STATE OF ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2013 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 Position ................................................................................................................................... Universities - Affiliated Component Units –Statement of Financial Position....................................................... Statement of Activities ....................................................................................................................................... Universities - Affiliated Component Units –Statement of Activities ................................................................... Governmental Funds Financial Statements: Balance Sheet .................................................................................................................................................... Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position ................................. 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 Funds Financial Statements: Statement of Net Position ................................................................................................................................... Statement of Revenues, Expenses and Changes in Fund Net Position .................................................................. Statement of Cash Flows .................................................................................................................................... 50 52 54 Fiduciary Funds Financial Statements: Statement of Fiduciary Net Position ................................................................................................................... Statement of Changes in Fiduciary Net Position.................................................................................................. 56 57 Component Units Financial Statements: Combining Statement of Net Position ................................................................................................................. Combining Statement of Activities ..................................................................................................................... 58 60 Universities –Affiliated Component Units Financial Statements: Combining Statement of Financial Position ........................................................................................................ Combining Statement of Activities ..................................................................................................................... 62 63 Notes to the Financial Statements ......................................................................................................................... 64 REQUIRED SUPPLEMENTARY INFORMATION Budgetary Comparison Schedule, Expenditures –General Fund............................................................................... Budgetary Comparison Schedule, Expenditures –Transportation and Aviation Planning, Highway Maintenance and Safety Fund ................................................................................................................................ Notes to Required Supplementary Information –Budgetary Comparison Schedules ................................................. Infrastructure Assets................................................................................................................................................ Agent Benefit Plans’Funding Progress .................................................................................................................... i 133 142 143 146 150 STATE OF ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS (CONTINUED) FINANCIAL SECTION - CONCLUDED COMBINING FINANCIAL STATEMENTS AND SCHEDULES Non-major Governmental Funds: Combining Balance Sheet .................................................................................................................................. Combining Statement of Revenues, Expenditures and Changes in Fund Balances ............................................... Page 154 155 Non-major Special Revenue Funds: Combining Balance Sheet............................................................................................................................ Combining Statement of Revenues, Expenditures and Changes in Fund Balances ........................................ Budgetary Comparison Schedule, Expenditures ........................................................................................... 158 160 162 Land Endowments Fund: Budgetary Comparison Schedule, Expenditures ........................................................................................... 168 Non-major Debt Service Funds: Combining Balance Sheet............................................................................................................................ Combining Statement of Revenues, Expenditures and Changes in Fund Balances ........................................ 170 171 Non-major Capital Projects Funds: Combining Balance Sheet............................................................................................................................ Combining Statement of Revenues, Expenditures and Changes in Fund Balances........................................ 174 175 Non-major Proprietary Funds: Non-major Enterprise Funds: Combining Statement of Net Position .......................................................................................................... Combining Statement of Revenues, Expenses and Changes in Fund Net Position ......................................... Combining Statement of Cash Flows ........................................................................................................... 178 180 182 Internal Service Funds: Combining Statement of Net Position .......................................................................................................... Combining Statement of Revenues, Expenses and Changes in Fund Net Position ......................................... Combining Statement of Cash Flows ........................................................................................................... 186 188 190 Fiduciary Funds: Pension and Other Employee Benefit Trust Funds: Combining Statement of Fiduciary Net Position........................................................................................... Combining Statement of Changes in Fiduciary Net Position ........................................................................ 194 196 Investment Trust Funds: Combining Statement of Fiduciary Net Position........................................................................................... Combining Statement of Changes in Fiduciary Net Position ........................................................................ 200 201 Agency Funds: Combining Statement of Assets and Liabilities ........................................................................................... Combining Statement of Changes in Assets and Liabilities.......................................................................... 205 206 Non-major Component Units: Combining Statement of Net Position ................................................................................................................. Combining Statement of Activities ..................................................................................................................... 210 212 Non-major Universities –Affiliated Component Units: Combining Statement of Financial Position ........................................................................................................ Combining Statement of Activities ..................................................................................................................... 216 218 ii STATE OF ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS (CONCLUDED) STATISTICAL SECTION (Not Covered by the Independent Auditors' Report) Financial Trends: Schedule 1 –Net Position by Component for the Last Ten Fiscal Years ................................................................... Schedule 2 –Changes in Net Position for the Last Ten Fiscal Years ......................................................................... Schedule 3 –Fund Balances, Governmental Funds for the Last Ten Fiscal Years ..................................................... Schedule 4 –Changes in Fund Balances, Governmental Funds for the Last Ten Fiscal Years.................................... Page 224 226 230 232 Revenue Capacity: Schedule 5 –Net Taxable Sales by Classification for the Last Ten Fiscal Years ....................................................... Schedule 6 –Sales Tax Revenue Payers by Classification, Current Year and Nine Years Ago .................................. Schedule 7 –Personal Income by Industry for the Last Ten Calendar Years ............................................................. Schedule 8 –Personal Income Tax Rates for the Last Ten Calendar Years ............................................................... Schedule 9 –Personal Income Tax Filers and Liability by Income Level for the Taxable Years 2010 and 2003 ........ 236 239 240 242 242 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 Eight Fiscal Years ................ Schedule 13 –Legal Debt Margin Information, University of Arizona, for the Last Seven Fiscal Years................... Schedule 14 –Legal Debt Margin Information, Northern Arizona University, for the Last Seven 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 Ten Fiscal Years ........................................................................................................... Schedule 18 –Pledged-Revenue Coverage, School Facilities Board State School Trust Revenue Bonds for the Last Ten Fiscal Years ........................................................................................................... Schedule 19 –Pledged-Revenue Coverage, Lottery Revenue Bonds for the Last Three Fiscal Years ........................................................................................................ Schedule 20 –Pledged-Revenue Coverage, Arizona State University Revenue Bonds for the Last Ten Fiscal Years ........................................................................................................... Schedule 21 –Pledged-Revenue Coverage, University of Arizona Revenue Bonds for the Last Ten Fiscal Years ........................................................................................................... Schedule 22 –Pledged-Revenue Coverage, Northern Arizona University Revenue Bonds for the Last Ten Fiscal Years ........................................................................................................... 244 246 246 247 247 248 248 249 249 250 250 251 251 Demographic and Economic Information: Schedule 23 –Demographic and Economic Statistics for the Last Ten Calendar Years ............................................. Schedule 24 –Principal Employers, Current Year and Nine Years Ago .................................................................... 253 253 Operating Information: Schedule 25 –State Employees by Function for the Last Ten Fiscal Years ............................................................... Schedule 26 –Operating Indicators by Function for the Last Ten Fiscal Years ......................................................... Schedule 27 –Capital Asset Statistics by Function for the Last Ten Fiscal Years ..................................................... 254 256 258 iii INTRODUCTORY SECTION INTRODUCTORY SECTION Janice K. Brewer Brian C. McNeil Governor Director ARIZONA DEPARTMENT OF ADMINISTRATION OFFICE OF THE DIRECTOR 100 NORTH FIFTEENTH AVENUE i SUITE 401 PHOENIX, ARIZONA 85007 (602) 542-1500 December 30, 2013 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, 2013. 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 is 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 financial reporting entity of the State 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, A.R.S. § 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- FINANCIAL REPORTING ENTITY OF THE STATE The accompanying CAFR includes all funds of the State (primary government), as well as its component units. Blended component units, although legally separate entities, are in substance part of a government's operations. Therefore, data from these units is combined with data of the primary government. Discretely presented component units are shown separately to emphasize that they are legally separate from the primary government and to differentiate their financial position and results of operations from those of the primary government. Discretely presented component units prepared in accordance with the Governmental Accounting Standards Board (GASB) are reported in a separate column in the government-wide financial statements. Discretely presented component units prepared in accordance with the Financial Accounting Standards Board are presented as separate financial statements immediately following the government-wide financial statements to emphasize that they are prepared in accordance with accounting standards other than those promulgated by the GASB. The criteria for inclusion in the financial 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. ARIZONA The State of Arizona was admitted to the Union as the 48th state in 1912. Arizona is the sixth largest state by area, with 113,909 square miles. Arizona is known for the Grand Canyon, one of the Seven Wonders of the World, and its cacti and other desert landscape. A number of national forests, four national parks, eighteen national monuments, and over 20 million acres of Native American reservations and tribal communities are located in Arizona. PROFILE OF THE GOVERNMENT 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 Court, justice of the peace courts, and municipal courts. The Superior Court, justice of the peace courts, and municipal courts are excluded from the financial reporting entity of the State as these entities do not meet GASB criteria for inclusion. 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. 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 the passage of appropriation bills by the Legislature and approved 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 that 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 $21 $20 $19 $18 2009 2010 2011 Revenues 2012 2013 Expenditures The General Fund ended the June 30, 2013, fiscal year with a total fund balance of $423.2 million. This compares to the previous year’s total fund balance deficit of $79.7 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) $500 $0 ($500) ($1,000) 2009 2010 2011 2012 2013 ECONOMIC CONDITION AND OUTLOOK The following economic summary is based on the Arizona Department of Administration's Employment Forecast Update, for calendar years 2013-2014, released on November 07, 2013. Overview The Office of Employment and Population Statistics (EPS) within the Arizona Department of Administration produces an updated industry forecast every year as additional information becomes available from various data sources. As per the updated forecast for 2013, Arizona’s year-over-year average employment growth rate exceeded the national average in both 2012 and year-to-date in 2013. Despite the forecasted employment growth in ten of the eleven major sectors in 2013 and 2014, overall nonfarm employment levels remain well below their prerecession peak. The housing market remains encouraging with continued increase in home prices in Arizona and other states. Private residential construction sectors have seen an improvement in hiring. An uptick in hiring has been -3- observed in the financial sectors as well. Although, the economic fundamentals continue to improve, ongoing federal budget battles create uncertainty and hamper growth. Overall, the nonfarm employment growth rate has been dampened by the effects of sequestration, the payroll tax increase, the October 2013 partial shutdown of the federal government, and continued conflict over the federal debt ceiling. Arizona’s reliance on federal government outlays, due to its dependence on defense related industries, puts the State at further risk if another round of spending cuts were to happen. The overall employment situation in Arizona continues to improve. This is consistent with improvement seen in many economic indicators including population growth. Compared to 2012, the population grew faster in 2013 based on the EPS’internal preliminary numbers. Previously released population projections also call for faster population growth in 2014. Arizona’s nonfarm employment will continue to grow gradually. A moderate improvement in Arizona’s nonfarm employment is expected in 2014. An over-the-year gain of 48,500 nonfarm jobs is expected in 2013 and 59,000 in 2014. In the current forecast, the rate of growth projected for total nonfarm employment is 1.97 percent in 2013 and 2.35 percent in 2014. A total of 107,500 nonfarm jobs are forecast to be gained over the two projected years (2013 and 2014). The following factors supporting Arizona’s economic growth continue to persist. i i i i i Continued improvement in real Gross Domestic Product, real personal income at the state and national levels, employment, and retail sales. Continued employment gains in the private sector, increasing private domestic investment, a gradual increase in the index of industrial production and rate of capacity utilization, high levels of corporate profit, and a gradual resurgence in private residential construction permits. Continued gradual climb in household net worth and U.S. exports. Residential real estate markets in Arizona and the metropolitan areas of Phoenix and Tucson are showing an improvement as measured by various indicators. These include rising levels of building permits. Also, home prices in Arizona have been rising. While revolving consumer credit levels have remained flat, an expansion of non-revolving consumer credit since 2011 has served as an impetus to expanding economic activity. Consumer sentiment and consumer spending have shown signs of improvement, but the rate of growth has been slowing down. Some of the factors that could further dampen the growth of the local economy continue to persist. However, the positive factors listed above outweigh the uncertainties in the sections described below in support of the EPS’forecast: i i i i i i Constrained budgets persist for a large majority of households. Despite some job growth and decline in the unemployment rate, many consumers in the U.S. continue to face employment insecurity, lower wages and benefits, high levels of debt, and rising prices for essentials such as food, energy, and health care that limit the amount of funds available for discretionary spending. The residential real estate market has improved. However, with interest rates rising, the demand may slow down. Although real business investment continues to grow, the rate of growth has slowed as a consequence of demand uncertainty. Public sector fiscal consolidation through spending reductions (March 2013), tax increases (January 2013), and a partial federal government shutdown (October 2013) have increased economic uncertainty and reduced spending. With another round of spending cuts looming, the future remains uncertain. Reduced spending in both civilian and military programs, coupled with increased taxes, could lower the aggregate demand in the U.S. economy, thereby slowing the rate of economic and employment growth. Arizona is one of the states in the nation most vulnerable to federal government expenditure reductions because of the large proportion of military spending in the State’s economy. Reductions in federal government expenditures are projected to have the greatest impact in the following major industry sectors: Manufacturing, Retail Trade, Professional and Business Services, and Government. Besides the federal government, state and local governments continue to have budget problems. The most recent partial federal government shutdown in October 2013 is estimated to reduce fourth quarter U.S. economic growth by 0.3 percent to 0.6 percent, or by $12 billion to $24 billion. The year 2013 is expected to have a real annual average Gross Domestic Product growth rate of slightly less than 2.0 percent. The most recent threat of not raising the federal government debt ceiling resulted in a short lived spike in short-term interest rates and a decline in consumer confidence. The shutdown and debt ceiling conflict have increased economic uncertainty and made investment planning more problematic. In response to the increased economic uncertainty, many corporations are holding their profits as cash instead of investing. -4- In addition to the factors aforementioned, there are some grounds for limited optimism on the international front: i i A gradual recovery is emerging in the Euro Monetary Zone economies, despite the tightening of the fiscal policy in some of these economies, which could have a slight stimulating effect. Countries in the Euro Monetary Zone serve as important markets for U.S. exports. They also serve as a source of foreign investment funds for U.S. financial markets. However, Arizona’s trade with the European economies is limited. Asia and Latin America are projected to have a slight increase in economic growth which might bolster demand for exports fabricated in the U.S. and Arizona. Individual Sectors The Professional and Business Services sector is projected to have an increase of 14,300 jobs, or 4.0 percent, in 2013 and 18,100 jobs, or 4.9 percent, in 2014. The sub-sectors with the largest projected job gains over the projection period include Employment Services along with Professional, Scientific, and Technical Services. Business firms are expected to hire contingent labor as a lower-cost means to expand output during these uncertain times. All sub-sectors in the Professional and Business Services sector are projected to gain employment during the two-year forecast period. The Construction sector is forecast to gain 8,200 jobs, or 7.1 percent, in 2013 and 8,800 jobs, or 7.1 percent, in 2014. Job gains are forecast across all Construction sub-sectors with the largest employment gains expected in the Specialty Trades sub-sector. One indicator showing increased activity in private residential construction is single-family housing permits, which has increased by 14.2 percent year-to-date in 2013. The Western Blue Chip Consensus forecast for single-family housing permits of 23.3 percent for 2013 and 29.3 percent in 2014 also supports an employment increase in the Construction sector. Other factors supporting growth in this sector are: home repair and maintenance activities, new infrastructure projects such as the expansion of light rail in Phoenix, and the development of new metal-ore mines. The Educational and Health Services sector is forecast to gain 5,700 jobs, or 1.6 percent, in 2013 and 8,800 jobs, or 2.4 percent, in 2014. The largest projected increase in employment is forecast in the sub-sector of Ambulatory Health Care Services. Increases are also expected in the Nursing and Residential Care Services and Social Assistance sectors. Hospitals are projected to have no change in employment levels in 2013 and have slight job gains in 2014. Expansions in state spending through the provisions of the federal 2010 Affordable Care Act are projected to bolster employment growth in the health care services related sectors. Federal government budget reductions, especially the sequester, the partial shutdown, and conflict over increasing the debt ceiling, have the potential of curtailing employment growth in the health care sectors. Sub-sectors within Private Educational Services are forecast to have reductions in employment. More individuals leave school, to re-enter the workforce as the economy gradually improves, or shun the pursuit of higher education to avoid acquiring non-payable levels of student debt. The Leisure and Hospitality sector is projected to have an increase of 5,700 jobs, or 2.1 percent, in 2013 and 7,600 jobs, or 2.8 percent, in 2014. The sub-sectors with the largest projected job gains are Food Services and Drinking Places. Fewer job gains are forecast in the sub-sectors of Accommodations and Arts, Entertainment and Recreation. Sequestration cuts, a tighter fiscal environment, and the partial federal government shutdown are expected to limit business and recreational related travel. However, domestic and international tourism demand is projected to bolster employment in the Leisure and Hospitality sector. The Financial Activities sector is projected to have an employment increase of 6,500 jobs, or 3.7 percent, in 2013 and 4,600 jobs, or 2.5 percent, in 2014. The job growth in Financial Activities over the two-year period is projected to slow in 2014 when compared to 2013. The employment forecast is reinforced by rising interest rates in 2014, which could hinder employment growth in this sector. During the 2013 and 2014 forecast time frame, the sub-sectors with the largest projected gains in employment are: Credit Intermediation and Monetary Authorities; Insurance, Funds, and Trusts; Real Estate, Rental, and Leasing; and Securities, Commodities Contracts, and Investments. The Trade, Transportation, and Utilities sector is forecast to gain 2,900 jobs, or 0.6 percent, in 2013 and 5,500 jobs, or 1.2 percent, in 2014. Retail Trade is the Trade, Transportation, and Utilities sub-sector with the largest projected employment gain, with the majority of these gains coming from Motor Vehicles and Parts Dealers. Fewer gains are forecast in the Wholesale Trade, Transportation, Warehousing, and Utilities sectors. Within the Retail Trade sub-sectors, all components are projected to post employment gains. However, Air Transportation, which is a sub-sector of Transportation, Warehousing, and Utilities, is forecast to have job losses as a consequence of industry consolidation and looming budget cuts. The Government sector is forecast to gain 2,900 jobs, or 0.7 percent, in 2013 and 3,000 jobs, or 0.7 percent, in 2014. The majority of projected increases in employment from 2012 to 2014 are expected in the sub-sectors of public education at the State level, and the education and non-education sectors at the Local Government level. However, job losses are projected for the Federal Government and the non-education sectors of the State Government. -5- ARIZONA STATE GOVERNMENT ORGANIZATION ELECTORATE LEGISLATIVE BRANCH EXECUTIVE BRANCH STATE HOUSE OF REPRESENTATIVES* STATE SENATE* JUDICIAL BRANCH GOVERNOR* SUPREME COURT AUDITOR GENERAL LEGISLATIVE COUNCIL JOINT LEGISLATIVE BUDGET COMM. SECRETARY OF STATE* ATTORNEY GENERAL* STATE 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, 2013 ELECTED OFFICIALS Janice K. Brewer, Governor John Huppenthal, Superintendent of Public Instruction Senator Andy Biggs, President of the Senate Bob Stump, Chairman –Corporation Commission Representative Andy Tobin, Speaker of the House Bob Burns, Commissioner –Corporation Commission Ken Bennett, Secretary of State Brenda Burns, Commissioner –Corporation Commission Tom Horne, Attorney General Gary Pierce, Commissioner –Corporation Commission Joe Hart, State Mine Inspector Susan Bitter Smith, Commissioner –Corporation Commission Doug Ducey, State Treasurer APPOINTED OFFICIALS Executive Officials Judicial Officials Brian C. McNeil, Director –Department of Administration Rebecca White Berch, Chief Justice – Supreme Court Charles L. Ryan, Director –Department of Corrections Legislative Officials Clarence H. Carter, Director –Department of Economic Security Michael E. Braun, Executive Director –Legislative Council David Raber, Acting Director –Department of Revenue from October 2, 2013 John A. Greene, Director –Department of Revenue through October 2, 2013 Richard Stavneak, Director –Joint Legislative Budget Committee Debra K. Davenport, CPA, Auditor General –Office of the Auditor General Robert Halliday, Director –Department of Public Safety University Officials Will Humble, Director –Department of Health Services Dr. Michael M. Crow, President –Arizona State University Tom Betlach, Director –Arizona Health Care Cost Containment System Dr. John D. Haeger, President –Northern Arizona University John S. Halikowski, Director –Department of Transportation Dr. Ann W. Hart, 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 Andy Biggs, President Arizona State Senate The Honorable Andy Tobin, Speaker Arizona House of Representatives The Honorable Rebecca White Berch, Chief Justice Arizona Supreme Court Report on the Financial Statements 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, 2013, and the related notes to the financial statements, which collectively comprise the State’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of certain departments, the State’s retirement plans, and the aggregate 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 Department of Transportation Arizona Health Care Cost Containment System Early Childhood Development and Health Board Business-type activities: Arizona Correctional Industries Arizona Department of Transportation 2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA Assets Revenues/Additions/ Other Financing Sources 63.31% 3.22% 1.30% 11.13% 16.70% 0.51% 0.26% 1.08% 0.71% 0.10% 85018 • (602) 553-0333 • FAX (602) 553-0051 Opinion Unit/Department Arizona Health Care Cost Containment System Arizona State Lottery Aggregate discretely presented component units Fund Statements Major Governmental Funds: General Fund—Arizona Health Care Cost Containment System Transportation and Aviation Planning, Highway Maintenance and Safety Fund— Arizona Department of Transportation Aggregate Remaining Fund Information: Arizona Correctional Industries Arizona Department of Transportation Arizona Health Care Cost Containment System Arizona State Lottery Arizona State Retirement System Corrections Officer Retirement Plan Early Childhood Development and Health Board Elected Officials’ Retirement Plan Public Safety Personnel Retirement System Assets Revenues/Additions/ Other Financing Sources 0.13% 1.33% 100.00% 0.49% 12.45% 100.00% 26.52% 19.88% 100.00% 100.00% 0.04% 1.24% 0.15% 0.20% 64.93% 2.97% 0.88% 0.65% 11.62% 0.31% 9.24% 1.29% 5.43% 43.98% 2.00% 1.05% 0.48% 8.16% Those statements were audited by other auditors whose reports 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 from material misstatement. The financial statements of the Arizona Power Authority, Rio Nuevo Multipurpose Facility District, the University of Arizona Health Network and Subsidiaries, and the Universities—Affiliated Component Units, except for those of the University Public Schools, Inc., which were reported as discretely presented component units, were not audited by the other auditors in accordance with Government Auditing Standards. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the State’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the State’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 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, 2013, and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in accordance with U.S. generally accepted accounting principles. Other Matters Required Supplementary Information U.S. generally accepted accounting principles require that the Management’s Discussion and Analysis on pages 21 through 33, the Budgetary Comparison Schedules on pages 133 through 145, the Schedule of Agent Retirement Plans’ Funding Progress on page 150, and the Infrastructure Assets information on pages 146 through 149 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We and the other auditors have applied certain limited procedures to the required supplementary information in accordance with U.S. generally accepted auditing standards, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary and Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the State’s basic financial statements. The combining and individual fund statements and schedules and the introductory and statistical sections 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 and individual fund statements and schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with U.S. generally accepted auditing standards. In our opinion, based on our audit, the procedures performed as described above, and the reports of the other auditors, the combining and individual fund statements and schedules are fairly stated, in all material respects, in relation to the basic financial statements 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 do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we will 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 in considering the State’s internal control over financial reporting and compliance. Debbie Davenport Auditor General December 30, 2013 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, 2013. 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 and deferred outflow of resources of the State exceeded liabilities at the close of the fiscal year by $24.1 billion (reported as net position). Of this amount, a deficit of $1.5 billion exists for unrestricted net position, $6.7 billion is restricted for specific purposes (restricted net position), and $18.9 billion is net investment in capital assets. i The State’s total net position increased in fiscal year 2013 by $2.3 billion. Net position of governmental activities increased by $2.0 billion, while net position of the business-type activities increased by $338.7 million. Fund Level: i As of the close of the fiscal year, the State’s governmental funds reported combined ending fund balances of $7.1 billion, an increase of $1.4 billion from the beginning of the year. After accounting for non-spendable, restricted, and committed fund balances of $4.1 billion, $2.1 billion, and $734.3 million, respectively, the State’s unassigned fund balance was $130.7 million, or 2% of combined fund balances. i As of the close of the fiscal year, unassigned fund balance for the General Fund was $156.9 million, which is approximately 1% of total General Fund expenditures. i The Land Endowments Fund reported fund balance at fiscal year-end of $4.1 billion, an increase of $697.1 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 position at fiscal year-end of $3.1 billion, an increase of $340.4 million during the year. Long-term Debt: i The State’s total long-term primary government debt increased during the fiscal year to $10.4 billion, an increase of $149.0 million (or 1%). Changes during the year included the addition of revenue bonds and certificates of participation, of $1.4 billion and $163.6 million, respectively. Included in the increase in long-term primary government debt are increases in net issuance premiums of $185.8 million and increases in deferred amounts on refundings of $36.6 million. Also, the State retired $1.2 billion of revenue bonds, $39.0 million of grant anticipation notes, and $341.1 million of certificates of participation. More detailed information regarding the government-wide financial statements, fund level financial statements, and long-term debt activity can be found beginning on page 38. 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, deferred outflows of resources, liabilities, and deferred inflows of resources 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: - 21 - The Statement of Net Position (pages 38-39) presents the State’s assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position. The total of assets and deferred outflows of resources, minus the total of liabilities and deferred inflows of resources, is reported as net position. Over time, increases and decreases in net position measure whether the State’s financial position is improving or deteriorating. The Statement of Financial Position (page 40) presents the State’s Universities-affiliated component units’assets and liabilities, with the difference between the two reported as net assets. The Statements of Activities (pages 42-44) present information showing how the State’s net position/net assets changed during the most recent fiscal year. All changes in net position/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). 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. 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 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. The Water Infrastructure Finance Authority, the University of Arizona Health Network and Subsidiaries, the Arizona Power Authority, the Rio Nuevo Multipurpose Facilities District, the Greater Arizona Development Authority, and the Arizona Commerce Authority are discretely presented component units reported by the State. The State has included component units affiliated with the Universities whose financial statements are prepared in conformity with U.S. generally accepted accounting principles (U.S. GAAP), as adopted by the Financial Accounting Standards Board. These organizations include the Arizona State University Foundation, the University of Arizona Foundation, the Arizona Capital Facilities Finance Corporation, and other non-major component units affiliated with the Universities. 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 the Governmental Accounting Standards Board (GASB), and include a statement of financial position (page 40) and a statement of activities (page 44). See pages 65-69 and 121-130 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 154 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 - 22 - 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. 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 Industrial Commission Special Fund and Universities. Internal service funds report activities that provide supplies and services for the State’s other programs and activities –such as the State’s Risk Management Fund. Internal service fund operations primarily benefit governmental funds and are reported as governmental activities on the government-wide statements. The reconciliation between the government-wide financial statements for businesstype activities and the proprietary fund financial statements is presented at the end of the propriety fund financial statements on pages 51-52. Proprietary fund financial statements can be found on pages 50-55 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 Position and Changes in Fiduciary Net Position beginning on page 56. 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 56-57 of this report. Notes to the Financial Statements The Notes to the Financial Statements provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes can be found beginning on page 65 of this report. Required Supplementary Information Following the basic financial statements is additional Required Supplementary Information that further explains and supports the information in the financial statements. The Required Supplementary Information includes budgetary 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, non-major component units, 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 - 23 - 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 154 of this report. GOVERNMENT-WIDE FINANCIAL ANALYSIS The State’s overall financial position and operations for the past year for the primary government are summarized, as follows, based on the information included in the government-wide financial statements. State of Arizona-Primary Government Net Position as of June 30, 2013 and 2012 (expressed in thousands) Current assets Capital assets Other non-current assets Total Assets Deferred outflow of resources Current liabilities Non-current liabilities Total Liabilities Net position: Net investment in capital assets Restricted Unrestricted Total Net Position Governmental Activities 2012, as 2013 restated $ 6,450,486 $ 5,154,734 20,993,786 20,394,137 5,699,132 5,049,766 33,143,404 30,598,637 Business-type Activities 2012, as 2013 restated $ 1,360,862 $ 1,372,172 4,333,187 4,080,053 1,782,819 1,557,763 7,476,868 7,009,988 Primary Government Total 2012, as 2013 restated $ 7,811,348 $ 6,526,906 25,326,973 24,474,190 7,481,951 6,607,529 40,620,272 37,608,625 - - 14,078 - 14,078 - 4,843,433 7,301,274 12,144,707 4,188,849 7,373,015 11,561,864 754,246 3,607,281 4,361,527 838,541 3,380,777 4,219,318 5,597,679 10,908,555 16,506,234 5,027,390 10,753,792 15,781,182 17,410,055 6,116,083 (2,527,441) $ 20,998,697 16,940,512 5,447,576 (3,351,315) $ 19,036,773 1,532,572 531,972 1,064,875 $ 3,129,419 1,483,416 496,444 810,810 $ 2,790,670 18,942,627 6,648,055 (1,462,566) $ 24,128,116 18,423,928 5,944,020 (2,540,505) $ 21,827,443 For the year ended June 30, 2013, the State’s combined net position totaled $24.1 billion, reflecting an increase of $2.3 billion during the current fiscal year. The largest portion of the State’s net position (79%) represents net investment in capital assets of $18.9 billion. Additions to roads and bridges provided the majority of the governmental activities increase in net investment in capital assets of $469.5 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 position also included $6.6 billion (28%) of resources that are subject to external restrictions on how they may be used. The governmental activities increase in restricted net position of $668.5 million is primarily the result of an increase of $639.3 million in the amount restricted by the State’s Constitution for basic education funded by the Land Endowments Fund. After accounting for the above net position restrictions, the State has a remaining deficit of $1.5 billion (6%) reported as unrestricted net position. More detailed information regarding beginning net position restatements is on page 115. - 24 - State of Arizona-Primary Government Changes in Net Position for Fiscal Years Ended June 30, 2013 and 2012 (expressed in thousands) Governmental Activities 2012, as 2013 restated Revenues: Program revenues: Charges for services Operating grants and contributions Capital grants and contributions General revenues: Sales taxes Income taxes Tobacco taxes Property taxes Motor vehicle and fuel taxes Other taxes Unrestricted investment earnings Unrestricted grants and contributions Gain on sale of trust land Miscellaneous revenue Total Revenues $ Expenses: General government Health and welfare Inspection and regulation Education Protection and safety Transportation Natural resources Intergovernmental revenue sharing Interest on long-term debt Universities Unemployment Compensation Industrial Commission Special Fund Lottery Other business-type activities Total Expenses Excess (deficiency) before contributions and transfers Contributions to permanent endowments Transfers Change in Net Position Net Position - July 1, as restated Net Position - June 30 $ 850,869 $ Business-type Activities 2012, as 2013 restated 847,502 $ 3,181,812 $ Primary Government Total 2012, as 2013 restated 2,983,424 $ 4,032,681 $ 3,830,926 11,588,834 651,999 11,357,470 778,572 1,570,854 1,705,773 15,210 53,571 13,159,688 667,209 13,063,243 832,143 6,518,480 3,974,998 316,050 27,429 1,592,911 531,186 18,705 6,296,151 3,706,698 317,369 30,656 1,581,909 522,510 79,190 57,490 62,017 55,309 49,501 6,575,970 3,974,998 316,050 27,429 1,592,911 531,186 80,722 6,351,460 3,706,698 317,369 30,656 1,581,909 522,510 128,691 45,746 174,095 144,403 26,435,705 40,678 125,479 265,214 25,949,398 5 148,743 5,036,131 3,468 155,757 5,006,803 45,751 174,095 293,146 31,471,836 44,146 125,479 420,971 30,956,201 836,431 12,168,426 161,480 5,372,267 1,400,413 754,510 204,179 840,189 11,992,408 151,937 5,331,848 1,380,999 808,967 213,339 - - 836,431 12,168,426 161,480 5,372,267 1,400,413 754,510 204,179 840,189 11,992,408 151,937 5,331,848 1,380,999 808,967 213,339 2,685,378 355,975 - 2,473,881 350,483 - 3,866,866 - 3,629,568 1,069,531 2,685,378 355,975 3,866,866 - 2,473,881 350,483 3,629,568 1,069,531 23,939,059 23,544,051 38,614 1,329,816 5,235,296 83,290 496,830 113,347 5,392,566 38,614 1,329,816 29,174,355 83,290 496,830 113,347 28,936,617 2,496,646 2,405,347 (199,165) (385,763) 2,297,481 2,019,584 (534,722) 1,961,924 19,036,773 20,998,697 (576,846) 1,828,501 17,208,272 19,036,773 3,192 534,722 338,749 2,790,670 3,129,419 3,270 576,846 194,353 2,596,317 2,790,670 3,192 2,300,673 21,827,443 24,128,116 3,270 2,022,854 19,804,589 21,827,443 $ $ $ $ $ Note: Unemployment Compensation and Lottery did not meet the GASB major fund criteria in fiscal year 2013 and, as a result, are presented as other business-type activities in the fiscal year 2013 comparative schedules. - 25 - Change in Net Position Governmental Activities – Net Position increased by $2.0 billion from fiscal year 2012, or a 10% increase from fiscal year 2012. Reported sales tax and income tax revenues increased by $222.3 million, or 4%, and $268.3 million, or 7%, from fiscal year 2012, respectively. The increase in tax collections generally reflects increased economic activity in the State during fiscal year 2013. Net taxable sales increased by approximately 4% from fiscal year 2012 resulting in the increased reported sales tax revenue. The largest increases in net taxable sales during fiscal year 2013 were in retail sales, restaurants and bars, and contracting. The increase in income tax revenue for the State during fiscal year 2013 was due to increased withholding and individual income tax collections. During fiscal year 2013, operating grants and contributions increased by $231.4 million (2%) over fiscal year 2012. This increase is largely attributable to an increase in the fair market value of the Permanent Fund investment portfolio, increased federal grant funding for education, and a one-time tobacco litigation settlement payment received by the Arizona Health Care Cost Containment System (AHCCCS) during fiscal year 2013. These increases were offset by decreases in receipts from the federal American Recovery and Reinvestment Act (ARRA). However, the decrease in ARRA funding also resulted in decreased expenses in ARRA related projects. Also, decreases in capital grants and contributions, and miscellaneous revenue partially offset revenue increases. Furthermore, there were increases in expenses for health and welfare and intergovernmental revenue sharing of $176.0 million and $211.5 million, respectively. The increase in health and welfare expenses resulted primarily from the AHCCCS distributing supplemental hospital payments funded by voluntary contributions from political subdivisions during fiscal year 2013. The increase in intergovernmental revenue sharing expense generally reflects increases in urban revenue sharing distributions and distributions of fuel tax and vehicle license taxes to Arizona counties and cities. Urban revenue sharing increased as a result of increased income tax collections in fiscal year 2011, as compared to fiscal year 2010. Cities are eligible for urban revenue sharing distributions based upon income tax collections from two years prior to the current fiscal year. A comparison of the net cost (income) of services by function for the State’s governmental activities is shown below for fiscal years 2012 and 2013. 