General University Officials Dr. Michael M. Crow, President – Arizona State University Dr. John D. Haeger, President – Northern Arizona University Dr. Robert N. Shelton, President – University of Arizona ELECTED OFFICIALS – as of March 4, 2011 Janice K. Brewer, Governor Senator Russell Pearce, President of the Senate Representative Kirk Adams, Speaker of the House Ken Bennett, Secretary of State Tom Horne, Attorney General Joe Hart, State Mine Inspector Doug Ducey, State Treasurer John Huppenthal, Superintendent of Public Instruction Gary Pierce, Chairman – Corporation Commission Brenda Burns, Commissioner – Corporation Commission Sandra D. Kennedy, Commissioner – Corporation Commission Paul Newman, Commissioner – Corporation Commission Bob Stump, Commissioner – Corporation Commission APPOINTED OFFICIALS – as of March 4, 2011 Executive Officials Scott A. Smith, Director – Department of Administration Charles L. Ryan, Director – Department of Corrections Mary Gill, Interim Director – Department of Economic Security Gale Garriott, Director – Department of Revenue Robert Halliday, Director – Department of Public Safety Will Humble, Director – Department of Health Services Tom Betlach, Director – Arizona Health Care Cost Containment System John Halikowski, Director – Department of Transportation GladysAnn Wells, Director – Arizona State Library, Archives and Public Records Judicial Officials Rebecca White Berch, Chief Justice – Supreme Court Legislative Officials Michael E. Braun, Executive Director – Legislative Council Richard Stavneak, Director – Joint Legislative Budget Committee Debra K. Davenport, CPA, Auditor General – Office of the Auditor General University Officials Dr. Michael M. Crow, President – Arizona State University Dr. John D. Haeger, President – Northern Arizona University Dr. Robert N. Shelton, President – University of Arizona -9- FINANCIAL SECTION FINANCIAL SECTION INDEPENDENT AUDITORS’ REPORT INDEPENDENT AUDITORS’ REPORT Independent Auditors’ Report The Honorable Janice K. Brewer, Governor State of Arizona The Honorable Russell Pearce, President Arizona State Senate The Honorable Kirk Adams, Speaker Arizona House of Representatives The Honorable Rebecca White Berch, Chief Justice Arizona Supreme Court We have audited the accompanying financial statements of the governmental activities, business-type activities, aggregate discretely presented component units, each major fund, and aggregate remaining fund information of the State of Arizona as of and for the year ended June 30, 2010, which collectively comprise the State’s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the State’s management. Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of certain departments, the State’s retirement plans, and the discretely presented component units, which account for the following percentages of the assets and revenues, additions, and other financing sources, as applicable, of the opinion units affected: Opinion Unit/Department Government-wide Statements Governmental activities: Arizona Health Care Cost Containment System Department of Transportation Business-type activities: Lottery Department Arizona Health Care Cost Containment System Department of Transportation Aggregate discretely presented component units: Component Units Universities—Affiliated Component Units Assets Revenues/Additions/ Other Financing Sources 2.89% 67.00% 22.12% 11.50% 0.96% 9.61% 0.15% 1.24% 0.83% 0.12% 100.00% 100.00% 100.00% 100.00% Opinion Unit/Department Fund Statements Major Governmental Funds: General Fund—Arizona Health Care Cost Containment System Transportation and Aviation Planning, Highway Maintenance and Safety Fund— Department of Transportation Major Enterprise Fund: 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 37.13% 23.79% 100.00% 100.00% 100.00% 100.00% 0.07% 0.89% 61.90% 11.74% 2.85% 0.72% 1.95% 3.46% 52.77% 10.48% 2.60% 0.64% 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 departments, retirement plans, and component units, 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 Rio Nuevo Multipurpose Facilities District, Greater Arizona Development Authority, Arizona Power Authority, University Medical Center, and the universities—affiliated component units, which were reported as discretely presented component units, 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, 2010, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in conformity with U.S. generally accepted accounting principles. The financial statements of the Healthcare Group of Arizona, a nonmajor enterprise fund, are included as part of the State’s business-type activities and aggregate remaining fund information. As discussed in Note 9, the Healthcare Group of Arizona had incurred significant operating losses in the past years and had a fund deficit of $9.01 million at June 30, 2010, that raise substantial doubt about its ability to continue operations. Management’s plans in regard to these matters are also described in Note 9. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The financial statements of the Rio Nuevo Multipurpose Facilities District (Rio Nuevo) were audited by other auditors who issued a qualified opinion on capital assets, accumulated depreciation, and depreciation expense for Rio Nuevo as of and for the year ended June 30, 2010. As described in the other auditors’ report, this opinion qualification was the result of inadequate accounting records. Rio Nuevo is a discretely presented component unit of the State and is included in the discretely presented component units (governmental activities column) on the government-wide financial statements. This had no effect on our opinion for the aggregate discretely presented component units as of and for the year ended June 30, 2010. As described in Note 1, the State implemented the provisions of the Governmental Accounting Standards Board Statement Nos. 51, Accounting and Financial Reporting for Intangible Assets, and 53, Accounting and Financial Reporting for Derivative Instruments, for the year ended June 30, 2010, which represent changes in accounting principles. The Management’s Discussion and Analysis on pages 21 through 33, the Budgetary Comparison Schedules on pages 133 through 162, the Infrastructure Assets information on pages 163 through 166, and the Schedule of Agent Benefit Plans’ Funding Progress on page 167 are not required parts of the basic financial statements, but are supplementary information required by the Governmental Accounting Standards Board. We and the other auditors have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we and the other auditors did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the State’s basic financial statements. The introductory section, combining 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 March 4, 2011 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, 2010. 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: i The assets of the State exceeded liabilities at the close of the fiscal year by $18.7 billion (reported as net assets). Of this amount, a deficit of $3.6 billion exists for unrestricted net assets, $5.2 billion is restricted for specific purposes (restricted net assets), and $17.1 billion is invested in capital assets, net of related debt. i The State’s total net assets decreased in fiscal year 2010 by $181.409 million. Net assets of governmental activities increased by $130.370 million, while net assets of the business-type activities decreased by $311.779 million. Fund Level: i As of the close of the fiscal year, the State’s governmental funds reported combined ending fund balances of $3.8 billion, an increase of $143.675 million from the beginning of the year. Less than 1% of the combined fund balances, or $5.451 million, is available to meet the State’s current and future needs (unreserved fund balance). i As of the close of the fiscal year, unreserved fund balance for the General Fund had a deficit of $825.081 million, which is approximately 4% of total General Fund expenditures. i The Land Endowments Fund reported fund balance at year end of $2.7 billion, an increase of $478.820 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. i The enterprise funds reported net assets at year end of $2.5 billion, a decrease of $325.068 million during the year. Long-term Debt: i The State’s total long-term primary government debt increased during the fiscal year to $9.9 billion, an increase of $1.8 billion (or 22%). Changes during the year included the addition of revenue bonds, certificates of participation, and capital leases of $930.530 million, $999.000 million, and $199.879 million, respectively. Also, the State retired $206.355 million of revenue bonds, $109.855 million of certificates of participation, and $27.090 million of capital leases. 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 long-term debt). Government-wide statements report three activities: i 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. i 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, the Industrial Commission Special Fund, and the State’s three universities are examples of business-type activities. i Discretely Presented Component Units – Component units are legally separate organizations for which the elected officials of the State are financially accountable. The Rio Nuevo Multipurpose Facilities District, 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, the Arizona Capital Facilities Finance Corporation, the U of A Foundation, and other non-major foundations and financing authorities. Financial statements for these organizations are presented immediately following the government-wide statements to emphasize that they are prepared in accordance with accounting standards other than those promulgated by GASB, and include a statement of financial position (page 40) and a statement of activities (page 44). See pages 67-70 and 116-128 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 172 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. i 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 - i 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 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 statements for business-type activities and the proprietary fund financial statements is presented at the end of the proprietary fund financial statements on pages 52-55. Proprietary fund financial statements can be found on pages 50-59 of this report. i 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 67 of this report. Required Supplementary Information Following the basic financial statements is additional Required Supplementary Information that further explains and supports the information in the financial statements. The Required Supplementary Information includes budgetary expenditure 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. Budgetary expenditure comparison schedules for the non-major special revenue funds and the land endowment funds are also included. Other supplementary information begins on page 172 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, 2010 and 2009 (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 Governmental Activities 2010 2009 $ 4,236,816 $ 2,833,059 19,125,514 17,859,557 4,440,342 4,946,384 27,802,672 25,639,000 Business-type Activities 2010 2009 $ 1,314,515 $ 1,685,745 3,530,141 3,404,613 1,425,621 1,076,150 6,270,277 6,166,508 Primary Government Total 2010 2009 $ 5,551,331 $ 4,518,804 22,655,655 21,264,170 5,865,963 6,022,534 34,072,949 31,805,508 4,242,317 7,329,300 11,571,617 3,551,427 5,986,888 9,538,315 637,055 3,154,036 3,791,091 654,971 2,720,572 3,375,543 4,879,372 10,483,336 15,362,708 4,206,398 8,707,460 12,913,858 15,738,121 4,648,280 (4,155,346) $ 16,231,055 15,094,719 3,990,594 (2,984,628) $ 16,100,685 1,352,658 550,102 576,426 $ 2,479,186 1,328,658 1,085,399 376,908 $ 2,790,965 17,090,779 5,198,382 (3,578,920) $ 18,710,241 16,423,377 5,075,993 (2,607,720) $ 18,891,650 For the year ended June 30, 2010, the State’s combined net assets totaled $18.7 billion, reflecting a decrease of $181.409 million during the current fiscal year. The largest portion of the State’s net assets (91%) represents capital assets, net of related debt of $17.1 billion. Additions to roads and bridges provided the majority of the governmental activities increase of $643.402 million. 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 are planned to be provided from other sources, since the capital assets themselves are not typically used to liquidate these liabilities. The State’s net assets also included $5.2 billion (28%) of resources that are subject to external restrictions on how they may be used. The restriction by the State’s Constitution for basic education funded by the earnings of the Land Endowments Fund provided the majority of the governmental activities increase of $657.686 million. The businesstype activities decrease of $535.297 million in restricted net assets was primarily caused by the net decrease in the Unemployment Compensation Fund. After accounting for the above net asset restrictions, the State has a remaining deficit of $3.6 billion (19%) reported as unrestricted net assets. An increase in long-term debt, due to the State issuing certificates of participation and revenue bonds which provided monies to deposit in the State’s General Fund to pay appropriated expenditures, primarily caused the decrease of $1.2 billion in the unrestricted net assets of the governmental activities. - 24 - State of Arizona-Primary Government Changes in Net Assets for Fiscal Years June 30, 2010 and 2009 (expressed in thousands) Governmental Activities 2010 2009 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 (loss) 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 item, extraordinary item, and transfers Contributions to permanent endowments Special item: Intergovernmental transfer of Sundome Center for the Performing Arts Extraordinary item: Insurance recovery, net of impairment loss Transfers Change in Net Assets Net Assets - July 1 Net Assets - June 30 $ 877,513 $ Business-type Activities 2010 2009 806,833 $ 2,492,801 $ Primary Government Total 2010 2009 2,196,190 $ 3,370,314 $ 3,003,023 13,735,263 576,027 10,620,642 553,198 2,260,071 12,563 1,243,697 14,710 15,995,334 588,590 11,864,339 567,908 5,029,050 2,809,995 332,893 31,417 1,583,790 535,435 37,665 5,442,563 3,126,076 370,073 32,564 1,643,276 574,030 92,957 52,318 70,766 58,528 22,450 5,081,368 2,809,995 332,893 31,417 1,583,790 535,435 108,431 5,501,091 3,126,076 370,073 32,564 1,643,276 574,030 115,407 13,213 64,005 204,295 25,830,561 12,440 (165,696) 222,712 23,331,668 52,072 4,940,591 45,786 3,581,361 13,213 64,005 256,367 30,771,152 12,440 (165,696) 268,498 26,913,029 941,813 13,090,357 157,786 5,706,667 1,451,571 511,397 183,535 928,485 12,055,439 176,354 6,084,342 1,514,282 695,070 228,430 - - 941,813 13,090,357 157,786 5,706,667 1,451,571 511,397 183,535 928,485 12,055,439 176,354 6,084,342 1,514,282 695,070 228,430 2,585,683 261,518 - 2,755,710 222,851 - 3,343,377 2,103,028 3,290,033 1,086,330 2,585,683 261,518 3,343,377 2,103,028 2,755,710 222,851 3,290,033 1,086,330 24,890,327 24,660,963 67,750 432,150 126,029 6,072,334 30,055 395,950 142,229 4,944,597 67,750 432,150 126,029 30,962,661 30,055 395,950 142,229 29,605,560 940,234 (1,329,295) (1,131,743) (1,363,236) (191,509) (2,692,531) - - 3,020 4,014 3,020 4,014 - - - 7,240 - 7,240 (809,864) 130,370 16,100,685 16,231,055 (983,006) (2,312,301) 18,412,986 16,100,685 7,080 809,864 (311,779) 2,790,965 2,479,186 2,720 983,006 (366,256) 3,157,221 2,790,965 7,080 (181,409) 18,891,650 18,710,241 2,720 (2,678,557) 21,570,207 18,891,650 $ $ - 25 - $ $ $ Change in Net Assets Governmental Activities – During the prior fiscal year, expenses were higher than revenues, resulting in a decrease in net assets of $2.3 billion. However, during the current fiscal year, program revenues increased and several expenses were decreased by legislative cuts to result in a positive change in net assets of $130.370 million. Operating grant and contribution revenues increased $3.1 billion, or 29%, as compared to fiscal year 2009. These revenues partially consisted of federal stimulus funds received through the American Recovery and Reinvestment Act of 2009 (ARRA). Reported income tax and sales tax revenues decreased by $316.081 million, or 10%, and $413.513 million, or 8%, as compared to fiscal year 2009, respectively. The costs of the State’s health and welfare increased $1.0 billion, or 9%, as compared to fiscal year 2009, primarily due to the spending of ARRA funds. However, expenses were reduced, from the prior year, by a combined total of $687.522 million for inspection and regulation, education, protection and safety, transportation, and natural resources. A comparison of the net cost (income) of services by function for the State’s governmental activities is shown below for fiscal years 2010 and 2009. 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 2010 2009 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 $ 941,813 13,090,357 157,786 5,706,667 1,451,571 511,397 183,535 2,585,683 261,518 $ 24,890,327 - 26 - $ 928,485 12,055,439 176,354 6,084,342 1,514,282 695,070 228,430 2,755,710 222,851 $ 24,660,963 Net Cost (Income) of Services 2010 2009 $ 458,954 2,147,391 (5,925) 3,410,225 1,102,866 (334,359) 75,171 2,585,683 261,518 $ 9,701,524 $ 594,087 2,654,326 4,577 5,128,458 1,277,463 (86,556) 129,374 2,755,710 222,851 $ 12,680,290 Expenses and Program Revenues Governmental Activities for Fiscal Year 2010 (in millions of dollars) $13,000 $12,000 $11,000 $10,000 $9,000 $8,000 $7,000 Expenses Program Revenues $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 Ed uc Pr at ot ion ec t io n & Sa fe ty Tr an sp or tat Na io tu n ra In l ter Re go so vt ur .R ce ev s In e nu ter eS es to ha n ri n Lo g ng -te rm De bt Ge ne r al G ov er nm He en alt t h & In W sp ec el fa ti o re n& Re gu la t io n $0 Business-type Activities – The net assets decreased by $311.779 million, or 11%. This decrease was primarily caused by the net decrease in the Unemployment Compensation Fund of $550.848 million and partially offset with the net increase in the Universities Fund of $234.069 million. The Unemployment Compensation Fund had an increase in costs of sales and benefits of $1.0 billion, which was mostly offset by increases in unemployment assessments and intergovernmental revenue of $88.238 million and $858.030 million, respectively. However, operating expenses still exceeded operating revenues by $554.948 million for the current year. Arizona’s unemployment rate increased from 9.3% at June 30, 2009, to 9.6% at June 30, 2010. On average, there were 299 thousand individuals who were unemployed during fiscal year 2010 compared with 233 thousand individuals who were unemployed during fiscal year 2009. The Universities Fund net increase was primarily attributed to increased tuition and fee rates and enrollment. Federal Fiscal Stabilization Funds received from ARRA were used to help offset reductions in State appropriations. 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 2009 and 2010. 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 2010 2009 Functions/Programs: Universities Unemployment Compensation Industrial Commission Special Fund Lottery Other Total Business-type Activities Net Cost (Income) of Services 2010 2009 $ 3,343,377 2,103,028 $ 3,290,033 1,086,330 $ 837,324 546,269 $ 1,129,521 445,737 67,750 432,150 126,029 $ 6,072,334 30,055 395,950 142,229 $ 4,944,597 50,170 (119,342) (7,522) $ 1,306,899 5,135 (88,536) (1,857) $ 1,490,000 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, 2010, unreserved fund balance of the General Fund had a deficit of $825.081 million, while total fund balance closed the year at a deficit of $754.731 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 a negative 4% of total expenditures and other financing uses, while total fund balance represents a negative 3% of the same amount. The fund balance of the State’s General Fund increased $223.547 million during the fiscal year. The primary reason for the increase in fund balance during the fiscal year is the State issued $425.420 million of revenue bonds and $998.795 million of certificates of participation. Otherwise, the fund balance of the State’s General Fund would have decreased during the fiscal year, as expenditures were $21.9 billion and revenues were $21.0 billion. Although intergovernmental revenues increased $2.2 billion (21%) from the prior fiscal year, sales tax revenues decreased $298.994 million (6%) and income tax revenues decreased $332.376 million (11%). In particular, sales taxes paid by retail stores and construction contractors decreased by 7% and 37%, respectively, when compared to fiscal year 2009 sales tax receipts. In addition, income tax collections decreased from the previous fiscal year as a result of the, on average, 299 thousand individuals that were unemployed during fiscal year 2010 compared with 233 thousand individuals who were unemployed during fiscal year 2009 and a decrease in the amount of corporate income taxes collected during the fiscal year. Health and welfare expenditures and intergovernmental revenue (including federal grants and county funding) increased by $1.1 billion, or 9%, and $2.2 billion, or 21%, as compared to fiscal year 2009, respectively. The increase in expenditures in fiscal year 2010 can be attributed to increased enrollment in the Arizona Health Care Cost Containment System’s (AHCCCS) programs. During the final six months of fiscal year 2010, the AHCCCS enrollment growth began to slow following the most significant period of enrollment increase since the Proposition 204 expansion in calendar years 2001 to 2003. From February 2007 to December 2009, AHCCCS enrollment increased in 31 out of 34 months for a total increase of 342,500 members, or an increase of 33.4%. The total enrollment decreased by 14,239 from December 2009 to August 2010, primarily driven by the January 1, 2010 enrollment cap in the KidsCare program and decreases to the Federal Emergency Services (FES) undocumented population. Excluding the KidsCare and FES populations, the Title XIX full services membership populations increased by 31,700, or 2.6%, from December 2009 to - 28 - August 2010. The intergovernmental revenue increase was partially due to the receipt of federal stimulus funds from ARRA. Education expenditures decreased by $173.061 million, or 3%, compared to fiscal year 2009. The decrease can be primarily attributed to a decrease in State assistance for kindergarten through twelfth grade (K-12) and University operating expenditures to address budget shortfalls. In addition, the Arizona Department of Education’s spending was reduced by $250.000 million due to the restoration of the State Equalization Tax Rate in fiscal year 2010. This was expected to generate a corresponding amount in new local property tax funds. 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 increased $54.753 million during fiscal year 2010. The fund balance increase was due, in part, to a decrease in the distributions to Arizona counties and cities during fiscal year 2010, as collections for the Transportation and Aviation Planning, Highway Maintenance and Safety Fund decreased. In addition, the Transportation and Aviation Planning, Highway Maintenance and Safety Fund transfers to the General Fund and other State agencies decreased in fiscal year 2010 because the amount stipulated by the State Legislature decreased. 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 $478.820 million during fiscal year 2010. Endowment investments increased $477.338 million, at fiscal year end, due to receipts from land sales of $78.564 million and a net increase in the fair value of investments of $374.553 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 $15.2 billion and the final amended budget of $16.3 billion resulted in a $1.1 billion net increase in appropriations for the General Fund, before adjustments. Some of the significant changes in the General Fund appropriations were: 1. $218.235 million increase due to prior fiscal year obligations that were paid in the current fiscal year per ARS §35-191 2. $2.5 billion increase for the Department of Education’s Basic State Aid Entitlement and Additional State Aid to Schools, which usually are included in the original budget, but were vetoed and made later under supplemental appropriations 3. $874.834 million decrease to the AHCCCS was primarily due to the expected General Fund savings that are associated with the enhanced Federal Medical Assistance Percentage (FMAP) and the Medicare Clawback payments implemented by ARRA 4. $350.875 million decrease to the Department of Economic Security was primarily due to agency budget reductions and the expected General Fund savings that are associated with the enhanced FMAP and the Medicare Clawback payments implemented by ARRA 5. $200.000 million decrease for the deferral of appropriations to the Universities Fund - 29 - 6. $71.750 million decrease to the Universities Fund due to the expected General Fund savings that are associated with ARRA 7. $47.333 million decrease for reductions to the Universities Fund appropriations 8. $34.462 million increase to the Universities Fund to make debt service payments associated with the financing of research infrastructure projects 9. $20.000 million increase for the Parks Board “Growing Smarter” transfer to the Land Conservation Fund per ARS §41-511.23 to provide grants to purchase State trust land for conservation purposes The actual expenditures were less than the final budget by $698.532 million, after adjustments. Of this amount, $55.354 million will continue as legislative multiple fiscal year spending authority for fiscal years 2011 and beyond, depending upon the budgetary guidelines of the Legislature. The remaining $643.178 million represents the unused portion of the State’s legislatively authorized annual operating budget. Additional budgetary information can be found on pages 160-162 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, 2010 totaled $22.7 billion, net of accumulated depreciation. The total primary government increase in capital assets for the current period was 7%, with a 7% increase in capital assets used for governmental activities and a 4% increase for businesstype activities. Depreciation charges of the governmental and business-type activities for the fiscal year totaled $342.884 million. Major capital asset activity during the current fiscal year included the following: i The Universities’ additions to capital assets totaled $354.428 million and included increased investments in instruction, research, student housing, athletic facilities, and other capital projects. i 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, 2010 are presented below (expressed in thousands): Governmental Activities 2010 2009 $ 2,602,541 $ 2,488,112 1,895,998 1,754,959 Land Buildings Improvements other than buildings 151,356 Equipment 728,811 Software and other intangibles 130,988 Collections (non-depreciable) Infrastructure 11,058,408 Construction in progress 3,823,110 Development in progress 84,277 (1,349,975) Less: accumulated depreciation Total $ 19,125,514 135,097 713,524 61,223 10,647,110 3,199,253 83,069 (1,222,790) $ 17,859,557 Business-type Activities 2010 2009 $ 185,292 $ 181,400 3,982,408 3,877,636 Total 2010 2009 $ 2,787,833 $ 2,669,512 5,878,406 5,632,595 4,811 1,413,422 17,749 383,883 255,196 (2,712,620) $ 3,530,141 156,167 2,142,233 130,988 17,749 11,442,291 4,078,306 84,277 (4,062,595) $ 22,655,655 4,811 1,345,615 17,882 367,408 131,054 (2,521,193) $ 3,404,613 139,908 2,059,139 61,223 17,882 11,014,518 3,330,307 83,069 (3,743,983) $ 21,264,170 The governmental activities capital asset ending balances for the year ended June 30, 2009 have been reclassified due to the implementation of GASB Statement No. 51, Accounting and Financial Reporting for Intangible Assets. - 30 - As provided by GASB Statement No. 34, the State has elected to record its infrastructure assets, that the ADOT is responsible for maintaining, using the modified approach as described in Note 1H. Assets accounted for under the modified approach include 6,789 center lane miles (18,771 travel lane miles) and 4,700 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 3.71 was achieved for fiscal year 2010. The State manages its bridges using the Arizona Bridge Information and Storage System. The State determines the condition rating based on standards developed by the Federal Highway Administration and additional internal criteria. It is the policy of the State to maintain a Condition Rating Index (CRI) of 92.5% or better. In fiscal year 2010, a CRI of 93.2% was obtained. In addition to many smaller projects, each of the following major highway construction projects in excess of $10.000 million were started during fiscal year 2010 (expressed in thousands): Project Description Major widening of Interstate 10 from Sarival Avenue to Dysart Road in Maricopa County. Major widening of Interstate 10 from Verrado Way to Sarival Avenue in Maricopa County. Capacity additions and reconstruction of State Route 260 in Little Green Valley in Gila County. Major widening of US 60 from State Route Loop 303 to 99th Avenue in Maricopa County. Construction of a traffic interchange on State Route Loop 101 at Beardsley Road and Union Hills Drive in Maricopa County. Major widening of Interstate 10 at the Picacho Peak traffic interchange in Pinal County. Major widening of State Route 87 from Four Peaks Road to Dos S Ranch Road in Maricopa County. 1 Contract Start Date 9/18/09 Contract Amount $ Current Year Expenditures 1 30,936 $ 15,244 7/17/09 21,800 11,825 7/17/09 19,699 5,395 11/20/09 17,970 5,022 10/16/09 14,771 5,741 7/17/09 13,133 8,954 2/10/10 10,777 - Construction expenditures are strictly those costs paid to the primary contractor for each project shown. In addition to many smaller projects, the following major highway construction projects had expenditures in excess of $15.000 million in fiscal year 2010 (expressed in thousands): Project Description State Route Loop 202 from the Interstate 10 and State Route 51 interchange to State Route Loop 101 in Maricopa County. State Route Loop 303 from Happy Valley Parkway to Lake Pleasant Parkway in Maricopa County. Interstate 17 from Jomax Road to Carefree Highway in Maricopa County. State Route Loop 303 from Lake Pleasant Parkway to Interstate 17 in Maricopa County. State Route Loop 303 and Interstate 10 traffic interchange in Maricopa County. Interstate 10 and Twin Peaks traffic interchange in Pima County. US Highway 93 at Hoover Dam in Mohave County. Interstate 10 from Prince Road to 29th Street in Pima County. State Route Loop 202 from State Route Loop 101 to Gilbert Road in Maricopa County. State Route Loop 303 traffic interchanges at Bell, Waddell, and Cactus Roads in Maricopa County. Interstate 10 from Sarival Avenue to State Route Loop 101 in Maricopa County. Interstate 10 from Sarival Avenue to Dysart Road in Maricopa County. State Route 24 (Williams Gateway Airport) from State Route Loop 202 to Ellsworth Road in Maricopa County. 2 Project Expenditures 2 $ 145,804 54,746 47,732 44,276 43,823 40,131 38,922 17,467 16,914 16,881 16,655 15,781 15,400 Project expenditures include not only construction costs, but also engineering and design work, payroll (if applicable), and any other project related costs. More detailed information regarding capital assets is on pages 90 and 91. - 31 - Long-term debt: The State issues no general obligation debt instruments. The Arizona Constitution, under Article 9, Section 5, provides that the State may contract debts not to exceed $350 thousand. This provision has been interpreted to restrict the State from pledging its credit as a sole payment for debts incurred for the operation of the State government. As a result, the State pledges either dedicated revenue streams or the constructed building or equipment acquired as security for the repayment of long-term debt instruments. Major long-term debt activity during the current fiscal year included the following: i The State issued revenue bonds totaling $425.420 million to provide monies to deposit in the State’s General Fund to pay appropriated expenditures of the State and to pay the costs of issuing the bonds. i The Universities issued revenue bonds for $505.110 million to fund the acquisition, construction, or renovation of capital facilities and infrastructure, and refund obligations from certain previously issued bonds. i The State issued $998.795 million of certificates of participation to finance the acquisition of certain property from the State by the Trustee and to pay the costs of the issuances. The net proceeds received by the Trustee were immediately transferred from the Proceeds Fund to the State’s General Fund to pay appropriated expenditures of the State. State of Arizona-Primary Government Outstanding Major Long-Term Debt as of June 30, 2010 (expressed in thousands) Revenue bonds Capital leases Certificates of participation Total Governmental Activities 2010 2009 $ 3,522,605 $ 3,251,580 412,919 236,125 2,571,125 1,649,870 $ 6,506,649 $ 5,137,575 Business-type Activities 2010 2009 $ 1,692,825 $ 1,239,675 171,448 175,453 840,719 872,829 $ 2,704,992 $ 2,287,957 Total 2010 $ 5,215,430 $ 584,367 3,411,844 $ 9,211,641 $ 2009 4,491,255 411,578 2,522,699 7,425,532 More detailed information regarding long-term debt begins on page 97. ECONOMIC CONDITION AND OUTLOOK Arizona’s economy, along with the rest of the nation, continued to contract in fiscal year 2010, as problems in the financial and housing markets continued, along with continued decline in labor markets. The current set of elements inhibiting growth in the economy include high levels of unemployment, large debt loads, reduced income and wealth, weak housing and commercial real estate markets, rising health care costs, and budget deficits in state and local governments. In addition, Arizona’s personal income figures have demonstrated near historic lows in over-the-year growth. According to the Arizona Department of Commerce, Research Administration (RA), impetus provided by the federal government economic stimulus programs and improved private sector employment observed domestically helped reduce projected losses in Arizona’s nonfarm employment in 2010 to 25,700. In contrast, in 2011, the anticipated winding down of the federal government economic stimulus programs, lackluster growth in consumer and business spending currently observed within the private sector, low population growth, limited consumer and small business lending by banks, and deficits in the State and local budgets have decreased the amount of projected gains by the RA in Arizona’s nonfarm employment to 16,500. The State is experiencing its worst economic recession since World War II. As reported in the State’s financial statements over the period of fiscal year end 2007 through fiscal year end 2010, the sales tax and income tax revenues in the State’s General Fund decreased by $1.3 billion, or 23%, and $1.8 billion, or 39%, respectively. Due to the continued economic downturn and an on-going structural deficit, the State’s General Fund was projected with a fiscal - 32 - year 2010 ending balance shortfall. The State Legislature enacted a series of laws that eliminated the shortfall and made progress towards correcting the State’s structural deficit. Significant measures include deep cuts to State agencies’ General Fund spending authority, transfer of amounts from other funds, and increased temporary suspension of cash payments to the Universities and K-12 education. Furthermore, the State Legislature authorized sale-leaseback transactions of certain property through the issuance of COPs and the issuance of State Lottery Revenue Bonds, the proceeds of which were deposited in the State’s General Fund to pay appropriated expenditures. The State will continue to use ARRA federal stimulus funds as part of the measures to balance the budget. The State is scheduled to receive ARRA funding through fiscal year 2011 which is a direct help to the General Fund, to be used largely for education and for health/welfare programs. For the years ended June 30, 2010 and 2009, the State recorded $1.7 billion and $768.530 million in ARRA revenue, respectively. Additionally, a temporary 1-cent increase in the transaction privilege tax referred to the voters by the State Legislature was approved in the special election held on May 18, 2010. The increase is effective June 1, 2010 and expires May 31, 2013. The temporary sales tax is estimated to generate an additional $846 million to the General Fund in fiscal year 2011. Further, the decline in tax revenues created problems in the management of the State’s cash flow needs. As a result, throughout most of fiscal year 2010, the State Treasurer issued Treasurer’s Warrant Notes (TWNs) in lieu of immediate payment of warrants presented to the State Treasurer for authorized General Fund expenditures. No TWNs were outstanding at June 30, 2010, and cash flow projections indicate that TWNs will not be needed in fiscal year 2011. Despite imposing the largest spending reductions in State history, eliminating State services and programs, and reducing the State workforce by approximately 10%, the General Fund is projected with a fiscal year 2011 ending balance shortfall of approximately $764 million. In development of the fiscal year 2012 budget, the State will be addressing most of the remaining structural deficit of approximately $1.5 billion, or 16% of the continuing budget. The Medicaid program, which has federal and voter mandated funding, is a major cost component creating the structural deficit. There has been tremendous growth in Medicaid spending, which over the last four years, has increased by approximately 65% and now accounts for 29% of the State’s budget. The State can no longer afford the Medicaid program as it currently exists and discussion of potential reform of this program is being considered to control these costs. The State continues to work towards creating a permanent budget restructuring that realigns the State’s revenues and expenditures so that the State’s structural deficit can be eliminated. 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 68. - 33 - BASIC FINANCIAL STATEMENTS BASIC FINANCIAL STATEMENTS (This page intentionally left blank) STATE OF ARIZONA STATEMENT OF NET ASSETS JUNE 30, 2010 (Expressed in Thousands) 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 Patient accounts receivable 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 Deferred outflow - interest rate swap 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 PRIMARY GOVERNMENT GOVERNMENTAL ACTIVITIES BUSINESS-TYPE ACTIVITIES $ $ 5,774 - 479,888 16,690 COMPONENT UNITS GOVERNMENTAL ACTIVITIES GREATER AZ DEVELOPMENT RIO NUEVO AUTHORITY TOTAL PRIMARY GOVERNMENT $ 485,662 16,690 $ 9,380 - $ - BUSINESS-TYPE ACTIVITIES $ 1,214 - 1,671,434 76,457 1,747,891 - 2,018 71,827 714,163 - 66,819 44,180 105,865 - 66,819 758,343 105,865 - - - 4,703 3,636 124,297 15,819 86,661 3,397 7,863 158,176 149,905 87,902 26,450 4,262 1,314,515 685,367 244,083 36,769 287,750 989,457 26,784 60 39,570 60,221 5,551,331 2,092 7 40 11,519 2,018 12,779 77,503 57,469 12,300 5,624 387,171 66 17,851 17,917 - - - 1,038,242 40,107 2,517 - 348,951 10,248 233,202 1,038,242 389,058 12,765 233,202 18,439 - 10,465 - 49,785 581,925 51,204 2,713,668 12,613 34,147 7,473 488,518 254,052 11,126 20,053 616,072 7,473 51,204 488,518 2,967,720 11,126 32,666 6,367 1,944 - 1,158,137 105,257 48,998 17,546,716 458,237 18,004,953 42,761 - 27,485 1,578,798 23,565,856 3,071,904 4,955,762 4,650,702 28,521,618 28,493 98,004 10,465 285,774 1,675,436 27,802,672 6,270,277 34,072,949 109,523 12,483 2,062,607 598,706 240,686 28,906 129,574 (149,905) 901,555 26,784 60 13,120 55,959 4,236,816 The Notes to the Financial Statements are an integral part of this statement. (Continued) - 38 - STATE OF ARIZONA STATEMENT OF NET ASSETS JUNE 30, 2010 (Expressed in Thousands) 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 PRIMARY GOVERNMENT GOVERNMENTAL ACTIVITIES BUSINESS-TYPE ACTIVITIES $ $ Noncurrent Liabilities: Unearned deferred revenue Contracts payable Accrued insurance losses Funds held for others Long-term debt Derivative instrument - interest rate swap Other long-term liabilities Total Noncurrent Liabilities Total Liabilities NET ASSETS Invested in capital assets, net of related debt Restricted for: Federal grants Capital projects Unemployment Compensation Debt service Permanent fund and Universities fund: Expendable Nonexpendable Loans and other financial assistance: Expendable Other purposes Unrestricted (deficit) Total Net Assets $ 508,751 921,352 714,163 5,301 1,207,082 178,433 81,871 53,764 400,716 170,884 4,242,317 135,803 4,567 88,646 44,180 7,650 31 103,573 117,405 24,088 95,640 15,472 637,055 COMPONENT UNITS GOVERNMENTAL ACTIVITIES GREATER AZ DEVELOPMENT BUSINESS-TYPE RIO NUEVO AUTHORITY ACTIVITIES TOTAL PRIMARY GOVERNMENT $ 644,554 4,567 1,009,998 758,343 12,951 1,207,113 282,006 199,276 77,852 496,356 186,356 4,879,372 $ 4,204 261 8,196 12,661 $ - $ 58,997 48,534 3,636 5,568 45,510 9,182 171,427 81,956 319,953 6,801,550 125,841 7,329,300 15,170 12,450 391,196 30,244 2,639,360 11,126 54,490 3,154,036 97,126 12,450 711,149 30,244 9,440,910 11,126 180,331 10,483,336 908 94,770 95,678 - 2,412 8,845 1,186,124 8,887 1,206,268 11,571,617 3,791,091 15,362,708 108,339 - 1,377,695 15,738,121 1,352,658 17,090,779 36,293 - 47,457 47,463 565,534 25,262 2,819 68,155 34,393 47,463 568,353 68,155 59,655 12,920 10,465 - 181,728 3,330,361 202,691 166,399 384,419 3,496,760 - - - 497,932 (4,155,346) 75,619 26 576,426 75,619 497,958 (3,578,920) 2,018 379,482 22,127 235,846 16,231,055 $ 2,479,186 The Notes to the Financial Statements are an integral part of this statement. - 39 - $ 18,710,241 (48,029) $ 1,184 $ 12,483 $ 684,912 STATE OF ARIZONA STATEMENT OF FINANCIAL POSITION UNIVERSITIES - AFFILIATED COMPONENT UNITS JUNE 30, 2010 (Expressed in Thousands) ASSETS Cash and cash equivalent investments $ Receivables: Pledges receivable Other receivables Total receivables 151,092 21,360 172,452 Investments: Investments in securities Investments held in trust for Universities Other investments Total investments 981,522 35,334 49,259 1,066,115 Net direct financing leases Property and equipment, net of accumulated depreciation Licenses Other assets 121,342 417,242 4,530 41,325 Total Assets 1,892,074 LIABILITIES Liability under Universities' endowment trust agreements Bonds payable Unearned revenue Other liabilities 101,901 653,219 30,889 74,987 Total Liabilities 860,996 NET ASSETS Permanently restricted Temporarily restricted Unrestricted Total Net Assets 69,068 699,171 336,414 (4,507) $ 1,031,078 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, 2010 (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 941,813 13,090,357 157,786 5,706,667 1,451,571 511,397 183,535 2,585,683 261,518 24,890,327 OPERATING GRANTS AND CONTRIBUTIONS CHARGES FOR SERVICES $ 3,343,377 2,103,028 67,750 432,150 126,029 6,072,334 208,316 109,405 143,329 66,911 158,867 123,372 67,313 877,513 $ 1,432,055 358,865 17,580 551,492 132,809 2,492,801 274,543 10,833,561 20,382 2,229,531 189,838 146,936 40,472 13,735,263 CAPITAL GRANTS AND CONTRIBUTIONS $ 1,061,435 1,197,894 742 2,260,071 575,448 579 576,027 12,563 12,563 Total Primary Government $ 30,962,661 $ 3,370,314 $ 15,995,334 $ 588,590 COMPONENT UNITS: Governmental Activities: Rio Nuevo Greater Arizona Development Authority Total Governmental Activities $ 9,602 2,228 11,830 $ 3,733 3,733 $ - $ - 79,530 550,982 30,850 661,362 $ 36,137 567,639 30,927 634,703 $ 72,203 72,203 $ 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 Extraordinary Items: Insurance recovery, net of impairment loss Transfers Total General Revenues, Contributions, Extraordinary Items, and Transfers Change in Net Assets Net Assets - Beginning Net Assets - Ending The Notes to the Financial Statements are an integral part of this statement. - 42 - 1,475 1,475 NET (EXPENSE) REVENUE AND CHANGES IN NET ASSETS PRIMARY GOVERNMENT COMPONENT UNITS GOVERNMENTAL ACTIVITIES TOTAL GREATER AZ GOVERNMENTAL BUSINESS-TYPE PRIMARY DEVELOPMENT ACTIVITIES ACTIVITIES GOVERNMENT RIO NUEVO AUTHORITY $ (458,954) (2,147,391) 5,925 (3,410,225) (1,102,866) 334,359 (75,171) (2,585,683) (261,518) (9,701,524) $ $ (9,701,524) BUSINESS-TYPE ACTIVITIES (458,954) (2,147,391) 5,925 (3,410,225) (1,102,866) 334,359 (75,171) (2,585,683) (261,518) (9,701,524) (837,324) (546,269) (50,170) 119,342 7,522 (1,306,899) (837,324) (546,269) (50,170) 119,342 7,522 (1,306,899) (1,306,899) (11,008,423) $ (5,869) $ $ (5,869) $ (2,228) (2,228) $ 5,029,050 2,809,995 332,893 31,417 1,583,790 535,435 37,665 13,213 64,005 204,295 (809,864) 9,831,894 130,370 16,100,685 $ 16,231,055 52,318 70,766 52,072 3,020 5,081,368 2,809,995 332,893 31,417 1,583,790 535,435 108,431 13,213 64,005 256,367 3,020 9,322 204 - 459 - 10,000 - 7,080 809,864 7,080 - - - - 995,120 (311,779) 2,790,965 $ 28,810 18,132 77 47,019 2,479,186 10,827,014 (181,409) 18,891,650 $ 18,710,241 9,526 3,657 (2,473) $ 1,184 - 43 - 459 (1,769) 14,252 $ 12,483 10,000 57,019 627,893 $ 684,912 STATE OF ARIZONA STATEMENT OF ACTIVITIES UNIVERSITIES - AFFILIATED COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Thousands) UNRESTRICTED REVENUES Contributions Rental revenue Sales and services Net investment income Net assets released from restrictions Licensing revenue Other revenues $ Total Revenues 9,851 48,598 39,400 24,613 118,990 2,434 29,299 TEMPORARILY PERMANENTLY RESTRICTED RESTRICTED $ 82,642 $ 85 28,233 (111,442) 4,290 TOTAL 15,358 $ 25,714 (7,548) 156 107,851 48,598 39,485 78,560 2,434 33,745 273,185 3,808 33,680 310,673 92,186 8,651 18,440 10,782 - - 92,186 8,651 18,440 10,782 67,191 8,250 27,590 20,937 9,201 7 6 67,191 8,250 27,590 20,937 9,214 Total Expenses 263,228 7 6 263,241 Increase in Net Assets 9,957 3,801 33,674 47,432 Net Assets - Beginning Transfers (14,890) 426 665,707 (210) 983,646 - 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 Depreciation and amortization Other expenses Net Assets - Ending $ (4,507) $ 332,829 (216) 336,414 The Notes to the Financial Statements are an integral part of this statement. - 44 - $ 699,171 $ 1,031,078 STATE OF ARIZONA BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2010 (Expressed in Thousands) TRANSPORTATION & AVIATION PLANNING, HIGHWAY MAINTENANCE & SAFETY FUND GENERAL FUND ASSETS Cash Cash and pooled investments with State Treasurer Collateral investment pool Receivables, net of allowances: Taxes Interest Loans and notes Other Due from U.S. Government Due from local governments Due from others Due from other Funds Inventories, at cost Restricted assets: Cash Cash and pooled investments with State Treasurer Cash held by trustee Investments Securities held in escheat Endowment investments Other Total Assets LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and other current liabilities Accrued liabilities Obligations under securities loan agreements Due to U.S. Government Due to local governments Due to others Due to other Funds Unavailable deferred revenue Unearned deferred revenue Total Liabilities $ $ - $ 28 OTHER GOVERNMENTAL FUNDS $ 4,341 TOTAL $ 5,774 520,494 42,018 35,072 15,266 43,663 631,827 904,854 25,052 1,504,083 714,163 476,876 25 79,743 785,757 26,784 33,783 2,025 60,649 8,461 7,661 110,329 8,404 240,661 602,370 10,422 - 61,181 23,904 60 19,251 66 598,706 240,686 610,831 121,730 896,086 26,784 60 53,034 10,495 66 - - - 66 51,339 12,983 2,517 51,204 10,883 706,631 40,051 2,713,668 - 280,272 27,124 1 1,038,242 40,107 2,517 51,204 2,713,668 50,935 $ 2,097,902 $ 992,524 $ 4,242,639 $ 1,346,106 $ 8,679,171 $ 233,944 445,695 $ 150,625 11,659 $ 40 485 $ 38,701 22,228 $ 423,310 480,067 42,018 5,301 1,035,043 178,162 211,995 634,150 66,325 2,852,633 Fund Balances: Reserved for: 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 1,405 LAND ENDOWMENTS FUND $ 15,266 110,291 7,937 8,461 304,239 631,827 1 1,655 837,136 96,542 1,567,686 25,052 61,748 270 15,994 940 960 165,893 714,163 5,301 1,207,082 178,433 237,581 1,480,687 163,827 4,890,451 14,764 55,354 232 (825,081) 554,180 87,653 40,327 6,125 2,674,953 - 255,317 45,403 28,697 26,389 - 809,497 45,403 14,764 2,674,953 171,704 26,389 40,559 (818,956) (754,731) 688,285 2,674,953 824,407 1,180,213 . 1,346,106 2,097,902 $ The Notes to the Financial Statements are an integral part of this statement. 992,524 - 45 - $ 4,242,639 $ 824,407 3,788,720 $ 8,679,171 STATE OF ARIZONA RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2010 (Expressed in Thousands) Total fund balances - governmental funds $ 3,788,720 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. 19,063,763 Certain receivables related to reimbursements are not available at year end and, therefore, are not reported in the governmental funds. 1,769 Certain receivables are not available to pay for current period expenditures and, therefore, are deferred in the governmental funds. 1,480,687 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. (322,972) 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. 32,904 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. 12,613 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 (3,522,605) (304,480) (2,571,125) (412,919) (901) (60,712) (334,721) 5,197 (7,202,266) 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. (414,409) Accrued interest on long-term obligations is not due and payable from current financial resources and, therefore, is not reported in the governmental funds. (25,468) 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 Pollution remediation obligations (163,098) (21,190) (184,288) Other long-term assets are not available to pay for current-period expenditures and, therefore, are not reported in the governmental funds. Those assets consist of: Other non-current assets 2 Net assets of governmental activities $ The Notes to the Financial Statements are an integral part of this statement. - 46 - 16,231,055 STATE OF ARIZONA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (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 Proceeds from sale of trust land 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 AVIATION PLANNING, HIGHWAY MAINTENANCE & SAFETY FUND $ 199,672 9,527 1,585,919 722,937 109,025 6,769 866 10,588 2,645,303 $ 600 385,393 71,060 78,564 2,084 537,701 OTHER GOVERNMENTAL FUNDS $ 447,606 88 265,078 84,028 44,699 224,336 19,636 41,828 185,645 72,137 48,073 1,433,154 TOTAL $ 5,017,977 2,805,426 332,893 31,417 1,585,919 535,435 13,562,547 425,526 422,564 212,306 224,000 77,554 105,394 78,564 230,223 25,647,745 550,303 1,046,576 6,496 16,985 2,669 7,795 - 140,531 258,890 112,267 493,667 139,831 34,002 112,019 - 931,250 13,054,472 157,461 5,702,963 1,417,428 584,363 175,568 2,574,539 57,283 89,831 73,199 21,896,326 17,607 878 511,135 2,126,499 210 34,155 213,282 195,318 706,797 2,406,604 288,172 286,027 1,291,341 26,463,584 518,804 503,546 (973,450) (815,839) 1,879 (501,646) 3,088 32,628 (464,051) 54,753 633,532 28 (24,754) (24,726) 478,820 2,196,133 483,089 (308,419) 185,335 360,005 (613,445) 1,793,658 1,106,250 (1,872,212) 3,088 187,836 32,628 425,420 998,795 77,709 959,514 143,675 3,645,045 621,254 (1,037,393) 2,501 425,420 998,795 77,709 1,088,286 223,547 (978,278) $ LAND ENDOWMENTS FUND 790,719 12,789,086 45,194 5,192,311 1,274,928 58 55,754 1,527,963 (864,739) OTHER FINANCING SOURCES (USES) Transfers in Transfers out Proceeds from sale of capital assets Capital lease and installment purchase contracts Proceeds from notes and loans Bonds issued Certificates of participation issued Premium on debt issued Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending 4,370,699 2,805,338 67,815 21,890 451,407 12,794,911 91,565 10,766 98,552 38,355 5,417 105,394 169,478 21,031,587 TRANSPORTATION & (754,731) $ 688,285 The Notes to the Financial Statements are an integral part of this statement. - 47 - $ 2,674,953 $ 1,180,213 $ 3,788,720 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, 2010 (Expressed in Thousands) Net change in fund balances - total governmental funds $ 143,675 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. Also, infrastructure was adjusted to reflect postGASB 34 costs charged to projects which, at the time of GASB 34 implementation, had been considered to be complete. This is the amount by which capital outlays and infrastructure adjustments exceeded depreciation in the current period. Capital outlay 1,291,341 Infrastructure adjustment 92,252 Depreciation expense (106,923) 1,276,670 The net expense of internal service funds is included with governmental activities in the Statement of Activities. (9,604) Some revenues reported in the Statement of Activities are not currently available at yearend and are not reported as revenue in the governmental funds. Sales taxes 11,073 Income taxes 4,569 Accrued interest on land sales' contracts 86,223 Operating grants 88,933 Right-of-way lease revenue 2,200 192,998 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. Tobacco settlement (5,034) Other revenue (310) (5,344) 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 2010, mortgage payments exceeded gains resulting from current year land sales. Additionally, an increase in the allowance for doubtful accounts does not require the use of current financial resources and, therefore, is not reported in the governmental funds. Excess of mortgage receipts over gain on sale of land (8,666) Increase in allowance for doubtful accounts (5,893) (14,559) (Continued) The Notes to the Financial Statements are an integral part of this statement. - 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, 2010 (Expressed in Thousands) Some expenses reported in the Statement of Activities do not require the use of current financial resources and, therefore, are not reported as expenditures in the governmental funds. AHCCCS accrued programmatic costs (33,594) Other expenses (15,433) (49,027) 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. Compensated absences 3,644 Pollution remediation obligations 1,623 Interest on long-term obligations 966 6,233 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: Bonds issued (425,420) Certificates of participation issued (998,795) Proceeds from notes and loans (32,628) Premium on debt issued (77,709) (1,534,552) 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 288,172 Debt premium/discount amortization 28,601 Amortization of bond issuance costs (1,083) Amortization of deferred amount (3,974) 311,716 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. (187,836) Change in net assets of governmental activities $ The Notes to the Financial Statements are an integral part of this statement. - 49 - 130,370 STATE OF ARIZONA STATEMENT OF NET ASSETS PROPRIETARY FUNDS JUNE 30, 2010 (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 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 Deferred outflow - interest rate swap Other noncurrent assets Capital assets: Land and other non-depreciable Buildings, equipment, and other depreciable, net of accumulated depreciation Total Noncurrent Assets Total Assets $ 438,231 22,669 BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS INDUSTRIAL UNEMPLOYMENT COMMISSION COMPENSATION SPECIAL FUND LOTTERY $ 16,690 - $ 38,149 2,800 $ OTHER 36,194 $ 3,508 14,794 105,761 - 44,180 - - 66,819 104 794 3,373 89,511 82,822 200,000 16,508 3,371 963,040 82,736 49,582 4,538 153,546 3,925 2,570 2,552 94,176 7,090 3,927 47,211 33 4,490 9,441 542 104 6,015 891 106,741 17,851 348,951 10,248 233,202 - - - - 29,833 7,473 182,490 254,052 11,126 11,849 - 304,500 - 1,528 8,204 4,314 - 452,066 - 2,997 1,021 2,153 3,034,753 4,593,894 5,556,934 153,546 15,639 323,136 417,312 2,458 13,211 60,422 19,054 25,521 132,262 The Notes to the Financial Statements are an integral part of this statement. - 50 - TOTAL ENTERPRISE FUNDS $ 479,888 16,690 76,457 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS $ 167,351 66,819 44,180 105,865 - 86,661 3,397 7,863 158,176 87,902 200,104 26,450 4,262 1,364,714 7,844 3,700 3,115 2,627 5,024 189,661 17,851 348,951 10,248 233,202 - 34,147 7,473 488,518 254,052 11,126 20,053 - 458,237 165 3,071,904 4,955,762 6,320,476 61,586 61,751 251,412 (Continued) - 51 - STATE OF ARIZONA STATEMENT OF NET ASSETS PROPRIETARY FUNDS JUNE 30, 2010 (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 Derivative instrument - interest rate swap Other long-term liabilities Total Noncurrent Liabilities Total Liabilities NET ASSETS Invested in capital assets, net of related debt Restricted for: Capital projects Unemployment Compensation Debt service Universities fund: Expendable Nonexpendable Loans and other financial assistance: Expendable Other Unrestricted (deficit) Total Net Assets $ 122,532 66,448 19,568 109,257 95,544 14,179 427,528 BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS INDUSTRIAL UNEMPLOYMENT COMMISSION COMPENSATION SPECIAL FUND LOTTERY $ 20,161 7,650 57,357 223 85,391 $ 6,573 4,567 44,180 24,088 79,408 $ OTHER 4,364 26,648 17,071 329 48,412 $ 2,334 2,037 31 1 8,148 96 964 13,611 15,170 30,244 2,639,227 11,126 54,411 2,750,178 3,177,706 85,391 391,196 391,196 470,604 48,412 12,450 133 79 12,662 26,273 1,309,565 - 18,636 3,479 20,978 2,819 34,393 68,155 - - - - 202,691 166,399 - - - - 663,361 - 8,531 75,619 26 9,366 2,379,228 $ 68,155 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 - (71,928) $ (53,292) $ 12,010 $ 105,989 TOTAL ENTERPRISE FUNDS $ 135,803 4,567 88,646 44,180 7,650 31 103,573 17,295 117,405 24,088 95,640 15,472 654,350 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS $ 15,170 12,450 391,196 30,244 2,639,360 11,126 54,490 3,154,036 3,808,386 319,953 102,375 422,328 574,384 1,352,658 61,751 2,819 68,155 34,393 - 202,691 166,399 - 75,619 26 609,330 $ 85,445 1,408 1,377 53,764 10,062 152,056 2,512,090 (384,723) $ (322,972) (32,904) $ 2,479,186 - 53 - STATE OF ARIZONA STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Thousands) UNIVERSITIES OPERATING REVENUES Sales and charges for services: Student tuition and fees, net of scholarship allowances of $331,218 Auxiliary enterprises, net of scholarship allowances of $19,355 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 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 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, Extraordinary Items, and Transfers $ - $ - $ - 14,664 2,916 17,580 551,492 322 551,814 131,482 742 761 566 1,893 135,444 804,164 195,840 2,025,816 218,577 3,244,397 (1,134,433) 2,103,028 2,103,028 (554,948) 63,284 1,339 64,623 (47,043) 385,620 6,078 14,791 353 57 3,172 410,071 141,743 84,040 25,813 7,432 2,106 448 6,068 125,907 9,537 38,951 1,788 (3,127) 37,612 1,735 (22,079) (20,344) (9,431) 121,399 10,250 - - 9,764 9,764 (545,184) 12,563 3,020 $ - 357,047 1,188,130 1,818 1,085 1,548,080 (734,629) Change in Net Assets Total Net Assets - Beginning $ OTHER 343,238 66,498 532,007 115,679 30,223 2,109,964 52,318 245,075 159,377 (817) 29,773 9,297 17,050 (102,267) (10,002) 399,804 Capital grants and contributions Contributions to permanent endowments Extraordinary Items: Insurance recovery, net of impairment loss Transfers in Transfers out Total Net Assets - Ending 1,022,319 BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS INDUSTRIAL UNEMPLOYMENT COMMISSION COMPENSATION SPECIAL FUND LOTTERY - 7,080 946,035 - (5,664) 234,069 2,145,159 (550,848) 619,003 2,379,228 $ 68,155 Change in net assets of enterprise funds Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds. Change in net assets of business-type activities The Notes to the Financial Statements are an integral part of this statement. - 54 - - $ 307 528 (38) (84) 713 2,000 - (119,780) 81 (12,808) (7,431) (45,861) 1,619 10,391 (2,477) 108,466 (53,292) $ 12,010 $ 105,989 TOTAL ENTERPRISE FUNDS $ 1,022,319 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS $ 343,238 66,498 551,492 131,482 357,047 14,664 1,720,879 115,679 761 566 1,818 2,916 33,523 4,362,882 904,701 149 904,850 3,440,136 195,840 2,057,707 22,223 222,375 505 9,240 5,948,026 (1,585,144) 720,885 29,722 31,408 13,586 55,388 9,702 860,691 44,159 52,318 245,075 159,377 (817) 80,530 9,297 19,366 (22,079) (102,305) (13,213) 427,549 189 27 98 (1) (271) 42 (1,157,595) $ - 44,201 12,563 3,020 3,386 - 7,080 948,116 (138,252) 6,038 (49,940) (325,068) 2,837,158 3,685 (326,657) 2,512,090 $ (325,068) 13,289 $ (311,779) $ (322,972) - 55 - STATE OF ARIZONA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (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 grants and contracts Receipts from student loans collected Receipts from repayment of loans to local governments Receipts from settlement income 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 Transfers from other Funds Custodial funds disbursed Grants and contributions disbursed Distributions to local governments Transfers to other Funds Other receipts (payments) Net Cash Provided (Used) by Non-capital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from sale of capital assets Proceeds from capital debt, installment purchase contracts, and capital leases Capital grants and contributions received Transfers from other funds Acquisition and construction of capital assets Interest paid on capital debt, installment purchase contracts, and capital leases Principal paid on capital debt, installment purchase contracts, and capital leases Other receipts (payments) Net Cash (Used) by Capital and Related Financing Activities $ 989,823 BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS INDUSTRIAL UNEMPLOYMENT COMMISSION COMPENSATION SPECIAL FUND LOTTERY $ 339,745 - $ 13,539 - $ OTHER 263,951 - $ 131,869 - 342,775 - - - - 62,036 625,100 4,938 1,183,591 - - - 435 - - - 2,915 - 15,270 - (798,531) (2,006,789) (189,830) (6,478) 23,111 (953,845) (2,123,766) 10,413 (590,017) (23,292) (6,838) (134,621) (6,024) 10,691 133,997 (100,370) (25,823) (23) (1,025) 20,333 358,276 52,284 1,097,315 969,267 (373,066) (683,362) 11,915 (5,648) - 450 2,000 (1,680) (22,079) (111,354) - 81 (12,808) (15) 1,432,629 (5,648) (133,433) (12,742) 465 - 770 - 504,726 9,060 34,625 (351,646) - (102,763) - (105,147) - - (172) (10,680) - (850) The Notes to the Financial Statements are an integral part of this statement. - 56 - (678) - (44) (770) - (37) - (80) (503) (44) (1,390) TOTAL ENTERPRISE FUNDS $ 395,820 353,284 989,823 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS $ - 342,775 - 62,036 1,809,126 4,938 911,024 - 15,270 2,915 - (3,180,580) (2,038,636) (189,830) (6,478) (23) 43,190 (1,396,370) (785,723) (29,948) (10,942) 220 84,631 358,276 450 52,284 1,097,315 971,348 (373,066) (683,362) (22,079) (129,810) 10,220 6,038 (49,940) (266) 1,281,576 (44,168) 465 504,726 9,060 34,625 (353,138) 1,096 (3,475) (102,800) - (105,227) (675) 92 (12,964) (2,287) (Continued) - 57 - STATE OF ARIZONA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (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 278,670 19,307 9,765 187,421 13,842 136 (326,475) (28,498) 9,765 (556) (204,071) (1,247) (4,611) 136 Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning 439,606 388,096 (11,529) 96,658 656 35,538 Cash and Cash Equivalents - Ending RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation and amortization Net changes in assets and liabilities: (Increase) decrease in receivables, net of allowances (Increase) in due from U.S. Government (Increase) 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 in due to others Increase in due to other Funds (Decrease) in deferred revenue Increase in accrued insurance losses Increase (decrease) in other liabilities Net Cash Provided (Used) by Operating Activities (585,900) 602,590 $ 827,702 $ $ (1,134,433) $ 16,690 $ (554,948) $ 218,577 - (24,671) 2,691 (180) (7,710) 1,871 (9,990) - 85,129 $ 85,121 (47,043) $ 141,743 $ 9,537 $ (953,845) $ SCHEDULE OF NONCASH INVESTING, CAPITAL AND NON-CAPITAL FINANCING ACTIVITIES Assets acquired under capital leases $ Capital lease obligations assumed by other Funds Contribution of capital assets from other Funds Gifts and conveyances of capital assets (Loss) on disposal of capital assets, net Change in fair value of investments Amortization of bond discount and issuance costs Amortization of bond premium Amortization of deferred rent Amortization of deferred costs of refundings Total Noncash Investing, Capital and Non-capital Financing Activities $ 10,000 $ 1,165 (2,276) 8,466 (2,346) 1,728 4,900 1,497 - $ 24,655 - 23,134 - $ 24,655 $ The Notes to the Financial Statements are an integral part of this statement. - 58 - 3,963 81,158 36,194 353 (689) 2,759 36,764 32 (590,017) $ (2,691) (2) (33) (2,238) $ 1,339 (49,441) (4,538) (303) 7,649 11,564 - 488 2,106 (1,236) (1,560) 126 (147) (5,282) - (6,838) $ 15,599 (306) (11) 95 (538) (3,454) (1,685) (1,022) 12 133,997 $ 20,333 $ - $ - $ - $ - TOTAL ENTERPRISE FUNDS $ GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS 466,091 43,538 26 (3,247) (530,548) (1,280) (25,446) 26 (153,204) 1,204,040 38,202 129,149 $ 167,351 (1,585,144) $ 44,159 222,375 13,586 (60,438) (4,844) (11) 1,226 (592) (8,552) (5,399) 7,649 11,564 (11,012) 36,764 44 7,050 (1,500) 841 122 2,319 5,249 (32) 214 13,904 (1,281) $ (1,396,370) $ 84,631 $ 10,000 $ 1,165 (2,276) 33,121 (2,346) 1,728 4,900 1,497 3,082 305 - $ 47,789 3,387 $ 1,050,836 $ - 59 - STATE OF ARIZONA STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2010 (Expressed in Thousands) PENSION AND OTHER ASSETS Cash Cash and pooled investments with State Treasurer Short-term investments Receivables, net of allowances: Accrued interest and dividends Securities sold Forward contracts receivable Contributions Court fees Due from other Funds Miscellaneous receivables Total receivables EMPLOYEE BENEFIT INVESTMENT AGENCY TRUST FUNDS TRUST FUNDS FUNDS $ Due from others Investments, at fair value: Temporary investments U.S. Government securities Corporate bonds Corporate notes Corporate stocks Real estate Private equity Opportunistic investments Collateral investment pool Repurchase agreements Money market mutual funds Other investments Total investments Custodial securities in safekeeping Other assets Property and equipment, net of accumulated depreciation Total Assets 74,066 $ - $ 36,578 - - 192,731 3,552 71,907 261,720 711,480 61,811 872 7,543 15,971 1,131,304 10,854 10,854 1 1 - - 82,351 1,320,643 3,445,520 3,206,843 17,682,177 1,307,212 948,789 882,306 3,005,171 665,489 32,464,150 1,569,759 13,057 717,222 117,442 1,817,796 1,025 8,725 4,245,026 - - - 3,628,892 5,125 4,767 - - 33,674,287 4,255,880 3,949,230 LIABILITIES Accounts payable and other current liabilities Payable for securities purchased Management fee payable Obligation under securities loan agreements Forward contracts payable Due to local governments Due to others Due to other Funds 41,054 553,901 - 214 - 3,005,171 695,488 7,543 117,442 306 - 129,466 3,819,764 - Total Liabilities 4,303,157 117,962 3,949,230 NET ASSETS Held in trust for: Pension benefits Other post-employment benefits Pool participants 28,125,156 1,245,974 - 4,137,918 - Total Net Assets $ 29,371,130 $ 4,137,918 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, 2010 (Expressed in Thousands) PENSION AND OTHER ADDITIONS: Member contributions Employer contributions Member purchase of service credit Court fees EMPLOYEE BENEFIT INVESTMENT TRUST FUNDS TRUST FUNDS $ 1,006,081 1,207,510 83,251 9,538 $ - Investment income: Net increase in fair value of investments Interest income Dividends Other investment income Securities lending income Total investment income 3,110,723 258,565 338,532 158,770 18,741 3,885,331 8,841 14,256 193 23,290 Less investment expenses: Investment activity expenses Securities lending expenses Net investment income 137,990 2,197 3,745,144 2,508 114 20,668 Capital share and individual account transactions: Shares sold Reinvested interest income Shares redeemed Net capital share and individual account transactions Other additions 5,400,670 19,679 (5,542,087) - (121,738) 4,294 Total Additions - 6,055,818 DEDUCTIONS: Retirement, disability, and survivor benefits Refunds to withdrawing members, including interest Administrative expense Dividends to investors Other deductions Total Deductions Change in net assets held in trust for: Pension benefits Other post-employment benefits Pool participants Net Assets - Beginning Net Assets - Ending - (101,070) 2,785,129 - 184,020 38,415 12,628 19,122 - 3,020,192 19,122 2,909,653 125,973 26,335,504 $ 29,371,130 (120,192) 4,258,110 $ 4,137,918 The Notes to the Financial Statements are an integral part of this statement. - 61 - STATE OF ARIZONA COMBINING STATEMENT OF NET ASSETS COMPONENT UNITS - PROPRIETARY FUNDS JUNE 30, 2010 (Expressed in Thousands) WATER INFRASTRUCTURE FINANCE AUTHORITY ASSETS Current Assets: Cash 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: Interest Patient accounts receivable Other Inventories, at cost Other current assets Total Current Assets $ 66,324 4,703 3,636 - UNIVERSITY MEDICAL CENTER $ 1,214 124,297 11,773 ARIZONA POWER AUTHORITY $ 5,503 4,046 TOTAL $ 1,214 71,827 4,703 3,636 124,297 15,819 12,762 6,195 93,620 17 77,503 47,886 12,300 3,917 278,907 3,388 1,707 14,644 12,779 77,503 57,469 12,300 5,624 387,171 1,158,137 105,257 4,996 43,234 14,802 6,551 29,200 49,785 1,158,137 105,257 48,998 101 (101) 1,268,390 27,485 548,929 (263,295) 371,155 1,322 (1,182) 35,891 27,485 550,352 (264,578) 1,675,436 1,362,010 650,062 50,535 2,062,607 10,235 3,636 36,995 85 50,951 55,353 37,757 5,568 4,295 9,036 112,009 3,644 542 4,220 61 8,467 58,997 48,534 3,636 5,568 45,510 9,182 171,427 Noncurrent Liabilities: Unearned deferred revenue Accrued insurance losses Long-term debt Other long-term liabilities Total Noncurrent Liabilities 2,412 872,607 875,019 8,845 275,617 8,887 293,349 37,900 37,900 2,412 8,845 1,186,124 8,887 1,206,268 Total Liabilities 925,970 405,358 46,367 1,377,695 - 47,317 140 47,457 379,482 56,558 22,127 175,260 4,028 379,482 22,127 235,846 Noncurrent Assets: Restricted 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 Obligations under securities loan agreements 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: Loans and other financial assistance Other Unrestricted Total Net Assets $ 436,040 $ The Notes to the Financial Statements are an integral part of this statement. - 62 - 244,704 $ 4,168 $ 684,912 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS COMPONENT UNITS - PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (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 $ 72,203 13,248 22,889 108,340 UNIVERSITY MEDICAL CENTER $ 567,639 567,639 OPERATING EXPENSES Cost of sales and benefits Interest on program loans Personal services Contractual services Aid to local governments Depreciation and amortization Other Total Operating Expenses Operating Income 37,769 1,348 1,240 31,477 7,696 79,530 28,810 124,812 252,252 102,276 26,487 32,163 537,990 29,649 NON-OPERATING REVENUES (EXPENSES) Investment income Interest expense Other non-operating expense Total Non-Operating Revenues (Expenses) Income Before Contributions 6,066 6,066 34,876 3,908 (11,783) (1,209) (9,084) 20,565 Capital grants and contributions Change in Net Assets Total Net Assets - Beginning Total Net Assets - Ending $ ARIZONA POWER AUTHORITY $ TOTAL 30,927 30,927 $ 28,621 31 2,190 30,842 85 598,566 72,203 13,248 22,889 706,906 153,433 37,769 253,600 103,516 31,477 26,518 42,049 648,362 58,544 26 (8) 18 103 10,000 (11,791) (1,209) (3,000) 55,544 - 1,475 - 1,475 34,876 401,164 22,040 222,664 103 4,065 57,019 627,893 436,040 $ The Notes to the Financial Statements are an integral part of this statement. - 63 - 244,704 $ 4,168 $ 684,912 STATE OF ARIZONA COMBINING STATEMENT OF FINANCIAL POSITION UNIVERSITIES - AFFILIATED COMPONENT UNITS JUNE 30, 2010 (Expressed in Thousands) ARIZONA STATE 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 $ 9,619 UNIVERSITY OF ARIZONA FOUNDATION $ 37,173 ARIZONA CAPITAL FACILITIES FINANCE CORPORATION $ 2,054 OTHER COMPONENT UNITS $ 20,222 TOTAL $ 69,068 92,581 3,168 95,749 14,068 14,068 933 933 44,443 17,259 61,702 151,092 21,360 172,452 495,102 39,146 534,248 346,558 30,525 6,606 383,689 25,423 620 26,043 114,439 4,809 2,887 122,135 981,522 35,334 49,259 1,066,115 26,975 - 46,592 47,775 121,342 18,756 14,799 13,113 2,960 233,141 5,768 152,232 4,530 17,798 417,242 4,530 41,325 700,146 451,003 314,531 426,394 1,892,074 80,344 79,554 3,961 33,589 16,134 4,500 346,488 14,658 5,423 227,177 26,928 22,240 101,901 653,219 30,889 74,987 197,448 20,634 361,146 281,768 860,996 345,464 170,164 (12,930) 311,411 106,147 12,811 (46,615) 42,296 60,103 42,227 699,171 336,414 (4,507) 502,698 $ 430,369 The Notes to the Financial Statements are an integral part of this statement. - 64 - $ (46,615) $ 144,626 $ 1,031,078 STATE OF ARIZONA COMBINING STATEMENT OF ACTIVITIES UNIVERSITIES - AFFILIATED COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Thousands) ARIZONA STATE UNIVERSITY FOUNDATION REVENUES Contributions Rental revenue Sales and services Net investment income Licensing revenue Other revenues $ Total Revenues 42,034 1,151 22,855 34,231 4,120 ARIZONA CAPITAL FACILITIES FINANCE CORPORATION UNIVERSITY OF ARIZONA FOUNDATION $ 50,893 33,650 9,899 $ 16,349 8,466 166 4,771 OTHER COMPONENT UNITS $ 14,924 31,098 8,164 10,513 2,434 14,955 TOTAL $ 107,851 48,598 39,485 78,560 2,434 33,745 104,391 94,442 29,752 82,088 310,673 41,971 5,770 41,672 13,194 - 511 - 8,032 8,651 5,246 5,012 92,186 8,651 18,440 10,782 25,394 2,199 2,415 7,173 4,117 5,593 - 10,413 14,071 11,285 457 27,267 2,657 11,320 7,237 1,584 67,191 8,250 27,590 20,937 9,214 Total Expenses 84,922 64,576 36,737 77,006 263,241 Increase (decrease) in net assets 19,469 29,866 (6,985) 5,082 47,432 483,229 400,503 (39,630) 139,544 983,646 (46,615) $ 144,626 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 Depreciation and amortization Other expenses Net Assets - Beginning Net Assets - Ending $ 502,698 $ 430,369 The Notes to the Financial Statements are an integral part of this statement. - 65 - $ $ 1,031,078 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS INDEX Page Note 1. Summary of Significant Accounting Policies --------- 67 A. Reporting Entity------------------------------------- 67 B. Basis of Presentation-------------------------------- 71 C. Measurement Focus and Basis of Accounting----------------------------------------- 73 D. Deposits and Investments -------------------------- 73 E. Taxes Receivable------------------------------------ 75 F. Inventories ------------------------------------------- 75 G. Property Tax Calendar------------------------------ 75 H. Capital Assets---------------------------------------- 75 I. Investment Earnings -------------------------------- 76 J. Scholarship Allowances---------------------------- 76 K. Deferred Revenue ----------------------------------- 76 L. Compensated Absences ---------------------------- 76 M. Long-Term Obligations ---------------------------- 77 N. New Accounting Pronouncements and Reporting Entity Change--------------------------- 77 Note 2. Deposits and Investments-------------------------------- 77 A. Deposits and Investment Policies ----------------- 77 B. Custodial Credit Risk – Deposits and Investments ------------------------ 79 C. Interest Rate Risk ----------------------------------- 80 D. Credit Risk------------------------------------------- 82 E. Concentration of Credit Risk ---------------------- 83 F. Foreign Currency Risk ----------------------------- 84 G. Unemployment Compensation -------------------- 84 H. Securities Lending ---------------------------------- 84 I. Derivatives ------------------------------------------ 86 J. State Treasurer’s Separately Issued Financial Statements ------------------------------ 88 Page D. Annual OPEB Cost----------------------------- 95 E. Funded Status and Funding Progress -------- 96 F. Actuarial Methods and Assumptions -------- 96 Note 7. Long-Term Obligations------------------------------ 97 A. Revenue Bonds --------------------------------- 97 B. Grant Anticipation Notes --------------------- 102 C. Certificates of Participation ------------------ 103 D. Leases ------------------------------------------- 106 E. Compensated Absences----------------------- 107 F. Changes in Long-Term Obligations -------- 108 Note 8. Interfund Transactions------------------------------109 Note 9. Fund Deficit------------------------------------------ 110 A. General Fund----------------------------------- 110 B. Industrial Commission Special Fund ------- 110 C. Healthcare Group of Arizona ---------------- 110 D. Arizona Highways Magazine ---------------- 111 E. Risk Management Fund ---------------------- 111 F. Retiree Sick Leave Fund (RASL) ----------- 111 Note 10. Joint Venture --------------------------------------- 111 Note 11. Commitments, Contingencies, and Compliance ---------------------------------- 112 A. Insurance Losses------------------------------- 112 B. Litigation --------------------------------------- 113 C. Accumulated Sick Leave --------------------- 114 D. Unclaimed Property --------------------------- 114 E. Construction Commitments ------------------114 F. Arizona State Lottery ------------------------- 114 Note 12. Tobacco Settlement-------------------------------- 115 Note 3. Receivables/Deferred Revenue ------------------------- 88 A. Taxes Receivable ----------------------------------- 88 B. Deferred Revenue----------------------------------- 89 Note 13. Public-Private Partnership------------------------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----------------------------------------116 A. Summary of Significant Accounting Policies ----------------------------------------117 B. Deposits and Investments --------------------118 C. Program Loans---------------------------------121 D. Pledges Receivable ----------------------------121 E. Direct Financing Lease Agreements --------121 F. Capital Assets ----------------------------------123 G. Long-Term Obligations-----------------------123 H. Conduit Debt -----------------------------------127 I. Related Party Transactions -------------------128 J. Subsequent Events ---------------------------- 128 Note 6. Other Post-Employment Benefits-----------------------94 A. Plan Description------------------------------------- 94 B. Contributions, Benefits, and Refund Payments---------------------------------- 94 C. Funding Policy -------------------------------------- 95 - 66 - Note 14. Treasurer’s Warrant Notes -----------------------115 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 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 (U.S. 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, pension plan that benefits employees of the State and participating political subdivisions and school districts. The ASRS is administered in accordance with provisions of Arizona Revised Statutes (ARS) Title 38, Chapter 5, Articles 2 and 2.1. 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 public safety employees of certain State and local governments. The PSPRS is jointly administered by the Board of Trustees (formerly Fund Manager) and 225 local boards according to the provisions of ARS Title 38, Chapter 5, Article 4. The Board of Trustees is a seven-member board appointed by the Governor and approved by the Senate to serve a fixed five-year term. Each eligible group participating in the system has a five-member local board. In general, all members serve a fixed fouryear term. The Elected Officials’ Retirement Plan (EORP) is a cost-sharing, multi-employer public employee retirement plan that benefits elected officials and judges of certain State, county, and local governments. The Board of Trustees (formerly Fund Manager) of the PSPRS administers the EORP plan according to the provisions of ARS Title 38, Chapter 5, Article 3. - 67 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 The Corrections Officer Retirement Plan (CORP) is an agent, multi-employer public employee retirement plan that benefits prison and jail employees of certain State, county, and local governments. The Board of Trustees (formerly Fund Manager) of the PSPRS and 24 local boards administer the CORP plan according to the provisions of ARS Title 38, Chapter 5, Article 6. Each plan issues a publicly available financial report that includes its financial statements and required supplementary information. A report may be obtained from the applicable plan’s office or website at: Arizona State Retirement System P.O. Box 33910 Phoenix, Arizona 85067-3910 (602) 240-2000 or (800) 621-3778 www.azasrs.gov 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 www.psprs.com The State reports the following discretely presented component units: Governmental Funds: 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. Rio Nuevo Multipurpose Facilities District (Rio Nuevo) – The Rio Nuevo was established in 1999 with the passage of Proposition 400 by the voters in the Cities of Tucson and South Tucson. Under applicable ARS, the District can utilize tax incremental financing to help develop multipurpose facilities in the downtown Tucson area. The Rio Nuevo is governed by a nine member board of directors, with five members appointed by the Governor, two members appointed by the President of the Senate, and the remaining two members appointed by the Speaker of the House of Representatives. Complete financial statements may be obtained from Beach Fleischman & Co. PC, c/o Jim Lovelace, 1985 E. River Rd. #201, Tucson, AZ 857187176, (520) 321-4600. Proprietary Funds: University Medical Center (UMC) – The UMC is the primary teaching hospital for the Colleges of Medicine, Nursing, Pharmacy, and 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 or website at 1501 N. Campbell Ave., Tucson, Arizona 85724, (520) 694-6501, www.azumc.com. 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 - 68 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 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, (602) 368-4265. Water Infrastructure Finance Authority (WIFA) – The WIFA is authorized to administer the Clean Water Revolving Fund. The Clean Water Revolving Fund was created pursuant to the Federal Water Pollution Control Act, which required the State to establish the Clean Water Revolving Fund to accept federal capitalization grants for publicly owned wastewater treatment projects. The WIFA has also entered into an agreement with the Environmental Protection Agency to administer the Drinking Water Revolving Fund pursuant to the Safe Drinking Water Act. The WIFA is governed by a twelve-member board of directors. The ten Governor appointed directors serve staggered terms of five years and serve at the pleasure of the Governor. Complete financial statements may be obtained from the WIFA’s administrative offices at 1100 West Washington Street, Suite 290, Phoenix, Arizona 85007, (602) 364-1324. 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, University Public Schools, Inc., and Campus Research Corporation (CRC). The Collegiate Golf Foundation and University Public Schools, Inc. are included because each is a legally separate organization that the State believes would be misleading to exclude due to its financial relationship or close affiliation to the State. The CRC is included because the U of A approves the budget; thus fiscal dependency exists. 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 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, dues, and/or affinity partners 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 Public Schools, Inc. (UPSI) – The UPSI operates two public schools designed to be on the forefront of education innovation and improvement, with the goal of developing educational models that can be scaled across the State and nation to improve the academic achievement of children. 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. - 69 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 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 NAU for advancement of its mission. Northern Arizona Capital Facilities Finance Corporation (NACFFC) – The NACFFC was established for the purpose of acquiring, developing, constructing, maintaining, and operating student housing and other capital facilities and equipment for the use and benefit of 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, ACFFC, ASU Alumni Association, Sun Angel Foundation, Sun Angel Endowment, ASU Research Park, Collegiate Golf Foundation, Mesa Student Housing, LLC, Downtown Phoenix Student Housing, LLC, and the UPSI – Arizona State University, Financial Services, P.O. Box 875812, Tempe, Arizona 85287-5812 or (480) 965-3601 U of A Alumni Association – Alumni Association, The University of Arizona, P.O. Box 210109, Tucson, Arizona 85721-0109 Law Association – Law College Association, The University of Arizona, P.O. Box 210176, Tucson, Arizona 85721-0176 CRC – The 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 improving health care for Arizona residents by providing less expensive financing for health care facilities. Proceeds from bond issues are loaned to various qualifying nonprofit health care organizations. The health care organizations 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 seven-member 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 §41-4502 established the Authority to facilitate the development of international trade or commerce between Arizona and other countries. The Authority is governed by a seven- 70 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 member 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, furnish, maintain, improve, operate, market, and promote the use of a multipurpose facility and do all things necessary or convenient 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, may be re-appointed for one full subsequent term, and can be removed only for cause. Arizona Housing Finance Authority (the Authority) – ARS §41-3902 established the Authority to issue bonds for residential dwelling units and multifamily residential rental projects in rural areas. The Authority may also establish mortgage credit certificate programs to finance residential dwelling units in rural areas. The Authority is required to notify and obtain written consent from the governing bodies of any city, town, county, tribal government, or existing corporation for any multifamily residential rental projects planned for their jurisdiction. The Authority is governed by a seven-member board of directors that is appointed by the Governor and approved by the Senate. The directors serve terms of seven years, and can be removed only for cause. State Compensation Fund – ARS §23-981 established the State Compensation Fund to provide insurance to employers for workers’ compensation, occupational disease compensation, and medical, surgical, and hospital benefits. The State Compensation Fund is governed by a board of directors that consists of five members appointed by the Governor for staggered terms of five years. Annually, the Governor appoints a chairman from among the board members. Joint Ventures As described in Note 10, the U of A participates in a joint venture. In accordance with U.S. GAAP, the financial activities of this joint venture are not included in the State’s financial statements. 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. - 71 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 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: i i i charges to customers or applicants for goods, services, privileges provided, and fines or forfeitures operating grants and contributions capital grants and contributions, including special assessments Revenues that are not classified as program revenues, including internally dedicated resources and all taxes, are reported as general revenues. Interfund balances have been eliminated from the government-wide financial statements to the extent that they occur within either the governmental or business-type activities. Balances between governmental and business-type activities are presented as internal balances and are eliminated in the total column. Revenues and expenses associated with reciprocal transactions within governmental or within business-type activities have not been eliminated. Fund financial statements provide information about the State’s funds, including fiduciary funds. Separate statements are presented for the governmental, proprietary, and fiduciary fund categories. The emphasis of fund financial statements is on major governmental and enterprise funds, each displayed in a separate column. All remaining governmental and enterprise funds are aggregated and reported as non-major funds. Fiduciary funds are aggregated and reported by fund type. Proprietary fund operating revenues, such as charges for services, result from exchange transactions associated with the principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal values. Operating expenses include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. 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 (Special Fund) – accounts for the payment of workers’ compensation claims that are not covered by the State Compensation Fund, the Risk Management Division of the Department of Administration, private insurance carriers, and self-insured employers. The Lottery – accounts for the activities of the Arizona State Lottery. - 72 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 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, or arrange for the sale of the State’s office equipment and motorized vehicles at public auctions. Pension and Other Employee Benefit Trust Funds – account for the activities of the ASRS, the PSPRS, the EORP, and the CORP, for which the State acts as a trustee. These retirement and other post-employment benefit plans accumulate resources to pay pension, health insurance premium subsidies, and long-term disability benefits of State employees and employees of other governmental entities participating in the plans. Investment Trust Funds – account for transactions by local governments and political subdivisions that elect to participate in the State Treasurer’s investment pools. The Treasurer acts as trustee for the original deposits made into the investment pools. Agency Funds – account for the receipt and disbursement of various taxes, deposits, deductions, property collected by the State, and payment of the health insurance subsidy by the PSPRS, the EORP, and the CORP, where the State acts as an agent for distribution to other governments and organizations. C. MEASUREMENT FOCUS AND BASIS OF ACCOUNTING The government-wide, proprietary fund, and fiduciary fund financial statements are presented using the economic resources measurement focus and the accrual basis of accounting. However, 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 Major Fund, as well as certain nonmajor governmental funds administered by the ADOT, which consider revenues to be available if collected within 60 days after year-end. Those revenues susceptible to accrual are federal reimbursements, highway user revenue tax, and state sales tax. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on long-term debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they are due and payable. General capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of long-term debt and acquisitions under capital leases are reported as other financing sources. Under the terms of grant agreements, the State funds certain programs through a combination of grants and general revenues. Therefore, when program expenses are incurred, there are both restricted and unrestricted resources available to finance the program. The State’s policy regarding whether to first apply restricted or unrestricted resources is made on a case-by-case basis. The State’s business-type activities and enterprise funds follow 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 - 73 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 trustee” and “Collateral investment pool”. 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. i 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. i 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. i Cash and pooled investments with State Treasurer – consists of a centralized management of most State cash resources maintained by the State Treasurer. From the perspective of the various State funds, the pool functions as both a cash management pool and a demand deposit account. The operations and investments of the State Treasurer’s pooled investments are described in Note 2. i 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. i 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 JP Morgan prices, as determined by independent, industry recognized data vendors who provide values that are either exchange based or matrix based. Equities are priced utilizing the primary exchange closing price. In the absence of a closing price, the mid/bid price will be utilized. If no pricing source is available, the cost price or last available price from any source will be utilized. All bonds are priced using an evaluated market price, the closing trade/bid price or the most recent mid/bid price, 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). If no pricing source is available, the cost price or the last available price from any source will be utilized. 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. ASRS’ derivative instruments, which consist of futures, forward contracts, options, swaps, rights, and warrants, are measured at fair value. Changes in fair values of derivative instruments are reported as net increase (decrease) in fair value of investments. Private real estate, private equity, and opportunistic partnership investments are valued based on the partnerships’ March 2010 financial statements adjusted for cash flows through June 30, 2010. 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 increase (decrease) in the fair value of investments, interest income, dividend income, real estate, private equity, and opportunistic investments income, and total investment expense. This includes investment management, real estate, private equity, and opportunistic investment expenses 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 are reported at fair value using appraisals to estimate the fair market value. Appraisals will be performed every three years on a rolling schedule unless circumstances warrant otherwise. Investment income is recognized as earned. - 74 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 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, 2010. Sales and motor vehicle and fuel tax receivables represent amounts that are earned by the State in the fiscal period ended June 30, 2010, but not collected until the following month. F. INVENTORIES Inventories consist of expendable supplies held for consumption in all funds and merchandise intended for sale to customers in the proprietary funds. Inventories are stated at cost using the first-in, first-out method, weighted average, or lower of cost or market. In the governmental funds, inventories are accounted for using the consumption method. Under this method, inventories are recorded as expenditures as they are used. G. PROPERTY TAX CALENDAR Real property taxes are levied on or before the third Monday in August and become due and payable in two equal installments. The first installment is due on the first day of October and becomes delinquent after the first business day of November. The second installment is due on the first day of March of the next year and becomes delinquent after the first business day of May. A lien attaches on the first day of January preceding assessment and levy. H. CAPITAL ASSETS Capital assets are stated at cost at the date of acquisition or, if donated, at the estimated fair market value at the date received. Interest incurred during the construction of capital assets is only capitalized in the proprietary funds. Most capital assets are depreciated over their estimated useful lives. However, the State reports most infrastructure assets using the modified approach, as provided by GASB Statement No. 34. Under this approach, rather than being depreciated, costs to maintain and preserve these assets are expensed. 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 Software Other intangibles 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 $1,000,000 5-10 $100,000 Varied 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 $1,000,000 5-10 $100,000 Varied Other intangibles include licenses and permits, patents, copyrights and trademarks, rights-of-way and easements, and natural resource extraction rights. These are amortized over the shorter of the legal or estimated useful life if the useful life is definite or limited. If the life is indefinite or unlimited, they are not amortized. In addition, rights-of-way and easements are amortized only if the value is separable from the underlying land and natural resource extraction rights are not amortized unless the value of the underlying asset is identifiable. - 75 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 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. The State has interest in and maintains significant special collections, works of art, and historical treasures. Except for 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. 