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 2013 2012 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 $ 836,431 12,168,426 161,480 5,372,267 1,400,413 754,510 204,179 2,685,378 355,975 $ 23,939,059 - 26 - $ 840,189 11,992,408 151,937 5,331,848 1,380,999 808,967 213,339 2,473,881 350,483 $ 23,544,051 Net Cost (Income) of Services 2013 2012 $ 510,822 2,623,946 (14,964) 3,602,369 1,174,681 (185,586) 94,736 2,685,378 355,975 $ 10,847,357 $ 412,626 2,501,647 (20,835) 3,879,205 1,106,410 (238,715) 95,805 2,473,881 350,483 $ 10,560,507 Expenses and Program Revenues Governmental Activities for Fiscal Year 2013 (in millions of dollars) $13,000 $12,000 $11,000 $10,000 $9,000 $8,000 $7,000 Expenses Revenues $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Business-type Activities – Net Position increased by $338.7 million from fiscal year 2012, or 12%. This increase is primarily due to increases in net position for the Universities and the Unemployment Compensation Fund of $180.3 million and $123.7 million, respectively. Non-operating revenues and transfers from the General Fund more than offset the Universities’operating loss of $1.1 billion. Although the Universities experienced increased operating revenues due to approved student tuition and fee increases, increased enrollment, and increased auxiliary enterprise revenues, this was - 27 - offset by a decrease in State appropriation transfers from the General Fund, increases in expenses for instruction, academic support, and research, and a decrease in capital grants and contributions. The decrease in capital grants and contributions primarily results from the $31.6 million one-time gift of the Biosphere 2 Complex received in fiscal year 2012. Also, the Unemployment Compensation Fund’s cost of sales and benefits and intergovernmental revenue decreased $386.0 million and $254.9 million, respectively, as compared to the prior fiscal year. A comparison of the net cost (income) of services by function for the State’s business-type activities is shown below for fiscal years 2012 and 2013. 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. Business-type Activities (expressed in thousands) Total Cost of Services 2013 2012 Functions/Programs: Universities Unemployment Compensation Industrial Commission Special Fund Lottery Other Total Business-type Activities Net Cost (Income) of Services 2013 2012 $ 3,866,866 - $ 3,629,568 1,069,531 $ 658,218 - 38,614 1,329,816 $ 5,235,296 83,290 496,830 113,347 $ 5,392,566 13,453 (204,251) $ 467,420 $ 642,418 105,819 58,315 (149,845) (6,909) $ 649,798 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, unassigned 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, 2013, unassigned fund balance of the General Fund was $156.9 million, while total fund balance closed the year at $423.2 million. As a measure of the General Fund’s liquidity, it may be useful to compare both unassigned fund balance and total fund balance to total fund expenditures and other financing uses. Unassigned fund balance represents 1% of total expenditures and other financing uses, while total fund balance is 2% of the same amount. The fund balance of the State’s General Fund increased $502.9 million during the fiscal year. Revenues exceeded expenditures by $1.1 billion, before other financing sources and uses. Other financing sources and uses partially offset this excess by $626.7 million. Other financing sources and uses consist primarily of transfers to the Universities in support of higher education, offset by legislative transfers from other funds to the General Fund. Overall revenues increased by $237.8 million (1%) and expenditures increased by $283.6 million (1%) from fiscal year 2012. Primary reasons for increases in fund balance during the fiscal year are increased collections of sales and income taxes and the receipt of a one-time tobacco litigation settlement payment. Primary reasons for decreases in fund balance during the fiscal year are increased health and welfare expenditures, increased intergovernmental revenue sharing, and decreased ARRA funding (intergovernmental revenue). These increases and decreases were discussed in the government-wide financial analysis beginning on page 24. - 28 - 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 $106.9 million during fiscal year 2013. Although revenues exceeded expenditures by $320.6 million, transfers to non-major governmental funds of $283.1 million to primarily pay debt service partially offset this excess. In addition, motor vehicle and fuel tax revenue increased by $107.6 million, while intergovernmental revenue decreased by $117.7 million, as compared to the prior fiscal year. Land Endowments Fund The Land Endowments 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 $697.1 million during fiscal year 2013. Endowment investments increased $669.0 million, at fiscal year-end, primarily due to receipts from land sales of $225.7 million and a net increase in the fair value of investments of $497.5 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 analysis beginning on page 24. GENERAL FUND BUDGETARY HIGHLIGHTS During the fiscal year, the original budget was amended by various supplemental appropriations and appropriation revisions. Differences between the original budget and the final amended budget resulted in a $1.5 billion net increase in appropriations for the General Fund, before adjustments. Some of the significant changes in the General Fund appropriations were: 1. $172.9 million increase due to prior fiscal year obligations that were paid in the current fiscal year per ARS §35-191. 2. $982.5 million increase to the Department of Education’s original budget is primarily due to the basic state aid deferred payment from fiscal year 2012 which was appropriated as a supplemental appropriation in the fiscal year 2013 budget. 3. $234.5 million increase to the Universities’original budget is primarily due to payment deferrals from fiscal year 2012, which were budgeted in fiscal year 2013, and for lease purchase capital financing for research infrastructure facilities. 4. $129.8 million increase to the AHCCCS’ original budget is primarily due to supplemental appropriation increases for the voluntary disproportionate share hospital (DSH – voluntary) and graduate medical education special line items based on increased political subdivision contributions, including federal matching monies, in excess of the original appropriations. The actual expenditures were less than the final budget by $747.9 million, after adjustments. Of this amount, $52.0 million will continue as legislative multiple fiscal year spending authority for fiscal years 2014 and beyond, depending upon the budgetary guidelines of the Legislature. The remaining $695.9 million represents the unused portion of the State’s legislatively authorized annual operating budget. Additional budgetary information can be found on pages 133-145 of this report. - 29 - 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, 2013 totaled $25.3 billion, net of accumulated depreciation. The total primary government increase in capital assets for the current period was 3%, with a 3% increase in capital assets used for governmental activities and a 6% increase for businesstype activities. Depreciation charges of the governmental and business-type activities for the fiscal year totaled $382.3 million. Major capital asset activity during the current fiscal year included the following: i The Universities’additions to capital assets totaled $569.3 million and included increased investments in buildings for instruction and research, building renewal, 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, 2013 are presented below (expressed in thousands): Governmental Activities 2013 2012 $ 2,967,822 $ 2,886,458 2,161,715 2,106,913 Land Buildings Improvements other than buildings 159,899 Equipment 811,035 Software and other intangibles 240,051 Collections (non-depreciable) Infrastructure 12,973,088 Construction in progress 3,369,060 Development in progress 6,720 Less: accumulated depreciation (1,695,604) Total $ 20,993,786 159,380 795,147 130,947 12,229,571 3,535,660 85,586 (1,535,525) $ 20,394,137 Business-type Activities 2013 2012 $ 210,132 $ 202,913 5,032,978 4,622,149 4,853 1,601,092 25,630 19,738 461,641 288,755 (3,311,632) $ 4,333,187 4,816 1,527,822 19,328 19,173 449,069 332,382 3,949 (3,101,548) $ 4,080,053 $ Total 2013 2012 3,177,954 $ 3,089,371 7,194,693 6,729,062 164,752 2,412,127 265,681 19,738 13,434,729 3,657,815 6,720 (5,007,236) $ 25,326,973 164,196 2,322,969 150,275 19,173 12,678,640 3,868,042 89,535 (4,637,073) $ 24,474,190 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 6,751 center lane miles (21,213 travel lane miles) and 4,754 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 3.67 was achieved for fiscal year 2013. 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 2013, a CRI of 93.2% was achieved. - 30 - In addition to many smaller projects, each of the following major highway construction projects in excess of $10.0 million were started during fiscal year 2013 (expressed in thousands): Description System preservation and reconstruction on Naha ‘Ta’Dzill road to Sanders traffic interchange in Apache County. System enhancement and traffic management at Copper Canyon Phase I in Yavapai County. Capacity additions and major widening on US 60, 71st Avenue McDowell Road in Maricopa County. System preservation - reconstruction at Cienega Creek - Marsh Station, Phase III in Pima County. Capacity additions - major widening on State Route 303L: Camelback Road to Glendale Avenue in Maricopa County. System preservation - restoration/rehab/resurface on East Ash Fork traffic interchange to West Williams traffic interchange in Coconino County. New facilities - construction of new road on US 89 to State Route 98 in Coconino County. Contract Start Date Contract Amount Current Year Expenditures 11/16/12 $ 13,645 $ 4,977 10/19/12 11,875 4,463 11/16/12 12,741 3,110 9/21/12 17,207 6,687 2/8/13 34,872 5,424 6/14/13 10,487 - 5/6/13 32,036 3,079 Furthermore, the following major highway construction projects had expenditures in excess of $15.0 million in fiscal year 2013. These project expenditures include payments made to construction contractors (as shown above) as well as utility, design, right-of-way, and landscaping costs (expressed in thousands): Location Description State Route 303L from Peoria Avenue to Mountain View Boulevard in Maricopa County. State Route 303L/Interstate 10 Traffic Interchange in Maricopa County. State Route 303L from Glendale Avenue to Peoria Avenue in Maricopa County. State Route 24 at State Route 202L (Santan) to Ellsworth Road Phase I in Maricopa County. Interstate 10 Ruthrauff Road to Prince Road in Pima County. Interstate 10 Salt River to Baseline Road in Maricopa County. US 60 to State Route 303L on Northern Avenue. Interstate 17 Cordes Junction Traffic Interchange in Yavapai County. State Route 303L from Thomas Road to Camelback Road. Project Expenditures $ 72,659 63,257 51,645 50,317 35,845 34,929 34,727 26,825 22,818 More detailed information regarding capital assets is on pages 92 and 93. 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 ADOT issued revenue bonds totaling $194.3 million to pay the costs of design, right-of-way purchase, or construction of certain freeways and other routes within Arizona, and the costs of issuing the bonds. i Various State agencies in the governmental funds issued revenue bonds and certificates of participation totaling $900.0 million to refinance existing debt to obtain debt service savings by taking advantage of lower market interest rates. i The Universities issued revenue bonds for $404.3 million to fund the acquisition, construction, or renovation of capital facilities and infrastructure, and to refinance existing debt to obtain debt service savings by taking advantage of lower market interest rates. - 31 - i The Universities issued certificates of participation for $101.0 million to refinance existing debt to obtain debt service savings by taking advantage of lower market interest rates. State of Arizona-Primary Government Outstanding Major Long-Term Debt as of June 30, 2013 (expressed in thousands) Governmental Activities Revenue bonds Grant anticipation notes Certificates of participation Capital leases Total 2013 $ 3,606,720 296,240 2,360,595 360,316 $ 6,623,871 2012 $ 3,593,420 335,230 2,495,825 391,184 $ 6,815,659 Business-type Activities 2012, as 2013 restated $ 2,237,710 $ 1,988,765 714,735 756,980 135,519 130,047 $ 3,087,964 $ 2,875,792 Total 2013 $ 5,844,430 296,240 3,075,330 495,835 $ 9,711,835 2012, as restated $ 5,582,185 335,230 3,252,805 521,231 $ 9,691,451 More detailed information regarding long-term debt begins on page 98. ECONOMIC CONDITION AND OUTLOOK The Office of Employment and Population Statistics within the Arizona Department of Administration is forecasting the State to gain a projected 107,500 nonfarm jobs, representing a growth rate of 4.4%, over the two projected calendar years of 2013 and 2014. An over-the-year gain of 48,500 jobs is projected in 2013 and 59,000 jobs in 2014. The rate of growth projected for nonfarm employment is 2.0% in 2013 and 2.4% in 2014. The State’s nonfarm employment will continue to grow gradually in 2013 with moderate improvement in 2014. This is consistent with improvements seen in many economic indicators. The State’s fiscal year 2014 General Fund budget reflects projected growth in base revenues of 4.9%. The net ongoing revenues are projected to decrease from $9.4 billion in fiscal year 2013 to $9.1 billion in fiscal year 2014. General Fund spending is projected to increase from $8.7 billion in fiscal year 2013 to $8.8 billion in fiscal year 2014. The budget includes increased spending for the Department of Education K-12 base support levels and the Department of Economic Security for Child Protective Services staff. The General Fund fiscal year 2014 ending balance is projected to be $248 million. Legislative discussions on the fiscal year 2014 General Fund budget also included analyzing the impact of budget decisions on estimated fiscal year 2015 and 2016 spending. The fiscal year 2015 General Fund budget is forecasted to have revenues of $9.1 billion and expenditures of $9.0 billion, with a $100 million balance. After accounting for legislation enacted separately from the budget and technical adjustments, the fiscal year 2015 balance is estimated to be $12 million. The spending includes statutory formula caseload growth as well as net savings from the Medicaid expansion and assessment. These net savings depend on Executive Branch decisions regarding the level of assessment. The fiscal year 2015 ongoing revenues are primarily based on a 4-sector consensus growth rate of 6.1%, but also incorporate separately enacted tax law changes and new Medicaid expansion-related premium tax revenues. The fiscal year 2016 General Fund budget is forecasted to have revenues of $9.2 billion and expenditures of $9.1 billion, with a $109 million balance. After accounting for legislation enacted separately from the budget and technical adjustments, the fiscal year 2016 balance is estimated to have a $12 million shortfall. The ongoing spending includes caseload growth plus net savings from the Medicaid expansion and assessment. As noted above, these net savings depend on Executive Branch decisions regarding the level of assessment. The revenues reflect base growth of 5.7%. Those revenues also incorporate separately enacted tax law changes and additional premium tax revenues. The Budget Stabilization Fund is expected to have a balance of $456 million at the end of fiscal year 2014, which could be used to offset any shortfall in fiscal year 2015 or 2016. - 32 - 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 65. - 33 - BASIC FINANCIAL STATEMENTS BASIC FINANCIAL STATEMENTS (This page intentionally left blank) STATE OF ARIZONA STATEMENT OF NET POSITION JUNE 30, 2013 (Expressed in Thousands) PRIMARY GOVERNMENT TOTAL GOVERNMENTAL ACTIVITIES ASSETS Current Assets: Cash Cash with U.S. Treasury Cash and pooled investments with State Treasurer Restricted cash and pooled investments with State Treasurer Cash held by trustee Collateral investment pool Short-term investments Restricted investments held by trustee Receivables, net of allowances: Taxes Interest Loans and notes Patient accounts receivable Other Internal balances Due from U.S. Government Due from local governments Due from others Due from primary government Inventories, at cost Other current assets Total Current Assets Noncurrent Assets: Restricted assets: Cash Cash and pooled investments with State Treasurer Cash held by trustee Investments Investments held by trustee Receivables, net of allowances: Loans and notes Other Securities held in escheat Investments Endowment investments Other noncurrent assets Capital assets: Infrastructure, land, and other non-depreciable Buildings, equipment, and other depreciable, net of accumulated depreciation Total Noncurrent Assets Total Assets $ 3,694 - BUSINESS-TYPE ACTIVITIES $ 284,066 14,944 PRIMARY GOVERNMENT $ 287,760 14,944 COMPONENT UNITS $ 50,010 - 3,186,478 109,161 3,295,639 289,193 416,865 883,399 - 77,215 44,881 241,162 - 494,080 928,280 241,162 - 1,612 7,120 123,411 18,938 94,577 3,560 4,059 170,649 202,960 78,429 20,533 14,666 1,360,862 541,954 207,172 285,858 356,754 818,114 171,184 96,621 32,412 39,414 7,811,348 3,078 10,454 1,888 129,117 109,946 3,500 20,057 1,110 769,434 97 8,668 8,765 - 1,479,131 36,468 2,869 - 228,754 176,517 1,479,131 265,222 2,869 176,517 10,465 21,888 74,117 32,588 12,266 39,743 4,113,474 15,084 30,959 10,411 965,877 330,935 30,698 43,225 10,411 39,743 965,877 4,444,409 45,782 1,134,562 7,303 123,515 26,801 19,294,794 518,625 19,813,419 67,995 1,698,992 26,692,918 3,814,562 6,116,006 5,513,554 32,808,924 374,761 1,873,995 33,143,404 7,476,868 40,620,272 2,643,429 - 14,078 14,078 - 447,377 203,612 281,799 186,105 (202,960) 739,685 171,184 96,621 11,879 24,748 6,450,486 DEFERRED OUTFLOW OF RESOURCES Interest rate swap The Notes to the Financial Statements are an integral part of this statement. (Continued) - 38 - STATE OF ARIZONA STATEMENT OF NET POSITION JUNE 30, 2013 (Expressed in Thousands) PRIMARY GOVERNMENT GOVERNMENTAL ACTIVITIES LIABILITIES Current Liabilities: Accounts payable and other current liabilities Payable for securities purchased Accrued liabilities Obligations under securities loan agreements Tax refunds payable Due to U.S. Government Due to local governments Due to others Due to component units Unearned deferred revenue Current portion of accrued insurance losses Current portion of long-term debt Current portion of other long-term liabilities Total Current Liabilities $ Noncurrent Liabilities: Unearned deferred revenue Accrued insurance losses Funds held for others Long-term debt Derivative instrument - interest rate swap Other long-term liabilities Total Noncurrent Liabilities Total Liabilities NET POSITION Net investment in capital assets Restricted for: General government Health and welfare Inspection and regulation Education Protection and safety Natural resources Capital projects Debt service Permanent funds and University funds: Expendable Nonexpendable Loans and other financial assistance: Expendable Other purposes Unrestricted (deficit) Total Net Position 619,849 944,081 883,399 2,974 6,157 1,242,348 351,307 95,396 56,276 475,946 165,700 4,843,433 $ 144,759 7,947 57,420 44,881 116,695 91,510 3,500 134,128 24,958 109,710 18,738 754,246 $ 764,608 7,947 1,001,501 928,280 2,974 122,852 1,242,348 442,817 3,500 229,524 81,234 585,656 184,438 5,597,679 COMPONENT UNITS $ 72,893 99,780 7,120 12,711 82,343 24,497 299,344 85,158 339,339 6,708,544 168,233 7,301,274 470 452,889 19,322 3,060,967 14,078 59,555 3,607,281 85,628 792,228 19,322 9,769,511 14,078 227,788 10,908,555 2,470 19,247 1,281,532 3,793 1,307,042 12,144,707 4,361,527 16,506,234 1,606,386 17,410,055 1,532,572 18,942,627 118,901 136,273 95,049 4,504 502,688 20,505 8,437 735,077 3,892 506 7,960 136,273 95,049 4,504 502,688 20,505 8,437 735,583 11,852 33,002 167,359 4,442,299 247,654 198,637 415,013 4,640,936 - (2,527,441) $ TOTAL PRIMARY GOVERNMENT BUSINESS-TYPE ACTIVITIES 20,998,697 77,215 1,064,875 $ The Notes to the Financial Statements are an integral part of this statement. - 39 - 3,129,419 77,215 (1,462,566) $ 24,128,116 493,004 40,981 351,155 $ 1,037,043 STATE OF ARIZONA STATEMENT OF FINANCIAL POSITION UNIVERSITIES - AFFILIATED COMPONENT UNITS JUNE 30, 2013 (Expressed in Thousands) ASSETS Cash and cash equivalent investments $ Receivables: Pledges receivable Other receivables Total receivables 131,344 23,646 154,990 Investments: Investments in securities Other investments Total investments 1,461,078 55,660 1,516,738 Net direct financing leases Property and equipment, net of accumulated depreciation Licenses Other assets 76,924 341,090 2,130 42,663 Total Assets 2,203,598 LIABILITIES Accounts payable and accrued liabilities Liability under endowment trust agreements Long-term debt Deferred revenue Other liabilities 37,611 315,754 529,206 28,703 42,370 Total Liabilities 953,644 NET ASSETS Permanently restricted Temporarily restricted Unrestricted Total Net Assets 69,063 837,602 398,042 14,310 $ 1,249,954 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, 2013 (Expressed in Thousands) CHARGES FOR SERVICES EXPENSES FUNCTIONS/PROGRAMS PRIMARY GOVERNMENT: Governmental Activities: General government Health and welfare Inspection and regulation Education Protection and safety Transportation Natural resources Intergovernmental revenue sharing Interest on long-term debt Total Governmental Activities $ Business-type Activities: Universities Industrial Commission Special Fund Other Total Business-type Activities Total Primary Government COMPONENT UNITS: Water Infrastructure Finance Authority University of Arizona Health Network & Subsidiaries Other Component Units Total Component Units 836,431 12,168,426 161,480 5,372,267 1,400,413 754,510 204,179 2,685,378 355,975 23,939,059 $ 3,866,866 38,614 1,329,816 5,235,296 188,462 138,605 156,164 61,896 123,010 119,862 62,870 850,869 PROGRAM REVENUES OPERATING CAPITAL GRANTS AND GRANTS AND CONTRIBUTIONS CONTRIBUTIONS $ 1,892,356 25,161 1,264,295 3,181,812 137,147 9,405,875 20,280 1,708,002 102,521 168,436 46,573 11,588,834 1,301,082 269,772 1,570,854 $ 29,174,355 $ 4,032,681 $ 13,159,688 $ 46,851 1,154,871 64,156 1,265,878 $ 35,598 1,173,082 30,309 1,238,989 $ 54,179 1,627 55,806 $ $ $ 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 Payments from State of Arizona Miscellaneous Contributions to permanent endowments Transfers Total General Revenues, Contributions, and Transfers Change in Net Position Net Position - Beginning, as restated Net Position - Ending The Notes to the Financial Statements are an integral part of this statement. - 42 - $ 201 651,798 651,999 15,210 15,210 $ 667,209 NET (EXPENSE) REVENUE AND CHANGES IN NET POSITION PRIMARY GOVERNMENT TOTAL GOVERNMENTAL BUSINESS-TYPE PRIMARY COMPONENT ACTIVITIES ACTIVITIES GOVERNMENT UNITS $ (510,822) (2,623,946) 14,964 (3,602,369) (1,174,681) 185,586 (94,736) (2,685,378) (355,975) (10,847,357) $ $ (10,847,357) (510,822) (2,623,946) 14,964 (3,602,369) (1,174,681) 185,586 (94,736) (2,685,378) (355,975) (10,847,357) (658,218) (13,453) 204,251 (467,420) (658,218) (13,453) 204,251 (467,420) (467,420) (11,314,777) $ 6,518,480 3,974,998 316,050 27,429 1,592,911 531,186 18,705 45,746 174,095 144,403 (534,722) 12,809,281 1,961,924 19,036,773 $ 20,998,697 $ 42,926 18,211 (32,220) 28,917 57,490 62,017 5 148,743 3,192 534,722 6,575,970 3,974,998 316,050 27,429 1,592,911 531,186 80,722 45,751 174,095 293,146 3,192 - 9,853 13,600 16,866 1,034 36,708 1,772 - 806,169 338,749 2,790,670 13,615,450 2,300,673 21,827,443 79,833 108,750 928,293 3,129,419 $ 24,128,116 $ 1,037,043 - 43 - STATE OF ARIZONA STATEMENT OF ACTIVITIES UNIVERSITIES - AFFILIATED COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) UNRESTRICTED REVENUES Contributions Rental revenue Sales and services Net investment income Licensing revenue Other revenues Net assets released from restrictions $ Total Revenues 16,001 43,503 33,676 22,034 1,390 37,072 144,220 TEMPORARILY PERMANENTLY RESTRICTED RESTRICTED $ 112,069 $ 97 52,088 3,441 (123,885) TOTAL 41,132 $ 42,787 78 (20,335) 169,202 43,503 33,773 116,909 1,390 40,591 - 297,896 43,810 63,662 405,368 122,023 8,585 19,512 6,017 67,379 9,681 23,466 21,569 6,630 - - 122,023 8,585 19,512 6,017 67,379 9,681 23,466 21,569 6,630 Total Expenses 284,862 - - 284,862 Increase in Net Assets, before extraordinary items 13,034 43,810 63,662 120,506 - 2,463 EXPENSES Program services: Payments to Universities Leasing related expenses Payments on behalf of Universities Other program services Management and general expenses Fundraising expenses Interest Depreciation and amortization Other expenses Extraordinary items (Primarily equity transfers) 2,848 (385) Increase in Net Assets, after extraordinary items 15,882 43,425 63,662 122,969 Net Assets - Beginning, as restated Transfers (1,776) 204 356,488 (1,871) 772,273 1,667 1,126,985 - Net Assets - Ending $ 14,310 $ 398,042 The Notes to the Financial Statements are an integral part of this statement. - 44 - $ 837,602 $ 1,249,954 STATE OF ARIZONA BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2013 (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 Tax refunds payable Due to U.S. Government Due to local governments Due to others Due to other Funds Unavailable deferred revenue Unearned deferred revenue Total Liabilities $ $ - OTHER GOVERNMENTAL FUNDS $ $ 28 1,662 TOTAL $ 3,694 1,825,654 73,436 48,494 4,890 88,143 792,293 814,808 12,780 2,777,099 883,399 299,327 164 119,777 598,923 171,184 55,483 948 72,899 5,044 13,821 110,292 3,803 7,207 203,447 289,021 16,640 15,351 - 75,151 1 25,203 23,260 2 23,840 3 447,377 203,612 294,065 175,441 732,475 171,184 2 98,477 8,158 97 - - - 97 89,546 28,967 2,869 39,743 118 886,568 19,059 4,113,474 - 919,469 7,501 - 1,895,583 36,468 2,869 39,743 4,113,474 19,177 $ 3,308,240 $ 1,172,077 $ 5,518,397 $ 1,903,680 $ 11,902,394 $ 289,407 668,402 $ 149,569 5,229 $ 7,603 - $ 55,353 58,349 $ 501,932 731,980 Fund Balances: Nonspendable Restricted Committed Unassigned Total Fund Balances Total Liabilities and Fund Balances 2,004 LAND ENDOWMENTS FUND $ 73,436 2,970 6,157 1,030,445 341,947 212,327 184,603 75,343 2,885,037 4,890 120,718 8,716 6,865 295,987 792,293 1 4,304 482,656 104,528 1,391,385 844 192,187 73,237 156,935 423,203 7,207 712,799 156,084 876,090 4,153,278 (26,266) 4,127,012 3,308,240 $ 1,172,077 The Notes to the Financial Statements are an integral part of this statement. - 45 - $ 5,518,397 . $ 12,780 4 91,185 9,359 22,101 780 670 250,581 883,399 2,974 6,157 1,242,348 351,307 247,448 674,904 180,541 4,822,990 1,148,073 505,026 1,653,099 4,161,329 2,053,059 734,347 130,669 7,079,404 1,903,680 $ 11,902,394 STATE OF ARIZONA RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION JUNE 30, 2013 (Expressed in Thousands) Total fund balances - governmental funds $ 7,079,404 Amounts reported for governmental activities in the Statement of Net Position are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the governmental funds. 20,919,316 Certain receivables related to reimbursements are not available at year end and, therefore, are not reported in the governmental funds. 98,429 Certain receivables are not available to pay for current period expenditures and, therefore, are deferred in the governmental funds. 674,904 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 Position. (173,030) The allocation of the internal service fund accumulated net gain results in an amount due to business-type activities, which is not reported in the governmental funds. (41,392) 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 Position. 15,084 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 Notes payable Premium on debt Deferred amounts on refundings (3,606,720) (296,240) (2,360,595) (360,316) (105,817) (474,747) 19,945 (7,184,490) 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. (176,581) Accrued interest on long-term obligations is not due and payable from current financial resources and, therefore, is not reported in the governmental funds. (34,803) 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 (156,061) (22,083) Net position of governmental activities (178,144) $ The Notes to the Financial Statements are an integral part of this statement. - 46 - 20,998,697 STATE OF ARIZONA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) TRANSPORTATION & 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 OTHER FINANCING SOURCES (USES) Transfers in Transfers out Proceeds from sale of capital assets Capital lease and installment purchase contracts Refunding certificates of participation issued Proceeds from notes and loans Bonds issued Refunding bonds issued Payment to refunded certificates of participation escrow agent Payment to refunded bond escrow agent Premium on debt issued Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning, as restated Fund Balances - Ending $ AVIATION PLANNING, HIGHWAY MAINTENANCE & SAFETY FUND LAND ENDOWMENTS FUND 227,800 $ 8,084 1,421,858 820,254 105,655 (897) 1,044 15,209 2,599,007 691,653 11,942,103 45,373 4,687,071 1,114,068 89,150 1,611,292 666,219 1,073,876 4,717 47,605 2,252 1,414 - 121,117 269,802 115,263 634,862 232,826 17,388 104,150 - 812,770 12,216,622 160,636 5,369,538 1,349,146 683,607 194,714 2,685,168 109,027 67,019 26,123 20,382,879 5,015 340 532,910 2,278,360 63 56,051 298,575 262,414 206,243 2,262,640 412,617 329,773 765,339 24,979,930 1,129,590 320,647 721,051 (555,134) 1,616,154 219,660 (846,349) - 1,010 (283,088) 1,636 15,158 51,550 - 15,424 (39,372) - 546,326 (87,599) 62,630 194,295 837,340 782,420 (1,256,408) 1,636 15,158 62,630 51,550 194,295 837,340 (626,689) 502,901 (79,698) (213,734) 106,913 769,177 (23,948) 697,103 3,429,909 (42,096) (954,372) 136,210 692,734 137,600 1,515,499 (42,096) (954,372) 136,210 (171,637) 1,444,517 5,634,887 $ 876,090 The Notes to the Financial Statements are an integral part of this statement. - 47 - $ 4,127,012 $ $ 507,092 59 251,162 2,000 164,923 111,417 101,438 278,952 29,367 20,360 143,366 80,359 17,011 1,707,506 TOTAL 5,795,717 $ 4,034,572 64,888 17,345 6,130 419,769 10,670,984 86,771 (9,970) 103,157 37,850 6,148 149,125 129,983 21,512,469 423,203 5,594 481,419 57,514 225,659 6,916 777,102 OTHER GOVERNMENTAL FUNDS 1,653,099 $ $ 6,530,609 4,034,631 316,050 27,429 1,592,911 531,186 11,592,676 476,972 499,919 182,075 181,216 86,507 149,125 225,659 169,119 26,596,084 7,079,404 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, 2013 (Expressed in Thousands) Net change in fund balances - total governmental funds $ 1,444,517 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 primarily reflect reduction in construction in progress resulting from certain infrastructure projects being reclassified from capital outlay to non-capital. This is the amount by which capital outlays exceeded depreciation and infrastructure adjustments in the current period. Capital outlay 765,339 Infrastructure adjustment (62,844) Depreciation expense (114,553) 587,942 The net expense of the internal service funds is included with governmental activities in the Statement of Activities. (44,703) Net change in certain revenues reported in the Statement of Activities do not provide current financial resources and, therefore, are not reported as revenues in the governmental funds. Sales taxes (12,129) Income taxes (59,633) Operating grants (42,336) Right-of-way lease revenue (2,557) Other revenue (18) (116,673) 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 fiscal year 2013, mortgage payments exceeded gains resulting from current year land sales. In addition, accrued interest on land sales' contracts are reported as revenues in the Statement of Activities but are not reported as revenues in the governmental funds. Excess of mortgage receipts over gain on sale of land Accrued interest on land sales' contracts (51,564) (3,693) (55,257) Certain 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 56,635 Compensated absences (5,051) Pollution remediation obligations 8,499 Interest on long-term obligations 2,398 Other expenses 994 The Notes to the Financial Statements are an integral part of this statement. 63,475 (Continued) - 48 - STATE OF ARIZONA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) Bond proceeds provide current financial resources to the governmental funds; however, issuing debt increases long-term liabilities in the Statement of Net Position. In the current period, proceeds were received from: Bonds issued (194,295) Refunding certificates of participation issued (62,630) Refunding bonds issued (837,340) Proceeds from notes and loans (51,550) Bond issuance costs 1,775 Premium on debt issued (136,210) (1,280,250) Repayment of long-term debt is reported as an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the Statement of Net Position. In the current year, these amounts consist of: Debt service principal 412,617 Payment to refunded certificates of participation escrow agent 41,725 Payment to refunded bond escrow agent 883,519 Debt premium/discount amortization 42,119 Amortization of bond issuance costs (1,541) Amortization of deferred amount (408) 1,378,031 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 Position. (15,158) Change in net position of governmental activities $ The Notes to the Financial Statements are an integral part of this statement. - 49 - 1,961,924 STATE OF ARIZONA STATEMENT OF NET POSITION PROPRIETARY FUNDS JUNE 30, 2013 (Expressed in Thousands) BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS INDUSTRIAL TOTAL COMMISSION ENTERPRISE UNIVERSITIES SPECIAL FUND OTHER FUNDS 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 and pooled investments with State Treasurer Cash held by trustee Investments held by trustee Receivables, net of allowances: Loans and notes Other Investments Endowment investments Other noncurrent assets Capital assets: Land and other non-depreciable Buildings, equipment, and other depreciable, net of accumulated depreciation Total Noncurrent Assets Total Assets DEFERRED OUTFLOW OF RESOURCES Interest rate swap $ 224,748 2,439 $ 55,918 5,413 $ 3,400 14,944 101,309 $ 284,066 14,944 109,161 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS $ 409,379 241,162 44,881 - 77,215 - 77,215 44,881 241,162 - 741 4,059 124,353 78,356 211,102 9,416 14,092 910,468 4,915 2,818 5,630 6 119,581 89,662 1 40,666 73 184 11,117 574 339,145 94,577 3,560 4,059 170,649 78,429 211,292 20,533 14,666 1,369,194 10,663 5,400 2,893 3,723 5,571 437,629 8,668 - - 8,668 - 228,754 176,517 - - 228,754 176,517 413 - 30,959 10,411 581,216 330,935 21,395 384,661 - 9,303 30,959 10,411 965,877 330,935 30,698 - 512,358 2,997 3,270 518,625 1,914 3,779,209 5,680,422 6,590,890 11,188 398,846 518,427 24,165 36,738 375,883 3,814,562 6,116,006 7,485,200 72,556 74,883 512,512 14,078 - - 14,078 - The Notes to the Financial Statements are an integral part of this statement. (Continued) - 50 - STATE OF ARIZONA STATEMENT OF NET POSITION PROPRIETARY FUNDS JUNE 30, 2013 (Expressed in Thousands) BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS INDUSTRIAL TOTAL COMMISSION ENTERPRISE UNIVERSITIES SPECIAL FUND OTHER FUNDS 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 others Due to component units Due to other Funds Unearned deferred revenue Current portion of accrued insurance losses Current portion of long-term debt Current portion of other long-term liabilities Total Current Liabilities $ Noncurrent Liabilities: Unearned deferred revenue Accrued insurance losses Funds held for others Long-term debt Derivative instrument - interest rate swap Other long-term liabilities Total Noncurrent Liabilities Total Liabilities NET POSITION Net investment in capital assets Restricted for: Capital projects Debt service Universities fund: Expendable Nonexpendable Loans and other financial assistance: Expendable Unrestricted (deficit) Total Net Position 131,904 31,371 40,166 128,890 109,710 17,380 459,421 $ 4,660 7,947 44,881 104 24,958 82,550 8,195 $ 26,049 116,695 51,344 3,500 49,724 5,134 1,358 261,999 144,759 7,947 57,420 44,881 116,695 91,510 3,500 49,724 134,128 24,958 109,710 18,738 803,970 $ 117,923 712 15,490 13 56,276 9,997 200,411 470 19,322 3,060,967 14,078 59,471 3,154,308 3,613,729 452,889 452,889 535,439 84 84 262,083 470 452,889 19,322 3,060,967 14,078 59,555 3,607,281 4,411,251 339,339 145,792 485,131 685,542 1,490,951 14,185 27,436 1,532,572 74,470 506 7,960 - - 506 7,960 - 247,654 198,637 - - 247,654 198,637 - 77,215 9,149 77,215 1,023,483 1,045,531 $ $ GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS 2,991,239 (31,197) $ (17,012) $ 113,800 $ 3,088,027 $ 3,129,419 Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds. Net position of business-type activities The Notes to the Financial Statements are an integral part of this statement. - 51 - 41,392 (247,500) $ (173,030) STATE OF ARIZONA STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS INDUSTRIAL TOTAL COMMISSION ENTERPRISE UNIVERSITIES SPECIAL FUND OTHER FUNDS OPERATING REVENUES Sales and charges for services: Student tuition and fees, net of scholarship allowances of $455,455 Auxiliary enterprises, net of scholarship allowances of $20,617 Educational department Other Unemployment assessments Workers' compensation assessments Intergovernmental Nongovernmental grants and contracts 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 Interest expense Other non-operating expense Total Non-Operating Revenues (Expenses) Income (Loss) Before Contributions and Transfers Capital grants and contributions Contributions to permanent endowments Transfers in Transfers out Change in Net Position Total Net Position - Beginning, as restated Total Net Position - Ending 1,437,110 $ $ - $ 1,437,110 $ - 363,289 91,957 589,525 144,894 39,714 2,666,489 23,195 1,966 25,161 817,394 444,819 269,772 6 2,076 95,591 1,629,658 363,289 91,957 817,394 444,819 23,195 859,297 144,894 6 2,076 1,966 135,305 4,321,308 917,488 2,229 919,717 1,046,210 209,657 2,222,192 251,725 3,729,784 (1,063,295) 33,555 1,369 34,924 (9,763) 1,233,766 37,756 25,692 2,086 550 8,030 1,307,880 321,778 2,313,531 209,657 2,259,948 25,692 255,180 550 8,030 5,072,588 (751,280) 764,373 36,036 26,290 12,594 70,792 11,512 921,597 (1,880) 57,490 299,949 248,066 (5,230) 25,867 18,648 16,588 (124,430) (10,996) 525,952 35,541 1,834 (3,690) 33,685 13 609 233 (14,725) (7,163) (48) (21,081) 57,490 299,949 248,066 (5,217) 62,017 18,648 18,655 (14,725) (131,593) (14,734) 538,556 104 13 213 (1) (5,104) (4,775) (537,343) 23,922 300,697 (212,724) (6,655) 15,210 3,192 699,191 - 6,000 - 5 (170,469) 15,215 3,192 705,191 (170,469) 21,030 (60,734) 29,922 (46,934) 130,233 (16,433) 180,250 2,810,989 $ - GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS 2,991,239 $ (17,012) Change in net position of enterprise funds Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds Change in net position of business-type activities The Notes to the Financial Statements are an integral part of this statement. - 52 - $ 113,800 340,405 2,747,622 $ 3,088,027 $ 340,405 (1,656) $ 338,749 (46,359) (126,671) $ (173,030) (This page intentionally left blank) STATE OF ARIZONA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS INDUSTRIAL TOTAL COMMISSION ENTERPRISE UNIVERSITIES SPECIAL FUND OTHER FUNDS 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, or insurance companies Payments to employees Payments to retirees Payments for scholarships and fellowships Payments for student loans issued Other receipts Other payments Net Cash Provided (Used) by Operating Activities CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Receipts from custodial funds Receipts from share of State sales tax Receipts from grants and contributions Receipts from settlement income Transfers from other Funds Custodial funds disbursed Grants and contributions disbursed Distributions Interest paid on loan due to U.S. Government Transfers to other Funds Other receipts Net Cash Provided (Used) by Non-capital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from sale of capital assets Proceeds from capital debt, installment purchase contracts, and capital leases Receipts from federal subsidy Receipts from capital grants and contributions Receipts from insurance recoveries 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 Net Cash (Used) by Capital and Related Financing Activities $ 1,398,583 $ 21,360 - $ 653,742 446,578 - $ 653,742 467,938 1,398,583 GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS $ - 354,466 - - 354,466 - 82,252 742,526 5,968 - 269,836 - 82,252 1,012,362 5,968 916,409 - - 1,966 530 - 530 1,966 - (1,049,881) (2,189,464) (202,795) (5,600) 34,970 (828,975) (25,346) 1,834 (186) (1,083,037) (54,001) 14,364 (37,600) 210,412 (2,158,264) (2,243,465) (202,795) (5,600) 51,168 (37,600) (618,749) (789,032) (35,945) (13,585) 2,234 (5,104) 74,977 336,444 54,683 1,395,453 653,525 (307,663) (836,022) 10,334 6,000 - 185 (14,725) (10,372) (148,666) - 336,444 54,683 1,395,453 185 659,525 (307,663) (836,022) (14,725) (10,372) (148,666) 10,334 (60,734) - 1,306,754 6,000 (173,578) 1,139,176 (60,734) 1,129 - 331,870 11,262 25,912 25,374 (480,739) - (126,461) - (106,637) - (318,290) - The Notes to the Financial Statements are an integral part of this statement. 