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 unforfeited annual leave at the employee’s rate of pay at the time of separation. University employees, upon termination of employment, are paid all unused vacation benefits not exceeding 176 hours (annual accrual amount), depending on years of service and full-time equivalent employment status. Some employees accumulate compensatory leave for time worked over 40 hours per week. An employee may accumulate up to 240 hours of compensatory leave (480 if working in a public safety activity or an emergency response activity). An employee who separates from State service is paid for all unused compensatory leave at either the employee’s average base salary during the last three years of employment or final base salary, whichever is higher. For sick leave policy, see Note 11.C. - 76 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 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, other issuances, and premiums and discounts on debt as other financing sources and uses in the current period. Long-term liabilities are more fully described in Note 7. N. NEW ACCOUNTING PRONOUNCEMENTS AND REPORTING ENTITY CHANGE GASB Statement No. 51, Accounting and Financial Reporting for Intangible Assets. The objective of this Statement is to establish accounting and financial reporting requirements for intangible assets to reduce inconsistencies, thereby enhancing the comparability of the accounting and financial reporting of such assets among state governments. This Statement requires that all intangible assets not specifically excluded by its scope provisions be classified as capital assets. Accordingly, existing authoritative guidance related to the accounting and financial reporting for capital assets should be applied to these intangible assets, as applicable. This Statement also provides authoritative guidance that specifically addresses the nature of these intangible assets. Such guidance should be applied in addition to the existing authoritative guidance for capital assets. The requirements of this Statement are effective for periods beginning after June 15, 2009. The State has implemented the requirements of this standard. GASB Statement No. 53. Accounting and Financial Reporting for Derivative Instruments. This Statement addresses the recognition, measurement, and disclosure of information regarding derivative instruments entered into by the State. Governments enter into derivative instruments as investments; as hedges of identified financial risks associated with assets or liabilities, or expected transactions; or to lower the cost of borrowing. The requirements of this Statement are effective for periods beginning after June 15, 2009. The State has implemented the requirements of this standard. GASB Statement No. 58, Accounting and Financial Reporting for Chapter 9 Bankruptcies. The objective of this Statement is to provide accounting and financial reporting guidance for governments that have petitioned for protection from creditors by filing for bankruptcy under Chapter 9 of the United States Bankruptcy Code. The requirements of this Statement are effective for periods beginning after June 15, 2009. The State has implemented the requirements of this standard, but they had no effect on the financial statements. In prior years, the Rio Nuevo was reported in the financial statements of the City of Tucson as a discretely component unit and separately issued financial statements were not prepared. In November 2009, the State Legislature passed Senate Bill 1003 which changed the configuration of the Rio Nuevo’s Board. The nine member Board is appointed as discussed earlier in Note 1(A). In March 2010, the newly reconstituted Board met for the first time. As a result of this change, it was determined that ultimate financial accountability for the Rio Nuevo is now with the State, rather than with the City of Tucson. Therefore, the Rio Nuevo will be reported in the financial statements of the State of Arizona beginning in fiscal year 2010. 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 Industrial Commission (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. 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 - 77 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 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 - FF&C, Local Government Investment Pool – Medium Term, and Local Government Investment Pool – Medium Term FF&C]. 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. Please note that in prior years, the Local Government Investment Pool – FF&C was the Local Government Investment Pool – Government and the Local Government Investment Pool – Medium Term was the Local Government Investment Pool – Long Term. In addition, the Local Government Investment Pool – Medium Term FF&C was created during fiscal year 2010 as an additional investment option. In September of 2008, the State agencies’ and an external investment pool’s share of the Lehman Brothers bond value of $39.427 million was transferred to the Lehman Brothers Pool due to Lehman Brothers filing for Chapter 11 bankruptcy protection on September 15, 2008. The transfer was made to provide for the decline in fair value of the Lehman Brothers securities. As of June 30, 2010, the fair value of the pool was $7.693 million. The likelihood that these participant monies will be recovered is not known. 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. The Central Arizona Water Conservation District is an individual investment account. State statutes authorize the retirement systems to make investments in accordance with the “Prudent Person” rule. As such, investment management shall discharge the duties of their position with the care, skill, prudence, and diligence, under the circumstances then prevailing, that a “prudent person” acting in enterprise of a like character and with like aims as that of the system, subject to certain statutory limitations and restrictions. 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, derivatives, 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 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 the ASRS’ assets may be invested in economic development projects authorized as eligible for such investment by the Arizona Department of Commerce. ARS §35-392 requires divestment from investments in companies that do business in Sudan, Iran, or other State Sponsors of Terrorism countries under certain conditions. Subject to the limitations noted above, the ASRS Board may authorize the ASRS Director to make investments that are designated by the ASRS Board and that do not exceed 50.00% of the assets of the investment account measured at cost. 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 Board of Trustees manages in corporate stocks, based on cost value of such stocks irrespective of capital appreciation. In addition, the PSPRS, the EORP, and the CORP - 78 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 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 board 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 combined assets of the system or other plans that the board 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. Not more than 5.00% of the voting stock of any one corporation shall be owned by the system and other plans that the board 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 in collateralized certificates of deposit and repurchase agreements, U.S. Treasury securities, Federal agency securities, investment grade corporate bonds, or in the LGIP administered by the State Treasurer. Investment of capital project funds is also governed by the financing indenture agreements. 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 advising on the definition, development, and implementation of 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’s, 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 either: 1) U.S. Government obligations, State obligations, or obligations of counties or municipalities within the State, 2) State Treasurer’s warrant notes, or 3) the safekeeping receipt of the financial institution accepting the deposit. As of June 30, 2010, some State agencies have uncollateralized and uninsured deposits in the amount of $467 thousand and $34.933 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, 2010, the State had $97.863 million in securities that were uninsured, not registered in the State’s name, and held by either the counterparty or counterparty’s trust department or agent, but not in the State’s name. - 79 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 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 limitations 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. 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 Asset backed securities Commercial mortgage backed securities Commercial paper Corporate notes & bonds FDIC certificates of deposit Government bonds Government mortgage backed securities Index linked government bonds Money market mutual funds Non-government backed collateralized mortgage obligations (CMOs) Repurchase agreements U.S. agency securities U.S. agency securities - full faith U.S. agency mortgage backed securities U.S. agency mortgage backed securities – full faith U.S. Treasury securities Other Total Debt Securities Fair Value $ 99,714 10,020 1,001,686 1,400,022 8,725 10,324 34,473 11,034 238,146 Weighted Average Maturity (in years) 1.11 28.09 .11 3.86 .67 12.22 17.00 6.23 .10 9,884 2,384,724 1,393,661 26,196 457,846 287,557 2,281,341 21,506 $ 9,676,859 19.22 0.02 1.49 2.70 13.99 19.10 .88 4.73 2.39 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): - 80 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 Investment Type Effective Duration (in years) 2.40 (1.00) 3.10 4.90 4.60 1.70 3.40 4.60 3.53 Fair Value Asset backed securities CMOs of government agencies Commercial mortgage backed securities Corporate bonds Government bonds Government mortgage backed securities Government related bonds Non-government backed CMOs Total Debt Securities $ 318,016 8,596 312,398 1,424,474 1,088,288 1,397,129 884,248 91,938 5,525,087 $ The PSPRS, the EORP, and the CORP do not have a formal policy in regards to interest rate risk. The NAU’s and the U of A’s investment policies for their operating funds limit the maximum maturity of any fixed-rate or variable-rate security to five years from the settlement date of purchase. The NAU’s and the U of A’s endowment funds have no such limitation. 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 notes & bonds Collateralized bond obligations (CBOs) Collateralized debt obligations (CDOs) Money market mutual funds U.S. agency securities U.S. Treasury securities Other investments Total Debt Securities Investment Maturities (in years) 6-10 11-15 16-20 $ 6,183 $ 29,873 $ 11,590 Fair Value $ 1,051,580 Less than 1 $ 11,126 1-5 $ 27,864 27,994 - - 12,321 - - 15,673 15,398 542,883 282,234 25,956 28,672 $ 1,974,717 542,883 73,694 20,048 71 $ 647,822 140,670 5,589 5,636 $ 179,759 25,587 319 22,266 90,366 16,662 173 28,425 12,699 47 18,929 15,398 12,922 479 $ 1,009,416 $ $ $ More than 20 $ 964,944 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 The London Interbank Offered Rate (LIBOR) plus/minus a fixed basis point amount which resets from monthly to quarterly. Corporate asset backed securities with coupon tied to LIBOR plus/minus a fixed basis point amount which resets monthly. Mortgage backed securities (including full faith) - when interest rates fall, mortgages are refinanced and paid off early and the reduced stream of future interest payments diminishes fair value. U.S. Agency Securities - 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 the increases in the coupon interest rate. Other securities with high sensitivity to rate changes. Total Corporate Notes & Securities $ $ - 81 - U.S. Agency Securities Total 371,888 $ 134,211 73,741 - 73,741 - 780,499 780,499 - 214,554 131,699 $ 1,260,963 214,554 131,699 445,629 $ 506,099 $ 1,706,592 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 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. 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 (NRSROs) and that the ratings assigned by at least two of the NRSROs 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 are assumed to be implicitly guaranteed by the U.S. Government, as some are collateralized with U.S. Agency securities. The ASRS has not adopted a formal policy with respect to credit risk. The PSPRS’, the EORP’s, and the CORP’s investment policies are 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, which requires that negotiable certificates of deposit, corporate bonds, debentures and notes, bankers acceptances, and State of Arizona bonds carry a minimum BBB or better rating by S & P or Baa or better rating by Moody’s; and that commercial paper be rated by at least two NRSROs and must be of the two highest rating categories for short-term obligations of at least two of the NRSROs. Also, ASU’s capital projects and bond debt service funds are invested by the bond trustee in accordance with the applicable financing indenture. The Commission’s investment policy requires that purchases of fixed income securities will consist of U.S. Treasury or Federal agency obligations or those bonds rated not less than Ba by Moody’s or BB by S & P, except for fixed income managers who have been hired to manage funds in a specialized manner (high yield). The following table presents the State’s investments which were rated by S & P and/or an equivalent national rating organization as of June 30, 2010. The ratings are presented using S & P’s rating scale (expressed in thousands): - 82 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 Investment Type Asset backed securities Bond mutual funds CBOs CDOs CMOs of government sponsored entities Commercial mortgage backed securities Commercial paper Corporate notes & bonds Government bonds Government mortgage backed securities Government related bonds Indexed linked government bonds Money market mutual funds Non-government backed CMOs Repurchase agreements U.S. agency mortgage backed securities U.S. agency securities Other investments Total - Not Rated $ 806 22,098 4,732 - - - - - 2,543 - 1,001,686 4,274 - 120,967 - 265,462 - 110,017 - - 38,923 - - - - - - - 24,415 23,582 162 - - - - - - - - - - - - 710,345 - - - - - - - 70,684 101,822 310,240 16,587 310,240 1,405 - 10,836 - 10,517 - 2,389 - 9,302 - 48,495 - - 2,291 - 457,846 1,607,298 91,658 457,846 1,337,824 3,130 788 11 5,399 - - - - - 263,279 - 8 88,517 $ 12,070,857 $ 6,692,460 $1,376,326 $ 1,223,780 $597,284 $ 143,142 $ 296,336 $244,231 $1,264,965 $232,333 $ Fair Value 418,434 22,098 27,994 15,398 AAA $ 170,060 - AA $ 37,942 - A 23,268 23,262 15,398 BBB $ 65,006 - BB $ 16,604 - B $ 21,572 - CCC Thru D $ 83,176 - 8,596 8,596 - - - - - 322,418 1,001,686 251,329 - 9,774 - 41,320 - 10,158 - 3,020 - 3,514,503 1,097,697 135,559 1,097,697 1,275,672 - 1,079,882 - 488,021 - 1,397,129 1,397,129 - - 884,248 785,355 50,734 10,763 10,763 781,029 $ A1 $ E. CONCENTRATION OF CREDIT RISK Concentration of credit risk is the risk of loss attributed to the magnitude of a government’s investment in a single issuer. The State Treasurer’s, the ASRS’, the Universities’, and the Commission’s investment policies provide 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 State Treasurer also exempts from this policy the purchase of Treasurer Warrant Notes for the State Agencies Diversified pool, provided the maximum amount of the notes purchased shall not exceed 50.00% of the market value of the pool. The PSPRS’, the EORP’s, and the CORP’s investment policies state that no more than 5.00% of the Fund or its fixed income portfolio at fair value shall be invested in bonds issued by any one institution, agency, or corporation other than bonds used as direct obligations of and fully guaranteed by the U.S. Government. At June 30, 2010, 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 National Mortgage Association Fair Value $ 564,873 808,783 Percentage 9.20% 13.17% At June 30, 2010, more than 5.00% of the Business-type Activities’ total investments were held in the following single issues (expressed in thousands): Issuer Description Federal Home Loan Bank Federal Home Loan Mortgage Corporation Federal National Mortgage Association - 83 - Fair Value $ 116,574 147,704 152,103 Percentage 9.11% 11.55% 11.89% STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 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, 2010 (expressed in thousands): Currency Australian Dollar Bermudian Dollar Brazilian Real British Pound Sterling Canadian Dollar Czech Koruna Danish Krone Euro Currency Hong Kong Dollar Israeli Shekel Japanese Yen Mexican Peso New Zealand Dollar Norwegian Krone Singapore Dollar South African Rand South Korean Won Swedish Krona Swiss Franc Thailand Baht Various mutual funds Total Foreign Currency Risk by Investment Type at Fair Value Other Short Term Fixed Income Equities Investments $ 192 $ 413 $ 73,904 $ 49 $ 2,232 6 167 773 (42) 8,030 380,065 22,968 696 27,986 20,465 133 63 4,719 6 20,165 20 8,464 9,265 662,396 54,027 185 93,838 39 503 76 4,934 406,279 922 606 5 5,037 7 41 2,527 40 14 24,292 25 13,272 21,091 6 372 31,603 27 4 212,888 37 1,017 1,272 43,769 642 $ 14,574 $ 49,737 $ 2,019,209 $ 79,012 $ Total 74,558 2,232 946 411,021 49,280 4,782 20,191 734,152 94,062 579 412,135 606 5,049 2,608 24,331 13,272 21,091 32,008 212,929 1,017 45,683 2,162,532 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 - 84 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 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, 2010. Northern Trust’s indemnification responsibilities include performing appropriate borrower and collateral investment credit analysis, demanding adequate types and levels of collateral, and complying with applicable Department of Labor and Federal Financial Institutions Examinations Council regulations concerning securities lending. Securities are loaned for collateral that may include cash, U.S. Government securities, and irrevocable letters of credit. Domestic securities are loaned for collateral valued at 102.00% of the market value of securities loaned plus accrued interest. International securities are loaned for collateral valued at 105.00% of the market value of securities loaned plus accrued interest. The market value at June 30, 2010 for loaned securities collateralized by cash and non-cash collateral was $43.005 million and $0, respectively. As part of the securities lending transactions, Northern Trust received cash and non-cash collateral valued at $44.180 million and $0, respectively at June 30, 2010. Non-cash collateral cannot be pledged or sold unless the borrower defaults. All securities loans can be terminated on demand by either the lender or the borrower. The average term of the loans is 90 days and cash open collateral is invested in a short-term investment pool, the Core USA Collateral Section, which had an interest sensitivity of 24 days as of June 30, 2010. 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, 2010, the Commission had $44.180 million outstanding as payable for securities lending. A maximum restriction on the amount of securities that can be lent out at any one time of $43.976 million was set by the Commission on September 29, 2008. 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. The ASRS currently receives as collateral at least 102.00% of the market value of the loaned securities and maintains collateral at no less than 100.00% for the duration of the loan. At year-end, the ASRS had no counter party risk 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. Cash collateral received may be reinvested. 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, 2010, the fair value of securities on loan was $3.9 billion; $2.3 billion in cash collateralized loans and $1.6 billion in non-cash collateralized loans. Cash of $2.4 billion received as collateral for securities loaned was reinvested and had a net asset value of $2.4 billion, as of June 30, 2010. The securities lending payable at June 30, 2010 was $2.4 billion. The ASRS is indemnified against gross negligence and borrower default by the lending agents. 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. The PSPRS, the EORP, and the CORP have no credit risk because the amounts owed to the borrowers exceed the amounts the borrowers owe to the retirement system or plan. Securities on loan are carried at fair value. As of June 30, 2010, the fair values of securities on loan for the PSPRS, the EORP, and the CORP were $481.292 million, $29.368 million, and $117.191 million, respectively. At June 30, 2010, the fair value of the associated collateral for the PSPRS, the EORP, and the CORP were $494.161 million, $30.153 million, and $120.325 million, respectively. The PSPRS, the EORP, and the CORP are indemnified for broker default by the securities lending agent. - 85 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 I. DERIVATIVES A derivative instrument is a financial instrument or other contract with all three of the following characteristics: i It has one or more underlyings and 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. i 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. i 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 ASRS is the primary State agency that has investment derivatives. The ASRS’s derivatives are considered “Investment Derivative Instruments” as defined in GASB 53. All funds are considered fiduciary funds. The ASRS’s derivative instruments, which consist of futures contracts, forward contracts, options, swaps, rights, and warrants, are measured at fair value and reported on the Statement of Fiduciary Net Assets. Changes in fair values of derivative instruments are reported as net increase (decrease) in fair value of investments on the Statement of Changes in Fiduciary Net Assets. The fair value balances and notional amounts of derivative instruments outstanding at June 30, 2010, classified by type, and the changes in fair value of derivative instruments for the year then ended as reported in the June 30, 2010 financial statements are as follows (expressed in thousands): Warrants Investment Derivatives by Type Changes in Fair Value Fair Value at June 30, 2010 Classification Amount Classification Net increase (decrease) in fair value of investments $ 7,357 Forward contracts payable Net increase (decrease) in fair Temporary investments, other value of investments 30 investments Net increase (decrease) in fair value of investments 72,987 Forward contracts receivable Net increase (decrease) in fair Temporary investments, other value of investments 513 investments Net increase (decrease) in fair value of investments 35,085 Forward contracts receivable Net increase (decrease) in fair value of investments 40 Not applicable Net increase (decrease) in fair (137) Temporary investments value of investments Net increase (decrease) in fair value of investments 27,547 Forward contracts receivable Net increase (decrease) in fair value of investments 26,949 Forward contracts payable Net increase (decrease) in fair value of investments (207) Other investments Net increase (decrease) in fair 1,111 Corporate stocks value of investments Net increase (decrease) in fair value of investments (208) Corporate stocks Total $171,067 Investment Derivatives Commodity futures Credit default swaps written Fixed income futures Fixed income options written Foreign currency futures Foreign currency options written Futures options written Foreign currency forwards Index futures Fixed interest rate swaps Rights Amount Notional $ (579) $ $ 14,551 58 13,900 15,289 (22,064,950) (749) (90,100) 16,088 81,103 - - (877) (570) 6,207 683,735 (24,588) 7,405 167 34,000 74 1,334 675 479 11,765 $(21,319,113) The fair value of derivative instruments reported by the ASRS is based on quoted market prices off national exchanges. The fair value of foreign currency forward contracts is based on mathematical models and is valued using a pricing service, which uses published Reuter’s foreign currency rates as the primary source for the calculation. - 86 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 The credit quality ratings of counterparties as described by NRSROs and the counterparties related risk concentration, as of June 30, 2010, are as follows (expressed in thousands): Counterparty Name Bank of America Barclays BNP Paribas SA Citibank N.A. Credit Suisse London Deutsche Bank London Goldman Sachs International HSBC Bank USA JP Morgan Securities, Inc. JP Morgan Chase Bank N.A. Royal Bank of Scotland PLC Standard Chartered Bank State Street Bank and Trust Co. USB AG Westpac Banking Corporation Counterparty Risk and Ratings Risk Total Concentration $ 955 8.12% 1,433 12.18% 577 4.90% 459 3.90% 580 4.93% 987 8.39% 7 0.06% 36 0.31% 167 1.42% 914 7.77% 1,206 10.25% 646 5.49% 893 7.59% 2,904 24.68% 1 0.01% Total $ 11,765 S&P A+ AAAA A+ A+ A+ A AA A+ AAA+ A+ AAA+ AA Fitch A+ AAAAA+ AAAAA+ AA AAAAAAA+ A+ A+ AA Moody's Aa3 Aa3 Aa2 A1 Aa1 Aa3 A1 Aa3 Aa3 Aa1 Aa3 A2 Aa2 Aa3 Aa1 100.00% The maximum amount of loss due to credit risk that the ASRS would incur if the counterparties to the derivative instrument failed to perform according to the terms of the contract, without respect to any collateral or other security, or netting arrangement is the total unrealized gain of derivatives at the end of the reporting period. The ASRS has no general investment policy requiring collateral or other security to support derivative instruments. Each investment manager hired has discretion with respect to derivative investments and risk control. Each investment manager is governed by its Investment Manager Agreement. The ASRS has no general investment policy with respect to netting arrangements. The ASRS’s investment managers have master netting arrangements to allow net settlement with the same counterparty in the event the counterparty defaults on its obligations. The ASRS’s derivatives do not have contingent features. The aggregate fair value of investment derivative instruments in asset positions at June 30, 2010 was $38.600 million. This represents the maximum loss that would be recognized at the reporting date if all counterparties fail to perform as contracted. There was no collateral received or netting arrangements in place at June 30, 2010 with counterparties that would reduce this exposure. The ASRS has exposure to interest rate risk due to the investment in an interest rate swap agreement. The required risk disclosures are included in the Interest Rate Risk schedule in Note 2.C. The fair value balance and notional amount of the interest rate swap outstanding as of June 30, 2010, for the year then ended, as reported in the June 30, 2010 financial statements are as follows (expressed in thousands): Interest Rate Risk for Interest Rate Swap Asset ID SWU058948 Asset Description IRS BRL R F 11.57000 / IRS BRL P V 00MCETIP Fair Value $ 167 Notional $ 34,000 The ASRS is exposed to foreign currency risk on its foreign currency forward contracts and futures contracts. The required risk disclosures are included in the Foreign Currency Risk schedule in Note 2.F. Refer to Note 7.A.4.c. for information on debt derivatives utilized by ASU. - 87 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 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 (602) 604-7800 or (877) 365-8310 www.aztreasury.gov The Treasurer’s financial statements are audited by the Office of the Auditor General. NOTE 3. RECEIVABLES/DEFERRED REVENUE A. TAXES RECEIVABLE The following table summarizes taxes receivable at June 30, 2010 (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 $ 500,811 205,210 6,052 712,073 (235,197) $ 476,876 Transportation & Aviation Planning, Highway Maintenance & Safety Fund $ 60,649 60,649 $ 60,649 - 88 - Unemployment Compensation Fund $ 82,736 82,736 $ 82,736 Industrial Commission Special Fund $ 3,925 3,925 $ 3,925 Non-Major Governmental Funds $ 43,374 17,807 61,181 $ 61,181 Government-wide Total $ 544,185 205,210 60,649 23,859 82,736 3,925 920,564 (235,197) $ 685,367 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 B. DEFERRED REVENUE At June 30, 2010, 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 and 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 $ 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 Deposits Other Non-Major Funds: Policyholders' advance premiums Magazine subscriptions Other $ 120,150 102,750 54,106 4,334 826 351,982 2 Unearned Total Deferred Revenue $ $ 40,681 291 1,176 19,334 - 8,461 - 8,461 240,697 8,429 - 19,429 240,697 8,429 19,429 940 - 955 5 940 955 5 892,677 81,871 974,548 - 4,843 4,843 588,010 - 77,113 588,010 77,113 588,010 81,956 669,966 1,480,687 $ 163,827 Unearned $ 43,456 5,662 4,900 52,432 1,189 1,618 5,062 2,462 624 $ 117,405 Total Current Deferred Revenue for Proprietary Funds Noncurrent Deferred Revenue for Proprietary Funds: Universities: IBM lease related to acquisition of research park Total Noncurrent Deferred Revenue for Proprietary Funds - 89 - 120,150 102,750 54,106 4,334 40,681 291 826 1,176 19,334 351,982 2 $ 15,170 $ 15,170 $ 1,644,514 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 NOTE 4. CAPITAL ASSETS Capital asset activities for the fiscal year ended June 30, 2010 were as follows (expressed in thousands): Primary Government Beginning Balance Governmental Activities: Non-depreciable capital assets: Land Construction in progress Development in progress Infrastructure Total Non-depreciable Capital Assets $ Additions 2,488,112 3,199,253 83,069 10,631,789 16,402,223 $ 113,866 944,748 1,208 420,342 1,480,164 Depreciable capital assets: Buildings Improvements other than buildings Equipment Software and other intangibles Infrastructure Total Depreciable Capital Assets 1,754,959 135,097 713,524 61,223 15,321 2,680,124 154,910 2,174 28,725 15,740 15 201,564 Less accumulated depreciation for: Buildings Improvements other than buildings Equipment Software and other intangibles Infrastructure Total Accumulated Depreciation (591,563) (74,618) (522,210) (27,492) (6,907) (1,222,790) Ending Balance $ 2,602,541 3,823,110 84,277 11,036,788 17,546,716 (403) (143) (39,642) (1,100) (41,288) (13,468) 14,228 26,204 55,125 6,284 88,373 1,895,998 151,356 728,811 130,988 21,620 2,928,773 (41,321) (7,074) (63,675) (7,790) (649) (120,509) 185 143 37,885 1,100 39,313 8,768 953 (2,182) (51,002) (2,526) (45,989) (623,931) (80,596) (550,182) (85,184) (10,082) (1,349,975) 1,457,334 81,055 (1,975) 42,384 1,578,798 $ 17,859,557 $ 1,561,219 27,506 $ 19,125,514 Beginning Balance Business-type Activities: Non-depreciable capital assets: Land Construction in progress Collections Total Non-depreciable Capital Assets Adjustments & Reclassifications 563 (15,441) (14,878) Total Depreciable Capital Assets, Net Total Governmental Activities Capital Assets, Net Retirements $ 181,400 131,054 17,882 330,336 $ $ Additions $ 4,276 196,393 8 200,677 (305,450) (15,343) (320,793) (322,768) Retirements $ (384) (1,148) (141) (1,673) $ $ Adjustments & Reclassifications $ (71,103) (71,103) Ending Balance $ 185,292 255,196 17,749 458,237 Depreciable capital assets: Buildings Improvements other than buildings Equipment Infrastructure Total Depreciable Capital Assets 3,877,636 4,811 1,345,615 367,408 5,595,470 59,196 93,932 1,982 155,110 (5,169) (32,218) (14) (37,401) 50,745 6,093 14,507 71,345 3,982,408 4,811 1,413,422 383,883 5,784,524 Less accumulated depreciation for: Buildings Improvements other than buildings Equipment Infrastructure Total Accumulated Depreciation (1,445,451) (2,688) (943,624) (129,430) (2,521,193) (119,636) (187) (89,865) (12,687) (222,375) 2,149 28,798 3 30,950 6 (6) (2) (2) (1,562,932) (2,881) (1,004,693) (142,114) (2,712,620) 3,074,277 (67,265) (6,451) 71,343 3,071,904 3,404,613 $ 133,412 240 $ 3,530,141 Total Depreciable Capital Assets, Net Total Business-type Activities Capital Assets, Net $ - 90 - $ (8,124) $ STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 The governmental activities capital asset beginning balances for the year ended June 30, 2010 have been reclassified due to the implementation of GASB Statement No. 51, Accounting and Financial Reporting for Intangible Assets. 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 $ 24,453 16,109 1,814 5,063 43,905 19,648 9,517 $ 120,509 Depreciation expense was charged to business-type activities as follows (expressed in thousands): Lottery Industrial Commission Special Fund Universities Other Total Business-type Activities $ 353 1,339 218,577 2,106 $ 222,375 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, 2010 is shown below: Employer Cities and towns Counties and county agencies State Special districts School districts Charter schools Community college districts Dispatchers ASRS 78 15 1 93 243 156 10 - PSPRS 143 21 1 60 - EORP 21 15 1 - CORP 1 14 1 8 B. CONTRIBUTIONS, BENEFITS, AND REFUND PAYMENTS For the ASRS, 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, 2010 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, 2010, active ASRS members and the State were each required by statute to contribute at the actuarially determined rate of 9.00% and 8.34% of the members' annual covered payroll, respectively. The State's contributions to the ASRS for the years ended June 30, 2010, 2009, and 2008 were $155.349 million, $155.820 million, and $162.121 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 24.36% of the members' annual covered payroll, as determined by actuarial valuation. The State's contributions to EORP for the years ended June 30, 2010, 2009, and 2008 were $2.643 million, $2.830 million, and $2.230 million, respectively, which were equal to the required contributions for these years. Agent plans For the year ended June 30, 2010, 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 9.84 - 42.86%. Active CORP members were required by statute to contribute 8.41% of the members' annual covered payroll and the participating State agencies were required to contribute at actuarially determined rates of 7.44 - 8.12%. D. ANNUAL PENSION COST The State’s annual pension costs, required contributions, 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, 2010, is as follows (expressed in thousands): PSPRS CORP Annual Pension Costs $ 29,008 33,251 Pension Contributions Made Required Excess OPEB Contributions Contributions $ 417 $ 29,008 33,251 2,161 The State’s annual pension cost, the percentage of annual pension cost contributed to the plan, and the net pension for the current and preceding year follows for each of the agent, multiple-employer defined benefit pension plans. (expressed in thousands) PSPRS CORP Fiscal Year Ended 6/30/10 6/30/09 6/30/08 Annual Pension Costs $ 29,008 30,588 25,879 Percentage of Annual Cost Contributed 101% 102% 102% Net Pension $ 1,691 1,274 600 6/30/10 6/30/09 6/30/08 33,251 35,022 26,405 106% 106% 110% 6,952 4,791 2,603 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, 2010 Plan PSPRS CORP Actuarial Valuation Date 6/30/2010 6/30/2010 Actuarial Value of Plan Assets $ 554,211 838,549 Actuarial Accrued Liability (AAL) $ 891,215 980,676 (Unfunded) AAL $ (337,004) (142,127) Funded Ratio 62.2% 85.5% Annual Covered Payroll $ 92,791 363,999 (Unfunded) AAL as a Percentage of Covered Payroll (363.2)% (39.0)% 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 6/30/10 and actuarial valuation as of 6/30/08 that was used to determine the fiscal year 2010 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 6/30/08 projected unit credit CORP 6/30/08 projected unit credit PSPRS 6/30/10 projected unit credit CORP 6/30/10 projected unit credit 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 8.50% 5.50 – 8.50% 5.50% None level percent-ofpay closed 8.50% 5.50 – 8.50% 5.50% None level percent-ofpay closed 26 years for unfunded actuarial accrued liability, 20 years for excess 7-year smoothed market 26 years for unfunded actuarial accrued liability, 20 years for excess 7-year smoothed market 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, 2010, plan members and the three Universities were each required by statute to contribute an amount equal to - 93 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 7.00% of an employee's compensation, except for a 7.40% member contribution and an 8.06% University contribution for the ASRS defined contribution plan. Contributions to these plans for the year ended June 30, 2010, were as follows (expressed in thousands): Plan TIAA/CREF VALIC Fidelity ASRS University Contributions $ 30,139 2,639 13,986 19 Employee Contributions $ 30,139 2,639 13,986 18 Total Contributions $ 60,278 5,278 27,972 37 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, paragraphs 5 and 41, the EORP’s health insurance premium subsidy benefit (OPEB) is reported for such purposes as an agent, multiple-employer plan. 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 in these notes or the RSI that follows. 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, multiple-employer defined benefit post-employment plans. Title 38, Chapter 5 of the ARS assigns the authority to establish and amend the health insurance subsidy benefit provisions 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, 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. - 94 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 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. 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, 2010, active ASRS members and the State were each required by statute to contribute at the actuarially determined rate of 0.40% of the members' annual covered payroll for LTD. In addition, the State also contributed 0.66% for the HBS. The State's contributions for LTD to the ASRS for the years ended June 30, 2010, 2009, and 2008 were $7.451 million, $9.751 million, and $10.070 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, 2010, 2009, and 2008 were $12.294 million, $18.722 million, and $21.146 million, respectively, for the primary government which were equal to the required contributions for these years. Agent plans For the year ended June 30, 2010, the PSPRS participating State agencies were required to contribute at actuarially determined rates of 1.16 - 3.53% of covered payroll. The CORP participating State agencies were required to contribute at actuarially determined rates of 0.97 - 1.07% of covered payroll. D. ANNUAL OPEB COST The State’s annual OPEB costs, OPEB contributions made, and increase in OPEB obligation for each of the agent, multipleemployer defined benefit post-employment plans for the year ended June 30, 2010, is as follows (expressed in thousands): Annual OPEB Costs $ 2,074 3,996 PSPRS CORP OPEB Contributions Made $ 1,657 1,835 Increase in OPEB Obligation $ 417 2,161 The State’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the current and preceding year follows for each of the agent, multiple-employer defined benefit post-employment plans. (expressed in thousands) PSPRS CORP Fiscal Year Ended 6/30/10 6/30/09 6/30/08 Annual OPEB Cost (AOC) $ 2,074 2,401 2,350 Percentage of AOC Contributed 79.9% 71.9% 74.5% 6/30/10 6/30/09 6/30/08 3,996 3,918 4,301 45.9% 44.2% 39.5% - 95 - Net OPEB Obligation $ 1,691 1,274 600 6,952 4,791 2,603 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 E. FUNDED STATUS AND FUNDING PROGRESS The State’s funded status for each of the agent, multiple-employer defined benefit post-employment plans, as of the year ended June 30, 2010, is as follows (expressed in thousands): Plan PSPRS CORP Actuarial Valuation Date 6/30/2010 6/30/2010 Actuarial Value of Plan Assets - Actuarial Accrued Liability (AAL) $ 26,846 46,868 (Unfunded) AAL $ (26,846) (46,868) Funded Ratio 0.0% 0.0% Annual Covered Payroll $ 92,791 363,999 (Unfunded) AAL as Percentage of Covered Payroll (28.9)% (12.9)% 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 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 benefit postemployment plans for the most recent actuarial valuation as of 6/30/10 and actuarial valuation as of 6/30/08 that was used to determine the fiscal year 2010 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 6/30/08 projected unit credit CORP 6/30/08 projected unit credit PSPRS 6/30/10 projected unit credit CORP 6/30/10 projected unit credit 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 8.50% 5.50 – 8.50% 5.50% None level percent-ofpay closed 8.50% 5.50 – 8.50% 5.50% None level percent-ofpay closed 26 years for unfunded actuarial accrued liability, 20 years for excess not applicable 26 years for unfunded actuarial accrued liability, 20 years for excess not applicable - 96 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 NOTE 7. LONG-TERM OBLIGATIONS A. REVENUE BONDS Governmental Activities 1. Department of Administration On June 15, 2010, the State sold State Lottery Revenue Bonds Series 2010A (2010A Bonds) for $425.420 million to (i) provide monies to deposit in the State’s General Fund to pay appropriated expenditures of the State and (ii) pay costs of issuing the 2010A Bonds. The 2010A Bonds include $425.420 million of serial bonds with interest rates ranging from 3.00% to 5.00% and maturity dates ranging from July 1, 2013 to July 1, 2029. The bonds maturing on or after July 1, 2021 are subject to optional redemption, without premium, on or after January 1, 2020. The bonds maturing on or after July 1, 2017 are subject to mandatory redemption prior to maturity, pursuant to the debt documents. The 2010A Bonds were sold with net original issue premium of $30.187 million. The State Lottery realized net proceeds of $450.000 million, after payment of $5.607 million for issuance costs, underwriter discounts, and bond insurance, and immediately transferred these monies to the State’s General Fund. The State has pledged portions of its gross revenues towards the payment of debt service on the 2010A Bonds. These bonds provide additional working capital to the State to pay appropriated expenditures of the State’s General Fund. The bonds are payable solely from and secured by pledged revenues consisting of, until July 1, 2012, amounts distributable to the State’s General Fund from the State Lottery pursuant to Lottery law, and from and after July 1, 2012, all Lottery revenues deposited to the Lottery Fund net of operating expenses of the Lottery. At June 30, 2010, pledged revenues totaled $64.298 million, of which 3.5% ($2.255 million) was required to cover debt service. Future pledged revenues required to pay all remaining debt service for the bonds through final maturity of July 1, 2029 is $677.598 million. 2. 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 and state highways. The original amount of Highway Revenue Bonds issued in prior years and outstanding at the start of the fiscal year was $1.7 billion. 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 has been in place since 1980. The ADOT has pledged future motor vehicle and related fuel fees and taxes to repay $1.7 billion in outstanding Highway Revenue Bonds issued since 2001. Proceeds from the bonds finance portions of the ADOT’s Five Year Transportation Facilities Construction Program. The bonds are payable solely from motor vehicle and related fuel fees and taxes and are payable through 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 $155.800 million and $502.900 million, respectively. The annual principal and interest payments on the bonds required 31.00% 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. The original amount of Transportation Excise Tax Revenue Bonds issued in prior years and outstanding at the start of the fiscal year was $777.130 million. On September 21, 2007, the ADOT adopted a Master Resolution relating to Transportation Excise Tax Revenue Bonds. On April 17, 2009, the ADOT adopted the Second Supplemental Resolution authorizing the issuance of the second series of bonds under the Master Resolution in an amount not to exceed $440.000 million. No debt service reserve is required for the outstanding bonds. - 97 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 Transportation Excise Tax Revenue Bonds aggregating $404.805 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 $339.010 million are not subject to redemption. The ADOT has pledged future transportation excise taxes to repay $743.815 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 $1.1 billion. Principal and interest paid for the current year and total pledged revenues were $71.500 million and $199.700 million, respectively. The annual principal and interest payments on the bonds required 35.80% 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, 2010 totaled $134.765 million. 3. School Facilities Board In prior fiscal years, the School Facilities Board (SFB) refinanced various bond issues through advance-refunding arrangements. Under the terms of the refunding bond issues, sufficient assets to pay all principal, redemption premium, if any, and interest on the refunded bond issues have been placed in irrevocable trust accounts at commercial banks and invested in U.S. Government securities which, together with interest earned thereon, will provide amounts sufficient for future payment of principal and interest of the issues refunded. The assets, liabilities, and financial transactions of these trust accounts and the liability for the defeased bonds are not reflected in the accompanying financial statements. Refunded bonds for the SFB at June 30, 2010 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, 2010. 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. At June 30, 2010, pledged revenues totaled $542.538 million, of which 16.32% ($88.553 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 $859.635 million. Business-Type Activities 4. Universities a. University of Arizona The U of A’s bonded debt consists of various issues of system revenue bonds and Stimulus Plan for Economic and Educational Development (SPEED) 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 June 15, 2010, the U of A sold SPEED Revenue Bonds Taxable Series 2010 Build America Bonds for $147.475 million dated June 23, 2010. The 2010 Bonds include $29.675 million of serial bonds with interest rates ranging from 4.31% to 6.06% and - 98 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 maturity dates ranging from 2016 to 2025. The 2010 Bonds also include two term bonds consisting of $63.580 million with an interest rate of 6.42% due August 1, 2035; and $54.220 million with an interest rate of 6.64% due August 1, 2044. The serial bonds with maturity on or after August 1, 2021, are subject to optional redemption without premium. The term bonds are subject to mandatory sinking fund redemption without premium. All of the 2010 bonds are subject to extraordinary optional redemption should the Federal government fail to provide the interest subsidy described below. The U of A realized net proceeds of $146.126 million after payment of $1.349 million for issuance costs and underwriter discounts. The net proceeds will be used to finance the Health Science Education Building and building renewal projects. Under the bond resolution, up to 80% of the debt service payments on the 2010 Bonds are payable from the U of A’s SPEED revenue bond account monies, which are derived from certain revenues of the Arizona State Lottery. To the extent SPEED revenue bond account monies are not sufficient to make debt service payments, the 2010 Bonds are secured by a pledge of certain gross revenues, such as student tuition and fees, but that pledge is subordinate to the pledge of those gross revenues for the U of A’s system revenue bonds. The 2010 SPEED Revenue Bonds were issued as designated Build America Bonds under the provisions of the American Recovery and Reinvestment Act (ARRA). As such, the U of A is eligible to receive direct payments from the U.S. Treasury Department equal to 35% of the interest payments on such bonds on each interest payment date. In order to receive such payments, the U of A must file certain required information with the Federal government between 90 and 45 days prior to the interest payment date. The amount paid to the U of A by the Federal government may be reduced or eliminated due to such issues as failure by the U of A to submit the required information, any amounts owed by the U of A to the Federal government, or changes in the law that would reduce or eliminate such payments. The U of A is currently not aware of any such issues that may adversely affect the amount of payments to be received from the Federal government related to such designated Build America Bonds. The U of A has pledged portions of its gross revenues towards the payment of debt related to all system revenue, system revenue refunding bonds, and SPEED revenue bonds outstanding at June 30, 2010. 