15 (1,639) - 1,144 331,870 11,262 25,912 25,374 (482,378) 1,785 208 (4,955) (126,461) - (19) (106,656) - (1,643) (319,933) (2,962) (Continued) - 54 - STATE OF ARIZONA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS INDUSTRIAL TOTAL COMMISSION ENTERPRISE UNIVERSITIES SPECIAL FUND OTHER FUNDS 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 303,682 18,052 229,266 13,096 - 545 Purchase of investments Net Cash Provided (Used) by Investing Activities (537,919) (216,185) (256,251) (13,344) Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning (56,696) 521,305 (7,530) 113,742 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 Provision for uncollectible accounts Miscellaneous income (expense) Net changes in assets and liabilities: (Increase) decrease in receivables, net of allowances Decrease in due from U.S. Government (Increase) in due from other Funds (Increase) decrease in inventories, at cost Decrease in other assets Increase (decrease) in accounts payable Increase (decrease) in accrued liabilities (Decrease) in due to U.S. Government Increase (decrease) in due to other Funds (Decrease) in due to others Increase (decrease) in deferred revenue Increase in accrued insurance losses Increase in other liabilities Net Cash Provided (Used) by Operating Activities 902 $ 464,609 $ $ (1,063,295) $ 106,212 (349) (35) 518 35,709 161,159 $ 196,868 $ (9,763) $ 321,778 $ 251,725 (15,782) 1,369 (61) (2,840) 533 1,118 (210) 8,986 (9,210) - (140) 1,204 (1,711) 2 8,914 - $ (828,975) $ SCHEDULE OF NONCASH INVESTING, CAPITAL AND NON-CAPITAL FINANCING ACTIVITIES Contribution of capital assets from other Funds $ Gifts and conveyances of capital assets Assets acquired through debt (Loss) on disposal of capital assets, net Increase in fair value of investments Amortization of bond discount and issuance costs Amortization of bond premium Amortization of deferred rent Refinancing long-term debt Total Noncash Investing, Capital and Non-capital Financing Activities $ - $ 1,726 16,545 (11,003) 8,153 (2,978) 3,323 4,900 199,315 20,511 - 219,981 20,511 2,086 1,023 48 21,831 64 (10) (1,603) 34 1,919 (1,189) (129,332) 1 (5,727) (603) 92 (186) $ $ The Notes to the Financial Statements are an integral part of this statement. - 55 - GOVERNMENTAL ACTIVITIES INTERNAL SERVICE FUNDS 532,948 32,050 12 196 - (794,205) (229,011) 12 (28,517) 796,206 11,293 398,499 767,689 $ (751,280) $ 409,792 (1,880) 255,180 1,023 (15,795) 12,594 (5,099) 18,851 64 (10) (1,070) 1,152 2,913 7,797 (129,332) (1,710) (5,727) (9,811) 8,914 92 (2,672) 1,757 (141) (174) 247 17,739 48 15,107 (19) 30,852 6,618 210,412 $ (618,749) $ 74,977 $ 5 - $ 5 $ 1,726 16,545 (11,003) 28,664 (2,978) 3,323 4,900 199,315 21,030 - $ 5 $ 240,497 21,030 $ STATE OF ARIZONA STATEMENT OF FIDUCIARY NET POSITION FIDUCIARY FUNDS JUNE 30, 2013 (Expressed in Thousands) PENSION AND OTHER ASSETS Cash Cash and pooled investments with State Treasurer Short-term investments EMPLOYEE BENEFIT INVESTMENT AGENCY TRUST FUNDS TRUSTS FUNDS $ 169,711 $ - $ 53,684 - - 228,837 3,392 Receivables, net of allowances: Accrued interest and dividends Securities sold Forward contracts receivable Contributions Court fees Due from other Funds Other Total receivables 75,849 49,222 901,832 97,462 687 8,808 33,167 1,167,027 26,758 26,758 1 2 3 Investments, at fair value: Temporary investments Fixed income securities Corporate stocks Global tactical asset allocation Real estate Private equity Opportunistic investments Collateral investment pool Other investments Total investments 1,989,196 6,175,040 21,058,651 618,516 2,654,327 2,525,876 1,914,728 239,821 918,286 38,094,441 2,940,110 27,143 2,967,253 - - - 82,552 3,600,237 1,782 4,552 - - 39,435,731 2,994,011 3,970,487 72,523 352,541 - 164 - 239,821 889,084 8,808 27,143 - 153,523 3,816,964 - Total Liabilities 1,562,777 27,307 3,970,487 NET POSITION Held in trust for: Pension benefits Other post-employment benefits Pool participants 36,275,000 1,597,954 - 2,966,704 - Due from others Custodial securities in safekeeping Other assets Property and equipment, net of accumulated depreciation Total Assets LIABILITIES Accounts payable and other current liabilities Payable for securities purchased Management fee payable Obligation under securities loan agreements Forward contracts payable Due to local governments Due to others Due to other Funds Total Net Position $ 37,872,954 $ 2,966,704 The Notes to the Financial Statements are an integral part of this statement. - 56 - $ - STATE OF ARIZONA STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FIDUCIARY FUNDS FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) PENSION AND OTHER EMPLOYEE BENEFIT INVESTMENT TRUST FUNDS TRUSTS ADDITIONS: Member contributions $ Employer contributions Retrospective rate adjustment reimbursement Member purchase of service credit Court fees 1,154,598 1,436,745 25,826 78,664 8,412 $ - Investment income: Net increase (decrease) in fair value of investments Interest income Dividends Real estate Private equity Other investment income Securities lending income Total investment income 3,220,583 203,101 410,627 232,085 238,359 220,366 13,805 4,538,926 (7,367) 16,949 202 9,784 Less investment expenses: Investment activity expenses Securities lending expenses Net investment income 257,418 647 4,280,861 1,904 96 7,784 Capital share and individual account transactions: Shares sold Reinvested interest income Shares redeemed Net capital share and individual account transactions Other additions 4,782,275 13,817 (5,054,280) - (258,188) 2,178 Total Additions - 6,987,284 DEDUCTIONS: Retirement, disability, and survivor benefits Refunds to withdrawing members, including interest Administrative expense Dividends to investors Other deductions Total Deductions Change in net position held in trust for: Pension benefits Other post-employment benefits Pool participants Net Position - Beginning, as restated Net Position - Ending - (250,404) 3,297,722 - 262,730 43,700 6,292 5,106 - 3,610,444 5,106 3,239,028 137,812 34,496,114 $ 37,872,954 (255,510) 3,222,214 $ 2,966,704 The Notes to the Financial Statements are an integral part of this statement. - 57 - STATE OF ARIZONA COMBINING STATEMENT OF NET POSITION COMPONENT UNITS JUNE 30, 2013 (Expressed in Thousands) UNIVERSITY OF ARIZONA HEALTH NETWORK & SUBSIDIARIES 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: Taxes Interest Loans and notes Patient accounts receivable Other Due from primary government Inventories, at cost Other current assets Total Current Assets $ 188,849 1,612 4,362 - $ 31,727 123,411 14,394 OTHER COMPONENT UNITS $ 18,283 100,344 2,758 4,544 TOTAL $ 50,010 289,193 1,612 7,120 123,411 18,938 10,434 6,903 212,160 129,117 100,147 20,057 418,853 3,078 20 1,888 2,896 3,500 1,110 138,421 3,078 10,454 1,888 129,117 109,946 3,500 20,057 1,110 769,434 1,115,312 123,515 4,191 74,117 26,031 7,303 5,359 10,465 21,888 6,557 19,250 17,251 10,465 21,888 74,117 32,588 1,134,562 7,303 123,515 26,801 212 (163) 1,243,067 58,761 771,538 (423,825) 519,284 9,234 37,160 (10,161) 111,644 67,995 808,910 (434,149) 1,873,995 1,455,227 938,137 250,065 2,643,429 9,974 4,362 45,150 93 59,579 60,256 89,394 12,711 27,473 24,404 214,238 12,637 412 2,758 9,720 25,527 72,893 99,780 7,120 12,711 82,343 24,497 299,344 Noncurrent Liabilities: Unearned deferred revenue Accrued insurance losses Long-term debt Other long-term liabilities Total Noncurrent Liabilities 2,470 870,401 872,871 19,247 310,565 3,793 333,605 100,566 100,566 2,470 19,247 1,281,532 3,793 1,307,042 Total Liabilities 932,450 547,843 126,093 1,606,386 49 86,599 32,253 118,901 452,841 69,887 9,536 21,510 272,649 23,466 40,163 19,471 8,619 33,002 493,004 40,981 351,155 Noncurrent Assets: Restricted assets: Cash and pooled investments with State Treasurer Cash held by trustee Investments Investments held by trustee Loans and notes receivable, net of allowances Other receivables, 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 POSITION Net investment in capital assets Restricted for: Debt service Loans and other financial assistance Other Unrestricted Total Net Position $ 522,777 The Notes to the Financial Statements are an integral part of this statement. - 58 - $ 390,294 $ 123,972 $ 1,037,043 (This page intentionally left blank) STATE OF ARIZONA COMBINING STATEMENT OF ACTIVITIES COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) PROGRAM REVENUES OPERATING EXPENSES FUNCTIONS/PROGRAMS Water Infrastructure Finance Authority $ University of Arizona Health Network Other Component Units Total $ 46,851 CHARGES FOR GRANTS AND SERVICES CONTRIBUTIONS $ 35,598 $ 54,179 1,154,871 1,173,082 - 64,156 30,309 1,627 1,265,878 $ 1,238,989 $ General Revenues: Taxes: Sales Other Unrestricted investment earnings Unrestricted grants and contributions Payments from State of Arizona Miscellaneous Change in Net Position Net Position - Beginning, as restated Net Position - Ending The Notes to the Financial Statements are an integral part of this statement. - 60 - 55,806 NET (EXPENSE) REVENUE AND CHANGES IN NET POSITION UNIVERSITY WATER $ $ OF ARIZONA INFRASTRUCTURE HEALTH OTHER FINANCE NETWORK & COMPONENT AUTHORITY SUBSIDIARIES UNITS 42,926 $ - - 18,211 - - 4,757 47,683 475,094 11,573 29,784 360,510 522,777 $ 390,294 $ TOTAL - $ - $ 42,926 18,211 (32,220) (32,220) 9,853 13,600 536 1,034 36,708 1,772 31,283 92,689 9,853 13,600 16,866 1,034 36,708 1,772 108,750 928,293 123,972 - 61 - $ 1,037,043 STATE OF ARIZONA COMBINING STATEMENT OF FINANCIAL POSITION UNIVERSITIES - AFFILIATED COMPONENT UNITS JUNE 30, 2013 (Expressed in Thousands) ARIZONA STATE UNIVERSITY FOUNDATION ASSETS Cash and cash equivalent investments $ 8,895 UNIVERSITY OF ARIZONA FOUNDATION $ 38,752 ARIZONA CAPITAL FACILITIES FINANCE CORPORATION $ 3,667 OTHER COMPONENT UNITS $ 17,749 TOTAL $ 69,063 Receivables: Pledges receivable Other receivables Total receivables 117,781 4,646 122,427 2,984 2,984 108 108 10,579 18,892 29,471 131,344 23,646 154,990 Investments: Investments in securities Other investments Total investments 632,817 45,138 677,955 656,998 656,998 15,736 15,736 155,527 10,522 166,049 1,461,078 55,660 1,516,738 24,960 - 44,010 7,954 76,924 14,435 17,348 12,796 5,724 187,555 4,463 126,304 2,130 15,128 341,090 2,130 42,663 866,020 717,254 255,539 364,785 2,203,598 6,800 3,028 8,972 18,811 37,611 99,822 73,935 3,531 26,118 192,869 5,492 298,977 - 23,063 156,294 25,172 10,760 315,754 529,206 28,703 42,370 210,206 201,389 307,949 234,100 953,644 388,280 253,691 13,843 396,364 110,320 9,181 (52,410) 52,958 34,031 43,696 837,602 398,042 14,310 Net direct financing leases Property and equipment, net of accumulated depreciation Licenses Other assets Total Assets LIABILITIES Accounts payable and accrued liabilities Liability under endowment trust agreements Long-term debt Deferred revenue Other liabilities Total Liabilities NET ASSETS Permanently restricted Temporarily restricted Unrestricted (deficit) Total Net Assets $ 655,814 $ 515,865 The Notes to the Financial Statements are an integral part of this statement. - 62 - $ (52,410) $ 130,685 $ 1,249,954 STATE OF ARIZONA COMBINING STATEMENT OF ACTIVITIES UNIVERSITIES - AFFILIATED COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) ARIZONA STATE 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 Management and general expenses Fundraising expenses Interest Depreciation and amortization Other expenses Total Expenses Increase (decrease) in Net Assets, before extraordinary items Extraordinary item (Primarily equity transfers) Increase (decrease) in Net Assets, after extraordinary items Net Assets - Beginning, as restated Net Assets - Ending $ 82,238 1,009 20,281 56,737 4,061 ARIZONA CAPITAL FACILITIES FINANCE CORPORATION UNIVERSITY OF ARIZONA FOUNDATION $ 59,818 45,619 9,609 $ 15,781 8,967 29 9,276 OTHER COMPONENT UNITS $ 27,146 26,713 4,525 14,524 1,390 17,645 TOTAL $ 169,202 43,503 33,773 116,909 1,390 40,591 164,326 115,046 34,053 91,943 405,368 62,166 26,227 2,096 1,546 4,700 46,067 14,548 4,287 6,641 - 918 9,388 13,604 12,990 68 12,872 8,585 4,964 6,017 27,477 3,040 7,766 7,033 1,862 122,023 8,585 19,512 6,017 67,379 9,681 23,466 21,569 6,630 96,735 71,543 36,968 79,616 284,862 67,591 43,503 (2,915) 12,327 120,506 - - 67,591 43,503 (295) 12,170 122,969 588,223 472,362 (52,115) 118,515 1,126,985 (52,410) $ 130,685 655,814 $ 515,865 The Notes to the Financial Statements are an integral part of this statement. - 63 - 2,620 $ (157) 2,463 $ 1,249,954 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS INDEX Page Note 1. Summary of Significant Accounting Policies --------- 65 A. Reporting Entity ------------------------------------- 65 B. Basis of Presentation-------------------------------- 69 C. Measurement Focus and Basis of Accounting ----------------------------------------- 71 D. Deposits and Investments -------------------------- 71 E. Taxes Receivable ------------------------------------ 73 F. Inventories ------------------------------------------- 73 G. Property Tax Calendar------------------------------ 73 H. Capital Assets---------------------------------------- 73 I. Investment Earnings -------------------------------- 74 J. Scholarship Allowances ---------------------------- 74 K. Deferred Revenue ----------------------------------- 74 L. Compensated Absences ---------------------------- 74 M. Long-Term Obligations ---------------------------- 75 N. Net Position/Fund Balances------------------------ 75 O. New Accounting Pronouncements and Major Fund Changes ------------------------------ 76 Note 2. Deposits and Investments -------------------------------- 77 A. Deposits and Investment Policies ----------------- 77 B. Custodial Credit Risk – Deposits and Investments ------------------------ 78 C. Interest Rate Risk ----------------------------------- 79 D. Credit Risk ------------------------------------------- 81 E. Concentration of Credit Risk ---------------------- 82 F. Foreign Currency Risk ----------------------------- 83 G. Securities Lending ---------------------------------- 84 H. Derivatives ------------------------------------------ 86 I. State Treasurer’s Separately Issued Financial Statements ------------------------------ 90 C. D. E. F. Page Funding Policy ---------------------------------- 96 Annual OPEB Cost ----------------------------- 97 Funded Status and Funding Progress -------- 97 Actuarial Methods and Assumptions -------- 98 Note 7. Long-Term Obligations------------------------------ 98 A. Revenue Bonds --------------------------------- 98 B. Grant Anticipation Notes --------------------- 105 C. Certificates of Participation ------------------ 106 D. Leases ------------------------------------------- 111 E. Compensated Absences ----------------------- 112 F. Changes in Long-Term Obligations--------- 113 Note 8. Interfund Transactions ----------------------------- 114 Note 9. Accounting Changes ------------------------------- 115 A. Fund Financial Statements ------------------- 115 B. Government-wide Financial Statements ---- 115 Note 10. Governmental Fund Balances --------------------- 116 Note 11. Fund Deficit ----------------------------------------- 116 A. Risk Management Fund (RMF) ------------- 116 B. Retiree Sick Leave Fund (RASL) ----------- 116 Note 12. Joint Ventures --------------------------------------- 117 A. Large Binocular Telescope Corporation ---- 117 B. Giant Magellan Telescope Organization --- 117 Note 3. Receivables/Deferred Revenue ------------------------- 90 A. Taxes Receivable ----------------------------------- 90 B. Deferred Revenue ----------------------------------- 91 Note 13. Commitments, Contingencies, and Compliance ---------------------------------- 118 A. Insurance Losses ------------------------------- 118 B. Litigation --------------------------------------- 119 C. Accumulated Sick Leave --------------------- 119 D. Unclaimed Property --------------------------- 120 E. Construction Commitments ------------------ 120 F. Arizona State Lottery ------------------------- 120 Note 4. Capital Assets --------------------------------------------- 92 Note 14. Tobacco Settlement -------------------------------- 120 Note 5. Pension Benefits ----------------------------------------- 93 A. Participating Employers---------------------------- 93 B. Contributions, Benefits, and Refund Payments ---------------------------------- 93 C. Funding Policy -------------------------------------- 93 D. Annual Pension Cost ------------------------------- 94 E. Funded Status and Funding Progress ------------- 94 F. Actuarial Methods and Assumptions ------------- 95 G. Universities’Retirement Plans -------------------- 95 Note 15. Subsequent Events --------------------------------- 121 Note 6. Other Post-Employment Benefits----------------------- 96 A. Plan Description------------------------------------- 96 B. Contributions, Benefits, and Refund Payments ------------------------------------------- 96 - 64 - Note 16. Discretely Presented Component Unit Disclosures ---------------------------------------- 121 A. Summary of Significant Accounting Policies ---------------------------------------- 121 B. Deposits and Investments -------------------- 122 C. Program Loans --------------------------------- 124 D. Pledges Receivable ---------------------------- 125 E. Direct Financing Lease Agreements -------- 125 F. Capital Assets ---------------------------------- 126 G. Long-Term Obligations----------------------- 126 H. Net Assets Transfer --------------------------- 129 I. Conduit Debt ----------------------------------- 129 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 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 a separate column in the government-wide financial statements to emphasize they are legally separate from the State. Because the component units affiliated with the Universities follow Financial Accounting Standards Board (FASB) statements, these financial statements have been reported on separate pages following the respective counterpart financial statements of the State. For financial reporting purposes, only the statement of financial position and the statement of activities for component units affiliated with the Universities are included in the State's financial statements, as required by the GASB. GASB 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. Where the State does not appoint a voting majority of an organization’s governing body, GASB requires inclusion in the reporting entity if it is fiscally dependent on the State and there is a potential for the organization to either provide specific financial benefits to, or to impose specific financial burdens on, the State. Further, component units can be other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the financial statements to be misleading. In addition, GASB 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 Northern Arizona Capital Facilities Finance Corporation (NACFFC) is blended with the Universities financial statements. The NACFFC was established for the purpose of acquiring, developing, constructing, and operating student housing and other capital facilities and equipment for the use and benefit of NAU's students. The NACFFC Board of Directors is appointed by NAU, the NACFFC is controlled and operated by NAU personnel, and the NACFFC’s debt outstanding is expected to be repaid entirely or almost entirely with resources from NAU. The State reports the following component units as fiduciary funds: 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 State has the ability to impose its will on the ASRS as the State Legislature can modify the plan design and benefits. Additionally, per ARS §38-721, the State Legislature appropriates monies to pay for the administrative expenses of the ASRS. Complete financial statements may be obtained from the ASRS’s administrative office at P.O. Box 33910, Phoenix, AZ 85067-3910, (602) 240-2000, or its website at www.azasrs.gov. - 65 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 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 237 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. The State has the ability to impose its will on the PSPRS as the State Legislature can modify the plan design and benefits. Each eligible group participating in the system has a five-member local board. In general, all members serve a fixed four-year term. Complete financial statements may be obtained from the PSPRS’s administrative office at 3010 East Camelback Road, Suite 200, Phoenix, AZ 85016-4416, (602) 255-5575, or its website at www.psprs.com. 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. The State has the ability to impose its will on the EORP as the State Legislature can modify the plan design and benefits. Complete financial statements may be obtained from the PSPRS’s administrative office at 3010 East Camelback Road, Suite 200, Phoenix, AZ 85016-4416, (602) 255-5575, or its website at www.psprs.com. 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 26 local boards administer the CORP plan according to the provisions of ARS Title 38, Chapter 5, Article 6. The State has the ability to impose its will on the CORP as the State Legislature can modify the plan design and benefits. Complete financial statements may be obtained from the PSPRS’s administrative office at 3010 East Camelback Road, Suite 200, Phoenix, AZ 85016-4416, (602) 255-5575, or its website at www.psprs.com. The State reports the following discretely presented component units: Major Component Units: University of Arizona Health Network and Subsidiaries (UAHN) – The UAHN, an Arizona not-for-profit corporation, controls the University Medical Center Corporation and subsidiaries (UMC) and University Physicians Healthcare and subsidiaries (UPH). The UAHN is comprised of (i) a Hospital Division, which encompasses the University of Arizona Medical Center – University Campus, the University of Arizona Medical Center – South Campus, and more than 40 physician offices and clinics across southern Arizona, (ii) a faculty-physician Practice Plan Division known as the University of Arizona Physicians, which is the practice plan of the faculty-physicians of the University of Arizona College of Medicine, (iii) a Health Plans Division known as the University of Arizona Health Plans, which offers health care insurance plans, and (iv) the University Medical Center Foundation, which provides philanthropic support to the UAHN. The UAHN is governed by a seventeen-member board of directors whose appointments are approved by the Arizona Board of Regents. The State has the ability to impose its will on the UAHN as it must approve amendments to the articles of incorporation and bylaws of the board of directors. The UAHN must also receive approval from the State prior to entering any business transaction that may adversely affect the interest of the State. Complete financial statements may be obtained in writing from the UAHN at: The University of Arizona Health Network, Attn: Administration, 1501 N. Campbell Ave., Tucson, AZ 85724. 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 seven Governor appointed directors serve staggered terms of five years and serve at the pleasure of the Governor; thus, the State has the ability to impose its will on WIFA. Complete financial statements may be obtained from the WIFA’s administrative offices at 1110 West Washington Street, Suite 290, Phoenix, AZ 85007, (602) 364-1324. Non-major Component Units: 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 ninemember Board of Directors consisting of four State of Arizona agency heads and five members, one of which shall be a - 66 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 representative of a tribal nation in Arizona, appointed by the Governor of the State. Members appointed by the Governor serve staggered five-year terms. A financial benefit/burden relationship exists between the State and GADA as its fund was originally capitalized with General Fund appropriations and the State Legislature has swept monies from its fund over the years to balance the State’s budget. Complete financial statements may be obtained from the GADA’s administrative office at 1110 West Washington Street, Suite 290, Phoenix, AZ 85007, (602) 364-1324. 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. All board of directors can be removed at will; thus, the State has the ability to impose its will on Rio Nuevo. Complete financial statements may be obtained from Beach Fleischman & Co. PC, c/o Jim Lovelace, 1985 E. River Rd. #201, Tucson, AZ 85718-7176, (520) 321-4600. Arizona Power Authority (APA) – The APA purchases the State’s allocation of power produced at the federally owned Boulder Canyon Project hydropower plant and resells it to Arizona entities that are eligible purchasers under federal and state laws. The APA is governed by a commission of five members appointed by the Governor and approved by the Senate. The term of office of each member is six years and the members select a chairman and vice-chairman from among their membership for a term of two years. The APA is required to follow specific State policies; thus, the State has the ability to impose its will on APA. Complete financial statements may be obtained from the APA’s administrative offices at 1810 West Adams Street, Phoenix, AZ 85007-2679, (602) 368-4265. Arizona Commerce Authority (ACA) – The ACA is charged with the following responsibilities: job creation and expansion of capital investment through business attraction, expansion and retention, including business incubation and entrepreneurship; creation, monitoring, and execution of a comprehensive economic and workforce strategy; management and administration of economic development and workforce programs; providing statewide marketing leadership; utilization of all means necessary, prudent and practical to integrate private sector-based innovation, flexibility, focus and responsiveness; and advancement of public policy to meet the State’s economic development objectives. The ACA is governed by a nineteen member board of directors consisting of the Governor serving as Chairperson, a Chief Executive Officer, and seventeen members consisting of private sector business leaders serving staggered three-year terms, of which, nine are appointed by the Governor, four are appointed by the President of the Senate, and the other four are appointed by the Speaker of the House of Representatives. A financial benefit/burden relationship exists between the State and ACA as its primary funding source is the allocated State General Fund withholding tax revenues received in each fiscal year according to ARS §43-409. Complete financial statements may be obtained from the ACA’s administrative office at 333 North Central Avenue, Suite 1900, Phoenix, AZ 85004, (602) 8451200. 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, with the exception of the University Public Schools, Inc. (UPSI) and Campus Research Corporation (CRC). The UPSI is included because it is a legally separate organization that the State believes would be misleading to exclude due to its close affiliation to the State. The CRC is included because the U of A approves the budget and can access its resources. The following discretely presented component units of the State affiliated with the Universities are reported as major component units: Arizona State University Foundation for a New American University (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. The directors of the ASU Foundation make all decisions regarding the business affairs of the ASU foundation, including distributions to ASU. 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 restricted resources held by the U of A Foundation are significant to the U of A and can only be used by, or for the benefit of, the U of A or its constituents. - 67 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 The following discretely presented component units of the State affiliated with the Universities are reported as non-major component units: Arizona State University Alumni Association, Sun Angel Foundation, and Sun Angel Endowment –These three component units of the State affiliated with the Universities 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. In developing the research park, bonds were issued that are guaranteed by ASU. Downtown Phoenix Student Housing, LLC – This component unit of the State affiliated with the Universities provides facilities for use by students of ASU. UPSI – The UPSI participates with the ASU faculty and staff in implementing various educational innovations in the form of teaching methods, teacher preparation, curriculum, and educational research. 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. The economic resources held by the U of A Alumni Association are significant to the U of A and are entirely or almost entirely for the benefit of the U of A. 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. The economic resources held by the Law Association are significant to the U of A and are entirely or almost entirely for the benefit of the U of A. 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% 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. University of Arizona Eller Executive Education (EEE) –The EEE was established to advance the missions of the Eller College of Management and the U of A through noncredit, non-degree programs for business, government, and nonprofit leaders. The U of A president appoints all EEE board members and can remove any member at will. 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. The restricted resources of the NAU Foundation can only be used by, or for the benefit of NAU or its constituents. 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, LLC, Downtown Phoenix Student Housing, LLC, and the UPSI – Arizona State University, Financial Services, P.O. Box 875812, Tempe, AZ 85287-5812 or (480) 965-3601 U of A Alumni Association –Alumni Association, The University of Arizona, P.O. Box 210109, Tucson, AZ 85721-0109 Law Association – Law College Association, James E. Rogers College of Law at the University of Arizona, 1201 E. Speedway Blvd., Tucson, AZ 85721-0176 CRC –The University of Arizona Science and Technology Park, 9030 South Rita Road, Suite 302, Tucson, AZ 85747 - 68 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 EEE –Eller Executive Education, 405 McClelland Hall, Tucson, AZ 85721 NAU Foundation and NACFFC –Northern Arizona University, Comptroller's Office, P.O. Box 4069, Flagstaff, AZ 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, 1303 E. University Blvd., Box 4, Tucson, AZ 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 for inclusion. 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 sevenmember board of directors appointed by the Governor and approved by the Senate for five-year terms, and can be removed only for cause. Arizona Sports and Tourism Authority (the Authority) – ARS §5-802 established the Authority to construct, finance, 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 shall notify a city, town, county, tribal government, or existing corporation (as defined in ARS §35-701) that a multifamily residential rental project is planned for its jurisdiction and, before proceeding, shall obtain written consent from the governing body of the city, town, county, or tribal government. 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. Joint Ventures As described in Note 12, the U of A participates in joint ventures. In accordance with U.S. GAAP, the financial activities of these joint ventures 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. - 69 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 Government-wide statements provide information about the primary government and its component units. The statements include a statement of net position 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 Position presents the State’s assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position. The total of assets and deferred outflows of resources, minus the total of liabilities and deferred inflows of resources, is reported as net position. Both the governmental and business-type activities are presented on a consolidated basis by column. 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 fund primarily receives revenues from motor vehicle and fuel taxes and federal grants. 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: - 70 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 The Universities –account for transactions of the State’s three universities, which comprise the State’s university system. The Industrial Commission Special Fund (Special Fund) –accounts for the payment of workers’compensation claims that are not covered by the Risk Management Division of the Department of Administration, private insurance carriers, and self-insured employers. 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 Department of Economic Security (DES) revenue, reported in the General Fund, and the Transportation and Aviation Planning, Highway Maintenance and Safety Major Fund, as well as certain non-major governmental funds administered by the DES and 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. When an expense is incurred for purposes for which restricted and unrestricted net position are available, the State considers restricted and unrestricted amounts to have been spent in that order. 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 Position (unrestricted/restricted) “Cash”, “Cash with U.S. Treasury”, “Cash and pooled investments with State - 71 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 Treasurer”, “Cash held by 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 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 bid, the most recent mid/bid price or the 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). The evaluated bid is based on a compilation of primary observable market information or a broker quote in a non-active market. 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. The fair value of real estate, private equity and opportunistic investments are based on estimated current values and is accepted industry practice. Fair value is based on estimates and assumptions from information and representations provided by the respective general partners, in the absence of readily ascertainable market values. 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 market value. Short term investments are reported at cost plus accrued interest. 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 plus accrued interest. Investments in hedge funds are valued monthly at the last reported valuations. Limited partnership investments in credit opportunities, private equity, real assets, and real estate are valued on a quarterly or monthly basis at last reported valuations adjusted by any subsequent cash flows. Investment income is recognized as earned. - 72 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 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, 2013. Sales and motor vehicle and fuel tax receivables represent amounts that are earned by the State in the fiscal period ended June 30, 2013, 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. 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 $0-$5,000 3-25 $0-$100,000 10-100 $1,000,000-$5,000,000 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. - 73 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 The State is trustee for approximately 9.2 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 Position. 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 fee waivers, 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 Position. 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 13.C. - 74 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 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 or the effective interest 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. NET POSITION/FUND BALANCES The difference between (a) assets and deferred outflows of resources and (b) liabilities and deferred inflows of resources is “Net Position”on the government-wide, proprietary, and fiduciary fund financial statements. The difference between fund assets and liabilities is “Fund Balance”on the governmental fund financial statements. Net position is reported in three categories: Net investment in capital assets 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 position results when constraints placed on net position use are either externally imposed by creditors, grantors, contributors, or imposed by law through constitutional provisions, voter initiatives, or court orders. Unrestricted net position consists of net position which does not meet the definition of the two preceding categories. Unrestricted net position often has constraints on resources, which are imposed by management, but can be removed or modified. In the governmental fund financial statements, fund balances are reported in classifications that comprise a hierarchy based primarily on the extent to which the government is bound to honor constraints on the specific purposes for which amounts in those funds can be spent. Five classifications are available for reporting fund balances: Nonspendable fund balance includes items that cannot be spent. This includes activity that is not in a spendable form (inventories, prepaid amounts, long-term portion of loans/notes receivable, or property held for resale unless the proceeds are restricted or committed) and activity that is legally or contractually required to remain intact, such as a principal balance in a permanent fund. Restricted fund balances have constraints placed upon the use of the resources that are either externally imposed by creditors, grantors, and contributors, or imposed by law through constitutional provisions, voter initiatives, or court orders. Committed fund balances can be used only for specific purposes pursuant to constraints imposed by a formal action of the Arizona State Legislature, the State’s highest level of decision-making authority. This formal action is the passage of law by the Legislature, creating, modifying, or rescinding fund balance commitments. Assigned fund balance includes amounts that are constrained by the State’s intent to be used for a specific purpose, but are neither restricted nor committed. The State does not have policies or procedures comparable to the policies that underlie this classification and, accordingly, does not report assigned fund balances. Unassigned fund balance is the residual amount of the General Fund not included in the four categories described above. Also, any deficit fund balances within the other governmental fund types are reported as unassigned. - 75 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 When an expenditure is incurred for purposes for which restricted, committed, and unassigned fund balance is available, the State considers restricted, committed, and unassigned amounts to have been spent in that order. Budget Stabilization Fund The State’s Budget Stabilization Fund (BSF) was enacted in 1990 by ARS §35-144. The BSF is administered by the State Treasurer, who is responsible for transferring General Fund money into and out of the BSF as required by law. The BSF is designed to set revenue aside during times of above-trend economic growth and to utilize this revenue during times of belowtrend growth. The BSF is also known as the “Rainy Day Fund.” There is a statutory formula to calculate the amount to be appropriated to (deposit) or transferred out (withdrawal) of the BSF. The amount is based on calculations from the Arizona Economic Estimates Commission (EEC). The EEC compares the annual growth rate of inflation adjusted Arizona personal income (AZPI) for the calendar year ending in the fiscal year to the trend growth rate of inflation adjusted AZPI for the most recent 7 years. AZPI in the BSF formula is defined as total AZPI less transfer payments, adjusted by the gross domestic product price deflator index. If the annual growth rate exceeds the trend growth rate, the “excess”percent multiplied by General Fund revenue of the prior fiscal year would equal the amount to be deposited into the BSF. If the annual growth rate of AZPI is both less than 2% and less than the trend growth rate, the deficiency when multiplied by the General Fund revenue of the prior year would equal the amount to be withdrawn from the BSF. The BSF's total fund balance cannot be larger than 7% of the current year’s General Fund revenues, excluding the beginning balance. The budgets developed by the Governor and the Joint Legislative Budget Committee and submitted to the State Legislature at the start of each regular session include estimates of the amount to be appropriated to or transferred from the BSF for the upcoming budget year. The final determination of the amount is done by the EEC on June 1 of the budget year. The EEC calculations, however, do not result in any automatic deposits or withdrawals, as they must be authorized by legislative action. Additionally, by a two-thirds majority, the State Legislature, with the concurrence of the Governor, can decrease a deposit or increase a withdrawal. The BSF’s fund balance, including earnings on investments, as of June 30, 2013, was $454.1 million. O. NEW ACCOUNTING PRONOUNCEMENTS AND MAJOR FUND CHANGES GASB Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements. The objective of this Statement is to improve financial reporting by addressing issues related to service concession arrangements, which are a type of public-private or public-public relationship. The requirements of this Statement are effective for periods beginning after December 15, 2011. The State has implemented the requirements of this standard, but they had no effect on the financial statements. GASB Statement No. 61, The Financial Reporting Entity: Omnibus – an amendment of GASB Statements No. 14 and No. 34. This Statement modifies the requirements of Statements No. 14 and Statement No. 34 for the assessment of potential component units in determining what should be included in the financial reporting entity, and financial reporting entity display and disclosure requirements. The provisions of this Statement are effective for periods beginning after June 15, 2012. The State has implemented the requirements of this standard. GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. This Statement will improve financial reporting by contributing to the GASB’s efforts to codify all sources of U.S. GAAP for state and local governments so that they derive from a single source. The requirements of this Statement are effective for periods beginning after December 15, 2011. The State has implemented the requirements of this standard, but they had no effect on the financial statements. GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. This Statement provides financial reporting guidance for deferred outflows of resources and deferred inflows of resources. This Statement also amends the net asset reporting requirements in Statement No. 34. The provisions of this Statement are effective for periods beginning after December 15, 2011. The State has implemented the requirements of this standard. - 76 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 The Unemployment Compensation and Lottery funds reported as major enterprise funds in fiscal year 2012 did not meet the GASB major fund criteria in fiscal year 2013 and, as a result, are reported as non-major enterprise funds. 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 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 entities which are U.S. dollar denominated, commercial paper issued by entities which are U.S. dollar denominated, bankers acceptances, collateralized repurchase agreements, money market mutual funds, exchange traded funds, domestic equities, and other securities. The State Treasurer is not allowed to invest in foreign investments unless the investment is denominated in U.S. dollars. 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. In September 2008, the State agencies’and an external investment pool’s share of the Lehman Brothers bond value of $39.4 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. In December 2011, the United States Bankruptcy Court for the Southern District of New York entered an order confirming the Modified Third Amended Lehman Brothers Joint Plan of Liquidation. During the current year, approximately $3.5 million was received as payout of funds being held by the Indenture Trustee for Lehman Brothers securities. The payout received was allocated to participants based on the participant’s share balance and then transferred to the LGIP, reducing the carry or cost basis in the Lehman Brothers Pool. As of June 30, 2013, the carry or cost basis and the fair value for the Lehman Brothers Pool were $33.6 million and $8.1 million, respectively. There was a distribution in October 2013, and future distributions are generally expected every six months thereafter. The remaining amount to be recovered is unknown. The fair value of investments is measured on a monthly basis. Participant shares are purchased and sold based on the Net Position Value (NPV) of the shares. The NPV 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. The State Treasurer’s deposits and investments disclosures include the amounts reported by the State’s component units as (unrestricted/restricted) “Cash and pooled investments with State Treasurer” in the accompanying financial statements, as applicable. 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 - 77 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 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, commodities, real estate, private equity, and opportunistic investments. Per ARS §38-718, no more than 80% of the ASRS’assets may be invested at any given time in equities, measured at market value. No more than 40% of the ASRS’assets may be in non-U.S. public investments, measured at market value. No more than 60% of the ASRS’assets may be invested internally, measured at market value. No more than 10% of the ASRS’assets may be invested in bonds or other evidences of indebtedness of those multinational development banks in which the U.S. is a member nation, including the International Bank for Reconstruction and Development, the African Development Bank, the Asian Development Bank, and the Inter-American Development Bank, measured at market value. 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 60% 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 §38-848D, §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% 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 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% 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 exchange 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% 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% 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 §38-718. 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% of the bank balance - 78 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 required to be collateralized (102% 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, 2013, the State had uninsured deposits in the amount of $54.0 million that were 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, 2013, the State had $112.7 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. 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 relating to interest rate risk 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’s policy for the operating funds limits the final maturity of any fixed-rate security or variable-rate security to five years from the settlement date of the purchase. The capital projects fund’s portfolio is not limited as to the overall maturity of its investments, with the 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 securities in order to manage the exposure to interest rate risk with each different manager focusing on different goals of yield periods or duration of maturities of their particular portion of the investment pool. - 79 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 The following table presents the State Treasurer’s, the ASU’s, and the Commission’s weighted average maturity in years by investment type as of June 30, 2013 (expressed in thousands): Investment Type Asset backed securities Certificates of deposit (negotiable) Commercial mortgage backed securities Commercial paper Corporate notes & bonds FDIC certificates of deposit Government bonds Money market mutual funds Non-government backed collateralized mortgage obligations (CMOs) Repurchase agreements U.S. agency mortgage backed securities U.S. agency mortgage backed securities –full faith U.S. agency securities U.S. agency securities –full faith U.S. Treasury securities Other Total Fair Value $ 386,146 230,012 60,139 483,889 1,919,940 88,106 312,122 303,803 Weighted Average Maturity (in years) 2.34 0.40 23.16 0.11 3.42 0.35 5.77 0.12 2,002 2,838,467 1,327,873 736,669 1,225,916 95,811 1,370,566 2,983 22.41 0.01 22.32 19.12 3.42 2.22 2.44 5.15 $ 11,384,444 5.48 The ASRS has not adopted a specific formal policy for interest rate risk, but does set more restrictive requirements in its contracts with money managers. The ASRS uses effective duration to identify and manage its interest rate risk. 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 as of June 30, 2013 (expressed in thousands): Investment Type Asset backed securities Commercial mortgage backed securities Corporate bonds Government agency CMOs Government bonds Government mortgage backed securities Government related bonds Non-government backed CMOs Total Fair Value $ 220,534 156,333 2,035,549 18,975 1,718,469 848,535 329,312 46,423 $ 5,374,130 Effective Duration (in years) 7.70 2.80 5.20 7.10 5.70 3.40 7.50 10.60 5.30 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. - 80 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 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 as of June 30, 2013 (expressed in thousands): Investment Type Certificates of deposit (negotiable) Collateralized bond obligations (CBOs) Corporate notes & bonds Government bonds Money market mutual funds U.S. agency securities U.S. Treasury securities Other Total Fair Value $ 26,832 Less than 1 $ 9,236 1-5 $ 17,596 23,192 844,453 5,393 198,255 303,915 29,452 14,881 29,151 1,740 198,255 137,016 195 4,269 107,419 3,653 125,842 29,194 3,201 $ 1,446,373 $ 379,862 $ 286,905 Investment Maturities (in years) 6-10 11-15 16-20 $ $ - $ 12,342 28,856 66 63 7,411 $ 2,865 - 48,738 $ 2,865 More than 20 $ - 1,946 22,044 $ 10,850 674,216 18,947 - 23,990 $ 704,013 The following table presents the State’s investments at fair value that are considered to be highly sensitive to interest rate changes as of June 30, 2013 (expressed in thousands): Interest Rate Terms Investments (including full faith) with coupon tied to the London Interbank Offered Rate (LIBOR) plus/minus a fixed basis point which resets monthly, quarterly, or semi-annually. Asset backed securities (including full faith) with coupon tied to the LIBOR plus/minus a fixed basis point which resets from monthly to quarterly. 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 of the investment. Other investments with high sensitivity to rate changes. Total Corporate Notes & Securities U.S. Agency Securities $ 612,203 $ 156,146 Other $ Total 67,575 $ 835,924 222,657 2,916 - 225,573 50,989 - 2,065,934 305,939 2,500 2,116,923 308,439 70,075 $ 3,486,859 $ 885,849 $ 2,530,935 $ 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, notes, and negotiable certificates of deposit 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) or their successors. For securities of or any other interests in any open-end management type investment company or investment trust including exchange traded funds, the underlying investments must be securities which are allowable under State statutes. 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 securities must have a - 81 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 minimum quality rating of Baa3 by Moody’s and BBB- by S & P at the time of purchase. The portion of the bond portfolio in securities rated Baa3 through Baa1 by Moody’s and BBB- through BBB+ by S & P must be 20% or less of the fair value of the fixed income portfolio. Commercial paper must have a minimum quality rating of P-1 by Moody’s and A-1 by S & P at the time of purchase. 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 be of the two highest rating categories for short-term obligations of at least two of the NRSROs. In addition, the Universities do not have formal policies that specifically address credit risk over endowment funds. The Universities’endowment funds are primarily invested in their Foundations’endowment pools, which are not rated. The Foundations’investment committees manage the credit risk of the pools’investments. Also, the 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 Baa3 by Moody’s or BBB- 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, 2013. The ratings are presented using S & P’s rating scale (expressed in thousands): Investment Type Asset backed securities CBOs Certificates of deposit (negotiable) Commercial mortgage backed securities Commercial paper Corporate notes & bonds Government agency CMOs Government bonds Government mortgage backed securities Government related bonds Money market mutual funds Non-government backed CMOs Repurchase agreements U.S. agency mortgage backed securities U.S. agency securities Other Total Fair Value $ 587,862 23,192 AAA $ 356,841 - AA $ 33,538 - A $ 70,822 - BBB $ 39,106 - BB $ 26,196 - B $ 12,883 - CCC Thru D $ 47,346 10,850 - Not Rated $ 1,130 12,342 256,844 - 117,345 5,321 - - - - 107,346 26,832 216,337 483,889 196,083 - - 11,038 - 5,646 - - 2,194 - - 483,889 1,376 - 4,451,689 66,727 551,139 1,396,238 596,497 363,541 600,956 205,311 - 671,280 18,975 1,513,396 22,919 18,975 983,904 187,845 263,918 21,250 - - 33,560 - 848,535 - 848,535 - - - - - - - 329,312 24,454 263,559 40,843 456 - - - - - 502,058 364,861 125,366 - - - - - - 11,831 48,425 1,043,467 4,615 - 919 1,043,467 5,012 - 829 - 5,437 - 209 - 31,287 - - 117 - 1,303,455 1,488,442 73,512 20,327 - 1,299,159 1,461,469 - 2,649 - - - - - - 4,296 3,997 73,512 $13,189,390 $1,056,827 $6,747,375 $1,719,768 $906,452 $416,424 $616,242 $294,794 $624,795 $806,713 A-1 $ 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% of their investments shall be invested in securities issued by a single corporation and its subsidiaries/affiliates. However, securities issued by the U.S. government or its agencies, sponsored agencies, corporations, sponsored corporations or instrumentalities are exempt. 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% of the market value of the pool, bonds issued by an agency of the State, and pre-refunded municipal bonds issued by any entity that are invested in obligations issued or - 82 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 guaranteed by the U.S. government or any of its agencies, sponsored agencies, corporations, sponsored corporations or instrumentalities. The PSPRS’, the EORP’s, and the CORP’s investment policies state that no more than 5% 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, 2013, investments in any one issuer, that were more than 5% of the primary government’s total investments, are as follows: (i) Federal Home Loan Mortgage Corporation (fair value of $888.6 million, or 7.4%) and (ii) Federal National Mortgage Association (fair value of $1.0 billion, or 8.4%). 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, the PSPRS, the EORP, and the CORP are the primary State agencies that have foreign currency risk. Per ARS §38-718, no more than 40% of the ASRS' assets may be invested in foreign securities and those investments shall be made only by investment managers with expertise in those investments. The ASRS has not adopted a formal policy that is more restrictive. According to State statutes, the PSPRS, the EORP, and the CORP shall not invest more than 20% of the combined assets of the system or other plans that the Board of Trustees manages in foreign securities. The following table summarizes the State’s foreign currency risk as of June 30, 2013 (expressed in thousands): Currency Australian Dollar Brazilian Real British Pound Sterling Canadian Dollar Columbian Peso Danish Krone Euro Currency Hong Kong Dollar Hungarian Forint Indonesian Rupiah Israeli Shekel Japanese Yen Malaysian Ringgit Mexican Peso New Russian Ruble New Taiwan Dollar New Zealand Dollar Nigerian Naira Norwegian Krone Peruvian Nouveau Sol Philippine Peso Polish Zloty Singapore Dollar South African Rand South Korean Won Swedish Krona Swiss Franc Thailand Baht Turkish Lira Total Foreign Currency Risk by Investment Type at Fair Value Other Short Term Fixed Income Equities Investments $ 171 $ $ 102,077 $ 66 81,850 2,901 5,512 745 600,658 36,367 (1,651) 4,495 116,092 282 19,387 20 32,304 16,704 9,882 674,868 377,264 9,229 84,924 9,764 47 33,848 95 5,884 2,934 516,383 570 55,729 (13) 4,441 81,459 781 124,663 123 30,767 126 7,916 7 2,581 391 9,213 143 17,438 9,003 3,137 26,539 141 68,472 696 57,123 4,065 21 18,748 390 66,806 (1,760) 260,369 6 12,341 98 29,034 $ 38,802 $ 474,316 $ 2,583,254 $ 538,294 - 83 - Total 102,248 84,817 643,282 118,936 19,669 32,324 1,078,718 94,153 9,764 33,895 5,979 519,317 56,286 211,344 30,890 8,042 2,588 9,604 17,581 9,003 3,137 26,539 68,613 61,884 18,769 67,196 258,609 12,347 29,132 $ 3,634,666 $ STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 G. 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, The Northern Trust Company, manages the securities lending operations through a contractual agreement with the Commission and splits the fees received with the Commission. There was no credit risk (i.e., lender’s exposure to the borrowers of its securities) related to the securities lending transactions at June 30, 2013. The Northern Trust Company’s indemnification responsibilities include performing appropriate borrower and collateral investment credit analysis, demanding adequate types and levels of collateral, and complying with applicable Department of Labor and Federal Financial Institutions Examinations Council regulations concerning securities lending. Securities are loaned for collateral that may include cash, U.S. Government securities, and irrevocable letters of credit. Domestic securities are loaned for collateral valued at 102% of the market value of securities loaned plus accrued interest. International securities are loaned for collateral valued at 105% of the market value of securities loaned plus accrued interest. The market value at June 30, 2013 for loaned securities collateralized by cash and non-cash collateral was $43.8 million and $189 thousand, respectively. As part of the securities lending transactions, The Northern Trust Company received cash and non-cash collateral valued at $44.9 million and $194 thousand, respectively, at June 30, 2013. 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 68 days and cash open collateral is invested in a short-term investment pool, the Core USA Collateral Section, which had an interest sensitivity of 43 days as of June 30, 2013. 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 Position. A corresponding liability is recorded as the Commission must return the cash collateral to the borrower upon expiration of the loan. At June 30, 2013, the Commission had $44.9 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 §38-718(G), 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. Securities eligible for loan include U.S. fixed income securities, U.S. equities, and international equities. The ASRS currently receives as collateral at least 102% of the market value of the loaned securities and maintains collateral at no less than 100% for the duration of the loan. At year-end, the ASRS had limited counter party risk to borrowers because the amount the ASRS owes the borrowers exceeds the amount the borrowers owe the ASRS. Securities loaned are initially fully collateralized by cash (USD and Euro), U.S. Government or agency securities, sovereign debt, corporate bonds and equities. Cash collateral may be reinvested (under certain constraints) in: a) instruments issued or fully guaranteed by the U.S. Government, Federal agencies, or sponsored agencies or sponsored corporations, b) instruments issued by domestic corporations including corporate notes and floating rate notes, c) obligations of approved domestic and foreign banks, d) U.S. dollar-denominated instruments issued by sovereigns, sovereign supported credits, and instruments of foreign banks and corporations, e) repurchase agreements, f) insurance company funding agreements, guaranteed investment contracts and bank investment contracts, and g) money market mutual funds. The ASRS records the collateral received as an asset and the same amount as an obligation for securities on loan. 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 are classified as an asset on the Statement of Fiduciary Net Position. A corresponding liability is recorded as the ASRS must return the cash collateral to the borrower upon expiration of the loan. At June 30, 2013, the fair value of securities on loan was $871.7 million; of which $14.8 million were cash collateralized loans. Cash of $15.5 million received as collateral for securities loaned was reinvested and had a net position value of $14.8 million, as of June 30, 2013. The securities lending payable at June 30, 2013 was $15.5 million. The ASRS does not have the ability to pledge or sell the collateral unless there is a borrower default. There are no restrictions on the dollar amount of security loans that - 84 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 may be made by the ASRS. The ASRS is indemnified against gross negligence and borrower default by the lending agents, but is not indemnified against cash collateral reinvestment risk. During the late summer and early fall of 2011, ongoing monitoring of the ASRS securities lending exposure showed growing risks throughout Europe and in the European banking sector. In an effort to reduce the securities lending investment pools’ exposure to the European banking sector, the ASRS substantially withdrew from securities lending in 2011. As a result, the market values of securities on loan decreased from $3.5 billion as of June 30, 2011 to $49.4 million at June 30, 2012. Throughout fiscal year 2013, the ASRS remained substantially withdrawn from securities lending, but did enter into opportunistic transactions to take advantage of highly profitable and relatively low risk trades. These opportunistic transactions were in place as of June 30, 2013 resulting in a market value of securities on loan of $871.7 million as of the close of the fiscal year. During fiscal year 2013, the ASRS received cash of $8.9 million as partial recovery of the securities lending unrealized loss recognized in fiscal year 2009. 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% of the fair value of the loaned U.S. Government or corporate security. Securities on loan are carried at fair value. As of June 30, 2013, the fair values of securities on loan for the PSPRS, the EORP, and the CORP were $166.2 million, $9.3 million, and $42.5 million, respectively. At June 30, 2013, the fair value of the associated collateral for the PSPRS, the EORP, and the CORP were $171.0 million, $9.6 million, and $43.8 million, respectively. The PSPRS, the EORP, and the CORP are indemnified for broker default by the securities lending agent. 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. 4. State Treasurer The State Treasurer is permitted under ARS §§35-313 and 35-324 to enter into securities lending transactions. The State Treasurer’s custodial bank manages the securities lending program through a contractual agreement. At fiscal year-end, the State Treasurer had no credit risk exposure to borrowers because the amount the State Treasurer owes to the borrowers exceeds the amount the borrowers owe the State Treasurer. All securities are eligible for loan, but equities and U.S. Treasuries comprise a majority of securities that are on loan. There are no restrictions on the dollar amount of security loans that may be made by the State Treasurer. Securities are loaned for collateral that may include cash, U.S. government securities, state and local bonds, other municipalities’bonds and notes, commercial paper, banker acceptances, negotiable certificates of deposit, and corporate bonds, notes, and debentures. Securities are loaned for collateral valued at 102% of the market value of the securities loaned at the close of trading on the preceding business day, except for securities asset types such as U.S. Treasury strips and bills where the market fluctuations do not allow for the sale of such a security at greater than par. For these exceptions, collateral valued at the lesser of 100% of the par value of the security loaned or 102% of the market value is acceptable. Investments made with cash collateral are done on an individual investment pool basis and are restricted to the limitations for that investment pool set forth in the State Treasurer’s investment policy, except for investments made for certain endowment equity pools. Permitted investments for these equity pools include those investments authorized in section IV of the State Treasurer’s investment policy. Cash collateral investments include: a) obligations issued or guaranteed by the United States or any of its agencies, sponsored agencies, corporations, sponsored corporations, or instrumentalities including repurchase and tri-party repurchase agreements collateralized at no less than 102% by securities, 100% by cash, and 102% by mortgage-backed securities, b) bonds or other evidences of indebtedness of this state or any of the counties or incorporated cities, towns, or duly organized school districts, c) bonds and notes of other municipalities including repurchase and tri-party repurchase agreements collateralized at no less than 105% by securities and 100% by cash, d) commercial paper, e) bill of exchange or time drafts known as bankers acceptances, f) negotiable certificates of deposit issued by a nationally or state chartered bank or savings and loan, g) bonds, debentures, and notes issued by corporations organized and doing business in the United States, and h) U.S. 2a-7 money market mutual funds which are regulated by the Securities and Exchange Commission and rated in the highest category by at least one NRSRO. - 85 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 The State Treasurer records the cash collateral received as an asset and the same amount as obligations under securities loan agreements. As of June 30, 2013, the fair value of securities on loan was $1.6 billion. The associated fair value of the invested collateral was $1.7 billion, of which $917.6 million was invested cash collateral. All securities loans can be terminated on demand by either the State Treasurer or the borrower. For the cash collateral investments, the weighted average maturity was 20 days. The State Treasurer does not have the ability to pledge or sell the non-cash collateral unless there is a borrower default. The State Treasurer is indemnified against gross negligence, bad faith, or willful misconduct and borrower default by the lending agent. There were no borrower defaults during the current fiscal year. At June 30, 2013, the State Treasurer had $917.6 million outstanding as payable for securities lending, and the following securities on loan were uninsured and held by the bank trust department not in the Treasurer’s name: U.S. agency securities U.S. Treasury securities Total Fair Value $ 6,656,446 733,965,445 $ 740,621,891 H. DERIVATIVES A derivative instrument is a financial instrument or other contract with all three of the following characteristics: i Settlement factors: It has one or more reference rates 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 Leverage: 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 Net Settlement: 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 Statement No. 53, Accounting and Financial Reporting for Derivative Instruments. 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 Position. 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 Position. - 86 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 The fair value balances and notional amounts of derivative instruments outstanding at June 30, 2013, classified by type, and the changes in fair value of derivative instruments for the year then ended as reported in the June 30, 2013 financial statements are as follows (expressed in thousands): Investment Derivatives by Type Investment Derivatives Commodity futures long Commodity futures short Credit default swaps bought Credit default swaps written Fixed income futures long Fixed income futures short Fixed income options bought Fixed income options written Foreign currency futures long Foreign currency options bought Foreign currency options written Foreign currency forwards Index futures long Index futures short Pay fixed interest rate swaps Receive fixed interest rate swaps Rights Warrants Total Changes in Fair Value (1) Classification Amount (2) Net increase (decrease) in fair value of investments Net increase (decrease) in fair value of investments Net increase (decrease) in fair value of investments Net increase (decrease) in fair value of investments Net increase (decrease) in fair value of investments Net increase (decrease) in fair value of investments Net increase (decrease) in fair value of investments Net increase (decrease) in fair value of investments Net increase (decrease) in fair value of investments Net increase (decrease) in fair value of investments Net increase (decrease) in fair value of investments Net increase (decrease) in fair value of investments Net increase (decrease) in fair value of investments Net increase (decrease) in fair value of investments Net increase (decrease) in fair value of investments Net increase (decrease) in fair value of investments Net increase (decrease) in fair value of investments Net increase (decrease) in fair value of investments Fair Value at June 30, 2013 Classification Amount (3) Notional (4) $ (100,684) Not applicable 27,359 Not applicable (1,582) 197 $ - $ 300,018 - (33) Equity securities 231 41,803 Equity securities 16 5,782 (1,726) Not applicable - 168,300 (754) Not applicable - (14,888) (289) Not applicable - - (4) (5,000) 136 Equity securities (34,754) Not applicable - 295,022 218 Not applicable - - (4) (2,000) (5,197) 892,592 65 (1,347) Equity securities Forward contracts receivable 243,626 Not applicable - 13,318 (920) Not applicable - - (1,348) Equity securities 425 3,100 (1,553) Equity securities (1,986) 74,750 (39) Equity securities 22 722 (86) $ 126,519 Equity securities 90 $ (6,407) 244 $ 1,773,730 (1) Excludes futures margin payments. (2) Negative values (in brackets) refer to losses. (3) Negative values refer to liabilities. (4) Notional may be a dollar amount or size of underlying futures and options; negative values refer to short positions. 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. - 87 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 The credit quality ratings of counterparties as described by NRSROs and the counterparties’related risk concentration, as of June 30, 2013, are as follows (expressed in thousands): Counterparty Name Bank of America N.A. Bank of New York Barclay’s Bank BNP Paribas, S.A. Citibank N.A. Credit Suisse Deutsche Bank London Goldman Sachs HSBC Bank USA JP Morgan Chase Bank N.A. Morgan Stanley and Co. Inc. Royal Bank of Canada Royal Bank of Scotland, PLC Societe Generale Standard Chartered Bank State Street Bank and Trust Co. USB AG Westpac Banking Corporation Counterparty Risk and Ratings Total Risk Net Exposure Concentration $ 154 1.52% 1 0.01% 1,087 10.73% 147 1.45% 626 6.18% 275 2.72% 754 7.44% 259 2.56% 157 1.55% 2,293 22.63% 205 2.02% 142 1.40% 150 1.48% 263 2.59% 1,248 12.31% 89 0.88% 2,066 20.39% 217 2.14% Total $ 10,133 S&P A A+ A+ A+ A A+ A+ AAAA+ AAAA A AAAAA AA- Ratings Fitch A AAA A+ A A A+ A AAA+ A AA A A+ AAA+ A AA- Moody's A3 AA3 A2 A2 A3 A1 A2 A3 A1 Aa3 Baa1 Aa3 A3 A2 A1 Aa2 A2 Aa2 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, 2013 was $10.1 million. This represents the maximum amount of loss in case of default of all counterparties for the aggregated (positive) fair value of over-thecounter positions as of June 30, 2013. There was no collateral received or netting arrangements in place at June 30, 2013 with counterparties that would reduce this exposure. - 88 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 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, 2013, for the year then ended, as reported in the June 30, 2013 financial statements are as follows (expressed in thousands): Interest Rate Risk for Interest Rate Swap Asset ID Asset Description Interest Rate PAY FIXED INTEREST RATE SWAPS 99S0EIVKO/ BWU002SF0 IRS USD R V 03MLIBOR / 99S0EIVL8 BWU002SF0 IRS USD P F 2.75000 2.75% Total Pay Fixed Interest Rate Swaps Fair Value Notional $ 425 $ 3,100 $ 425 $ 3,100 $ (3) $ 7,868 RECEIVE FIXED INTEREST RATE SWAPS 99S0CHEZ0/ 99S0CHF06 99S0CKO58/ 99S0CKO66 99S0EIJN8/ 99S0EIJO6 99S0EM2K3/ 99S0EM2L1 99S0EOQE7/ 99S0EOQF4 99S0EPYZ8/ 99S0EPZ04 99S0F2PN5/ 99S0F2PO3 99S0F3K81/ 99S0F3K99 99S0F4N52/ 99S0F4N60 99S0FDS57/ 99S0FDS65 99S0FFWB4/ 99S0FFWC2 99S0FTO56/ 99S0FTO64 99S0FZ5T1/ 99S0FZ5U8 SWU0083W7 IRS CAD R F 2.00000 / SWU0083W7 IRS CAD P V 03MCDOR SWU0006O9 IRS CAD R F 2.25000 / SWU0006O9 IRS CAD P V 03MCDOR SWU002S11 IRS ZAR R F 6.50000 / SWU002S11 IRS ZAR P V 03MJHBRG SWU023WC8 IRS BRL R F 8.65000 / SWU023WC8 IRS BRL P V 00MCETIP SWU0031Z3 IRS ZAR R F 6.50000 / SWU0031Z3 IRS ZAR P V 03MJIBAR SWU023FY9 IRS BRL R F 8.16000 / SWU023FY9 IRS BRL P V 00MBRCDI SWU0283Z8 IRS BRL R F 8.94000 / SWU0283Z8 IRS BRL P V 00MBRCDI SWU023N12 IRS BRL R F 8.48500 / SWU023N12 IRS BRL P V 00MBRCDI SWU003JU5 IRS MXN R F 5.50000 / SWU003JU5 IRS MXN P V 01MCTIIE SWU003SX9 IRS BRL R F 8.87500 / SWU003SX9 IRS BRL P V 00MBRCD1 SWU003VI8 IRS MYR R F 3.36000 / SWU003VI8 IRS MYR P V 03MKLIBO SWU003NG1 IRS MXN R F 5.00000 / SWU003NG1 IRS MXN P V 01MTIIE SWU004PQ5 IRS BRL R F 10.91000 / SWU004PQ5 IRS BRL P V 00MBRCDI 2.00% 2.25% (3) 6,351 6.55% (57) 997 8.65% (38) 815 6.50% (294) 5,127 8.16% (89) 4,980 8.94% (568) 13,988 8.49% (163) 11,860 5.50% (134) 1,704 8.88% (572) 13,173 3.36% (13) 1,200 5.00% (59) 2,341 10.91% 7 4,346 $ Total Receive Fixed Interest Rate Swaps (1,986) $ 74,750 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 the ASU. - 89 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 I. STATE TREASURER’S SEPARATELY ISSUED FINANCIAL STATEMENTS The State Treasurer issues separately published Annual Audited Financial Statements. These financial statements provide 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 Audited Financial Statements can be obtained from their office at: Office of the Arizona State Treasurer, 1700 W. Washington Street, Phoenix, AZ 85007, (602) 542-7800, or their website at www.aztreasury.gov. NOTE 3. RECEIVABLES/DEFERRED REVENUE A. TAXES RECEIVABLE The following table summarizes taxes receivable at June 30, 2013 (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 $ 505,137 156,218 7,452 668,807 (369,480) $ 299,327 Transportation & Aviation Planning, Highway Maintenance & Safety Fund $ 72,899 72,899 $ 72,899 Industrial Commission Special Fund $ 4,915 4,915 $ 4,915 - 90 - Non-Major Governmental Funds $ 52,739 18,204 4,208 75,151 $ 75,151 Non-Major Enterprise Funds $ $ 89,662 89,662 89,662 Government-wide Total $ 557,876 156,218 72,899 25,656 89,662 9,123 911,434 (369,480) $ 541,954 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 B. DEFERRED REVENUE At June 30, 2013, 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 Advance county acute and long term care payments Federal grants 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 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 Industrial Commission Special Fund: Other Non-Major Funds: Policyholders' advance premiums Magazine subscriptions Other Internal Service Funds: Other Total Current Deferred Revenue for Proprietary Funds Unavailable $ $ Total Deferred Revenue Unearned 62,411 2,544 50,000 4,345 831 64,472 $ 41,012 291 30,070 - 6,865 465,952 4,438 - 23,340 465,952 4,438 23,340 780 662,638 670 95,383 780 670 758,021 - 3,970 3,970 12,266 12,266 674,904 81,188 85,158 $ 180,541 12,266 81,188 97,424 855,445 $ 46,554 6,003 4,900 63,918 491 7,024 104 2,999 2,083 52 13 $ 134,141 $ $ - 91 - 62,411 2,544 50,000 4,345 41,012 291 831 30,070 64,472 6,865 Unearned Noncurrent Deferred Revenue for Proprietary Funds: Universities: IBM lease related to acquisition of research park Total Noncurrent Deferred Revenue for Proprietary Funds $ 470 470 $ STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 NOTE 4. CAPITAL ASSETS Capital asset activities for the fiscal year ended June 30, 2013 were as follows (expressed in thousands): Primary Government Beginning Balance Additions Governmental Activities: Non-depreciable capital assets: Land Construction in progress Development in progress Infrastructure Total Non-depreciable Capital Assets $ 2,886,458 3,535,660 85,586 12,207,437 18,715,141 $ 90,346 610,679 6,720 752,907 1,460,652 Depreciable capital assets: Buildings Improvements other than buildings Equipment Software and other intangibles Infrastructure Total Depreciable Capital Assets 2,106,913 159,380 795,147 130,947 22,134 3,214,521 5,614 686 66,762 20,931 93,993 Less accumulated depreciation for: Buildings Improvements other than buildings Equipment Software and other intangibles Infrastructure Total Accumulated Depreciation (722,830) (89,486) (599,169) (112,658) (11,382) (1,535,525) $ (22,929) (761,932) (9,152) (794,013) Ending Balance $ 2,967,822 3,369,060 6,720 12,951,192 19,294,794 (819) (739) (40,329) (334) (42,221) 50,007 572 (10,545) 88,507 (238) 128,303 2,161,715 159,899 811,035 240,051 21,896 3,394,596 (52,221) (4,686) (54,094) (15,491) (655) (127,147) 654 472 37,629 334 39,089 (4,231) 58 (498) (67,354) 4 (72,021) (778,628) (93,642) (616,132) (195,169) (12,033) (1,695,604) 1,678,996 (33,154) (3,132) 56,282 1,698,992 $ 20,394,137 $ 1,427,498 $ (797,145) (30,704) $ 20,993,786 Additions Retirements $ $ Beginning Balance Business-type Activities: Non-depreciable capital assets: Land Construction in progress Development in progress Collections Total Non-depreciable Capital Assets Adjustments & Reclassifications 13,947 (15,347) (85,586) (86,986) Total Depreciable Capital Assets, Net Total Governmental Activities Capital Assets, Net Retirements $ 202,913 332,382 3,949 19,173 558,417 14,467 213,799 587 228,853 (7,248) (45,061) (3,949) (22) (56,280) $ $ Adjustments & Ending Reclassifications Balance $ (212,365) (212,365) $ 210,132 288,755 19,738 518,625 Depreciable capital assets: Buildings Improvements other than buildings Equipment Software and other intangibles Infrastructure Total Depreciable Capital Assets 4,622,149 4,816 1,527,822 19,328 449,069 6,623,184 210,019 37 116,753 6,302 9,710 342,821 (2,661) (49,506) (7) (52,174) 203,471 6,023 2,869 212,363 5,032,978 4,853 1,601,092 25,630 461,641 7,126,194 Less accumulated depreciation for: Buildings Improvements other than buildings Equipment Software and other intangibles Infrastructure Total Accumulated Depreciation (1,806,220) (3,255) (1,110,251) (11,949) (169,873) (3,101,548) (146,261) (195) (90,585) (3,183) (14,956) (255,180) 552 44,542 2 45,096 - (1,951,929) (3,450) (1,156,294) (15,132) (184,827) (3,311,632) 3,521,636 87,641 (7,078) 212,363 3,814,562 $ 4,080,053 $ 316,494 (2) $ 4,333,187 Total Depreciable Capital Assets, Net Total Business-type Activities Capital Assets, Net - 92 - $ (63,358) $ STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 Depreciation expense was charged to governmental functions as follows (expressed in thousands): General government $ 30,768 Health and welfare 15,816 Inspection and regulation Education 903 2,667 Protection and safety 52,281 Transportation 15,755 Natural resources 8,957 Total Governmental Activities $ 127,147 Depreciation expense was charged to business-type activities as follows (expressed in thousands): Industrial Commission Special Fund Universities 1,369 251,725 Other 2,086 Total Business-type Activities $255,180 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 employer groups as of June 30, 2013 for each pension plan is shown below: ASRS 585 PSPRS 237 EORP 38 CORP 41 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. 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, 2013, active ASRS members and the State were each required by statute to contribute at the actuarially determined rate of 10.90% and 10.25% of the members' annual covered payroll, respectively. The State's contributions to the ASRS for the years ended June 30, 2013, 2012, and 2011 were $185.5 million, $180.8 million, and $160.5 million, respectively, for the primary government which were equal to the required contributions for these years. - 93 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 In addition, active EORP members were required by statute to contribute 10% 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 34.60% of the members' annual covered payroll, as determined by actuarial valuation. The State's contributions to EORP for the years ended June 30, 2013, 2012, and 2011 were $2.5 million, $2.2 million, and $2.1 million, respectively, which were equal to the required contributions for these years. Agent plans For the year ended June 30, 2013, active PSPRS members were required by statute to contribute 9.55% of the members' annual covered payroll and the participating State agencies were required to contribute at actuarially determined rates of 19.10 – 129.23%. 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 9.86 –10.71%. 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, 2013, is as follows (expressed in thousands): PSPRS CORP Pension Contributions Made Required Excess OPEB Contributions Contributions $ 36,833 $ 548 39,537 3,020 Annual Pension Costs $ 36,833 39,537 The State’s annual pension costs, the percentage of annual pension cost contributed to the plan, and the net pension for the current and preceding year for each of the agent, multiple-employer defined benefit pension plans, is as follows (expressed in thousands): PSPRS CORP Fiscal Year Ended 6/30/2013 6/30/2012 6/30/2011 Annual Pension Costs $ 36,833 31,253 29,418 Percentage of Annual Cost Contributed 101% 102% 101% Net Pension $ 3,175 2,627 2,128 6/30/2013 6/30/2012 6/30/2011 39,537 32,058 29,466 108% 109% 110% 15,874 12,854 9,866 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): Plan PSPRS CORP Actuarial Valuation Date 6/30/2013 6/30/2013 Actuarial Value of Plan Assets $ 505,249 900,160 Actuarial Accrued Liability (AAL) $ 1,067,721 1,289,715 (Unfunded) AAL $ (562,472) (389,555) Funded Ratio 47.3% 69.8% Annual Covered Payroll $ 82,363 346,980 (Unfunded) AAL as a Percentage of Covered Payroll (682.9)% (112.3)% 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. - 94 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 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 6/30/2013 and actuarial valuation as of 6/30/2011 that was used to determine the fiscal year 2013 annual required contribution are as follows: Actuarial valuation date Actuarial cost method Actuarial assumptions: Investment rate of return Projected salary increases Payroll growth Cost-of-living adjustments Amortization method Remaining amortization period Asset valuation method PSPRS 6/30/2011 entry age normal CORP 6/30/2011 entry age normal PSPRS 6/30/2013 entry age normal CORP 6/30/2013 entry age normal 8.25% 5.0 –8.0% 5.0% None level percent-of-pay closed 25 years for unfunded, 20 years for overfunded 7-year smoothed market 8.25% 5.0 –8.0% 5.0% None level percent-of-pay closed 25 years for unfunded, 20 years for overfunded 7-year smoothed market 7.85% 4.5 –8.5% 4.5% None level percent-of-pay closed 23 years for unfunded, 20 years for overfunded 7-year smoothed market 80%/120% market 7.85% 4.5 –7.75% 4.5% None level percent-ofpay closed 23 years for unfunded, 20 years for overfunded 7-year smoothed market 80%/120% 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 three retirement plans: the Teachers Insurance Annuity Association/College Retirement Equities Fund (TIAA/CREF), 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 two 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 the contributed amounts and the returns earned on investments of those contributions. 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. The Arizona State Legislature establishes and may amend active plan members' and the Universities' contribution rates. For the year ended June 30, 2013, plan members and the three Universities were each required by statute to contribute an amount equal to 7.00% of an employee's compensation, except for a 7.00% member contribution and a 7.65% University contribution for the ASRS defined contribution plan. Contributions to these plans for the year ended June 30, 2013, were as follows (expressed in thousands): Plan TIAA/CREF Fidelity ASRS University Contributions $ 30,626 20,483 13 Employee Contributions $ 30,626 20,483 12 - 95 - Total Contributions $ 61,252 40,966 25 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 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 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. 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. - 96 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 Cost-sharing plan For the year ended June 30, 2013, active ASRS members and the State were each required by statute to contribute at the actuarially determined rate of 0.24% of the members' annual covered payroll for LTD. In addition, the State also contributed 0.65% for the HBS. The State's contributions for LTD to the ASRS for the years ended June 30, 2013, 2012, and 2011 were $4.3 million, $4.4 million, and $4.5 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, 2013, 2012, and 2011 were $11.8 million, $11.5 million, and $10.5 million, respectively, for the primary government which were equal to the required contributions for these years. Agent plans For the year ended June 30, 2013, the PSPRS participating State agencies were required to contribute at actuarially determined rates of 1.39 – 6.81% of covered payroll. The CORP participating State agencies were required to contribute at actuarially determined rates of 1.28 –1.59% 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, 2013, is as follows (expressed in thousands): PSPRS CORP Annual OPEB Costs $ 2,158 5,179 OPEB Contributions Made $ 1,610 2,159 Increase in OPEB Obligation $ 548 3,020 The State’s annual OPEB costs, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the current and preceding year for each of the agent, multiple-employer defined benefit post-employment plans, is as follows (expressed in thousands): PSPRS CORP Fiscal Year Ended 6/30/2013 6/30/2012 6/30/2011 Annual OPEB Costs (AOC) $ 2,158 2,225 2,180 Percentage of AOC Contributed 74.6% 77.6% 79.9% 6/30/2013 6/30/2012 6/30/2011 5,179 5,213 5,010 41.7% 42.7% 41.8% Net OPEB Obligation $ 3,175 2,627 2,128 15,874 12,854 9,866 E. FUNDED STATUS AND FUNDING PROGESS The State’s funded status for each of the agent, multiple-employer defined benefit post-employment plans, as of the year ended June 30, 2013, is as follows (expressed in thousands): Plan PSPRS CORP Actuarial Valuation Date 6/30/2013 6/30/2013 Actuarial Value of Plan Assets - Actuarial Accrued Liability (AAL) $ 29,165 59,723 - 97 - (Unfunded) AAL $ (29,165) (59,723) Funded Ratio 0.0% 0.0% Annual Covered Payroll $ 82,363 346,980 (Unfunded) AAL as a Percentage of Covered Payroll (35.4)% (17.2)% STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 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 6/30/2013 and actuarial valuation as of 6/30/2011 that was used to determine the fiscal year 2013 annual required contribution are as follows: Actuarial valuation date Actuarial cost method Actuarial assumptions: Investment rate of return Projected salary increases Payroll growth Cost-of-living adjustments Amortization method Remaining amortization period Asset valuation method PSPRS 6/30/2011 entry age normal CORP 6/30/2011 entry age normal PSPRS 6/30/2013 entry age normal CORP 6/30/2013 entry age normal 8.25% 5.0 –8.0% 5.0% None level percent-of-pay closed 25 years for unfunded, 20 years for overfunded 7-year smoothed market 8.25% 5.0 –8.0% 5.0% None level percent-of-pay closed 25 years for unfunded, 20 years for overfunded 7-year smoothed market 7.85% 4.5 –8.5% 4.5% None level percent-of-pay closed 23 years for unfunded, 20 years for overfunded 7-year smoothed market 80%/120% market 7.85% 4.5 –7.75% 4.5% None level percent-ofpay closed 23 years for unfunded, 20 years for overfunded 7-year smoothed market 80%/120% market NOTE 7. LONG-TERM OBLIGATIONS A. REVENUE BONDS Governmental Activities 1. Department of Administration The State has pledged portions of its revenues towards the payment of debt service on the State Lottery Revenue Bonds Series 2010A. 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, 2013, pledged revenues totaled $174.4 million, of which 21.5% ($37.5 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 $600.0 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 balance of Highway Revenue Bonds issued in prior years and outstanding at the start of the fiscal year was $1.6 billion. During the year, Highway Revenue Bonds totaling $715.5 million were issued to (i) finance portions of the ADOT’s Five-Year Transportation Facilities Construction Program, (ii) pay interest on any - 98 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 bonds issued for highway purposes, (iii) pay costs of issuing the bonds, and (iv) refund portions of the ADOT’s outstanding Subordinated Series 2003A Bonds ($48.4 million), Subordinated Refunding Series 2004B Bonds ($68.5 million), Senior Refunding Series 2005A Bonds ($100.4 million), Senior Series 2005B Bonds ($84.9 million), and Senior Series 2006 Bonds ($239.5 million) to reduce the total debt service payments by $9.5 million and to obtain an economic gain (difference between the present values of the debt service payments on the old and new debt) of $22.3 million. The payment to the refunded bond escrow agent totaled $611.9 million, representing principal of $541.6 million and interest of $70.3 million. The Highway Revenue Bonds are secured by a prior lien on and a pledge of motor vehicle and related fuel fees and taxes. On September 21, 2006, House Bill 2206 became effective and eliminated the restriction that limited the principal amount of the Highway Revenue Bonds that could be outstanding at any time to $1.3 billion. Also during fiscal year 2007, the ADOT received legislative authority to begin issuing Highway Revenue Bonds with maturities of up to 30 years in length, replacing the 20 year maturity requirement that had been in place since 1980. The ADOT has pledged future motor vehicle and related fuel fees and taxes to repay $1.7 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 2038. The total principal and interest remaining to be paid on the bonds is $2.7 billion. Principal and interest paid for the current year and total pledged revenues were $138.7 million and $524.3 million, respectively. The annual principal and interest payments on the bonds required 26.5% of the pledged revenues. The Maricopa County Regional Area Road Construction Fund is used to record all payments of principal and interest for Transportation Excise Tax Revenue Bonds issued by the ADOT. These bonds are secured by a portion of transportation excise taxes collected by the Arizona Department of Revenue on behalf of Maricopa County. The balance of Transportation Excise Tax Revenue Bonds issued in prior years and outstanding at the start of the fiscal year was $981.8 million. The ADOT has pledged future transportation excise taxes to repay $926.0 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, AZ. 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 $1.2 billion. Principal and interest paid for the current year and total pledged revenues were $103.6 million and $227.9 million, respectively. The annual principal and interest payments on the bonds required 45.5% of the pledged revenues. In the current and 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, 2013 totaled $257.6 million. 