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, 2010, pledged revenues totaled $783.300 million, of which 6.20% ($48.400 million) was required to cover current year debt service. Future annual principal and interest payments on the bonds are expected to require approximately 4.00% of pledged revenues. Future pledged revenues required to pay all remaining debt service for the bonds through final maturity of August 1, 2044 is $1.1 billion. b. Northern Arizona University On December 17, 2009, the NAU sold $108.860 million of Taxable Series 2009A System Revenue Bonds and $5.640 million of Tax Exempt Series 2009B System Revenue Bonds for the purpose of construction and improvement of a new Health and Learning Center, demolition and reconstruction of Lumberjack Stadium, improvements to utility extensions for the northeast portion of the NAU Campus, and various other capital projects. The Taxable Series 2009A Bonds included serial bonds of $27.290 million with interest rates ranging from 4.84% to 5.84% and two term bonds of $26.610 million and $54.960 million, with interest rates of 6.59% and 6.69%, respectively, that mature on June 1, 2030 and 2039, respectively. The term bonds are subject to annual sinking fund contributions. The Tax Exempt Series 2009B Bonds have an interest rate of 5.00%. Both bond issues are generally subject to redemption prior to maturity. The 2009 System Revenue Bonds are secured by a first lien on certain gross revenues of the University that primarily consist of student tuition and fees, and certain auxiliary revenues and are on parity with the NAU’s previously issued System Revenue Bonds. On April 28, 2010, the NAU sold $64.785 million of SPEED Revenue Bonds Taxable Series 2010 for the purpose of the Skydome Renovation Project, Liberal Arts Building Renovation Project, Hotel and Restaurant Management School Renovation Project, North Campus Utilities Upgrade Project, and the North Union Building Renovation Project. The Taxable Series 2010 Bonds included serial bonds of $38.930 million with interest rates ranging from 4.27% to 6.27%. The 2010 Bonds also included a $25.855 million term bond, with an interest rate of 6.59% that matures on August 1, 2030, and is subject to annual sinking fund contributions. The bonds are generally subject to redemption prior to maturity. The 2010 Taxable Bonds are limited obligations that are payable solely from and secured solely by a pledge from the NAU Account of the SPEED Fund which is derived from certain revenues of the Arizona State Lottery not to exceed 80% of annual debt service and other NAU monies equal to at least 20%, and as much as 100% of annual debt service. To the extent monies of the SPEED Fund are not sufficient to make the debt service payments, the 2010 Taxable Bonds are also secured by a pledge of certain gross revenues, but that pledge is junior and subordinate to the pledge of those gross revenues for the NAU’s system revenue bonds. - 99 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 The Series 2009A and 2010 Bonds were issued as designated Build America Bonds under the provisions of ARRA. As such, the NAU is eligible to receive direct payments from the U.S. Treasury Department equal to 35% of the interest payments on such bonds on each interest payment date. In order to receive such payments, the NAU must file certain required information with the Federal government between 90 and 45 days prior to the interest payment date. The amount paid to the NAU by the Federal government may be reduced or eliminated due to such issues as failure by the NAU to submit the required information, any amounts owed by the NAU to the Federal government, or changes in the law that would reduce or eliminate such payments. The NAU is currently not aware of any such issues that may adversely affect the amount of payments to be received from the Federal government related to such designated Build America Bonds. For accounting purposes, any direct payments received from the U.S. Treasury Department are recorded as nonoperating revenue. In prior years, the NAU defeased certain revenue bonds by either placing the proceeds of new bonds, or cash and investments accumulated in a 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, 2010, $41.130 million of such bonds outstanding are considered defeased. The NAU has pledged portions of its gross revenues towards the payment of debt related to system revenue bonds, system revenue refunding bonds, and SPEED revenue bonds outstanding at June 30, 2010. The bonds generally provide financing for various capital projects of the NAU. These pledged revenues include student tuition and fees, certain auxiliary enterprises 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, 2010, pledged revenues totaled $198.200 million, of which 9.40% ($18.700 million) was required to cover current year debt service. Future pledged revenues required to pay all remaining debt service for the bonds through final maturity of June 1, 2040 is $680.000 million. c. Arizona State University At June 30, 2010, 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, 2010 was $36.100 million. In April 2010, the ASU issued $178.350 million in system revenue bonds, Taxable Series 2010A and Tax-Exempt Series 2010B, to fund construction of the Interdisciplinary Science and Technology Building IV. The Taxable Series 2010A bonds were issued as Build America Bonds under the provisions of ARRA. As such, the ASU is eligible to receive Direct Payments from the U. S. Treasury equal to 35.00% of the interest owing on such Bonds on each interest payment date. In order to receive such Direct Payments, the ASU must file certain required information with the Federal government between 90 and 45 days prior to each interest payment date. The amount paid to the ASU by the Federal government may be reduced or limited due to such issues as failure by the ASU to submit the required information, offsets to reflect any amounts owed by the ASU to the Federal government, or changes in the law that would reduce or eliminate such payments. The ASU is currently not aware of any issues that may adversely impact the receipt of Direct Payments from the Federal government related to such designated Build America Bonds. For accounting purposes, the Direct Payments are recorded as nonoperating revenue and, as such, are not netted against interest expense. The 2010A Build America Bonds were issued for $166.000 million with an average maturity of 19.5 years and the 2010B Bonds were issued for $12.400 million with an average maturity of 4.2 years, and the combined average interest rate is 5.99% gross of Direct Payments and 3.94% net of Direct Payments. The ASU has outstanding two series of Variable Rate Demand System Revenue Refunding Bonds, Series 2008A and 2008B (2008A&B Bonds), totaling $103.680 million with final maturities of July 1, 2034. Both series continue to bear interest at a weekly rate not to exceed 12.00% per annum based upon prevailing market conditions, as determined by the respective remarketing agents. The bonds are subject to conversion, at the option of the Arizona Board of Regents (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, 2010 was 0.18% for the Series 2008A and 0.17% 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 - 100 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 bonds. The LOC expires on June 15, 2012. Assuming all of the $51.800 million Series 2008A and $51.800 million 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 1.55% per annum on the stated amount which includes 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 (hedging derivative instrument) on $103.000 million, notional amount, relating to the 2008A&B 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 2008A&B Bonds. The intention of the swap was to effectively change the variable rate interest on the 2008A&B 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 Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Index set weekly. The ASU is exposed to interest rate risk based on the SIFMA indexed variable payment received from the counterparty and the variable rate paid to bondholders. The SIFMA rate at June 30, 2010 was 0.25%. At June 30, 2010, 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 (.25) 3.66 .18 3.84 As of June 30, 2010, the swap had a fair value of $(11.126) million, which represents the cost to the ASU to terminate the swap. The June 30, 2009 fair value was $(5.700) million. In accordance with GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments (GASB 53), the fair value of the ASU’s hedging derivative instrument will be reported on the Statement of Net Assets as an asset (deferred outflow) and a liability (derivative instrument). In addition, in the year of implementation, GASB 53 requires retroactive restatement of the financial statements for the effect of the hedging derivative instrument; however, as the hedging derivative has been effective, the ASU did not restate the financial statements retroactively. 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, 2010, 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 A2 by Moody’s Investor Services as of June 30, 2010. Based on the 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. - 101 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 Securities and cash restricted for bonds debt service held by the trustee at June 30, 2010 totaled $54.300 million. The ASU has pledged portions of its revenues towards the payment of debt related to various senior lien system revenue bonds outstanding at June 30, 2010. 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 enterprises revenue, investment income, and indirect cost recovery revenue. Pledged revenues do not include State appropriations, gifts, endowment income, or other restricted revenues. For the year ended June 30, 2010, pledged revenues totaled $782.700 million, of which 7.00% ($54.600 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, 2039 is $1.2 billion. 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, 2010 were $10.200 million with annual debt service requirements of approximately $1.200 million through July 1, 2021. Summary of Revenue Bonds The following schedule summarizes revenue bonds outstanding at June 30, 2010 (expressed in thousands): Revenue Bonds Outstanding Governmental Activities: Department of Transportation School Facilities Board Department of Administration Proprietary Funds: University Revenue Bonds Interest Rates Outstanding Balance at June 30, 2010 Dates Issued Maturity Dates 2001-2009 2001-2008 2010 2011-2033 2011-2021 2013-2029 2.00-5.50% .14-5.75% 3.00-5.00% $2,416,440 680,745 425,420 1992-2010 2011-2045 .18-6.64% 1,692,825 Principal and interest debt service payments on revenue bonds outstanding at June 30, 2010 are as follows (expressed in thousands): Annual Debt Service Governmental Activities Fiscal Year 2011 2012 2013 2014 2015 2016-2020 2021-2025 2026-2030 2031-2035 2036-2040 2041-2045 Total Total Principal $ 162,520 170,705 196,225 205,960 215,325 1,218,525 895,465 334,975 122,905 $ 3,522,605 Total Interest $ 174,930 165,776 157,083 147,324 136,972 515,051 247,322 75,242 12,484 $ 1,632,184 Business-type Activities Total $ 337,450 336,481 353,308 353,284 352,297 1,733,576 1,142,787 410,217 135,389 $ 5,154,789 Total Principal $ 58,505 53,050 58,850 65,460 68,735 321,385 310,080 318,275 237,405 168,435 32,645 $ 1,692,825 Total Interest $ 81,185 79,938 77,466 74,639 71,601 312,375 238,464 157,220 89,574 34,060 5,604 $ 1,222,126 Net Payments (Receipts) on Swap Agreement $ 3,716 3,632 3,544 3,452 3,355 15,141 11,884 7,732 2,440 $ 54,896 Total 143,406 136,620 139,860 143,551 143,691 648,901 560,428 483,227 329,419 202,495 38,249 $ 2,969,847 $ B. GRANT ANTICIPATION NOTES Grant Anticipation Notes (GANs) are issued by the ADOT and secured by revenues received from the Federal Highway Administration under grant agreements and certain other federal-aid revenues. The original amount of GANs issued in prior years and outstanding at the start of the fiscal year was $329.650 million. The ADOT has pledged federal revenues to repay $304.480 million in outstanding GANs issued since 2003. Proceeds from the bonds pay the costs of design, right-of-way purchase, or construction of certain freeways and other routes within Arizona. The bonds are payable solely from federal revenues and are payable through 2016. The total principal and interest remaining to be - 102 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 paid on the bonds is $353.289 million. Principal and interest paid for the current year and total pledged revenues were $41.540 million and $544.500 million, respectively. The annual principal and interest payments on the bonds required 7.60% of the pledged revenues. 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 2004-2009 2011-2016 2.50-5.00% Outstanding Balance at June 30, 2010 $ 304,480 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 2011 Governmental Activities Total Total Principal Interest $ 70,570 $ 14,834 Total Debt Service $ 85,404 2012 43,885 11,405 55,290 2013 45,340 9,284 54,624 2014 55,265 7,121 62,386 2015 53,330 4,389 57,719 2016 36,090 1,776 Total $ 304,480 $ 48,809 37,866 $ 353,289 C. CERTIFICATES OF PARTICIPATION Governmental Activities 1. Department of Administration The State has issued COPs to finance construction or improvements of various capital assets. Additionally, the State issued COPs Series 2010A and 2010B to finance the acquisition of certain property from the State by the Trustee, with which the proceeds of were deposited to the State’s General Fund to pay appropriated expenditures of the State. The COPs Series 2010A and 2010B sale-leaseback transactions are nominal sales, with the State retaining all rights of ownership and control of the properties. Accordingly, they are accounted for under the financing method since the State has such an extensive continuing involvement in the properties for the entire duration of the agreement. 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 January 26, 2010, the State of Arizona, acting through the Director of the Department of Administration, issued COPs Series 2010A for $709.090 million. The 2010A COPs include $709.090 million of serial certificates with interest rates ranging from 2.00% to 5.25% and maturity dates ranging from 2013 to 2030. The 2010A certificates maturing on or after October 1, 2020 are subject to optional redemption, prior to maturity, without premium. The 2010A certificates maturing on or after October 1, 2017 are subject to mandatory redemption pursuant to the COP documents. The State realized net proceeds of $735.419 million after - 103 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 receipt of $34.187 million net original issue premium and payment of $7.858 million of issuance costs, including underwriters’ discount. The 2010A COPs were issued to: (i) finance the acquisition of certain property from the State by the Trustee and (ii) pay the costs of issuance. The net proceeds received by the Trustee were immediately transferred from the Proceeds Fund to the State’s General Fund to pay appropriated expenditures of the State during fiscal year 2010. On June 29, 2010, the State of Arizona, acting through the Director of the Department of Administration, issued COPs Series 2010B for $289.705 million. The 2010B COPs include $289.705 million of serial certificates with interest rates ranging from 2.00% to 5.00% and maturity dates ranging from 2013 to 2030. The 2010B certificates maturing on or after October 1, 2020 are subject to optional redemption, prior to maturity, without premium. The 2010B certificates maturing on or after October 1, 2017 are subject to mandatory redemption pursuant to the COP documents. The State realized net proceeds of $300.000 million after receipt of $13.335 million net original issue premium and payment of $3.040 million of issuance costs, including underwriters’ discount. The 2010B COPs were issued to: (i) finance the acquisition of certain property from the State by the Trustee and (ii) pay the costs of issuance. The net proceeds received by the Trustee were immediately transferred from the Proceeds Fund to the State’s General Fund to pay appropriated expenditures of the State. 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, 2010 totaled $311.130 million. Business-Type Activities 3. Universities a. 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, 2010, the outstanding principal balance for the COPs Series 2001B was $1.980 million, which will be paid by investments held in an irrevocable trust with a fair market value of $2.121 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 2001A. At June 30, 2010, the total outstanding principal balance for the COPs Series 2001A was $8.730 million, which will be paid by investments held in an irrevocable trust with a fair value of $8.832 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, 2010, 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 $59.930 million. Accordingly, the trust account assets and liability for these defeased COPs are not included in the accompanying financial statements. b. Arizona State University At June 30, 2010, 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, 2010 was $65.400 million. Securities and cash restricted for COP debt service held by the trustee at June 30, 2010 totaled $7.300 million. - 104 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 A summary of the COPs issued as of June 30, 2010 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 General Fund Budget Reconciliation 2010A General Fund Budget Reconciliation 2010B 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 New School Construction 2008 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 Park Std. Union/Learning Svcs/6th St Garage/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. Research. Bldg./Biomed Sci.&Biotech/Tech. Infra. Chem.Bldg./Res.Life/Highland 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 Research Collaborative Bldg. Project Refund COPs 2001A, 2001B, 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 2010 2010 2012 2023 2011 2012 2019 2028 2030 2030 2003 2004 2004 2005 2005 2005 2005 2005 2009 2014 2015 2019 2017 2020 2018 2019 2020 2024 Original Amount Issued $ $ 1991 1999 1999 2002 2004 2005 2005 2006 2007 2011 2025 2025 2027 2010 2031 2031 2031 2027 1999 2001 2001 2002 2002 2003 2004 2004 2005 2005 2005 2020 2012 2014 2022 2023 2022 2031 2029 2024 2024 2022 2006 7,050 35,800 25,265 4,530 22,865 230,030 709,090 289,705 4.25 – 5.25 4.25 – 5.50 3.80 – 5.50 3.75 – 5.00 4.00 – 5.25 3.25 – 5.00 2.00 – 5.25 2.00 – 5.00 107,980 69,550 32,795 91,415 37,460 198,050 77,150 52,355 580,035 $ 2,571,125 3.50 – 5.00 3.70 – 5.25 2.75 – 5.00 4.25 – 5.25 4.75 – 5.00 3.00 – 5.00 3.00 – 5.00 3.00 – 5.00 4.00 – 5.75 57,930 63,270 75,295 16,725 31,965 238,990 709,090 289,705 372,730 194,610 47,160 190,040 47,585 201,125 80,055 53,045 580,035 3,249,355 Interest Rates $ 415 4,265 4,170 18,185 74,350 101,550 14,450 64,580 6.89 5.78 8.02 4.76 2.36 4.89 4.36 4.52 4.15 21,607 31,695 21,425 76,965 29,845 10,615 153,960 42,020 12,660 14,825 16,330 4,364 1,990 2,185 11,640 26,640 10,615 138,340 30,510 12,660 14,825 16,330 5.13 – 5.30 4.30 – 4.45 4.75 – 5.00 4.38 – 5.50 4.75 – 5.13 3.50 – 5.00 3.77 – 5.25 4.50 – 5.25 4.00 – 5.00 5.00 4.13 – 5.00 2025 29,460 26,565 3.63 – 5.00 2006 2006 2007 2025 2031 2031 58,650 18,240 105,080 57,120 16,825 104,830 3.75 – 5.00 4.00 – 5.00 3.50 – 4.50 2005 2006 2006 2031 2031 2031 $ 34,740 37,095 11,480 840,719 4.85 4.65 4.35 $ 37,585 40,255 12,445 1,147,332 $ 4,396,687 $ 3,411,844 - 105 - $ Outstanding Balance 4,500 5,620 5,165 103,800 22,495 80,275 110,115 15,810 65,890 $ STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 Principal and interest debt service requirements on COPs outstanding at June 30, 2010 are as follows (expressed in thousands): Annual Debt Service Governmental Activities Fiscal Year 2011 Total Principal $ Business-type Activities Total Amount Required Total Interest 109,980 $ 128,358 $ Total Principal 238,338 $ 28,605 Total Amount Required Total Interest $ 39,187 $ 67,792 2012 115,430 119,865 235,295 34,802 38,433 73,235 2013 156,705 113,455 270,160 36,506 36,959 73,465 2014 164,250 105,697 269,947 38,303 35,190 73,493 2015 172,290 97,451 269,741 38,314 33,914 72,228 2016-2020 858,630 352,923 1,211,553 244,614 132,242 376,856 2021-2025 577,525 176,110 753,635 225,125 73,396 298,521 2026-2030 416,315 52,327 468,642 160,690 27,241 187,931 2031-2035 Total $ - - - 2,571,125 $ 1,146,186 $ 3,717,311 33,760 $ 840,719 839 $ 417,401 34,599 $ 1,258,120 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: i Title to or ownership of the asset is transferred to the State at the end of the lease. i The lease contains a bargain purchase option. i 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.) i 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.) - 106 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 The future minimum lease payments for long-term capital leases as of June 30, 2010 are summarized below (expressed in thousands): 2. Fiscal Year 2011 2012 2013 2014 2015 2016-2020 2021-2025 2026-2030 2031-2035 2036-2039 Total minimum lease payments Less: amount representing interest Less: amount representing executory costs Annual Debt Service Governmental Business-type Activities Activities $ $ 45,955 12,754 45,648 13,107 44,632 13,040 44,941 12,551 45,277 12,269 229,752 59,710 254,929 60,813 47,475 62,423 4,172 49,218 6,035 762,781 301,920 (266,237) (130,472) (83,625) - Present Value of Net Minimum Lease Payments $ $ 412,919 171,448 Capital Assets Financed through Capital Leases The following table summarizes the historical costs of assets acquired under capital leases (expressed in thousands): Less: accumulated depreciation Governmental Activities $ 435 387,728 1,745 9,560 399,468 (36,105) Carrying Value $ Land Buildings Infrastructure Software Equipment 363,363 $ $ Business-type Activities 1,763 192,778 39 1,834 196,414 (25,521) 170,893 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 2010, the State paid for compensated absences as follows: 81.29% from the General Fund, 12.14% from other funds, and 6.57% from other major funds. - 107 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 F. CHANGES IN LONG-TERM OBLIGATIONS The following is a summary of changes in Long-term Obligations (expressed in thousands): Balance July 1, 2009 Increases Decreases Balance June 30, 2010 Due Within One Year Due Thereafter Governmental Activities: Long-term Debt: Revenue bonds Grant anticipation notes Certificates of participation Capital leases Installment purchase contracts Notes payable Premiums and discounts on debt Deferred amounts on refundings Total Long-term Debt $ 3,251,580 $ 425,420 (154,395) $ 3,522,605 329,650 - $ (25,170) 304,480 $ 162,520 70,570 $ 3,360,085 233,910 1,649,870 998,795 (77,540) 2,571,125 109,980 2,461,145 236,125 187,836 (11,042) 412,919 16,004 396,915 6,343 - (5,442) 901 656 245 42,668 32,628 (14,584) 60,712 13,983 46,729 285,613 77,709 (28,601) 334,721 30,979 303,742 (9,171) - 3,974 (5,197) (3,976) (1,221) 5,792,678 1,722,388 (312,800) 7,202,266 400,716 6,801,550 280,413 220,635 (225,513) 275,535 169,869 105,666 Other Long-term Liabilities: Compensated absences Pollution remediation obligations Total Other Long-term Liabilities Total Long-term Obligations 22,813 - (1,623) 21,190 1,015 20,175 303,226 220,635 (227,136) 296,725 170,884 125,841 $ 6,095,904 $ 1,943,023 $ (539,936) $ 7,498,991 $ 571,600 $ 6,927,391 $ 1,692,825 $ 58,505 Business-type Activities: Long-term Debt: Revenue bonds 1,239,675 $ 505,110 Certificates of participation 872,829 205 (32,315) 840,719 28,605 812,114 Capital leases 175,453 12,043 (16,048) 171,448 4,515 166,933 16,418 1,471 (4,846) 13,043 3,655 9,388 674 - (314) 360 68 292 43,112 1,047 (4,454) 39,705 1,922 37,783 Installment purchase contracts Notes payable Premiums and discounts on debt Deferred amounts on refundings Total Long-term Debt $ (51,960) $ $ 1,634,320 (25,294) - 2,194 (23,100) (1,630) (21,470) 2,322,867 519,876 (107,743) 2,735,000 95,640 2,639,360 70,269 80,384 (80,691) 69,962 15,472 54,490 70,269 80,384 (80,691) 69,962 15,472 54,490 $ 2,393,136 $ 600,260 (188,434) $ 2,804,962 111,112 $ 2,693,850 Other Long-term Liabilities: Compensated absences Total Other Long-term Liabilities Total Long-term Obligations $ $ The above long-term obligations relating to governmental activities include internal service funds. Amounts for compensated absences differ from those in the Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets because $112.437 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. - 108 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 NOTE 8. INTERFUND TRANSACTIONS INTERFUND BALANCES AND TRANSFERS Interfund Receivables/Payables Interfund balances as of June 30, 2010 are as follows (expressed in thousands): Due To General Fund $ - Due From General Fund Non-Major Governmental Universities Funds Fund $ 10,370 $ 200,000 Non-Major Internal Enterprise Service Funds Funds $ 10 $ 1,615 $ Total Due To 211,995 $ 7,937 1,655 15,994 223 17,071 1 1,377 256,253 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 $ 4,226 498 13,609 11 14,243 1,196 33,783 3,617 2,050 212 2,828 174 19,251 $ $ 200,000 94 104 $ $ 1,157 335 1 7 3,115 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, 2010 are as follows (expressed in thousands): General Fund 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 Transferred To Transportation & Aviation Planning, Highway Land Non-Major Maintenance Endowments Governmental Universities & Safety Fund Fund Funds Fund $ $ - $ 661 $ 28 $ 188,567 14 - - 307,541 24,740 274,752 218 - 31,368 1,000 1,879 $ 28 $ 1,817 26,924 30 483,089 $ 3,847 92,856 12,808 48,410 621,254 $ 90,669 $ NonIndustrial Major Commission Enterprise Special Fund Funds Internal Service Funds Total Transfers Out - $ - $ - - - 5,538 - 501,646 24,754 - 2,000 81 - 308,419 2,000 $ 5,664 119,780 12,808 500 49,940 81 $ 6,038 $ 2,060,404 946,035 $ 946,035 $ - $ 1,037,393 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. - 109 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 NOTE 9. FUND DEFICIT A. GENERAL FUND The General Fund deficit of $754.731 million is primarily due to the ongoing economic downturn. Continued slow economic growth resulted in revenues falling short of budgeted levels. For fiscal year 2010, expenditures were $21.9 billion, while revenues were $21.0 billion. Sales tax and income tax revenues continued to be significantly impacted by economic conditions but did not experience the decline of previous years. Reported sales tax and income tax decreased by $298.994 million, or 6.40%, and $332.376 million, or 10.59%, as compared to fiscal year 2009, respectively. B. INDUSTRIAL COMMISSION SPECIAL FUND The fund deficit increased from $45.861 million at June 30, 2009 to $53.292 million at June 30, 2010, a total increase of $7.431 million, primarily due to the following factors. During the fiscal year, total investments increased $42.602 million due to the economic recovery. This increase was offset by an increase in the actuarially determined insurance loss reserve of $36.764 million over the prior year, a decrease in no insurance settlement income of $8.287 million, and a decrease of $4.000 million in the Commission’s Administrative Fund (Administrative Fund) transfers. In 2005, ARS § 23-1081(B) was amended to permit a surplus in the Administrative Fund to be transferred to the Special Fund when the Special Fund is not actuarially sound. During fiscal year 2009, $6.000 million was transferred from the Administrative Fund to the Special Fund. During fiscal year 2010, $2.000 million was transferred, resulting in a $4.000 million decrease. C. HEALTHCARE GROUP OF ARIZONA In fiscal year 2010, the Healthcare Group of Arizona (HCG) reported operating income of $1.968 million and an increase in net assets of $1.779 million. This continues a positive turn-around trend that began in fiscal year 2008 when the HCG began successfully managing both program and administrative costs through a series of cuts, changes, realignments, and premium adjustments to match revenues with expenses. Fiscal year 2010 is the first year since fiscal year 1998 that the HCG has reported income from operations without receiving General Fund subsidies to offset current or prior year losses. Additionally, the HCG made a cash transfer to the General Fund in the amount of $365 thousand mandated by Laws 2009, Chapter 11. Overall fiscal year 2010 operating results decreased the HCG’s net deficit to $9.010 million at June 30, 2010 as compared to the $10.789 million net deficit balance at June 30, 2009. Prior to fiscal year 2008, the HCG was unable to cover its costs due to net medical losses (medical costs exceeded premiums received). Since ending fiscal year 2007 with a liability of $22.509 million, the HCG has reduced this balance by $10.127 million using cash generated from operations, General Fund subsidies, reinsurance and other adjustments. The following table summarizes the HCG’s reconciliation liability activity for fiscal year 2010: Reconciliation Period FY 07 Balance June 30, 2009 Payments made Accruals and adjustments Balance June 30, 2010 $ $ FY 08 9,583 (680) (220) 8,683 $ $ FY 09 3,822 (65) (58) 3,699 $ $ Total - $ $ 13,405 (745) (278) 12,382 The remaining reconciliation liability will be paid by allocating 2.00% of medical premium revenues for a reconciliation reserve, from residual earnings, and from any subsidies provided by the State Legislature. There can be no assurance that operating improvements realized over the past three fiscal years will continue to occur or will provide sufficient cash to fund operating expenses. Additionally, if there is an unexpected and adverse change in enrollment and premium increases are not sufficient to fund the reserves for past losses, then the HCG will be required to further scale back administrative expenditures to a level supported by actual enrollment. Should the HCG be required to accelerate payments for prior year reconciliation liabilities before it has sufficient funds to provide such payments and new terms are not negotiated, or the - 110 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 Legislature does not provide the HCG with additional subsidies, it raises substantial doubt about the HCG’s ability to continue as a going concern. In conclusion, even though the HCG has posted operating income for the last three fiscal years and management currently projects that the positive trend will continue, $9.010 million remained as a net deficit at June 30, 2010 due to the outstanding reconciliation liability owed to the HMOs for prior fiscal years. It is not anticipated that operations will generate sufficient cash flow in the near future to entirely pay off the remaining deficit. The HCG plans to continue operations and to continue to pay down the outstanding liability. Accordingly, the accompanying financial statements have been prepared assuming that the HCG will 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. D. ARIZONA HIGHWAYS MAGAZINE The Arizona Highways Magazine had a fund deficit of $574 thousand which resulted from legislatively mandated cash transfers to the General Fund totaling $1.084 million in fiscal year 2010, and $1.483 million in fiscal year 2009. These transfers were mandated by House Bill 2643 section 44, House Bill 2001 section 148A, and Senate Bill 1001 section 2, effective for fiscal year 2010. The fiscal year 2009 transfers were mandated by House Bill 2209, section 46, and Senate Bill 1001, sections 4, 5, and 7. E. RISK MANAGEMENT FUND The Risk Management Fund (RMF) deficit of $322.094 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. F. RETIREE SICK LEAVE FUND (RASL) The RASL pays retirees for their accumulated sick leave upon retirement from State service when they meet certain criteria. Beginning with fiscal year 2008, the State applied the provisions of GASB Statement No. 16 – Accounting for Compensated Absences 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 0.40% charge on gross payroll. The $105.322 million fund deficit is primarily due to the above funding mechanism. NOTE 10. JOINT VENTURE The U of A is a participant in the Large Binocular Telescope Corporation (LBT). The LBT was formally incorporated as a nonprofit corporation in August 1992 pursuant to a Memorandum of Understanding, as amended, executed on February 24, 1989, between the U of A and the Arcetri Astrophysical Observatory in Florence, Italy (Arcetri). The purpose of the joint venture is to design, develop, construct, own, operate, and maintain a binocular telescope located 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, 2010, 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 had been substantially completed and the telescope entered the commissioning phase. During calendar year 2007, the telescope became 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, $750 thousand in calendar year 2009, as a reduction in its investment. At June 30, 2010, the investment totaled $16.007 million. According to the audited financial statements of the LBT for the year ended December 31, 2009, assets, liabilities, revenues, and expenses totaled $129.000 million, $4.000 million, $14.000 million, and $11.000 million, respectively. - 111 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 The LBT’s separate audited financial statements can be obtained from the University of Arizona Comptroller at the University of Arizona, Financial Services, P.O. Box 3310, Tucson, AZ 85722-3310. NOTE 11. COMMITMENTS, CONTINGENCIES, AND COMPLIANCE A. INSURANCE LOSSES The Department of Administration – Risk Management Division manages the State’s property, environmental, general 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 Division. Consequently, all agencies are required to participate in this program. The State’s Risk Management Division evaluates the proper mix of purchased commercial insurance and self-insurance annually. The Commission’s Special Fund provides payment of workers’ compensation losses which are not covered by the State Compensation Fund, the Department of Administration – Risk Management Division, private insurance carriers, or self-insured employers. The workers’ compensation claims paid by the Special Fund encompass claims 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 were 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 Division will assess each agency an annual portion of the necessary funding for the Risk Management Fund based on their exposures and prior loss experience. Investment earnings (including interest, dividends, and securities lending income) and assessments on gross premium revenues primarily 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 §23-1065(A) because of a deficit net assets balance. AMI Risk Consultants, Inc. was retained to evaluate the medical and compensation related liabilities of the Special Fund as of June 30, 2010. The estimated loss reserve of $415.284 million is $36.764 million greater than the $378.520 million reserve estimate at June 30, 2009. The primary reason for this change was a change in actuarial assumptions by AMI Risk Consultants, Inc. In prior years, a confidence level of 50.00% was used in calculating medical and compensation related liabilities. However, current industry standard is 75.00% and this method was adopted for June 30, 2010. In future years, the current industry standard will be applied when calculating medical and compensation related liabilities. A confidence level of 75.00% indicates a confidence that the estimated liability will be adequate to cover actual costs 7.5 out of 10 years. The reserves were discounted at an assumed rate of 2.89% 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 Special Fund levied the following assessment taxes for calendar year 2010: 1.50% assessment under ARS §23-1065(A), .50% assessment under ARS §23-966(D) based on insolvent carrier losses, and .50% assessment under ARS §23-1065(F), based on the total apportionment liability. The ARS §23-966(D) and ARS §23-1065(F) assessments were not levied during calendar year 2009. 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 (“settlement income”) as revenue at the time received rather than recording a receivable. Occasionally, the Risk Management Division 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. - 112 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 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, 2009 and June 30, 2010 (expressed in thousands): Fiscal Year Risk Management Fund: 2009 2010 Industrial Commission Special Fund: 2009 2010 Current Year Claims and Changes in Estimates Beginning Balance $ 363,927 359,813 $ 382,138 378,520 61,179 70,637 24,467 63,284 Claims Payments $ 65,293 56,733 28,085 26,520 Ending Balance $ 359,813 373,717 378,520 415,284 B. LITIGATION In Roosevelt Elementary School District No. 66 vs. State of Arizona and Somerton Elementary School District No. 11 vs. State of Arizona, plaintiffs were 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 moved to add a new plaintiff district, Tempe Union High School District, and to transfer the case to the active calendar and set it 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. In the meantime, plaintiff, Williams Unified School District decided not to continue as a plaintiff in the case. The evidentiary hearing commenced in February, 2009, was continued for another afternoon of hearing in March, 2009, and had a final day of hearing on June 30, 2009. The Superior Court ultimately ruled in favor of the State and dismissed the pending claims. However, the Court further ordered that “[s]hould Plaintiffs in the future establish that they have exhausted all appropriate sources of State funding and yet have been denied emergency funds, their claims may be reinstated” and that the “case be placed on the inactive calendar for dismissal without further notice on December 20, 2010.” This resulted in the Plaintiff Tempe District seeking to continue its claims on the inactive calendar for an additional six months because it has pending requests for emergency funding that have not yet been determined by the State School Facilities Board. In Rumery v. Martin, the plaintiff has filed a special action challenging the constitutionality of a state law that would allow administrative expenses of the Land Department to be paid from proceeds of the trust. The legislation allows $10.000 million of trust proceeds from sale transactions to be transferred into a trust land management account for payment of administrative expenses. The Superior Court ruled against the State on summary judgment. The State received a stay and intends to appeal the decision. 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 transfer to the Land Endowments Fund between $11.546 million to $18.020 million. The State has a variety of claims pending against it that arose during the normal course of its activities. Management believes, based on advice of legal counsel, losses, if any, resulting from settlement of these claims will not have a material effect on the financial position of the State. All losses for any unsettled litigation or contingencies involving workers’ compensation, medical malpractice, construction and design, highway operations, employment practices, criminal justice, fidelity and surety, environmental property damage, general liability, environmental liability, building and contracts, auto liability, or auto physical damage are determined on an actuarial basis and included in the Accrued Insurance Losses of the internal service funds and the Industrial Commission Special Fund. - 113 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 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 $110.861 million at June 30, 2010. D. UNCLAIMED PROPERTY The State of Arizona’s Uniform Unclaimed Property Act requires the deposit of certain unclaimed assets into a managed agency fund. A total of approximately $789.744 million (net of refunds issued) has been collected since the inception of the fund. The State is also holding securities valued at $45.806 million and mutual funds valued at $5.398 million. In accordance with ARS §44-313 and ARS §44-314, for fiscal year 2010, $24.500 million was deposited in the Department of Revenue Administrative Fund, $10.500 million was deposited in the Department of Commerce Housing Fund, $101.669 million was deposited in the General Fund, and $986 thousand was deposited in other funds as required by State statute. 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. At June 30, 2010, $183.183 million of this liability is reported in the General Fund because it is the fund to which the property ultimately escheats in Arizona. E. CONSTRUCTION COMMITMENTS The ADOT had outstanding commitments under construction contracts of $872.259 million at June 30, 2010. (in thousands) Expenditures Remaining Commitments to Date Construction contracts: Rural roadways Small urban roadways Urban roadways Large urban roadways Sub-total Design contracts Other commitments Total $ $ 342,338 205,522 78,926 491,815 1,118,601 743,505 554,898 2,417,004 $ $ 151,459 69,585 60,169 160,957 442,170 72,657 357,432 872,259 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 online 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 $65.802 million at June 30, 2010. Approximately $42.528 million of the total aggregate future payments at June 30, 2010 relate to annuities purchased from five separate insurance companies, of which approximately $11.732 million relates to a single insurance company. - 114 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 NOTE 12. TOBACCO SETTLEMENT The State is one of many states participating in the settlement of litigation with the tobacco industry over the reimbursement of healthcare costs. The settlement money is intended to compensate the State for costs it has incurred in providing health and other services to its citizens that were necessitated by the use of tobacco products. The State expects to receive settlement payments through 2025. The State recorded tobacco settlement revenue of $105.394 million and $100.360 million in the fund statements and the government-wide statements in fiscal year 2010, respectively. Future settlement payments are subject to several adjustments, but the amounts are not presently determinable. These adjustments include a volume adjustment, which could reflect any decreasing cigarette production under a formula that also takes into account increased operating income from sales. Other factors that might affect the amounts of future payments include ongoing and future litigation against the tobacco industry and the future financial health of the tobacco manufacturers. Because the net realizable value of the future settlement payments is not measurable and there is no obligation for the tobacco companies to make settlement payments until cigarettes are shipped, the State did not record a receivable for the future payments related to cigarette sales after June 30, 2010. NOTE 13. PUBLIC-PRIVATE PARTNERSHIP The State of Arizona has entered into a partnership agreement with Accenture. The purpose of this partnership is to fund the Department of Revenue’s technology needs. The agreement stipulates that Accenture will be paid 85.00% of the new revenue generated from the system enhancements, even if this amount is insufficient to cover the total contract cost. Accordingly, Accenture had created a system that increases the State’s efficiency in collecting tax revenues. As of June 30, 2010, the State has paid Accenture $153.137 million towards the $160.936 million contract cost. Included in the $160.936 million contract cost is capitalized interest charges of $7.000 million and application support charges of $54.610 million. NOTE 14. TREASURER’S WARRANT NOTES Pursuant to ARS §35-185.01 and §35-185.02, the State Treasurer issued Treasurer’s Warrant Notes (TWNs) during the current fiscal year. The TWNs were issued in lieu of immediate payment of warrants presented to the State Treasurer for authorized General Fund expenditures. The TWNs were sold to both the State’s internal investment pools and a TWNs facility that established a line of credit up to a maximum of $700.000 million with a financial institution for the purpose of purchasing TWNs. 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. Each TWN issued is numbered consecutively, must be redeemed in numerical order, and can be issued in exchange for a previously issued TWN. 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. TWNs activities for the year ended June 30, 2010 were as follows (expressed in thousands): Purchaser Internal investment pools TWNs facility Combined activity Number Of Days TWNs Were Issued 93 132 208 Minimum TWNs Issued $ 7,044 16,889 7,044 Issue Date 9/18/2009 6/9/2010 9/18/2009 Maximum TWNs Issued $ 537,061 700,000 904,938 Issue Date 11/23/2009 12/1/2009 12/14/2009 Cumulative TWNs Total $ 19,676,420 74,971,935 94,648,355 Daily Average Of TWNs Issued $ 211,574 567,969 455,040 There were no TWNs outstanding at July 1, 2009. The State’s internal investment pools purchased TWNs during the period from July 15, 2009 to January 11, 2010, in daily amounts ranging from $7.044 million to $537.061 million. The TWNs facility purchased TWNs during the period from November 24, 2009 to June 11, 2010, in daily amounts ranging from $16.889 million to $700.000 million. For 17 days during the period from December 1, 2009 to January 11, 2010, TWNs were purchased by both the TWNs facility (maximum line of credit utilized) and the internal investment pools. The maximum combined TWNs outstanding during fiscal year 2010 were $904.938 million. The combined daily average of TWNs outstanding during fiscal year 2010 was $455.040 million. The cumulative total of daily TWNs issued during fiscal year 2010 was $94.6 billion. The State paid $3.886 million in interest and fees on the TWNs for fiscal year 2010. No TWNs were outstanding at June 30, 2010. - 115 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 NOTE 15. SUBSEQUENT EVENTS On August 3, 2010, the SFB issued Refunding COPs Series 2010A-1, 2010A-2, and 2010A-3 for $11.100 million, $10.000 million and $37.685 million, respectively. The 2010A-1 COPs include $11.100 million of serial certificates with interest rates ranging from 3.00% to 3.50% and maturity dates ranging from 2019 to 2020. The 2010A-2 COPs include $10.000 million of serial certificates with interest rates ranging from 3.00% to 5.00% and maturity dates ranging from 2019 to 2020. The 2010A-3 COPs include $37.685 million of serial certificates with interest rates ranging from 3.00% to 5.00% and maturity dates ranging from 2019 to 2020. The 2010A-1, 2010A-2, and 2010A-3 COPs are not subject to redemption prior to their stated maturities. The SFB realized net proceeds from the 2010A-1, 2010A-2, and 2010A-3 COPs of $61.415 million after receipt of $3.415 million net original issue premium and payment of $785 thousand for issuance costs. The SFB net proceeds were used to pay the September 1, 2010 principal amounts of $52.815 million due on the COPs Series 2003B, 2004B, and 2008. In addition, net proceeds were used to pay $8.600 million of the total September 1, 2010 scheduled interest payment of $15.179 million on the Series 2008 COPs. The net proceeds were deposited in the respective certificate funds of the COPs Series 2003B, 2004B, and 2008 for payment of the September 1, 2010 amounts due. In August 2010, the ASU issued $33.800 million in SPEED bonds, which were also issued on a subordinate lien basis, Taxable Series 2010A and Tax-Exempt Series 2010B, to fund building renewal projects across the ASU’s campuses. The Taxable Series 2010A bonds were issued as Build America Bonds for $26.400 million with an average maturity of 15.4 years and an average interest rate of 3.87%, net of the federal direct payments. The Tax-Exempt Series 2010B bonds were issued for $7.400 million with an average maturity of 7.5 years and an average interest rate of 2.90%. Up to 80% of the related debt service of these subordinate lien bonds will be paid from the Arizona State Lottery revenues, with the balance being the responsibility of the ASU. On October 7, 2010 the SFB, through The Bank of New York Mellon Trust Company, NA, issued COPs Series 2010 for $91.325 million. The 2010 COPs include $91.325 million of term certificates with an interest rate of 6.00% and a maturity date of September 1, 2027. The 2010 COPs are subject to mandatory and optional prepayment pursuant to the COP documents. Sinking Fund deposits will be made as part of the base rent under the lease to provide funding for principal retirement at maturity. The State realized net proceeds of $90.432 million after payment of $893 thousand of issuance costs, including underwriters’ discount. The 2010 COPs were 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, and (ii) pay the costs of issuance. On October 14, 2010, the ADOT issued $180.000 million in Transportation Excise Tax Revenue Bonds (Maricopa County Regional Area Road Fund) 2010 Series to: (i) pay the costs of design, right-of-way purchase, or construction of certain freeways and other routes within Maricopa County, Arizona and (ii) pay the costs of issuance. The 2010 Series Bonds were issued as senior lien bonds and mature from July 1, 2011 through July 1, 2025. Net proceeds totaled $205.288 million (after receipt of $26.424 million reoffering premium and payment of $1.136 million in underwriting fees and costs of issuance). The bonds were rated AA+ and Aa1 by S&P and Moody's, respectively. On January 12, 2011, the ADOT issued $158.585 million in Grant Anticipation Notes Series 2011A (2011A GANs) to: (i) pay a portion of the costs of certain controlled-access highways, U.S. highways, and State routes within the State and (ii) pay the costs of issuance. The 2011A GANs are limited obligations of the ADOT, with maturity dates of July 1, 2016 through July 1, 2026, and interest rates ranging from 4.00% to 5.25%. The 2011A GANs maturing on or after July 1, 2021 are subject to optional redemption at the discretion of the ADOT. The 2011A GANs are rated AA, Aa2, and AA by Fitch Ratings, Moody's, and S&P, respectively. In February 2011, the ASU issued $51.200 million in System Revenue Bonds to fund the acquisition of the Centerpoint building (in downtown Tempe), renovation and expansion of Student Health Services, building renewal and academic renovations, lab and research space renovations, and safety improvements. The bonds were issued with an average maturity of 10.1 years and an average interest rate of 4.51%. 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 - 116 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 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: 3. i Unrestricted net assets include assets and contributions that are not restricted by donors or for which such restrictions have expired. i 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; however, the component units affiliated with the ASU, other than the ASU Foundation, classify such contributions as unrestricted. i 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 U.S. Government or U.S. Treasury money market funds with original maturities of three months or less. 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. The fair values of publicly traded securities are based on quoted market prices and exchange rates, if applicable. Absolute return limited partnership interests are recorded at fair value based on quoted market prices (where the underlying investment is a mutual fund) or as determined by the fund manager. Purchases and sales of investment securities are reflected on a trade-date basis. Realized gains and losses are calculated using the average cost for securities sold. 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 - 117 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 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, which approximates fair value. 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 net assets are reclassified to unrestricted net assets. The total net assets reclassified are reported as net assets released from restriction in the accompanying Statement of Activities. 9. Use of Estimates The preparation of the Universities-affiliated component units' financial statements in conformity with U.S. GAAP requires 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 the reported amount 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 WIFA and the UMC do not have a formal policy regarding custodial credit risk for deposits. 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 WIFA and the UMC do 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. - 118 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 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, 2010 (expressed in thousands): Investment Type Commercial paper Corporate asset backed securities Corporate notes Guaranteed investment contracts Money market mutual funds Repurchase agreements U.S. agency securities U.S. agency securities – full faith U.S. agency mortgage backed securities U.S. agency mortgage backed securities -full faith U.S. Treasury securities Total Investment Maturities (in years) Less than 1 1-5 6-10 More than 10 $ $ $ 15,000 - $ 2,640 12,297 105,257 4,703 7,916 21,581 141 606 Fair Value $ 15,000 2,640 12,297 105,257 4,703 7,916 21,581 141 606 $ 16 4,613 174,770 4,613 68,750 $ 141 $ $ 105,257 16 622 $ 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, 2010 (expressed in thousands): Investment Type Bond mutual funds Commercial paper Guaranteed investment contracts Money market mutual funds U.S. Treasury securities Total Fair Value $ 6,988 15,617 8,615 51,686 8,442 Less than 1 $ 15,617 4,372 51,686 8,442 $ $ 91,348 80,117 Investment Maturities (in years) 1-5 6-10 More than 10 $ 6,988 $ $ 4,243 $ 6,988 $ - $ 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, 2010 (expressed in thousands): Investment Type Commercial paper Corporate asset backed securities Corporate notes Guaranteed investment contracts Money market mutual funds U.S. agency securities U.S. agency mortgage backed securities Total Fair Value $ 15,000 AAA $ AA - 2,640 10,311 105,257 4,703 21,581 2,640 156 105,257 16,990 606 $ 160,098 606 $ 125,649 $ A - $ 2,924 - $ 2,924 - 119 - $ - A1 $ 15,000 6,610 - 4,591 6,610 $ 19,591 - Not Rated $ - 621 - 4,703 - 621 $ 4,703 BB $ $ STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 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, 2010 (expressed in thousands): Investment Type Bond mutual funds Commercial paper Guaranteed investment contracts Hedge fund of funds Money market mutual funds Private equity Other Total e. Fair Value $ 6,988 15,617 8,615 33,043 51,686 3,697 51,216 $ 170,862 AAA $ 5,499 $ 5,499 AA 1,489 $ 1,489 $ A $ 4,243 $ 4,243 Not Rated $ 15,617 4,372 33,043 51,686 3,697 51,216 $ 159,631 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, 2010, an investment in Bayerische Landesbank (fair value of $40.586 million) was approximately 23.22% of the WIFA’s total investments, an investment in AIG Matched Funding Corp. (fair value of $25.153 million) was approximately 14.39% of the WIFA’s total investments, an investment in Royal Bank of Canada (fair value of $31.374 million) was approximately 17.95% of the WIFA’s total investments, and an investment in GE Funding Capital Market Services, Inc. (fair value of $8.145 million) was approximately 4.66% of the WIFA’s total investments. f. Foreign Currency Risk The UMC’s investment policy permits it to invest a portion of its holdings in international equities, private equity, and hedge fund investments. The UMC’s current holdings in international securities totaled approximately $22.608 million, or 15.60% of total investments not held by trustee. The following table summarizes the UMC’s foreign currency risk as of June 30, 2010 (expressed in thousands): Currency Euro Currency Hong Kong Dollar Indonesian Rupiah Japanese Yen Russian Ruble South African Rand Other Total Foreign Currency Risk by Investment Type at Fair Value Fixed Income Equities Total $ (293) $ 3,865 $ 3,572 1,362 1,362 93 1,207 1,300 (248) 7,495 7,247 828 828 (49) 1,680 1,631 1,911 4,757 6,668 1,414 $ $ 21,194 $ 22,608 - 120 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 2. Universities-Affiliated Component Units Investments of the Universities-affiliated component units include the following amounts at June 30, 2010. Investments are stated at fair value (expressed in thousands): ASU Foundation $ 47,468 322,544 110,266 53,971 $ 534,249 Money market funds and cash equivalents Domestic/international equity securities and mutual funds Fixed income Absolute return limited partnerships and funds Other investments Total Investments U of A Foundation $ 126,983 89,708 113,629 46,763 $ 377,083 NAU Foundation $ 122 41,014 23,761 $ 64,897 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 2010 are as follows (expressed in thousands): Clean Water Fund Drinking Water Fund Total Beginning Balance $ 681,426 311,215 $ 992,641 Increases $ 168,128 76,123 $ 244,251 Decreases $ (49,461) (29,294) $ (78,755) Ending Balance $ 800,093 358,044 $ 1,158,137 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 Pledges receivable (unconditional promises to give) are recorded at their net realizable value, which is net of a discount and any applicable loss allowance. The ASU Foundation’s pledges are discounted using the applicable risk free rate at the date the pledge was recognized. The discount rates range from 2.80% to 10.90%. An allowance for uncollectible pledges is estimated based on the ASU Foundation’s collection history and is recorded as a reduction to contribution support and revenue and an increase in the allowance for uncollectible pledges. The Sun Angel Foundation’s pledges receivable are recorded using a 5.14% discount rate for the year ended June 30, 2010. Pledges receivable, as of June 30, 2010, include the following (expressed in thousands): Gross pledges receivable Present value discount Allowance for uncollectible pledges Net Pledges Receivable ASU Foundation 155,337 $ (15,073) (47,684) $ 92,580 Sun Angel Foundation $ 9,068 (608) 8,460 $ 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 - 121 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 and the ASU will receive title to the building. The ASU Foundation's net investment in this direct financing lease at June 30, 2010 is $26.975 million. 2. ACFFC Pursuant to a sublease agreement, dated April 7, 2004 and amended on April 1, 2009 (the Sublease), Nanotechnology Research, LLC, a wholly-owned subsidiary of ACFFC, leases its interest in the Research Park to the ASU. The ASU will make lease payments at times in amounts sufficient to pay all principal and interest on the Series 2009A and 2009B Bonds. The Sublease has successive annual renewals without action from either party through the period ending March 31, 2034. The Sublease is subject to early termination by Nanotechnology or the ASU upon the payment in full of the Series 2009A and 2009B Bonds. Upon termination or expiration of the Sublease, the ACFFC's interest in the premises, including all buildings and improvements on the leased premises, transfers to the ASU without further consideration. ACFFC's net investment in the Nanotechnology facility direct financing lease is $34.200 million at June 30, 2010. Pursuant to the ASU Lease Agreement, dated July 1, 2005, McAllister Academic Village, LLC, a wholly-owned subsidiary of ACFFC, leases its interest in the non-residential portion of Hassayampa Academic Village (Hassayampa, HAV) to the ASU which consists of the academic, tutorial, retail, and food service facilities. The lease was amended effective September 1, 2008 to change the annual renewal period through June 30, 2039 to correspond with the maturity of the Hassayampa 2008 Bonds. Any right, title, or interest of Hassayampa in and to the academic portions of the Hassayampa project will pass to the ASU without further cost upon payment in full of the Hassayampa 2008 Bonds. Lease payments are based on the fixed interest rates determined by the Hassayampa 2008 Bonds maturity schedule. ACFFC's net investment in the McAllister (HAV) direct financing lease is $12.400 million at June 30, 2010. 3. NACFFC On May 19, 2005, the NAU entered into a lease purchase agreement with 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 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. - 122 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 F. CAPITAL ASSETS Capital asset activity for the UMC for the fiscal year ended June 30, 2010 was as follows (expressed in thousands): University Medical Center Adjustments & Ending Reclassifications Balance Beginning Balance Non-depreciable capital assets: Land Construction in progress Total Non-depreciable Capital Assets $ 11,692 102,756 114,448 Additions $ 56,517 56,517 Retirements $ - $ 165 (143,645) (143,480) $ 11,857 15,628 27,485 Depreciable capital assets: Buildings Improvements other than buildings Equipment Total Depreciable Capital Assets 241,389 864 156,970 399,223 3,900 17 8,420 12,337 (22) (6,089) (6,111) 121,456 (162) 22,186 143,480 366,745 697 181,487 548,929 Less accumulated depreciation for: Buildings Improvements other than buildings Equipment Total Accumulated Depreciation (121,864) (412) (121,845) (244,121) (10,123) (43) (15,048) (25,214) 6,040 6,040 - (131,987) (455) (130,853) (263,295) 155,102 (12,877) (71) 143,480 285,634 Total Depreciable Capital Assets, Net Total UMC Capital Assets, Net $ 269,550 $ 43,640 $ (71) $ - $ 313,119 Capital assets for the Universities-affiliated component units for the fiscal year ended June 30, 2010 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 7,860 25,257 (6,501) $ 18,756 ACFFC $ 202,983 52,795 23,263 729 279,770 (46,629) $ 233,141 Downtown Phoenix Student Housing $ 113,900 10,280 124,180 (7,017) $ 117,163 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. During fiscal year 2010, the WIFA issued Water Quality Revenue Bonds, Series 2009A (2009A Bonds) for $148.785 million. The 2009A Bonds include $148.785 million of serial bonds due in annual installments through final maturity of fiscal year 2030, with interest rates ranging from 2.00% to 5.00%. The 2009A Bonds were sold to provide financial assistance to entities throughout the State for various wastewater treatment facilities pursuant to the Federal Water Pollution Control Act of 1972, as amended by the Water Quality Act of 1987. The 2009A Bonds were sold at a net original issue premium of $12.228 million. In July 2009, the WIFA issued $39.655 million of Water Quality Revenue Refunding Bonds Series 2009A to do an advance refunding on the remainder of the 1996A and 1999A bonds. Under the terms of the refunding issue, sufficient assets to pay all principal and interest on the refunded bond issues have been placed in irrevocable trust accounts at commercial banks and - 123 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 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 redemption date was September and October 2009, so the amount outstanding on those defeased bonds, as of June 30, 2010, is zero. The advance refunding was done in order to reduce debt payments. The refunding issue decreased the WIFA’s total debt service payments by approximately $3.600 million. The transaction resulted in an economic loss of approximately $499 thousand. 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, 2010 totaled $62.995 million. The $6.317 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, 2010 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, 2010 is $4.516 million. Further, bond issuance costs are amortized over the life of the bond and offset to interest expense. The amortization for the ended June 30, 2010 is $760 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 $20.072 million at June 30, 2010, are held by the trustee and are reflected as restricted investments held by trustee in the accompanying financial statements. These principally consist of money market investments, collateralized by U.S. 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. - 124 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 Summary of Revenue Bonds The following schedule summarizes revenue bonds outstanding at June 30, 2010 (expressed in thousands): Revenue Bonds Outstanding Component Units: Water Infrastructure Finance Authority University Medical Center Arizona Power Authority Rio Nuevo Multipurpose Facilities Dist Dates Issued Maturity Dates Interest Rates 2001-2010 1993-2009 2001-2004 2006-2009 2011-2030 2011-2040 2011-2018 2011-2025 2.00-5.38% 4.82-6.48% 5.00-5.25% 4.90-6.6% Outstanding Balance at June 30, 2010 $ 857,910 282,745 41,750 83,010 Principal and interest debt service payments on revenue bonds outstanding at June 30, 2010 are as follows (expressed in thousands): Fiscal Year 2011 2012 2013 2014 2015 2016-2020 2021-2025 2026-2030 Total Fiscal Year 2011 2012 2013 2014 2015 2016-2018 Total Annual Debt Service Water Infrastructure Finance Authority Principal Interest Total $ 36,995 45,125 41,470 42,250 43,495 246,950 269,535 132,090 $ 857,910 $ 40,094 38,353 36,458 34,547 32,578 129,240 65,238 13,138 $ 389,646 $ $ Annual Debt Service Arizona Power Authority Principal Interest $ 4,220 4,585 4,810 5,065 5,330 17,740 $ 41,750 $ 2,064 1,845 1,603 1,344 1,071 1,429 $ 9,356 Fiscal Year 77,089 83,478 77,928 76,797 76,073 376,190 334,773 145,228 1,247,556 Total $ $ 2011 2012 2013 2014 2015 2016-2020 2021-2025 2026-2030 2031-2035 2036-2040 Total Fiscal Year 6,284 6,430 6,413 6,409 6,401 19,169 51,106 2011 2012 2013 2014 2015 2016-2020 2021-2025 Total - 125 - Annual Debt Service University Medical Center Principal Interest $ 4,295 4,515 5,555 5,845 6,145 36,165 47,640 61,435 79,435 31,715 $ 282,745 Total $ 15,059 14,846 14,621 14,365 14,075 65,439 55,251 41,818 24,284 4,986 $ 264,744 $ $ 19,354 19,361 20,176 20,210 20,220 101,604 102,891 103,253 103,719 36,701 547,489 Annual Debt Service Rio Nuevo Multipurpose Facilities District Principal Interest Total $ 3,120 3,290 5,295 3,870 4,020 23,750 39,665 $ 83,010 $ 4,974 4,812 4,641 4,349 4,137 17,210 9,031 $ 49,154 $ 8,094 8,102 9,936 8,219 8,157 40,960 48,696 $ 132,164 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 c. 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, 2009 Increases Decreases Balance June 30, 2010 Due Within One Year Due Thereafter $ 742,840 48,603 (6,372) 785,071 $ 188,440 13,921 (498) 201,863 $ (73,370) (4,516) 554 (77,332) $ 857,910 58,008 (6,316) 909,602 $ 36,995 36,995 $ 820,915 58,008 (6,316) 872,607 65 65 76 76 (56) (56) 85 85 85 85 - Total Long-term Obligations $ 785,136 $ 201,939 $ (77,388) $ 909,687 $ 37,080 $ 872,607 University Medical Center: Long-term Debt: Revenue bonds Revenue bond premium and discounts Total Long-term Debt $ 286,890 (2,902) 283,988 $ $ (4,145) 69 (4,076) $ 282,745 (2,833) 279,912 $ 4,295 4,295 $ 278,450 (2,833) 275,617 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 - 14,569 4,693 19,262 10,166 468 10,634 (9,574) (2,399) (11,973) 15,161 2,762 17,923 9,036 9,036 6,125 2,762 8,887 $ 303,250 $ 10,634 $ (16,049) $ 297,835 $ 13,331 $ 284,504 $ $ $ $ $ $ Other Long-term Liabilities: Compensated absences Total Other Long-term Liabilities 45,565 1,457 (994) 46,028 71 71 - (3,815) (293) 200 (3,908) 51 51 Total Long-term Obligations $ 46,099 $ 51 Rio Nuevo Multipurpose Facilities District: Long-term Debt: Revenue bonds Certificates of participation City of Tucson loan Premiums and discounts on debt $ 83,610 10,085 6,752 (1,062) $ 12,560 (147) Total Long-term Obligations $ 99,385 $ 12,413 - 126 - (61) (61) $ $ 41,750 1,164 (794) 42,120 61 61 4,220 4,220 61 61 37,530 1,164 (794) 37,900 - (3,969) $ 42,181 $ 4,281 $ 37,900 (600) (3,200) (5,036) 4 $ 83,010 19,445 1,716 (1,205) $ 3,120 3,360 1,716 - $ 79,890 16,085 (1,205) $ 102,966 $ 8,196 $ 94,770 $ (8,832) STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 2. Universities-Affiliated Component Units A summary of bonds payable as of June 30, 2010 include the following (expressed in thousands): Final Maturity Amount ASU Foundation: Series 2004A Variable Rate Revenue Bonds 2034 Series 2004B Variable Rate Revenue Bonds 2022 9,855 Series 2003 Lease Revenue Bonds 2034 45,810 Capital Lease 2011 1,469 Series 2009 Revenue Bonds 2024 41,240 Series 2009A Lease Revenue Refunding Bonds 2034 22,955 Series 2009B Lease Revenue Refunding Bonds 2022 11,490 Series 2008 Revenue Bonds 2028 16,315 Series 2008 Revenue Refunding Bonds 2039 145,180 Series 2008 Variable Rate Demand Revenue Refunding Bonds 2030 51,005 Series 2005 Tax-Exempt Refunding Bonds 2035 16,005 Series 2003 Revenue Bonds 2035 13,120 Series 2002 Revenue Bonds 2018 22,760 Series 2000 Revenue Bonds 2032 9,885 $ 22,420 ACFFC: Unamortized Bond Discount (3,467) Downtown Phoenix Student Housing: Series 2007A&C Revenue Bonds 2042 Series 2007B Revenue Bonds 2012 785 Series 2007D Tax-Exempt Revenue Bonds 2042 22,700 119,040 Unamortized Bond Discount (1,221) NACFFC: Series 2008 Refunding Bonds 2033 35,845 North Campus Lease Revenue Serial and Term Bonds 2036 11,930 Unamortized Bond Discount (34) Scheduled future maturities of Universities-affiliated component units' bonds payable are as follows (expressed in thousands): Fiscal Year 2011 ASU Foundation $ 1,875 ACFFC $ 5,795 Downtown Phoenix Student Housing $ NACFFC - $ 850 2012 1,988 8,455 600 2013 1,755 8,995 655 985 2014 1,835 9,580 430 1,060 915 2015 1,940 10,225 610 1,135 Thereafter 70,161 303,438 140,230 42,830 Total $ 79,554 $ 346,488 $ 142,525 $ 47,775 H. CONDUIT DEBT During the year ended June 30, 2010, the Greater Arizona Development Authority (GADA) issued $23.370 million of Bonds, Series 2010A for public infrastructure projects in the City of Flagstaff and the City of Maricopa. 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 - 127 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 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, 2010, the remaining balance in the appropriations account was $12.483 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 $10.465 million in the Pledged Collateral Reserve Fund. As such, the Series 2010A bonds do not constitute a legal debt of the State and are not enforceable against the State. At June 30, 2010, the total outstanding face value of all bonds issued by the GADA was $379.465 million. I. RELATED PARTY TRANSACTIONS The UMC and the U of A both provide and receive services from each other under various contracts. Payments to the U of A by the UMC include mission and program support, resident and intern salaries, utilities, leases, ground maintenance, and various administrative functions. Amounts paid to the U of A for these services were approximately $28.853 million for the year ended June 30, 2010. At June 30, 2010, the amount outstanding for mission support agreements is $2.500 million. 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 $8.552 million for the year ended June 30, 2010. This amount is included in sales and charges for services in the accompanying financial statements. The UMC also has an agreement to provide health care services to members of an AHCCCS health plan owned by University Physicians Healthcare (UPH) called University Family Care (UFC). UFC, an AHCCCS-funded health maintenance organization (HMO), manages approximately 15,000 members. The UMC provides health care services to UFC members in the normal course of business. The UMC operates under a contract with UFC at rates that are substantially the same as rates received from other unaffiliated AHCCCS HMOs. Such rates are generally at or below the maximum rates established by AHCCCS and do not cover the UMC’s costs of providing care to UFC members. Sales and charges for services include $40.033 million from this payor, based on negotiated rates. During fiscal year 2010, AHCCCS committed approximately $31.000 million to the UMC related to the UMC’s eligible unreimbursed Indirect Medical Education (IME) costs. The availability of these funds was made possible due to the UMC’s unreimbursed IME costs and facilitated by matching funds made available by the U of A and Pima County. Pursuant to a separate but related agreement, the UMC agreed to pay $20.000 million of the funds in fiscal year 2010 to UPH in support of unreimbursed costs of residents and fellows incurred by UPH. At June 30, 2010, a receivable in the amount of $31.000 million is recorded in the accompanying financial statements. At June 30, 2010, accounts payable included $20.000 million due to UPH under this agreement. J. SUBSEQUENT EVENTS In June 2010, the ABOR created UA Healthcare, Inc. and approved a change in the UMC’s bylaws designating the newly formed UA Healthcare, Inc. as the UMC’s sole member and granting UA Healthcare certain reserved power and authority. Effective July 1, 2010, UA Healthcare, Inc. also controls the UPH. The UPH is a not-for-profit corporation created by the U of A in 1985 as the medical practice for physicians at the U of A’s College of Medicine. In connection with the establishment of UA Healthcare, Inc. as the sole member of the UMC and the controlling member of the UPH, the UMC and the UPH will be developing an integration plan to enhance the existing relationships between the UMC and the UPH. In July 2010, the WIFA issued $138.665 million of Water Quality Revenue Bonds, Series 2010A due in annual principal installments ranging from $2.500 million to $75.175 million, plus semi annual interest ranging from 2.00% to 5.00% through October 1, 2030. The WIFA also issued $42.325 million of Water Quality Revenue Refunding Bonds, Series 2010A due in annual principal installments beginning in October, 2017 and ranging from $7.765 million to $12.485 million, plus semi annual interest of 5.00% through October 1, 2020. - 128 - (This page intentionally left blank) REQUIRED SUPPLEMENTARY INFORMATION REQUIRED SUPPLEMENTARY INFORMATION STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS ADMINISTRATION, ARIZONA DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS 0 103,142 A=============================================A============================================A= 103,142 ADMINISTRATIVE ADJUSTMENTS 0 278,123 278,123 ADMINISTRATIVE ADJUSTMENTS 0 205 205 ADMINISTRATIVE ADJUSTMENTS 0 1,276 1,276 ARIZONA FINANCIAL INFORMATION SYSTEM 1,120,500 1,120,500 1,113,760 BUILDING RENEWAL FY00 - 01 10,186 10,186 0 BUILDING RENEWAL FY05 - 06 4,714 4,714 0 BUILDING RENEWAL FY06 - 07 36,907 36,907 0 BUILDING RENEWAL FY06 - 07 53,241 53,241 26,769 BUILDING RENEWAL FY07 - 08 1,212,841 1,212,841 1,205,765 BUILDING RENEWAL FY08 - 09 193,216 164,735 118,415 BUILDING RENEWAL FY09 - 10 1,000,000 960,000 238,555 CAPITOL MALL FIRE SYSTEM REPLACE 490,931 490,931 44,042 CASH TRANSFER TO GENERAL FUND 0 400,300 400,300 CASH TRANSFER TO GENERAL FUND 0 647,600 647,600 CASH TRANSFER TO GENERAL FUND 0 3,600,900 3,600,900 CASH TRANSFER TO GENERAL FUND 0 1,867,200 1,867,200 CASH TRANSFER TO GENERAL FUND 1,279,700 1,279,700 1,279,700 COUNTY ATTORNEYS IMMIGRATION ENFORCEMENT 2,430,000 1,216,800 715,000 189,752 189,752 1,876 2,867,300 2,867,300 2,867,300 0 1,700,000 1,700,000 273,045 273,045 0 4,354,000 4,354,000 4,318,381 DJC HVAC AND ELECTRICAL RENOVATIONS ENSCO FEDERAL GOVERNMENT REPAYMENT HB1464 PERSONNEL REFORM HRIS CERTIFICATE OF PARTICIPATION OPERATING LUMP SUM APPROPRIATION 5,590,700 4,801,200 3,052,384 OPERATING LUMP SUM APPROPRIATION 14,064,000 10,530,700 8,241,570 OPERATING LUMP SUM APPROPRIATION 19,214,300 11,133,300 10,831,946 OPERATING LUMP SUM APPROPRIATION 1,258,000 1,266,100 982,021 OPERATING LUMP SUM APPROPRIATION - COSF 5,200,700 5,200,700 5,200,536 OPERATING LUMP SUM OPERATING - FED SURP 449,300 453,300 99,905 PLTO 1 BACKFILL AGENCY RELOCATIONS 243,490 243,490 0 PLTO 1 BACKFILL SPACE RENOVATIONS 106,402 106,402 0 PLTO 1 BACKFILL SPACE RENOVATIONS 348,161 348,161 0 PLTO 1 PROJECT MANAGEMENT 55,659 55,659 0 PRISON CELL LOCKS/DOOR REPLACEMENT GF 88,022 88,022 0 RELOCATION 0 58,149 0 RELOCATION 60,000 60,000 0 The Notes to Required Supplementary Information are an integral part of this schedule. (Continued) - 133 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) RELOCATION FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 60,000 60,000 53,587 RELOCATION FY00 - 01 0 60,000 0 RELOCATION FY01 - 02 0 59,026 0 RELOCATION FY99 - 00 46,526 46,526 0 STATE BOARDS LUMP SUM APPROPRIATION 284,200 285,200 208,425 3,000,000 2,352,400 587,330 851,800 851,800 851,739 UTILITIES 7,349,900 7,349,900 6,686,028 UTILITIES 625,700 625,700 625,700 OPERATING LUMP SUM APPROPRIATION 999,700 933,300 933,300 OPERATING LUMP SUM APPROPRIATION 14,500 14,500 14,500 0 6,465 6,465 STATE SURPLUS PROPERTY SALES PROCEEDS SW TELECOMMUNICATIONS MGT CONTRACT LEASE ADMINISTRATIVE HEARINGS, OFFICE OF AGRICULTURE, ARIZONA DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS AG CONSULTING AND TRAINING PARI-MUTUAL 128,500 128,500 126,609 AGRICULTURAL EMPLOYMENT RELATIONS BOARD 23,300 19,805 19,805 ANIMAL DAMAGE CONTROL 65,000 65,000 65,000 11,528,900 8,341,295 8,335,179 23,200 23,200 23,200 ADMINISTRATIVE ADJUSTMENTS 0 7,996,389 7,996,389 ADMINISTRATIVE ADJUSTMENTS 0 710,250 710,250 ADMINISTRATIVE ADJUSTMENTS 0 24,764,557 24,764,557 ADMINISTRATIVE ADJUSTMENTS 0 402,956 402,956 ADMINISTRATIVE ADJUSTMENTS 0 316 316 ADMINISTRATIVE ADJUSTMENTS 0 18,641 18,641 ADMINISTRATIVE ADJUSTMENTS 0 17,197,343 17,197,343 ADMINISTRATIVE ADJUSTMENTS 0 533,482 533,482 ADMINISTRATIVE ADJUSTMENTS 0 163,123 163,123 ADMINISTRATIVE ADJUSTMENTS 0 2,452 2,452 ADMINISTRATIVE ADJUSTMENTS 0 25,338,611 25,338,611 OPERATING LUMP SUM APPROPRIATION RED IMPORTED FIRE ANT AHCCCS - ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATIVE ADJUSTMENTS 0 9,663 9,663 BREAST AND CERVICAL CANCER 407,400 226,900 218,016 BREAST AND CERVICAL CANCER 1,292,200 1,292,200 711,113 BUDGET NEUTRALITY COMPLIANCE FUND 2,993,500 2,993,500 2,235,579 CAPITATION 1,642,435,400 1,480,890,700 1,479,836,591 CAPITATION 722,107,400 454,680,059 453,377,673 CASH REVERSION TO GENERAL FUND 0 112,607 112,607 CASH TRANSFER TO GENERAL FUND 0 1,426,000 1,426,000 The Notes to Required Supplementary Information are an integral part of this schedule. (Continued) - 134 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS CHIP - PARENTS 1,670,100 1,670,100 1,505,922 CHIP - PARENTS 5,297,400 5,297,400 4,879,134 CHIP - SERVICES 30,483,700 18,204,600 17,819,492 CHIP - SERVICES 104,032,800 67,941,500 67,590,695 CRITICAL ACCESS HOSPITALS 1,117,700 1,117,700 558,875 CRITICAL ACCESS HOSPITALS 582,300 409,240 204,595 DES ELIGIBILITY 26,467,600 26,320,700 21,816,653 DES ELIGIBILITY 29,220,700 29,323,600 17,862,153 DES TITLE XIX PASS THROUGH 154,000 262,700 147,700 DES TITLE XIX PASS THROUGH 203,800 319,800 166,491 DISPROPORTIONATE SHARE PAYMENTS 8,954,300 171,250 0 DISPROPORTIONATE SHARE PAYMENTS 21,395,700 4,552,300 0 DOA DATA CENTER CHARGES 1,724,700 2,483,300 2,430,326 DOA DATA CENTER CHARGES 3,992,800 5,874,400 5,769,823 FEE FOR SERVICE 416,918,100 445,193,500 436,851,725 FEE FOR SERVICE 105,858,600 96,131,030 80,717,626 GRADUATE MEDICAL EDUCATION 14,470,700 0 0 GRADUATE MEDICAL EDUCATION 27,604,600 0 0 INDIAN ADVISORY COUNCIL 116,300 117,100 98,585 INDIAN ADVISORY COUNCIL 116,600 104,900 101,078 KIDSCARE ADMINISTRATION 5,595,600 6,428,500 5,347,572 KIDSCARE ADMINISTRATION 1,764,100 1,733,600 1,639,307 LONG TERM CARE BOARD OF NURSING 104,800 104,800 104,800 LONG TERM CARE BOARD OF NURSING 104,900 104,900 104,800 MEDICAL CLAWBACK PAYMENTS - ACUTE CARE 31,925,600 20,965,952 20,965,952 MEDICAL CLAWBACK PAYMENTS - LTC 12,501,700 8,216,936 8,216,935 MEDICAL CLAWBACK PAYMENTS - LTC 10,454,600 6,860,011 6,860,010 MEDICARE PREMIUMS 73,242,700 75,992,700 75,825,360 MEDICARE PREMIUMS 31,307,300 22,458,842 22,454,529 45,368 45,368 0 NEW AND EXPANDED GRADUATE MED ED PROGRAM 958,535 958,535 0 NEW AND EXPANDED GRADUATE MED ED PROGRAM MENTAL HEALTH - ADULTS 4,494,824 4,494,824 0 OFFICE OF ADMINISTRATIVE HEARINGS 271,300 272,700 229,951 OPERATING LUMP SUM APPROPRIATION 0 29 0 OPERATING LUMP SUM APPROPRIATION 41,521,800 38,635,900 30,835,300 OPERATING LUMP SUM APPROPRIATION 28,560,600 24,305,550 24,191,474 OPERATING LUMP SUM APPROPRIATION 1,098,657,600 1,098,619,089 1,000,916,515 OPERATING LUMP SUM APPROPRIATION 168,052,400 114,305,941 114,305,941 The Notes to Required Supplementary Information are an integral part of this schedule. (Continued) - 135 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS PROP 204 ADMIN OPER 100% FPL EXPANSION 4,678,100 5,224,100 4,761,914 PROP 204 ADMIN OPER 100% FPL EXPANSION 0 5 0 PROP 204 ADMIN OPER 100% FPL EXPANSION 4,724,800 3,937,000 3,594,300 PROP 204 CAPITATION 48,996,700 40,367,900 40,367,900 PROP 204 CAPITATION 1,411,264,200 1,314,690,000 1,308,327,487 PROP 204 CAPITATION 118,280,200 108,211,300 105,394,083 PROP 204 CAPITATION 555,523,900 312,373,058 306,145,090 4,825,600 4,825,600 4,825,600 PROP 204 COUNTY HOLD HARMLESS PROP 204 FEE-FOR-SERVICE 47,238,800 45,582,814 37,697,912 PROP 204 FEE-FOR-SERVICE 183,312,600 223,812,600 222,871,924 PROP 204 MEDICARE 21,732,900 22,982,900 22,927,375 PROP 204 PASS THROUGH ADMIN 21,854,900 18,036,800 18,036,800 PROP 204 PASS THROUGH ADMIN 18,737,300 18,895,500 15,774,600 PROP 204 REINSURANCE 29,998,400 30,872,521 20,532,178 PROP 204 REINSURANCE 57,603,500 62,603,500 59,502,417 REINSURANCE 44,389,000 56,716,600 42,597,235 REINSURANCE 85,232,800 124,132,800 107,837,167 RURAL HOSPITAL REIMBURSEMENT 7,994,600 7,994,600 0 RURAL HOSPITAL REIMBURSEMENT 4,163,500 2,926,400 0 TICKET TO WORK 4,566,200 4,566,200 4,115,758 TICKET TO WORK 2,378,100 1,470,416 1,456,407 3,472,679 2,766,172 2,766,172 35,657,491 27,670,791 27,670,791 ARIZONA STATE UNIVERSITY BIOMEDICAL INFORMATICS DOWNTOWN PHOENIX CAMPUS OPERATING LUMP SUM APPROPRIATION - MAIN 379,025,264 246,063,198 246,063,197 OPERATING LUMP SUM APPROPRIATION-EAST 32,305,307 21,382,636 21,382,636 OPERATING LUMP SUM APPROPRIATION-WEST 58,305,716 38,898,202 38,898,202 RESEARCH INFRASTRUCTURE LEASE-PURCH PYMT 0 12,481,636 12,481,636 RESEARCH INFRASTRUCTURE LPP-POLYTECHNIC 0 844,387 844,387 ARTS, ARIZONA COMMISSION ON THE ADMINISTRATIVE ADJUSTMENTS 0 212 212 CASH TRANSFER TO GENERAL FUND 0 115,400 115,400 1,263,100 287,700 287,700 667,700 534,800 534,793 COMMUNITY SERVICE PROJECTS OPERATING LUMP SUM APPROPRIATION ATTORNEY GENERAL - DEPARTMENT OF LAW ADMINISTRATIVE ADJUSTMENTS LEGAL ARIZONA WORKERS ACT MILITARY INSTALLATION/PLANNING MILITARY INSTALLATION/PLANNING FY08-09 The Notes to Required Supplementary Information are an integral part of this schedule. 0 57,062 57,062 100,000 100,000 0 0 99,900 99,900 25,525 25,525 25,525 (Continued) - 136 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS OPERATING LUMP SUM APPROPRIATION 22,828,400 17,690,000 17,495,777 OPERATING LUMP SUM APPROPRIATION 13,378,800 13,440,400 11,330,076 179,000 178,900 178,900 17,502,600 16,533,100 14,333,681 OPERATING LUMP SUM APPROPRIATION FY07-08 190,889 190,889 0 OPERATING LUMP SUM APPROPRIATION FY08-09 276,872 276,872 0 0 2,000 2,000 680,600 646,300 645,687 STATE GRAND JURY AUDITOR GENERAL OPERATING LUMP SUM APPROPRIATION CAPITAL POSTCONVICTION PUBLIC DEFENDER OFFICE, STATE ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION CHARTER SCHOOLS, STATE BOARD FOR ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION 0 4,265 4,265 823,900 823,100 720,745 148,000 148,000 148,000 26,747 26,747 0 CHIROPRACTIC EXAMINERS, STATE BOARD OF GENERAL FUND TRANSFER TO AGENCY FUND COMMERCE, DEPARTMENT OF AGRICULTURE PRESERVATION DISTRICT APPRENTICESHIP SERVICES OFFICE 189,900 189,900 187,155 AZ 21ST CENTURY COMPETITIVE INITIAT FUND 0 18,474,923 18,474,923 CASH TRANSFER TO GENERAL FUND 0 803,900 803,900 COMMERCE AND ECON DEVELOPMENT COMMISSION 866,122 866,122 0 INTERNATIONAL TRADE OFFICES 749,800 749,800 606,569 50,000 50,000 0 MILITARY INSTALLATION GF TRANSFER 0 1,879,500 1,879,500 MILITARY INSTALLATION OPERATING MILITARY BASE ECONOMIC RESEARCH STUDY 0 75,000 74,929 MILITARY INSTALLATION OPERATING FY05-06 6,172 6,172 0 MILITARY INSTALLATION OPERATING FY06-07 5,114 5,114 0 MILITARY INSTALLATION OPERATING FY07-08 6,820 6,820 0 MILITARY INSTALLATION OPERATING FY08-09 813 813 0 MOTION PICTURE PROD TAX INCENTIVE ADMIN 0 337,700 0 OPERATING LUMP SUM APPROPRIATION 144,700 145,400 0 OPERATING LUMP SUM APPROPRIATION 3,392,900 499,300 496,716 340,100 340,100 325,860 OPERATING LUMP SUM APPROPRIATION 1,343,600 589,100 588,797 OPERATING LUMP SUM APPROPRIATION 51,100 51,800 47,703 RAILROAD WARNING SYSTEMS 47,510 47,510 0 0 4,103,064 4,103,064 177,000 157,600 124,000 RURAL ECONOMIC DEVELOPMENT CORPORATION COMMISSION CORRECTIONS, STATE DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS ALL OTHER PS AND ERE The Notes to Required Supplementary Information are an integral part of this schedule. (Continued) - 137 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS ALL OTHER PS AND ERE 200 200 200 ALL OTHER PS AND ERE 403,000 349,700 348,930 CASH TRANSFER TO GENERAL FUND 0 171,300 171,300 CASH TRANSFER TO GENERAL FUND 0 135,700 135,700 CORRECTIONAL OFFICER EMPLOYEE RELATED EXPENDITURES 128,135,500 130,849,900 130,332,529 CORRECTIONAL OFFICER PERSONAL SERVICES 253,382,100 249,362,100 245,988,835 866,200 366,200 364,620 EMPLOYEE RELATED EXPENDITURES 27,913,300 27,769,700 26,714,037 HEALTH CARE ALL OTHER OPERATING EXP 59,038,400 70,168,200 63,962,650 HEALTH CARE EMPLOYEE RELATED EXPENDITURES 14,851,900 14,166,300 13,414,357 HEALTH CARE PERSONAL SERVICES 41,393,000 39,179,000 37,922,924 NEW STATE PRISONS BEDS 16,064,100 16,064,100 16,064,100 COUNTY JAIL BEDS NON-HEALTH CARE ALL OTHER OPERATING EXP 180,000 180,000 0 NON-HEALTH CARE ALL OTHER OPERATING EXP 123,309,400 123,309,400 120,781,395 OVERTIME COMPENSATORY TIME 13,420,100 9,441,700 8,511,923 PERSONAL SERVICES 66,324,000 62,880,900 61,719,468 PRIVATE PRISON PER DIEM 64,790,000 62,150,600 61,092,645 101,388,900 84,682,600 84,401,279 0 252,000 252,000 0 3,319 3,319 9,873,800 9,739,400 9,738,844 4,377,000 4,319,200 4,319,200 0 1,457,909 1,457,909 OPERATING LUMP SUM - ADMIN/STATEWIDE 4,707,700 4,134,017 4,061,266 OPERATING LUMP SUM - PHOENIX 3,671,200 3,418,222 3,190,030 OPERATING LUMP SUM - PRESCHOOL/OUTREACH 1,503,100 1,431,002 1,430,518 OPERATING LUMP SUM - REGIONAL COOPERATIVES 1,008,700 1,073,000 1,071,053 10,383,000 10,466,759 9,631,702 738,000 738,000 738,000 ADM ATTORNEY GENERAL LEGAL SERVICES 17,300 17,300 10,330 ADM ATTORNEY GENERAL LEGAL SERVICES 747,900 626,200 626,200 ADM ATTORNEY GENERAL LEGAL SERVICES 168,000 168,900 115,704 ADM FINGER IMAGING 461,300 461,600 461,600 ADM FINGER IMAGING 277,500 127,800 61,880 PROVISIONAL BEDS COSMETOLOGY, BOARD OF ADMINISTRATIVE ADJUSTMENTS COURT OF APPEALS DIVISION I ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION - DIV I COURT OF APPEALS DIVISION II OPERATING LUMP SUM - DIVISION II DEAF AND BLIND, ARIZONA SCHOOLS FOR THE ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM - TUCSON SCHOOL BUS REPLACEMENT-PHOENIX ECONOMIC SECURITY, DEPARTMENT OF The Notes to Required Supplementary Information are an integral part of this schedule. (Continued) - 138 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS ADM OPERATING LUMP SUM APPROPRIATION 823,600 837,500 407,346 ADM OPERATING LUMP SUM APPROPRIATION 4,271,400 4,272,800 4,272,800 ADM OPERATING LUMP SUM APPROPRIATION 26,540,900 22,109,900 22,109,900 1,000,000 1,000,000 1,000,000 271,500 271,500 0 0 225,000 0 ADM-HIGH PERFORMANCE BONUS 21,489 21,489 21,489 ADMIN FED REED ACT GRANT 4050 259,200 259,200 259,200 ADM STATEWIDE COST ALLOCATION PLAN FUND ADM TRIAGENCY DISASTER RECOVERY ADM WIA OPERATING LUMP SUM ADMINISTRATIVE ADJUSTMENTS 0 4,544 4,544 ADMINISTRATIVE ADJUSTMENTS 0 2,860,791 2,860,791 ADMINISTRATIVE ADJUSTMENTS 0 1,527,546 1,527,546 ADMINISTRATIVE ADJUSTMENTS 0 9,216 9,216 ADMINISTRATIVE ADJUSTMENTS 0 26,897 26,897 ADMINISTRATIVE ADJUSTMENTS 0 5,381,177 5,381,177 ADMINISTRATIVE ADJUSTMENTS 0 335,948 335,948 ADMINISTRATIVE ADJUSTMENTS 0 433,075 433,075 ADMINISTRATIVE ADJUSTMENTS 0 19,713,904 19,713,904 ADMINISTRATIVE ADJUSTMENTS 0 207,120 207,120 ADMINISTRATIVE ADJUSTMENTS 0 2,309,051 2,309,051 ADMINISTRATIVE ADJUSTMENTS 0 39,120 39,120 ADMINISTRATIVE ADJUSTMENTS 0 6,056,925 6,056,925 ADMINISTRATIVE ADJUSTMENTS 0 1,394,002 1,394,002 ADMINISTRATIVE ADJUSTMENTS 0 16,617 16,617 ADMINISTRATIVE ADJUSTMENTS 0 2,000,465 2,000,465 ADMINISTRATIVE ADJUSTMENTS 0 13,261 13,261 ADMINISTRATIVE ADJUSTMENTS 0 271,500 271,500 ADMINISTRATIVE ADJUSTMENTS 0 33,071 33,071 ADMINISTRATIVE ADJUSTMENTS 0 1,844,202 1,844,202 ADMINISTRATIVE ADJUSTMENTS 0 8,210,163 8,210,163 ADMINISTRATIVE ADJUSTMENTS 0 165,454 165,454 ADMINISTRATIVE ADJUSTMENTS 0 3,469,371 3,469,371 ADMINISTRATIVE ADJUSTMENTS 0 556,569 556,569 ADMINISTRATIVE ADJUSTMENTS 0 259,200 259,200 ADMINISTRATIVE ADJUSTMENTS 0 3,236,500 3,236,500 ADMINISTRATIVE ADJUSTMENTS 0 1,498,319 1,498,319 ADMINISTRATIVE ADJUSTMENTS 0 299,820 299,820 ADMINISTRATIVE ADJUSTMENTS 0 1,394,179 1,394,179 ADMINISTRATIVE ADJUSTMENTS 0 13,010 13,010 The Notes to Required Supplementary Information are an integral part of this schedule. (Continued) - 139 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS ADMINISTRATIVE ADJUSTMENTS 0 217,195 217,195 ADMINISTRATIVE ADJUSTMENTS 0 2,657,001 2,657,001 ADMINISTRATIVE ADJUSTMENTS 0 33,030 33,030 ADMINISTRATIVE ADJUSTMENTS 0 3,788,513 3,788,513 ADMINISTRATIVE ADJUSTMENTS 0 1,076,995 1,076,995 ADMINISTRATIVE ADJUSTMENTS 0 438,524 438,524 ADMINISTRATIVE ADJUSTMENTS 0 700,295 700,295 ADMINISTRATIVE ADJUSTMENTS 0 53,512,046 53,512,046 ADMINISTRATIVE ADJUSTMENTS 0 1,127,712 1,127,712 ADMINISTRATIVE ADJUSTMENTS 0 34,172 34,172 ADMINISTRATIVE ADJUSTMENTS 0 735,752 735,752 ADMINISTRATIVE ADJUSTMENTS 0 535,356 535,356 ADMINISTRATIVE ADJUSTMENTS ASSISTIVE TECHNOLOGY CASH TRANSFER TO GENERAL FUND CCA SLIDING FEE SCALES TANF CPS APPEALS 0 55,073 55,073 200,000 0 0 0 796,900 796,900 2,423,734 2,423,734 0 732,300 698,100 698,100 18,977,700 14,497,400 13,662,770 DACS COMMUNITY AND EMERGENCY SERVICES 5,424,900 4,549,000 3,531,019 DACS COORDINATED HOMELESS PROGRAM 1,155,400 873,100 815,370 DACS COORDINATED HOMELESS PROGRAM DACS ADULT SERVICES 1,649,500 1,649,500 1,469,096 DACS COORDINATED HUNGER PROGRAM 500,000 500,000 318,878 DACS COORDINATED HUNGER PROGRAM 1,514,600 1,254,600 1,187,887 DACS DOMESTIC VIOLENCE PREVENTION 7,626,700 4,808,000 4,637,451 DACS DOMESTIC VIOLENCE PREVENTION 6,620,700 6,620,700 6,302,449 DACS LIFESPAN RESPITE CARE PROGRAM 28,549 28,549 28,549 390,633 390,633 377,336 DACS NAVAJO NATION SENIOR CENTERS 45,000 45,000 45,000 DACS NAVAJO SENIOR CENTER 45,911 45,911 45,911 DACS NAVAJO SENIOR CENTERS-BIRDSPRINGS 65,000 65,000 65,000 DACS NAVAJO SENIOR CENTERS-WHITE CONE 18,190 18,190 18,190 DACS OPERATING LUMP SUM APPROPRIATION 7,048,500 5,240,600 5,240,600 247,600 248,800 170,688 46,351 46,351 46,351 DAY CARE SUBSIDY 82,485,800 95,485,800 90,387,912 DAY CARE SUBSIDY CARE TANF 15,083,100 2,717,800 2,437,164 DBME OPERATING LUMP SUM APPROPRIATION 25,716,800 25,573,300 25,573,300 DBME OPERATING LUMP SUM APPROPRIATION 14,940,200 11,021,000 9,788,863 DACS NAVAJO NATION MULTIPURPOSE FACILITY DACS OPERATING LUMP SUM TANF DACS TRIBAL SENIOR CENTERS - NAVAJO The Notes to Required Supplementary Information are an integral part of this schedule. (Continued) - 140 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS DBME TANF CASH BENEFITS 41,242,700 11,970,800 11,970,800 DBME TANF CASH BENEFITS 80,630,700 96,498,900 75,343,473 5,192,300 4,680,300 2,344,953 32,200 12,200 2,336 DBME TRIBAL PASS-THRU FUNDING DBME TUBERCULOSIS CONTROL DCFS INTENSIVE FAMILY SERVICES 1,985,600 0 0 DCSE ATTORNEY GENERAL LEGAL SERVICES 887,500 678,300 678,300 DCSE ATTORNEY GENERAL LEGAL SERVICES 9,901,400 9,607,500 7,141,019 DCSE COUNTY PARTICIPATION 8,645,200 8,600,200 7,116,594 DCSE GENETIC TESTING 122,400 52,400 52,400 DCSE GENETIC TESTING 360,000 290,000 104,157 DCSE OPERATING LUMP SUM APPROPRIATION 49,513,700 46,661,300 35,094,739 DCSE OPERATING LUMP SUM APPROPRIATION 7,958,600 5,370,200 5,370,200 DCYF ADOPT SVCS FAMILY PRESERVATION NR06 1,000,000 1,000,000 0 DCYF ADOPTION SERVICES (DCFS) 35,942,200 35,442,200 35,442,200 DCYF ADOPTION SERVICES TANF 19,302,400 19,302,400 17,349,876 DCYF ATTORNEY GENERAL LEGAL SERVICES 12,116,600 10,856,400 10,856,400 DCYF ATTORNEY GENERAL LEGAL SERVICES 52,200 52,300 0 DCYF CHILD SUPT SVCS TANF - SSBG 5,371,700 5,371,700 3,249,698 DCYF CHILDREN SUPPORT SVCS - GF 40,403,300 26,733,500 26,733,500 DCYF CHILDREN SUPPORT SVCS - TANF 24,557,400 20,057,400 1,739,192 2,057,000 1,757,000 1,757,000 700,000 200,000 25,000 DCYF EMER PLCMT TANF - SSBG 2,333,700 2,333,700 1,362,900 DCYF EMERGENCY PLACEMENT - GF 2,180,100 1,520,800 1,520,800 DCYF COMPREHENSIVE MED & DENTAL (DCFS) DCYF EDUCATION AND TRAINING VOUCHERS DCYF EMERGENCY PLACEMENT - TANF 672,700 672,700 589,186 DCYF FAMILY BUILDERS TANF (DCYJ) 5,200,000 0 0 DCYF FOS CARE PLACEMENT TANF - SSBG 5,074,400 5,074,400 4,513,820 DCYF FOSTER CARE PLACEMENT - GF 17,139,500 14,689,500 14,616,385 DCYF FOSTER CARE PLACEMENT - TANF 1,148,700 1,148,700 1,031,706 DCYF HEALTHY FAMILIES (TANF) 5,034,200 0 0 400,000 0 0 2,719,300 2,719,300 2,719,300 DCYF HOMELESS YOUTH INTERVENTION DCYF INDEPENDENT LIVING MAINT DCYF JOINT SUB ABUSE TREAT-GF 5,224,500 4,138,900 3,549,790 DCYF OPERATING LUMP SUM APPROPRIATION 38,112,300 38,301,300 33,481,979 DCYF OPERATING LUMP SUM APPROPRIATION 64,056,100 56,617,700 56,617,700 DCYF PERM GUARD SUBSIDY 1,743,000 1,743,000 1,307,250 DCYF PERMANENT GUARDIANSHIP SUBSIDY 7,192,300 7,072,300 7,021,904 DCYF RESIDENT PLACEMENT TANF - SSBG 9,833,300 9,833,300 9,753,574 The Notes to Required Supplementary Information are an integral part of this schedule. (Continued) - 141 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS DCYF RESIDENTIAL PLACEMENT - GF 6,543,400 4,257,900 4,257,900 DCYF RESIDENTIAL PLACEMENT - TANF 1,333,300 1,333,300 1,327,344 DCYF SUBSTANCE ABUSE TREATMENT (TANF) 2,000,000 2,000,000 1,292,479 700,000 500,000 130,306 2,041,700 1,343,700 0 566,400 69,300 68,792 4,496,000 3,855,000 3,491,500 20,849,400 10,362,300 8,172,092 DDD HOME&COMM BASED SYS (TFLTC) 848,100 848,100 0 DDD INSTITUTIONAL SERVICES 294,900 144,900 5,106 DDD OPERATING LUMP SUM APPROPRIATION 17,883,400 12,894,700 12,664,000 DDD STATE FUNDED LTC SERVICES 25,620,400 26,195,300 19,810,812 DCYF-ADOPTION SVC FAMILY PRES PROJECT DDD ARIZONA EARLY INTERVENTION PROGRAM DDD ARIZONA TRAINING PROGRAM AT COOLIDGE DDD CASE MANAGEMENT DDD HOME AND COMMUNITY BASED SERVICES DDD STATE FUNDED LTC SERVICES 762,900 2,062,900 1,958,092 81,295,100 11,060,300 11,060,300 DERS JOBS 2,000,000 2,000,000 187,294 DERS OPERATING LUMP SUM - REED ACT GRANT 3,236,500 3,265,000 3,265,000 DERS DAYCARE SUBSIDY DERS OPERATING LUMP SUM - WIA 2,283,700 2,300,200 0 DERS OPERATING LUMP SUM APPROPRIATION 10,259,700 6,557,600 6,018,044 DERS OPERATING LUMP SUM APPROPRIATION 6,650,200 6,656,600 2,329,326 DERS OPERATING LUMP SUM APPROPRIATION 10,839,300 10,915,000 9,948,638 DERS WIA DISCRETIONARY DERS WORKFORCE INVESTMENT ACT PROGRAMS HEALTHY FAMILIES INDEPENDENT LIVING REHABILITATION SVCS 3,614,000 3,614,000 1,457,883 63,040,600 62,815,600 58,025,861 5,715,800 0 0 784,200 786,000 720,401 JOBS 1,715,200 161,000 161,000 JOBS 13,866,000 9,894,700 8,821,472 LTC ARIZONA TRAINING PROGRAM AT COOLIDGE 17,018,800 16,709,900 13,915,068 5,783,200 4,013,400 3,991,600 LTC AZ TRAINING PROGRAM COOLIDGE LTC CASE MANAGEMENT 14,471,500 8,611,000 8,559,100 LTC CASE MANAGEMENT 42,509,800 41,350,300 28,705,023 LTC HOME AND COMMUNITY BASED SERVICES 236,252,000 138,459,400 138,421,300 LTC HOME AND COMMUNITY BASED SERVICES 671,950,900 645,986,600 509,917,183 LTC INSTITUTIONAL SERVICES 15,873,000 21,787,500 16,705,294 LTC INSTITUTIONAL SERVICES 5,430,900 6,143,600 6,116,100 LTC MEDICAL SERVICES 142,813,300 139,089,800 120,585,987 LTC MEDICAL SERVICES 48,904,800 30,818,500 30,777,400 LTC MEDICARE CLAWBACK PAYMENTS LTC OPERATING LUMP SUM APPROPRIATION The Notes to Required Supplementary Information are an integral part of this schedule. 