3. School Facilities Board On April 11, 2013, the School Facilities Board (SFB) issued Taxable State School Improvement Revenue Refunding Bonds Series 2013 (2013 Bonds) for $316.2 million. The 2013 Bonds include $316.2 million of serial bonds with interest rates ranging from 0.29% to 2.01% and maturity dates ranging from 2014 to 2020. The 2013 Bonds are subject to optional redemption prior to maturity on any date pursuant to the debt documents. The SFB realized net proceeds from the 2013 Bonds of $315.1 million, after payment of $1.1 million for underwriters’discount and issuance costs. The net proceeds of the 2013 Bonds were used to refund, in advance of maturity, $281.5 million of the outstanding Series 2005 School Improvement Revenue Refunding Bonds (2005 Bonds); $94.2 million of the 2005 Bonds were not refunded and remain outstanding at June 30, 2013. The advancerefunding resulted in a debt service savings of $16.1 million and a net present value benefit of $16.9 million (difference between the present values of the old debt and new debt service payments). The advance-refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $19.5 million. This difference was deferred, and is being amortized to interest expense through fiscal year 2020 on a straight-line basis. In current and prior fiscal years, the SFB refinanced various bond issues through advance-refunding arrangements. Under the terms of the refunding bond issues, sufficient assets to pay all principal, redemption premium, if any, and interest on the refunded - 99 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 bond issues have been placed in irrevocable trust accounts at commercial banks and invested in U.S. Government securities which, together with interest earned thereon, will provide amounts sufficient for future payment of principal and interest of the issues refunded. The assets, liabilities, and financial transactions of these trust accounts and the liability for these legally defeased bonds are not reflected in the accompanying financial statements. 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, 2013. 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, 2013, pledged revenues totaled $617.5 million, of which 13.2% ($81.4 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, 2020 is $585.1 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 and for refunding obligations from previously issued bonds. For all outstanding SPEED revenue bonds, up to 80% of the debt service payments are payable from the U of A’s SPEED revenue bond account monies, which are derived from certain revenues of the Lottery. To the extent SPEED revenue bond account monies are not sufficient to make debt service payments, the SPEED revenue 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. On December 19, 2012, the U of A sold System Revenue Refunding Bonds Taxable Series 2012C (2012C Bonds) for $43.920 million dated January 17, 2013. The 2012C Bonds include $37.670 million of serial bonds with interest rates ranging from 0.65% to 3.42% and maturity dates ranging from 2014 to 2027. The 2012C Bonds also include a term bond consisting of $6.250 million with an interest rate of 3.91% due June 1, 2034. The 2012C Bonds are subject to optional redemption at a redemption price equal to the greater of (1) par, or (2) the net present value of remaining debt service payments, discounted to the date of redemption at a rate based on U.S. Treasury Securities plus 25 basis points. The 2012C Bonds with maturity on June 1, 2034 are subject to mandatory sinking fund redemption without premium pursuant to the debt documents. The 2012C Bonds sold at a discount of $14 thousand. The U of A realized net proceeds of $43.540 million after payment of $366 thousand for issuance costs and underwriter discounts. The net proceeds were used for the following: i Current-refund a portion of the System Revenue Bonds Series 2003 with an outstanding principal balance of $8.165 million. The current refunding generated a net present value economic gain of $742 thousand (difference between the present values of the old debt and the new debt service payments) for the U of A. The refunding decreases the U of A’s debt service by $112 thousand in year one and $603 thousand in year two. In addition, annual debt service decreases by an average of $3 thousand in years three through twelve. The current-refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $236 thousand. This difference, reported in the accompanying financial statements as a deduction from long-term obligations, is being amortized to interest expense through the year 2024 using the straight-line method. i Advance-refund a portion of the System Revenue Bonds Series 2004B with an outstanding balance of $32.945 million. The advance refunding generated a net present value economic gain of $2.172 million (difference between the present - 100 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 values of the old debt and the new debt service payments) for the U of A. The advance-refunding decreases the U of A’s debt service by $445 thousand in year one, $653 thousand in year two, and $1.021 million in year three. In addition, annual debt service decreases by an average of $3 thousand in years four through twenty-two. The advance-refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $2.206 million. This difference, reported in the accompanying financial statements as a deduction from long-term obligations, is being amortized to interest expense through the year 2034 using the straight-line method. The refunded System Revenue Bonds Series 2004B will be paid by investments held in an irrevocable trust with a combined carrying value of $34.436 million. Accordingly, the trust account assets and liability for the defeased bonds are not included in the accompanying financial statements. On March 26, 2013, the U of A sold System Revenue Bonds Series 2013A (2013A Bonds) for $69.175 million and System Revenue Refunding Bonds Series 2013B (2013B Bonds) for $34.985 million dated April 10, 2013. The 2013A Bonds include $25.295 million of serial bonds with interest rates ranging from 3.00% to 5.00% and maturity dates ranging from 2016 to 2033. The 2013A Bonds also include three term bonds consisting of $11.455 million with an interest rate of 5.00% due June 1, 2038, $14.605 million with an interest rate of 4.00% due June 1, 2043, and $17.820 million with an interest rate of 4.13% due June 1, 2048. The 2013A Bonds with maturity on or after June 1, 2024, are subject to optional redemption without premium. The 2013A Bonds with maturity on June 1, 2038, June 1, 2043, and June 1, 2048 are subject to mandatory sinking fund redemption without premium pursuant to the debt documents. The 2013A Bonds sold at a premium of $3.501 million. The U of A realized net proceeds from the 2013A bonds of $72.216 million after payment of $460 thousand for issuance costs and underwriter discounts. The net proceeds were used to finance the Cancer Center in Phoenix. The 2013B Bonds include $30.905 million of serial bonds with interest rates ranging from 3.00% to 5.00% with maturity dates ranging from 2013 to 2033. The 2013B Bonds also include three term bonds consisting of $1.110 million with an interest rate of 3.75% due June 1, 2038, $1.335 million with an interest rate of 4.00% due June 1, 2043, and $1.635 million with an interest rate of 4.13% due June 1, 2048. The 2013B Bonds with maturity on or after June 1, 2024, are subject to optional redemption without premium. The 2013B Bonds with maturity on June 1, 2038, June 1, 2043, and June 1, 2048 are subject to mandatory sinking fund redemption without premium pursuant to the debt documents. The 2013B Bonds sold at a premium of $5.495 million. The U of A realized net proceeds from the 2013B bonds of $40.244 million after payment of $236 thousand for issuance costs and underwriter discounts. The net proceeds were used to finance a portion of the Environment and Natural Resources Phase II project and to refund, in advance of maturity, a portion of the System Revenue Bonds Series 2004A and 2005A totaling $3.535 million and $26.470 million, respectively. The advance-refunding generated a net present value benefit of $1.912 million (difference between the present values of the old debt and the new debt service payments) for the U of A. The advance-refunding reduced the U of A’s debt service by $514 thousand in the first year, $38 thousand in the second year, and an average of $124 thousand in years three through thirteen. The advance-refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $2.682 million. This difference, reported in the accompanying financial statements as a deduction from long-term obligations, is being amortized to interest expense through the year 2031 using the straight-line method. The refunded System Revenue Bonds will be paid by investments held in an irrevocable trust with a combined carrying value of $32.541 million. Accordingly, the trust account assets and liability for the defeased bonds are not included in the accompanying financial statements. On May 16, 2013, the U of A sold SPEED Revenue Bonds Series 2013 (2013 Bonds) for $70.125 million dated May 30, 2013. The 2013 Bonds include $25.880 million of serial bonds with interest rates of 4.00% and 5.00% and maturity dates ranging from 2016 to 2031. The 2013 Bonds also include four term bonds consisting of $4.840 million with an interest rate of 3.75% due August 1, 2033, $10.175 million with an interest rate of 5.00% due August 1, 2038, $12.980 million with an interest rate of 5.00% due August 1, 2043, and $16.250 million with an interest rate of 4.00% due August 1, 2048. The serial bonds with maturity on or after August 1, 2024, are subject to optional redemption without premium. The 2013 Bonds with maturity on August 1, 2033, August 1, 2038, August 1, 2043, August 1, 2048 are subject to mandatory sinking fund redemption without premium pursuant to the debt documents. The 2013 Bonds sold at a premium of $6.688 million. The U of A realized net proceeds of $76.300 million after payment of $513 thousand for issuance costs and underwriter discounts. The net proceeds will be used to finance the Environment and Natural Resources Phase II project and the Health Sciences Education Building Shell Space project. In fiscal year 2012, the U of A refunded, in advance of maturity, a portion of the outstanding System Revenue Bonds Series 2004A. At June 30, 2013, the outstanding principal balance on the refunded bonds was $9.335 million, which will be paid by investments held in an irrevocable trust with a fair value of $9.770 million. Accordingly, the trust account assets and liability for the defeased bonds are not included in the accompanying financial statements. - 101 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 The U of A’s outstanding Series 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. Due to the federal sequestration, the U of A will receive an 8.7% reduction (totaling $140 thousand) in the federal interest subsidy for the August 1, 2013 debt service payment, and a 7.2% reduction (totaling $232 thousand) in the federal interest subsidy for the February 1 and August 1, 2014 debt service payments. The U of A has pledged portions of its gross revenues towards the payment of debt related to all system revenue bonds, system revenue refunding bonds, and SPEED revenue bonds outstanding at June 30, 2013. 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, 2013, pledged revenues totaled $994.1 million, of which 5.7% ($56.5 million) was required to cover current year debt service. Future annual principal and interest payments on the bonds are expected to require approximately 4% of pledged revenues. Future pledged revenues required to pay all remaining debt service for the bonds through final maturity of August 1, 2048 is $1.5 billion. b. Northern Arizona University The NAU’s bonded debt consists of various issues that are generally callable at a prescribed date with interest payable semiannually. All issues are at a fixed rate. Bond proceeds primarily pay for acquiring, constructing, or renovating capital facilities. System revenue bonds are repaid from pledged gross revenues that primarily consist of student tuition and fees and certain auxiliary revenues. On June 20, 2013, the NAU sold $75.2 million of SPEED Revenue Bonds Taxable Series 2013 (Series 2013 Bonds) for the purpose of the construction of a new sciences and health services facility at the NAU’s main campus, and the construction buildout of approximately 15 thousand square feet in the existing Health Sciences Education Building at the U of A College of Medicine Phoenix Campus. The 2013 Bonds include serial bonds of $39.9 million with interest rates ranging from 4.00% to 5.00%. The 2013 Bonds also include three term bonds that are subject to annual sinking fund contributions. The first term bond is for $15.6 million with an interest rate of 5.00% that matures August 1, 2038; the second term bond is for $7.5 million with an interest rate of 5.00% that matures on August 1, 2043; the third term bond is for $12.2 million with an interest rate of 4.25% and matures on August 1, 2043. The 2013 Bonds are generally subject to redemption prior to maturity. The 2013 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 Lottery not to exceed 80% of the annual debt service and other NAU monies equal to at least 20%, and as much as 10% of annual debt service. To the extent monies of the SPEED Fund are not sufficient to make debt service payments, the 2013 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. 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, 2013, $34.3 million of such bonds outstanding are considered defeased. The Series 2009A and 2010 Bonds were issued as designated Build America Bonds under the provisions of the 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. - 102 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 For the 2010 and 2013 revenue bonds, up to 80% of the debt service payments are payable from the NAU’s SPEED revenue bond account monies, which are derived from certain revenues of the Lottery. To the extent SPEED revenue bond account monies are not sufficient to make debt service payments, the SPEED revenue 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 NAU’s system revenue bonds. 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, 2013. 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. Pledged revenue has averaged $206.1 million for the prior five years. At June 30, 2013, pledged revenues totaled $263.2 million, of which 9.6% ($25.2 million) was required to cover current year debt service. Future annual principal and interest payments on the bonds are expected to require approximately 10% of pledged revenues. Future pledged revenues required to pay all remaining related debt service for the bonds through final maturity of August 1, 2043 are $839.8 million. c. Arizona State University At June 30, 2013, the ASU had issued a combination of fixed and variable rate bonds. The ASU’s long-term obligations generally are structured with level debt service, semi-annual interest, and call options at a prescribed date. Certain revenue bonds of the ASU have been defeased through advance refundings by depositing sufficient U.S. Government securities in an irrevocable trust to pay all future debt service. Accordingly, the liabilities for these defeased bonds are not included in the accompanying financial statements. The principal amount of all defeased bonds outstanding at June 30, 2013 totaled $23.6 million. The ASU has pledged gross revenues as defined in the bond indentures towards the payment of debt related to various senior lien system revenue bonds outstanding at June 30, 2013. These related revenue bonds are primarily for new academic and research facilities, academic and laboratory renovations, and infrastructure improvements. The 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, 2013, pledged revenues totaled $1.1 billion, of which 6.9% ($72.7 million, net of federal direct payments) was required to cover current year debt service. Future pledged revenues required to pay all remaining debt service for revenue bonds through final maturity of July 1, 2043 is $1.5 billion. In addition, the ASU has pledged the same revenues on a subordinated basis to secure the Series 2006 Arizona State University Research Park, Inc. Development Refunding Bonds and the Series 2010 A/B and 2011 SPEED revenue bonds. Research Park bonds outstanding at June 30, 2013 were $7.8 million with annual debt service payments of approximately $1.2 million through July 1, 2021. SPEED revenue bonds outstanding at June 30, 2013, were $64.7 million with annual debt service payments of approximately $2.6 million through June 30, 2016, $5.7 million through June 30, 2031, and $2.7 million through August 1, 2031, net of federal direct payments. In January, 2013 the ASU issued $110.9 million in system revenue and refunding bonds, Tax-Exempt Series 2013A and Taxable Series 2013B, with an average maturity of 15.6 years and an average interest rate of 3.47%. The bonds were issued to fund the construction of the Tempe campus student fitness complex expansion, the new Downtown campus student fitness complex, various information technology infrastructure projects, a new Tempe campus mixed-use facility, and to refund various outstanding bonds of the ASU and the ACFFC (Adelphi Commons II Student Housing). The refunded debt is considered defeased and related liabilities are not included in the accompanying financial statements. The issuance of the refunding bonds, with an average maturity of 10.04 years and an average interest rate of 2.8%, resulted in a $6.6 million reduction in future debt service payments, with an economic gain of $5.5 million based upon the present value savings. In June 2008, the Legislature approved the SPEED which provides the ASU capital improvement funds for critical construction and deferred maintenance projects. SPEED projects are debt financed with revenue bonds, repaid primarily with Lottery revenues. Specifically, up to 80% of SPEED debt service is paid from Lottery revenues, with the balance being the responsibility of the ASU as evidenced by the subordinated pledge of the ASU revenues. The Taxable Series 2010A System Revenue Bonds and the Taxable Series 2010A SPEED Revenue Bonds were issued as Build America Bonds under the provisions of the ARRA. As such, the ASU is eligible to receive Federal Direct Payments from the U.S. Treasury equal to 35% of the interest owed on 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 - 103 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 reflect any amounts owed by the ASU to the Federal government, or changes in the law that would reduce or eliminate such payments. During fiscal year 2013, the Federal government reduced federal direct payment claims filed between March 1, 2013 and September 30, 2013 by 8.7% due to federal budget sequestration. The ASU’s direct payments were reduced by $173 thousand. For accounting purposes, any direct payments received from the U.S. Treasury are recorded as nonoperating revenue. The ASU has outstanding two series of variable rate demand system revenue refunding bonds, Series 2008A and Series 2008B, totaling $96.8 million with final maturities of July 1, 2034. The interest rate in effect on June 30, 2013 was 0.05% for the Series 2008A Bonds and 0.07% for the Series 2008B Bonds. To provide credit and liquidity support for the bonds, on March 1, 2012, the ASU entered into an Irrevocable Transferable Direct-Pay Letter of Credit (LOC) with JPMorgan Chase Bank, N.A. (JPMorgan), under which the ASU has agreed to a commitment fee for the LOC of 0.38% per annum. Should the Series 2008A/B bond rating change, the commitment fee could increase according to the fee agreement. Assuming all of the $48.4 million Series 2008A and $48.4 million Series 2008B bonds are not resold within 365 days, the ASU would be responsible to make quarterly installment principal payments, with the last payment on the fourth anniversary of JPMorgan acquiring the bonds, plus interest to be calculated as established in the LOC. Securities and cash restricted for bonds debt service held by the trustee at June 30, 2013 totaled $51.1 million. The ASU presently plans to issue up to $87.3 million in SPEED revenue bonds during fiscal year 2014. Effective January 1, 2007, the ASU entered into a $103.0 million notional amount swap agreement (hedging derivative instrument) expiring on July 1, 2034, in conjunction with the 2008 variable rate demand system revenue refunding bonds (2008 Bonds). The $103.0 million notional amount is not exchanged; it is only the basis on which the interest payments are calculated and it decreases as principal payments are made on the 2008 Bonds. The intention of the swap was to effectively convert the variable rate interest on the 2008 Bonds to a synthetic fixed rate. 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 SIFMA rate at June 30, 2013 was 0.06%. At June 30, 2013, 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 (0.06) 3.85 0.06 3.91 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 the counterparty defaults or if the swap is terminated, the ASU will revert to paying a variable rate. A termination of the swap agreement may also result in the ASU making or receiving a termination payment. The ASU is exposed to interest rate risk based on the SIFMA indexed variable payment received from the counterparty versus the variable rate paid to bondholders. 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. As of June 30, 2013, 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 S&P and A3 by Moody's as of June 30, 2013. Based on current ratings, the counterparty was not required to provide collateral. In the event a rating downgrade occurs, the counterparty may be required to provide collateral if the ASU's overall exposure exceeds predetermined levels. Collateral may be held by the ASU or a third party custodian. As of June 30, 2013, the swap had a fair value of $(14.1) million, which represents the cost to the ASU to terminate the swap. The June 30, 2012 fair value was $(22.9) million. 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. - 104 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 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. In accordance with GASB 53, as amended by GASB 63, the fair value of the ASU's hedging derivative instrument is reported on the statement of net position as a deferred outflow of resources (interest rate swap) and a liability (derivative instrument - interest rate swap). Summary of Revenue Bonds The following schedule summarizes revenue bonds outstanding at June 30, 2013 (expressed in thousands): Revenue Bonds Outstanding Governmental Activities: Department of Transportation School Facilities Board Department of Administration Business-type Activities: University Revenue Bonds Interest Rates Outstanding Balance at June 30, 2013 Dates Issued Maturity Dates 2001-2013 2002-2013 2010 2014-2038 2014-2020 2014-2029 2.00-5.25% .14-5.50% 3.00-5.00% $2,659,260 538,830 408,630 1992-2013 2014-2049 .06-6.64% 2,237,710 Principal and interest debt service payments on revenue bonds outstanding at June 30, 2013 are as follows (expressed in thousands): Annual Debt Service Governmental Activities Business-type Activities Fiscal Year 2014 2015 2016 2017 2018 2019-2023 2024-2028 2029-2033 2034-2038 2039-2043 2044-2048 2049 Total Principal $ 200,525 217,970 240,260 242,020 251,085 1,103,535 799,600 423,985 127,740 - Total Interest $ 160,084 149,586 140,675 132,565 123,493 480,141 239,865 87,620 18,036 - Total $ 360,609 367,556 380,935 374,585 374,578 1,583,676 1,039,465 511,605 145,776 - Total $ 3,606,720 $ 1,532,065 $ 5,138,785 Total Principal $ 64,240 74,165 75,710 87,015 80,445 422,520 473,630 403,495 307,335 188,410 57,235 3,510 $ 2,237,710 Total Interest $ 103,506 102,409 99,503 96,157 93,081 410,341 301,617 191,083 105,709 34,577 5,789 70 $ 1,543,842 Net Payments (Receipts) on Swap Agreement $ 3,631 3,529 3,422 3,309 3,191 13,971 10,009 4,957 269 $ 46,288 $ $ Total 171,377 180,103 178,635 186,481 176,717 846,832 785,256 599,535 413,313 222,987 63,024 3,580 3,827,840 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 balance of GANs issued in prior years and outstanding at the start of the fiscal year was $335.2 million. In prior fiscal years, the ADOT refinanced various GAN issues through advance-refunding arrangements. Under the terms of the refunding GAN issues, sufficient assets to pay all principal, redemption premium, if any, and interest on the refunded GAN 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 GANs are not reflected in the accompanying financial statements. Refunded GANs for the ADOT at June 30, 2013 totaled $44.0 million. The ADOT has pledged federal revenues to repay $296.2 million in outstanding GANs issued since 2004. Proceeds from the GANs pay the costs of design, right-of-way purchase, or construction of certain freeways and other routes within Arizona. The GANs are payable solely from federal revenues and are payable through 2026. The total principal and interest remaining to be - 105 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 paid on the GANs is $376.2 million. Principal and interest paid for the current year and total pledged revenues were $55.3 million and $802.9 million, respectively. The annual principal and interest payments on the GANs required 6.9% 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 2004-2012 2014-2026 2.50-5.25% Outstanding Balance at June 30, 2013 $ 296,240 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 2014 Governmental Activities Total Total Principal Interest $ 48,530 $ 14,256 Total Debt Service $ 62,786 2015 53,040 11,855 64,895 2016 47,350 9,553 56,903 2017 11,770 7,393 19,163 2018 12,325 6,838 19,163 2019-2023 71,270 24,552 95,822 2024-2026 51,955 5,539 57,494 Total $ 296,240 $ 79,986 $ 376,226 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 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 February 13, 2013, the State issued Refunding COPs Series 2013A and 2013B (2013A COPs and 2013B COPs, collectively known as the 2013 COPs) for $24.5 million and $38.1 million, respectively. The 2013A COPs include $24.5 million of serial certificates with interest rates ranging from 2.00% to 5.00% and maturity dates ranging from 2013 to 2029. The 2013B COPs include $38.1 million of serial certificates with interest rates ranging from 2.00% to 5.00% and maturity dates ranging from 2013 - 106 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 to 2023. The 2013 COPs are subject to optional or extraordinary redemption pursuant to the debt documents. The State realized net proceeds from the 2013 COPs of $69.5 million after receipt of $7.3 million original issue premium and payment of $438 thousand for underwriters’discount and issuance costs. The net proceeds of the 2013A COPs were used to provide funding to call the Industrial Development Authority of the City of Phoenix, Arizona Series 2001 Government Office Lease Revenue Bonds with an outstanding principal balance of $26.9 million. The Series 2001 Government Office Lease Revenue Bonds were originally issued to finance construction of the Capitol Mall L.L.C. II Project, which was subsequently leased to the State. The 2013B COPs were used to refund, in advance of maturity, the Series 2002A and 2004B COPs, with outstanding principal balances of $23.8 million and $16.4 million, respectively. A portion of the proceeds of the 2013B COPs was deposited in an irrevocable trust and invested in U.S. government obligations to pay the maturing principal of, and the related interest on the 2004B COPs to the date of their redemption. Furthermore, these refunded maturities are considered legally defeased and, therefore, are not included in the State’s financial statements. The refundings resulted in a debt service savings of $9.6 million and a net present value benefit of $8.2 million (difference between the present values of the old debt and new debt service payments). The refundings resulted in an immaterial difference between the reacquisition price and the net carrying amount of the old debt. This difference was charged to operations as a direct expense in the current year. 2. School Facilities Board The SFB Series 2010 COPs are not subject to mandatory sinking fund prepayment. However, as a means to provide a source of funds that will be available to pay the principal with respect to the Series 2010 COPs at maturity, the lease agreement with the trustee for the 2010 COPs will provide for mandatory sinking fund payments to be made as part of the base rent due under the lease. Beginning August 15, 2012, annual deposits to the sinking fund in the amount of $5.7 million are scheduled to be made on August 15 of each year through August 15, 2027, at which time, the accumulated balance (including investment earnings and losses) in the sinking fund will be sufficient to retire the Series 2010 COPs on their stated maturity date of September 1, 2027. 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 these legally defeased COPs are not reflected in the accompanying financial statements. 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 2012, the U of A refunded, in advance of maturity, a portion of the outstanding COP Series 2004A (2004A COPs). At June 30, 2013, the outstanding principal balance for the 2004A COPS was $16.3 million, which will be paid by investments held in an irrevocable trust with a fair market value of $17.0 million. Accordingly, the trust account assets and liability for these defeased COPs are not included in the accompanying financial statements. b. Northern Arizona University The NAU’s COPs consist of various issues that are generally callable at a prescribed date with interest payable semiannually. All issues are at a fixed rate. On February 20, 2013, the NAU sold $36.0 million of Tax-exempt Refunding COPs Series 2013 (2013 COPs). Refunded were $28.0 million of the Series 2004 COPs for maturities from September 1, 2016 to September 1, 2030, and $9.2 million of the Series 2005 COPs for maturities from September 1, 2018 to September 1, 2023. The refunding set aside $41.2 million into an escrow that purchased SLGS Certificates and Notes with maturities between September 1, 2016 and September 1, 2030. The present value of the refunded debt prior to February 20, 2013 was $57.8 million and the net present value savings was $2.9 million. The advance refunding decreases the NAU’s debt service by $922 thousand in year one, $142 thousand in year two, - 107 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 $192 thousand in years three and four, and $1.4 million in year five. In addition, annual debt service decreases by an average of $20 thousand in years six through fifteen. In the current and prior fiscal years, the NAU defeased certain COPs by either placing the proceeds of new COPs, or cash and investments accumulated in a sinking fund, in an irrevocable trust to provide for all future debt service payments on the refunded COPs. Accordingly, the trust account assets and liability for the defeased COPs are not included in the accompanying financial statements. At June 30, 2013, $46.0 million of such outstanding COPs are considered defeased. c. Arizona State University At June 30, 2013, the ASU has issued fixed rate COPs. The ASU’s long-term obligations generally are structured with level debt service, semi-annual interest, and call options at a prescribed date. Certain COPs of the ASU have been defeased through advance refundings by depositing sufficient U.S. Government securities in an irrevocable trust to pay all future debt service. 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, 2013 was $67.4 million. In June 2013, the ASU issued $64.8 million of refunding COPs to partially refund the Series 2004 and 2005A COPs. The refunded debt is considered defeased and the related liabilities are not included in the accompanying financial statements. The issuance of refunding COPs, with an average maturity of 8.89 years and an average interest rate of 3.09% resulted in a $5.6 million reduction in future debt service payments, with an economic gain of $5.2 million based on present value savings. Securities and cash restricted for COP debt service held by the trustee at June 30, 2013 totaled $7.3 million. - 108 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 A summary of the COPs issued as of June 30, 2013 is as follows (expressed in thousands): Project Governmental Activities: Department of Administration: 4000 Bed Prison, Wastewater Upgrades, Forensic Unit 2008A General Fund Budget Reconciliation 2010A General Fund Budget Reconciliation 2010B Refund 2001 PLTO, 2002A/2004B COPs 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 Refunding Certificates of 2003B Refunding Certificates of 2004B Refunding Certificates of 2008 Qualified School Construction 2010 Total Governmental Activities Issue Date Final Maturity Date 2008 2010 2010 2013 2028 2030 2030 2029 2003 2004 2004 2005 2005 2005 2005 2005 2009 2011 2011 2011 2011 2014 2015 2019 2017 2020 2018 2019 2020 2024 2020 2020 2020 2028 Original Amount Issued $ $ - 109 - 238,990 709,090 289,705 62,630 372,730 194,610 47,160 190,040 47,585 201,125 80,055 53,045 580,035 11,100 10,000 37,685 91,325 3,216,910 Outstanding Balance $ Interest Rates 200,895 683,860 279,135 56,100 3.50 –5.00 2.25 –5.25 2.00 –5.00 2.00 –5.00 42,480 29,690 23,275 56,190 28,275 195,500 74,735 51,775 488,575 11,100 10,000 37,685 91,325 $ 2,360,595 5.00 4.00 –5.25 5.00 4.25 –5.25 4.75 –5.00 4.00 –5.00 3.50 –5.00 3.50 –5.00 4.00 –5.75 3.00 –3.50 3.00 –5.00 3.00 –5.00 6.00 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 Project Business-type Activities: Arizona State University: 2002 Certificates of Participation 2004 Certificates of Participation 2005A Certificates of Participation 2006 Certificates of Participation 2006 Refunding Certificates of Participation 2011A Mercado Refunding Certificates of Participation 2013 Refunding Certificates of Participation University of Arizona: Fixed Student Union Med. Research. Bldg./Biomed Sci.&Biotech Bldg./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 Biomedical Research Collaborative Bldg. Project Refund COPs 2001A, 2001B, 2002A, 2004B Refund COPs 2001B Refund COPs 2003A Refund COPs 2002B Refund COPs 2003B & 2004A Northern Arizona University: 2004 Certificates of Participation 2005 Certificates of Participation 2006 Certificates of Participation 2013 Refunding Certificates of Participation Total Business-type Activities Issue Date Final Maturity Date 2002 2005 2005 2006 2007 2011 2013 2019 2031 2031 2031 2027 2025 2027 1999 2004 2004 2005 2005 2005 2020 2014 2015 2024 2024 2022 2006 Original Amount Issued Outstanding Balance Interest Rates $ 5,545 25,690 66,835 13,035 64,580 7,920 64,780 4.76 4.89 4.36 4.53 4.15 4.27 3.09 21,607 153,960 42,020 12,660 14,825 16,330 3,065 5,300 4,035 12,660 14,825 16,330 5.13 –5.30 5.21 5.25 4.00 –5.00 5.00 4.13 –5.00 2025 29,460 18,025 4.00 –5.00 2006 2006 2007 2012 2012 2012 2012 2025 2031 2031 2014 2022 2023 2031 58,650 18,240 105,080 2,145 10,190 20,600 124,940 54,990 15,230 99,395 1,135 10,190 20,600 124,940 4.00 –5.00 4.00 –5.00 4.00 –4.50 3.00 1.48 –3.42 2.00 –5.00 3.00 –5.00 2005 2006 2006 2013 2016 2031 2018 2031 37,585 40,255 12,445 36,005 1,206,132 3,565 24,390 1,670 36,005 714,735 4.85 4.65 4.35 4.78 $ $ 103,800 80,275 110,115 15,810 65,890 8,465 64,780 $ Principal and interest debt service requirements on COPs outstanding at June 30, 2013 are as follows (expressed in thousands): Annual Debt Service Governmental Activities Fiscal Year Total Principal 2014 $ 164,930 Total Interest $ 114,281 Business-type Activities Total Amount Required $ 279,211 Total Principal $ 38,052 Total Interest $ 32,531 Total Amount Required $ 70,583 2015 172,940 106,120 279,060 32,234 31,686 63,920 2016 181,505 97,391 278,896 37,133 28,131 65,264 2017 190,575 88,158 278,733 42,820 27,822 70,642 2018 200,105 78,454 278,559 48,265 25,858 74,123 2019-2023 723,245 273,832 997,077 249,041 94,453 343,494 2024-2028 566,070 122,115 688,185 171,330 42,380 213,710 2029-2031 161,225 8,182 169,407 95,860 7,072 102,932 2,360,595 $ 888,533 $ 3,249,128 Total $ - 110 - $ 714,735 $ 289,933 $ 1,004,668 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 D. LEASES 1. Leases The State has entered into capital lease agreements for the acquisition of buildings and equipment. Capital lease assets and liabilities are reported on the government-wide Statement of Net Position. 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% 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% 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% of the fair market value of the leased asset. (This criterion does not apply if the beginning lease term falls within the last 25% of the total useful life of the asset.) The future minimum lease payments for long-term capital leases as of June 30, 2013 are summarized below (expressed in thousands): Total minimum lease payments Less: amount representing interest Less: amount representing executory costs Annual Debt Service Governmental Business-type Activities Activities $ 47,550 $ 10,555 47,802 11,240 47,983 10,948 46,000 10,583 44,437 10,345 213,981 51,912 137,176 51,447 6,965 45,837 14,818 3,188 591,894 220,873 (179,350) (85,354) (52,228) - Present Value of Net Minimum Lease Payments $ Fiscal Year 2014 2015 2016 2017 2018 2019-2023 2024-2028 2029-2033 2034-2038 2039-2072 - 111 - 360,316 $ 135,519 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 2. 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 $ 435 362,983 27,416 390,834 (58,416) Business-type Activities $ 5,063 154,670 1,124 160,857 (28,253) Carrying Value $ $ Land Buildings Equipment 332,418 132,604 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 2013, the State paid for compensated absences as follows: 74.99% from the General Fund, 18.28% from other funds, and 6.73% from other major funds. - 112 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 F. CHANGES IN LONG-TERM OBLIGATIONS The following is a summary of changes in Long-term Obligations (expressed in thousands): Balance July 1, 2012, as restated Increases Decreases Balance June 30, 2013 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 $ 3,593,420 $ 1,031,635 $ (1,018,335) $ 3,606,720 $ 200,525 335,230 - (38,990) 296,240 48,530 $ 3,406,195 247,710 2,495,825 62,630 (197,860) 2,360,595 164,930 2,195,665 391,184 15,158 (46,026) 360,316 21,976 338,340 177 - (177) - - - 55,666 51,550 (1,399) 105,817 - 105,817 Premiums and discounts on debt 396,465 136,210 (57,928) 474,747 43,181 431,566 Deferred amounts on refundings (813) (19,540) 408 (19,945) (3,196) (16,749) 7,267,154 1,277,643 (1,360,307) 7,184,490 475,946 6,708,544 300,207 214,490 (202,847) 311,850 161,997 149,853 Total Long-term Debt Other Long-term Liabilities: Compensated absences Pollution remediation obligations Total Other Long-term Liabilities Total Long-term Obligations 30,582 - (8,499) 22,083 3,703 18,380 330,789 214,490 (211,346) 333,933 165,700 168,233 $ 7,597,943 $ 1,492,133 $ (1,571,653) $ 7,518,423 $ 641,646 $ 6,876,777 $ 1,988,765 $ $ (155,400) $ 2,237,710 $ 64,240 $ 2,173,470 Business-type Activities: Long-term Debt: Revenue bonds 404,345 Certificates of participation 756,980 100,975 (143,220) 714,735 38,052 676,683 Capital leases 130,047 13,792 (8,320) 135,519 3,909 131,610 8,397 - (2,639) 5,758 1,661 4,097 223 - (223) - - - Installment purchase contracts Notes payable Premiums and discounts on debt 87,966 49,547 (14,462) 123,051 3,855 119,196 Deferred amounts on refundings (33,391) (17,087) 4,382 (46,096) (2,007) (44,089) 2,938,987 551,572 (319,882) 3,170,677 109,710 3,060,967 72,372 93,345 (87,424) 78,293 18,738 59,555 72,372 93,345 (87,424) 78,293 18,738 59,555 (407,306) $ 3,248,970 128,448 $ 3,120,522 Total Long-term Debt Other Long-term Liabilities: Compensated absences Total Other Long-term Liabilities Total Long-term Obligations $ 3,011,359 $ 644,917 $ $ 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 Position because $155.789 million of compensated absences are attributable to internal service funds. These amounts are included in the reconciliation as part of internal service fund net position. - 113 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 NOTE 8. INTERFUND TRANSACTIONS INTERFUND BALANCES AND TRANSFERS Interfund Receivables/Payables Interfund balances as of June 30, 2013 are as follows (expressed in thousands): Due From General Fund General Fund $ - Due To Transportation & Industrial Aviation Planning, Land Non-Major Commission Non-Major Internal Highway Maintenance Endowments Governmental Universities Special Enterprise Service & Safety Fund Fund Funds Funds Fund Funds Funds - $ $ - $ 333 $ 9,459 $ 200,061 $ 9 $ 2,465 $ Total Due To 212,327 Transportation & Aviation Planning, Highway Maintenance & Safety Fund Land Endowments Fund Non-Major Governmental Funds Non-Major Enterprise Funds Internal Service Funds Total Due From 5,227 - - - 3,314 4,294 - - 175 - 10 8,716 4,304 16,413 3,803 - 1,546 - 6 - 333 22,101 33,711 - - 4,970 11,041 - 2 49,724 132 $ 55,483 3,803 15,018 $ 15,351 257 23,840 $ 211,102 184 83 $ 2,893 $ $ $ 6 $ $ 15,490 312,662 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, 2013 are as follows (expressed in thousands): Transferred To General Fund Transferred From General Fund Transportation & Aviation Planning, Highway Maintenance & Safety Fund Land Endowments Fund Non-Major Governmental Funds Non-Major Enterprise Funds Internal Service Funds Total Transfers In Transportation & Aviation Planning, Highway Maintenance & Safety Fund $ - 2 71,655 102,287 45,716 $ 219,660 $ 821 $ 189 1,010 Land Endowments Funds $ 406 $ 15,018 15,424 Non-Major Industrial Governmental Universities Commission Funds Fund Special Fund $ 156,972 $ 688,150 $ $ 283,088 39,370 9,755 57,141 11,041 546,326 $ 699,191 $ Total Transfers Out - $ 846,349 283,088 39,372 6,000 87,599 170,469 60,734 6,000 $ 1,487,611 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. - 114 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 NOTE 9. ACCOUNTING CHANGES A. FUND FINANCIAL STATEMENTS Fund Balance and Net Position have been restated as follows (expressed in thousands): Fund Balance/Net Position, as previously reported Fund reclassifications Prior period adjustment Fund Balance/Net Position, as restated Governmental Funds Proprietary Funds Non-major Governmental $ 1,417,889 97,610 $ 1,515,499 Universities $ 2,809,654 1,335 $ 2,810,989 Fiduciary Funds Pension and Other Employee Benefit Trust Funds $ 34,520,858 (24,744) $ 34,496,114 B. GOVERNMENT-WIDE FINANCIAL STATEMENTS Government-wide Net Position has been restated as follows (expressed in thousands): Governmental Activities $ 18,939,163 97,610 $ 19,036,773 Net Position, as previously reported Fund reclassifications Net Position, as restated 1. Business-type Activities $ 2,789,335 1,335 $ 2,790,670 Fund Reclassifications and Prior Period Adjustment The State received monies in fiscal year 2012 pursuant to the consent judgment of the National Mortgage Settlement that were incorrectly deposited in an agency fund. In fiscal year 2013, these monies were properly reclassified and the beginning fund balance was restated $97.6 million to show the change. Effective July 1, 2012, the NAU blended the financial activities of its component unit NACFFC in accordance with GASB 61. For the year ended June 30, 2012, changes to the methodology determining the fair value of the Real Estate portfolio resulted in a reduction of $24.7 million in beginning net position. - 115 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 NOTE 10. GOVERNMENTAL FUND BALANCES Detail of the fund balance categories and classifications shown in the aggregate on the governmental funds balance sheet for the year ended June 30, 2013 are as follows (expressed in thousands): General Fund Fund Balances: Nonspendable: Inventory Permanent fund principal Restricted for: General government Health and welfare Inspection and regulation Education Protection and safety Natural resources Debt service Capital projects School facilities improvements Committed to: General government Health and welfare Inspection and regulation Education Protection and safety Transportation Natural resources School facilities improvements Unassigned: Total Fund Balances $ $ 844 - Transportation & Aviation Planning, Highway Maintenance & Safety Fund $ 7,207 - Land Endowments Fund $ Non-Major Governmental Funds 4,153,278 $ - Total $ 8,051 4,153,278 15,316 111,043 4,504 10,127 20,505 30,692 712,799 - - 120,957 9,200 491,835 8,437 59,994 457,650 - 136,273 120,243 4,504 501,962 20,505 8,437 59,994 1,170,449 30,692 26,192 9,985 2,419 25,842 8,799 156,935 423,203 156,084 876,090 (26,266) 4,127,012 128,629 130,366 94,964 87,595 63,472 1,653,099 128,629 156,558 94,964 9,985 90,014 156,084 89,314 8,799 130,669 7,079,404 $ $ $ $ NOTE 11. FUND DEFICIT A. RISK MANAGEMENT FUND (RMF) The RMF, an internal service fund, had a deficit of $340.6 million primarily due to the RMF receiving annual funding only for expected paid insurance losses (including loss adjustment expenditures) within the State’s self-insured retention for the specific fiscal year. Accrued insurance losses of the RMF are not considered when determining funding for each fiscal year. B. RETIREE SICK LEAVE FUND (RASL) The RASL, an internal service fund, 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 fiscal year-end; however, State agencies pay for only one year based on a 0.40% charge on gross payroll. The $151.9 million fund deficit is primarily due to the above funding mechanism. - 116 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 NOTE 12. JOINT VENTURES A. LARGE BINOCULAR TELESCOPE CORPORATION 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. 