2,456,100 1,612,000 1,604,027 46,396,500 44,999,700 31,308,143 (Continued) - 142 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS SPECIAL SUPPLEMENTAL APPROPRIATION 25,000,000 25,000,000 25,000,000 TRANSITIONAL CHILD CARE 36,193,000 23,193,000 19,653,325 4,514,400 3,094,400 3,094,400 7,896,600 5,568,382 5,568,382 ADDITIONAL STATE AID TO SCHOOLS 0 231,187,643 231,187,643 ADMINISTRATIVE ADJUSTMENTS 0 5,495 5,495 ADULT EDUCATION ASSISTANCE 4,477,900 1,698,735 1,698,735 AIMS INTERVENTION; DROPOUT PREVENTION 5,050,000 2,035,943 2,035,943 VOCATIONAL REHABILITATION SERVICES EDUCATION, DEPARTMENT OF ACHIEVEMENT TESTING BASIC STATE AID DEFERRED PAYMENT FY08 602,627,700 602,627,700 600,255,933 0 2,233,269,457 2,229,249,414 BASIC STATE AID REDUCED APPORTION COSTS 886,200 886,200 0 CHEMICAL ABUSE 817,100 238,543 238,543 10,000,000 4,863,991 4,863,991 4,805,800 4,121,016 4,121,016 793,576 793,576 414,301 0 8,791,400 8,791,400 BASIC STATE AID ENTITLEMENT COMPENSATORY INSTRUCTION FUND DEPOSIT ENGLISH LANGUAGE ACQUISITION ENGLISH LANGUAGE ACQUISITION FY06 - 07 ENGLISH LANGUAGE INSTRUCTION ENGLISH LEARNER INSTRUCTION FY04 - 05 0 0 -477,213 1,805 1,805 1,734 ENGLISH LEARNER TEACHER FY02 - 03 25,332 25,332 6,755 ENGLISH LEARNER TEACHER FY04 - 05 461,800 461,800 -197,098 ENGLISH LEARNER MATERIAL EXTENDED SCHOOL YEAR 500,000 0 0 FAMILY LITERACY 1,008,700 360,242 360,242 GIFTED SUPPORT 3,377,000 726,809 726,809 2,806 2,806 0 1,095,000 656,572 656,572 217,700 132,892 132,892 6,469,600 6,100,047 6,100,047 MATH AND SCIENCE INITIATIVES NON-FORMULA PROGRAMS-OPERATING '09 NON-FORMULA PROGRAMS-OPERATING '09 (TEACHER CERTIFICATION FUND) OPERATING LUMP SUM - ADMINISTRATION OPERATING LUMP SUM - FORMULA PROGRAMS 0 1,735,325 1,735,325 OPERATING LUMP SUM APPROPRIATION 692,500 539,420 539,420 OPERATING LUMP SUM APPROPRIATION (TEACHER CERTIFICATION FUND) 453,700 353,726 353,726 OPTIONAL PERFORMANCE INCENTIVE PROGRAMS 120,000 0 0 0 983,900 734,395 OTHER STATE AID TO DISTRICTS '07 PARENTAL CHOICE FOR READING SUCCESS 1,000,000 0 0 READING FIRST INITIATIVE 90,460 90,460 -7,012 SCHOOL ACCOUNTABILITY 39,400 0 0 SCHOOL SAFETY PROGRAM 6,718,900 5,210,387 3,918,904 109,185 109,185 109,185 SCHOOL SAFETY PROGRAM FY08-09 The Notes to Required Supplementary Information are an integral part of this schedule. (Continued) - 143 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) SMALL PASS-THROUGH PROGRAMS FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 100,000 0 0 SPECIAL EDUCATION FUND 35,237,700 35,242,655 35,242,655 STATE BLOCK GRANT FOR EARLY CHILDHD EDU 19,438,100 6,515,619 6,515,619 STATE BLOCK GRT FOR VOCATIONAL EDUCATION 11,467,700 11,503,942 11,503,942 1,971,400 1,796,982 1,796,982 600,000 238,472 238,472 0 275,000 271,954 12,775 12,775 12,775 TEACHER CERTIFICATION VOCATIONAL EDUCATION EXTENDED YEAR EMERGENCY AND MILITARY AFFAIRS, DEPARTMENT OF 2007 MONSOONS 2007 MONSOONS FY08-09 ADMINISTRATIVE ADJUSTMENTS ARMORY RESTROOM RENOVATION-FLAG/NOGALES ASPEN FIRE EMERGENCY CASH TRANSFER TO GENERAL FUND CIVIL AIR PATROL 0 2,441 2,441 74,840 74,840 74,840 860,800 860,800 329,328 0 600 600 54,700 0 0 0 200,000 156,714 24,214 24,214 23,785 690 690 690 FEBRUARY 2005 WINTER STORMS FY07-08 530,029 530,029 175,062 GUARDSMEN TUITION REIMBURSEMENT 1,446,000 0 0 HAZARD MATERIALS CONTINGENCY FY03-04 3,844 3,844 145 HAZARD MATERIALS CONTINGENCY FY07-08 554 EUZ701 SEARCH & RESCUE EUZ701 SEARCH FY08-09 FEBRUARY 2005 WINTER STORMS FY06-07 49,735 49,735 JANUARY 2008 SEVERE PRECIPITATION FY07-08 145,106 145,106 87,369 JANUARY 2008 SEVERE PRECIPITATION FY08-09 122,500 122,500 110,900 0 2,225,000 1,322,856 9,240 9,240 0 JANUARY 2010 WINTER STORM LA PAZ/MARICOPA COUNTIES STORM EMERGENCY LA PAZ/MARICOPA COUNTIES STORM EMERGENCY FY01-02 MILITARY GIFT PACKAGE POSTAGE MITIGATION PROJECTS 2004 EMERGENCY FUNDS NAVAJO, GILA & COCONINO CTS RODEO FIRE NOGALES & 52ND STREET BLDG RENEWAL 57,243 57,243 -13,007 100,000 0 0 77,390 77,390 73 327,281 327,281 217 12,032 12,032 12,032 NORTHERN ARIZONA WINTER STORM EMERGENCY FY07-08 9,247 9,247 9,247 NORTHERN ARIZONA WINTER STORM EMERGENCY FY08-09 147,862 147,862 50,464 NUCLEAR EMERGENCY MANAGEMENT FUND 0 420,749 420,749 NUCLEAR EMERGENCY MGMT FUND-BUCKEYE 0 69,909 69,909 NUCLEAR EMERGENCY MGMT FUND-MARICOPA 0 404,459 404,459 1,708 1,708 0 2,152,300 1,526,738 1,526,738 945,400 749,030 749,030 OFF SITE NUCLEAR EMERGENCY 89-90 OPERATING LUMP SUM - ADMINISTRATION OPERATING LUMP SUM - EMERGENCY MANAGEMENT The Notes to Required Supplementary Information are an integral part of this schedule. (Continued) - 144 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) OPERATING LUMP SUM - MILITARY AFFAIRS OPERATION GOOD NEIGHBOR PROJECT CHALLENGE PROGRAM REPLACE COOLING TOWER AT ROOSEVELT SEDONA FLASH FLOOD FY10 FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 1,554,600 1,434,600 1,432,841 152,516 152,516 -69 1,770,100 1,517,732 1,517,732 50,000 50,000 0 0 200,000 20,567 1,215,000 1,215,000 1,215,000 SUMMER 2006 MONSOONS & FLOODING FY06-07 176,550 176,550 170,027 SUMMER 2006 MONSOONS & FLOODING FY07-08 729,370 729,370 135,837 UNIFORM AND EQUIPMENT ALLOWANCES 250,000 250,000 250,000 ADMINISTRATIVE ADJUSTMENTS 0 76,824 76,824 ADMINISTRATIVE ADJUSTMENTS 0 540 540 381,400 0 0 SERVICE CONTRACTS ENVIRONMENTAL QUALITY, DEPARTMENT OF AIR QUALITY MANAGEMENT AND ANALYSIS CASH TRANSFER TO GENERAL FUND 0 5,385,600 5,385,600 125,700 0 0 OPERATING LUMP SUM APPROPRIATION 12,748,200 10,382,700 593,517 OPERATING LUMP SUM APPROPRIATION 3,132,100 5,772,100 5,770,300 UNDERGROUND WATER REGULATION PROGRAM 2,026,100 0 0 WASTE CONTROL AND MANAGEMENT 1,149,700 0 0 0 49 49 212,500 196,400 191,303 602,500 672,000 650,015 951,600 879,600 877,708 0 400,000 400,000 3,131,600 2,970,300 2,970,197 2,362,200 2,183,200 2,155,177 100,000 100,000 100,000 EQUALIZATION AID - COCHISE 7,841,800 7,841,800 7,841,800 EQUALIZATION AID - GRAHAM 17,465,400 17,465,400 17,465,400 EQUALIZATION AID - NAVAJO 6,624,000 6,624,000 6,624,000 EQUALIZATION AID - YUMA LA PAZ 2,938,300 2,938,300 2,938,300 0 101,633 101,633 DRINKING WATER REGULATION PROGRAM EQUAL OPPORTUNITY, GOVERNOR'S OFFICE OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION EQUALIZATION, STATE BOARD OF OPERATING LUMP SUM APPROPRIATION EXECUTIVE CLEMENCY, BOARD OF OPERATING LUMP SUM APPROPRIATION EXPOSITION & STATE FAIR BOARD, ARIZONA GENERAL FUND TRANSFER TO AGENCY FUND FINANCIAL INSTITUTIONS, DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION FIRE, BUILDING AND LIFE SAFETY, DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION FUNERAL DIRECTORS & EMBALMERS, STATE BOARD OF GENERAL FUND TRANSFER TO AGENCY FUND GENERAL ACCOUNTING OFFICE GENERAL RELIEF The Notes to Required Supplementary Information are an integral part of this schedule. (Continued) - 145 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) GENERAL RELIEF FY08-09 FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 1,789 1,789 0 14,998,000 0 0 0 3,854,500 3,854,500 OPERATING STATE AID - COCHISE 7,488,700 7,488,700 7,488,700 OPERATING STATE AID - COCONINO 2,679,400 2,679,400 2,679,400 658,400 658,400 658,400 4,243,900 4,243,900 4,243,900 45,327,400 45,327,400 45,327,400 OPERATING STATE AID - MOHAVE 3,682,900 3,682,900 3,682,900 OPERATING STATE AID - NAVAJO 3,590,000 3,590,000 3,590,000 OPERATING STATE AID - PIMA 15,942,100 15,942,100 15,942,100 OPERATING STATE AID - PINAL 4,935,100 4,935,100 4,935,100 OPERATING STATE AID - YAVAPAI 4,196,000 4,196,000 4,196,000 OPERATING STATE AID - YUMA LA PAZ 4,812,900 4,812,900 4,812,900 RURAL COUNTY REIMBURSEMENT SUBSIDY 0 1,000,000 1,000,000 TRANSFER TO TOURISM FUND 0 2,767,080 2,767,080 TREASURER'S WARRANT NOTES INTEREST AND OTHER FEES 0 3,885,751 3,885,751 WOOLSEY FLOOD DISTRICT 0 36,095 36,095 866,400 800,900 800,900 ADMINISTRATIVE ADJUSTMENTS 0 4,812 4,812 CASH TRANSFER TO GENERAL FUND 0 678,900 678,900 CASH TRANSFER TO GENERAL FUND CH12 S44 0 1,100,000 1,100,000 OPERATING LUMP SUM APPROPRIATION 0 3,900,000 117,069 OPERATING LUMP SUM APPROPRIATION 0 2,417,000 2,086,473 HEALTH INSURANCE ADJUSTMENTS NURSING EDUCATION DEMONSTRATION PROJECT OPERATING STATE AID - GILA OPERATING STATE AID - GRAHAM OPERATING STATE AID - MARICOPA GEOLOGICAL SURVEY, ARIZONA OPERATING LUMP SUM APPROPRIATION GOVERNMENT INFORMATION TECHNOLOGY AGENCY PS COMM SYSTEMS - INTEROPERABILITY 358,501 0 0 PUBLIC SAFETY COMMUNICATIONS PROGRAM 0 756,700 488,106 SW INFORMATION SECURITY & PRIVACY OFFICE 0 819,700 675,119 0 2,112 2,112 GOVERNOR, OFFICE OF THE ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION 7,384,900 7,036,300 6,181,860 OPERATING LUMP SUM APPROPRIATION FY06-07 6,613 6,613 0 OPERATING LUMP SUM APPROPRIATION FY07-08 130,325 130,325 -91,763 OPERATING LUMP SUM APPROPRIATION FY08-09 1,065,133 1,065,133 810,068 OPERATING LUMP SUM APPROPRIATION-OSPB 2,149,600 1,990,600 1,935,286 350,000 350,000 350,000 0 1,867 1,867 HEALTH SERVICES, DEPARTMENT OF ADHS INDIRECT COSTS AHCCCS - CRS ADMINISTRATIVE ADJUSTMENTS The Notes to Required Supplementary Information are an integral part of this schedule. (Continued) - 146 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS ADMINISTRATIVE ADJUSTMENTS 0 1,494,974 1,494,974 ADMINISTRATIVE ADJUSTMENTS 0 1,935 1,935 105,200 105,200 105,200 33,000 0 0 ADULT CYSTIC FIBROSIS ADULT SICKLE CELL ANEMIA AGENCY WIDE OPERATING LUMP SUM APPN 1,578,000 0 0 AHCCCS - CHILDRENS REHABILITATIVE SERVICES 49,100,200 67,641,497 0 AHCCCS - CHILDRENS REHABILITATIVE SERVICES 25,576,900 22,570,222 22,570,222 1,125,000 1,000,000 1,000,000 AIDS REPORTING AND SURVEILLANCE ALZHEIMER DISEASE RESEARCH 2,250,000 2,250,000 2,250,000 ARNOLD V. SARN 27,500,000 27,500,000 27,499,686 ARNOLD V. SARN 9,600,600 9,600,600 0 398,060 398,060 0 ASH CORRECTIVE ACTION PLAN SUPPLEMENTAL ASH FORENSIC UNIT DEBT SERVICE 3,111,700 3,111,700 3,111,700 ASSURANCE AND LICENSURE 340,200 321,900 313,986 ASSURANCE AND LICENSURE 4,651,300 4,162,740 3,864,607 ASSURANCE AND LICENSURE 829,200 832,200 648,109 ASSURANCE AND LICENSURE 950,200 954,700 0 ATTORNEY GENERAL LEGAL SERVICES 394,900 371,206 371,206 AZ STATEWIDE IMMUNIZATION INFO SYSTEM 477,600 219,985 215,458 1,015,800 1,348,600 944,674 BREAST AND CERVICAL CANCER SCREENING CASH TRANSFER TO GENERAL FUND 0 20,900 20,900 CASH TRANSFER TO GENERAL FUND 0 444,400 444,400 CASH TRANSFER TO GENERAL FUND 0 24,700 24,700 CASH TRANSFER TO GENERAL FUND 0 2,000,800 2,000,800 CHILDREN'S BEHAVIORAL HEALTH SERVICES 8,851,800 4,097,251 4,097,251 CHILDREN'S BH STATE MATCH FOR TITLE XIX 267,755,500 322,271,807 0 CHILDREN'S BH STATE MATCH FOR TITLE XIX 139,446,300 101,632,879 101,632,879 3,587,000 0 0 CHILDREN'S REHABILITATIVE SERVICES COMMUNITY HEALTH CENTERS 981,400 0 0 COMMUNITY PLACEMENT TREATMENT 1,130,700 1,130,700 0 COMMUNITY PLACEMENT TREATMENT 5,574,100 0 0 CONTRACT COMPLIANCE 3,667,400 3,679,100 0 CONTRACT COMPLIANCE 1,856,100 1,182,700 1,182,700 COUNTY PRENATAL SERVICES GRANT 1,033,600 0 0 COUNTY TUBERCULOSIS PROVIDER CARE & CTL 1,210,500 591,692 510,485 COURT MONITORING 197,500 98,750 98,750 DIABETES PREVENTION AND CONTROL 100,000 0 0 DIRECT GRANTS 460,300 0 0 The Notes to Required Supplementary Information are an integral part of this schedule. (Continued) - 147 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS DUAL ELIGIBLE PART D COPAY SUBSIDY 802,600 0 0 ELECTRONIC MEDICAL RECORDS 300,000 0 0 HEPATITIS C SURVEILLANCE 309,400 0 0 HIGH RISK PERINATAL SERVICES 4,780,600 2,093,362 1,404,861 INDIRECT COST FUND 8,075,700 6,969,600 6,399,478 LABORATORY SERVICES 4,088,600 3,747,497 3,344,191 100,000 0 0 1,091,100 1,393,417 0 MEDICAID SPECIAL EXEMPTION PAYMENTS BHS 15,187,100 17,306,043 0 MEDICAID SPECIAL EXEMPTION PAYMENTS BHS 7,909,400 7,909,400 7,909,400 568,400 568,400 568,400 11,932,800 7,831,800 7,792,936 LOAN REPAYMENT MEDICAID SPECIAL EXEMPTION PAYMENTS MEDICAID SPECIAL EXEMPTION PAYMENTS CFHS MEDICARE CLAWBACK PAYMENTS MENTAL HEALTH - NON-TITLE XIX 1,947,300 777,205 777,205 MENTAL HLTH & SUBST ABUSE ST MCH T-XIX 79,606,600 83,712,100 0 MENTAL HLTH & SUBST ABUSE ST MCH T-XIX 37,858,800 33,968,700 33,968,700 OPERATING LUMP SUM APPROPRIATION 1,000,000 857,900 857,900 OPERATING LUMP SUM APPROPRIATION 3,622,500 2,491,475 2,402,646 OPERATING LUMP SUM APPROPRIATION 2,181,000 2,190,400 0 OPERATING LUMP SUM APPROPRIATION 5,063,900 5,085,800 0 OPERATING LUMP SUM APPROPRIATION 14,251,600 12,733,962 12,293,482 OPERATING LUMP SUM APPROPRIATION 4,454,200 3,724,017 3,719,854 OPERATING LUMP SUM APPROPRIATION 47,733,600 45,278,027 44,981,124 OPERATING LUMP SUM APPROPRIATION 5,379,700 3,818,486 3,756,989 OPERATING LUMP SUM APPROPRIATION 7,879,300 7,879,300 7,178,823 OPERATING LUMP SUM APPROPRIATION 1,578,000 1,578,000 1,550,127 POISON CONTROL CENTER FUNDING 1,950,000 990,000 990,000 PROP 204 ADMINISTRATION TXIX MATCH 4,404,600 4,404,600 0 PROP 204 ADMINISTRATION TXIX MATCH 2,130,200 2,130,200 2,130,200 PROP 204 CHILDRENS BHS TXIX MATCH 1,745,700 1,262,866 1,262,866 PROP 204 CHILDRENS BHS TXIX MATCH 3,351,900 3,988,534 0 PROP 204 GMH/SA TXIX MATCH 41,483,900 37,317,911 37,317,911 PROP 204 GMH/SA TXIX MATCH 0 79,654,600 120,804,229 PROP 204 SMI TXIX MATCH 153,643,700 224,031,836 0 PROP 204 SMI TXIX MATCH 80,017,200 61,519,664 61,519,664 REG HA DISPENSERS-AUDIOLOGISTS-SL PATHOL 62,243 62,243 0 REIMBURSEMENT TO COUNTIES 67,900 0 0 RENAL & NON-RENAL DISEASE MANAGEMENT 198,000 198,000 198,000 SCORPION ANTIVENOM 150,000 120,000 112,500 The Notes to Required Supplementary Information are an integral part of this schedule. (Continued) - 148 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) SENIOR FOOD PROGRAM FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 500,000 0 0 SERIOUSLY MENTALLY ILL NON-TXIX 30,191,900 25,124,898 25,124,897 SERIOUSLY MENTALLY ILL STATE MATCH FOR TXIX 79,165,500 48,943,932 48,943,932 SERIOUSLY MENTALLY ILL STATE MATCH FOR TXIX 152,008,500 174,321,463 0 SEXUALLY VIOLENT PERSONS 8,480,700 7,421,312 7,241,297 SEXUALLY VIOLENT PERSONS 2,149,500 2,149,500 1,508,611 11,135,400 3,881,735 2,808,685 47,270 47,270 0 260,000 0 0 60,000 0 0 6,132,900 0 0 16,165 16,165 16,165 499,700 433,700 433,700 0 100,000 100,000 0 37,606 37,606 692,000 691,300 614,735 SUBSTANCE ABUSE - NON TITLE XIX TANF PERINATAL SERVICES TELEMEDICINE TERATOGEN PROGRAM VACCINES VITAL RECORDS - ARCHIVING, CUST SVC, OPS VITAL RECORDS MAINTENANCE HIGHWAY SAFETY, GOVERNOR'S OFFICE OF CASH TRANSFER TO GENERAL FUND HISTORICAL SOCIETY OF ARIZONA, PRESCOTT ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION HISTORICAL SOCIETY, ARIZONA FIELD SERVICES AND GRANTS 65,000 65,000 65,000 OPERATING LUMP SUM APPROPRIATION 2,429,800 2,089,700 2,089,700 PAPAGO PARK MUSEUM 1,936,100 1,713,600 1,713,600 PAPAGO PARK MUSEUM 194,200 194,200 194,200 HOUSE OF REPRESENTATIVES OPERATING LUMP SUM APPROPRIATION 13,653,400 12,987,700 11,892,637 OPERATING LUMP SUM APPROPRIATION FY05-06 600,546 100,546 100,546 OPERATING LUMP SUM APPROPRIATION FY06-07 1,997,206 497,206 497,206 OPERATING LUMP SUM APPROPRIATION FY07-08 1,699,338 1,699,338 108,805 OPERATING LUMP SUM APPROPRIATION FY08-09 1,663,669 1,663,669 -579,617 674,137 674,137 26,109 0 1,176 1,176 126,600 117,100 116,262 INDEPENDENT REDISTRICTING COMMISSION OPERATING LUMP SUM FY 03 - 04 INDIAN AFFAIRS, ARIZONA COMMISSION OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION INSURANCE, DEPARTMENT OF CASH TRANSFER TO GENERAL FUND CH12 S44 0 428,900 428,900 7,369,700 5,619,400 5,572,802 OPERATING LUMP SUM APPROPRIATION 2,734,000 2,545,200 1,046,176 OPERATING LUMP SUM APPROPRIATION FY08-09 1,232,225 1,191,925 1,185,325 OPERATING LUMP SUM APPROPRIATION JOINT LEGISLATIVE BUDGET COMMITTEE The Notes to Required Supplementary Information are an integral part of this schedule. (Continued) - 149 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS JUVENILE CORRECTIONS, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS 0 62,500 62,500 ADMINISTRATIVE ADJUSTMENTS 0 346,119 346,119 CASH TRANSFER TO GENERAL FUND 0 422,400 422,400 OPERATING LUMP SUM APPROPRIATION 66,629,500 63,284,100 62,422,259 OPERATING LUMP SUM APPROPRIATION 2,447,400 2,281,000 1,482,874 1,263,300 481,200 481,140 500,000 500,000 7,075 75,000 75,000 75,000 FIRE SUPPRESSION OPERATING EXPENSES 2,713,200 2,556,000 2,556,000 INMATE FIRE CREWS 1,208,700 641,900 641,900 390,000 390,000 380,565 14,796,800 10,013,700 10,011,362 0 600,000 456,732 0 124 124 76,900 71,800 71,800 2,450,000 0 0 LAND DEPARTMENT, STATE CAP USER FEES DUE DILIGENCE FUND ENVIRONMENTAL COUNTY GRANTS NATURAL RESOURCE CONSERVATION DISTRICTS OPERATING LUMP SUM APPROPRIATION SERVICE FEES INCREASE LAW ENFORCEMENT MERIT SYSTEM COUNCIL ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION LEGISLATIVE COUNCIL ARIZONA CENTENNIAL CELEBRATION OMBUDSMAN-CITIZENS AID OFFICE 612,400 548,645 420,667 OMBUDSMAN-CITIZENS AID OFFICE FY07 - 08 22,121 22,121 21,879 OMBUDSMAN-CITIZENS AID OFFICE FY08- 09 61,540 61,540 56,088 OPERATING LUMP SUM APPROPRIATION 4,802,300 4,301,855 3,763,222 OPERATING LUMP SUM APPROPRIATION FY06-07 225,573 225,573 225,573 OPERATING LUMP SUM APPROPRIATION FY07-08 2,946 2,946 2,946 OPERATING LUMP SUM APPROPRIATION FY08-09 20,206 20,206 20,206 OPERATING LUMP SUM APPROPRIATION FY99-00 140,359 140,359 138,507 STATE ARCHIVES AND HISTORY BUILDING 516,964 516,964 110,108 STATE ARCHIVES AND HISTORY BUILDING 837,769 837,769 43,240 0 124,900 124,900 651,400 651,400 498,736 LIBRARY, ARCHIVES, AND PUBLIC RECORDS, ARIZONA STATE CASH TRANSFER TO GENERAL FUND GRANTS-IN-AID GRANTS-IN-AID FY07 - 08 67,818 67,818 67,818 106,697 106,697 37,111 HISTORICAL ADVISORY COMMISSION 41,279 41,279 13,516 OPERATING LUMP SUM APPROPRIATION 49,058 49,058 0 OPERATING LUMP SUM APPROPRIATION 6,630,500 5,686,160 5,686,160 OPERATING LUMP SUM APPROPRIATION 675,900 678,800 605,624 GRANTS-IN-AID FY08-09 The Notes to Required Supplementary Information are an integral part of this schedule. (Continued) - 150 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS OPERATING LUMP SUM APPROPRIATION FY07-08 1 1 0 OPERATING LUMP SUM APPROPRIATION FY07-08 76,848 76,848 0 OPERATING LUMP SUM APPROPRIATION FY08-09 1 1 1 97,000 97,000 97,000 STATEWIDE RADIO READING SVC FOR BLIND LIQUOR, LICENSES & CONTROL, DEPARTMENT OF CASH TRANSFER TO GENERAL FUND 0 214,700 214,700 150,766 150,766 45,778 OPERATING LUMP SUM APPROPRIATION 2,141,000 1,945,100 1,916,469 OPERATING LUMP SUM APPROPRIATION 700,000 702,700 702,700 MEDICAL STUDENT FINANCIAL ASSISTANCE 866,900 801,900 801,900 MEDICAL STUDENT FINANCIAL ASSISTANCE 309,800 309,800 0 MEDICAL STUDENT FINANCIAL ASSISTANCE 47,000 47,000 25,599 MEDICAL STUDENT FINANCIAL ASSISTANCE 377,704 377,704 31,149 182,000 154,785 152,709 0 1,369 1,369 1,386,400 1,005,515 980,764 0 1,051 1,051 858,600 858,200 858,175 0 14,926 14,926 147,400 136,200 113,511 3,408,418 2,660,042 2,660,042 164,176,308 106,320,882 106,320,882 0 6,883,334 6,883,334 2,333,600 2,001,163 2,001,163 300,000 300,000 0 LUMP SUM APPROPRIATION FY00 - 01 0 1,000 1,000 LUMP SUM APPROPRIATION FY02 - 03 0 4,800 4,800 LUMP SUM APPROPRIATION FY03 - 04 0 4,800 4,800 LUMP SUM APPROPRIATION FY99 - 00 0 1,000 1,000 OPERATING LUMP SUM APPROPRIATION 0 4,800 4,800 OPERATING LUMP SUM APPROPRIATION FY98-99 0 2,796 2,796 100,000 100,000 0 IMPROVEMENT OF DATA PROCESSING SYSTEM MEDICAL STUDENT LOANS, BOARD OF MINE INSPECTOR, STATE ABANDONED MINE SAFETY DEPOSIT FROM GF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION MINES & MINERAL RESOURCES, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION NAVIGABLE STREAM ADJUDICATION COMMISSION, ARIZONA ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION NORTHERN ARIZONA UNIVERSITY NAU - YUMA OPERATING LUMP SUM APPROPRIATION RESEARCH INFRASTRUCTURE FACILITIES TEACHER TRAINING NURSING, STATE BOARD OF GENERAL FUND REPAYMENT OCCUPATIONAL SAFETY & HEALTH REVIEW BOARD OSTEOPATHIC EXAMINERS, ARIZONA BOARD OF GENERAL FUND REPAYMENT The Notes to Required Supplementary Information are an integral part of this schedule. (Continued) - 151 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS PARKS BOARD, ARIZONA STATE ADMINISTRATIVE ADJUSTMENTS 0 341 341 ADMINISTRATIVE ADJUSTMENTS 0 11,504 11,504 CASH TRANSFER TO GENERAL FUND 0 5,487,100 5,487,100 1,900,000 1,900,000 0 GENERAL FUND REPAYMENT GENERAL FUND TRANSFER TO AGENCY FUND 0 213,900 213,900 2,186,600 1,639,950 1,431,227 0 20,000,000 20,000,000 13,632,200 6,191,250 5,681,993 99,498 99,498 99,498 329,100 329,100 278,922 200,000 200,000 0 100,000 75,000 75,000 LEVERAGING EDUCATIONAL ASSISTANCE PRTSHP 1,220,800 1,220,800 1,220,800 POSTSECONDARY EDUCATION GRANT PROGRAM 2,656,600 2,422,300 2,421,759 400,000 323,900 323,900 300,000 300,000 300,000 KARTCHNER CAVERNS STATE PARK LAND CONSERVATION FUND-GENERAL FUND OPERATING LUMP SUM APPROPRIATION TONTO LODGE ROOF REPLACEMENT PERSONNEL BOARD OPERATING LUMP SUM APPROPRIATION PHARMACY, ARIZONA STATE BOARD OF GENERAL FUND REPAYMENT POSTSECONDARY EDUCATION, COMMISSION FOR CASE MANAGERS PRIV POSTSECONDARY ED STU FIN ASST PROG PSYCHOLOGIST EXAMINERS, STATE BOARD OF GENERAL FUND TRANSFER TO AGENCY FUND PUBLIC SAFETY, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS 0 4,700 4,700 CASH TRANSFER TO GENERAL FUND 0 22,300 22,300 CASH TRANSFER TO GENERAL FUND 0 2,780,000 2,780,000 53 53 0 DPS CARPET REPLACEMENT PROJECT-BLDG REWL DPS HEADQUARTERS FIRE ALARM 18,503 18,503 0 FY05 BUILDING RENEWAL- PROJ 915015 384 384 384 FY06 BUILDING RENEWAL- PROJ 916003 217 217 201 FY07 BUILDING RENEWAL - PROJ 917051 4,569 4,569 0 FY09 BUILDING RENEWAL - PROJ 919010 0 7,849 7,849 FY09 BUILDING RENEWAL - PROJ 919011 0 8,704 8,704 18,794,000 18,774,000 17,407,571 GIITEM-GANG INTELLIGENCE TEAM ENFORCEMENT 2,603,400 2,603,400 271,118 GIITEM-GANG INTELLIGENCE TEAM ENFORCEMENT FY08-09 GIITEM 3,993,113 3,993,113 3,993,112 MICROWAVE COMMUNICATION SYSTEM 852,015 852,015 213,173 MICROWAVE COMMUNICATION SYSTEM FY07-08 479,000 0 0 MICROWAVE COMMUNICATION SYSTEM FY08-09 1,200,000 0 0 MOTOR VEHICLE FUEL 3,704,200 3,704,200 3,695,960 The Notes to Required Supplementary Information are an integral part of this schedule. (Continued) - 152 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS OPERATING LUMP SUM APPROPRIATION 10,400,000 9,620,000 6,514,800 OPERATING LUMP SUM APPROPRIATION 41,050,500 41,256,000 41,256,000 OPERATING LUMP SUM APPROPRIATION 205,000 205,000 205,000 OPERATING LUMP SUM APPROPRIATION 1,615,600 1,504,600 1,504,600 OPERATING LUMP SUM APPROPRIATION 296,200 296,200 278,640 OPERATING LUMP SUM APPROPRIATION 78,169,500 78,626,200 78,626,200 OPERATING LUMP SUM APPROPRIATION 27,111,900 18,487,600 18,487,600 358,501 0 0 STATEWIDE INTEROPERABILITY - PHASE II FY04-05 RACING, ARIZONA DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS 0 380 380 ARIZONA BREEDERS AWARD 800,000 574,400 151,972 ARIZONA STALLION AWARD 100,000 39,600 0 1,779,500 1,779,500 1,779,500 COUNTY FAIR RACING 400,000 400,000 340,163 COUNTY FAIRS RACING BETTERMENT 900,000 725,600 519,400 2,035,500 2,089,900 2,034,926 67,000 67,000 42,767 ADMINISTRATIVE ADJUSTMENTS 0 108 108 CASH TRANSFER TO GENERAL FUND 0 400 400 NUCLEAR EMERGENCY MANAGEMENT FUND 0 627,991 627,991 855,300 788,800 788,799 0 500,000 305,896 14,000 14,000 14,000 0 930 930 3,266,400 3,018,600 3,007,956 COUNTY FAIR LIVESTOCK AND AGRICULTURAL OPERATING LUMP SUM APPROPRIATION RACING ADMINISTRATION RADIATION REGULATORY AGENCY OPERATING LUMP SUM APPROPRIATION SERVICE FEES INCREASE RANGERS' PENSIONS, ARIZONA OPERATING LUMP SUM APPROPRIATION REAL ESTATE DEPARTMENT, STATE ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION REGENTS, ARIZONA BOARD OF ADMINISTRATIVE ADJUSTMENTS ARIZONA TEACHERS INCENTIVE PROGRAM AZ TRANSFER ARTICULATION SUPPORT SYSTEM MATH AND SCIENCE TEACHER INITIATIVE OPERATING LUMP SUM APPROPRIATION STUDENT FINANCIAL ASSISTANCE WESTERN INTERSTATE COMMISSION OFFICE WICHE STUDENT SUBSIDIES 0 4,038,851 4,038,851 90,000 90,000 90,000 213,700 213,700 213,700 2,000,000 181,600 0 2,398,500 2,472,800 2,472,040 10,041,200 10,041,200 10,041,200 120,000 125,000 125,000 4,111,000 4,102,300 4,095,471 0 69,034 69,034 REVENUE, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS The Notes to Required Supplementary Information are an integral part of this schedule. (Continued) - 153 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) BRITS OPERATIONAL SUPPORT FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 0 2,000,000 1,999,933 3,623,700 3,623,700 3,623,638 CASH TRANSFER TO GENERAL FUND 0 386,800 386,800 CASH TRANSFER TO GENERAL FUND 0 1,419,300 1,419,300 BRITS OPERATIONS CASH TRANSFER TO GENERAL FUND 0 1,837,500 1,837,500 OPERATING LUMP SUM APPROPRIATION 398,300 401,200 359,099 OPERATING LUMP SUM APPROPRIATION 24,500,000 19,699,300 17,225,512 OPERATING LUMP SUM APPROPRIATION 47,188,600 30,889,700 30,861,989 TAX CREDIT ADMINISTRATION 0 30,000 30,000 TEMPORARY COLLECTORS 3,000,000 3,000,000 2,999,998 UNCLAIMED PROPERTY ADMINISTRATION/AUDIT 2,963,200 2,963,200 2,110,856 3,000,000 2,667,900 2,667,900 NEW SCHOOL FACILITIES DEBT SERVICE 108,683,300 100,683,300 100,683,300 OPERATING LUMP SUM APPROPRIATION 1,948,800 1,427,100 1,422,453 ELECTION SERVICES 1,011,000 1,039,140 803,773 HELP AMERICA VOTE ACT - FEDERAL FUNDS 7,722,800 7,722,800 2,562,683 HELP AMERICA VOTE ACT - FEDERAL FUNDS FY08-09 SCHOOL FACILITIES BOARD BUILDING RENEWAL GRANT SECRETARY OF STATE 3,695,990 3,695,990 0 OPERATING LUMP SUM APPROPRIATION 98,200 98,900 0 OPERATING LUMP SUM APPROPRIATION 2,619,700 2,572,400 2,462,055 SPECIAL ELECTION 8,346,900 8,346,900 3,762,358 SENATE OPERATING LUMP SUM APPROPRIATION 8,635,000 8,234,800 7,524,396 OPERATING LUMP SUM APPROPRIATION FY07-08 714,032 714,032 714,032 OPERATING LUMP SUM APPROPRIATION FY08-09 910,967 910,967 336,336 2,528 2,528 0 SUPREME COURT 4TH FLOOR CHILLER ADMINISTRATIVE ADJUSTMENTS 0 1,138 1,138 ADMINISTRATIVE ADJUSTMENTS 0 13,578 13,578 ADMINISTRATIVE ADJUSTMENTS 0 76,715 76,715 ADOA BUILDING RENEWAL FUND 0 51,928 50,606 ADOA BUILDING RENEWAL FUND 123,541 123,541 123,541 ADULT INTENSIVE PROBATION 178,200 0 0 ADULT INTENSIVE PROBATION 11,152,300 10,772,000 10,579,376 ADULT STANDARD PROBATION 1,432,400 0 0 ADULT STANDARD PROBATION 13,618,700 13,566,300 13,382,881 AUTOMATION 4,539,000 4,473,500 2,605,035 AUTOMATION 7,776,700 7,780,500 7,657,664 The Notes to Required Supplementary Information are an integral part of this schedule. (Continued) - 154 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS CASE AND CASH MANAGEMENT SYSTEM 151,700 151,700 2,015 CASE AND CASH MANAGEMENT SYSTEM 5,865,600 5,865,600 5,822,576 CASH TRANSFER TO GENERAL FUND 0 117,900 117,900 CASH TRANSFER TO GENERAL FUND 0 1,597,900 1,597,900 COMMISSION ON JUDICIAL CONDUCT 436,900 434,800 415,908 COMMUNITY PUNISHMENT 540,900 0 0 COUNTY REIMBURSEMENTS 208,800 187,900 187,900 COURT APPOINTED SPECIAL ADVOCATE 102,000 102,000 102,000 CRTS BLDG DESIGN CHILLER & THERMAL STORG 18,190 18,190 11,955 586,500 545,600 527,191 1,013,600 975,379 951,218 61,322 61,322 0 2,430,400 2,626,400 2,432,529 654,200 650,900 633,854 19,298,600 16,318,400 16,128,223 323,300 333,800 333,150 10,160,300 9,024,900 9,024,900 660,400 660,400 637,982 JUVENILE INTENSIVE PROBATION 9,882,100 8,989,900 8,894,361 JUVENILE STANDARD PROBATION 4,724,200 4,814,300 4,780,648 JUVENILE TREATMENT SERVICES DOMESTIC RELATIONS DRUG COURT DRUG COURT FY06 - 07 FOSTER CARE REVIEW BOARD INTERSTATE COMPACT JUDGES COMPENSATION JUDICIAL NOMINATION & PERFORMANCE REVIEW JUVENILE DIVERSION CONSEQUENCES JUVENILE FAMILY COUNSELING 22,493,300 22,358,900 22,148,270 MODEL COURT 447,600 447,600 442,569 OPERATING LUMP SUM APPROPRIATION 702,900 705,800 600,401 OPERATING LUMP SUM APPROPRIATION 2,861,500 2,863,200 2,850,714 OPERATING LUMP SUM APPROPRIATION 12,821,900 12,570,500 12,515,385 3,421,500 5,032,100 3,228,021 436,600 0 0 SPECIAL WATER MASTER 20,000 58,221 58,221 STATE AID 40,400 0 0 0 226 226 278,300 258,500 252,752 CITY OF YUMA - ARIZONA WELCOME CENTER 208,189 208,189 0 GENERAL FUND TRANSFER TO AGENCY FUND 200,000 200,000 200,000 63,100 58,400 57,404 0 36,880 36,880 PROBATION SURCHARGE SEX OFFENDERS GPS MONITORING TAX APPEALS, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION TOURISM, OFFICE OF TRANSPORTATION, DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION TREASURER, STATE ADMINISTRATIVE ADJUSTMENTS The Notes to Required Supplementary Information are an integral part of this schedule. (Continued) - 155 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) COM COL REIMBURSEMENT ARS 15-1469.01 FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 0 3,866,264 3,866,264 CORPORATE INCOME TAX TRANSFER 7,000,000 7,000,000 7,000,000 JUSTICE OF THE PEACE SALARIES 1,115,100 1,115,100 1,022,969 OPERATING LUMP SUM APPROPRIATION 2,491,500 2,491,700 2,487,920 OPERATING LUMP SUM APPROPRIATION 88,300 88,300 88,137 0 14,743,293 11,055,200 AGRICULTURE 37,949,550 27,189,450 27,189,450 ARIZONA COOPERATIVE EXTENSION 14,181,884 10,729,509 10,729,509 TRANSFER TO TOURISM FUND UNIVERSITY OF ARIZONA CLINICAL RURAL ROTATION 474,900 360,683 360,683 10,848,350 8,142,353 8,142,353 598,617 455,271 455,271 61,454,967 46,940,054 46,940,054 297,818,874 182,447,044 182,447,043 13,592,134 9,861,865 9,861,865 0 14,253,000 14,253,000 SIERRA VISTA CAMPUS 4,161,667 2,852,967 2,852,967 TELEMEDICINE NETWORK 2,440,017 1,849,861 1,849,861 0 2,916 2,916 2,855,000 1,546,000 1,544,504 15,291 15,291 0 2,107,000 2,159,100 2,158,497 279,100 281,400 281,394 10,000,000 10,000,000 2,191,882 2,904,800 2,980,900 2,970,333 29,200 29,200 18,000 250,000 250,000 250,000 2,106,100 1,256,236 1,254,510 0 18,770 18,770 CLINICAL TEACHING SUPPORT LIVER RESEARCH INSTITUTE OPERATING LUMP SUM - HEALTH SCIENCES CTR OPERATING LUMP SUM - MAIN CAMPUS PHOENIX MEDICAL CAMPUS RESEARCH INFRASTRUCTURE FACILITIES VETERANS' SERVICES, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS ARIZONA STATE VETERANS' HOME MILITARY FAMILY RELIEF FUND OPERATING LUMP SUM APPROPRIATION SOUTHERN ARIZONA CEMETERY TUCSON VETERAN HOME CONSTRUCTION VETERANS BENEFIT COUNSELING VETERANS' ORGANIZATIONS CONTRACTS VETERINARY MEDICAL EXAMINING BOARD, ARIZONA STATE GENERAL FUND TRANSFER TO AGENCY FUND WATER RESOURCES, DEPARTMENT OF ADJUDICATION SUPPORT ADMINISTRATIVE ADJUSTMENTS ASSURED & ADEQUATE WATER SUPPLY ADMIN 1,873,300 1,562,109 1,560,389 AUTOMATED GROUNDWATER MONITORING 506,300 352,194 345,639 CONSERVATION AND DROUGHT PROGRAM 491,600 359,936 359,926 OPERATING LUMP SUM APPROPRIATION 15,946,700 12,569,843 12,551,693 RURAL WATER STUDIES 763,828 763,828 763,828 RURAL WATER STUDIES 2,007,100 773,682 765,640 WEIGHTS AND MEASURES, DEPARTMENT OF The Notes to Required Supplementary Information are an integral part of this schedule. (Continued) - 156 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM - GENERAL SERVICES TOTAL GENERAL FUND BUDGETARY EXPENDITURES BEFORE ADJUSTMENTS FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 0 3,867 3,867 1,593,600 1,216,200 1,216,062 15,167,659,641 16,270,450,728 14,539,202,139 (818,930,900) (1,032,716,509) 0 Less: Department of Health Services' AHCCCS - 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 $ The Notes to Required Supplementary Information are an integral part of this schedule. J=NRT=J 14,348,728,741 $ 15,237,734,219 $ 14,539,202,139 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, 2010 (Expressed in Dollars) TRANSPORTATION, DEPARTMENT OF 2003 ASBESTOS & LEAD INSPECTIONS ADMINISTRATIVE ADJUSTMENTS ORIGINAL BUDGET (Appropriations) FINAL BUDGET (Appropriations) 589,466 ===A===========================================A============================================A== ======================== 589,466 0 317 ACTUAL EXPENDITURE AMOUNTS 0 317 ADMINISTRATIVE ADJUSTMENTS 0 2,317 2,317 ADMINISTRATIVE ADJUSTMENTS 0 1,687 1,687 ADMINISTRATIVE ADJUSTMENTS 0 2,820 2,820 ADMINISTRATIVE ADJUSTMENTS 0 5,287 5,287 ADMINISTRATIVE ADJUSTMENTS 0 212 212 ADMINISTRATIVE ADJUSTMENTS 0 24,343 24,343 ADMINISTRATIVE ADJUSTMENTS 0 108 108 AIRPORT PLANNING AND DEVELOPMENT 16,067,335 16,067,335 0 AIRPORT PLANNING AND DEVELOPMENT 8,665,445 8,665,445 0 AIRPORT PLANNING AND DEVELOPMENT 27,128,000 27,128,000 9,456,244 ALT TRUCK ROUTE - DOUGLAS CHINO RD 250,000 250,000 0 0 94,798 0 112,816 0 112,816 12,264 0 12,264 BUILDING RENEWAL FY06 - 07 0 152,043 23,042 BUILDING RENEWAL FY07 - 08 55,951 55,951 31,033 BUILDING RENEWAL FY07 - 08 399,148 399,148 396,747 BUILDING RENEWAL FY08 - 09 612,880 612,880 554,293 BUILDING RENEWAL FY08 - 09 71,223 71,223 58,888 BUILDING RENEWAL FY09 - 10 1,000,000 1,000,000 869,527 ASBESTOS & LEAD INSPECTIONS ASPHALT STORAGE TANKS BUILDING RENEWAL FY06 - 07 BUILDING RENEWAL FY10 50,000 50,000 0 CASH TRANSFER TO GENERAL FUND 0 395,800 395,800 CASH TRANSFER TO GENERAL FUND 0 799,200 799,200 CASH TRANSFER TO GENERAL FUND 0 3,420,900 3,420,900 784,700 CASH TRANSFER TO GENERAL FUND CH12 S44 0 784,700 11,434 11,434 0 GRAND CANYON AIRPORT RESTROOM RENOVATION 46,664 156,777 46,664 156,777 41,938 1,057 HIGHWAY MAINTENANCE 558,700 558,700 558,697 HIGHWAY MAINTENANCE 4,753 4,753 0 HIGHWAY MAINTENANCE FY08 - 09 21,677,252 21,677,252 4,158,783 HIGHWAY MAINTENANCE FY09 - 10 DE-ICER BUILDINGS GRAND CANYON AIRPORT MODULAR HOUSING 136,007,600 136,567,000 94,742,336 HIGHWAY TO DPS TRANSFER - DOUBLE LOAD 0 41,256,000 41,256,000 HURF TO DPS TRANSFER - DOUBLE LOAD 0 78,626,200 78,626,200 MOTOR CARRIER TOWING REGULATION 11,108 11,108 0 MVD SECURITY ENHANCEMENT ISSUES 737,673 737,673 21,986 OPERATING LUMP SUM APPROPRIATION 259,013,700 185,833,000 148,969,514 OPERATING LUMP SUM APPROPRIATION 2,158,000 1,451,200 1,134,411 OPERATING LUMP SUM APPROPRIATION 1,682,500 1,578,700 1,456,524 OPERATING LUMP SUM APPROPRIATION 1,862,400 1,748,300 1,718,980 OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION 71,700 617,000 72,700 620,400 47,561 565,964 OPERATING LUMP SUM APPROPRIATION 2,177,500 2,032,700 1,082,898 OPERATING LUMP SUM APPROPRIATION 143,300 145,400 145,400 0 1,626,600 1,504,600 SEF TO DPS TRANSFER - DOUBLE LOAD The Notes to Required Supplementary Information are an integral part of this schedule. (Continued) - 158 - 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, 2010 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) SPRINKLERS/FIRE ALARMS FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 179,212 179,212 1,286 STATEWIDE HIGHWAY CONSTRUCTION FY08 - 09 53,555,170 70,296,764 53,555,170 70,296,764 53,553,694 50,265,442 STATEWIDE HIGHWAY CONSTRUCTION FY09 - 10 187,850,000 187,850,000 112,642,540 SURPRISE MOTOR VEHICLE DIVISION SRV CNTR 893,408 893,408 998 STATEWIDE HIGHWAY CONSTRUCTION FY07 - 09 TOTAL TRANSPORTATION AND AVIATION PLANNING, HIGHWAY MAINTENANCE AND SAFETY FUND BUDGETARY EXPENDITURES $ The Notes to Required Supplementary Information are an integral part of this schedule. J=NRV=J 794,714,879 $ 848,236,175 $ 609,336,538 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION – BUDGETARY COMPARISON SCHEDULES JUNE 30, 2010 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, 2009 that affect available appropriations during fiscal year 2010. The final budget represents any appropriation bills passed during fiscal year 2010 for fiscal year 2010 plus the original budget. Appropriation bills passed after the end of fiscal year 2010 for fiscal year 2010 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 $ 14,539,202 $ 609,337 Differences – budget to GAAP: Increase in unpaid incurred expenditures from fiscal year end 2009 to fiscal year end 2010. 300,282 429,186 (5,200) - Distributions to counties and cities of sales taxes are recognized as expenditures on the modified accrual basis, but have no effect on budgetary expenditures. 899,318 - 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. 628,645 - Capital leases and installment purchase contracts initiated during the fiscal year, which are not reported in budgetary expenditures. 2,501 - Programs which are not controlled by legislative appropriations but have disbursed cash or incurred obligations during fiscal year 2010. 6,568,971 1,589,622 (1,037,393) (501,646) Decrease in unpaid payroll expenditures from fiscal year end 2009 to fiscal year end 2010. For budgetary reporting, final June 2009 payroll expenditures were charged to fiscal year 2010 budget and final June 2010 payroll expenditures were charged to fiscal year 2011 budget. 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 $ 21,896,326 $ 2,126,499 There were no expenditures in excess of appropriations or allotments in the individual budget accounts for the year. - 160 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION – BUDGETARY COMPARISON SCHEDULES JUNE 30, 2010 B. BUDGETARY BASIS OF ACCOUNTING Formulation of the budget begins with the preparation of estimates of expenditure requirements by the head of each budgeted agency and institution. These estimates are submitted no later than September 1 of each year to the Governor’s Office of Strategic Planning and Budgeting, unless an extension is granted for up to an additional 30 days. 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 and various omnibus reconciliation bills, which are used for statutory adjustments that must be implemented to carry out the budget. 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 an administrative period of up to four weeks 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 an annual basis. 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 direct funds to its activities at its own discretion, 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 (JLBC) 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 JLBC. ADOA funding transfers require approval from the JLBC. 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, $1.1 billion in supplemental appropriations, net of mid-year reversions and adjustments, were provided to the General Fund. This increase consisted primarily of the Department of Education’s Basic State Aid Entitlement appropriation, which usually is included in the original budget, but was vetoed and made later under a supplemental appropriation. The Transportation and Aviation Planning, Highway Maintenance and Safety Fund appropriations increased by $53.521 million. These amounts are included in the Budgetary Comparison Schedules. State agencies are responsible for exercising budgetary control and ensuring that expenditures do not exceed appropriations. The ADOA’s General Accounting Office exercises oversight and does not disburse funds in excess of appropriations. - 161 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION – BUDGETARY COMPARISON SCHEDULES JUNE 30, 2010 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 $322.272 million Department of Health Services’ Children’s Behavioral Health State Match for Title XIX on page 147. 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 157. - 162 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2010 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 6,789 center lane miles (18,771 travel lane miles) of roads and 4,700 bridges that the State is responsible to maintain. In order to utilize the modified approach, the State is required to: i Maintain an asset management system that includes an up to date inventory of eligible infrastructure assets i Perform condition assessments of eligible assets and summarize the results using a measurement scale i Estimate each year the annual amount to maintain and preserve the assets at the condition level established and disclosed by the State i 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 2010 and beyond was adopted by the Transportation Board on June 19, 2009. 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 the American Association of State Highway and Transportation Officials (AASHTO) Road Test, 1956-1961). Serviceability is based on detailed measurements of objective features of the pavement and many surveys since the original road test have shown that these - 163 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2010 measurements closely track the subjective opinion of the traveling public. Most commonly, this number is called the “Present Serviceability Rating” (PSR). PSR is a five-point scale (5 excellent, 0 impassable), similar to the Weaver/AASHTO Scale shown as follows: Numerical Rating 5 4 3 2 1 0 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 2010, an overall rating of 3.71 was achieved, as shown in the following graph: Condition Level-Roads 5 PSR 4 3 Actual Level Desired Level 2 1 0 2006 2007 2008 2009 2010 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 2006 through 2010 were as follows: Fiscal Year 2006 2007 2008 2009 2010 Estimated Expenditures (in millions) $218.5 $216.4 $260.7 $264.4 $227.4 - 164 - Actual Expenditures (in millions) $211.5 $196.5 $247.9 $236.0 $220.9 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2010 Bridges Bridges constitute a significant portion of all infrastructure assets in Arizona. As of June 30, 2010, the State owns and maintains 4,700 bridges with an approximate total deck area of 45,437,223 square feet. Bridges, for purposes of this report, include all structures erected over an opening or depression with a centerline of 20 feet or more. Information related to these bridges is stored and updated in the Arizona Bridge Information and Storage System (ABISS). This system is used to efficiently manage the bridge inventory through storing all bridge related data and assisting bridge engineers in arriving at appropriate bridge preservation decisions. Also, ABISS is used for reporting bridge inventory and condition, on a biennial basis, to the Federal Highway Administration (FHWA). 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 sub-structure 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 2010, the CRI was computed at 93.2%. Condition Levels-Bridges 95% CRI 94% 93% Actual Level 92% Desired Level 91% 90% 2006 2007 2008 2009 Fiscal Year Figure 2 - 165 - 2010 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2010 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 58% of the bridges in the State were constructed prior to the 1970s while only 22% have been constructed in the last two decades. Age of the ADOT’s Bridge Population 35 % of bridges built in corresponding decade 30 25 20 15 10 5 0 <1930 30s 40s 50s 60s 70s 80s 90s 2000s Figure 3 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 2006 through 2010 were as follows: Fiscal Year 2006 2007 2008 2009 2010 Estimated Expenditures (in millions) $10.6 $17.1 $13.4 $14.3 $16.1 Actual Expenditures (in millions) $11.3 $22.5 $18.1 $17.3 $22.4 Actual expenditures on bridge preservation have exceeded estimated expenditures in each of the past five fiscal years. These higher-than-estimated expenditures have been the result of an ongoing effort to maintain the ability of an older inventory of bridges to serve a growing population. This trend explains why the higher expenditures have occurred simultaneously with a decline, during the same period, of the bridge network’s CRI, as described above. - 166 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION AGENT BENEFIT PLANS’ FUNDING PROGRESS JUNE 30, 2010 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 6/30/2010 6/30/2009 6/30/2008 Actuarial Value of Plan Assets $ 554,211 564,000 547,255 6/30/2010 6/30/2009 6/30/2008 838,549 806,941 755,559 Actuarial Accrued Liability (AAL) $ 891,215 857,854 824,620 (Unfunded) AAL $ (337,004) (293,854) (277,365) Funded Ratio 62.2% 65.7% 66.4% Annual Covered Payroll $ 92,791 99,558 101,422 (Unfunded) AAL as a Percentage of Covered Payroll (363.2)% (295.2)% (273.5)% 980,676 910,317 869,342 (142,127) (103,376) (113,783) 85.5% 88.6% 86.9% 363,999 373,674 376,819 (39.0)% (27.7)% (30.2)% 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 6/30/2010 6/30/2009 6/30/2008 Actuarial Value of Plan Assets - 6/30/2010 6/30/2009 6/30/2008 - Actuarial Accrued Liability (AAL) $ 26,846 26,141 30,584 (Unfunded) AAL $ (26,846) (26,141) (30,584) Funded Ratio 0.0% 0.0% 0.0% Annual Covered Payroll $ 92,791 99,558 101,422 46,868 43,951 40,596 (46,868) (43,951) (40,596) 0.0% 0.0% 0.0% 363,999 373,674 376,819 - 167 - (Unfunded) AAL as Percentage of Covered Payroll (28.9)% (26.3)% (30.2)% (12.9)% (11.8)% (10.8)% 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, 2010 (Expressed in Thousands) SPECIAL REVENUE FUNDS ASSETS Cash Cash and pooled investments with State Treasurer Collateral investment pool Receivables, net of allowances: Taxes 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 Obligations under securities loan agreements Due to local governments Due to others Due to other Funds Unavailable deferred revenue Unearned deferred revenue Total Liabilities $ $ CAPITAL PROJECTS FUNDS - $ TOTAL - $ 4,341 883,615 14,976 21,239 - 10,076 904,854 25,052 61,181 23,904 60 16,996 66 2,255 - - 61,181 23,904 60 19,251 66 1,261 1 2,386 1,316 - 276,625 25,808 - 280,272 27,124 1 $ 1,006,401 $ 27,196 $ 312,509 $ 1,346,106 $ 36,694 22,215 $ 307 - $ 1,700 13 $ 38,701 22,228 Fund Balances: Reserved for: Highway construction Other construction Continuing appropriations Debt service Unreserved Total Fund Balances Total Liabilities and Fund Balances 4,341 DEBT SERVICE FUNDS $ 14,976 61,748 270 15,494 940 960 153,297 500 807 10,076 11,789 25,052 61,748 270 15,994 940 960 165,893 28,697 824,407 853,104 26,389 26,389 255,317 45,403 300,720 255,317 45,403 28,697 26,389 824,407 1,180,213 1,006,401 $ 27,196 - 172 - $ 312,509 $ 1,346,106 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Thousands) SPECIAL REVENUE FUNDS REVENUES Taxes: Sales Income Tobacco 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 (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers in Transfers out Capital lease and installment purchase contracts Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ 381,795 88 265,078 84,028 44,699 224,336 9,575 41,828 185,645 72,137 48,073 1,357,282 DEBT SERVICE FUNDS $ CAPITAL PROJECTS FUNDS 65,811 2,082 67,893 $ 7,979 7,979 TOTAL $ 447,606 88 265,078 84,028 44,699 224,336 19,636 41,828 185,645 72,137 48,073 1,433,154 140,531 258,890 112,267 493,667 139,831 112,019 - 34,002 - 140,531 258,890 112,267 493,667 139,831 34,002 112,019 752 811 155,404 1,414,172 212,530 194,386 406,916 121 551,393 585,516 213,282 195,318 706,797 2,406,604 (56,890) (339,023) (577,537) (973,450) 140,394 (292,163) 185,335 33,566 (23,324) 876,428 342,695 (4,398) 338,297 (726) 27,115 (11,858) (11,858) (589,395) 890,115 483,089 (308,419) 185,335 360,005 (613,445) 1,793,658 853,104 $ - 173 - 26,389 $ 300,720 $ 1,180,213 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, 2010 (Expressed in Thousands) PUBLIC SAFETY & CORRECTIONAL ENVIRONMENTAL PROGRAMS PROTECTION ASSETS Cash Cash and pooled investments with State Treasurer Collateral investment pool Receivables, net of allowances: Taxes Other Due from others Due from other Funds Inventories, at cost Restricted assets: Cash and pooled investments with State Treasurer Other Total Assets $ $ LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and other current liabilities $ Accrued liabilities Obligations under securities loan agreements Due to local governments Due to others Due to other Funds Unavailable deferred revenue Unearned deferred revenue Total Liabilities Fund Balances: Reserved for: Continuing appropriations Unreserved Total Fund Balances Total Liabilities and Fund Balances $ 4,253 $ 14 HEALTHCARE & SOCIAL SERVICES $ - TOBACCO TAX & HEALTHCARE $ - JUDICIAL & LEGAL SERVICES $ REGULATING & LICENSING - $ 21 65,370 - 23,392 - 22,893 1,965 447,937 13,011 62,623 - 54,351 - 4,098 96 60 4,146 66 1 7,434 - 957 7,490 1,469 - 14,563 367 - 1,759 - 2,890 285 - - - 1,261 - - - - 78,089 $ 30,841 $ 36,035 $ 475,878 $ 64,382 $ 57,547 16,364 711 $ 1,551 1,030 $ 983 11,635 $ 10,261 659 $ 2,360 1,193 $ 1,906 4,010 7 824 17,906 1,986 4,567 1,965 636 940 955 17,114 13,011 11,171 35,102 22 3,575 263 531 6,710 8,349 51,834 60,183 1,012 25,262 26,274 306 18,615 18,921 440,776 440,776 34 60,773 60,807 2,175 48,662 50,837 78,089 $ 30,841 - 176 - $ 36,035 $ 475,878 $ 64,382 $ 57,547 GROUNDWATER STATE PARKS BUSINESS EDUCATIONAL PROTECTION & DEVELOPMENT DEVELOPMENT PROGRAMS CONSERVATION GAME & FISH $ 53 $ - $ - $ - $ - CLEAN ELECTIONS SYSTEM $ - TOTAL $ 4,341 34,432 - 15,692 - 36,774 - 77,183 - 11,236 - 31,732 - 883,615 14,976 2,014 212 - 459 - 21 498 - 41,563 11,392 - - 367 - 61,181 23,904 60 16,996 66 - - 1 - - - 1,261 1 $ 36,711 $ 16,151 $ 37,294 $ 130,138 $ 11,236 $ 32,099 $ 1,006,401 $ 2,219 2,345 $ 502 255 $ 310 203 $ 156 85 $ 82 56 $ 33 $ 36,694 22,215 $ 316 4,880 5 762 3 5 521 61,748 61,989 138 33 14,976 61,748 270 15,494 940 960 153,297 8,089 23,742 31,831 2 15,387 15,389 36,773 36,773 8,730 59,419 68,149 11,098 11,098 32,066 32,066 28,697 824,407 853,104 36,711 $ 16,151 $ 37,294 $ 130,138 $ - 177 - 11,236 $ 32,099 $ 1,006,401 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Thousands) PUBLIC SAFETY & CORRECTIONAL ENVIRONMENTAL PROGRAMS PROTECTION REVENUES Taxes: Sales Income Tobacco Other Intergovernmental Licenses, fees, and permits Earnings on investments Sales and charges for services Fines, forfeitures, and penalties Gaming Other Total Revenues $ EXPENDITURES Current: General government Health and welfare Inspection and regulation Education Protection and safety Natural resources Debt service: Principal Interest and other fiscal charges Capital outlay Total Expenditures Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers in Transfers out Capital lease and installment purchase contracts Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ 16,246 5,278 51,637 51 17,778 375 8,570 109,292 8,620 217,847 $ 2,393 462 53,836 231 50 836 7,028 64,836 HEALTHCARE & SOCIAL SERVICES $ 6,016 8,570 11,787 10,359 68 835 10,882 18,936 1,474 68,927 TOBACCO TAX & HEALTHCARE $ 251,230 4,380 3 255,613 JUDICIAL & LEGAL SERVICES $ 1,600 10,570 240 15,519 49,966 890 78,785 REGULATING & LICENSING $ 29,998 563 86,921 125 265 2,259 9,912 2,681 132,724 34,398 139,828 9,060 1,047 76,834 1,388 955 3,333 59,409 - 671 118,822 75,952 - 58,239 42 - 1,776 3,825 110,837 3 - 140,665 323,951 131 80,355 1 62,743 7 195,452 7 787 59,075 46 642 117,129 (106,104) (15,519) 6,184 60,161 19,710 15,595 11,629 (109,273) 45,253 (44,282) 5,028 (10,111) 7,015 (2,784) 9,619 (22,687) 8,947 (32,530) 185,335 87,691 (18,413) 78,596 971 (14,548) 40,822 (5,083) 1,101 17,820 (13,068) 6,642 54,165 (23,583) (7,988) 58,825 60,183 $ 26,274 - 178 - $ 18,921 4,231 64,392 376,384 $ 440,776 $ 60,807 $ 50,837 GAME & FISH $ $ 24,853 33,274 351 2,371 142 5,417 3,546 69,954 GROUNDWATER STATE PARKS BUSINESS EDUCATIONAL PROTECTION & DEVELOPMENT DEVELOPMENT PROGRAMS CONSERVATION $ 2,966 245 105 3,316 $ 2,591 3,731 649 473 11,606 19,050 $ 359,533 88 2,792 171 2,773 1,039 37,872 427 404,695 $ 4,730 138 12,706 3,147 20,721 CLEAN ELECTIONS SYSTEM $ 12,265 8,549 20,814 TOTAL $ 381,795 88 265,078 84,028 44,699 224,336 9,575 41,828 185,645 72,137 48,073 1,357,282 70,264 12,110 34,238 384 417,715 - 19,246 6,829 - 140,531 258,890 112,267 493,667 139,831 112,019 706 804 10,137 81,911 3,034 15,144 34,622 417,715 19,246 6,829 752 811 155,404 1,414,172 (11,957) (11,828) (15,572) (13,020) 1,475 13,985 (56,890) 11,465 (4,693) 16,806 (21,101) 24,179 (19,279) 153 (565) 300 (14,818) (10,040) 140,394 (292,163) 6,772 (5,185) 37,016 (4,295) (16,123) 31,512 4,900 (10,672) 47,445 (412) (13,432) 81,581 (14,518) (13,043) 24,141 (10,040) 3,945 28,121 185,335 33,566 (23,324) 876,428 31,831 $ 15,389 $ 36,773 $ 68,149 $ - 179 - 11,098 $ 32,066 $ 853,104 STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS ACCOUNTANCY, ARIZONA STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS 1,544 A==================================================A== CASH TRANSFER TO GENERAL FUND 1,544 500,000 500,000 1,902,400 1,466,237 129,700 117,465 95 95 CASH TRANSFER TO GENERAL FUND 8,686,600 8,686,600 CASH TRANSFER TO GENERAL FUND 136,000 136,000 CASH TRANSFER TO GENERAL FUND 36,100 36,100 CASH TRANSFER TO GENERAL FUND 167,500 167,500 293 0 OPERATING LUMP SUM - BUS SUBSIDY 714,100 696,540 OPERATING LUMP SUM APPROPRIATION 568,900 429,086 64,691 50,779 ADMINISTRATIVE ADJUSTMENTS 7,246 7,246 ADMINISTRATIVE ADJUSTMENTS 187 187 ADMINISTRATIVE ADJUSTMENTS 17,409 17,409 ADMINISTRATIVE ADJUSTMENTS 7,577 7,577 OPERATING LUMP SUM APPROPRIATION ACUPUNCTURE BOARD OF EXAMINERS OPERATING LUMP SUM APPROPRIATION ADMINISTRATION, ARIZONA DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS GOVERNMENT BUILDING DEFIBRILLATORS YUMA PRISON WATER TREATMENT UPGRADE AGRICULTURE, ARIZONA DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS 170 170 ADMINISTRATIVE ADJUSTMENTS 22,859 22,859 CASH TRANSFER TO GENERAL FUND 104,700 104,700 CASH TRANSFER TO GENERAL FUND 72,000 72,000 CASH TRANSFER TO GENERAL FUND 75,300 75,300 CASH TRANSFER TO GENERAL FUND 60,200 60,200 CASH TRANSFER TO GENERAL FUND 101,600 101,600 CASH TRANSFER TO GENERAL FUND 46,400 46,400 CASH TRANSFER TO GENERAL FUND 57,700 57,700 OPERATING LUMP SUM APPROPRIATION 1,028,700 586,817 OPERATING LUMP SUM APPROPRIATION 79,400 67,205 OPERATING LUMP SUM APPROPRIATION 40,000 40,000 OPERATING LUMP SUM APPROPRIATION 197,700 81,006 OPERATING LUMP SUM APPROPRIATION 9,200 9,200 OPERATING LUMP SUM APPROPRIATION 302,000 296,784 OPERATING LUMP SUM APPROPRIATION 904,400 713,651 OPERATING LUMP SUM APPROPRIATION 307,700 307,700 OPERATING LUMP SUM APPROPRIATION 388,300 373,973 OPERATING LUMP SUM APPROPRIATION 54,600 54,600 - 180 - (Continued) STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS SERVICE FEES INCREASE - GENERAL 441,000 44,495 SERVICE FEES INCREASE - PESTICIDE 120,000 112,950 38,295,800 38,295,800 949,900 949,900 10,086,400 10,086,400 9,136,500 8,393,060 624,200 615,210 ADMINISTRATIVE ADJUSTMENTS 517 517 ADMINISTRATIVE ADJUSTMENTS 2,081 2,081 ADMINISTRATIVE ADJUSTMENTS 1,054 1,054 CASH TRANSFER TO GENERAL FUND 5,754,900 5,754,900 CASH TRANSFER TO GENERAL FUND 1,634,200 1,634,200 CASH TRANSFER TO GENERAL FUND 269,100 269,100 CASH TRANSFER TO GENERAL FUND 2,231,900 2,231,900 CASH TRANSFER TO GENERAL FUND 235,400 235,400 CASH TRANSFER TO GENERAL FUND 100 100 CASH TRANSFER TO GENERAL FUND 334,500 334,500 CASH TRANSFER TO GENERAL FUND 1,064,800 1,064,800 AHCCCS - ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM CAPITATION CASH TRANSFER TO GENERAL FUND PROP 204 CAPITATION PROP 204 MEDICARE APPRAISAL, STATE BOARD OF OPERATING LUMP SUM APPROPRIATION ATTORNEY GENERAL - DEPARTMENT OF LAW CASH TRANSFER TO GENERAL FUND CH12 S44 789,000 789,000 OPERATING LUMP SUM APPROPRIATION 3,513,700 1,957,285 OPERATING LUMP SUM APPROPRIATION 3,313,400 2,355,354 OPERATING LUMP SUM APPROPRIATION 242,800 112,645 OPERATING LUMP SUM APPROPRIATION 5,651,600 5,582,479 RISK MANAGEMENT ISA 9,037,400 7,732,912 VICTIMS RIGHTS 3,248,200 3,125,505 61,730 28,003 4,452,300 3,732,677 CASH TRANSFER TO GENERAL FUND 881,700 881,700 OPERATING LUMP SUM APPROPRIATION 637,900 466,785 50,000 0 108 108 329,900 276,801 4,176 4,176 1,378,800 1,208,488 VICTIMS RIGHTS FY01 - 02 AUTOMOBILE THEFT AUTHORITY AUTOMOBILE THEFT AUTHORITY GRANTS REIMBURSABLE PROGRAMS BARBERS, BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION BEHAVIORAL HEALTH EXAMINERS, BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION - 181 - (Continued) STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS CHIROPRACTIC EXAMINERS, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION 449 449 476,600 433,625 370 370 COMMERCE, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS ADMINISTRATIVE ADJUSTMENTS 2,622 2,622 ADMINISTRATIVE ADJUSTMENTS 28,125 28,125 589,200 567,359 25,000 25,000 ADVERTISING AND PROMOTION ARIZONA SONORA TRADE OFFICE AZ 21ST CENTURY COMPETITIVE INITIAT FUND 18,474,923 18,474,923 CASH TRANSFER TO GENERAL FUND 2,750,400 2,750,400 CASH TRANSFER TO GENERAL FUND 162,200 162,200 19,500 19,500 CEDC COMMISSION 197,900 155,253 ECONOMIC DEVELOPMENT MATCHING FUNDS 104,000 74,357 INTERNATIONAL TRADE OFFICES 816,800 644,499 90,000 86,265 MINORITY & WOMEN OWNED BUSINESS 130,400 129,453 NATIONAL LAW CENTER/FREE TRADE 170,000 170,000 OIL OVERCHARGE ADMINISTRATION 185,700 0 OPERATING LUMP SUM APPROPRIATION 70,200 63,967 OPERATING LUMP SUM APPROPRIATION 1,670,900 600,010 45,000 34,650 127,800 126,387 CASH TRANSFER TO GENERAL FUND CH12 S44 MAIN STREET REDI MATCHING GRANTS SMALL BUSINESS ADVOCATE CONTRACTORS, REGISTRAR OF ADMINISTRATIVE ADJUSTMENTS 413 413 CASH TRANSFER TO GENERAL FUND 1,837,300 1,837,300 CASH TRANSFER TO GENERAL FUND 2,576,400 2,576,400 113,700 0 INCENTIVE PAY INFORMATION MANAGEMENT SYSTEM 506,500 77,748 OFFICE OF ADMINISTRATIVE HEARING 1,009,000 804,535 10,603,500 7,894,788 ADMINISTRATIVE ADJUSTMENTS 11,135 11,135 ADMINISTRATIVE ADJUSTMENTS 7,535 7,535 ADMINISTRATIVE ADJUSTMENTS 3,631 3,631 56,772 56,772 OPERATING LUMP SUM APPROPRIATION CORPORATION COMMISSION ANNUAL REV PUBLIC ACCESS FUND ANNUAL REVERSION PER ARS 44-3298 115,824 115,824 CASH TRANSFER TO GENERAL FUND 1,092,600 1,092,600 CASH TRANSFER TO GENERAL FUND 3,285,800 3,285,800 - 182 - (Continued) STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS CASH TRANSFER TO GENERAL FUND 1,142,900 1,142,900 CASH TRANSFER TO GENERAL FUND 596,600 596,600 CORPORATION FILINGS, SAME DAY SERVICE 0 0 INVESTIGATION & PROSECUTION OF SECURITY FRAUD 165,599 0 OPERATING LUMP SUM APPROPRIATION 711,800 711,560 OPERATING LUMP SUM APPROPRIATION 13,069,300 13,023,949 OPERATING LUMP SUM APPROPRIATION 4,408,400 4,234,583 OPERATING LUMP SUM APPROPRIATION 6,275,800 5,520,070 UTILITIES, AUDITS, STUDIES, INVEST, HEAR 176,930 0 UTILITIES, AUDITS, STUDIES, INVEST, HEAR 380,000 0 UTILITIES, AUDITS, STUDIES, INVEST, HEAR 380,000 0 UTILITIES, AUDITS, STUDIES, INVEST, HEAR 380,000 338 UTILITIES, AUDITS, STUDIES, INVEST, HEAR 380,000 1,730 ADMINISTRATIVE ADJUSTMENTS 2,427,018 2,427,018 ADMINISTRATIVE ADJUSTMENTS 7,232 7,232 CASH TRANSFER TO GENERAL FUND 37,200 37,200 CASH TRANSFER TO GENERAL FUND 729,200 729,200 CASH TRANSFER TO GENERAL FUND 932,400 932,400 CASH TRANSFER TO GENERAL FUND 914,200 914,200 CASH TRANSFER TO GENERAL FUND 44,900 44,900 CASH TRANSFER TO GENERAL FUND 611,000 611,000 CORRECTIONAL OFFICER EMPLOYEE RELATED EXPENSES 104,900 0 CORRECTIONAL OFFICER PERSONAL SERVICES 238,400 0 CORRECTIONS, STATE DEPARTMENT OF HEALTH CARE ALL OTHER OPERATING EXP 10,432,500 9,582,100 NON-HEALTH CARE ALL OTHER OPERATING EXP 554,400 409,668 NON-HEALTH CARE ALL OTHER OPERATING EXP 817,500 816,069 NON-HEALTH CARE ALL OTHER OPERATING EXP 555,000 425,484 28,674,300 26,039,450 249,400 0 1,759,500 1,582,149 ADMINISTRATIVE ADJUSTMENTS 21,450 21,450 ADMINISTRATIVE ADJUSTMENTS 213 213 CASH TRANSFER TO GENERAL FUND 2,293,400 2,293,400 CASH TRANSFER TO GENERAL FUND 1,337,000 1,337,000 PRIVATE PRISON PER DIEM PROVISIONAL BEDS COSMETOLOGY, BOARD OF OPERATING LUMP SUM APPROPRIATION CRIMINAL JUSTICE COMMISSION, ARIZONA CASH TRANSFER TO GENERAL FUND 823,800 823,800 CASH TRANSFER TO GENERAL FUND 1,402,900 1,402,900 CASH TRANSFER TO GENERAL FUND 240,600 240,600 - 183 - (Continued) STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS CASH TRANSFER TO GENERAL FUND 284,000 284,000 DRUG AND GANG PREVENTION RESOURCE CENTER 235,200 146,081 OPERATING LUMP SUM APPROPRIATION 684,100 625,910 RURAL STATE AID TO COUNTY ATTORNEYS 0 0 RURAL STATE AID TO INDIGENT DEFENSE 0 0 STATE AID TO COUNTY ATTORNEYS 973,600 973,593 STATE AID TO INDIGENT DEFENSE 551,800 551,800 3,792,500 3,550,149 VICTIM COMPENSATION & ASSISTANCE DEAF AND HARD OF HEARING, COMMISSION FOR THE ADMINISTRATIVE ADJUSTMENTS 5,394 5,394 2,074,300 2,074,300 295,757 -10,178 4,079,200 3,015,213 419 419 1,106,500 949,650 ADM ATTORNEY GENERAL LEGAL SERVICES 90,400 13,987 ADM OPERATING LUMP SUM 39,500 0 337,200 168,065 ADMINISTRATIVE ADJUSTMENTS 21,202 21,202 ADMINISTRATIVE ADJUSTMENTS 453,700 453,700 ADMINISTRATIVE ADJUSTMENTS 2,170 2,170 ADMINISTRATIVE ADJUSTMENTS 122,235 122,235 ADMINISTRATIVE ADJUSTMENTS 126,143 126,143 ADMINISTRATIVE ADJUSTMENTS 61,311 61,311 ADMINISTRATIVE ADJUSTMENTS 31,443 31,443 ADMINISTRATIVE ADJUSTMENTS 48,526 48,526 CASH TRANSFER TO GENERAL FUND 1,143,300 1,143,300 CASH TRANSFER TO GENERAL FUND 278,500 278,500 CASH TRANSFER TO GENERAL FUND 92,200 92,200 CASH TRANSFER TO GENERAL FUND 1,143,800 1,143,800 CASH TRANSFER TO GENERAL FUND 1,284,900 1,284,900 DACS DOMESTIC VIOLENCE PREVENTION CASH TRANSFER TO GENERAL FUND INTERPRETERS FOR CERTIFICATION AND LICENSURE OPERATING LUMP SUM APPROPRIATION DENTAL EXAMINERS, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION ECONOMIC SECURITY, DEPARTMENT OF ADM OPERATING LUMP SUM-PAC FUND 2,220,000 2,219,757 DCYF CHILD ABUSE PREVENTION 709,100 0 DCYF CHILDREN SUPPORT SVCS - CAP 750,000 0 DCYF OPERATING LUMP SUM APPROPRIATION 209,600 84,256 DDD AUTISM TRAINING & OVERSIGHT DERS INDEPENDENT LIVING REHAB SERVICES DERS OPERATING LUMP SUM - 184 - 200,000 5,731 1,123,400 374,707 507,800 268,072 (Continued) STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS DERS OPERATING LUMP SUM - SPECIAL ADMIN 24,400 24,400 DERS VOCATIONAL REHABILITATION SERVICES 204,700 41,067 1,110,900 0 4,670,200 91 JOBS EDUCATION, DEPARTMENT OF ACHIEVEMENT TESTING - PROP 301 ACHIEVEMENT TESTING - PROP 301 FY08 - 09 2,210,002 1,669,713 ADDITIONAL SCHOOL DAYS - PROP301 86,280,500 86,280,500 ADDITIONAL SCHOOL DAYS - PROP301 FY08 - 09 14,680,083 14,680,083 CASH TRANSFER TO GENERAL FUND 356,400 356,400 CHARACTER EDUCATION - PROP 301 200,000 0 CHARACTER EDUCATION - PROP 301 FY08 - 09 186,606 129,763 FAILING SCHOOL TUTORING FUND - PROP 301 0 -142 FAILING SCHOOL TUTORING FUND - PROP 301 1,500,000 149,591 FAILING SCHOOL TUTORING FUND - PROP 301 1,248,261 1,248,226 SCHOOL ACCOUNTABILITY FUND - PROP 301 2,329,800 1,943,543 SCHOOL ACCOUNTABILITY FUND - PROP 301 FY 06-07 82,979 82,979 SCHOOL ACCOUNTABILITY FUND - PROP 301 FY 07-08 329,285 46,184 SCHOOL ACCOUNTABILITY FUND - PROP 301 FY 08-09 3,546,658 2,335,151 SCHOOL ACCOUNTABILITY-SCH SAFETY - PROP301 7,800,000 7,768,482 795,954 795,954 CASH TRANSFER TO GENERAL FUND 120,100 120,100 OPERATING LUMP SUM - EMERGENCY MANAGEMENT 132,700 71,197 ADMINISTRATIVE ADJUSTMENTS 721 721 ADMINISTRATIVE ADJUSTMENTS 19,131 19,131 ADMINISTRATIVE ADJUSTMENTS 50 50 ADMINISTRATIVE ADJUSTMENTS 281,743 281,743 ADMINISTRATIVE ADJUSTMENTS 15,177 15,177 ADMINISTRATIVE ADJUSTMENTS 153,671 153,671 ADMINISTRATIVE ADJUSTMENTS 16,434 16,434 ADMINISTRATIVE ADJUSTMENTS 899 899 ADMINISTRATIVE ADJUSTMENTS 24,510 24,510 SCHOOL ACCOUNTABILITY-SCH SAFETY - PROP301 FY08-09 EMERGENCY AND MILITARY AFFAIRS, DEPARTMENT OF ENVIRONMENTAL QUALITY, DEPARTMENT OF AIR QUALITY FEE FUND STATE TRANSFERS 400,000 400,000 AIR QUALITY MANAGEMENT AND ANALYSIS 5,252,000 5,173,776 AIR QUALITY MANAGEMENT AND ANALYSIS 3,705,900 3,294,568 AIR QUALITY MANAGEMENT AND ANALYSIS 0 0 AIR QUALITY PROGRAM - CONTINUING FY01 - 02 186,035 0 AIR QUALITY PROGRAM - CONTINUING FY02 - 03 182,451 0 0 0 AZ POLLUTION DISCHARGE ELIMINATION - 185 - (Continued) STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS CASH TRANSFER TO GENERAL FUND 224,200 224,200 CASH TRANSFER TO GENERAL FUND 692 692 CASH TRANSFER TO GENERAL FUND 3,181,200 3,181,200 CASH TRANSFER TO GENERAL FUND 1,437,200 1,437,200 CASH TRANSFER TO GENERAL FUND 347,000 347,000 CASH TRANSFER TO GENERAL FUND 1,530,500 1,530,500 CASH TRANSFER TO GENERAL FUND 2,875,800 2,875,800 CASH TRANSFER TO GENERAL FUND 210,800 210,800 CASH TRANSFER TO GENERAL FUND 466,500 466,500 CASH TRANSFER TO GENERAL FUND 574,500 574,500 CASH TRANSFER TO GENERAL FUND 804,500 804,500 CASH TRANSFER TO GENERAL FUND 8,749,700 8,749,700 CASH TRANSFER TO GENERAL FUND 376,700 376,700 CASH TRANSFER TO GENERAL FUND 119,100 119,100 CASH TRANSFER TO GENERAL FUND 20,570,328 20,570,328 CASH TRANSFER TO GENERAL FUND 4,578,900 4,578,900 CLEAN WATER REVOLVING FUND SUPPLEMENTAL 5,000,000 4,487,894 COUNTIES TRAVEL DEDUCTION PLAN 1,638,100 1,086,298 DRINKING WATER REGULATION PROGRAM 0 0 DRINKING WATER REGULATION PROGRAM 0 0 DRINKING WATER REVOLVING LOAN PROGRAM 0 0 EMISSIONS CAP & TRADING PROGRAM 266,582 0 EMISSIONS CAP & TRADING PROGRAM 70,576 0 27,328,300 19,630,489 4,150,200 2,694,977 EMISSIONS CONTROL - CONTRACTOR PAYMENTS EMISSIONS CONTROL PROGRAM-ADMINISTRATION POLITICAL SUBDIVISIONS ASSISTANCE ROADSIDE DIESEL EMISSIONS TESTING PROG SURFACE WATER REGULATION PROGRAM TRANSFERS TO COUNTIES PROGRAM 18,500 0 200,000 0 0 0 145,700 41,250 UNDERGROUND STORAGE TANK PROGRAM 10,000 0 UNDERGROUND STORAGE TANK PROGRAM 2,000 0 UNDERGROUND STORAGE TANK PROGRAM 10,000 2,787 7,500 0 UNDERGROUND STORAGE TANK TECH APPEALS UNDERGROUND WATER REGULATION PROGRAM 0 0 80,589 0 WASTE CONTROL AND MANAGEMENT 0 0 WASTE CONTROL AND MANAGEMENT VISIBILITY INDEX DEVELOPMENT 0 0 WASTE CONTROL AND MANAGEMENT 740,900 428,036 WASTE CONTROL AND MANAGEMENT 1,119,000 887,772 WASTE CONTROL AND MANAGEMENT 912,200 871,150 - 186 - (Continued) STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) WASTE CONTROL AND MANAGEMENT FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 138,300 14,077 44,700 40,626 5,210,200 3,500,723 CASH TRANSFER TO GENERAL FUND 254,800 254,800 CASH TRANSFER TO GENERAL FUND 1,568,700 1,568,700 CASH TRANSFER TO GENERAL FUND 143,200 143,200 141,000 141,000 438,000 438,000 351,200 274,840 327,938 327,938 BECKER LAKE FACILITIES IMPROVEMENTS 71,471 48,499 BECKER LAKE WILDLIFE AREA BRIDGE 18,525 204 BELLEMONT SHOOTING RANGE FY05 800,000 800,000 BEN AVERY IMPROVEMENTS 950,000 567,555 BLACK CANYON DAM MODIFICATIONS FY06 499,000 707 BLACK CANYON DAM MODIFICATIONS FY07 260,016 14,202 BOAT REGISTRATION KIOSKS 240,000 0 BOAT REGISTRATION KIOSKS 240,000 0 BOAT SHADE CANOPIES 46,342 0 BOAT SHADE CANOPIES 120,000 0 BUILDING RENEWAL FY08 - 09 213,996 162,455 BUILDING RENEWAL FY09 - 10 473,200 317,768 CASH TRANSFER TO GENERAL FUND 951,500 951,500 CASH TRANSFER TO GENERAL FUND 1,339,900 1,339,900 CASH TRANSFER TO GENERAL FUND 79,600 79,600 FLAGSTAFF SHOOTING RANGE DEV 00/01 33,349 27,804 FLAGSTAFF SHOOTING RANGE PLNG 01/02 436,679 323,100 FLAGSTAFF SHOOTING RANGE PLNG 02/03 499,900 0 29,617 17,495 1,775 1,774 LAKE HAVASU SHOOTING RANGE DEVELOPMENT 297,502 337 LOWER COLORADO MULTI-SPECIES CONSERVATN WASTE TIRE PROGRAM WATER QUALITY PROGRAM FINANCIAL INSTITUTIONS, DEPARTMENT OF FIRE, BUILDING AND LIFE SAFETY, DEPARTMENT OF CASH TRANSFER TO GENERAL FUND FORESTER, OFFICE OF THE STATE CASH TRANSFER TO GENERAL FUND FUNERAL DIRECTORS & EMBALMERS, STATE BOARD OF OPERATING LUMP SUM APPROPRIATION GAME AND FISH DEPARTMENT, ARIZONA ADMINISTRATIVE ADJUSTMENTS FLOOD WARNING SYSTEM HEADQUARTERS SECURITY SYSTEM 350,000 350,000 MIGRATORY WATERFOWL DEV 00/01 43,110 9,209 MIGRATORY WATERFOWL DEVELOPMENT 61,715 0 MIGRATORY WATERFOWL DEVELOPMENT 01/02 56,500 45,000 - 187 - (Continued) STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS MIGRATORY WATERFOWL DEVELOPMENT 02/03 53,119 0 MIGRATORY WATERFOWL HABITAT FY06 77,995 0 MIGRATORY WATERFOWL HABITAT FY07 99,775 7,333 OPERATING LUMP SUM APPROPRIATION 332,000 311,435 OPERATING LUMP SUM APPROPRIATION 2,647,000 2,154,005 OPERATING LUMP SUM APPROPRIATION 16,000 0 OPERATING LUMP SUM APPROPRIATION 30,955,800 26,303,065 OPERATING LUMP SUM APPROPRIATION 43,400 19,211 300,000 300,000 PERFORMANCE INCENTIVE PAY PROGRAM PERFORMANCE INCENTIVE PAY PROGRAM 46,800 46,800 3,808,000 3,808,000 RADIO TOWER 250,000 0 REGIONAL (KINGMAN) OFFICE REMODEL/EXP 889,500 1,764 REGIONAL (MESA) OFFICE REMODEL/EXPANSION PITTMAN-ROBERTSON/DINGELL-JOHNSON ACT 250,000 161,340 REGIONAL (PINETOP) OFFICE CANOPIES 30,000 0 REGIONAL (PINETOP) OFFICE PAVING PROJECT 75,000 0 REGIONAL (YUMA) OFFICE REMODEL/EXPANSION 954,000 1,593 REGIONL(FLAGSTAFF)OFFICE REMODEL/EXPANSN 911,493 774,171 ROBBINS BUTTE LEVEE 138,454 60,181 SHOOTING RANGE ACCESS IMPROVEMENTS 150,000 82,435 17,758 15,713 SHOOTING RANGE IMPROVEMENTS 375 165 SHOOTING RANGE IMPROVEMENTS 3 0 1,900,000 712 STATEWIDE PREVENTATIVE MAINTENANCE 4 0 STATEWIDE PREVENTATIVE MAINTENANCE 30,000 27,201 STATEWIDE PREVENTATIVE MAINTENANCE 110 0 TONTO CREEK HATCHERY IMPROVEMENTS FY05 133,134 133,095 TRI-STATE SHOOTING RANGE DEV. FY05 299,649 0 SHOOTING RANGE DEV/GRANTS PROGRAM FY09 SILVER CREEK HATCHERY REMODEL/EXPANSION WATERCRAFT GRANT PROGRAM 250,000 0 1,175,000 914,002 YUMA OFFICE FENCE 10,000 0 YUMA OFFICE SECURITY SYSTEM 30,000 0 426 426 1,986,200 1,824,745 WATERCRAFT SAFETY EDUCATION PROGRAM GAMING, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS CASINO OPERATION CERTIFICATION JOINT MONITORING SYSTEM 233,300 126,214 OPERATING LUMP SUM APPROPRIATION 8,685,400 7,725,222 PROBLEM GAMBLING 1,977,000 1,499,151 PROBLEM GAMBLING 300,000 300,000 - 188 - (Continued) STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS GEOLOGICAL SURVEY, ARIZONA CASH TRANSFER TO GENERAL FUND 49,300 49,300 400 400 ADMINISTRATIVE ADJUSTMENTS 70,013 70,013 ADMINISTRATIVE ADJUSTMENTS 50,154 50,154 ADMINISTRATIVE ADJUSTMENTS 207 207 ADMINISTRATIVE ADJUSTMENTS 1,706,349 1,706,349 ADMINISTRATIVE ADJUSTMENTS 59,913 59,913 ADMINISTRATIVE ADJUSTMENTS 19,166 19,166 ADMINISTRATIVE ADJUSTMENTS 392,754 392,754 ADMINISTRATIVE ADJUSTMENTS 87,011 87,011 ADMINISTRATIVE ADJUSTMENTS 10,134 10,134 ADMINISTRATIVE ADJUSTMENTS 6,163 6,163 1,000,000 0 ASSURANCE AND LICENSURE 38,000 28,695 ATTORNEY GENERAL LEGAL SERVICES 42,900 17,128 CASH TRANSFER TO GENERAL FUND 41,300 41,300 CASH TRANSFER TO GENERAL FUND 1,726,400 1,726,400 CASH TRANSFER TO GENERAL FUND 813,800 813,800 CASH TRANSFER TO GENERAL FUND GOVERNOR, OFFICE OF THE CASH TRANSFER TO GENERAL FUND HEALTH SERVICES, DEPARTMENT OF ALZHEIMER DISEASE RESEARCH 135,300 135,300 CHILD FATALITY REVIEW TEAM 99,100 99,100 CHILD FATALITY REVIEW TEAM 126,300 108,461 COMMUNITY HEALTH CENTERS 0 0 EMS OPERATIONS 2,793,000 2,517,944 FOLIC ACID 400,000 338,640 HIGH RISK PERINATAL SERVICES 386,300 246,561 LABORATORY SERVICES 935,200 690,189 LICENSING FEES - ASSURANCE AND LICENSURE 4,493,400 4,183,954 LOAN REPAYMENT 557,900 163,825 MENTAL HEALTH - NON-TITLE XIX 500,000 500,000 3,600,000 3,600,000 MENTAL HLTH & SUBST ABUSE ST MCH T-XIX NEWBORN SCREENING FUND - INDIRECT COSTS 478,600 478,600 6,334,100 5,206,872 OPERATING LUMP SUM APPROPRIATION 718,700 652,381 OPERATING LUMP SUM APPROPRIATION 179,700 62,700 NEWBORN SCREENING PROGRAM RELIEF BILL CASH TRANSFER FY10 SERIOUSLY MENTALLY ILL NON-TXIX SERVICE FEES INCREASE - 189 - 68,518 68,518 31,824,800 30,906,305 600,000 567,077 (Continued) STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS SUBSTANCE ABUSE - NON TITLE XIX 750,000 500,000 SUBSTANCE ABUSE - NON TITLE XIX 1,500,000 583,333 350,000 315,784 104,900 104,836 CASH TRANSFER TO GENERAL FUND 7,700,000 7,700,000 CASH TRANSFER TO GENERAL FUND 6,555,100 6,555,100 949,600 949,535 9,610 9,610 3,673,900 3,673,900 19,983,100 16,671,806 CASH TRANSFER TO GENERAL FUND 1,144,700 1,144,700 CASH TRANSFER TO GENERAL FUND 200 200 CASH TRANSFER TO GENERAL FUND 200 200 32,100 32,100 CASH TRANSFER TO GENERAL FUND 100 100 CASH TRANSFER TO GENERAL FUND 130,600 130,600 OPERATING LUMP SUM APPROPRIATION 556,000 556,000 260,000 182,500 506,300 506,300 7,765 7,765 5,853,400 4,868,852 70,300 70,032 155,800 96,895 68,600 68,600 ADMINISTRATIVE ADJUSTMENTS 1,773 1,773 ADMINISTRATIVE ADJUSTMENTS TRAUMA ADVISORY BOARD HOMEOPATHIC & INTEGRATED MEDICINE EXAMINERS, BOARD OF OPERATING LUMP SUM APPROPRIATION HOUSING, ARIZONA DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION INDUSTRIAL COMMISSION OF ARIZONA ADMINISTRATIVE ADJUSTMENTS CASH TRANSFER TO GENERAL FUND CH12 S44 OPERATING LUMP SUM APPROPRIATION INSURANCE, DEPARTMENT OF CASH TRANSFER TO GENERAL FUND CH12 S44 JUVENILE CORRECTIONS, DEPARTMENT OF LAND DEPARTMENT, STATE NATURAL RESOURCE CONSERVATION DISTRICTS LIQUOR, LICENSES & CONTROL, DEPARTMENT OF CASH TRANSFER TO GENERAL FUND MEDICAL EXAMINERS BOARD ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION PERFORMANCE BASED INCENTIVE PROGRAM MINE INSPECTOR, STATE RECLAMATION MINES & MINERAL RESOURCES, DEPARTMENT OF CASH TRANSFER TO GENERAL FUND NATUROPATHIC PHYSICIANS MEDICAL BOARD 4,137 4,137 OPERATING LUMP SUM APPROPRIATION 423,360 422,122 OPERATING LUMP SUM APPROPRIATION 181,440 180,907 NURSING CARE INSTITUTION ADMINISTRATORS AND ASSISTED LIVING FACILITY MANAGERS, BOARD OF EXAMINERS OF - 190 - (Continued) STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) ADMINISTRATIVE ADJUSTMENTS FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 136 136 379,600 327,207 4,153,900 3,952,216 ADMINISTRATIVE ADJUSTMENTS 208 208 ADMINISTRATIVE ADJUSTMENTS 803 803 OPERATING LUMP SUM APPROPRIATION 100,070 98,057 OPERATING LUMP SUM APPROPRIATION 146,430 144,330 440 440 125,200 124,930 OPERATING LUMP SUM APPROPRIATION NURSING, STATE BOARD OF OPERATING LUMP SUM APPROPRIATION OCCUPATIONAL THERAPY EXAMINERS, BOARD OF OPTICIANS, STATE BOARD OF DISPENSING ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION OPTOMETRY, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION 1,934 1,934 203,400 194,031 893 893 702,000 659,011 2,460,600 2,460,600 OSTEOPATHIC EXAMINERS, ARIZONA BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION PARENTS COMMISSION ON DRUG EDUCATION & PREVENTION, ARIZONA CASH TRANSFER TO GENERAL FUND PARKS BOARD, ARIZONA STATE ADMINISTRATIVE ADJUSTMENTS 22,074 22,074 125,000 0 CASH TRANSFER TO GENERAL FUND 14,341,300 14,341,300 CASH TRANSFER TO GENERAL FUND 233,600 233,600 CASH TRANSFER TO GENERAL FUND 1,084,700 1,084,700 CASH TRANSFER TO GENERAL FUND 96,600 96,600 CASH TRANSFER TO GENERAL FUND 4,967,300 4,967,300 KARTCHNER CAVERNS STATE PARK 455,000 340,072 OFF HIGHWAY VEHICLE PARKS OPERATIONS 692,100 683,048 OPERATING LUMP SUM APPROPRIATION 967,700 0 3,000,000 3,000,000 1,500 0 2,663,200 2,013,857 875,000 147,780 ARIZONA TRAIL PARKS HERITAGE FUND TO FIRE SUPPRESSION SLIF LB & I 90-91 PEST MANAGEMENT, OFFICE OF OPERATING LUMP SUM APPROPRIATION SERVICE FEES INCREASE PHARMACY, ARIZONA STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS CONTROLLED SUB PRESCRIP MONITORING PROGRAM OPERATING LUMP SUM APPROPRIATION - 191 - 439 439 140,000 140,000 1,931,400 1,649,463 (Continued) STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS PHYSICAL THERAPY EXAMINERS, BOARD OF OPERATING LUMP SUM APPROPRIATION 362,000 321,576 144,500 117,532 PODIATRY EXAMINERS, STATE BOARD OF OPERATING LUMP SUM APPROPRIATION POSTSECONDARY EDUCATION, COMMISSION FOR ARIZONA COLLEGE AND CAREER GUIDE 21,200 13,705 AZ MINORITY ED POLICY ANALYSIS CENTER 100,300 97,120 FAMILY COLLEGE SAVINGS PROGRAM 152,600 151,800 3,043,700 2,825,403 OPERATING LUMP SUM APPROPRIATION 406,200 133,309 TWELVE PLUS PARTNERSHIP 130,800 74,198 337,100 335,029 15 15 401,800 324,901 LEVERAGING EDUCATIONAL ASSISTANCE PRTSHP PRIVATE POSTSECONDARY EDUCATION, STATE BOARD FOR OPERATING LUMP SUM APPROPRIATION PSYCHOLOGIST EXAMINERS, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION PUBLIC SAFETY, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS 194 194 ADMINISTRATIVE ADJUSTMENTS 156,225 156,225 ADMINISTRATIVE ADJUSTMENTS 303,399 303,399 CASH TRANSFER BETWEEN FUNDS 294,800 294,800 CASH TRANSFER TO GENERAL FUND 7,093,800 7,093,800 CASH TRANSFER TO GENERAL FUND 345,900 345,900 CASH TRANSFER TO GENERAL FUND 762,400 762,400 CASH TRANSFER TO GENERAL FUND 971,600 971,600 CASH TRANSFER TO GENERAL FUND 3,649,500 3,649,500 CASH TRANSFER TO GENERAL FUND 1,065,600 1,065,600 CASH TRANSFER TO GENERAL FUND 820,900 820,900 CASH TRANSFER TO GENERAL FUND 4,371,800 4,371,800 CASH TRANSFER TO GENERAL FUND 2,931,100 2,931,100 CASH TRANSFER TO GENERAL FUND 600,600 600,600 CASH TRANSFER TO GENERAL FUND 971,500 971,500 DNA TESTING 980,000 980,000 DNA TESTING 230,451 0 DNA TESTING 678,704 0 DNA TESTING 938,531 0 DNA TESTING 1,258,331 0 MOTOR VEHICLE FUEL 0 0 OPERATING LUMP SUM APPROPRIATION 3,021,300 2,969,892 OPERATING LUMP SUM APPROPRIATION 2,863,100 2,863,100 - 192 - (Continued) STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS OPERATING LUMP SUM APPROPRIATION 3,042,400 1,998,900 OPERATING LUMP SUM APPROPRIATION 18,554,900 18,193,958 OPERATING LUMP SUM APPROPRIATION 5,115,600 4,833,252 OPERATING LUMP SUM APPROPRIATION 3,023,300 2,199,500 PHOTO ENFORCEMENT FUND-DPS OPERATING 2,173,000 1,841,804 PHOTO ENFORCEMENT FUND-VENDOR PAYMENTS 20,361,300 8,110,255 PHOTO ENFORCEMENT-ADMIN OFFICE OF COURTS 4,056,600 4,056,600 26,830,418 26,830,418 PUBLIC SAFETY EQUIPMENT 2,500,000 0 PUBLIC SAFETY EQUIPMENT 3,000,000 271,281 ADMINISTRATIVE ADJUSTMENTS 7,868 7,868 ADMINISTRATIVE ADJUSTMENTS 2,821 2,821 CASH TRANSFER TO GENERAL FUND 131,300 131,300 CASH TRANSFER TO GENERAL FUND 20,000 20,000 CASH TRANSFER TO GENERAL FUND 242,600 242,600 0 -6 181 181 21,300 21,300 269,300 220,714 110 110 319,200 319,200 1,163,700 945,025 PHOTO ENFORCEMENT-GENERAL FUND REVERSION RACING, ARIZONA DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION RADIATION REGULATORY AGENCY ADMINISTRATIVE ADJUSTMENTS CASH TRANSFER TO GENERAL FUND OPERATING LUMP SUM APPROPRIATION RESIDENTIAL UTILITY CONSUMER OFFICE ADMINISTRATIVE ADJUSTMENTS CASH TRANSFER TO GENERAL FUND OPERATING LUMP SUM APPROPRIATION PROFESSIONAL WITNESSES 113,849 0 PROFESSIONAL WITNESSES 145,000 59,341 PROFESSIONAL WITNESSES FY02 - 03 763 763 PROFESSIONAL WITNESSES FY03 - 04 16,194 13,207 PROFESSIONAL WITNESSES FY04 - 05 11,928 11,928 PROFESSIONAL WITNESSES FY05 - 06 45,569 30,593 PROFESSIONAL WITNESSES FY06 - 07 119,576 110,267 PROFESSIONAL WITNESSES FY07 - 08 114,464 26,709 2,017 2,017 263,100 263,073 423 423 667,300 667,242 RESPIRATORY CARE EXAMINERS, BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION RELIEF BILL CASH TRANSFER FY10 REVENUE, DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION SECRETARY OF STATE - 193 - (Continued) STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) CASH TRANSFER TO GENERAL FUND FINAL BUDGET (Appropriations) 77,300 ACTUAL EXPENDITURE AMOUNTS 77,300 SUPREME COURT ADMINISTRATIVE ADJUSTMENTS 18,951 18,951 625,800 569,950 CASH TRANSFER TO GENERAL FUND 2,355,500 2,355,500 CASH TRANSFER TO GENERAL FUND 700,000 700,000 CASH TRANSFER TO GENERAL FUND 620,400 620,400 CASH TRANSFER TO GENERAL FUND 674,800 674,800 CASH TRANSFER TO GENERAL FUND 500,000 500,000 CASE AND CASH MANAGEMENT SYSTEM CASH TRANSFER TO GENERAL FUND 31,600 31,600 COMMUNITY PUNISHMENT 500,000 495,932 COMMUNITY PUNISHMENT 1,820,400 1,274,589 COURT APPOINTED SPECIAL ADVOCATE 2,949,900 2,606,648 FY09 CASH XFR TO GENERAL FUND 110,300 110,300 5,155,500 2,752,143 488,700 300,699 PHOTO ENFORCEMENT FUND 4,056,600 1,636,640 STATE AID 2,945,500 2,746,003 STATE AID 3,037,400 1,988,441 2,284 2,284 1,756,400 1,452,804 175 175 751,800 747,268 275 275 470,400 406,775 ASSURED & ADEQUATE WATER SUPPLY ADMIN 951,600 155,962 CASH TRANSFER TO GENERAL FUND 240,800 240,800 CASH TRANSFER TO GENERAL FUND 123,000 123,000 CASH TRANSFER TO GENERAL FUND 173,000 173,000 CASH TRANSFER TO GENERAL FUND 378,400 378,400 CASH TRANSFER TO GENERAL FUND 231,200 231,200 CASH TRANSFER TO GENERAL FUND 2,388,100 2,388,100 CASH TRANSFER TO GENERAL FUND 11,283,300 11,283,300 ADMINISTRATIVE ADJUSTMENTS 10,293 10,293 ADMINISTRATIVE ADJUSTMENTS 26,879 26,879 JUVENILE CRIME REDUCTION OPERATING LUMP SUM APPROPRIATION TECHNICAL REGISTRATION, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION VETERANS' SERVICES, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION VETERINARY MEDICAL EXAMINING BOARD, ARIZONA STATE ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION WATER RESOURCES, DEPARTMENT OF WEIGHTS AND MEASURES, DEPARTMENT OF - 194 - (Continued) STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) FINAL BUDGET (Appropriations) ADMINISTRATIVE ADJUSTMENTS ACTUAL EXPENDITURE AMOUNTS 14,132 14,132 CASH TRANSFER TO GENERAL FUND 108,600 108,600 OPERATING LUMP SUM - GENERAL SERVICES 323,500 312,241 OPERATING LUMP SUM - OXYGENATED FUEL 860,300 785,416 OPERATING LUMP SUM - VAPOR RECOVERY 642,900 621,193 TOTAL NON-MAJOR SPECIAL REVENUE FUNDS BUDGETARY EXPENDITURES J=NVR=J $ 909,208,339 $ 797,196,701 STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES LAND ENDOWMENTS FUND FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Dollars) ADMINISTRATION, ARIZONA DEPARTMENT OF ARCHIVES AND HISTORY BUILDING 05 LEG FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS =A=================================================A=============================== 93,151 0 ================================================================================================================== CORRECTIONS, STATE DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS 252 ADMINISTRATIVE ADJUSTMENTS 691 691 NON-HEALTH CARE ALL OTHER OPERATING EXP 360,000 337,033 PROVISIONAL BEDS 979,200 979,200 STATE CHAR PEN/RET LAND EARNINGS 800,000 0 DEAF AND BLIND, ARIZONA SCHOOLS FOR THE OPERATING LUMP SUM - PHOENIX 6,204,800 5,866,310 OPERATING LUMP SUM - PRESCHOOL/OUTREACH 3,027,200 3,025,055 OPERATING LUMP SUM - REGIONAL COOPERATIVES 252 0 0 OPERATING LUMP SUM - TUCSON 5,574,600 5,063,601 EDUCATION, DEPARTMENT OF BASIC STATE AID ENTITLEMENT 46,475,500 16,269,378 HEALTH SERVICES, DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION 1,150,000 420,066 JUVENILE CORRECTIONS, DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION 1,098,600 1,098,600 LAND DEPARTMENT, STATE TRUST LAND MANAGEMENT FUND 9,820,400 8,081,284 PIONEERS' HOME, ARIZONA ADMINISTRATIVE ADJUSTMENTS 2,210 2,210 OPERATING LUMP SUM APPROPRIATION 2,998,300 2,600,416 OPERATING LUMP SUM APPROPRIATION 3,485,000 3,358,576 240,000 182,491 PRESCRIPTION DRUGS TOTAL LAND ENDOWMENTS FUND BUDGETARY EXPENDITURES $ J=NVS=J 82,309,904 $ 47,285,163 NON-MAJOR GOVERNMENTAL FUNDS DEBT SERVICE FUNDS The Lottery Fund administers the payment of principal and interest on the Lottery Revenue Bonds issued by the State of Arizona (acting by and through the Director of the Department of Administration). 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, 2010 (Expressed in Thousands) DEPARTMENT OF TRANSPORTATION LOTTERY ASSETS Cash and pooled investments with State Treasurer Due from other Funds Restricted assets: Cash and pooled investments with State Treasurer Cash held by trustee Total Assets $ 2,255 $ - - MARICOPA RARF $ 1,965 - CERTIFICATES OF PARTICIPATION - $ 233 - 1,004 - 1,316 $ 2,255 $ 1,965 $ 233 $ 2,320 $ - $ - $ - $ 307 307 Fund Balances: Reserved for debt service $ 2,255 $ 1,965 $ 233 $ 2,013 Total Liabilities and Fund Balances $ 2,255 $ 1,965 $ 233 $ 2,320 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and other current liabilities Due to other Funds Total Liabilities - 198 - SCHOOL FACILITIES DEBT INSTRUMENT $ GRANT ANTICIPATION NOTES 20,235 - $ - TOTAL - $ 21,239 2,255 188 - 2,386 1,316 $ 20,235 $ 188 $ 27,196 $ 500 500 $ - $ $ 19,735 $ 188 $ 26,389 $ 20,235 $ 188 $ 27,196 - 307 500 807 - 199 - STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR DEBT SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Thousands) DEPARTMENT OF TRANSPORTATION LOTTERY REVENUES Sales taxes Earnings on investments Total Revenues $ EXPENDITURES Debt service: Principal Interest and other fiscal charges Total Expenditures (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers in Transfers out Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ - $ 1,169 1,169 MARICOPA RARF $ CERTIFICATES OF PARTICIPATION 199 199 $ 3 3 - 68,140 87,699 155,839 33,315 38,241 71,556 32,965 16,458 49,423 - (154,670) (71,357) (49,420) 2,255 2,255 2,255 - 154,184 154,184 (486) 2,451 71,210 71,210 (147) 380 48,856 (3,018) 45,838 (3,582) 5,595 2,255 $ - 200 - 1,965 $ 233 $ 2,013 SCHOOL FACILITIES DEBT INSTRUMENT $ $ 65,811 702 66,513 GRANT ANTICIPATION NOTES $ TOTAL 9 9 $ 65,811 2,082 67,893 52,940 35,618 88,558 25,170 16,370 41,540 212,530 194,386 406,916 (22,045) (41,531) (339,023) 24,650 (1,380) 23,270 1,225 18,510 41,540 41,540 9 179 342,695 (4,398) 338,297 (726) 27,115 19,735 $ 188 $ 26,389 - 201 - 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, 2010 (Expressed in Thousands) GRANT ANTICIPATION NOTES FINANCED DEPARTMENT OF TRANSPORTATION FINANCED ASSETS Collateral investment pool 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 Obligations under securities loan agreements Total Liabilities $ $ - 94,986 - $ 56,210 - 2,233 MRARF DEBT FINANCED $ 21,308 25,808 2,542 104,121 - $ 100,287 $ 56,210 $ 49,349 $ 106,663 $ - $ - $ 1,700 13 $ - Fund Balances: Reserved for: Highway construction Other construction Total Fund Balances Total Liabilities and Fund Balances 5,301 CERTIFICATES OF PARTICIPATION FINANCED $ 5,301 5,301 - 2,233 3,946 2,542 2,542 94,986 94,986 56,210 56,210 45,403 45,403 104,121 104,121 100,287 $ 56,210 - 204 - $ 49,349 $ 106,663 TOTAL $ 10,076 276,625 25,808 $ 312,509 $ 1,700 13 10,076 11,789 255,317 45,403 300,720 $ 312,509 - 205 - STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR CAPITAL PROJECTS FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Thousands) GRANT ANTICIPATION NOTES FINANCED DEPARTMENT OF TRANSPORTATION FINANCED REVENUES Earnings on investments Total Revenues EXPENDITURES Current: Transportation Debt service: Interest and other fiscal charges Capital outlay Total Expenditures (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers out Total Other Financing (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ $ 1,978 1,978 $ 1,677 1,677 CERTIFICATES OF PARTICIPATION FINANCED $ MRARF DEBT FINANCED 1,326 1,326 $ 2,998 2,998 27,701 3,110 - 3,191 93,829 121,530 9,218 12,328 64,026 64,026 121 384,320 387,632 (119,552) (10,651) (62,700) (384,634) (11,832) (11,832) (131,384) 226,370 (10,651) 66,861 (26) (26) (62,726) 108,129 (384,634) 488,755 94,986 $ - 206 - 56,210 $ 45,403 $ 104,121 TOTAL $ 7,979 7,979 34,002 121 551,393 585,516 (577,537) (11,858) (11,858) (589,395) 890,115 $ 300,720 - 207 - 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, 2010 (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 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: 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 local governments 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 $ 3,203 $ 67 $ - $ EXPANSION 21 $ - 145 1,708 773 1,351 - - - - - 66,819 - 1 1,891 542 10 2,832 6 8,630 4,819 2,669 369 9,632 306 19 514 468 2,080 48 1,420 32 4,490 71,341 - - - - 4,314 182 804 8 179 - 655 837 9,467 2,562 3,366 12,998 84 92 2,172 7,674 7,853 9,273 4,314 75,655 672 375 180 1,227 1,084 545 624 96 392 2,741 72 86 2,462 126 2,746 203 8 159 370 2 31 3 36 79 79 1,306 133 133 2,874 2,746 370 36 837 3,137 92 7,853 - 7,324 6,987 (666) 1,050 75,619 - (574) $ 8,903 8,161 $ 10,124 - 210 - $ $ 75,619 HEALTHCARE GROUP OF ARIZONA $ OTHER - $ 217 $ 3,508 9,154 1,663 14,794 - 104 66,819 104 9,154 2,425 75 4,484 33 4,490 9,441 542 104 6,015 891 106,741 - - 4,314 - 980 2,153 24 24 9,178 8,055 9,035 13,519 19,054 25,521 132,262 71 501 5,062 104 5,738 232 520 1 753 2,334 2,037 31 1 8,148 96 964 13,611 12,450 12,450 18,188 753 12,450 133 79 12,662 26,273 24 9,035 20,978 26 3,705 75,619 26 9,366 (9,034) $ TOTAL (9,010) $ 12,766 $ 105,989 - 211 - STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS NON-MAJOR ENTERPRISE FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (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 Personal services Contractual services Depreciation and amortization Insurance Other Total Operating Expenses Operating Income (Loss) $ 33,100 33,100 10,875 5,647 1,942 220 979 19,663 1,743 NON-OPERATING REVENUES (EXPENSES) Investment income Other non-operating revenue Interest expense Other non-operating expense Total Non-Operating Revenues (Expenses) Income Before Contributions and Transfers $ 5,407 568 5,975 $ 2,732 1,692 568 39 173 5,204 771 30 (37) (17) (24) 1,756 Change in Net Assets Total Net Assets - Beginning $ 25,712 2,721 39 512 657 29,641 3,459 14 (1) 13 Transfers in Transfers out Total Net Assets - Ending 20,667 722 17 21,406 3,435 9,280 1,271 10,551 EXPANSION $ 1,613 3,518 3,351 830 159 1,345 10,816 (265) 566 566 83 32 115 451 17 17 27 400 427 131 (32) 99 788 162 550 81 - (5,540) (1,084) (5,819) - 1,837 6,324 (2,105) 12,229 (296) (278) (5,657) 14,560 550 75,069 8,161 $ 10,124 - 212 - $ (574) $ 8,903 $ 75,619 HEALTHCARE GROUP OF ARIZONA $ OTHER 47,522 47,522 $ 42,580 2,138 371 21 444 45,554 1,968 83 128 (35) 176 2,144 $ TOTAL 15,506 20 761 37 16,324 $ 528 10,014 1,129 484 289 2,470 14,914 1,410 131,482 742 761 566 1,893 135,444 84,040 25,813 7,432 2,106 448 6,068 125,907 9,537 5 5 307 528 (38) (84) 713 1,415 10,250 (365) - 81 (12,808) 1,779 (10,789) 1,415 11,351 (2,477) 108,466 (9,010) $ 12,766 $ 105,989 - 213 - STATE OF ARIZONA COMBINING STATEMENT OF CASH FLOWS NON-MAJOR ENTERPRISE FUNDS FOR THE YEAR ENDED JUNE 30, 2010 ARIZONA (Expressed in Thousands) INDUSTRIES FOR THE BLIND CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Receipts from grants and contracts Receipts from repayment of loans to local governments 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 Transfers from other Funds Transfers to other Funds Other (payments) Net Cash Provided (Used) by Non-capital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition and construction of capital assets Interest paid on capital debt, installment purchase contracts, and capital leases Principal paid on capital debt, installment purchase contracts, and capital leases Other receipts (payments) Net Cash Provided (Used) by Capital and Related Financing Activities Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning Reconciliation of operating income (loss) to net cash provided (used) by operating activities: Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation and amortization Net changes in assets and liabilities: (Increase) decrease in receivables, net of allowances (Increase) in due from U.S. Government (Increase) in due from other Funds (Increase) decrease in inventories, at cost (Increase) in other assets Increase (decrease) in accounts payable Increase (decrease) in accrued liabilities Increase (decrease) deferred revenue Increase (decrease) in other liabilities Net Cash Provided (Used) by Operating Activities 20,831 $ 415 (11,426) (5,623) (2,905) 1,292 ARIZONA HIGHWAYS MAGAZINE 33,420 $ (28,696) (2,723) 2,001 5,233 $ (3,803) (1,693) 572 309 9,283 $ (6,375) (3,638) 1,271 541 844 15,270 (33) (97) (23) 15,961 (5,540) (15) (1,084) - (5,819) - - 81 (5,555) (1,084) (5,819) - (370) - (2) - - (37) - - - - (80) (2) - 400 - (144) (489) - 398 - 17 34 18 27 304 (1) 16 34 (1) 17 27 1,245 2,103 (4,009) 5,784 (758) 1,531 3,348 $ 1,775 $ 773 $ $ 1,743 $ 3,459 $ 771 $ 220 512 163 (306) (1) (543) (1) 99 (75) (7) 1,292 216 692 (282) (2,698) (62) 104 60 $ 2,001 - 214 - $ 1,372 66,819 (265) $ 451 830 (17) (54) (220) (57) 4 (152) (5) 3 (35) 128 (111) (9) $ 13,542 53,277 $ 39 309 (2,691) (32) (2,419) (4,853) 6,225 $ $ HIGHWAY EXPANSION & EXTENSION LOAN PROGRAM COLISEUM & EXPOSITION CENTER 81 - (144) CASH FLOWS FROM INVESTING ACTIVITIES 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 Cash and Cash Equivalents - Ending ARIZONA CORRECTIONAL INDUSTRIES 541 15,524 (5) (9) $ 15,961 HEALTHCARE GROUP OF ARIZONA $ OTHER 46,548 $ (45,729) (2,156) (1,337) TOTAL 15,710 $ 20 (4,308) (9,893) 37 1,566 131,869 435 15,270 (100,370) (25,823) (23) (1,025) 20,333 (365) - - 81 (12,808) (15) (365) - (12,742) (2) (252) (901) (903) (770) - (37) - (80) (503) (252) 83 5 83 (1) 4 (2,522) 11,676 (1,390) 488 (2,691) (2) (33) (2,238) 1,318 562 3,963 81,158 $ 9,154 $ 1,880 $ 85,121 $ 1,968 $ 1,410 $ 9,537 21 257 (1,034) (1,557) (974) (18) $ (1,337) $ 484 2,106 (547) (10) 108 121 - 15,599 (306) (11) 95 (538) (3,454) (1,685) (1,022) 12 1,566 $ 20,333 - 215 - 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, 2010 (Expressed in Thousands) ASSETS Current Assets: Cash and pooled investments with State Treasurer Receivables, net of allowances: 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: 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 other Funds Current portion of accrued insurance losses Current portion of other long-term liabilities Total Current Liabilities Noncurrent Liabilities: Accrued insurance losses Other long-term liabilities Total Noncurrent Liabilities Total Liabilities NET ASSETS Invested in capital assets, net of related debt Unrestricted (deficit) Total Net Assets $ 52,278 $ 1,041 $ 103,407 $ 745 TECHNOLOGY $ 1,344 60 2 3,624 55,964 2,609 3,650 5,873 3,700 1,142 114,122 341 1,086 1,037 1,321 1,391 5,093 - - - - 165 81 81 56,045 42,054 42,054 45,704 12 12 114,134 4,150 4,150 5,236 5,532 5,697 10,790 3,724 245 195 53,764 258 58,186 11 569 580 1,160 80,744 109 1,149 142 82,144 82 27 35 144 338 423 33 471 1,265 319,953 319,953 378,139 56 56 1,216 82,144 144 1,265 81 (322,175) 42,054 2,434 12 31,978 4,150 942 5,697 3,828 (322,094) $ 44,488 - 218 - $ 31,990 $ 5,092 $ 9,525 $ RETIREE MOTOR SICK LEAVE POOL 5,539 $ 2,997 $ 167,351 5,539 533 650 18 9 4,207 7,844 3,700 3,115 2,627 5,024 189,661 - - 165 5,539 9,757 9,757 13,964 61,586 61,751 251,412 8,542 8,542 546 35 34 615 85,445 1,408 1,377 53,764 10,062 152,056 102,319 102,319 110,861 615 319,953 102,375 422,328 574,384 (105,322) $ TOTAL (105,322) $ 9,757 3,592 13,349 61,751 (384,723) $ (322,972) - 219 - STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS INTERNAL SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (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) $ 5,269 27,693 28 53,908 706 87,604 16,881 NON-OPERATING REVENUES (EXPENSES) Gain on sale of capital assets Investment income Interest expense Other non-operating revenue Other non-operating expense Total Non-Operating Revenues (Expenses) Income (Loss) Before Contributions and Transfers 23,873 133 24,006 Change in Net Assets Total Net Assets - Beginning $ $ 725,888 5 725,893 $ 8,023 11 8,034 $ 21,193 21,193 9,862 12,101 36 8,325 866 31,190 (7,184) 696,443 2,283 1,206 9 190 654 700,785 25,108 4 683 1,250 1,265 18 712 3,932 4,102 340 8,550 1,163 1,285 207 6,009 17,554 3,639 142 27 (1) 93 261 - 1 1 - 16,615 (6,923) 25,108 4,103 3,639 (25,284) 3,386 5,538 (7,555) 500 (8,386) (5,199) (8,669) (313,425) (5,554) 50,042 (3,783) 8,875 (1,560) 11,085 (322,094) $ 44,488 5 (271) (266) Capital grants and contributions Transfers in Transfers out Total Net Assets - Ending 104,485 104,485 TECHNOLOGY - 220 - (410) 24,698 7,292 $ 31,990 $ 5,092 $ 9,525 $ RETIREE MOTOR SICK LEAVE POOL 12,177 12,177 $ 9,825 59 4 2 9,890 2,287 - $ TOTAL 9,062 9,062 $ 4,411 777 56 2,674 1,063 755 9,736 (674) 904,701 149 904,850 720,885 29,722 31,408 13,586 55,388 9,702 860,691 44,159 46 46 189 27 (1) 98 (271) 42 2,287 (628) 44,201 - (3,106) 3,386 6,038 (49,940) 2,287 (107,609) (3,734) 17,083 3,685 (326,657) (105,322) $ 13,349 $ (322,972) - 221 - STATE OF ARIZONA COMBINING STATEMENT OF CASH FLOWS INTERNAL SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Thousands) CASH FLOWS FROM OPERATING ACTIVITIES Receipts from interfund services / premiums Payments to suppliers or insurance companies Payments to employees Payments to retirees Other receipts Net Cash Provided by Operating Activities RISK MANAGEMENT $ CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Transfers from other Funds Transfers to other Funds Other (payments) 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 Other receipts Net Cash Provided (Used) by Capital and Related Financing Activities 104,486 $ (67,576) (5,276) 31,634 Reconciliation of operating income (loss) to net cash provided by operating activities: Operating income (loss) Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization Net changes in assets and liabilities: (Increase) decrease in receivables, net of allowances (Increase) in due from U.S. Government Decrease in due from other Funds Decrease in inventories, at cost (Increase) decrease in other assets Increase (decrease) in accounts payable Increase (decrease) in accrued liabilities Increase (decrease) in due to other Funds Increase in accrued insurance losses Increase (decrease) in other liabilities Net Cash Provided by Operating Activities SCHEDULE OF NONCASH INVESTING, CAPITAL AND NON-CAPITAL FINANCING ACTIVITIES Capital lease obligations assumed by other Funds Contribution of capital assets from other Funds Total Noncash Investing, Capital and Non-capital Financing Activities 23,877 $ (10,636) (12,240) 204 1,205 TELECOMMUNICATION 730,039 $ (692,940) (2,286) 5 34,818 9,297 (341) (713) 11 8,254 5,538 (7,555) - (410) - 500 (8,386) - (25,550) (2,017) (410) (7,886) (25) - 669 (49) 92 - (1,974) - (25) 712 - (1,974) 26 26 - - Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning EMPLOYEE BENEFITS (25,284) (266) CASH FLOWS FROM INVESTING ACTIVITIES Interest and dividends from investments Net Cash Provided by Investing Activities Cash and Cash Equivalents - Ending TRANSPORTATION EQUIPMENT 6,059 46,219 (74) 1,115 $ 52,278 $ $ 16,881 $ 28 1,041 34,408 68,999 (1,606) 2,351 $ 103,407 $ 745 (7,184) $ 25,108 $ 4,102 8,325 1 686 72 7 69 13,904 (14) - 9 71 104 (6) (25) 4 (84) 1,265 5,153 (1,500) 499 5,441 (6) 111 3 1,274 1,625 18 (16) (14) $ 31,634 $ 1,205 $ 34,818 $ 8,254 $ - $ 3,082 305 $ - $ - $ - $ 3,387 $ - $ - - 222 - RETIREE SICK LEAVE TECHNOLOGY $ 21,950 $ (8,056) (8,595) 5,299 MOTOR POOL 12,177 $ (6) (59) (10,942) 1,170 TOTAL 9,198 $ (6,168) (779) 2,251 911,024 (785,723) (29,948) (10,942) 220 84,631 (5,199) - - (3,106) - 6,038 (49,940) (266) (5,199) - (3,106) (44,168) (1,427) - - 427 - 1,096 (3,475) 92 (1,427) - 427 (2,287) - - (1,327) 2,671 1,170 4,369 (428) 3,425 $ 1,344 $ 5,539 $ $ 3,639 $ 2,287 $ 1,285 - 653 104 9 (377) 12 31 (57) 26 26 2,997 38,202 129,149 $ 167,351 (674) $ 44,159 2,674 (1,117) 13,586 (101) 237 18 (1) 101 (4) (1) 2 7,050 (1,500) 841 122 2,319 5,249 (32) 214 13,904 (1,281) $ 5,299 $ 1,170 $ 2,251 $ 84,631 $ - $ - $ - $ 3,082 305 $ - $ - $ - $ 3,387 - 223 - 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, 2010 (Expressed in Thousands) PENSION TRUST FUNDS ASRS ASSETS Cash $ Receivables, net of allowances: Accrued interest and dividends Securities sold Forward contracts receivable Contributions Court fees Due from other Funds Miscellaneous receivables Total receivables Investments, at fair value: Temporary investments U.S. Government securities Corporate bonds Corporate stocks Real estate Private equity Opportunistic investments 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 Forward contracts payable Due to other Funds Total Liabilities PSPRS 4,081 $ 54,072 EORP $ CORP 3,235 $ 12,495 62,293 178,504 680,998 38,759 58 10,328 5,233 57,666 15,708 2,513 319 3,519 416 872 19 1,274 14,041 3,616 11 970,940 81,120 5,145 18,942 1,262,496 3,227,247 2,051,554 14,371,523 690,195 460,125 297,398 2,259,400 204 51,559 812,577 1,866,753 450,149 358,786 438,228 494,161 509,980 3,146 49,583 113,908 27,501 21,893 26,740 30,153 31,119 12,554 197,857 454,542 109,252 87,362 106,706 120,325 124,177 24,620,142 4,982,193 304,043 1,212,775 - 3,836 256 675 25,595,163 5,121,221 312,679 1,244,887 36,527 479,100 296 40,901 486 2,496 1,814 9,959 2,259,400 665,691 7,485 494,161 - 30,153 - 120,325 - 3,448,203 535,358 33,135 132,098 22,146,960 22,146,960 4,585,863 4,585,863 279,544 279,544 1,112,789 1,112,789 NET ASSETS Held in Trust for: Pension benefits Other post-employment benefits Total Net Assets $ $ - 226 - $ $ OTHER EMPLOYEE BENEFIT TRUST FUNDS HEALTH $ $ BENEFIT LONG-TERM SUPPLEMENT DISABILITY FUND FUND 183 $ TOTAL - $ 74,066 2,788 7,990 30,482 1,498 5,533 58 1,814 1,952 3,042 71,907 261,720 711,480 61,811 872 7,543 15,971 48,349 6,808 1,131,304 51,632 151,014 95,272 638,143 30,115 20,623 13,234 101,132 9 6,515 237,308 - 1,320,643 3,445,520 3,206,843 17,682,177 1,307,212 948,789 882,306 3,005,171 665,489 1,101,174 243,823 32,464,150 - - 4,767 1,149,706 250,631 33,674,287 1,711 21,445 220 - 41,054 553,901 101,132 29,797 26 32 3,005,171 695,488 7,543 154,111 252 4,303,157 995,595 995,595 250,379 250,379 28,125,156 1,245,974 29,371,130 $ $ - 227 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS PENSION AND OTHER EMPLOYEE BENEFIT TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Thousands) PENSION TRUST FUNDS ASRS ADDITIONS: Member contributions Employer contributions Member purchase of service credit Court fees $ Investment income: Net increase in fair value of investments Interest income Dividends Other investment income Securities lending income Total investment income Less investment expenses: Investment activity expenses Security lending expenses Net investment income Other additions Total Additions DEDUCTIONS: Retirement, disability, and survivor benefits Refunds to withdrawing members, including interest Administrative expense Other deductions Total Deductions Change in net assets held in trust for: Pension benefits Other post-employment benefits Net Assets - Beginning Net Assets - Ending $ PSPRS 808,908 763,099 71,020 - $ 102,142 288,210 10,608 - EORP $ CORP 4,611 8,804 890 9,538 $ 54,481 52,065 733 - 2,350,927 216,116 255,848 483,513 25,283 54,737 30,341 1,571 3,383 112,840 5,894 13,082 148,112 2,962 182 914 13,383 2,984,386 3,657 570,152 226 35,703 876 133,606 110,668 1,421 2,872,297 16,529 547 553,076 1,086 33 34,584 4,205 133 129,268 2,953 759 40 542 4,518,277 954,795 58,467 237,089 2,057,591 469,482 36,885 64,040 154,144 28,237 11,798 9,975 4,932 244 126 245 - 19,775 915 586 2,251,770 484,633 37,256 85,316 2,266,507 19,880,453 470,162 4,115,701 21,211 258,333 151,773 961,016 22,146,960 $ 4,585,863 $ - 228 - 279,544 $ 1,112,789 OTHER EMPLOYEE BENEFIT TRUST FUNDS HEALTH $ $ BENEFIT LONG-TERM SUPPLEMENT DISABILITY FUND FUND 59,393 - $ TOTAL 35,939 35,939 - $ 1,006,081 1,207,510 83,251 9,538 104,862 9,696 11,482 28,240 5 - 3,110,723 258,565 338,532 6,600 - 158,770 599 133,239 28,245 18,741 3,885,331 4,918 63 128,258 584 27,661 137,990 2,197 3,745,144 - - 4,294 187,651 99,539 6,055,818 87,983 69,148 2,785,129 1,266 - 2,820 - 184,020 38,415 12,628 89,249 71,968 3,020,192 98,402 897,193 27,571 222,808 2,909,653 125,973 26,335,504 995,595 $ 250,379 $ 29,371,130 - 229 - INVESTMENT TRUST FUNDS Investment Trust Funds account for assets held by the State Treasurer in a trustee capacity for local governments and political subdivisions of the State of Arizona which have elected to invest cash with the State Treasurer’s Office. Central Arizona Water Conservation District is an Investment Trust Account composed of corporate debt, money market mutual funds, repurchase agreements, 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 notes, repurchase agreements, and United States Government securities. Local Government Investment Pool – Medium-Term is an Investment Trust Account for participants who want to invest their monies for a longer time period composed of corporate notes, money market mutual funds, repurchase agreements, and United States Government securities. Local Government Investment Pool – FF&C is an Investment Trust Account composed of corporate notes, 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. Local Government Investment Pool – Medium-Term FF&C is an Investment Trust Account for participants who want to invest their monies for a longer time period composed of corporate notes, money market mutual funds, 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. Lehman Brothers Pool is an Investment Trust Account composed of the Local Government Investment Pool’s share of the Lehman Brothers bond value that was transferred to this pool due to Lehman Brothers filing for Chapter 11 bankruptcy. The transfer was made to provide for the decline in fair value of the Lehman Brothers securities held by the Local Government Investment Pool. STATE OF ARIZONA COMBINING STATEMENT OF FIDUCIARY NET ASSETS INVESTMENT TRUST FUNDS JUNE 30, 2010 (Expressed in Thousands) LOCAL CENTRAL ASSETS Receivables, net of allowances: Accrued interest and dividends Total receivables $ Investments, at fair value: U.S. Government securities Corporate bonds Corporate notes Collateral investment pool Repurchase agreements Money market mutual funds Other Total investments Total Assets LIABILITIES Management fee payable Obligations under securities loan agreements Due to local governments Total Liabilities LOCAL LOCAL GOVERNMENT INVESTMENT ARIZONA LOCAL GOVERNMENT GOVERNMENT WATER GOVERNMENT INVESTMENT INVESTMENT POOL- LEHMAN CONSERVATION INVESTMENT POOL- POOL- MEDIUM-TERM BROTHERS DISTRICT POOL FF&C FF&C POOL 923 923 $ MEDIUM-TERM 4,564 4,564 $ 578 578 $ 4,498 4,498 $ 291 291 $ TOTAL - $ 10,854 10,854 63,165 13,057 56,803 5,338 2,259 107 140,729 307,118 550,275 62,376 770,156 1,689,925 69,226 37,087 4,281 5,000 393 115,987 1,071,542 52,650 45,447 1,007,381 2,177,020 58,708 14,059 33,000 525 8,725 115,017 6,348 6,348 1,569,759 13,057 717,222 117,442 1,817,796 1,025 8,725 4,245,026 141,652 1,694,489 116,565 2,181,518 115,308 6,348 4,255,880 7 83 6 112 6 - 214 5,338 - 62,376 - 4,281 198 45,447 - 108 - 117,442 306 5,345 62,459 4,485 45,559 114 - 117,962 NET ASSETS Held in trust for pool participants $ Net assets consist of: Participant shares outstanding Participants' net asset value (net assets/shares outstanding) 136,307 $ 132,774 $ 1.03 1,632,030 $ 1,632,030 $ 1.00 112,080 $ 108,328 $ 1.03 - 232 - 2,135,959 $ 2,135,959 $ 1.00 115,194 $ 114,426 $ 1.01 6,348 32,534 $ 0.20 $ 4,137,918 4,156,051 STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS INVESTMENT TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Thousands) LOCAL CENTRAL ADDITIONS: Investment income (loss): Net increase (decrease) in fair value of investments Interest income Securities lending income Total investment income LOCAL LOCAL GOVERNMENT INVESTMENT ARIZONA LOCAL GOVERNMENT GOVERNMENT WATER GOVERNMENT INVESTMENT INVESTMENT POOL- LEHMAN CONSERVATION INVESTMENT POOL- POOL- MEDIUM-TERM BROTHERS DISTRICT POOL MEDIUM-TERM FF&C FF&C POOL $ 3,678 3,838 7 7,523 $ 1,896 3,956 78 5,930 $ 1,086 2,121 13 3,220 $ (121) $ 3,761 95 3,735 756 580 1,336 $ TOTAL 1,546 1,546 $ 8,841 14,256 193 23,290 Less: Investment activity expenses Investment activity expenses 76 880 48 1,461 43 - 2,508 Securities lending expenses Net investment income 4 7,443 35 5,015 7 3,165 68 2,206 1,293 1,546 114 20,668 2,768,470 4,642 (3,220,072) 114,763 431 - - 5,400,670 19,679 (5,542,087) Capital share and individual account transactions: Shares sold Reinvested interest income Shares redeemed Net capital share and individual account transactions 29,230 4,741 (8,362) Total Additions DEDUCTIONS: Dividends to investors Total Deductions Change in net assets held in trust for pool participants Net Assets - Beginning Net Assets - Ending $ 2,438,406 7,808 (2,303,982) 49,801 2,057 (9,671) 25,609 142,232 42,187 (446,960) 115,194 - (121,738) 33,052 147,247 45,352 (444,754) 116,487 1,546 (101,070) 7,443 5,015 3,165 2,206 1,293 - 19,122 7,443 5,015 3,165 2,206 1,293 - 19,122 25,609 110,698 142,232 1,489,798 42,187 69,893 115,194 - 1,546 4,802 136,307 $ 1,632,030 $ 112,080 - 233 - (446,960) 2,582,919 $ 2,135,959 $ 115,194 $ 6,348 (120,192) 4,258,110 $ 4,137,918 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, 2010 (Expressed in Thousands) TREASURER CUSTODIAL SECURITIES FUND ASSETS Cash Cash and pooled investments with State Treasurer Short-term investments Receivables, net of allowances: Accrued interest Due from others Custodial securities in safekeeping Other assets Total Assets $ - OTHER TREASURER FUNDS $ OTHER FUNDS - $ 36,578 TOTAL $ 36,578 - 18,130 - 174,601 3,552 192,731 3,552 3,563,316 - - 1 82,351 65,576 5,125 1 82,351 3,628,892 5,125 $ 3,563,316 $ 18,130 $ 367,784 $ 3,949,230 Due to local governments Due to others $ 3,563,316 $ 5,367 12,763 $ 124,099 243,685 $ 129,466 3,819,764 Total Liabilities $ 3,563,316 $ 18,130 $ 367,784 $ 3,949,230 LIABILITIES - 237 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Thousands) BALANCE JULY 1, 2009 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, 2010 DELETIONS $ 3,408,326 $ 320,754 $ 165,764 $ 3,563,316 $ 3,408,326 $ 320,754 $ 165,764 $ 3,563,316 $ 3,408,326 $ 320,754 $ 165,764 $ 3,563,316 $ 3,408,326 $ 320,754 $ 165,764 $ 3,563,316 $ 21,441 $ 159,337 $ 162,648 $ 18,130 57 - 57 - Total Assets $ 21,498 $ 159,337 $ 162,705 $ 18,130 Liabilities: Due to local governments Due to others $ 9,275 12,223 $ 129,648 31,382 $ 133,556 30,842 $ 5,367 12,763 $ 21,498 $ 161,030 $ 164,398 $ 18,130 Total Liabilities HEALTH INSURANCE SUBSIDY FUND Assets: Cash $ - $ 15,753 $ 15,753 $ - Total Assets $ - $ 15,753 $ 15,753 $ - Liabilities: Benefits payable $ - $ 15,753 $ 15,753 $ - $ - $ 15,753 $ 15,753 $ - Total Liabilities (Continued) - 238 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUNDS FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Thousands) BALANCE JULY 1, 2009 OTHER FUNDS Assets: Cash Cash and pooled investments with State Treasurer Short-term investments Receivables, net of allowances: Accrued interest Due from others Custodial securities in safekeeping Other assets Total Assets $ 28,017 199,268 4,487 ADDITIONS $ 62 80,168 59,959 8,816 736,967 5,096,601 3,552 BALANCE JUNE 30, 2010 DELETIONS $ 82,351 65,576 5,125 728,406 5,121,268 4,487 $ 61 80,168 59,959 8,816 36,578 174,601 3,552 1 82,351 65,576 5,125 $ 380,777 $ 5,990,172 $ 6,003,165 $ 367,784 $ 146,443 $ 7,156,332 $ 7,178,676 $ 124,099 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 Custodial securities in safekeeping Other assets Total Assets Liabilities: Benefits payable Due to local governments Due to others Total Liabilities 234,334 1,125,822 1,116,471 243,685 $ 380,777 $ 8,282,154 $ 8,295,147 $ 367,784 $ 28,017 220,709 4,487 $ 752,720 5,255,938 3,552 $ 744,159 5,283,916 4,487 $ 36,578 192,731 3,552 119 80,168 3,468,285 8,816 82,351 386,330 5,125 118 80,168 225,723 8,816 1 82,351 3,628,892 5,125 $ 3,810,601 $ 6,486,016 $ 6,347,387 $ 3,949,230 $ 155,718 3,654,883 $ 15,753 7,285,980 1,477,958 $ 15,753 7,312,232 1,313,077 $ 129,466 3,819,764 $ 3,810,601 $ 8,779,691 $ 8,641,062 $ 3,949,230 - 239 - 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, University Public Schools, Inc. (UPSI), 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 UPSI is included because it is a legally separate, tax-exempt organization that the State believes would be misleading to exclude due to its close affiliation with 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 contributes funds to the ASU for support of various programs. Sun Angel Endowment receives funds primarily through donations and dues, and contributes 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 contributes funds to the ASU for support of various programs. Downtown Phoenix Student Housing, LLC provides facilities for use by students of the ASU. University Public Schools, Inc. operates a public school designed to be on the forefront of education innovation and improvement, with the goal of developing educational models that can be scaled across the State and nation to improve the academic achievement of children. 