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 LBT Beteiligungsgesellschaft. The U of A has committed resources equivalent to 25% of the LBT’s construction costs and annual operating costs. As of June 30, 2013, the U of A has made cash contributions of $18.2 million toward the project’s construction costs, which were recorded as non-current investments on the Statement of Net Position. 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, $807 thousand in calendar year 2012, as a reduction in its investment. At June 30, 2013, the investment totaled $13.6 million. According to the audited financial statements of the LBT for the year ended December 31, 2011, assets, liabilities, revenues, and expenses totaled $130.0 million, $3.0 million, $14.0 million, and $13.0 million, respectively. The LBT’s separate audited financial statements can be obtained from the University of Arizona Comptroller at the University of Arizona, Financial Services, 1303 E. University Blvd., Box 4, Tucson, AZ 85719-0521. B. GIANT MAGELLAN TELESCOPE ORGANIZATION The Giant Magellan Telescope Organization (GMTO) is a non-stock, nonprofit, jointly governed corporation founded to own and administer the planning, design, construction, and operation of the 25-meter Giant Magellan Telescope, a proposed astronomical telescope and its associated buildings, equipment and instrumentation, to be located in northern Chile. The GMTO is jointly governed by several leading educational and research institutions from the United States, South Korea, and Australia, including the U of A. The U of A comprises two of the fifteen members of the GMTO Board of Directors, and is one of eleven founders and participants. The GMTO will hold all rights, title and interest to and in the telescope. Although the U of A does not have a defined equity interest, as a founder the U of A will receive viewing rights to the telescope in proportion to their voluntary contributions to the project. Although no contributions were made during the current fiscal year, the U of A has contributed $9.8 million to the GMTO as of June 30, 2013, and future contributions are expected. The U of A will also be responsible for manufacturing the telescope’s mirrors and will receive compensation from other GMTO founders and participants based on individual contractual agreements. As of June 30, 2013, the U of A has received payment on eight contracts related to the project: $24.3 million from Observatories of the Carnegie Institution of Washington for mirror construction and process development; $10.2 million from the GMTO for mirror construction; $6.9 million from the GMTO for acquisition of glass and mold materials; $3.8 million from the GMTO for acquisition of glass; $2.5 million from the Observatories of the Carnegie Institution of Washington to develop mirror testing systems; and $371 thousand from the GMTO to develop mirror testing systems, $66 thousand from GMTO for design study, and $37 thousand from GMTO for engineering support. - 117 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 NOTE 13. 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 and the Special 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 1.50% of all premiums received by the State Compensation Fund, private carriers, and self-insured plans during the immediately preceding calendar year. During calendar years 2004 through 2012, this 1.50% assessment was levied under ARS §23-1065(A) because of a deficit net position balance. In 2013, the rate was reduced to 1.25%. AMI Risk Consultants, Inc. was retained to evaluate the medical and compensation related liabilities of the Special Fund as of June 30, 2013. The total estimated loss reserve of $477.8 million increased by less than 2%, or $8.9 million, over the prior year estimated loss reserve of $468.9 million. There were no major shifts in any award categories. A confidence level of 80% was used in calculating medical and compensation related liabilities. A confidence level of 80% indicates a confidence that the estimated liability will be adequate to cover actual costs 80 out of 100 years. The reserves were discounted at an assumed rate of 1.69% 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 2013: 1.25% 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 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 obtains a release agreement from the claimant and transfers its obligation to make future periodic payments to an assignment company. The State requires a secondary guarantor which is obtained when the assignment company transfers the obligation to make the payments through the use of a qualified assignment (typically a life insurance company with an approved rating). As a result of these requirements, the likelihood that the State will be required to make future payments on these claims is remote. There have been no significant reductions in the current fiscal year insurance coverage. There have been no settlements that have exceeded insurance premium coverage in the last three fiscal years. - 118 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 The following table presents the changes in claims liabilities balances (short- and long-term combined) during fiscal years ended June 30, 2012 and June 30, 2013 (expressed in thousands): Fiscal Year Risk Management Fund: 2012 2013 Industrial Commission Special Fund: 2012 2013 B. Current Year Claims and Changes in Estimates Beginning Balance $ 362,803 364,763 $ 413,740 468,933 58,543 80,719 78,366 33,555 Claims Payments $ 56,583 49,867 23,173 24,641 Ending Balance $ 364,763 395,615 468,933 477,847 LITIGATION In Cave Creek Unified School District vs. State of Arizona, plaintiffs claimed that ARS §15-901.01, which the voters had enacted by referendum and required the Legislature to appropriate funds to adjust school equalization assistance funding for inflation by increasing both the base level and the transportation components of the revenue control limit each fiscal year by a statutorily defined growth rate, had been violated with the Legislature’s fiscal year 2010-2011 K-12 education budget reconciliation bill because only the transportation component of the revenue control limit was increased. The plaintiffs further asserted that because the voters enacted ARS §15-901.01 by referendum, the bill also violated the Arizona Constitution’s Voter Protection Act (VPA) provisions, which prohibit the Legislature from eliminating voter-enacted measures and from altering them except as the VPA allows. The Trial Court denied the plaintiff’s application for declaratory judgment and injunctive relief and granted the State’s motion to dismiss the amended complaint for failure to state a claim for which relief could be granted. The Court of Appeals reversed the Trial Court’s decision. The State petitioned the Supreme Court for review, which it granted. The Supreme Court considered whether the voters could constitutionally impose a mandate on the Legislature to increase appropriations. The Supreme Court has found that the voters could impose restrictions on the Legislature’s discretion through voter-protected statutes and that the Legislature must fund, on a go-forward basis, all components of the base level ARS §15-901.01. Since the ruling, the plaintiffs have indicated that they plan to seek a remedy restoring prior years’inflationary increases on remand. The potential outcome is uncertain at this time. If this case were to have an unfavorable outcome, it is possible that the State could incur losses ranging from $700.0 million to $1.2 billion. The State has a variety of claims pending against it that arose during the normal course of its activities. Management believes, based on advice of legal counsel, losses, if any, resulting from settlement of these claims will not have a material effect on the financial position of the State. All losses for any unsettled litigation or contingencies involving workers’compensation, medical malpractice, construction and design, highway operations, employment practices, criminal justice, fidelity and surety, environmental property damage, general liability, environmental liability, building and contracts, auto liability, or auto physical damage are determined on an actuarial basis and included in the Accrued Insurance Losses of the internal service funds and the Industrial Commission Special Fund. C. ACCUMULATED SICK LEAVE 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% for 500 hours to a maximum of 50% for 1,500 hours. The maximum benefit value is $30 thousand. The benefit shall be paid either in a lump sum or in installments over a three-year period. 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 $154.0 million at June 30, 2013. - 119 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 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 $1.0 billion (net of refunds issued) has been collected since the inception of the fund. The State is also holding securities valued at $31.0 million and mutual funds valued at $8.8 million. In accordance with ARS §44-313 and ARS §44-314, for fiscal year 2013, $25.0 million was deposited in the Department of Revenue Administrative Fund, $2.5 million was deposited in the Housing Trust Fund, $2.0 million was deposited in the Seriously Mentally Ill Housing Trust Fund, $60.9 million was deposited in the General Fund, and $995 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, 2013, $338.6 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 $558.5 million at June 30, 2013. (in thousands) Expenditures Remaining to Date Commitments Construction contracts: Rural roadways Small urban roadways Urban roadways Large urban roadways General roadways Sub-total Design contracts Other commitments Total $ $ 334,215 70,842 267,163 271,416 147,214 1,090,850 237,026 229,271 1,557,147 $ $ 144,703 11,122 109,264 51,515 68,162 384,766 76,562 97,130 558,458 F. ARIZONA STATE LOTTERY Annuities are purchased for all prizes over $400 thousand for which winners will receive the jackpot in annual installments for The Pick on-line game. These annuities are purchased from qualifying insurance companies which have the highest ratings from among A.M. Best Company, S & P, 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 $48.8 million at June 30, 2013. Approximately $41.5 million of the total aggregate future payments at June 30, 2013 relate to annuities purchased from five separate insurance companies, of which approximately $13.0 million relates to a single insurance company. NOTE 14. 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 $149.1 million in the fund statements and the government-wide statements in fiscal year 2013. 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 - 120 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 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, 2013. NOTE 15. SUBSEQUENT EVENTS The Department of Economic Security issued State of Arizona Unemployment Insurance Tax Anticipation Notes, Series 2013A and Series 2013B in order to repay the outstanding Title XII loan balance. On September 26, 2013, the amount of $201.2 million was deposited to the Unemployment Compensation Fund, and $140.2 million of the loan balance was paid off. On September 27, 2013, the amount of $2.2 million was paid to the Bank of New York Mellon for the note-related expenses. The balance remains in the Unemployment Compensation Fund to provide payment of unemployment benefits during the fiscal year 2014 until unemployment insurance tax receipts are sufficient to cover benefit payments. The short-term notes of eight month duration will be paid from unemployment insurance taxes collected in the fiscal year 2014. On December 19, 2013, the SFB issued Refunding Certificates of Participation Series 2013A-1 (2013A-1 COPs) for $30.0 million and Refunding Certificates of Participation Series 2013A-2 (2013A-2 COPs) for $50.0 million. The proceeds of the 2013A-1 COPs and the 2013A-2 COPs will be used to: (i) refund, in advance of maturity, portions of the outstanding principal balances of the Series 2003B COPs, the Series 2004A COPs, the Series 2004B COPs, and the Series 2004C COPs, and (ii) pay costs of issuance. Under the terms of the refunding COP issues, sufficient assets to pay all principal and interest on the refunded COP 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. NOTE 16. DISCRETELY PRESENTED COMPONENT UNIT DISCLOSURES The accounting policies of the State’s component units conform to U.S. GAAP applicable to governmental units adopted by the GASB, except for those component units affiliated with the State's Universities. Because the component units affiliated with the Universities are not governmental entities, they follow FASB statements for not-for-profit organizations for financial reporting purposes. Each component unit has a June 30 year-end. 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. 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: 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 even if the restrictions are satisfied in the same reporting period in which the contributions are received. 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. - 121 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 3. 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 equivalents are stated at cost, which approximates fair value. 4. Investments 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 based on the net asset value. 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 comprises the sum of realized and unrealized gains and losses on investments and interest and dividends, less an investment management fee. In addition, investments include Universities’endowment funds totaling $294.9 million managed by the Foundations. These funds are primarily held in pooled endowment funds managed for the Universities under service contracts with the Foundations and invested in the Foundations’endowment pools. 5. Income Taxes The Universities-affiliated component units qualify as tax-exempt organizations under Section 501(c)(3) of the Internal Revenue Code, except for the ACFFC and, accordingly, there is no provision for income taxes in the accompanying financial statements. In addition, they qualify for the charitable contribution deduction and have been classified as organizations that are not private foundations. Any unrelated business income would be taxable. The ACFFC is 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. Contributions 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. 7. Net Assets Released from Restriction The major Universities-affiliated component units' 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. 8. 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 UAHN are stated at fair value. - 122 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 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 UAHN 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 UAHN do not have a formal policy regarding custodial credit risk for investments. The investments of the UAHN are uninsured and held by brokers in the UAHN’s name. c. Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The WIFA does not have a formal policy regarding interest rate risk. The following table presents the interest rate risk for the WIFA utilizing the segmented time distribution method as of June 30, 2013 (expressed in thousands): Investment Type Guaranteed investment contracts Money market mutual funds U.S. agency securities U.S. Treasury securities Total Fair Value $ 80,105 1,612 34,871 8,539 Less than 1 $ 38,477 1,612 8,370 $ $ 125,127 48,459 Investment Maturities (in years) 1-5 6-10 More than 10 $ 2,109 $ $ 39,519 24,802 10,069 135 34 $ 27,046 $ 34 $ 49,588 The UAHN’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 UAHN’s investments, utilizing the segmented time distribution method as of June 30, 2013 (expressed in thousands): Investment Type Commercial paper Global fixed income debt securities Money market mutual funds U.S. fixed income debt securities U.S. Treasury securities Total Fair Value $ 4,013 1,394 25,865 31,599 10,547 $ 73,418 Less than 1 $ 4,013 40 25,865 1,372 10,547 $ 41,837 Investment Maturities (in years) 1-5 6-10 $ $ 595 759 10,427 4,461 $ 11,022 $ More than 10 $ 15,339 - 5,220 $ 15,339 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 but their investments are in accordance with the master bond indenture. The following table presents the WIFA’s investments which were rated by S & P and/or an equivalent national rating organization. The ratings are presented using S & P’s rating scale as of June 30, 2013 (expressed in thousands): Investment Type Guaranteed investment contracts Money market mutual funds U.S. agency securities Total Fair Value $ 80,105 1,612 34,871 AAA $ 40,586 - AA $ 39,519 34,871 $ $ $ 116,588 - 123 - 40,586 74,390 Not Rated $ 1,612 $ 1,612 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 The UAHN’s investment in fixed income securities is limited to investment grade securities with a credit rating of BBB, or equivalent, or better. The following table presents the UAHN’s investments which were rated by S & P and/or an equivalent national rating organization. The ratings are presented using S & P’s rating scale as of June 30, 2013 (expressed in thousands): Investment Type Commercial paper Global fixed income debt securities Money market mutual funds U.S. fixed income debt securities Total e. Fair Value $ 4,013 1,394 25,865 31,599 $ 62,871 AAA $ AA 331 6,502 $ 6,833 $ A 616 15,781 $ 16,397 $ BBB 332 7,103 $ 7,435 $ 114 2,196 $ $ 2,310 $ A-1 4,013 - Not Rated $ 1 25,865 17 4,013 $ 25,883 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. At June 30, 2013, investments in any one issuer, that were more than 5% of the WIFA’s total investments, are as follows: (i) Bayerische Landesbank (fair value of $40.6 million, or 12.9%), (ii) Royal Bank of Canada (fair value of $31.4 million, or 10.0%), and (iii) Federal Home Loan (fair value of $34.9 million, or 11.1%). 2. Universities-Affiliated Component Units Investments of the Universities-affiliated component units include the following amounts at June 30, 2013. Investments are stated at fair value (expressed in thousands): 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 ASU Foundation $ 52,541 458,751 101,269 65,394 $ 677,955 U of A Foundation $ 226,559 128,520 186,658 115,261 $ 656,998 NAU Foundation $ 348 77,838 26,084 $ 104,270 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 2013 are as follows (expressed in thousands): Clean Water Fund Drinking Water Fund Total Beginning Balance $ 797,443 332,772 $ 1,130,215 Increases $ 23,343 37,564 $ 60,907 Decreases $ (51,689) (24,121) $ (75,810) Ending Balance $ 769,097 346,215 $ 1,115,312 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 3.00% 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. As of June 30, 2013, the debt service reserve was $303 thousand and $2.2 million for the Clean Water and Drinking Water funds, respectively, and no allowance for loan loss was recorded. - 124 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 D. PLEDGES RECEIVABLE Pledges receivable (unconditional promises to give) are recorded at their net realizable value, which is net of a discount and 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 1.20% 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. Pledges receivable, as of June 30, 2013, include the following (expressed in thousands): Gross pledges receivable Present value discount Allowance for uncollectible pledges Net Pledges Receivable ASU Foundation $ 170,455 (12,094) (40,580) $ 117,781 E. DIRECT FINANCING LEASE AGREEMENTS 1. ASU Foundation The ASU Foundation leases a portion of the Fulton Center building (the ASU Foundation's headquarters) to the ASU under a direct financing lease. At the end of lease, the ASU Foundation and affiliates will gift their portion of the building to the ASU and the ASU will receive title to the building. The ASU Foundation's net investment in this direct financing lease at June 30, 2013 is $25.0 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 $31.8 million at June 30, 2013. 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 $12.2 million at June 30, 2013. - 125 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 F. CAPITAL ASSETS Capital asset activity for the UAHN for the fiscal year ended June 30, 2013 was as follows (expressed in thousands): University of Arizona Health Network and Subsidiaries Non-depreciable capital assets: Land Construction in progress Total Non-depreciable Capital Assets Beginning Balance Additions Retirements $ $ $ 14,671 21,859 36,530 56,512 56,512 (55) (55) Adjustments & Reclassifications $ Ending Balance 203 (34,429) (34,226) $ 14,819 43,942 58,761 Depreciable capital assets: Buildings Improvements other than buildings Equipment Total Depreciable Capital Assets 443,676 1,285 289,041 734,002 589 2,856 3,445 (135) (135) 11,191 (75) 23,110 34,226 455,456 1,210 314,872 771,538 Less accumulated depreciation for: Buildings Improvements other than buildings Equipment Total Accumulated Depreciation (169,839) (644) (214,488) (384,971) (16,022) (353) (22,604) (38,979) (8) 133 125 - (185,869) (997) (236,959) (423,825) 349,031 (35,534) (10) 34,226 347,713 Total Depreciable Capital Assets, Net Total UAHN Capital Assets, Net $ 385,561 $ 20,978 $ (65) $ - $ 406,474 Capital assets for the Universities-affiliated component units for the fiscal year ended June 30, 2013 include the following (expressed in thousands): Buildings and improvements Furniture, fixtures, and equipment Total cost or donated value Less: Accumulated Depreciation Total Property and Equipment, Net $ $ ACFFC 185,011 80,586 265,597 (78,042) 187,555 U of A Campus Research Corporation $ 19,831 5,668 25,499 (7,580) $ 17,919 Downtown Phoenix Student Housing $ 114,042 10,420 124,462 (21,770) $ 102,692 G. LONG-TERM OBLIGATIONS 1. Component Units a. Water Infrastructure Finance Authority The WIFA’s bonds are callable and interest is payable semiannually. The bonds are special obligations of the WIFA payable solely from and secured by the WIFA’s assets. The bonds are not obligations, general, specific, or otherwise, of the State or any other political subdivision, thereof, other than the WIFA. In prior fiscal years, the WIFA refinanced various bond issues through advance-refunding arrangements. Under the terms of the refunding bond issues, sufficient assets to pay all principal, redemption premium, if any, and interest on the refunded bond issues have been placed in irrevocable trust accounts at commercial banks and invested in U.S. Government securities which, together with interest earned thereon, will provide amounts sufficient for future payment of principal and interest of the issues refunded. The assets, liabilities, and financial transactions of these trust accounts and the liability for the defeased bonds are not reflected in the accompanying financial statements. The amount outstanding on the refunded bonds for the WIFA at June 30, 2013 totaled $282.9 million. - 126 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 During fiscal year 2013, bond issuance costs and discounts, bond issuance premiums, and deferred losses on refunding of bonds were amortized on a straight-line basis based on the term of the underlying bonds payable. Amortization expense as of June 30, 2013 for bond issuance costs and discounts, bond issuance premiums, and deferred losses on refunding of bonds was $362 thousand, $6.6 million, and $4.1 million, respectively. b. University of Arizona Health Network and Subsidiaries 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 is the only member of the obligated group responsible for the public debt offerings by the UMC. The UPH is also subject to certain financial and nonfinancial covenants under its bond agreements. The UAHN has established and maintains separate funds as a bond reserve fund on outstanding bonds payable. These funds, which totaled $22.8 million at June 30, 2013, are held by the trustee and are reflected as restricted investments held by trustee in the accompanying financial statements. The bonds or other obligations of the UAHN do not constitute general obligations of the ABOR, the U of A, the State, or any political subdivision thereof. Summary of Revenue Bonds The following schedule summarizes revenue bonds outstanding at June 30, 2013 (expressed in thousands): Revenue Bonds Outstanding Component Units: Water Infrastructure Finance Authority University of Arizona Health Network and Subsidiaries Interest Rates Outstanding Balance at June 30, 2013 Dates Issued Maturity Dates 2004-2012 2014-2031 .2-5.00% $ 863,900 2004-2012 2014-2040 4.08-6.48% 310,128 Principal and interest debt service payments on revenue bonds outstanding at June 30, 2013 are as follows (expressed in thousands): Fiscal Year 2014 2015 2016 2017 2018 2019-2023 2024-2028 2029-2031 Total Annual Debt Service Water Infrastructure Finance Authority Principal Interest Total $ 45,150 46,495 49,990 49,110 52,300 285,390 254,015 81,450 $ 863,900 $ 38,815 34,830 34,696 32,881 31,077 116,770 49,176 5,058 $ 343,303 $ $ Fiscal Year 83,965 81,325 84,686 81,991 83,377 402,160 303,191 86,508 1,207,203 - 127 - 2014 2015 2016 2017 2018 2019-2023 2024-2028 2029-2033 2034-2038 2039-2040 Total Annual Debt Service University of Arizona Health Network and Subsidiaries Principal Interest Total $ 6,228 6,095 6,405 6,745 7,100 42,170 54,870 70,800 79,135 30,580 $ 310,128 $ 16,478 16,208 15,911 15,644 16,034 71,376 58,792 43,949 20,676 1,909 $ 276,977 $ $ 22,706 22,303 22,316 22,389 23,134 113,546 113,662 114,749 99,811 32,489 587,105 STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 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, 2012 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 $ 910,370 87,632 (33,538) 964,464 Decreases Balance June 30, 2013 Due Within One Year Due Thereafter - $ (46,470) (6,561) 4,118 (48,913) $ 863,900 81,071 (29,420) 915,551 $ 45,150 45,150 $ 818,750 81,071 (29,420) 870,401 82 82 (77) (77) 93 93 93 93 - Increases $ 88 88 Total Long-term Obligations $ 964,552 $ 82 $ (48,990) $ 915,644 $ 45,243 $ 870,401 University of Arizona Health Network and Subsidiaries: Long-term Debt: Revenue bonds Revenue bond premium and discount Notes payable Capital leases Line of credit Total Long-term Debt $ 326,468 (2,003) 704 2,510 13,950 341,629 $ 9,440 18,250 27,690 $ (16,340) (198) (407) (1,870) (12,466) (31,281) $ 310,128 (2,201) 9,737 640 19,734 338,038 $ 6,228 872 640 19,733 27,473 $ 303,900 (2,201) 8,865 1 310,565 28,577 2,455 31,032 31,350 613 31,963 (32,011) (2,787) (34,798) 27,916 281 28,197 24,404 24,404 3,512 281 3,793 $ 372,661 $ 59,653 $ (66,079) $ 366,235 $ 51,877 $ 314,358 Other Long-term Liabilities: Compensated absences Other Total Other Long-term Liabilities Total Long-term Obligations - 128 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 2. Universities-Affiliated Component Units A summary of bonds payable as of June 30, 2013 include the following (expressed in thousands): Final Maturity Amount ASU Foundation: Series 2004A Variable Rate Revenue Bonds 2034 $ 22,420 Series 2004B Variable Rate Revenue Bonds 2022 8,120 Series 2003 Lease Revenue Bonds 2034 43,395 Series 2011 Tax-Exempt Revenue Refunding Bonds 2018 15,785 Series 2009 Revenue Bonds 2024 36,795 Series 2009A Lease Revenue Refunding Bonds 2034 22,955 Series 2009B Lease Revenue Refunding Bonds 2022 9,165 Series 2008 Revenue Bonds 2028 14,620 Series 2008 Revenue Refunding Bonds Series 2008 Variable Rate Demand Revenue Refunding Bonds 2039 143,135 2030 38,495 Series 2005 Tax-Exempt Refunding Bonds 2035 15,735 ACFFC: Deferred Cost of Refunding (374) Unamortized Bond Premium 2,666 Downtown Phoenix Student Housing: Series 2007A&C Revenue Bonds 2042 Series 2007D Tax-Exempt Revenue Bonds 2042 118,570 22,700 Unamortized Bond Discount (1,099) Scheduled future maturities of Universities-affiliated component units' bonds payable are as follows (expressed in thousands): Fiscal Year 2014 ASU Foundation $ 1,835 ACFFC $ 8,660 Downtown Phoenix Student Housing $ 430 2015 1,940 9,300 2016 2,035 9,865 610 810 2017 2,140 10,555 1,025 2018 2,245 11,275 1,245 Thereafter 63,740 249,322 136,051 298,977 $ 140,171 Total $ 73,935 $ H. NET ASSETS TRANSFER During 2012, the ASU and Collegiate Golf Foundation agreed to terminate the existing land lease. Upon termination on September 30, 2011, Collegiate Golf Foundation transferred all property and equipment to the ASU. The ASU and Collegiate Golf Foundation entered into a licensing agreement commencing October 1, 2011 and expiring on June 30, 2012, granting Collegiate Golf Foundation access to the premises and the improvements on such premises for the purpose of operating, managing, and maintaining the Karsten Golf Course at the ASU. Collegiate Golf Foundation transferred all remaining assets and liabilities to the ASU as of July 1, 2012. I. CONDUIT DEBT The purpose of the GADA is to provide cost-effective capital for local communities, certain special districts, and tribal governments for public infrastructure projects. 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. Principal and interest are payable semi-annually. Loans are secured by the Pledged Collateral Reserve Fund, a requirement that is calculated - 129 - STATE OF ARIZONA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013 and deposited by the GADA from the GADA Fund, which is held by the State Treasurer. Some borrowers also have separate, additional reserve funds, which are held by the Trustee. An intercept mechanism of state-shared revenues for political subdivisions enhances the security of the GADA bonds. In previous years, the State appropriated a total of $20.0 million to the GADA for the express purpose of securing bonds issued by the GADA. 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 §41-2259, 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 position of $10.5 million in the Pledged Collateral Reserve Fund. At June 30, 2013, the total outstanding face value of all bonds issued by the GADA was $433.3 million. - 130 - REQUIRED SUPPLEMENTARY INFORMATION REQUIRED SUPPLEMENTARY INFORMATION STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Dollars) ADMINISTRATION, ARIZONA DEPARTMENT OF 500 BED MAXIMUM SECURITY ADMINISTRATIVE ADJUSTMENTS AUTOMATION PROJECTS GF AUTOMATION PROJECTS INFO TECHNOLOGY AUTOMATION PROJECTS WEB PORTAL BUILDING RENEWAL FY09-10 BUILDING RENEWAL FY10-11 BUILDING RENEWAL FY11-12 BUILDING RENEWAL FY12-13 CAPITOL MALL FIRE SYSTEM REPLACE FY08-09 COP DEBT SERVICE 2009 3RD SS CH 6 SEC 32 COP DEBT SERVICE 2009 6TH SS CH 4 SEC 2A CORRECTIONS BUILDING RENEWAL FY11-12 COUNTY ATTORNEYS IMMIGRATION ENFORCEMENT FY11-12 DEPARTMENT OF LAW PRO-RATA ADJUSTMENTS DJC HVAC AND ELECTRICAL RENOVATIONS HB1464 PERSONNEL REFORM FY98-99 HRIS CERTIFICATE OF PARTICIPATION INSURANCE PREMIUM HOLIDAY ADJUSTMENTS LEASE-PURCHASE AND RENTAL RATES ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION - ST BD PERSONNEL SYSTEM SUPPLEMENTAL PUBLIC SAFETY COMMUNICATIONS RELIEF BILL CASH TRANSFER FY13 RELOCATION FY99-00 RELOCATION FY00-01 RELOCATION FY01-02 RELOCATION FY02-03 RETENTION PAYMENTS ADJUSTMENTS RETIREMENT CONTRIBUTION RATE ADJUSTMENTS RETIREMENT RATE ADJUSTMENTS REV PERSONNEL ST SURPLUS PROP SPEC SVCS STATE SURPLUS PROPERTY SALES PROCEEDS STATEWIDE INFO SECURITY AND PRIVACY OFC UTILITIES WHITE MOUNTAIN APACHE TRIBES WATER RIGHT ADMINISTRATIVE HEARINGS, OFFICE OF OPERATING LUMP SUM APPROPRIATION AGRICULTURE, ARIZONA DEPARTMENT OF AGRICULTURAL EMPLOYMENT RELATIONS BOARD AGRICULTURE CONSULTING AND TRAINING PARI-MUTUEL ANIMAL DAMAGE CONTROL OFFSITE NUCLEAR EMERGENCY RESPONSE PLANS OPERATING LUMP SUM APPROPRIATION RED IMPORTED FIRE ANT AHCCCS - ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATIVE ADJUSTMENTS ALTCS SERVICES CHILDREN'S REHABILITATIVE SERVICES CHIP - SERVICES DES ELIGIBILITY DISPROPORTIONATE SHARE PAYMENTS DSH - VOLUNTARY GRADUATE MEDICAL EDUCATION NEW AND EXPANDED GRADUATE MED ED PRG FY06-07 OPERATING LUMP SUM APPROPRIATION PROP 204 AHCCCS ADMINISTRATION ORIGINAL BUDGET (Appropriations) $ The Notes to Required Supplementary Information are an integral part of this schedule. -133 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 20,000,000 $ 16,800,000 1,500,000 5,600,000 3,609 809,069 5,476,906 10,372,600 15,731 60,107,500 24,012,300 1,966,892 1,213,200 (3,987,800) 187,877 273,045 3,319,600 (25,000,000) 259,400 34,398,500 211,600 2,000,000 527,200 4,877 55,301 59,026 58,149 16,633,400 9,202,800 6,602,900 1,260,000 853,100 8,275,600 2,000,000 20,000,000 $ 1,426,708 16,800,000 1,500,000 5,600,000 3,609 809,069 5,476,906 10,372,600 15,731 60,107,500 24,012,300 1,630,500 1,213,200 187,877 273,045 3,319,600 (5,618,500) 3,700 33,032,100 216,900 2,000,000 542,700 44,372 4,877 55,301 59,026 58,149 185,800 4,100 7,600 878,021 1,585,000 867,300 8,275,600 2,000,000 1,057,249 1,426,708 16,800,000 1,500,000 5,344,080 2,921 793,500 4,333,990 1,714,984 8,967 60,107,500 24,012,300 1,152,219 3,319,600 31,037,439 203,920 1,771,021 455,923 44,372 357 878,021 1,444,857 690,533 7,892,504 - 825,600 841,100 841,100 23,300 128,500 65,000 7,577,300 23,200 23,300 128,500 65,000 92,113 7,699,900 23,200 23,300 128,500 65,000 92,113 7,686,123 23,200 1,177,910,000 128,599,100 21,622,300 53,661,700 13,487,100 28,457,100 90,977,300 5,453,359 75,619,400 6,620,400 29,643,324 1,177,910,000 127,941,500 21,622,300 75,824,239 13,487,100 77,248,900 169,735,319 5,453,359 84,933,300 9,556,300 29,643,324 1,136,911,236 114,787,808 18,575,336 60,941,141 4,202,300 49,272,989 166,469,246 79,371,053 9,200,999 (continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) PROP 204 DES ELIGIBILITY PROPOSITION 204 SERVICES RURAL HOSPITAL REIMBURSEMENT TRADITIONAL MEDICAID SERVICES ARIZONA STATE UNIVERSITY BIOMEDICAL INFORMATICS DOWNTOWN PHOENIX CAMPUS OPERATING LUMP SUM APPROPRIATION-EAST OPERATING LUMP SUM APPROPRIATION-MAIN OPERATING LUMP SUM APPROPRIATION-WEST RESEARCH INFRASTRUCTURE LEASE-PURCHASE PAYMENT RESEARCH INFRASTRUCTURE LEASE-PURCHASE PAYMENT-POLY ATTORNEY GENERAL - DEPARTMENT OF LAW ADMINISTRATIVE ADJUSTMENTS LEGAL ARIZONA WORKERS ACT FY07-08 MILITARY INSTALLATION/PLANNING FY11-12 OPERATING LUMP SUM APPROPRIATION STATE GRAND JURY AUDITOR GENERAL OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION FY10-11 CAPITAL POSTCONVICTION PUBLIC DEFENDER OFFICE, STATE ADMINISTRATIVE ADJUSTMENTS CHARTER SCHOOLS, STATE BOARD FOR ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION CORPORATION COMMISSION OPERATING LUMP SUM APPROPRIATION RAILROAD WARNING SYSTEMS FY00-01 CORRECTIONS, STATE DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS BUILDING RENEWAL FUND EXPENDITURES OPERATING LUMP SUM APPROPRIATION PRIVATE PRISON PER DIEM TEMPORARY TRANSACTION PRIVILEGE & USE TAX COURT OF APPEALS DIVISION I ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION - DIVISION I COURT OF APPEALS DIVISION II OPERATING LUMP SUM APPROPRIATION - DIVISION II DEAF AND BLIND, ARIZONA SCHOOLS FOR THE ADMINISTRATION STATEWIDE ADMINISTRATIVE ADJUSTMENTS PHOENIX DAY SCHOOL FOR THE DEAF PRESCHOOL AND OUTREACH PROGRAMS REGIONAL COOPERATIVES SCHOOL BUS REPLACEMENT TUCSON CAMPUS ECONOMIC SECURITY, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS AGENCYWIDE OPERATING LUMP SUM APPROPRIATION ATTORNEY GENERAL LEGAL SERVICES CASE MANAGEMENT-TITLE XIX CHILDREN SUPPORT SERVICES CPS EMERGENCY AND RESIDENTIAL PLACEMENT DACS ADULT SERVICES DACS COMMUNITY AND EMERGENCY SERVICES DACS COORDINATED HOMELESS PROGRAM DACS COORDINATED HUNGER PROGRAM The Notes to Required Supplementary Information are an integral part of this schedule. -134 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 37,716,400 1,147,391,800 13,858,100 3,382,591,300 33,945,700 1,147,895,406 13,858,100 3,354,331,055 17,854,586 1,093,829,542 13,008,100 3,185,116,652 1,955,200 15,535,800 12,253,300 139,906,500 22,823,100 - 1,955,200 22,200,800 17,990,300 207,802,000 32,862,200 13,555,000 917,000 1,955,200 22,200,800 17,990,300 207,802,000 32,862,200 13,555,000 917,000 100,000 206 36,870,800 176,800 44,392 100,000 85,206 38,667,300 176,800 44,392 84,684 37,794,953 176,658 20,202,793 1,326,997 20,608,393 1,326,997 15,189,476 901,457 - 4,412 4,412 750,600 10,385 760,300 10,385 753,471 636,300 47,510 651,100 47,510 650,496 - 6,543,486 750,670,968 4,210,586 200,261,546 8,811,236 6,879,878 750,860,268 4,210,586 200,261,546 8,811,236 4,141,339 745,267,929 4,186,323 200,261,546 9,591,200 1,052 9,745,000 1,052 9,700,325 4,195,100 4,223,900 4,223,828 3,587,000 3,375,100 2,277,400 797,500 738,000 9,911,300 4,599,727 1,763,474 3,291,654 1,705,542 807,890 738,000 9,918,987 4,470,358 1,763,474 2,813,018 1,593,158 785,143 716,469 9,399,835 315,700,500 21,922,800 49,143,800 67,408,500 22,201,700 6,924,100 3,724,000 2,522,600 1,754,600 127,019,459 320,097,400 22,337,900 57,200,000 81,882,000 38,301,700 7,924,100 3,724,000 2,522,600 1,754,600 127,019,459 290,655,344 19,942,669 51,111,876 73,873,826 33,146,600 7,489,664 3,014,930 2,356,890 1,635,853 (continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) DACS DOMESTIC VIOLENCE PREVENTION DAY CARE SUBSIDY DBME TANF CASH BENEFITS DBME TRIBAL PASS-THRU FUNDING DCSE COUNTY PARTICIPATION DCYF ADOPTION SERVICES (DCFS) DCYF ADOPTION SERVICES FAMILY PRESERV FY05-06 DCYF ADOPTION SERVICES TANF DCYF FOSTER CARE PLACEMENT TANF-SSBG DCYF FOSTER CARE PLACEMENT-GF DCYF FOSTER CARE PLACEMENT-TANF DCYF INDEPENDENT LIVING MAINT DCYF PERMANENT GUARDIANSHIP SUBSIDY DDD CASE MANAGEMENT-STATE ONLY DDD HOME AND COMMUNITY BASED SERVICES STATE ONLY DDD STATE FUNDED LTC SERVICES DERS JOBS HOME AND COMMUNITY BASED SERVICES-TITLE XIX INDEPENDENT LIVING REHABILITATION SVCS INSTITUTIONAL SERVICES-TITLE XIX JOBS LTC ARIZONA TRAINING PROGRAM AT COOLIDGE LTC MEDICAL SERVICES MEDICAL CLAWBACK REHABILITATION SERVICES SPECIAL SUPPLEMENTAL APPROPRIATION TEMPORARY TRANSACTION PRIVILEGE & USE TAX WORKFORCE INVESTMENT ACT SERVICES EDUCATION, DEPARTMENT OF ACHIEVEMENT TESTING ADDITIONAL STATE AID TO SCHOOLS ARIZONA STRUCTURED ENGLISH IMMERSION BASIC STATE AID DEFERRED PAYMENT FY11-12 BASIC STATE AID ENTITLEMENT BASIC STATE AID K12 ROLLOVER ED LEARNING AND ACCOUNTABILITY SYSTEM EDUCATION LEARN AND ACCOUNTABILITY-EXPEN EMPOWERMENT SCHOLARSHIP ACCOUNT ENGLISH LANGUAGE ACQUISITION FY06-07 ENGLISH LEARNER ADMINISTRATION ENGLISH LEARNER TEACHER FY04-05 INNOVATIVE EDUCATION GRANTS K-3 READING MATH AND SCIENCE INITIATIVES FY08-09 OPERATING LUMP SUM APPROPRIATION-ADMINISTRATION OPERATING LUMP SUM APPROPRIATION-STATE BOARD OTHER STATE AID TO DISTRICTS FY07 READING FIRST INITIATIVE FY07-08 SPECIAL EDUCATION FUND STATE BLOCK GRANT FOR VOCATIONAL EDUCATION TEMPORARY TRANSACTION PRIVILEGE & USE TAX EMERGENCY AND MILITARY AFFAIRS, DEPARTMENT OF ADMINISTRATION ADMINISTRATIVE ADJUSTMENTS COCONINO COUNTY CAMPBELL FLOOD FY11-12 COCONINO COUNTY TWISTER FY10-11 DECEMBER 2010 FLOODING FY10-11 EMERGENCY MANAGEMENT EUZ701 SEARCH AND RESCUE The Notes to Required Supplementary Information are an integral part of this schedule. -135 - FINAL BUDGET (Appropriations) 9,903,700 121,396,600 44,999,400 4,680,300 8,600,200 48,071,700 1,000,000 19,802,400 4,398,300 10,239,500 6,574,800 2,719,300 11,215,300 3,846,000 32,615,300 26,528,100 2,000,000 873,088,392 166,000 24,698,300 9,894,700 20,325,700 177,494,400 3,594,400 55,000,000 46,651,308 57,154,600 9,903,700 119,396,600 47,599,400 4,680,300 8,600,200 47,671,700 1,000,000 26,700,300 4,398,300 11,839,500 6,574,800 1,669,300 11,365,300 2,846,000 18,515,300 29,428,100 2,000,000 842,002,392 116,000 26,969,900 9,894,700 24,083,900 166,494,400 2,848,400 2,294,400 55,000,000 46,651,308 57,154,600 3,217,400 303,188,200 8,791,400 1,481,153,816 6,200,000 2,499,931 2,827 3,958,200 473,636 3,000,000 40,000,000 2,806 1,212,200 983,900 97,003 33,242,100 11,492,700 641,447,984 3,222,054 303,188,200 8,791,400 952,627,700 1,481,153,816 21,900,000 6,223,600 2,499,931 200,000 2,827 4,002,416 473,636 3,000,000 40,003,654 2,806 7,717,598 1,222,736 983,900 97,003 33,242,100 11,503,942 641,447,984 1,621,300 194,283 136,160 66,402 704,300 111,833 1,685,800 402 194,283 136,160 66,402 709,900 311,833 ACTUAL EXPENDITURE AMOUNTS 9,019,261 90,305,000 46,531,731 4,680,300 6,049,328 47,053,028 26,700,300 4,398,300 11,768,955 2,450,407 1,669,300 10,464,237 671,000 9,359,613 23,210,259 761,620,554 116,000 22,104,345 9,894,700 19,167,968 157,340,979 2,848,400 2,294,400 55,000,000 46,651,308 48,964,085 3,222,054 286,677,098 8,791,400 916,245,784 1,481,153,814 21,900,000 6,223,600 2,499,931 62,157 4,002,416 (3,519) 2,845,318 39,972,694 7,716,999 1,222,736 573,963 33,242,100 11,503,942 641,447,984 1,668,659 402 168,925 345 66,402 709,900 300,591 (continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) FEBRUARY 2005 WINTER STORMS FY07-08 FEBRUARY 2005 WINTER STORMS FY10-11 GLADIATOR FIRE EMERGENCY GLADIATOR WILDFIRE EMERGENCY GREENLEE COUNTY FLOODING HAZARD MATERIALS CONTINGENCY FY03-04 HAZARD MATERIALS CONTINGENCY FY07-08 HOPI TRIBE FLOODING FY10-11 HORSESHOE TWO FIRE AND MONUMENT FIRE EMERGENCY JANUARY 2010 WINTER STORM FY09-10 MILITARY AFFAIRS MILITARY AFFAIRS COMMISSION FY10-11 MONSOON 2010 FLOODING FY10-11 NORTHERN ARIZONA WINTER STORM FY10-11 NORTHERN GREENLEE COUNTY FLOODING NUCLEAR EMERGENCY MANAGEMENT FUND-BUCKEYE GF TRF NUCLEAR EMERGENCY MANAGEMENT FUND-GF TSF NUCLEAR EMERGENCY MANAGEMENT FUND-MARICOPA-GF TRF OPERATION GOOD NEIGHBOR FY05-06 POST-GLADIATOR FIRE FLOODING ROOSEVELT COOLING TOWER FY05-06 SCHULTZ FIRE POST-FIRE FLOOD FY10-11 SEDONA FLASH FLOOD FY09-10 SERVICE CONTRACTS FY10-11 SERVICE CONTRACTS FY12-13 SUMMER 2006 MONSOONS AND FLOODING FY07-08 TOMBSTONE WATERLINE FLOODING WALLOW FIRE EMERGENCY ENVIRONMENTAL QUALITY, DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION EQUAL OPPORTUNITY, GOVERNOR'S OFFICE OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION EQUALIZATION, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION EXECUTIVE CLEMENCY, BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION FINANCIAL INSTITUTIONS, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION FIRE, BUILDING AND LIFE SAFETY, DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION FORESTER, OFFICE OF THE STATE ADMINISTRATIVE ADJUSTMENTS ENVIRONMENTAL COUNTY GRANTS GENERAL FUND TRANSFER TO FIRE SUPPRESSION INMATE FIRE CREWS OPERATING LUMP SUM APPROPRIATION GENERAL ACCOUNTING OFFICE BUDGET STABILIZATION FUND EQUALIZATION AID - COCHISE EQUALIZATION AID - GRAHAM EQUALIZATION AID - NAVAJO NAMED CLAIMANTS BILL OPERATING STATE AID - COCHISE OPERATING STATE AID - COCONINO OPERATING STATE AID - GILA The Notes to Required Supplementary Information are an integral part of this schedule. -136 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 103,013 35,501 7,177 3,539 48,358 49,967 982 23,257 1,280,400 62,867 43,021 329,819 30,899 153,819 50,000 620,480 33,306 831,761 1,215,000 249,171 11,952 2,933 103,013 35,501 7,177 20,000 100,000 3,539 48,358 49,967 982 273,257 1,265,800 152,867 43,021 329,819 130,899 69,909 443,577 500,477 153,819 100,000 50,000 620,480 33,306 831,761 1,215,000 249,171 67,952 2,933 10,539 1,462 7,177 20,000 41,549 181 982 269,805 1,258,150 51,395 43,021 68,735 6,147 69,909 443,577 500,477 153,819 63,757 620,479 (62) 753,523 572,902 79,599 67,952 2,933 12,873,200 13,177,600 1,954,033 187,900 108 179,900 108 177,415 625,800 13,288 634,000 13,288 503,501 826,200 1,181 823,200 1,181 822,924 2,927,000 3,608 2,958,800 3,608 2,948,794 1,693,300 1,723,900 1,723,193 75,000 695,700 3,281,300 186,109 75,000 3,000,000 695,700 3,311,800 186,109 75,000 3,000,000 687,723 3,150,243 200,000,000 5,614,700 16,867,300 5,370,100 5,784,600 1,847,900 410,000 200,000,000 5,614,700 16,867,300 5,370,100 283,682 5,784,600 1,847,900 410,000 200,000,000 5,614,700 16,867,300 5,370,100 283,682 5,784,600 1,847,900 410,000 (continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) OPERATING STATE AID - GRAHAM OPERATING STATE AID - MARICOPA OPERATING STATE AID - MOHAVE OPERATING STATE AID - NAVAJO OPERATING STATE AID - PIMA OPERATING STATE AID - PINAL OPERATING STATE AID - SANTA CRUZ OPERATING STATE AID - YAVAPAI OPERATING STATE AID - YUMA LA PAZ RURAL COUNTY REIMBURSEMENT SUBSIDY WOOLSEY FLOOD DISTRICT GEOLOGICAL SURVEY, ARIZONA OPERATING LUMP SUM APPROPRIATION GOVERNOR, OFFICE OF THE EMERGENCY FUND OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION FY10-11 OPERATING LUMP SUM APPROPRIATION-OSPB OPERATING LUMP SUM APPROPRIATION-OSPB FY10-11 HEALTH SERVICES, DEPARTMENT OF 2% HEALTH PROVIDER REIMBURSEMENT ADMINISTRATIVE ADJUSTMENTS ADULT CYSTIC FIBROSIS AGENCYWIDE OPERATING LUMP SUM APPROPRIATION AIDS REPORTING AND SURVEILLANCE ALZHEIMER DISEASE RESEARCH ASH CORRECTIVE ACTION PLAN SUPPLEMENTAL FY04-05 BREAST AND CERVICAL CANCER SCREENING COMMUNITY PLACEMENT TREATMENT COUNTY TUBERCULOSIS PROVIDER CARE AND CONTROL HIGH RISK PERINATAL SERVICES MEDICAID BEHAVIORAL HEALTH - PROP 204 MEDICAID BEHAVIORAL HEALTH - TRADITIONAL MEDICAID SPECIAL EXEMPTION PAYMENTS BHS MEDICARE CLAWBACK PAYMENTS NON MEDICAID SERIOUSLY MENTAL ILL SVS POISON CONTROL CENTER FUNDING PROP 204 ADMINISTRATION TITLE XIX MATCH REG HA DISPENSERS-AUDIOL PATHOL FY03-04 RENAL AND NON-RENAL DISEASE MANAGEMENT RURAL HOSPITAL EMERGENCY AND TRAUMA SVS SUPPORTED HOUSING TANF PERINATAL SERVICES FY99-00 TEMPORARY TRANSACTION PRIVILEGE & USE TAX HISTORICAL SOCIETY OF ARIZONA, PRESCOTT ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION HISTORICAL SOCIETY, ARIZONA ARIZONA EXPERIENCE MUSEUM FIELD SERVICES AND GRANTS