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, 2010 (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 $ 4,892 NORTHERN ARIZONA CAPITAL FACILITIES FINANCE CORP. MESA STUDENT HOUSING SUN ANGEL FOUNDATION SUN ANGEL ENDOWMENT COLLEGIATE GOLF FOUNDATION $ $ $ $ $ 12 408 1,931 375 95 7,961 172 8,133 185 185 577 577 8,460 378 8,838 - 84 84 64,897 4,809 69,706 - 4,094 4,094 - 7,236 2,723 9,959 - - 47,775 - - - - 37 4,530 1,880 1,571 12,706 730 2,049 244 28 101 154 89,178 49,543 18,515 13,062 10,362 434 5,423 7,488 1,176 47,741 22 181 18,553 2 640 80 345 5,021 96 351 14,087 47,944 19,195 425 5,021 447 36,336 15,403 23,352 1,599 12,289 348 1,842 173 3,326 (13) 75,091 $ 1,599 - 242 - (680) $ (680) $ 12,637 $ 5,341 $ (13) ARIZONA STATE UNIVERSITY RESEARCH PARK, INC. ARIZONA STATE UNIVERSITY ALUMNI ASSOCIATION DOWNTOWN PHOENIX STUDENT HOUSING $ $ $ 2,236 510 $ 182 $ 3,226 UNIVERSITY OF ARIZONA CAMPUS RESEARCH CORPORATION UNIVERSITY OF ARIZONA ALUMNI ASSOCIATION $ $ 4,037 1,899 TOTAL $ 20,222 9,860 9,860 75 1,329 1,404 503 503 281 281 27,847 27,847 1,429 1,429 100 2,461 2,561 44,443 17,259 61,702 4,022 4,022 12,475 12,475 12,263 12,263 - 5,336 164 5,500 - 4,116 4,116 114,439 4,809 2,887 122,135 - - - - - - - 47,775 6,252 2,228 142 117,163 6,531 421 18 120 7 13,353 4,234 30 31 152,232 4,530 17,798 24,598 14,440 136,970 902 36,700 23,053 8,637 426,394 10,205 13,260 2,036 910 1,270 141,304 14 7,965 11 755 27 9,349 927 2,384 25 4,118 89 5,423 227,177 26,928 22,240 25,501 2,180 149,283 766 27 12,660 4,232 281,768 243 12,017 (12,313) 9 127 4,118 31,986 569 10,393 4,405 42,296 60,103 42,227 (903) $ 419 UNIVERSITY OF ARIZONA LAW COLLEGE ASSOCIATION UNIVERSITY PUBLIC SCHOOLS (903) $ 12,260 $ (12,313) $ 136 $ 36,673 - 243 - $ 10,393 $ 4,405 $ 144,626 STATE OF ARIZONA COMBINING STATEMENT OF ACTIVITIES NON-MAJOR UNIVERSITIES - AFFILIATED COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2010 (Expressed in Thousands) NORTHERN ARIZONA UNIVERSITY FOUNDATION REVENUES Contributions Rental revenue Sales and services Net investment income 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 Depreciation and amortization Other expenses Total Expenses Increase (Decrease) in Net Assets Net Assets - Beginning Net Assets - Ending $ 6,738 6,215 2,434 1,009 NORTHERN ARIZONA CAPITAL FACILITIES FINANCE CORP. MESA STUDENT HOUSING SUN ANGEL FOUNDATION SUN ANGEL ENDOWMENT COLLEGIATE GOLF FOUNDATION $ $ $ $ $ 34 2,203 - 5,049 9 91 674 5,877 422 19 993 38 5 3,684 - 16,396 2,237 5,823 7,311 43 3,684 5,012 - - 5,166 - - 120 - 455 2,492 1,029 - 34 2,207 60 - 3,966 1,152 729 - 820 981 105 238 - 3,589 11 60 - 8,988 2,301 5,847 6,967 343 3,780 7,408 67,683 (64) 1,663 (24) (656) 344 12,293 (300) 5,641 (680) $ 12,637 75,091 $ 1,599 - 244 - $ $ 5,341 (96) 83 $ (13) ARIZONA STATE UNIVERSITY RESEARCH PARK, INC. ARIZONA STATE UNIVERSITY ALUMNI ASSOCIATION DOWNTOWN PHOENIX STUDENT HOUSING $ $ $ $ 5,652 23 2,541 2,267 2,822 1,121 165 7,970 150 8 UNIVERSITY OF ARIZONA LAW COLLEGE ASSOCIATION UNIVERSITY PUBLIC SCHOOLS $ 237 272 6,566 $ (614) 583 47 UNIVERSITY OF ARIZONA CAMPUS RESEARCH CORPORATION UNIVERSITY OF ARIZONA ALUMNI ASSOCIATION $ $ 12,393 7 394 419 955 63 2,553 TOTAL $ 14,924 31,098 8,164 10,513 2,434 14,955 8,216 6,375 8,128 7,075 16 12,794 3,990 82,088 2,464 - - 282 - - 1,135 - 8,651 1,323 - 2,788 - 8,032 8,651 5,246 5,012 1,186 443 552 150 5,453 62 2,466 7,269 4,807 378 7,066 - 40 37 13 1,455 - 632 128 - 27,267 2,657 11,320 7,237 1,584 4,795 5,515 15,202 7,066 1,225 11,429 3,548 77,006 3,421 (4,324) 860 11,400 (7,074) (5,239) (1,209) 37,882 1,365 9,028 442 3,963 5,082 139,544 (903) $ 12,260 $ (12,313) $ 9 127 136 $ 36,673 - 245 - $ 10,393 $ 4,405 $ 144,626 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 NINE FISCAL YEARS (2) FISCAL YEAR ENDED JUNE 30, 2010 (Expressed in Thousands) Fiscal Year 2010 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 $ 15,738,121 2009 $ 47,463 565,534 25,262 15,094,719 2008 $ 34,345 532,766 26,442 181,728 3,330,361 497,932 (4,155,346) 14,530,867 $ 53,212 970,202 36,496 93,302 2,866,103 437,636 (2,984,628) 69,305 3,523,725 334,425 (1,105,246) 2007, as 2006, as 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 $ 16,231,055 $ 16,100,685 $ 18,412,986 $ 18,848,863 $ 17,172,474 $ 1,352,658 $ 1,328,658 $ 1,387,655 $ 1,186,177 $ 1,146,618 2,819 68,155 34,393 3,578 619,003 27,293 6,207 1,072,996 10,045 8,505 1,075,038 11,119 6,106 949,919 9,198 202,691 166,399 75,619 26 576,426 203,806 156,630 75,069 20 376,908 264,466 153,383 74,115 188,354 210,635 199,471 71,211 12 295,377 189,746 178,001 67,423 62 179,524 $ 2,479,186 $ 2,790,965 $ 3,157,221 $ 3,057,545 $ 2,726,597 $ 17,090,779 $ 16,423,377 $ 15,918,522 $ 14,686,395 $ 14,024,769 47,463 568,353 68,155 59,655 34,345 536,344 619,003 53,735 384,419 3,496,760 75,619 497,958 (3,578,920) $ 18,710,241 297,108 3,022,733 75,069 437,656 (2,607,720) $ 18,891,650 $ 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 $ (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. - 250 - 21,906,408 $ 19,899,071 Fiscal Year $ 2005, as 2004, as 2003, as 2002, as restated restated restated restated (2) 11,825,961 $ 11,226,325 $ 10,690,782 102,794 548,488 28,708 73,466 414,113 31,302 108,268 495,663 30,470 5,106 2,164,200 88,992 (463,515) 1,550,247 31,447 (684,492) 20,082 1,395,750 21,080 (799,587) $ 10,043,985 158,424 589,996 51,861 56,697 1,243,389 24,132 358,806 $ 14,300,734 $ 12,642,408 $ 11,962,508 $ 12,527,290 $ 1,172,613 $ 1,169,198 $ 1,153,428 $ 1,165,306 2,657 820,383 8,203 3,023 796,119 16,940 21,842 893,470 24,715 33,515 1,055,543 30,153 171,976 163,922 64,875 84,248 157,595 153,073 63,500 115,986 143,683 141,281 63,249 2,763 251,415 258,954 95,146 277,195 $ 2,488,877 $ 2,475,434 $ 2,695,846 $ 2,915,812 $ 12,998,574 $ 12,395,523 $ 11,844,210 $ 11,209,291 $ 102,794 551,145 820,383 36,911 73,466 417,136 796,119 48,242 108,268 517,505 893,470 55,185 158,424 623,511 1,055,543 82,014 177,082 2,328,122 64,875 88,992 (379,267) 157,595 1,703,320 63,500 31,447 (568,506) 163,765 1,537,031 63,249 23,843 (548,172) 56,697 1,243,389 258,954 119,278 636,001 16,789,611 $ 15,117,842 $ 14,658,354 $ 15,443,102 - 251 - STATE OF ARIZONA SCHEDULE 2 CHANGES IN NET ASSETS (1) FOR THE LAST NINE FISCAL YEARS (2) FISCAL YEAR ENDED JUNE 30, 2010 (Expressed in Thousands) Fiscal Year 2010 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 941,813 13,090,357 157,786 5,706,667 1,451,571 511,397 183,535 2,585,683 261,518 24,890,327 2009 $ 3,343,377 2,103,028 67,750 432,150 126,029 6,072,334 928,485 12,055,439 176,354 6,084,342 1,514,282 695,070 228,430 2,755,710 222,851 24,660,963 2008 $ 3,290,033 1,086,330 30,055 395,950 142,229 4,944,597 982,382 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 2,762,557 226,171 (18,300) 377,104 136,894 3,484,426 $ 30,962,661 $ 29,605,560 $ 28,063,203 $ 25,759,623 $ 23,472,950 $ 208,316 143,329 123,372 402,496 13,735,263 576,027 $ 199,011 153,642 138,520 315,660 10,620,642 553,198 $ 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 15,188,803 11,980,673 10,533,375 9,688,617 9,051,628 1,432,055 551,492 509,254 2,260,071 12,563 1,272,694 484,486 439,010 1,243,697 14,710 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 4,765,435 3,454,597 3,062,345 2,961,815 2,789,309 $ 19,954,238 $ 15,435,270 NET (EXPENSE) REVENUE Governmental activities Business-type activities $ (9,701,524) $ (1,306,899) (12,680,290) $ (1,490,000) (13,396,150) $ (1,071,333) (12,298,442) $ (810,749) (10,936,896) (695,117) Total Primary Government Net (Expense) $ (11,008,423) $ (14,170,290) $ (14,467,483) $ (13,109,191) $ (11,632,013) - 252 - $ 13,595,720 $ 12,650,432 $ 11,840,937 Fiscal Year 2005 $ 646,452 8,494,206 149,238 4,853,458 1,171,340 589,966 184,538 2,335,828 182,852 18,607,878 $ 2,540,193 292,127 106,295 317,226 120,629 3,376,470 2004, as 2003, as 2002, as restated restated restated (2) 726,525 7,717,148 138,281 4,703,685 1,059,047 731,522 162,366 2,144,438 176,035 17,559,047 $ 2,355,418 397,657 167,331 303,996 109,944 3,334,346 694,173 6,848,087 141,673 4,795,566 982,839 598,375 175,312 2,159,691 135,775 16,531,491 $ 2,181,311 455,685 73,586 263,321 107,740 3,081,643 852,417 5,960,399 135,784 4,277,635 931,292 411,108 152,772 2,190,160 131,206 15,042,773 2,039,832 406,406 57,503 239,648 95,164 2,838,553 $ 21,984,348 $ 20,893,393 $ 19,613,134 $ 17,881,326 $ 139,486 133,073 88,296 256,804 7,544,370 497,140 $ 140,791 133,510 114,097 248,446 6,981,748 421,251 $ 106,876 120,045 112,466 192,332 5,940,007 460,364 $ 120,514 117,606 112,725 230,409 4,996,539 471,020 8,659,169 8,039,843 6,932,090 6,048,813 863,042 397,561 440,646 834,421 19,774 778,047 366,582 305,221 836,076 18,513 675,089 322,267 259,676 810,549 23,090 639,050 294,848 254,984 737,170 48,180 2,555,444 2,304,439 2,090,671 1,974,232 $ 11,214,613 $ $ $ 10,344,282 $ 9,022,761 $ 8,023,045 (9,948,709) $ (821,026) (9,519,204) (1,029,907) $ (9,599,401) (990,972) $ (8,993,960) (864,321) (10,769,735) $ (10,549,111) $ (10,590,373) $ (9,858,281) (Continued) - 253 - STATE OF ARIZONA SCHEDULE 2 CHANGES IN NET ASSETS (1) FOR THE LAST NINE FISCAL YEARS (2) FISCAL YEAR ENDED JUNE 30, 2010 (Expressed in Thousands) Fiscal Year 2007, as 2010 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 (loss) 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 2009 5,029,050 $ 2,809,995 332,893 31,417 1,583,790 535,435 37,665 13,213 204,295 64,005 (809,864) 9,831,894 52,318 70,766 52,072 3,020 7,080 809,864 995,120 10,827,014 2008 5,442,563 $ 3,126,076 370,073 32,564 1,643,276 574,030 92,957 12,440 222,712 (165,696) (983,006) 10,367,989 58,528 22,450 45,786 4,014 7,240 2,720 983,006 1,123,744 Total Primary Government $ $ CHANGE IN NET ASSETS Governmental activities (8) Business-type activities $ 130,370 $ (311,779) Total Primary Government $ (181,409) $ 11,491,733 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 $ 14,131,282 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 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 79,223 103,362 77,841 4,815 876,456 1,141,697 54,550 49,050 58,816 3,803 (7,874) 774,492 932,837 $ 15,116,528 $ 14,741,473 (2,312,301) $ (366,256) (435,877) $ 99,676 1,676,389 330,948 $ 2,871,740 237,720 (2,678,557) $ (336,201) $ 2,007,337 $ 3,109,460 (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) Fiscal year 2007 unrestricted investment earnings were reduced by $17,771 due to reclassifying the Greater Arizona Development Authority from the primary government to a component unit. - 254 - Fiscal Year 2005 $ 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 57,584 40,311 5 26,017 2,955 707,597 834,469 2004, as 2003, as 2002, as restated restated restated (2) 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 11,008,599 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 $ 12,441,504 $ $ 9,598,981 $ 1,658,326 13,443 $ 679,900 (220,412) $ (564,782) (219,966) $ (273,867) 14,567 $ 1,671,769 $ 459,488 $ (784,748) $ (259,300) - 255 - STATE OF ARIZONA SCHEDULE 3 FUND BALANCES, GOVERNMENTAL FUNDS (1) FOR THE LAST NINE FISCAL YEARS (2) FISCAL YEAR ENDED JUNE 30, 2010 (Expressed in Thousands) Fiscal Year 2007, as 2010 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 2009 2008 restated 2006 $ - $ 14,764 55,354 232 (825,081) 2,767 $ 376,993 43,091 252 (1,401,381) 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 $ (754,731) $ (978,278) $ 361,622 $ 1,923,099 $ 2,266,138 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 $ 809,497 45,403 2,674,953 116,350 26,389 40,327 $ 830,532 $ 4,543,451 1,304,781 108,129 2,196,040 212,553 27,115 7,447 $ 767,258 $ 4,623,323 919,679 $ 5,162,384 793,890 $ 4,376,955 (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. - 256 - 657,371 $ 3,294,841 Fiscal Year 2002, as 2005 2004 2003 restated (2) $ 160,873 107,260 55,727 374 986,168 $ 13,545 96,714 74,973 377 561,029 $ 13,737 101,944 87,131 598 343,012 $ 67,700 105,816 611 574,146 $ 1,310,402 $ 746,638 $ 546,422 $ 748,273 $ 419,072 7,307 5,386 1,716,404 120,752 21,992 25,375 $ 321,401 41,165 17,808 1,361,366 114,948 27,693 25,138 $ 342,324 33,477 33,893 1,123,523 90,238 23,273 38,945 $ 277,321 53,088 262,654 1,082,018 103,312 61,123 38,382 574,938 $ 2,891,226 463,738 $ 2,373,257 444,301 $ 2,129,974 634,710 29,661 $ 2,542,269 - 257 - STATE OF ARIZONA SCHEDULE 4 CHANGES IN FUND BALANCES, GOVERNMENTAL FUNDS (1) FOR THE LAST NINE FISCAL YEARS (2) FISCAL YEAR ENDED JUNE 30, 2010 (Expressed in Thousands) Fiscal Year 2007, as 2010 REVENUES Taxes: Sales Income Tobacco (3) Property Motor vehicle and fuel Other (3) Intergovernmental Licenses, fees, and permits Earnings (loss) on investments (4,8) Sales and charges for services Fines, forfeitures, and penalties Gaming (5) Tobacco settlement (6) Proceeds from sale of trust land (9) 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 $ 5,017,977 2,805,426 332,893 31,417 1,585,919 535,435 13,562,547 425,526 422,564 212,306 224,000 77,554 105,394 78,564 230,223 25,647,745 2009 restated 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 24,155,284 931,250 13,054,472 157,461 5,702,963 1,417,428 584,363 175,568 2,574,539 913,266 11,959,640 174,633 6,031,605 1,460,692 608,631 220,030 2,764,776 966,512 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 2,661,894 288,172 286,027 1,291,341 26,463,584 235,971 238,430 1,295,530 25,903,204 261,228 210,856 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 (2,314,174) (1,037,268) 919,866 1,706,636 - 258 - $ 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 2006 5,429,453 $ 3,137,794 370,073 32,564 1,672,151 574,030 11,316,023 410,002 (318,321) 154,671 203,337 84,140 125,571 143,674 253,868 23,589,030 (815,839) $ 2008 $ 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 Fiscal Year 2002, as 2005 $ 5,410,383 3,528,565 237,430 46,148 1,758,950 493,501 7,714,012 335,760 190,499 154,251 121,123 67,658 93,933 430,097 20,582,310 2004 $ 4,985,424 2,818,778 223,804 50,455 1,613,952 539,218 7,159,976 349,938 131,715 161,170 120,032 57,517 92,550 313,220 18,617,749 2003 $ 4,555,389 2,387,369 37,470 1,563,876 632,896 6,141,218 320,564 111,771 111,438 96,192 337,930 16,296,113 restated (2) $ 4,424,528 2,410,342 49,611 1,493,259 543,055 5,182,770 330,041 136,761 157,912 98,791 324,433 15,151,503 758,149 8,419,913 146,523 4,852,099 1,132,473 564,574 175,593 2,335,828 718,229 7,733,516 136,189 4,702,609 1,028,134 717,463 153,533 2,144,438 689,603 6,652,661 139,863 4,882,516 925,667 463,756 163,946 2,159,691 511,167 5,788,774 133,584 4,188,501 892,986 401,372 140,600 2,190,211 381,512 200,731 710,688 19,678,083 327,595 188,247 695,289 18,545,242 297,508 140,613 1,041,038 17,556,862 270,912 125,594 1,127,411 15,771,112 904,227 72,507 (1,260,749) (619,609) (Continued) - 259 - STATE OF ARIZONA SCHEDULE 4 CHANGES IN FUND BALANCES, GOVERNMENTAL FUNDS (1) FOR THE LAST NINE FISCAL YEARS (2) FISCAL YEAR ENDED JUNE 30, 2010 (Expressed in Thousands) Fiscal Year 2007, as OTHER FINANCING SOURCES (USES) Transfers in Transfers out Proceeds from sale of trust land (9) 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 $ 2010 2009 2008 restated 2006 1,106,250 (1,872,212) 3,088 1,248,267 (2,168,964) 2,127 897,771 (1,874,084) 249,970 28,233 910,605 (1,784,833) 199,089 10,162 812,083 (1,585,754) 284,293 11,118 187,836 32,628 425,420 - 4,056 23,139 621,050 55,420 - - - 998,795 77,709 959,514 580,035 70,083 435,213 238,990 48,972 261,220 143,675 2.3% $ (1,878,961) $ 1.9% 23,556 19,529 82,880 (86,547) 563,950 68,000 (776,048) $ 2.0% 132,985 325,000 - - 26,201 (180,791) 739,075 1.9% (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. (9) In fiscal year 2009, "Proceeds from sale of trust land" was moved from "Other financing sources (uses)" to "Revenues." - 260 - 3,543 596,160 (646,689) 118,250 - 59,711 (347,285) $ 1,359,351 2.2% Fiscal Year 2002, as $ 2005 2004 2003 1,011,456 (1,714,562) 274,127 - 940,050 (1,616,105) 149,001 - 1,053,862 (1,690,443) 88,066 - 848,252 (1,549,833) 51,265 - 5,350 224,283 (247,417) 210,577 104,385 24,349 107,940 (145,965) 389,746 22,633 177,322 101,473 90,530 (107,735) 662,975 - 4,167 74,250 (77,135) 148,350 - 334,225 16,725 75,295 71,051 (363,052) 237,625 100,509 177,506 (17,273) 273,735 48,834 370,992 (80,713) 372,730 80,563 646,603 (65,087) 68,203 14,816 (411,701) 1,081,733 3.1% $ 443,499 2.9% $ restated (2) (614,146) $ 2.7% (1,031,310) 2.7% - 261 - STATE OF ARIZONA SCHEDULE 5 NET TAXABLE SALES BY CLASSIFICATION (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2010 (Expressed in Thousands) Fiscal Year 2010 CLASSIFICATION (9) Transporting (2) Mining, oil and gas Mining severance Timber severance (3) (11) Utilities Communications Private car and pipelines Publishing Job printing Restaurants and bars Amusements Commercial lease (5) Personal property rentals Contracting Feed wholesale (6) Retail Hotel/motel Rental occupancy tax (11) Use tax Use tax-utilities (10) Membership camping (11) Agriculture equipment (7) Other Total Direct sales tax rate (8) 2009 2008 $ 41,990 102,900 1,164,231 9,354,244 3,618,208 1,640 103,681 236,985 9,020,795 1,051,919 141 3,127,828 9,311,612 42,913,933 1,949,718 (62) 5,464,504 (35,594) 10 - $ 37,920 175,743 729,482 9,236,366 2,928,433 7,743 102,457 307,581 9,094,485 1,053,048 1 3,552,696 14,882,706 46,174,068 2,117,242 (25) 5,882,942 38,653 11 - $ $ 87,428,683 $ 96,321,552 $ 5.60% 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% 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 5.60% $ $ 2005 59,801 321,538 1,219,984 7,679,982 3,220,062 25,751 133,680 403,686 8,933,459 998,767 (120) 3,633,374 20,487,917 53,147,971 2,268,776 3,471 6,155,959 16,582 2,785 108,713,425 $ 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 - $ 93,074,018 5.60% (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. (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 2009 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 2009, the tax rate for non-metal mining, oil and gas was 3.125%, the mining severance was 2.5%, the hotel/motel tax was 5.5%, and the jet fuel and jet fuel use tax was $.0305 per gallon. 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. The 1.00% rate increase approved under Proposition 100 on May 18, 2010 increased the state transaction privilege and use rate beginning June 1, 2010 by one percentage point. That rate is not reflected in this table. (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. (11) Effective November 1, 2006, timbering severance, membership camping and rental occupancy were repealed. Source: Arizona Department of Revenue Annual Reports for fiscal years 2010 and prior. - 262 - 5.60% Fiscal Year 2004 2003 2002 2001 $ 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 - $ 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 - $ 83,582,870 $ 76,941,354 $ 75,586,873 $ 75,997,661 5.60% 5.60% 5.60% 5.00% - 263 - (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 2010 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 Retail Hotel/motel Rental occupancy tax (2) Use tax utilities Use tax License fees Membership camping (2) Jet fuel tax Jet fuel use tax Non sufficient funds Telecommunications service assistance Miscellaneous fees Agriculture Equipment Administrative Adjustment (6) Education tax (4) Total (6) $ Percentage Tax Percentage Collections of Total Collections (5) of Total 2,099 3,214 29,099 2 (1) 467,626 180,885 82 5,183 11,846 450,980 52,590 7 156,364 465,418 2,145,311 107,222 2 (1,780) 271,764 726 4,461 828 (1) (189) 504,391 $ Fiscal Year 2001 Tax 4,858,129 0.04 % 0.07 0.60 9.63 3.72 0.11 0.24 9.28 1.08 3.22 9.58 44.17 2.21 (0.04) 5.59 0.01 0.09 0.02 10.38 $ 100.00 % $ 4,296 7,026 4,217 1 1 290,714 143,504 2,637 774 6,223 20,147 315,041 38,042 3,883 182,927 562,527 1,914,117 102,905 147 196,148 431 121 5,872 740 29 (346) 12 26 101 3,802,263 0.11 % 0.18 0.11 7.65 3.77 0.07 0.02 0.16 0.53 8.29 1.00 0.10 4.81 14.79 50.34 2.71 5.19 0.01 0.15 0.02 (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) The education tax is .6% of net taxable sales for most classifications. The ones that do not collect the education tax are nonmetal mining, oil and gas, mining and timbering severances, hotel/motel, rental occupancy, and jet fuel taxes. The Arizona Department of Revenue's annual report does not include the amount of education tax collected from each classification, rather it reports the total collected from all classifications. The education tax became effective June 1, 2001. (5) Does not reflect the balance of undistributed estimated payments at the end of fiscal year 2000. (6) Includes unadjusted figure that was to be corrected in Fiscal Year 2001-02. Source: Arizona Department of Revenue Annual Reports for fiscal years 2010 and 2001 - 265 - STATE OF ARIZONA SCHEDULE 7 PERSONAL INCOME BY INDUSTRY FOR THE LAST TEN CALENDAR YEARS (Expressed in Thousands) Calendar Year Ended December 31 2009 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) $ $ 2008 502,262 419,519 1,189,166 1,575,624 9,249,860 12,709,979 8,037,416 11,563,764 4,685,960 3,090,210 9,590,459 4,028,623 12,757,951 2,298,082 8,459,019 2,231,479 18,521,773 1,712,796 5,515,600 $ 2007 640,287 414,197 1,450,604 1,527,446 12,793,237 13,829,866 8,578,953 12,514,926 4,885,400 3,164,820 9,958,694 4,309,101 13,408,064 2,379,060 9,490,203 2,035,662 17,876,791 1,785,219 5,802,316 $ 2006 818,480 452,456 1,031,986 1,422,360 14,668,100 13,709,747 8,785,582 13,329,846 4,951,483 3,107,880 10,607,292 4,324,050 12,678,935 2,438,913 9,637,819 1,840,003 16,345,567 1,752,388 6,163,901 $ 2005 692,283 448,533 903,040 1,330,098 15,438,164 13,656,708 7,924,846 12,967,991 4,778,258 3,144,112 10,547,147 5,321,210 11,795,487 2,016,086 9,219,474 1,711,762 14,945,405 1,697,223 5,507,255 $ 2004 966,562 392,423 717,889 1,181,096 13,453,380 12,736,884 7,209,873 11,909,557 4,375,950 2,977,675 9,680,158 5,320,830 10,295,791 1,694,602 8,326,832 1,572,715 13,342,839 1,487,796 5,162,857 $ 1,005,583 398,258 652,564 1,077,131 11,524,499 12,241,302 6,643,795 10,755,773 4,073,329 3,035,060 8,358,294 4,854,340 8,975,667 1,908,177 7,186,639 1,439,838 12,318,173 1,438,709 4,750,837 5,251,204 5,464,288 5,769,952 5,237,758 4,761,529 4,269,944 28,561,461 67,316,835 28,191,302 63,729,963 26,626,181 58,057,110 24,771,576 52,903,982 23,099,159 47,486,042 21,470,055 41,648,161 219,269,042 1.11% $ 224,230,399 $ 218,520,031 1.15% 1.56% $ 206,958,398 $ 188,152,439 1.77% (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 2001 through 2008 were revised to reflect revisions made by the U.S. Bureau of Economic Analysis. Source: U.S. Bureau of Economic Analysis and Arizona Department of Revenue Annual Report. - 266 - 1.94% $ 170,026,128 1.68% Calendar Year Ended December 31 2003 $ $ 2002 731,608 359,899 568,278 1,043,710 10,379,641 11,754,138 6,001,515 10,055,878 3,720,148 2,982,886 7,848,643 4,150,748 8,156,394 1,598,978 6,568,021 1,165,114 11,093,907 1,347,898 4,328,034 $ 2001 763,907 348,540 562,242 1,036,530 10,159,027 11,581,992 5,900,156 9,368,279 3,520,402 2,962,772 7,240,812 4,129,856 8,039,619 1,429,896 6,203,543 1,029,270 10,050,149 1,344,317 4,129,811 $ 2000 746,773 354,692 629,836 960,134 9,762,082 12,169,075 5,915,014 9,050,471 3,488,777 2,980,889 6,988,682 3,756,910 8,068,423 1,467,964 6,204,100 816,618 9,206,683 1,266,419 4,050,905 $ 807,189 292,986 655,056 838,388 9,250,550 12,568,167 5,660,202 8,605,358 3,314,360 3,060,789 6,288,781 3,699,083 7,427,982 1,226,338 5,762,071 783,387 8,535,472 1,144,351 3,869,720 4,043,836 4,050,133 3,764,684 3,755,694 20,037,866 37,670,118 18,617,360 35,706,259 17,271,055 33,943,892 15,906,869 32,234,242 155,607,258 1.49% $ 148,174,872 1.42% $ 142,864,078 1.46% $ 135,687,035 1.70% - 267 - STATE OF ARIZONA SCHEDULE 8 PERSONAL INCOME TAX RATES FOR THE LAST TEN CALENDAR YEARS (Expressed in Thousands) Calendar Year Ended December 31 2009 AVERAGE EFFECTIVE RATE (3) Personal Income Tax Revenue (1) Personal Income (2) Average Effective Rate (3) $ $ 2008 2,423,215 219,269,042 1.11% 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% $ $ 2007 2,575,453 224,230,399 1.15% $ $ 2006 3,414,304 218,520,031 1.56% 2.59% 2.88% 3.36% 4.24% 4.54% $ $ 2.59% 2.88% 3.36% 4.24% 4.54% 2005 3,666,923 206,958,398 1.77% $ $ 3,651,576 188,152,439 1.94% 2.73% 3.04% 3.55% 4.48% 4.79% 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. Years 2000 through 2008 have been revised to reflect revisions made by the U.S. Bureau of Economic Analysis. (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 2007 AND 2000 (1) (Expressed in Thousands, Except Number of Filers) Taxable Year Ended December 31, 2007 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 1,778,062 555,092 285,248 16,045 67.49% 21.07% 10.83% 0.61% $ 438,462 673,036 1,136,239 996,710 13.52% 20.74% 35.02% 30.72% Total 2,634,447 100.00% $ 3,244,447 100.00% (1) The taxable year 2007 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 2007, filed from January 2008 forward (or 2000, filed from January 2001 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 Reports - 268 - Calendar Year Ended December 31 2004 $ $ 2003 2,854,009 170,026,128 1.68% 2.87% 3.20% 3.74% 4.72% 5.04% $ $ 2002 2,316,040 155,607,258 1.49% $ $ 2.87% 3.20% 3.74% 4.72% 5.04% 2001 2,104,362 148,174,872 1.42% 2.87% 3.20% 3.74% 4.72% 5.04% $ $ 2000 2,090,646 142,864,078 1.46% $ $ 2.87% 3.20% 3.74% 4.72% 5.04% Taxable Year Ended December 31, 2000 Number of Percentage Filers of Total Percentage Liability (2) of Total 1,442,618 322,391 95,712 5,602 77.30% 17.27% 5.13% 0.30% $ 412,823 464,724 470,266 341,104 24.44% 27.52% 27.84% 20.20% 1,866,323 100.00% $ 1,688,917 100.00% - 269 - 2,303,888 135,687,035 1.70% 2.87% 3.20% 3.74% 4.72% 5.04% STATE OF ARIZONA SCHEDULE 10 RATIOS OF OUTSTANDING DEBT BY TYPE FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2010 (Expressed in Thousands, Except Amount of Debt per Capita) Fiscal Year 2010 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) 2009 2008 2007 2006 2005 3,522,605 $ 304,480 2,571,125 412,919 901 60,712 334,721 (5,197) 7,202,266 3,251,580 $ 329,650 1,649,870 236,125 6,343 42,668 285,613 (9,171) 5,792,678 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 1,692,825 840,719 171,448 13,043 360 39,705 (23,100) 2,735,000 1,239,675 872,829 175,453 16,418 674 43,112 (25,294) 2,322,867 902,255 903,843 179,052 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 9,937,266 $ 4.5% $ 1,507 8,115,545 $ 6,713,979 3.6% $ 1,249 $ 3.1% $ 1,055 6,030,273 $ 2.9% $ 974 $ 5,681,447 $ 3.0% 5,692,311 3.3% 951 $ 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. Personal income amounts were revised by the U.S. Bureau of Economic Analysis for 2000-2008, which affected 2004-2008 debt ratios compared to the debt ratios reported in the fiscal year 2008 CAFR. - 270 - 988 Fiscal Year 2002, as 2004 $ 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 $ 5,209,277 3.3% $ 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 $ 932 $ 2001, as restated (1) 4,227,214 1,782,510 182,295 231,904 8,517 10,228 38,859 32,700 2,287,013 restated (2) $ 596,403 422,010 37,758 3,832 20,794 (8,999) 1,071,798 $ 2.9% 775 $ 3,358,811 1,882,765 182,295 186,447 9,390 9,767 19,766 2,290,430 540,019 244,934 29,259 1,634 815,846 $ 2.4% 633 $ 3,106,276 2.3% 601 - 271 - 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, 2010 (Expressed in Thousands) Total Principal Outstanding Debt Limit (1) Fiscal Year 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 Debt Limit $ Highest Annual Principal and Interest Payment Debt Limit (1) Total Principal Highest Total Applicable to Annual Principal and Principal the Limit as (2) Principal Interest Payment and Interest Applicable Legal Debt a Percentage Debt to Limit Margin of Debt Limit % 94.11 89.34 78.26 71.75 73.42 87.54 Limit 167,625 169,728 219,539 317,570 312,204 230,882 278,927 270,270 261,663 256,945 - $ 1,300,000 1,300,000 1,300,000 1,300,000 1,000,000 800,000 - $ 1,223,425 1,161,355 1,017,360 932,700 734,155 700,280 76,575 138,645 282,640 367,300 265,845 99,720 $ $ Payment 155,770 155,774 146,754 137,149 121,025 115,633 106,220 99,923 86,496 82,712 Highest Annual Legal Debt $ Margin 11,855 13,954 72,785 180,421 191,179 115,249 172,707 170,347 175,167 174,233 (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) 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 for Fiscal year 2010, 2009 and 2008 or by two for Fiscal years 2007 and prior. Fiscal year 2005 pledged revenues are net of a $118 million distribution to the State General Fund. STATE OF ARIZONA SCHEDULE 12 LEGAL DEBT MARGIN INFORMATION ARIZONA STATE UNIVERSITY FOR THE LAST FIVE FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2010 (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 2010 43,579 5.70 % 2009 $ 1,894,737 1,865,385 $ 151,579 149,231 $ 108,000 97,000 $ 52,231 5.20 % 2008 2,017,544 161,404 115,000 46,404 5.70 % 2007 1,880,769 150,462 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, 2008, 2009 and 2010, projections are based upon the University's fiscal years 2008-2010, 2009-2011, 2010-2012, 2011-2013 and 2012-2014 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. - 272 - as a Percentage of Debt Limit 92.93 % 91.78 66.85 43.19 38.76 50.08 38.08 36.97 33.06 32.19 STATE OF ARIZONA SCHEDULE 13 LEGAL DEBT MARGIN INFORMATION UNIVERSITY OF ARIZONA FOR THE LAST FOUR FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2010 (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 2010 $ 1,817,647 $ 145,412 $ 92,700 $ 52,712 5.10 % 2009 1,681,818 134,545 92,500 42,045 5.50 2008 1,681,132 134,491 89,100 45,391 5.30 2007 1,657,971 132,638 114,400 18,238 6.90 (1) Ten years of data is not available, but will be accumulated over time. (2) For fiscal years 2007, 2008, 2009 and 2010, projections are based upon the University's fiscal years 2009-2011, 2010-2012, 2011-2013 and 2012-2014 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. STATE OF ARIZONA SCHEDULE 14 LEGAL DEBT MARGIN INFORMATION NORTHERN ARIZONA UNIVERSITY FOR THE LAST FOUR FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2010 (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 2010 5,888 6.61 % 2009 $ 423,601 419,448 $ 33,888 33,556 $ 28,000 28,900 $ 4,656 6.89 2008 430,360 34,429 27,500 6,929 6.39 2007 410,811 32,865 30,400 2,465 7.40 (1) Ten years of data is not available, but will be accumulated over time. (2) For fiscal years 2007, 2008, 2009 and 2010, projections are based upon the University's fiscal years 2009-2011, 2010-2012, 2011-2013 and 2012-2014 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. - 273 - 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, 2010 (Expressed in Thousands) (1), (2) Fiscal Pledged Year Revenue 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 $ 502,874 509,183 658,616 635,140 624,408 461,763 557,854 540,540 523,326 513,890 Debt Service Principal $ 68,140 64,190 60,645 57,825 54,830 44,265 51,155 44,490 45,365 52,055 Interest $ 87,661 89,825 75,538 73,785 62,222 60,459 53,149 41,932 38,534 36,581 Total $ Coverage 155,801 154,015 136,183 131,610 117,052 104,724 104,304 86,422 83,899 88,636 3.2 3.3 4.8 4.8 5.3 4.4 5.3 6.3 6.2 5.8 (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 million distribution to the State General Fund. Fiscal year 2009 is net of $66 million and 2010 is net of $44 million distribution to the State General Fund. STATE OF ARIZONA SCHEDULE 16 PLEDGED-REVENUE COVERAGE ARIZONA TRANSPORTATION BOARD TRANSPORTATION EXCISE TAX REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2010 (Expressed in Thousands) (1) Fiscal Year 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 Pledged $ Revenue 199,672 219,165 253,742 262,264 316,491 316,806 288,600 268,721 267,563 264,722 Debt Service $ Principal 33,315 13,825 19,045 80,375 208,625 199,400 190,415 163,455 156,865 $ Interest 38,225 17,193 10,673 1,566 14,318 23,553 31,533 35,445 40,035 $ Total 71,540 31,018 29,718 81,941 222,943 222,953 221,948 198,900 196,900 Coverage 2.8 7.1 8.5 N/A 3.9 1.4 1.3 1.2 1.3 1.3 (1) The Bonds are secured by transportation excise taxes collected by the Arizona Department of Revenue on behalf of Maricopa County. - 274 - STATE OF ARIZONA SCHEDULE 17 PLEDGED-REVENUE COVERAGE SCHOOL FACILITIES BOARD STATE SCHOOL IMPROVEMENT REVENUE BONDS FOR THE LAST NINE FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2010 (Expressed in Thousands) (2) Fiscal Year 2010 (3) Pledged Debt Service Revenue $ 2009 2008 2007 2006 2005 2004 2003 2002 504,392 Principal $ 558,900 645,828 666,184 628,471 538,346 487,215 447,841 439,005 37,230 Interest $ 27,074 35,420 33,810 31,055 34,480 28,485 27,215 25,010 43,035 Total $ 28,885 30,498 31,893 30,052 36,060 37,568 36,901 26,962 Coverage 64,304 7.84 64,305 64,308 62,948 64,532 64,545 64,783 61,911 69,997 8.69 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 SEVEN FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2010 (Expressed in Thousands) (2) Fiscal Year 2010 2009 2008 2007 2006 2005 2004 (3) Pledged Debt Service Revenue $ N/A 72,263 72,263 72,263 72,263 72,263 64,903 Principal $ N/A 15,105 14,470 13,980 13,440 13,740 - Interest $ N/A 9,143 8,400 11,524 12,061 11,960 8,634 Total $ Coverage N/A N/A 24,248 22,870 25,504 25,501 25,700 8,634 2.98 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. - 275 - STATE OF ARIZONA SCHEDULE 19 PLEDGED-REVENUE COVERAGE ARIZONA STATE UNIVERSITY REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2010 (Expressed in Thousands) Debt Service (1) Fiscal Pledged Year Revenue 2010 $ 782,727 Net Payments (Receipts) On Principal $ 26,975 Interest $ 33,003 Swap Agreements $ 3,716 Total $ Coverage 63,694 12.29 2009 702,797 21,555 21,896 3,692 47,143 14.91 2008 2007 2006 2005 2004 2003 2002 2001 638,707 580,102 505,890 458,177 383,756 325,626 297,691 274,596 19,135 17,125 14,625 11,205 1,340 9,695 9,785 16,682 21,339 17,313 16,307 16,260 13,754 9,575 12,139 2,448 186 - 38,265 38,650 31,938 27,512 17,600 13,754 19,270 21,924 16.69 15.01 15.84 16.65 21.80 23.68 15.45 12.52 (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. - 276 - STATE OF ARIZONA SCHEDULE 20 PLEDGED-REVENUE COVERAGE UNIVERSITY OF ARIZONA REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2010 (Expressed in Thousands) (1) Fiscal Year 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 $ (1), (2) Direct Net Revenue Gross Operating Available for Revenues 1,128,091 1,044,354 1,113,954 982,559 897,706 830,077 778,939 726,258 670,326 710,423 $ Expenses 962,469 911,440 1,005,572 899,084 836,657 774,014 727,161 667,627 625,664 663,284 Debt Service $ 165,622 132,914 108,382 83,475 61,049 56,063 51,778 58,631 44,662 47,139 Debt Service $ Principal 23,860 22,725 21,235 17,440 12,355 11,815 10,970 12,625 9,946 12,415 $ Interest 24,593 15,437 14,978 14,166 13,433 11,817 11,706 12,156 15,500 16,359 $ (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 student tuition and fees, auxiliary enterprise revenue, sales and service revenue, and other operating revenues, such as indirect cost recovery and certain investment income. STATE OF ARIZONA SCHEDULE 21 PLEDGED-REVENUE COVERAGE NORTHERN ARIZONA UNIVERSITY REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2010 (Expressed in Thousands) (1) Fiscal Gross Year Revenues 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 $ 198,197 164,877 143,733 136,100 129,608 110,981 103,192 85,294 82,839 78,907 Debt Service Principal $ 6,545 6,570 10,455 9,610 10,310 10,065 10,294 9,426 6,932 6,214 Interest $ 10,912 7,383 6,628 5,943 6,603 6,060 5,778 5,066 3,949 5,246 Total $ Coverage 17,457 11.35 13,953 17,083 15,553 16,913 16,125 16,072 14,492 10,881 11,460 11.82 8.41 8.75 7.66 6.88 6.42 5.89 7.61 6.89 (1) Payment of principal and interest on revenue bonds are secured by a pledge of student tuition and fees and certain auxiliary enterprise revenue, investment income and indirect cost recovery revenue. - 277 - Total 48,453 38,162 36,213 31,606 25,788 23,632 22,676 24,781 25,446 28,774 Coverage 3.42 3.48 2.99 2.64 2.37 2.37 2.28 2.37 1.76 1.64 STATE OF ARIZONA SCHEDULE 22 DEMOGRAPHIC AND ECONOMIC STATISTICS FOR THE LAST TEN CALENDAR YEARS Calendar Year Ended December 31 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 Population (1,3) 6,595,778 6,499,377 6,362,241 6,192,100 5,974,834 5,759,425 5,591,206 5,452,108 5,304,417 5,166,697 Personal Income (3) (in thousands) $ 219,269,042 224,230,399 218,520,031 206,958,398 188,152,439 170,026,128 155,607,258 148,174,872 142,864,078 135,687,035 Per Capita Personal (2) Income $ 33,244 34,500 34,346 33,423 31,491 29,521 27,831 27,178 26,933 26,262 Unemployment Rate (4) 9.1 5.9 3.9 4.2 4.7 5.0 5.7 6.0 4.7 4.0 (1) These are midyear population estimates of the U.S. Bureau of the Census. (2) Per capita personal income is total personal income divided by total midyear population estimates of the U.S. Bureau of the Census. (3) Population and personal income estimates were revised to reflect revisions made by the U.S. Bureau of Economic Analysis. (4) Unemployment rates were revised to reflect revisions made by the Arizona Department of Commerce. 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 Transportation CAFR 2010 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 Wells Fargo & Co. Maricopa County Apollo Group Inc. Arizona State University Raytheon Missile Systems Honeywell International Motorola The Kroger Co. U.S. Postal Service Total Calendar Year Ended December 31, 2009 Full-Time Percentage Equivalent of Total State Employees Rank Employment 52,420 1 1.67 % 31,280 2 1.00 27,431 3 0.87 16,375 4 0.52 14,000 5 0.45 12,996 6 0.41 12,299 7 0.39 12,043 8 0.38 11,500 9 0.37 10,145 10 0.32 200,489 6.38 (1) Formerly known as Samaritan Health Systems. Source: Arizona Department of Transportation CAFR 2010 - 278 - % Calendar Year Ended December 31, 2000 Full-Time Percentage Equivalent of Total State Employees Rank Employment 59,348 1 2.37 % 13,800 6 0.55 13,973 4 0.56 12,917 7 0.52 13,860 5 0.55 9,700 10 0.39 17,500 2 0.70 15,500 3 0.62 9,837 8 0.39 3,756 9 0.39 170,191 7.04 % STATE OF ARIZONA SCHEDULE 24 STATE EMPLOYEES BY FUNCTION (1) FOR THE LAST SEVEN FISCAL YEARS (2) FISCAL YEAR ENDED JUNE 30, 2010 Fiscal Year 2010 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 2009 2008 2007 2006 2005 104.0 236.0 863.0 2,746.5 110.0 236.0 1,164.0 2,989.2 110.0 235.0 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 4,201.0 1,484.0 1,538.6 966.5 1,820.7 4,201.0 1,635.8 1,699.1 981.5 1,943.1 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 15,664.5 972.4 17,353.5 1,003.4 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 1,050.7 2,099.8 118.4 4,548.0 956.7 9,932.5 1,163.7 2,114.8 134.9 4,748.0 1,009.7 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 49,126.7 52,420.2 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). - 279 - 2004 STATE OF ARIZONA SCHEDULE 25 OPERATING INDICATORS BY FUNCTION FOR THE LAST TEN FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2010 2010 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 (11) 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) 2009 2006 2005 2004 5.2 5.7 5.6 5.5 5.5 6.0 6.0 1,392,420 1,282,910 1,136,585 1,075,125 1,065,444 1,075,873 971,292 N/A 83,969 80,221 82,408 93,553 105,517 122,577 N/A 779,089 600,549 537,072 546,424 546,369 521,992 75.2 3.7 84.0 3.9 101.8 4.6 99.4 4.6 97.0 4.9 87.1 4.7 85.7 4.8 1,068,987 1,062,618 0 1,106,207 1,084,247 1,043,704 1,002,630 21,987,920 39,628 21,881,034 38,897 20,282,212 37,088 19,703,282 34,864 19,922,704 32,710 19,229,079 31,937 6,692,834 1,246,358 6,733,610 1,200,227 6,608,726 1,266,973 6,318,402 1,205,068 5,945,131 1,158,223 5,638,799 1,122,893 874,363 896,143 940,223 897,159 808,055 835,669 122,734 118,743 113,092 110,580 107,765 104,685 102,461 363,189 396,755 0 185,397 161,869 200,282 227,585 1,781 128 2,244 103 2,748 118 3,265 133 2,744 124 3,281 102 3,300 139 N/A 40,477 6,740,536 1,241,977 N/A $ Fiscal Year 2007 2008 551.5 10,760 $ 484.5 14,560 $ 472.9 21,646 $ 462.2 26,914 $ 468.7 $ 21,600 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 2009 contains data from the October 1, 2008 enrollment figures. Starting with the 2008-09 school year, due to federal requirements new business rules were used to calculate enrollment, so that counts are unduplicated. Prior to this, the 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 to 2008, 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. (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. (11) Fiscal year 2008 number was revised to reflect the Departments 2009 annual report. 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. - 280 - 397.6 14,626 $ 366.6 11,218 Fiscal Year 2002 2003 $ 2001 5.3 6.3 955,600 791,000 609,000 121,193 109,547 93,857 442,320 355,722 277,192 95.9 5.1 113.1 5.9 112.8 6.0 970,283 915,656 878,987 18,363,977 30,898 18,160,134 29,273 5,311,590 1,039,780 5,118,115 1,072,245 4,639,405 973,476 865,634 898,453 986,691 100,258 96,603 92,725 255,579 255,303 187,697 2,954 150 3,986 121 322.3 11,400 $ 294.8 12,100 N/A N/A 27,451 N/A N/A $ 272.7 N/A - 281 - STATE OF ARIZONA SCHEDULE 26 CAPITAL ASSET STATISTICS BY FUNCTION FOR THE LAST TEN FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2010 Fiscal Year 2010 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) 2009 2008 2007 2006 2005 2004 10 10 10 10 10 10 10 6,789 4,700 6,753 4,648 6,785 4,637 6,817 4,648 6,922 4,676 6,816 4,608 6,912 4,488 9,259,296 9,260,253 9,262,781 9,267,377 9,269,723 9,271,580 1,670 37,186 1,669 36,000 1,663 34,946 1,002 20,154 N/A 1,737 37,589 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. (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. - 282 - N/A N/A Fiscal Year 2003 2002 2001 10 10 6,801 4,463 6,650 4,378 9,279,243 9,266,158 N/A N/A N/A N/A 10 N/A N/A 9,271,921 N/A N/A - 283 - ACKNOWLEDGMENTS The Comprehensive Annual Financial Report was prepared by the Department of Administration, General Accounting Office, Financial Reporting Section: Ron Santa Cruz Michael J. Kallaur, CPA Chris Freitag, CPA Cody Johnson, MBA Celine Baker, MA, CPA Gary Kern Tatyana Shevnina Adaline, MBA 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.