OPERATING LUMP SUM APPROPRIATION PAPAGO PARK MUSEUM HOUSE OF REPRESENTATIVES OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION FY09-10 OPERATING LUMP SUM APPROPRIATION FY10-11 INDEPENDENT REDISTRICTING COMMISSION LEGAL SERVICES OPERATING LUMP SUM APPROPRIATION FY12-13 The Notes to Required Supplementary Information are an integral part of this schedule. -137 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 2,373,200 8,315,700 1,785,600 1,689,700 7,353,500 2,107,800 63,500 957,600 2,802,600 848,800 - 2,373,200 8,315,700 1,785,600 1,689,700 7,353,500 2,107,800 63,500 957,600 2,802,600 848,800 67,815 2,373,200 8,315,700 1,785,600 1,689,700 7,353,500 2,107,800 63,500 957,600 2,802,600 848,800 67,815 865,100 872,500 872,500 7,164,318 2,554,050 2,024,231 1,503,566 2,074,000 7,266,018 2,554,050 2,055,331 1,503,566 2,074,000 3,380,942 2,443,557 1,892,383 251,952 4,072,400 105,200 113,446,100 1,000,000 125,000 398,060 1,346,700 1,130,700 590,700 2,093,400 137,526,200 1,000,205,992 24,383,000 13,838,800 92,988,000 990,000 6,446,700 62,243 198,000 300,000 5,324,800 47,270 46,651,308 4,072,400 3,007,102 105,200 114,096,300 1,000,000 125,000 398,060 1,346,700 1,130,700 590,700 2,093,400 387,526,200 750,205,992 24,383,000 13,838,800 92,988,000 990,000 6,446,700 62,243 198,000 300,000 5,324,800 47,270 46,651,308 1,379,600 3,007,102 76,858 97,397,706 983,149 125,000 1,110,242 517,253 1,738,089 132,442,011 199,614,573 8,269,494 13,838,800 92,161,295 580,673 2,131,400 198,000 300,000 5,218,221 46,651,308 652,600 53,537 659,600 53,537 617,033 441,400 65,000 2,031,100 1,613,600 412,100 65,700 2,049,600 534,500 412,100 65,700 2,049,600 534,500 14,092,441 2,778,308 1,353,951 14,223,941 2,778,308 1,353,951 11,850,491 - 1,450,000 1,135,226 1,453,500 1,135,226 1,453,440 (continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) INDIAN AFFAIRS, ARIZONA COMMISSION OF OPERATING LUMP SUM APPROPRIATION INSURANCE, DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION JOINT LEGISLATIVE BUDGET COMMITTEE OPERATING LUMP SUM APPROPRIATION FY10-11 OPERATING LUMP SUM APPROPRIATION FY11-12 JUVENILE CORRECTIONS, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION LAND DEPARTMENT, STATE CAP USER FEES DUE DILIGENCE FUND NATURAL RESOURCE CONSERVATION DISTRICTS OPERATING LUMP SUM APPROPRIATION LAW ENFORCEMENT MERIT SYSTEM COUNCIL ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION LEGISLATIVE COUNCIL OMBUDSMAN-CITIZENS AID OFFICE FY09-10 OMBUDSMAN-CITIZENS AID OFFICE FY10-11 OMBUDSMAN-CITIZENS AID OFFICE FY11-12 OMBUDSMAN-CITIZENS AID OFFICE FY12-13 OPERATING LUMP SUM APPROPRIATION OPERATING LUMP SUM APPROPRIATION FY09-10 OPERATING LUMP SUM APPROPRIATION FY10-11 OPERATING LUMP SUM APPROPRIATION FY11-12 STATE ARCHIVES AND HISTORY BUILDING STATE ARCHIVES AND HISTORY BUILDING FY07-08 LIBRARY, ARCHIVES, AND PUBLIC RECORDS, ARIZONA STATE GRANTS-IN-AID FY09-10 LIQUOR, LICENSES, AND CONTROL, DEPARTMENT OF IMPROVEMENT OF DATA PROCESSING SYSTEM FY06-07 OPERATING LUMP SUM APPROPRIATION MEDICAL STUDENT LOANS, BOARD OF MEDICAL STUDENT FINANCIAL ASSISTANCE FY06-07 MEDICAL STUDENT FINANCIAL ASSISTANCE FY08-09 MINE INSPECTOR, STATE ABANDONED MINES SAFETY FUND DEPOSIT 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 LEASE-PURCHASE PAYMENT TEACHER TRAINING OCCUPATIONAL SAFETY AND HEALTH REVIEW BOARD OPERATING LUMP SUM APPROPRIATION PARKS BOARD, ARIZONA STATE ADMINISTRATIVE ADJUSTMENTS KARTCHNER CAVERNS STATE PARK OPERATING LUMP SUM APPROPRIATION PERSONNEL BOARD ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION The Notes to Required Supplementary Information are an integral part of this schedule. -138 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 54,300 54,100 53,424 5,184,200 5,214,500 4,984,555 2,467,864 2,487,352 2,523,864 2,487,352 68,390 1,810,754 45,163,000 689,400 45,826,400 689,400 42,328,052 481,200 500,000 390,000 10,249,000 481,200 500,000 390,000 11,379,100 481,140 389,994 11,327,420 70,200 190 69,400 190 69,338 6,655 95,109 67,773 527,000 7,327,100 1 650,001 399,627 406,856 206,471 6,655 95,109 67,773 539,309 7,426,691 1 650,001 399,627 406,856 206,471 6,638 88,868 6,285 498,047 5,068,047 650,001 399,599 - 31,309 31,309 - 101,703 2,815,600 101,703 2,911,300 3,438 2,907,000 346,555 309,800 346,555 309,800 - 188,300 997,500 190,669 3,657 1,006,531 185,711 3,657 1,001,901 126,900 3,295 127,800 3,295 116,387 2,970,800 59,661,600 2,000,000 2,970,800 90,714,400 5,900,000 2,000,000 2,970,800 90,714,400 5,900,000 2,000,000 15,000 15,000 1,011 1,952,600 9,754,400 11,844 2,138,427 10,553,853 11,844 1,667,945 9,828,733 365,200 187 369,000 187 316,311 (continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) PIONEERS' HOME, ARIZONA ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION POSTSECONDARY EDUCATION, COMMISSION FOR LEVERAGING EDUCATIONAL ASSISTANCE PARTNERSHIP MATH AND SCIENCE TEACHER INITIATIVE PUBLIC SAFETY, DEPARTMENT OF GIITEM GIITEM IMPACT APPROPRIATION GIITEM SUBACCOUNT GITTEM-GANG INTELLIGENCE TEAM ENFORCEMENT FY09-10 GITTEM-GANG INTELLIGENCE TEAM ENFORCEMENT FY10-11 MICROWAVE COMMUNICATION SYSTEM FY06-07 MOTOR VEHICLE FUEL OPERATING LUMP SUM APPROPRIATION TEMPORARY TRANSACTION PRIVILEGE & USE TAX RACING, ARIZONA DEPARTMENT OF ARIZONA BREEDERS AWARD COUNTY FAIR LIVESTOCK AND AGRICULTURAL RADIATION REGULATORY AGENCY ADMINISTRATIVE ADJUSTMENTS NUCLEAR EMERGENCY MANAGEMENT FUND OPERATING LUMP SUM APPROPRIATION REAL ESTATE DEPARTMENT, STATE ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION REGENTS, ARIZONA BOARD OF ARIZONA TEACHERS INCENTIVE PROGRAM ARIZONA TRANSFER ARTICULATION SUPPORT SYSTEM COURSE REDESIGN TECHNOLOGY AND CAPITAL OPERATING LUMP SUM APPROPRIATION PERFORMANCE FUNDING STUDENT FINANCIAL ASSISTANCE WESTERN INTERSTATE COMMISSION OFFICE WICHE STUDENT SUBSIDIES REVENUE, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS BRITS OPERATIONAL SUPPORT GOVERNMENT LAND STUDY OPERATING LUMP SUM APPROPRIATION TEMPORARY COLLECTORS UNCLAIMED PROPERTY ADMINISTRATION/AUDIT SCHOOL FACILITIES BOARD ADMINISTRATIVE ADJUSTMENTS BUILDING RENEWAL GRANT NEW SCHOOL FACILITIES DEBT SERVICE OPERATING LUMP SUM APPROPRIATION SECRETARY OF STATE ADMINISTRATIVE ADJUSTMENTS ELECTION SERVICES HELP AMERICA VOTE ACT LIBRARY GRANTS-IN-AID OPERATING LUMP SUM APPROPRIATION SPECIAL ELECTION FY09-10 SPECIAL ELECTION US CONGRESS AZ DIST 8 STATEWIDE RADIO READING SERVICE FOR BLIND SENATE BORDER SECURITY TRUST FUND OPERATING LUMP SUM APPROPRIATION The Notes to Required Supplementary Information are an integral part of this schedule. -139 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 1,603,600 7,884 1,527,600 7,884 1,158,743 1,220,800 176,000 1,220,800 176,000 1,220,800 176,000 17,526,342 2,793,833 2,390,000 15 210,079 629,426 681,727 1,604,600 27,159,831 17,376,442 2,793,833 2,392,500 15 210,079 629,426 681,727 1,452,400 27,159,831 16,556,128 2,427,202 1,230,152 210,079 363,666 322,702 1,441,355 27,159,831 250,000 1,779,500 250,000 1,779,500 250,000 1,779,500 1,304,000 2,614 675,952 1,333,800 2,614 675,952 1,333,466 2,917,300 3,372 2,926,200 3,372 2,661,032 90,000 213,700 15,273,700 2,350,300 5,000,000 10,041,200 125,000 4,106,000 90,000 213,700 15,273,700 2,350,600 5,000,000 10,041,200 125,000 4,106,000 90,000 213,700 15,273,700 2,350,600 5,000,000 10,041,200 125,000 4,095,533 7,433,200 57,460,800 2,873,200 1,770,000 34,052 7,433,200 132,213 59,869,500 2,873,200 1,770,000 34,052 6,970,178 35,371 59,247,734 2,665,297 1,218,526 2,667,900 169,429,700 1,613,600 4,577 2,667,900 169,429,700 1,641,000 4,577 2,667,900 169,429,700 1,626,564 4,437,200 5,036,287 654,838 8,607,600 1,731,456 1,900,000 97,000 27,330 4,437,200 5,040,487 654,838 10,427,100 1,731,456 1,900,000 97,000 27,330 4,132,504 2,175,071 530,000 10,284,473 1,900,000 97,000 263,667 8,905,608 263,667 9,020,708 8,029,899 (continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) SUPREME COURT ADMINISTRATIVE ADJUSTMENTS ADOA BUILDING RENEWAL FUND FY09-10 ADULT INTENSIVE PROBATION ADULT STANDARD PROBATION AUTOMATION CASE AND CASH MANAGEMENT SYSTEM COMMISSION ON JUDICIAL CONDUCT COUNTY REIMBURSEMENTS COURT APPOINTED SPECIAL ADVOCATE DOMESTIC RELATIONS DRUG COURT DRUG COURT FY06-07 FOSTER CARE REVIEW BOARD INTERSTATE COMPACT JUDGES COMPENSATION JUDICIAL NOMINATION AND PERFORMANCE REVIEW JUVENILE DIVERSION CONSEQUENCES JUVENILE FAMILY COUNSELING JUVENILE INTENSIVE PROBATION JUVENILE STANDARD PROBATION JUVENILE TREATMENT SERVICES MODEL COURT OPERATING LUMP SUM APPROPRIATION SPECIAL WATER MASTER TAX APPEALS, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION TOURISM, OFFICE OF OPERATING LUMP SUM APPROPRIATION TRANSPORTATION, DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION TREASURER, STATE ADMINISTRATIVE ADJUSTMENTS COMMUNITY COLLEGE REIMBURSEMENT ARS 15-1469.01 CORPORATE INCOME TAX TRANSFER JUSTICE OF THE PEACE SALARIES OPERATING LUMP SUM APPROPRIATION UNIVERSITY OF ARIZONA AGRICULTURE ARIZONA COOPERATIVE EXTENSION CLINICAL RURAL ROTATION CLINICAL TEACHING SUPPORT LIVER RESEARCH INSTITUTE OPERATING LUMP SUM APPROPRIATION - MAIN OPERATING LUMP SUM APPROPRIATION-HSC PHOENIX MEDICAL CAMPUS RESEARCH INFRASTRUCTURE FACILITIES SIERRA VISTA CAMPUS TELEMEDICINE NETWORK VETERANS' SERVICES, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS MILITARY FAMILY RELIEF FUND OPERATING LUMP SUM APPROPRIATION SOUTHERN ARIZONA CEMETERY TUCSON VETERAN HOME CONSTRUCTION FY09-10 VETERANS BENEFIT COUNSELING WATER RESOURCES, DEPARTMENT OF ADJUDICATION SUPPORT The Notes to Required Supplementary Information are an integral part of this schedule. -140 - FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 1,321 10,737,700 13,521,500 3,332,600 139,400 506,800 187,900 102,000 640,300 1,013,600 61,322 3,332,000 641,800 7,390,200 417,200 9,024,900 660,400 9,163,000 4,598,700 22,311,400 447,600 10,930,100 20,000 4,101 1,321 10,760,000 13,551,500 3,368,900 139,400 512,900 187,900 102,000 647,000 1,013,600 61,322 3,364,400 645,800 7,724,200 421,500 9,028,100 660,400 8,843,200 4,605,900 22,343,900 447,600 10,805,800 20,000 4,101 10,755,915 13,527,203 3,118,089 508,613 187,900 102,000 644,579 1,013,600 3,357,032 645,359 7,721,088 417,155 9,028,100 659,754 8,674,351 4,586,829 22,252,163 443,208 10,643,643 19,999 253,400 663 260,700 663 256,515 7,000,000 7,046,900 6,007,129 50,200 50,500 50,397 1,115,100 2,690,900 112,363 2,990,205 7,000,000 1,231,900 2,752,700 112,363 2,990,205 7,000,000 1,002,963 2,564,527 29,028,000 10,760,400 357,600 8,097,000 458,500 87,557,700 17,889,000 15,907,600 2,907,400 1,847,900 29,028,000 10,760,400 355,000 8,587,000 411,300 149,262,100 34,891,000 15,273,400 14,253,000 2,907,400 1,833,900 29,028,000 10,760,400 355,000 8,587,000 411,300 149,262,100 34,891,000 15,273,400 14,253,000 2,907,400 1,833,900 15,291 2,095,600 274,800 195,543 2,826,700 3,462 15,291 2,264,900 274,800 195,543 2,772,000 3,462 2,236,485 274,798 157,686 2,705,940 1,212,900 1,212,900 1,164,648 (continued) STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE, EXPENDITURES GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Dollars) ORIGINAL BUDGET (Appropriations) ADMINISTRATIVE ADJUSTMENTS ASSURED AND ADEQUATE WATER SUPPLY ADMIN AUTOMATED GROUNDWATER MONITORING CONSERVATION AND DROUGHT PROGRAM OPERATING LUMP SUM APPROPRIATION RURAL WATER STUDIES WEIGHTS AND MEASURES, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS GENERAL SERVICES TOTAL GENERAL FUND BUDGETARY EXPENDITURES BEFORE ADJUSTMENTS Less: Department of Health Services' appropriations for Medicaid Behavioral Health, Medicaid Special Exemption, Prop 204 Administration Title XIX Match, and other appropriations that were duplicate expenditure authorizations TOTAL GENERAL FUND BUDGETARY EXPENDITURES AFTER ADJUSTMENTS FINAL BUDGET (Appropriations) 1,505,800 401,100 395,700 7,343,200 1,139,600 1,979 1,505,800 401,100 395,700 7,518,800 1,139,600 1,979 1,389,404 343,709 383,483 6,848,578 996,509 1,470,000 13,196 1,491,500 13,196 1,489,880 14,929,289,536 16,475,923,740 14,887,254,903 (840,654,100) $ The Notes to Required Supplementary Information are an integral part of this schedule. -141 - ACTUAL EXPENDITURE AMOUNTS 14,088,635,436 (840,806,900) $ 15,635,116,840 - $ 14,887,254,903 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, 2013 ORIGINAL (Expressed in Dollars) BUDGET (Appropriations) TRANSPORTATION, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS AIRPORT PLANNING AND DEVELOPMENT FY07-08 AIRPORT PLANNING AND DEVELOPMENT FY08-09 AIRPORT PLANNING AND DEVELOPMENT FY09-10 AIRPORT PLANNING AND DEVELOPMENT FY10-11 AIRPORT PLANNING AND DEVELOPMENT FY11-12 ALT TRUCK ROUTE-DOUGLAS CHINO RD FY03-04 ASBESTOS AND LEAD INSPECTIONS FY01-02 ASBESTOS AND LEAD INSPECTIONS FY02-03 ASPHALT STORAGE TANKS FY06-07 ATTORNEY GENERAL LEGAL SERVICES BUILDING RENEWAL FY10-11 BUILDING RENEWAL FY11-12 BUILDING RENEWAL FY12-13 CASH TRANSFER TO WMA DE-ICER BUILDINGS FY06-07 FRAUD INVESTIGATION GRAND CANYON AIRPORT MODULAR HOUSING FY06-07 GRAND CANYON AIRPORT RESTROOM RENOVATION FY07-08 HIGHWAY MAINTENANCE FY10-11 HIGHWAY MAINTENANCE FY11-12 HIGHWAY TO DPS TRANSFER - DOUBLE LOAD HURF TO DPS TRANSFER - DOUBLE LOAD MOTOR CARRIER TOWING REGULATION FY04-05 MVD SECURITY ENHANCEMENT ISSUES FY02-03 NEW THIRD PARTY FUNDING OPERATING LUMP SUM APPROPRIATION RELIEF BILL CASH TRANSFER FY13 SEF TO DPS TRANSFER - DOUBLE LOAD SPRINKLERS/FIRE ALARMS FY05-06 STATEWIDE HIGHWAY CONSTRUCTION FY07-08 STATEWIDE HIGHWAY CONSTRUCTION FY08-09 STATEWIDE HIGHWAY CONSTRUCTION FY09-10 STATEWIDE HIGHWAY CONSTRUCTION FY10-11 STATEWIDE HIGHWAY CONSTRUCTION FY11-12 SURPRISE MOTOR VEHICLE DIVISION FY06-07 TOTAL TRANSPORTATION AND AVIATION PLANNING, HIGHWAY MAINTENANCE AND SAFETY FUND BUDGETARY EXPENDITURES FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS $ 8,665,445 16,067,335 17,671,756 10,765,318 35,187,535 250,000 94,798 589,466 112,816 2,895,600 7,866 707,381 1,050,000 317,500 11,434 753,900 4,726 155,559 126,555,600 9,191,672 6,780,000 119,961,000 11,108 715,687 940,100 201,379,300 1,509,100 6,610 1,476 20,031,322 75,207,460 510,131 265,397,578 892,410 $ 857,240 8,665,445 16,067,335 17,671,756 10,765,318 35,187,535 250,000 94,798 589,466 112,816 2,895,600 7,866 707,381 1,050,000 327,600 11,434 755,400 4,726 155,559 126,680,600 9,191,672 6,780,000 119,965,000 11,108 715,687 943,700 205,745,000 10,180 1,510,300 6,610 1,476 20,031,322 75,207,460 510,131 265,397,578 892,410 $ 857,240 15,534,196 2,895,600 7,866 673,450 119,217 327,600 755,273 123,753,937 7,069,053 6,780,000 119,965,000 942,745 204,764,887 10,180 1,510,300 6,610 159,439,069 - $ 924,398,989 $ 929,777,509 $ 645,412,223 The Notes to Required Supplementary Information are an integral part of this schedule -142 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION –BUDGETARY COMPARISON SCHEDULES JUNE 30, 2013 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, 2012 that affect available appropriations during fiscal year 2013. The final budget represents any appropriation bills passed during fiscal year 2013 for fiscal year 2013 plus the original budget. Appropriation bills passed after the end of fiscal year 2013 for fiscal year 2013 would also be included in the final budget. The Budgetary Comparison Schedules present actual amounts on the State’s budgetary basis for expenditures only. The Schedules include appropriations authorized in one fund and transferred, by legislation, to another fund. The State does not have a legally adopted budget for revenues; therefore, only expenditures are presented on the Budgetary Comparison Schedule, Expenditures for the General Fund and the Transportation and Aviation Planning, Highway Maintenance and Safety Fund. As the budgetary and GAAP presentations of actual data differ, a reconciliation of the two follows (amounts expressed in thousands): Transportation & Aviation Planning, Highway Maintenance & Safety Fund General Fund Uses/outflows of resources Actual expenditure amounts (budgetary basis) “total charges to appropriations”from the budgetary comparison schedule $ 14,887,255 $ 645,412 Differences –budget to GAAP: Increase in unpaid incurred expenditures from fiscal year end 2012 to fiscal year end 2013. 4,205 440,749 (Decrease) in unpaid payroll expenditures from fiscal year end 2012 to fiscal year end 2013. For budgetary reporting, final June 2012 payroll expenditures were charged to fiscal year 2013 budget and final June 2013 payroll expenditures were charged to fiscal year 2014 budget. (252) - Distributions to counties and cities of sales taxes are recognized as expenditures on the modified accrual basis, but have no effect on budgetary expenditures. 1,066,208 - 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. 545,084 - Capital leases and installment purchase contracts initiated during the fiscal year, which are not reported in budgetary expenditures. - 15,158 Programs which are not controlled by legislative appropriations but have disbursed cash or incurred obligations during fiscal year 2013. 4,726,728 1,460,129 Transfers to other funds are outflows of budgetary resources but are not expenditures for financial reporting purposes. (846,349) (283,088) Total expenditures, as reported on the Statement of Revenues, Expenditures and Changes in Fund Balances $ 20,382,879 $ 2,278,360 There were no expenditures in excess of appropriations or allotments in the individual budget accounts for the year. - 143 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION –BUDGETARY COMPARISON SCHEDULES JUNE 30, 2013 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 funds. Among the choices are the following: Lump Sum – The appropriation of an agency for each fiscal year consists of a single dollar amount, thereby allowing the agency to shift funds among line items, programs, and subprograms without further Legislative or Executive Branch review. Lump Sum with Special Line Items – The appropriation of an agency for each fiscal year consists of a dollar amount for an operating budget and dollar amounts for individual special line items. Special line items are particular programs for which the Legislature has a specific policy interest. These line items may or may not include Full Time Equivalent positions. Agencies are permitted to shift funds among line items, programs, and subprograms without further Legislative or Executive Branch review, though footnotes may place additional restrictions or notifications upon the agency prior to or associated with transfers between special line items or to or from the operating budget. During the fiscal year, $1.5 billion in supplemental appropriations, net of mid-year reversions and adjustments, were provided to the General Fund. The Transportation and Aviation Planning, Highway Maintenance and Safety Fund appropriations increased by $5.4 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. The Governor shall have in continuous process of preparation and revision a tentative budget report for the next fiscal year 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. - 144 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO REQUIRED SUPPLEMENTARY INFORMATION –BUDGETARY COMPARISON SCHEDULES JUNE 30, 2013 During the fiscal year, the General Fund had an original budget of $(4.0) million for line item Department of Law Pro-Rata Adjustments, which represents a statewide reduction in General Fund expenditure authority due to the elimination of the pro-rata charge to the Attorney General’s office. Also during the fiscal year, the General Fund had an original budget of $(25.0) million for line item Insurance Premium Holiday Adjustments, which represents a one-time adjustment in General Fund expenditure authority due to the statewide reduction in insurance premiums for the self-insured State employee health insurance program. The statewide reductions in the original budget are shown on page 133. However, for the final budget, an agency impacted by the statewide reductions includes its portion of the reductions within its respective budget. 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 final budget amount of $750.2 million for the Department of Health Services’ Medicaid Behavioral Health - Traditional on page 137, which includes $550.6 million of duplicate expenditure authorizations. 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 141. - 145 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2013 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 6,751 center lane miles (21,213 travel lane miles) of roads and 4,754 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 2013 and beyond was adopted by the Transportation Board on June 15, 2012. 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, with contracts that have not yet been awarded. Furthermore, the Actual Expenditures will include projects that were programmed for a prior year’s Estimated Expenditures but which did not occur, or were not completed, in the prior year. 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 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. Many surveys since the original road test have shown that these measurements closely track the subjective opinion of the traveling public. Most commonly, this number is called the “Present Serviceability Rating” (PSR). PSR is a five-point scale (5 excellent, 0 impassable), similar to the Weaver/AASHTO Scale shown as follows: - 146 - STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2013 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 2013, an overall rating of 3.67 was achieved, as shown in the following graph: Condition Levels - Roads 5 PSR 4 3 Actual 2 Goal 1 0 2009 2010 2011 Fiscal Year 2012 2013 Figure 1 Preservation of the roads is accomplished through programs managed primarily by the ADOT’s 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 2009 through 2013 were as follows: Fiscal Year 2009 2010 2011 2012 2013 Estimated Expenditures (in millions) $264.4 $227.4 $265.7 $261.9 $276.3 - 147 - Actual Expenditures (in millions) $236.0 $220.9 $373.4 $373.6 $291.3 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2013 Bridges The State’s bridge assets constitute a significant portion of all infrastructure assets in Arizona. As of June 30, 2013, the State owned and maintained 4,754 bridges with an approximate total deck area of 48,250,819 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 2013, the CRI was computed at 93.2%. Condition Levels - Bridges 95% CRI 94% 93% Actual 92% Goal 91% 90% 2009 2010 2011 Fiscal Year Figure 2 - 148 - 2012 2013 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION INFRASTRUCTURE ASSETS JUNE 30, 2013 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 57% of the bridges in the State were constructed prior to the 1970s while only 14% have been constructed since 2000. Age of the State's Bridge Population 30% 25% % of bridges built in corresponding decade 20% 15% 10% 5% 0% <1930 30s 40s 50s 60s 70s 80s 90s 2000s 2010s 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 2009 through 2013 were as follows: Fiscal Year 2009 2010 2011 2012 2013 Estimated Expenditures (in millions) $14.3 $16.1 $11.8 $12.5 $14.7 - 149 - Actual Expenditures (in millions) $17.3 $22.4 $26.0 $20.6 $10.7 STATE OF ARIZONA REQUIRED SUPPLEMENTARY INFORMATION AGENT BENEFIT PLANS’FUNDING PROGRESS JUNE 30, 2013 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 6/30/2013 6/30/2012 6/30/2011 Actuarial Value of Plan Assets $ 505,249 522,980 545,586 6/30/2013 6/30/2012 6/30/2011 900,160 888,879 872,133 Actuarial Accrued Liability (AAL) $ 1,067,721 1,043,064 965,288 (Unfunded) AAL $ (562,472) (520,084) (419,702) Funded Ratio 47.3% 50.1% 56.5% Annual Covered Payroll $ 82,363 82,352 84,347 (Unfunded) AAL as a Percentage of Covered Payroll (682.9)% (631.5)% (497.6)% 1,289,715 1,244,672 1,120,722 (389,555) (355,793) (248,589) 69.8% 71.4% 77.8% 346,980 370,041 361,900 (112.3)% (96.1)% (68.7)% 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 6/30/2013 6/30/2012 6/30/2011 Actuarial Value of Plan Assets - 6/30/2013 6/30/2012 6/30/2011 - Actuarial Accrued Liability (AAL) $ 29,165 29,183 29,200 (Unfunded) AAL $ (29,165) (29,183) (29,200) Funded Ratio 0.0% 0.0% 0.0% Annual Covered Payroll $ 82,363 82,352 84,347 59,723 58,596 59,971 (59,723) (58,596) (59,971) 0.0% 0.0% 0.0% 346,980 370,041 361,900 - 150 - (Unfunded) AAL as a Percentage of Covered Payroll (35.4)% (35.4)% (34.6)% (17.2)% (15.8)% (16.6)% 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, 2013 (Expressed in Thousands) SPECIAL REVENUE FUNDS ASSETS Cash Cash and pooled investments with State Treasurer Collateral investment pool Receivables, net of allowances: Taxes Interest Other Due from U.S. Government Due from others Due from other Funds Inventories, at cost 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 Tax refunds payable Due to local governments Due to others Due to other Funds Unavailable deferred revenue Unearned deferred revenue Total Liabilities $ $ CAPITAL PROJECTS FUNDS - $ TOTAL - $ 1,662 806,024 10,625 8,784 - 2,155 814,808 12,780 75,151 1 25,203 23,260 2 20,090 3 3,750 - - 75,151 1 25,203 23,260 2 23,840 3 417,785 - 40,221 7,501 461,463 - 919,469 7,501 $ 1,379,806 $ 60,256 $ 463,618 $ 1,903,680 $ 55,104 58,326 $ 249 13 $ 10 $ 55,353 58,349 Fund Balances: Restricted Committed Total Fund Balances Total Liabilities and Fund Balances 1,662 DEBT SERVICE FUNDS $ 10,625 4 91,185 9,359 18,298 780 670 244,351 262 2,155 3,803 5,968 12,780 4 91,185 9,359 22,101 780 670 250,581 630,429 505,026 1,135,455 59,994 59,994 457,650 457,650 1,148,073 505,026 1,653,099 1,379,806 $ 60,256 - 154 - $ 463,618 $ 1,903,680 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) SPECIAL REVENUE FUNDS 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 Other Total Revenues $ EXPENDITURES Current: General government Health and welfare Inspection and regulation Education Protection and safety Transportation Natural resources Debt service: Principal Interest and other fiscal charges Capital outlay Total Expenditures Excess (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers in Transfers out Refunding certificates of participation issued DEBT SERVICE FUNDS 441,283 59 251,162 2,000 164,923 111,417 101,438 278,952 27,104 20,360 143,366 80,359 17,000 1,639,423 $ CAPITAL PROJECTS FUNDS 65,809 2,038 11 67,858 $ TOTAL 225 225 $ 507,092 59 251,162 2,000 164,923 111,417 101,438 278,952 29,367 20,360 143,366 80,359 17,011 1,707,506 121,117 269,802 115,263 634,862 232,826 104,150 - 17,388 - 121,117 269,802 115,263 634,862 232,826 17,388 104,150 9,170 16,545 22,048 1,525,783 289,405 245,189 534,594 680 184,195 202,263 298,575 262,414 206,243 2,262,640 113,640 (466,736) (202,038) (555,134) 77,982 (85,820) - 468,344 62,630 (1,779) - 546,326 (87,599) 62,630 Bonds issued - - 194,295 194,295 Refunding bonds issued - 837,340 - 837,340 - (42,096) - (42,096) - (954,372) - (954,372) Payment to refunded certificates of participation escrow agent Payment to refunded bond escrow agent Premium on debt issued Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning, as restated Fund Balances - Ending (7,838) 105,802 1,029,653 $ 1,135,455 99,825 471,671 4,935 55,059 $ - 155 - 59,994 36,385 228,901 26,863 430,787 $ 457,650 136,210 692,734 137,600 1,515,499 $ 1,653,099 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, 2013 (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 Interest Other Due from U.S. Government Due from others Due from other Funds Inventories, at cost Restricted assets: Cash and pooled investments with State Treasurer Total Assets LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and other current liabilities Accrued liabilities Obligations under securities loan agreements Tax refunds payable Due to local governments Due to others Due to other Funds Unavailable deferred revenue Unearned deferred revenue Total Liabilities $ $ - $ - TOBACCO TAX & HEALTHCARE $ - JUDICIAL & LEGAL SERVICES $ REGULATING & LICENSING - $ 18 122,477 - 90,841 - 67,464 - 19,958 6,624 190,743 4,001 95,698 - 5,379 50 2 3,874 3 6,481 - 5,048 1 7,442 22,979 2,274 - 13,839 281 648 - 7 1,413 - 3,129 257 - - - 920 416,865 - - $ 132,806 $ 97,322 $ 106,128 $ 458,215 $ 196,164 $ 99,102 $ 20,137 3,658 $ 3,434 380 $ 2,830 50,722 $ 1,625 290 $ 3,031 458 $ 2,202 1,621 Fund Balances: Restricted Committed Total Fund Balances Total Liabilities and Fund Balances 1,021 HEALTHCARE & SOCIAL SERVICES $ 31 535 24,361 4 3,818 1,914 780 670 56,916 6,624 9,135 15,379 33,053 4,001 152 7,642 193 122 4,138 108,445 108,445 93,504 93,504 9,200 40,012 49,212 425,162 425,162 98,038 90,484 188,522 94,964 94,964 132,806 $ 97,322 - 158 - $ 106,128 $ 458,215 $ 196,164 $ 99,102 GROUNDWATER STATE PARKS BUSINESS EDUCATIONAL PROTECTION & DEVELOPMENT DEVELOPMENT PROGRAMS CONSERVATION GAME & FISH $ 623 $ - $ - $ - $ - CLEAN ELECTIONS SYSTEM $ - TOTAL $ 1,662 37,269 - 10,486 - 23,472 - 110,053 - 16,159 - 21,404 - 806,024 10,625 2,076 446 - 403 - 7 - 50,885 12,492 4,294 - - - 75,151 1 25,203 23,260 2 20,090 3 - - - - - - 417,785 $ 40,414 $ 10,889 $ 23,479 $ 177,724 $ 16,159 $ 21,404 $ 1,379,806 $ 1,754 930 $ 300 66 $ 21 77 $ 19,760 104 $ 10 14 $ 6 $ 55,104 58,326 $ 188 2,872 5 371 1 99 91,185 2 111,051 24 6 10,625 4 91,185 9,359 18,298 780 670 244,351 8,437 29,105 37,542 10,518 10,518 1,521 21,859 23,380 66,673 66,673 16,135 16,135 21,398 21,398 630,429 505,026 1,135,455 40,414 $ 10,889 $ 23,479 $ 177,724 $ - 159 - 16,159 $ 21,404 $ 1,379,806 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) PUBLIC SAFETY & CORRECTIONAL ENVIRONMENTAL PROGRAMS PROTECTION 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 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 Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning, as restated Fund Balances - Ending $ 16,518 4,831 129,200 53,547 26,070 22,647 220 9,826 70,570 709 334,138 $ 28,121 2,427 70,804 545 75 301 102,273 HEALTHCARE & SOCIAL SERVICES $ 4,586 8,100 2,000 12,881 45,047 14,336 107 3,109 10,874 21,500 2,234 124,774 TOBACCO TAX & HEALTHCARE $ JUDICIAL & LEGAL SERVICES - $ 238,231 499 (1,412) 1 237,319 1,517 26,577 462 467 49,649 1,783 80,455 REGULATING & LICENSING $ 328 42,562 45 95,088 112 1,895 3,225 9,711 1,938 154,904 26,953 232,826 26,003 1,070 69,253 1,337 319 3,037 116,435 - 677 77,166 146,867 - 67,670 17 - 1,757 6,948 113,909 - 8,630 15,754 13,288 323,454 1,642 73,621 115 119,587 224,710 142 67,829 1,100 123,714 10,684 28,652 5,187 12,609 12,626 31,190 30,896 (9,469) 21,427 32,111 76,334 7,022 (9,168) (2,146) 26,506 66,998 9,341 (4,278) 5,063 10,250 38,962 1,072 (34,668) (33,596) (20,987) 446,149 3,157 (6,939) (3,782) 8,844 179,678 2,669 (17,500) (14,831) 16,359 78,605 108,445 $ 93,504 - 160 - $ 49,212 $ 425,162 $ 188,522 $ 94,964 GAME & FISH $ $ 885 25,640 34,181 288 3,000 137 6,148 1,716 71,995 GROUNDWATER STATE PARKS BUSINESS EDUCATIONAL PROTECTION & DEVELOPMENT DEVELOPMENT PROGRAMS CONSERVATION $ 6,114 1,565 79 1,927 9,685 $ 1,536 4,695 213 167 3,017 9,628 $ 420,179 59 275 1,084 2,557 26,389 1,889 43,000 256 495,688 $ 6,502 101 7 2 2,414 9,026 CLEAN ELECTIONS SYSTEM $ 8,833 705 9,538 TOTAL $ 441,283 59 251,162 2,000 164,923 111,417 101,438 278,952 27,104 20,360 143,366 80,359 17,000 1,639,423 66,181 1,846 5,006 10,882 - 487,995 - 6,641 7,225 - 121,117 269,802 115,263 634,862 232,826 104,150 540 791 5,536 73,048 176 7,028 10,882 48 488,043 1 6,642 7,225 9,170 16,545 22,048 1,525,783 (1,053) 2,657 (1,254) 7,645 2,384 2,313 113,640 10,000 (2,881) 7,119 6,066 31,476 (1) (1) 2,656 7,862 11 (427) (416) (1,670) 25,050 13,514 (382) 13,132 20,777 45,896 300 300 2,684 13,451 (107) (107) 2,206 19,192 77,982 (85,820) (7,838) 105,802 1,029,653 37,542 $ 10,518 $ 23,380 $ 66,673 $ - 161 - 16,135 $ 21,398 $ 1,135,455 STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Dollars) ACCOUNTANCY, ARIZONA STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION ACUPUNCTURE BOARD OF EXAMINERS ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION ADMINISTRATION, ARIZONA DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION YUMA PRISON WATER UPGRADE CF FY06-07 AGRICULTURE, ARIZONA DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS AHCCCS - ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM PROPOSITION 204 SERVICES TRADITIONAL MEDICAID SERVICES APPRAISAL, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION ATHLETIC TRAINING, BOARD OF OPERATING LUMP SUM APPROPRIATION ATTORNEY GENERAL - DEPARTMENT OF LAW ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION PAD NATIONAL MORTGAGE SETTLEMENT VICTIMS RIGHTS AUTOMOBILE THEFT AUTHORITY AUTOMOBILE THEFT AUTHORITY GRANTS OPERATING LUMP SUM APPROPRIATION REIMBURSABLE PROGRAMS BARBERS, BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION BEHAVIORAL HEALTH EXAMINERS, BOARD OF OPERATING LUMP SUM APPROPRIATION CHIROPRACTIC EXAMINERS, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION CONTRACTORS, REGISTRAR OF ADMINISTRATIVE ADJUSTMENTS OFFICE OF ADMINISTRATIVE HEARING OPERATING LUMP SUM APPROPRIATION CORPORATION COMMISSION ADMINISTRATIVE ADJUSTMENTS ANNUAL REV PUBLIC ACCESS FUND ARS 10-122 ANNUAL REVERSION PER ARS 44-3298 CORPORATION FILINGS, SAME DAY SERVICE INVESTIGATE AND PROSECUTE SECURITY FRAUD FY00-01 OPERATING LUMP SUM APPROPRIATION UTILITIES, AUDITS, STUDIES, INVEST, HEAR UTILITIES, AUDITS, STUDIES, INVEST, HEAR FY05-06 UTILITIES, AUDITS, STUDIES, INVEST, HEAR FY07-08 UTILITIES, AUDITS, STUDIES, INVEST, HEAR FY09-10 UTILITIES, AUDITS, STUDIES, INVEST, HEAR FY10-11 UTILITIES, AUDITS, STUDIES, INVEST, HEAR FY12-13 FINAL BUDGET (Appropriations) $ 7,789 1,921,800 ACTUAL EXPENDITURE AMOUNTS $ 7,789 1,563,044 73 129,500 73 129,049 62,825 1,280,800 13,912 62,825 1,091,209 - 3,605 3,605 19,222,900 38,295,800 18,964,645 38,295,800 22,991 766,700 22,991 728,188 104,500 104,057 140,658 9,123,100 48,366,833 3,247,800 140,658 8,851,968 603,895 3,224,753 3,607,700 629,200 50,000 3,606,431 610,684 - 607 329,300 607 291,794 1,640,400 1,487,163 5,982 463,800 5,982 442,299 2,683 1,017,600 11,174,000 2,683 331,064 6,881,251 13,751 1,333,494 1,695,363 400,400 165,599 25,023,500 375,446 1 91,647 380,000 760,000 380,000 13,751 1,333,494 1,695,363 24,590,206 375,446 91,647 - (continued) -162 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Dollars) CORRECTIONS, STATE DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS CASH TRANSFER TO BUILDING RENEWAL FUND OPERATING LUMP SUM APPROPRIATION PRIVATE PRISON PER DIEM COSMETOLOGY, BOARD OF OPERATING LUMP SUM APPROPRIATION CRIMINAL JUSTICE COMMISSION, ARIZONA ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION STATE AID TO COUNTY ATTORNEYS VICTIM COMPENSATION AND ASSISTANCE DEAF AND HARD OF HEARING, COMMISSION FOR THE ADMINISTRATIVE ADJUSTMENTS INTERPRETER FOR CERTIFICATION AND LICENSURE FY04-05 OPERATING LUMP SUM APPROPRIATION DENTAL EXAMINERS, STATE BOARD OF OPERATING LUMP SUM APPROPRIATION ECONOMIC SECURITY, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS AGENCYWIDE OPERATING LUMP SUM APPROPRIATION ATTORNEY GENERAL LEGAL SERVICES CHILDREN SUPPORT SERVICES DACS DOMESTIC VIOLENCE PREVENTION DERS INDEPENDENT LIVING REHAB SERVICES JOBS REHABILITATION SERVICES EDUCATION, DEPARTMENT OF ACCOUNTABILITY-SCHOOL SAFETY-PROP 301 FY11-12 ACCOUNTABILITY-SCHOOL SAFETY-PROP 301 FY12-13 ACHIEVEMENT TESTING-PROP 301 FY10-11 ACHIEVEMENT TESTING-PROP 301 FY11-12 ACHIEVEMENT TESTING-PROP 301 FY12-13 ADDITIONAL SCHOOL DAYS-PROP 301 FY12-13 CHARACTER EDUCATION-PROP 301 FY10-11 CHARACTER EDUCATION-PROP 301 FY11-12 CHARACTER EDUCATION-PROP 301 FY12-13 FAILING SCHOOL TUTORING-PROP 301 FY11-12 OPERATING LUMP SUM APPROPRIATION-ADMINISTRATION OPERATING LUMP SUM APPROPRIATION-STATE BOARD SCHOOL ACCOUNTABILITY FUND-PROP 301 SCHOOL ACCOUNTABILITY-PROP 301 FY08-09 SCHOOL ACCOUNTABILITY-PROP 301 FY09-10 TEACHER CERTIFICATION EMERGENCY AND MILITARY AFFAIRS, DEPARTMENT OF EMERGENCY MANAGEMENT ENVIRONMENTAL QUALITY, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS AIR QUALITY FEE FUND STATE TRANSFERS AIR QUALITY PROGRAM - CONTINUING FY01-02 AIR QUALITY PROGRAM - CONTINUING FY02-03 CASH TRANSFER TO GENERAL FUND EMISSIONS CAP AND TRADING PROGRAM FY01-02 EMISSIONS CAP AND TRADING PROGRAM FY02-03 EMISSIONS CONTROL - CONTRACTOR PAYMENTS FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 3,251 2,500,000 12,053,800 27,517,600 3,251 2,500,000 8,862,555 26,884,002 1,777,000 1,653,987 19,448 882,600 973,600 3,792,500 19,448 707,021 973,600 3,495,287 18,932 255,313 3,780,300 18,932 3,466,631 1,209,100 1,029,086 2,566,919 1,107,100 91,800 1,459,100 2,220,000 1,123,400 1,110,900 204,700 2,566,919 380,032 1,310 2,220,000 1,038,329 204,700 361,397 7,800,000 3,718,079 6,980,999 7,000,000 86,280,500 97,288 103,613 200,000 2,391,492 134,300 370,200 283,101 436,077 388,898 1,832,300 361,397 7,792,284 3,024,948 3,891,813 129 86,280,499 97,288 103,583 114,147 2,180,468 119,390 341,734 283,101 427,195 267,095 1,640,304 132,700 117,051 845,085 400,000 186,035 182,451 10,000,000 70,576 266,582 22,669,500 845,085 400,000 10,000,000 21,931,687 (continued) -163 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Dollars) OPERATING LUMP SUM APPROPRIATION POLITICAL SUBDIVISION ASSISTANCE FY01-02 ROADSIDE DIESEL EMISSIONS TEST FY01-02 UNDERGROUND STORAGE TANK APPEALS FY00-01 VISIBILITY INDEX DEVELOPMENT FY01-02 FINANCIAL INSTITUTIONS, DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION FUNERAL DIRECTORS AND EMBALMERS, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION GAME AND FISH DEPARTMENT, ARIZONA ADMINISTRATIVE ADJUSTMENTS BECKER LAKE FACILITY IMPROVEMENT FY07-08 BECKER LAKE WILDLIFE AREA BRIDGE FY07-08 BELLEMONT SHOOTING RANGE FY04-05 BEN AVERY IMPROVEMENTS FY09-10 BEN AVERY IMPROVEMENTS FY10-11 BLACK CANYON DAM MODIFICATIONS FY05-06 BLACK CANYON DAM MODIFICATIONS FY06-07 BOAT REGISTRATION KIOSKS FY08-09 BOAT SHADE CANOPIES FY07-08 BOAT SHADE CANOPIES FY08-09 BUILDING RENEWAL FY09-10 BUILDING RENEWAL FY10-11 BUILDING RENEWAL FY11-12 BUILDING RENEWAL FY12-13 DAM MAINTENANCE FLAGSTAFF OFFICE REMODEL/EXPANSION FY07-08 FLAGSTAFF SHOOTING RANGE DEVELOPMENT FY00-01 FLAGSTAFF SHOOTING RANGE PLANNING FY02-03 FLOOD WARNING SYSTEM FY06-07 HEADQUARTERS SECURITY SYSTEM FY03-04 LAKE HAVASU SHOOTING RANGE FY03-04 LOWER COLORADO MULTI-SPECIES CONSERVATION MIGRATORY WATERFOWL DEVELOPMENT FY01-02 MIGRATORY WATERFOWL DEVELOPMENT FY02-03 MIGRATORY WATERFOWL DEVELOPMENT FY03-04 MIGRATORY WATERFOWL HABITAT FY06-07 MIGRATORY WATERFOWL HABITAT FY10-11 OPERATING LUMP SUM APPROPRIATION PERFORMANCE INCENTIVE PAY FY11-12 PITTMAN-ROBERTSON/DINGELL-JOHNSON ACT PROPERTY MAINTENANCE RADIO TOWER FY09-10 RADIO TOWER FY10-11 REGIONAL KINGMAN OFFICE REMODEL FY09-10 REGIONAL YUMA OFFICE PAVING FY10-11 REGIONAL YUMA OFFICE REMODEL FY08-09 SHOOTING RANGE ACCESS IMPROVEMENTS FY08-09 SHOOTING RANGE ACCESS IMPROVEMENTS FY09-10 SHOOTING RANGE ACCESS IMPROVEMENTS FY10-11 SILVER CREEK HATCHERY REMODEL FY09-10 SILVER CREEK HATCHERY REMODEL FY10-11 STATEWIDE PREVENTATIVE MAINTENANCE FY08-09 STATEWIDE PREVENTATIVE MAINTENANCE FY09-10 FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 33,078,600 18,500 200,000 7,500 80,589 20,402,896 - 938,000 758,278 603 348,300 603 327,055 5,751 22,972 18,322 191 1 94,208 146,642 163,262 240,000 8,947 120,000 49,760 191,862 510,542 523,300 934,294 1 2,334 57,747 12,122 1 197,937 350,000 151 14,701 61,715 17 77,000 33,759,200 346,100 3,808,000 631,261 250,000 250,000 885,736 57,420 906,638 139 1 1 1,650,933 1,000,000 4 1 5,751 13,878 18,322 17,182 (432,538) (20,351) 61,542 49,760 191,862 194,765 55,075 12,121 193,215 350,000 8,275 45,000 11,495 27,171,415 2,308,000 173,588 57,420 899,161 (continued) -164 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Dollars) STATEWIDE PREVENTATIVE MAINTENANCE FY11-12 STATEWIDE PREVENTATIVE MAINTENANCE FY12-13 TONTO CREEK HATCHERY IMPROVEMENT FY05-06 TRI-STATE SHOOTING RANGE DEVELOPMENT FY04-05 WATERCRAFT GRANT PROGRAM WATERCRAFT SAFETY EDUCATION PROGRAM YUMA OFFICE SECURITY SYSTEM FY06-07 GAMING, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS CASINO OPERATION CERTIFICATION OPERATING LUMP SUM APPROPRIATION PROBLEM GAMBLING GOVERNOR, OFFICE OF THE OPERATING LUMP SUM APPROPRIATION HEALTH SERVICES, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS AGENCYWIDE OPERATING LUMP SUM APPROPRIATION ALZHEIMER DISEASE RESEARCH FOLIC ACID HIGH RISK PERINATAL SERVICES MEDICAID BEHAVIORAL HEALTH - TRADITIONAL NEWBORN SCREENING PROGRAM NON MEDICAID SERIOUSLY MENTAL ILL SVS NURSING CARE INST QUALITY IMPROVEMENT HOMEOPATHIC AND INTEGRATED MEDICINE EXAMINERS, BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION HOUSING, ARIZONA DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION INDUSTRIAL COMMISSION OF ARIZONA ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION JUVENILE CORRECTIONS, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION LAND DEPARTMENT, STATE ADMINISTRATIVE ADJUSTMENTS NATURAL RESOURCE CONSERVATION DISTRICTS MEDICAL EXAMINERS BOARD ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION PERFORMANCE BASED INCENTIVE PROGRAM MINE INSPECTOR, STATE AGGREGATE MINED LAND RECLAMATION NATUROPATHIC PHYSICIANS MEDICAL BOARD OPERATING LUMP SUM APPROPRIATION NURSING CARE INSTITUTION ADMINISTRATORS AND ASSISTED LIVING FACILITY MANAGERS, BOARD OF EXAMINERS OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION NURSING, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 1 30,000 39 299,649 1,000,000 250,000 15,350 29,999 187,043 243,908 15,350 28,886 2,067,900 8,213,400 2,051,300 28,886 2,052,547 7,655,983 2,036,768 192,300 - 183,122 18,235,600 1,000,000 400,000 450,000 34,767,000 6,296,100 2,250,000 255,605 183,122 15,348,217 1,000,000 316,000 223,334 34,767,000 5,429,488 2,250,000 58,190 43 110,000 43 86,457 33,236 311,200 33,236 311,200 163,397 19,907,600 163,397 18,768,967 22,909 530,600 22,909 406,047 652 260,000 652 171,848 232 5,907,500 150,000 232 5,175,518 101,131 112,500 11,344 599,300 580,891 192 434,700 192 337,440 10,601 4,128,900 10,601 4,111,635 (continued) -165 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Dollars) OCCUPATIONAL THERAPY EXAMINERS, BOARD OF OPERATING LUMP SUM APPROPRIATION OPTICIANS, STATE BOARD OF DISPENSING ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION OPTOMETRY, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION OSTEOPATHIC EXAMINERS, ARIZONA BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION PARKS BOARD, ARIZONA STATE ADMINISTRATIVE ADJUSTMENTS CASH TRANS TO GENERAL FUND KARTCHNER CAVERNS STATE PARK OPERATING LUMP SUM APPROPRIATION PEST MANAGEMENT, OFFICE OF OPERATING LUMP SUM APPROPRIATION PHARMACY, ARIZONA STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS AZ POISON AND DRUG INFORMATION CENTER CONTROLLED SUBSTANCE PRESCRIPTION MONITORING PROGRAM OPERATING LUMP SUM APPROPRIATION PHYSICAL THERAPY EXAMINERS, BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION PODIATRY EXAMINERS, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION POSTSECONDARY EDUCATION, COMMISSION FOR ARIZONA COLLEGE AND CAREER GUIDE AZ MINORITY ED POLICY ANALYSIS CENTER FAMILY COLLEGE SAVINGS PROGRAM LEVERAGING EDUCATIONAL ASSISTANCE PARTNERSHIP OPERATING LUMP SUM APPROPRIATION TWELVE PLUS PARTNERSHIP PRIVATE POSTSECONDARY EDUCATION, STATE BOARD FOR ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION PSYCHOLOGIST EXAMINERS, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION PUBLIC SAFETY, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS DNA TESTING DNA TESTING FY02-03 DNA TESTING FY03-04 DNA TESTING FY07-08 DNA TESTING FY08-09 MOTOR VEHICLE FUEL OPERATING LUMP SUM APPROPRIATION PUBLIC SAFETY EQUIPMENT PUBLIC SAFETY EQUIPMENT FY08-09 PUBLIC SAFETY EQUIPMENT FY09-10 PUBLIC SAFETY EQUIPMENT FY11-12 FINAL BUDGET (Appropriations) ACTUAL EXPENDITURE AMOUNTS 166,200 165,156 39 133,900 39 129,997 190 202,600 190 201,840 2,355 711,300 2,355 700,443 50 867 41,873 48,147 50 867 41,873 48,147 2,029,900 1,368,815 3,408 1,000,000 300,000 1,969,000 3,408 1,000,000 300,000 1,893,630 1,460 372,100 1,460 335,826 37 145,700 37 124,259 21,330 100,190 148,600 1,098,700 248,520 130,660 499 19,923 1,098,700 165,209 39,968 55 335,600 55 335,349 4,423 352,200 4,423 341,112 9,536 83,132 1,258,331 678,704 938,531 230,451 231,300 176,260,800 1,200,000 2,500,000 2,728,719 201,674 9,536 44,452 231,300 173,452,098 922,537 (43,181) (continued) -166 - STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES NON-MAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Dollars) FINAL BUDGET (Appropriations) PUBLIC SAFETY EQUIPMENT SURCHARGE RACING, ARIZONA DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION RADIATION REGULATORY AGENCY OPERATING LUMP SUM APPROPRIATION RESIDENTIAL UTILITY CONSUMER OFFICE ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION PROFESSIONAL WITNESSES PROFESSIONAL WITNESSES FY08-09 PROFESSIONAL WITNESSES FY09-10 RESPIRATORY CARE EXAMINERS, BOARD OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION PERSONAL SERVICES COSTS REVENUE, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION SUPREME COURT ADMINISTRATIVE ADJUSTMENTS AUTOMATION CASE AND CASH MANAGEMENT SYSTEM CASH TRANSFER TO GENERAL FUND COMMUNITY PUNISHMENT COURT APPOINTED SPECIAL ADVOCATE JUVENILE CRIME REDUCTION OPERATING LUMP SUM APPROPRIATION PROBATION SURCHARGE STATE AID TECHNICAL REGISTRATION, STATE BOARD OF ADMINISTRATIVE ADJUSTMENTS ALARM SYSTEM OPERATING LUMP SUM APPROPRIATION TREASURER, STATE LAW ENFORCEMENT AND BOATING SAFETY DIST VETERANS' SERVICES, DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION VETERINARY MEDICAL EXAMINING BOARD, ARIZONA STATE OPERATING LUMP SUM APPROPRIATION WATER RESOURCES, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS ASSURED AND ADEQUATE WATER SUPPLY ADMIN OPERATING LUMP SUM APPROPRIATION WEIGHTS AND MEASURES, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS GENERAL SERVICES OXYGENATED FUEL RELIEF BILL CASH TRANSFER FY13 VAPOR RECOVERY TOTAL NON-MAJOR SPECIAL REVENUE FUNDS BUDGETARY EXPENDITURES -167 - $ ACTUAL EXPENDITURE AMOUNTS 2,390,000 2,016,727 2,879,300 2,565,291 271,500 252,002 663 1,179,500 410,188 234 43,325 663 1,037,681 91,577 40,701 783 265,900 24,500 783 265,682 22,354 40 677,500 40 676,050 6,480 7,937,200 3,187,100 675,000 2,310,100 2,936,800 5,173,400 3,369,200 5,029,200 5,942,600 6,480 7,244,605 2,750,922 675,000 1,504,522 2,438,001 3,814,666 2,706,258 4,887,027 4,786,724 5,833 180,000 1,878,800 5,833 141,525 1,625,631 2,183,800 1,846,428 896,900 497,462 464,900 420,788 3,203 266,800 140,400 3,203 8,045 2,160 17,582 327,600 793,379 471 644,421 17,582 325,938 772,125 471 594,754 831,146,899 $ 693,778,120 STATE OF ARIZONA BUDGETARY COMPARISON SCHEDULE, EXPENDITURES LAND ENDOWMENTS FUND FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Dollars) CORRECTIONS, STATE DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION PRIVATE PRISON PER DIEM DEAF AND BLIND, ARIZONA SCHOOLS FOR THE ADMINISTRATIVE ADJUSTMENTS PHOENIX DAY SCHOOL FOR THE DEAF PRESCHOOL AND OUTREACH PROGRAMS TUCSON CAMPUS VOUCHER FUND ADJUSTMENT EDUCATION, DEPARTMENT OF BASIC STATE AID ENTITLEMENT HEALTH SERVICES, DEPARTMENT OF ADMINISTRATIVE ADJUSTMENTS AGENCYWIDE OPERATING LUMP SUM APPROPRIATION JUVENILE CORRECTIONS, DEPARTMENT OF OPERATING LUMP SUM APPROPRIATION LAND DEPARTMENT, STATE ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION PIONEERS' HOME, ARIZONA ADMINISTRATIVE ADJUSTMENTS OPERATING LUMP SUM APPROPRIATION PRESCRIPTION DRUGS FINAL BUDGET (Appropriations) $ TOTAL LAND ENDOWMENTS FUNDS BUDGETARY EXPENDITURES -168 - $ 177 360,000 979,200 ACTUAL EXPENDITURE AMOUNTS $ 177 173,529 979,199 81,924 5,523,372 3,140,334 4,017,994 614,400 81,924 5,521,951 3,092,034 4,005,216 604,200 46,475,500 46,406,913 1,474 650,000 1,474 186,930 1,098,600 1,098,600 1,540 3,469,200 1,540 1,449,770 5,125 4,402,700 240,000 5,125 4,402,699 150,506 71,061,540 $ 68,161,787 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, Transportation Excise Tax Revenue Bonds, and Grant Anticipation Notes issued by the Arizona Department of Transportation Board. 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. STATE OF ARIZONA COMBINING BALANCE SHEET NON-MAJOR DEBT SERVICE FUNDS JUNE 30, 2013 (Expressed in Thousands) 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 $ 3,750 DEPARTMENT OF TRANSPORTATION CERTIFICATES OF PARTICIPATION $ $ - - 1,701 - 8,554 - SCHOOL FACILITIES DEBT INSTRUMENT $ 1,793 TOTAL 230 - $ 38,520 5,708 8,784 3,750 40,221 7,501 $ 3,750 $ 1,701 $ 10,347 $ 44,458 $ 60,256 $ - $ - $ 245 13 258 $ 4 4 $ 249 13 262 Fund Balances: Restricted $ 3,750 $ 1,701 $ 10,089 $ 44,454 $ 59,994 Total Liabilities and Fund Balances $ 3,750 $ 1,701 $ 10,347 $ 44,458 $ 60,256 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and other current liabilities Accrued liabilities Total Liabilities - 170 - STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR DEBT SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) DEPARTMENT OF CERTIFICATES OF TRANSPORTATION PARTICIPATION LOTTERY REVENUES Sales taxes Earnings on investments Other Total Revenues $ EXPENDITURES Debt service: Principal Interest and other fiscal charges Total Expenditures (Deficiency) of Revenues Over Expenditures OTHER FINANCING SOURCES (USES) Transfers in Refunding certificates of participation issued Refunding bonds issued SCHOOL FACILITIES DEBT INSTRUMENT - $ 977 977 $ 11 11 $ TOTAL 65,809 1,061 66,870 $ 65,809 2,038 11 67,858 16,790 20,710 37,500 155,400 144,025 299,425 55,220 59,923 115,143 61,995 20,531 82,526 289,405 245,189 534,594 (37,500) (298,448) (115,132) (15,656) (466,736) 37,500 - 283,066 - 116,214 62,630 31,564 - 468,344 62,630 - 521,175 - 316,165 837,340 Payment to refunded certificates of participation escrow agent - Payment to refunded bond escrow agent Premium on debt issued Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ - (42,096) - (42,096) - (611,874) (27,444) (315,054) (954,372) 37,500 3,750 92,477 284,844 (13,604) 15,305 7,348 116,652 1,520 8,569 32,675 17,019 27,435 99,825 471,671 4,935 55,059 3,750 $ 1,701 - 171 - $ 10,089 $ 44,454 $ 59,994 NON-MAJOR GOVERNMENTAL FUNDS CAPITAL PROJECTS FUNDS The Department of Transportation Financed Fund administers the proceeds from the Highway Revenue Bonds, Transportation Excise Tax Revenue Bonds, and Grant Anticipation Notes issued by the Arizona Department of Transportation Board. These monies are expended for the construction of projects in the Five-Year Transportation Facilities Construction Program. 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. STATE OF ARIZONA COMBINING BALANCE SHEET NON-MAJOR CAPITAL PROJECTS FUNDS JUNE 30, 2013 (Expressed in Thousands) DEPARTMENT OF CERTIFICATES OF TRANSPORTATION PARTICIPATION FINANCED FINANCED ASSETS Collateral investment pool $ Restricted assets: Cash and pooled investments with State Treasurer Total Assets LIABILITIES AND FUND BALANCES Liabilities: Accrued liabilities Obligations under securities loan agreements Due to other Funds Total Liabilities $ 461,186 - $ 277 2,155 461,463 $ 463,341 $ 277 $ 463,618 $ 10 $ - $ 10 Fund Balances: Restricted Total Fund Balances Total Liabilities and Fund Balances 2,155 TOTAL $ 2,155 3,803 5,968 - 2,155 3,803 5,968 457,373 457,373 277 277 457,650 457,650 463,341 $ 277 - 174 - $ 463,618 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NON-MAJOR CAPITAL PROJECTS FUNDS FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) REVENUES Earnings on investments Total Revenues DEPARTMENT OF TRANSPORTATION FINANCED CERTIFICATES OF PARTICIPATION FINANCED $ $ 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 21 21 17,388 680 182,804 200,872 1,391 1,391 680 184,195 202,263 (200,668) (1,370) (202,038) (1,779) 457,373 (1,779) - 36,385 230,680 30,012 427,361 $ 225 225 - 194,295 Premium on debt issued Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning $ 17,388 - Bonds issued Fund Balances - Ending 204 204 TOTAL 194,295 (1,779) (3,149) 3,426 $ 277 - 175 - 36,385 228,901 26,863 430,787 $ 457,650 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 Lottery Fund accounts for the revenues received from the sale of lottery tickets, the receipt of license fees, prize payments, operational expenses, including consulting, promotional, and advertising expenses, and transfers of monies to other State Funds. 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 Unemployment Compensation Fund pays claims for unemployment to eligible recipients from employer contributions and reimbursements. 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 Veterans Administration Reimbursement Fund, the State Home for Veterans Trust Fund and the Tonto Natural Bridge Publications and Souvenirs Revolving Fund. STATE OF ARIZONA COMBINING STATEMENT OF NET POSITION NON-MAJOR ENTERPRISE FUNDS JUNE 30, 2013 (Expressed in Thousands) ARIZONA ARIZONA ARIZONA COLISEUM & INDUSTRIES CORRECTIONAL HIGHWAYS EXPOSITION INDUSTRIES MAGAZINE CENTER FOR THE BLIND ASSETS Current Assets: Cash Cash with U.S. Treasury Cash and pooled investments with State Treasurer Restricted cash and pooled investments with State Treasurer Receivables, net of allowances: Taxes Interest Other Due from U.S. Government Due from other Funds Inventories, at cost Other current assets Total Current Assets $ 3,253 - LOTTERY $ - $ 126 - $ - $ 21 - - 76,001 7,779 2,858 2,884 - - - - - 1 2,340 73 9 2,945 12 8,633 6,396 3,947 86,344 3,654 3,877 129 15,565 182 30 348 344 3,762 34 89 3,028 - 9,303 - - - 182 938 1,062 8 100 2,134 2,316 10,949 2,847 13,088 99,432 2,786 3,848 19,413 22 30 3,792 9,308 9,408 12,436 355 251 213 819 5,535 30,091 3,500 49,398 289 88,813 1,797 641 473 2,911 77 29 2,083 161 2,350 57 52 166 275 84 84 903 88,813 2,911 2,350 275 2,316 3,786 3,848 30 9,408 7,730 6,833 12,654 1,412 2,753 Noncurrent Assets: Other 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 U.S. Government Due to others Due to component units Due to other funds Unearned deferred revenue Current portion of other long-term liabilities Total Current Liabilities Noncurrent Liabilities: Other long-term liabilities Total Noncurrent Liabilities Total Liabilities NET POSITION Net investment in capital assets Restricted for: Loans and other financial assistance: Expendable Unrestricted Total Net Position $ 10,046 $ 10,619 - 178 - $ 16,502 $ 1,442 $ 12,161 HIGHWAY EXPANSION HEALTHCARE UNEMPLOYMENT & EXTENSION GROUP OF COMPENSATION LOAN PROGRAM ARIZONA $ $ 14,944 $ - $ OTHER - TOTAL $ - $ 3,400 14,944 - - 9,873 1,914 101,309 - 77,215 - - 77,215 89,662 25,427 130,033 77,215 9,873 2,633 145 4,692 89,662 1 40,666 73 184 11,117 574 339,145 - - - - 9,303 - - - 980 3,270 130,033 77,215 1 1 9,874 7,067 8,047 12,739 24,165 36,738 375,883 5 24,475 116,695 21,253 324 162,752 - 10 248 2,999 56 3,313 416 348 2 766 8,195 26,049 116,695 51,344 3,500 49,724 5,134 1,358 261,999 162,752 - 3,313 766 84 84 262,083 - - 1 8,047 27,436 (32,719) 77,215 - 6,560 3,926 77,215 9,149 (32,719) $ 77,215 $ 6,561 $ 11,973 - 179 - $ 113,800 STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION NON-MAJOR ENTERPRISE FUNDS FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) ARIZONA ARIZONA ARIZONA COLISEUM & INDUSTRIES CORRECTIONAL HIGHWAYS EXPOSITION INDUSTRIES MAGAZINE CENTER FOR THE BLIND OPERATING REVENUES Sales and charges for services Unemployment assessments Intergovernmental Earnings on investments Fines, forfeitures, and penalties Other Total Operating Revenues $ OPERATING EXPENSES Cost of sales and benefits Personal services Contractual services Depreciation and amortization Insurance Other Total Operating Expenses Operating Income (Loss) $ 692,939 1,216 694,155 10,470 6,159 2,166 362 882 20,039 445 NON-OPERATING REVENUES (EXPENSES) Gain (loss) on sale of capital assets Investment income Other non-operating revenue Distributions Interest expense Other non-operating expense Total Non-Operating Revenues (Expenses) Income (Loss) Before Contributions and Transfers Capital grants and contributions Transfers out 39,358 39,358 79 (14,725) (14,646) 455 163,082 3,084 (163,081) 5 (1,000) 1 10,618 2,089 14,413 10,046 $ 10,619 - 180 - $ 31,782 4,045 544 36,371 2,987 10 10 455 9,591 $ $ 493,411 5,923 15,130 191 40 1,732 516,427 177,728 - Change in Net Position Total Net Position - Beginning Total Net Position - Ending 20,366 118 20,484 LOTTERY 16,502 $ 2,429 1,480 599 11 115 4,634 555 15 34 48 97 $ 4,626 563 5,189 1,825 3,976 3,795 646 219 1,241 11,702 75 (2) 25 (2) 21 $ 10,869 908 11,777 10 10 576 85 - - 576 866 85 12,076 1,442 $ 12,161 HIGHWAY EXPANSION HEALTHCARE UNEMPLOYMENT & EXTENSION GROUP OF COMPENSATION LOAN PROGRAM ARIZONA $ 444,819 269,772 2,076 92,721 809,388 $ 672,176 672,176 137,212 (7,163) (7,163) 130,049 $ 6 6 $ 6 OTHER 26,872 26,872 21,565 866 106 175 22,712 4,160 373 (46) 327 4,404 (6,388) - - 123,661 (156,380) 333 76,882 4,404 2,157 77,215 22,364 65 22,429 $ 6,561 $ 108 15,307 3,896 332 291 3,885 23,819 (1,390) 59 185 244 333 (32,719) $ $ TOTAL 1,233,766 37,756 25,692 2,086 550 8,030 1,307,880 321,778 19 19 13 609 233 (14,725) (7,163) (48) (21,081) (1,371) 300,697 - 5 (170,469) (1,371) 13,344 $ 11,973 - 181 - 817,394 444,819 269,772 6 2,076 95,591 1,629,658 130,233 (16,433) $ 113,800 STATE OF ARIZONA COMBINING STATEMENT OF CASH FLOWS NON-MAJOR ENTERPRISE FUNDS FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) ARIZONA INDUSTRIES FOR THE BLIND CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Receipts from assessments Receipts from grants and contracts Receipts from repayment of loans to local governments Payments to suppliers, prize winners, claimants, or insurance companies Payments to employees Other receipts Other payments Net Cash Provided (Used) by Operating Activities $ CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from sale of capital assets Acquisition and construction of capital assets Principal paid on capital debt, installment purchase contracts, and capital leases Net Cash (Used) by Capital and Related Financing Activities Net Cash Provided (Used) by Operating Activities 529,555 - $ 40,522 - ARIZONA HIGHWAYS MAGAZINE $ 4,530 - COLISEUM & EXPOSITION CENTER $ (14,986) (20,456) 48 5,128 - (14,725) (141,427) (1,000) - - - (156,152) (1,000) - - - (224) 15 (1,294) - (19) - (1,298) - (224) (3,053) (1,468) 563 572 10,929 - (360,294) (5,920) 12,663 176,004 - Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning SCHEDULE OF NONCASH INVESTING, CAPITAL AND NON-CAPITAL FINANCING ACTIVITIES Contribution of capital assets from other Funds Total Noncash Investing, Capital and Non-capital Financing Activities $ - CASH FLOWS FROM INVESTING ACTIVITIES Interest and dividends from investments Change in cash collateral received from securities lending transactions Purchase of investments Net Cash Provided by Investing Activities 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 Provision for uncollectible accounts Miscellaneous income Net changes in assets and liabilities: (Increase) decrease in receivables, net of allowances Decrease in due from U.S. Government (Increase) in due from other Funds (Increase) decrease in inventories, at cost (Increase) decrease in other assets Increase (decrease) in accounts payable Increase (decrease) in accrued liabilities (Decrease) in due to U.S. Government Increase in due to other Funds (Decrease) in due to others Increase (decrease) in deferred revenue Increase in other liabilities LOTTERY (10,450) (6,113) 117 (3,048) 553 CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Receipts from settlement income Distributions Interest paid on loan due to U.S. Government Transfers to other Funds Net Cash Provided (Used) by Non-capital Financing Activities Cash and Cash Equivalents - Ending 19,983 64 - ARIZONA CORRECTIONAL INDUSTRIES (7,178) (3,953) 908 706 (109) (109) 10 70 35 23 10 10 70 35 23 10 563 2,690 19,698 56,303 2,865 5,040 595 2,263 607 2,298 $ 3,253 $ 76,001 $ 7,905 $ 2,858 $ 2,905 $ 445 $ 177,728 $ 2,987 $ 555 $ 75 362 - 191 - (385) 64 (38) 46 (26) 38 47 544 1,023 48 (1,007) (821) (53) 1,091 (1,125) - 214 (776) 62 753 266 7 11 - 646 - 26 32 4 54 (2) (122) 14 8 (25) (73) 5 52 18 $ 553 $ 176,004 $ 5,128 $ 572 $ 706 $ - $ - $ 5 $ - $ - $ - $ - $ 5 $ - $ - - 182 - HIGHWAY EXPANSION HEALTHCARE & EXTENSION GROUP OF LOAN PROGRAM ARIZONA UNEMPLOYMENT COMPENSATION $ 446,578 269,772 - $ 8 530 $ 26,339 - OTHER $ 21,876 - $ 538 (10,372) (6,239) - 185 - - 185 (14,725) (10,372) (148,666) (16,611) - 185 - (173,578) - - - - - - - - - - 676 59 19 902 (349) 327 59 19 (349) (35) 518 10,830 4,114 865 76,350 (8,040) (15,230) 65 (1,329) 653,742 446,578 269,836 530 (654,322) (34,552) 27,476 (35) (35) (24,714) (861) 764 TOTAL (12) $ 77,215 $ 9,873 $ $ 137,212 $ 6 $ 4,160 $ - 532 - (1,643) (1,322) 3,236 14,944 22,921 2,402 (129,332) (5,727) - (19) (12) 1,008 8,865 - 15 (1,639) - $ - (1,083,037) (54,001) 14,364 (37,600) 210,412 1,914 35,709 161,159 $ 196,868 (1,390) $ 321,778 332 - (19) (2,850) (533) 6 2,086 1,023 48 (478) (10) 139 77 1 - 21,831 64 (10) (1,603) 34 1,919 (1,189) (129,332) 1 (5,727) (603) 92 (1,329) $ 210,412 $ 27,476 $ 538 $ 764 $ $ - $ - $ - $ - $ 5 $ - $ - $ - $ - $ 5 - 183 - INTERNAL SERVICE FUNDS Internal Service Funds account for the financing of goods and services provided by one State department or agency to other State departments or agencies on a cost-reimbursement basis. The Risk Management Fund provides insurance coverage to all State agencies using an optimal combination of self-insurance and private excess insurance. It includes the Workers' Compensation section that receives monies from State agencies and uses these monies to pay for insurance and risk management services including loss control services and self-insured liability losses. The Transportation Equipment Fund administers the purchase, storage and distribution of supplies, equipment and furniture for other Department of Transportation Funds. The Employee Benefits Fund (HITF) administers the State’s benefits program available to State employees and retirees. The 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 Automation Operations 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 POSITION INTERNAL SERVICE FUNDS JUNE 30, 2013 (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: Restricted assets: Cash and pooled investments with State Treasurer 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 Unearned deferred revenue 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 POSITION Net investment in capital assets Unrestricted (deficit) Total Net Position 70,163 $ $ 324,604 $ 1,374 40 9 4,093 74,305 20 3,690 3,710 8,397 5,400 3 12 338,416 149 1,523 - 413 - - - - - - 134 134 74,439 58,342 58,755 62,465 18 18 338,434 619 619 2,142 3,525 230 15,344 56,276 276 75,651 238 559 797 113,567 53 3 199 113,822 121 17 120 61 319 339,339 339,339 414,990 180 180 977 113,822 319 58,342 3,146 18 224,594 619 1,204 134 (340,685) $ - (340,551) $ 61,488 - 186 - $ 224,612 $ 1,823 $ AUTOMATION RETIREE MOTOR OPERATIONS SICK LEAVE POOL 10,730 $ $ 468 $ 409,379 1,619 2,266 1,448 16,063 2,040 438 615 33 18 1,572 10,663 5,400 2,893 3,723 5,571 437,629 - - - 413 1,914 - - 1,914 2,756 4,670 20,733 2,040 10,687 10,687 12,259 72,556 74,883 512,512 335 157 4 13 488 997 8,362 8,362 375 17 19 52 463 117,923 712 15,490 13 56,276 9,997 200,411 997 145,612 145,612 153,974 463 339,339 145,792 485,131 685,542 4,670 15,066 $ 2,040 TOTAL 19,736 (151,934) $ (151,934) 10,687 1,109 $ 11,796 74,470 (247,500) $ (173,030) - 187 - STATE OF ARIZONA COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION INTERNAL SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2013 (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) 104,903 2,000 106,903 $ 11,467 21,613 44 69,483 8,270 110,877 (3,974) NON-OPERATING REVENUES (EXPENSES) Gain (loss) on sale of capital assets Investment income Other non-operating revenue Interest expense Other non-operating expense Total Non-Operating Revenues (Expenses) Income (Loss) Before Contributions and Transfers 27,009 82 27,091 $ 14,940 12,242 341 8,538 1,078 37,139 (10,048) - 121 13 208 - (1) 341 736,812 147 736,959 $ 718,013 2,719 1,203 5 495 354 722,789 14,170 2,037 2,037 2 893 597 904 18 237 2,651 (614) - 4 - (5,104) (5,104) 4 (3,974) (9,707) 9,066 (610) Capital grants and contributions Transfers out (28,367) 20,135 - (30,260) (55) Change in Net Position Total Net Position - Beginning (32,341) (308,210) 10,428 51,060 (21,194) 245,806 (665) 2,488 (340,551) $ 61,488 Total Net Position - Ending $ - 188 - $ 224,612 $ 1,823 $ AUTOMATION RETIREE MOTOR OPERATIONS SICK LEAVE POOL 25,310 25,310 $ 6,122 7,857 2,442 1,454 186 1,026 19,087 6,223 $ 20,074 68 3 20,145 (7,607) 8,879 8,879 $ 5,222 790 91 1,649 610 547 8,909 (30) 917,488 2,229 919,717 764,373 36,036 26,290 12,594 70,792 11,512 921,597 (1,880) 7 - - (28) 5 7 - (23) (1) (5,104) (4,775) (53) (6,655) 895 - 21,030 (60,734) (7,607) (144,327) 842 10,954 (46,359) (126,671) (151,934) $ 11,796 6,230 (7,607) (2,052) - 4,178 15,558 $ 12,538 12,538 TOTAL 19,736 $ 104 13 213 $ (173,030) - 189 - STATE OF ARIZONA COMBINING STATEMENT OF CASH FLOWS INTERNAL SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) RISK MANAGEMENT CASH FLOWS FROM OPERATING ACTIVITIES Receipts from interfund services / premiums Payments to suppliers or insurance companies Payments to employees Payments to retirees Other receipts Other payments Net Cash Provided (Used) by Operating Activities $ CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Transfers to other Funds Net Cash (Used) by Non-capital Financing Activities Net Cash Provided (Used) by Capital and Related Financing Activities CASH FLOWS FROM INVESTING ACTIVITIES Interest and dividends from investments Net Cash Provided by Investing Activities Net Cash Provided (Used) by Operating Activities SCHEDULE OF NONCASH INVESTING, CAPITAL AND NON-CAPITAL FINANCING ACTIVITIES Contribution of capital assets from other Funds Total Noncash Investing, Capital and Non-capital Financing Activities EMPLOYEE BENEFITS 26,994 $ (16,483) (12,204) 82 (1,611) - TELECOMMUNICATION 736,365 $ (702,331) (2,713) 147 (5,104) 26,364 (30,260) (30,260) 2,050 (616) (913) 521 (55) (55) (33) 1,435 208 (266) - 4 - (33) 1,377 - 4 12 12 - - - 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 Miscellaneous income (expense) Net changes in assets and liabilities: (Increase) decrease in receivables, net of allowances Decrease 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 (decrease) in due to other Funds (Decrease) in deferred revenues Increase in accrued insurance losses Increase (decrease) in other liabilities 104,897 $ (52,309) (11,432) 2,000 43,156 (28,367) (28,367) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from sale of capital assets Receipts from insurance recoveries Acquisition and construction of capital assets Cash and Cash Equivalents - Ending TRANSPORTATION EQUIPMENT 14,756 55,407 (222) 635 $ 70,163 $ $ (3,974) $ 44 - 413 (3,896) 328,500 $ 324,604 $ (10,048) $ 14,170 $ 8,538 - (6) 19 1,163 18 15,023 30,852 17 470 904 1,374 (614) 5 (5,104) 904 - (14) (191) (20) 19 105 (2,254) 1,757 53 7 17,780 2 (56) 4 13 118 (2) 120 (18) 26,364 $ 521 $ 43,156 $ (1,611) $ $ - $ 20,135 $ - $ - $ - $ 20,135 $ - $ - - 190 - AUTOMATION OPERATIONS $ RETIREE SICK LEAVE 24,106 $ (10,378) (7,840) 5,888 MOTOR POOL 12,538 $ (3) (68) (13,585) (1,118) TOTAL 9,459 $ (6,912) (775) 5 1,777 (2,052) (2,052) - 7 (2,737) - 339 (1,919) 1,785 208 (4,955) (2,730) - (1,580) (2,962) - - 916,409 (789,032) (35,945) (13,585) 2,234 (5,104) 74,977 - 1,106 9,624 (1,118) 3,158 $ 10,730 $ $ 6,223 $ 1,454 - 2,040 $ (7,607) $ - (610) (575) 225 (828) 7 1 (19) 10 5,888 $ $ - $ - $ - $ - - 12 12 197 271 11,293 398,499 468 $ (30) $ 1,649 5 6,489 $ (60,734) (60,734) (1,880) 12,594 (5,099) 193 387 17 (4) (474) 4 19 11 (1,118) $ 409,792 (2,672) 1,757 (141) (174) 247 17,739 48 15,107 (19) 30,852 6,618 1,777 $ 74,977 $ 895 $ 21,030 $ 895 $ 21,030 - 191 - 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 POSITION PENSION AND OTHER EMPLOYEE BENEFIT TRUST FUNDS JUNE 30, 2013 (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 Other Total receivables Investments, at fair value: Temporary investments Fixed income securities Corporate stocks Global tactical asset allocation 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 NET POSITION Held in Trust for: Pension benefits Other post-employment benefits Total Net Position $ PSPRS 25,733 $ 107,493 EORP $ CORP 6,155 $ 29,640 65,711 39,185 863,985 67,161 36 500 5,541 6,354 25,515 2,418 311 357 645 687 989 1,418 1,626 2,062 11 1,036,578 39,828 2,989 5,117 1,864,001 5,096,855 17,777,630 1,632,251 1,631,641 1,208,384 14,812 - 610,452 1,777,811 471,432 709,692 625,598 497,361 171,007 699,916 34,272 99,810 26,467 39,844 35,123 27,923 9,601 39,295 156,186 454,858 120,617 181,577 160,061 127,251 43,753 179,075 29,225,574 5,563,269 312,335 1,423,378 - 3,644 263 645 30,287,885 5,714,234 321,742 1,458,780 66,626 320,449 353 13,817 432 776 1,912 3,535 14,812 851,760 8,808 171,007 - 9,601 - 43,753 - 1,262,455 185,177 10,809 49,200 29,025,430 - 5,529,057 - 310,933 - 1,409,580 - 29,025,430 $ 5,529,057 - 194 - $ 310,933 $ 1,409,580 OTHER EMPLOYEE BENEFIT TRUST FUNDS HEALTH BENEFIT LONG-TERM SUPPLEMENT FUND DISABILITY FUND $ $ 690 $ - TOTAL $ 169,711 2,868 1,700 37,847 1,196 5,823 25,827 883 2,949 3,422 75,849 49,222 901,832 97,462 687 8,808 33,167 75,261 7,254 1,167,027 123,125 221,801 769,633 71,780 73,453 53,809 648 - 2,070 55,474 178,909 19,183 - 1,989,196 6,175,040 21,058,651 618,516 2,654,327 2,525,876 1,914,728 239,821 918,286 1,314,249 255,636 38,094,441 - - 4,552 1,390,200 262,890 39,435,731 2,930 13,964 270 - 72,523 352,541 648 37,324 - - 239,821 889,084 8,808 54,866 270 1,562,777 1,335,334 262,620 36,275,000 1,597,954 1,335,334 $ 262,620 $ 37,872,954 - 195 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET POSITION PENSION AND OTHER EMPLOYEE BENEFIT TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) PENSION TRUST FUNDS ASRS ADDITIONS: Member contributions $ Employer contributions Retrospective rate adjustment reinbursement Member purchase of service credit Court fees Investment income: Net increase in fair value of investments Interest income Dividends Real estate Private equity Other investment income Securities lending income Total investment income Less investment expenses: Investment activity expenses Securities 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 position held in trust for: Pension benefits Other post-employment benefits Net Position - Beginning, as restated Net Position - Ending $ PSPRS 948,004 911,300 70,790 - $ 127,363 367,470 6,831 - EORP $ CORP 7,701 13,874 228 8,412 $ 50,649 65,611 815 - 2,444,729 188,095 342,972 222,493 228,223 488,714 5,114 39,898 - 27,694 301 2,258 - 124,825 1,247 10,169 - 136,190 59,726 3,385 15,177 11,952 3,574,654 1,007 594,459 57 33,695 257 151,675 180,624 431 3,393,599 52,330 150 541,979 2,949 8 30,738 13,369 38 138,268 1,233 745 17 183 5,324,926 1,044,388 60,970 255,526 2,445,341 552,720 45,472 94,813 218,607 32,851 4,791 12,820 5,104 515 124 300 37 31,179 1,267 841 2,701,590 571,159 45,933 128,100 2,623,336 26,402,094 473,229 5,055,828 15,037 295,896 127,426 1,282,154 29,025,430 $ 5,529,057 $ - 196 - 310,933 $ 1,409,580 OTHER EMPLOYEE BENEFIT TRUST FUNDS HEALTH BENEFIT LONG-TERM SUPPLEMENT FUND DISABILITY FUND $ $ 57,154 25,826 - $ 20,881 21,336 - TOTAL $ 1,154,598 1,436,745 25,826 78,664 8,412 104,837 8,343 15,328 9,592 10,136 29,784 1 2 - 3,220,583 203,101 410,627 232,085 238,359 5,888 - 220,366 532 154,656 29,787 13,805 4,538,926 7,899 20 146,737 247 29,540 257,418 647 4,280,861 - - 2,178 229,717 71,757 6,987,284 95,763 63,613 3,297,722 1,439 - 2,739 108 262,730 43,700 6,292 97,202 66,460 3,610,444 132,515 1,202,819 5,297 257,323 3,239,028 137,812 34,496,114 1,335,334 $ 262,620 $ 37,872,954 - 197 - 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, and United States Government securities. The Central Arizona Water Conservation District is the only participant in the account. Local Government Investment Pool is an Investment Trust Account composed of corporate debt, money market mutual funds, certificates of deposit, 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, certificates of deposit, 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, certificates of deposit, 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 POSITION INVESTMENT TRUST FUNDS JUNE 30, 2013 (Expressed in Thousands) LOCAL CENTRAL ASSETS Receivables, net of allowances: Accrued interest and dividends Total receivables ARIZONA LOCAL GOVERNMENT LOCAL WATER GOVERNMENT INVESTMENT GOVERNMENT POOL - LEHMAN CONSERVATION INVESTMENT POOL - INVESTMENT MEDIUM-TERM BROTHERS DISTRICT POOL POOL - FF&C FF&C POOL $ Investments, at fair value: Fixed income securities Collateral investment pool Total investments Total Assets LIABILITIES Management fee payable Obligations under securities loan agreements Total Liabilities NET POSITION Held in trust for pool participants $ Net position consist of: Participant shares outstanding Participants' net position value (net position/shares outstanding) GOVERNMENT LOCAL 1,242 1,242 $ 617 617 $ 842 842 $ 23,659 23,659 $ 398 398 $ TOTAL - $ 26,758 26,758 285,737 15,413 301,150 1,162,205 2,223 1,164,428 243,012 8,896 251,908 1,065,352 576 1,065,928 177,118 35 177,153 6,686 6,686 2,940,110 27,143 2,967,253 302,392 1,165,045 252,750 1,089,587 177,551 6,686 2,994,011 14 67 12 62 9 - 164 15,413 2,223 8,896 576 35 - 27,143 15,427 2,290 8,908 638 44 - 27,307 286,965 $ 283,810 $ MEDIUM-TERM INVESTMENT 1.01 1,162,755 $ 1,162,755 $ 1.00 243,842 $ 237,213 $ 1.03 - 200 - 1,088,949 $ 1,088,949 $ 1.00 177,507 $ 177,312 $ 1.00 6,686 27,698 $ 0.24 $ 2,966,704 2,977,737 STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET POSITION INVESTMENT TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) LOCAL CENTRAL ADDITIONS: Investment income: Net increase (decrease) in fair value of investments Interest income Securities lending income Total investment income LOCAL GOVERNMENT ARIZONA LOCAL GOVERNMENT LOCAL WATER GOVERNMENT INVESTMENT GOVERNMENT POOL - LEHMAN CONSERVATION INVESTMENT POOL - INVESTMENT MEDIUM-TERM BROTHERS DISTRICT POOL MEDIUM-TERM POOL - FF&C FF&C POOL $ (3,187) $ 5,840 32 2,685 (32) $ 3,051 3 3,022 (3,857) $ 3,699 23 (135) INVESTMENT (7) $ 2,096 139 2,228 (2,962) $ 2,263 5 (694) TOTAL 2,678 2,678 $ (7,367) 16,949 202 9,784 Less: Investment activity expenses Investment activity expenses Securities lending expenses Net investment income Capital share and individual account transactions: Shares sold Reinvested interest income Shares redeemed Transfers in (out) Net capital share and individual account transactions 163 731 20 2,502 2 2,289 79,679 5,744 (85,105) - 133 785 14 (282) 2,583,625 2,350 (2,552,539) 2,875 92 58 1,385 85,035 2,796 (27,544) - 2 (788) - 1,904 2,678 96 7,784 1,973,287 1,389 (2,389,092) - 60,649 1,538 - (2,875) 4,782,275 13,817 (5,054,280) - 318 36,311 60,287 (414,416) 62,187 (2,875) (258,188) Total Additions 2,820 38,600 60,005 (413,031) 61,399 (197) (250,404) DEDUCTIONS: Dividends to investors 2,502 2,289 (282) 1,385 (788) - 5,106 2,502 2,289 (282) 1,385 (788) - 5,106 318 286,647 36,311 1,126,444 Total Deductions Change in net position held in trust for pool participants Net Position - Beginning Net Position - Ending $ 286,965 $ 1,162,755 60,287 183,555 $ 243,842 - 201 - (414,416) 1,503,365 $ 1,088,949 62,187 115,320 $ 177,507 (197) 6,883 $ 6,686 (255,510) 3,222,214 $ 2,966,704 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, 2013 (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 Other Due from others Custodial securities in safekeeping Other assets $ - OTHER TREASURER FUNDS $ OTHER FUNDS - $ 53,684 TOTAL $ 53,684 - 15,001 - 213,836 3,392 228,837 3,392 3,560,332 - - 1 2 82,552 39,905 1,782 1 2 82,552 3,600,237 1,782 Total Assets $ 3,560,332 $ 15,001 $ 395,154 $ 3,970,487 LIABILITIES Due to local governments Due to others $ 3,560,332 $ 48 14,953 $ 153,475 241,679 $ 153,523 3,816,964 $ 3,560,332 $ 15,001 $ 395,154 $ 3,970,487 Total Liabilities - 205 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUNDS FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) RESTATED BALANCE JULY 1, 2012 TREASURER CUSTODIAL SECURITIES FUND Assets: Custodial securities in safekeeping ADDITIONS BALANCE JUNE 30, 2013 DELETIONS $ 3,594,022 $ 8,262,727 $ 8,296,417 $ 3,560,332 $ 3,594,022 $ 8,262,727 $ 8,296,417 $ 3,560,332 $ 3,594,022 $ 8,262,727 $ 8,296,417 $ 3,560,332 $ 3,594,022 $ 8,262,727 $ 8,296,417 $ 3,560,332 $ 18,324 $ 107,354 $ 110,677 $ 15,001 Total Assets $ 18,324 $ 107,354 $ 110,677 $ 15,001 Liabilities: Due to local governments Due to others $ 47 18,277 $ 94,745 20,668 $ 94,744 23,992 $ 48 14,953 $ 18,324 $ 115,413 $ 118,736 $ 15,001 $ - $ 17,114 $ 17,114 $ - Total Assets $ - $ 17,114 $ 17,114 $ - Liabilities: Benefits payable $ - $ 17,114 $ 17,114 $ - $ - $ 17,114 $ 17,114 $ - Total Assets Liabilities: Due to others Total Liabilities OTHER TREASURER FUNDS Assets: Cash and pooled investments with State Treasurer Total Liabilities HEALTH INSURANCE SUBSIDY FUND Assets: Cash Total Liabilities (Continued) - 206 - STATE OF ARIZONA COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUNDS FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) RESTATED BALANCE JULY 1, 2012 OTHER FUNDS Assets: Cash Cash and pooled investments with State Treasurer Collateral investment pool Short-term investments Receivables, net of allowances: Accrued interest Other Due from others Custodial securities in safekeeping Other assets Total Assets $ ADDITIONS 62,002 210,521 5,458 3,210 $ 1 1 82,907 29,658 2,228 $ BALANCE JUNE 30, 2013 DELETIONS 788,966 4,936,514 3,392 $ 1 82,552 39,905 1,782 797,284 4,933,199 5,458 3,210 $ 82,907 29,658 2,228 395,986 $ 5,853,112 $ 5,458 $ - $ 53,684 213,836 3,392 1 2 82,552 39,905 1,782 5,853,944 $ 395,154 5,458 $ - Liabilities: Obligation under securities loan agreements $ Due to U.S. Government 13,809 - 13,809 - Due to local governments 141,399 7,167,398 7,155,322 153,475 Due to others 235,320 1,089,725 1,083,366 241,679 Total Liabilities COMBINED TOTAL ALL AGENCY FUNDS Assets: Cash Cash and pooled investments with State Treasurer Collateral investment pool Short-term investments Receivables, net of allowances: Accrued interest Other Due from others Custodial securities in safekeeping Other assets Total Assets, as restated Liabilities: Benefits payable Obligation under securities loan agreements Due to U.S. Government Due to local governments Due to others Total Liabilities, as restated $ 395,986 $ 8,257,123 $ 8,257,955 $ 395,154 $ 62,002 228,845 5,458 3,210 $ 806,080 5,043,868 3,392 $ 814,398 5,043,876 5,458 3,210 $ 53,684 228,837 3,392 1 1 82,907 3,623,680 2,228 1 82,552 8,302,632 1,782 82,907 8,326,075 2,228 1 2 82,552 3,600,237 1,782 $ 4,008,332 $ 14,240,307 $ 14,278,152 $ 3,970,487 $ - $ 17,114 $ 17,114 $ - 5,458 13,809 141,446 3,847,619 $ 4,008,332 7,262,143 9,373,120 $ - 207 - 16,652,377 5,458 13,809 7,250,066 9,403,775 $ 16,690,222 153,523 3,816,964 $ 3,970,487 NON-MAJOR COMPONENT UNITS Component units are legally separate entities for which the State is considered to be financially accountable. GASB has set forth criteria to be considered in determining financial accountability. These criteria include appointing a voting majority of an organization’s governing body and (1) the ability of the State to impose its will on that organization or (2) the potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the State. The Arizona Power Authority 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 Rio Nuevo Multipurpose Facilities District (Rio Nuevo) utilizes tax incremental financing to help develop multipurpose facilities in the downtown Tucson area. The Greater Arizona Development Authority provides cost-effective access to capital for local communities, certain special districts, and tribal governments for public infrastructure projects. The Arizona Commerce Authority is charged with the following responsibilities: job creation and expansion of capital investment through business attraction, expansion and retention, including business incubation and entrepreneurship; creation, monitoring, and execution of a comprehensive economic and workforce strategy; management and administration of economic development and workforce programs; providing statewide marketing leadership; utilization of all means necessary, prudent and practical to integrate private sector-based innovation, flexibility, focus and responsiveness; and advancement of public policy to meet the State’s economic development objectives. STATE OF ARIZONA COMBINING STATEMENT OF NET POSITION NON-MAJOR COMPONENT UNITS JUNE 30, 2013 (Expressed in Thousands) ARIZONA POWER AUTHORITY ASSETS Current Assets: Cash Cash and pooled investments with State Treasurer Collateral investment pool Restricted investments held by trustee Receivables, net of allowances: Taxes Interest Loans and notes Other Due from primary government Other current assets Total Current Assets $ 6,497 4,544 GREATER AZ DEVELOPMENT AUTHORITY RIO NUEVO $ 12,358 - $ 2,677 - ARIZONA COMMERCE AUTHORITY $ TOTAL 5,925 91,170 2,758 - $ 18,283 100,344 2,758 4,544 2,754 493 14,288 3,078 125 15,561 20 2,697 1,888 142 3,500 492 105,875 3,078 20 1,888 2,896 3,500 1,110 138,421 6,557 15,629 21,888 16,564 1,418 10,465 - 2,686 204 10,465 21,888 6,557 19,250 17,251 1,321 (1,219) 22,288 9,234 34,669 (8,630) 75,143 10,465 1,170 (312) 3,748 9,234 37,160 (10,161) 111,644 36,576 90,704 13,162 109,623 250,065 2,643 369 5,065 8,077 8,973 40 4,655 13,668 3 3 1,021 2,758 3,779 12,637 412 2,758 9,720 25,527 Noncurrent Liabilities: Long-term debt Total Noncurrent Liabilities 23,216 23,216 77,350 77,350 - - 100,566 100,566 Total Liabilities 31,293 91,018 3 3,779 126,093 102 31,293 - 858 32,253 10,465 2,694 40,163 19,471 45,352 23,466 40,163 19,471 8,619 Noncurrent Assets: Restricted assets: Cash and pooled investments with State Treasurer Cash held by trustee Investments held by trustee Loans and notes receivable, net of allowances 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 long-term debt Total Current Liabilities NET POSITION Net investment in capital assets Restricted for: Debt service Loans and other financial assistance Other Unrestricted Total Net Position 5,181 $ 5,283 13,001 (44,608) $ - 210 - (314) $ 13,159 $ 105,844 $ 123,972 (This page intentionally left blank) STATE OF ARIZONA COMBINING STATEMENT OF ACTIVITIES NON-MAJOR COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) PROGRAM REVENUES OPERATING EXPENSES FUNCTIONS/PROGRAMS Arizona Power Authority $ Rio Nuevo Greater Arizona Development Authority Arizona Commerce Authority Total $ 29,121 $ CHARGES FOR GRANTS AND SERVICES CONTRIBUTIONS 28,595 $ - 7,672 1,377 42 - - 27,321 337 1,627 64,156 $ 30,309 - $ General Revenues: Taxes: Sales Other Unrestricted investment earnings Unrestricted grants and contributions Payments from State of Arizona Miscellaneous Change in Net Position Net Position - Beginning, as restated Net Position - Ending - 212 - 1,627 NET (EXPENSE) REVENUE AND CHANGES IN NET POSITION ARIZONA GREATER AZ ARIZONA POWER DEVELOPMENT COMMERCE AUTHORITY AUTHORITY AUTHORITY $ RIO NUEVO (526) $ - - - - 15 51 (460) 5,743 $ - 5,283 $ (6,295) 9,853 1 984 1,717 6,260 (6,574) $ (314) $ - $ - - $ - (42) 364 4 326 12,833 $ - 213 - (526) (6,295) - - 13,159 TOTAL (42) (25,357) (25,357) 13,600 156 50 36,708 25,157 80,687 9,853 13,600 536 1,034 36,708 1,772 31,283 92,689 105,844 $ 123,972 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 by GASB, with the exception of the University Public Schools, Inc. (UPSI) and University of Arizona Campus Research Corporation (CRC). 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 approves the budget and can access its resources. 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. Sun Angel Foundation receives funds primarily through donations, and contributes funds to the ASU for support of various athletic programs. Sun Angel Endowment receives funds primarily through donations, with the annual earnings being used for support of various athletic programs at the ASU. The Collegiate Golf Foundation transferred all remaining assets and liabilities to the ASU as of July 1, 2012. Arizona State University Research Park, Inc. manages 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, dues, and affinity partners 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. participates with the ASU faculty and staff in implementing various educational innovations in the form of teaching methods, teacher preparation, curriculum, and educational research. The University of Arizona Law College Association (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. 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. University of Arizona Eller Executive Education was established to advance the missions of the Eller College of Management and the U of A through noncredit, non-degree programs for business, government, and nonprofit leaders. STATE OF ARIZONA COMBINING STATEMENT OF FINANCIAL POSITION NON-MAJOR UNIVERSITIES - AFFILIATED COMPONENT UNITS JUNE 30, 2013 (Expressed in Thousands) NORTHERN ARIZONA UNIVERSITY FOUNDATION ASSETS Cash and cash equivalent investments $ Receivables: Pledges receivable Other receivables Total receivables Investments: Investments in securities Other investments Total investments Net direct financing leases Property and equipment, net of accumulated depreciation Licenses Other assets Total Assets LIABILITIES Accounts payable and accrued liabilities Liability under endowment trust agreements Long term debt Deferred revenue Other liabilities Total Liabilities NET ASSETS Permanently restricted Temporarily restricted Unrestricted (deficit) Total Net Assets $ 1,005 SUN ANGEL FOUNDATION SUN ANGEL ENDOWMENT COLLEGIATE GOLF FOUNDATION ARIZONA STATE UNIVERSITY RESEARCH PARK, INC. $ $ $ $ 2,006 367 - 1,782 ARIZONA STATE UNIVERSITY ALUMNI ASSOCIATION $ 438 5,989 2,879 8,868 3,765 170 3,935 - - 13,220 13,220 96 202 298 104,270 9,573 113,843 - 8,095 775 8,870 - 1,009 1,009 14,455 14,455 7,954 - - - - - 2,130 - 7 184 30 - 5,324 2,273 90 133,800 6,132 9,267 - 23,608 15,281 1,641 234 5 - 252 236 23,063 5,403 1,324 64 32 4,000 - 7,845 12,667 1,564 34 4 31,431 330 4,005 - 22,328 274 46,576 23,511 32,282 5,468 334 1,842 544 2,876 - 1,280 309 14,698 102,369 $ 5,802 $ - 216 - 5,262 $ - $ 1,280 $ 15,007 DOWNTOWN PHOENIX STUDENT HOUSING $ 1,137 $ 2,501 $ 801 UNIVERSITY OF ARIZONA CAMPUS RESEARCH CORPORATION UNIVERSITY OF ARIZONA ALUMNI ASSOCIATION $ $ 6,158 1,543 UNIVERSITY OF ARIZONA ELLER EXECUTIVE EDUCATION $ TOTAL 11 $ 17,749 169 169 100 230 330 572 572 1,057 1,057 57 691 748 274 274 10,579 18,892 29,471 13,542 13,542 - 8,212 174 8,386 - 5,944 5,944 - 155,527 10,522 166,049 - - - - - - 7,954 102,692 5,958 335 21 7 17,919 6,499 27 66 - 126,304 2,130 15,128 123,498 3,187 9,766 31,633 8,328 285 364,785 13,918 835 139 1,430 106 15 18,811 140,171 21 1,597 173 1,474 943 376 8,098 2,984 920 7 2,305 - 220 - 23,063 156,294 25,172 10,760 155,707 3,425 515 13,432 2,418 235 234,100 4,540 4,110 601 18,201 5,910 50 52,958 34,031 43,696 (32,209) $ UNIVERSITY OF ARIZONA LAW COLLEGE ASSOCIATION UNIVERSITY PUBLIC SCHOOLS (32,209) 89 (327) $ (238) $ 9,251 $ 18,201 - 217 - $ 5,910 $ 50 $ 130,685 STATE OF ARIZONA COMBINING STATEMENT OF ACTIVITIES NON-MAJOR UNIVERSITIES - AFFILIATED COMPONENT UNITS FOR THE YEAR ENDED JUNE 30, 2013 (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 Management and general expenses Fundraising expenses Interest Depreciation and amortization Other expenses Total Expenses Increase (decrease) in Net Assets, before extraordinary items 9,849 11,465 1,390 1,978 SUN ANGEL ENDOWMENT COLLEGIATE GOLF FOUNDATION $ $ $ $ 156 - - 5,731 5 356 $ 2,668 1,928 1,648 114 12,729 156 - 6,092 6,358 6,017 527 2,848 1,430 - 10,808 1,401 968 116 199 - - 2,064 1,034 358 430 152 5,138 79 10,822 13,177 315 - 4,038 5,217 (159) - 2,054 1,141 228 - - 228 2,054 1,141 (448) (385) Increase (decrease) in Net Assets, after extraordinary items 13,475 Net Assets - Beginning, as restated 88,894 $ 11,126 304 20 1,279 ARIZONA STATE UNIVERSITY ALUMNI ASSOCIATION 24,682 13,860 Extraordinary items (Primarily equity transfers) Net Assets - Ending SUN ANGEL FOUNDATION ARIZONA STATE UNIVERSITY RESEARCH PARK, INC. 102,369 - - (448) (159) 6,250 $ 5,802 5,421 $ - 218 - 5,262 (228) $ - (774) $ 1,280 13,866 $ 15,007 DOWNTOWN PHOENIX STUDENT HOUSING $ 8,947 1 339 $ 2,407 834 2 10,694 $ 907 837 87 UNIVERSITY OF ARIZONA CAMPUS RESEARCH CORPORATION UNIVERSITY OF ARIZONA ALUMNI ASSOCIATION $ $ 12,035 14 275 180 1,092 376 2,523 UNIVERSITY OF ARIZONA ELLER EXECUTIVE EDUCATION $ 9 367 - TOTAL $ 27,146 26,713 4,525 14,524 1,390 17,645 9,287 13,937 1,831 12,324 4,171 376 91,943 2,775 7,209 5,173 663 14,253 - 1,703 98 23 - 8,585 1,317 - 3,038 715 169 - 223 103 - 12,872 8,585 4,964 6,017 27,477 3,040 7,766 7,033 1,862 15,820 14,253 1,824 9,902 3,922 326 79,616 7 2,422 249 50 12,327 - - - - 7 2,422 249 50 12,170 9,244 15,779 5,661 - 118,515 (6,533) - $ UNIVERSITY OF ARIZONA LAW COLLEGE ASSOCIATION UNIVERSITY PUBLIC SCHOOLS (316) - (6,533) (316) (25,676) 78 (32,209) $ (238) $ 9,251 $ 18,201 $ - 219 - 5,910 $ 50 (157) $ 130,685 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 22 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 23 and 24 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 25 thru 27 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 POSITION BY COMPONENT (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) Fiscal Year 2012, as GOVERNMENTAL ACTIVITIES: Net investment in capital assets Restricted (3) Unrestricted Total Governmental Activities Net Position BUSINESS-TYPE ACTIVITIES: Net investment in capital assets Restricted Unrestricted (2) Total Business-type Activities Net Position PRIMARY GOVERNMENT: Net investment in capital assets Restricted (3) Unrestricted (2) Total Primary Government Net Position 2013 restated 2011 2010 2009 $ 17,410,055 $ 6,116,083 (2,527,441) 16,940,512 $ 5,447,576 (3,351,315) 16,326,569 $ 5,125,527 (4,243,824) 15,738,121 $ 4,648,280 (4,155,346) 15,094,719 3,990,594 (2,984,628) $ 20,998,697 $ 19,036,773 $ 17,208,272 $ 16,231,055 $ 16,100,685 $ 1,532,572 531,972 1,064,875 $ 1,483,416 496,444 810,810 $ 1,397,683 501,437 695,862 $ 1,352,658 550,102 576,426 $ 1,328,658 1,085,399 376,908 $ 3,129,419 $ 2,790,670 $ 2,594,982 $ 2,479,186 $ 2,790,965 $ 18,942,627 $ 6,648,055 (1,462,566) 18,423,928 $ 5,944,020 (2,540,505) 17,724,252 $ 5,626,964 (3,547,962) 17,090,779 $ 5,198,382 (3,578,920) 16,423,377 5,075,993 (2,607,720) $ 24,128,116 21,827,443 19,803,254 18,710,241 18,891,650 $ $ $ (1) This schedule reports using the accrual basis of accounting. (2) Fiscal year 2012 unrestricted net position was restated as a result of GASB 61 in which Northern Arizona Capital Facilities Corporation was reclassified from a discrete non-major university component unit to a blended university component unit. (3) Fiscal year 2012 restricted net position was restated as a result of an agency fund being reclassified to a special revenue fund. - 224 - $ Fiscal Year 2007, as 2006, as 2005, as 2004, as 2008 restated restated restated restated $ 14,530,867 $ 4,987,365 (1,105,246) 13,500,218 4,734,039 614,606 $ 12,878,151 3,560,868 733,455 $ 11,825,961 $ 2,938,288 (463,515) 11,226,325 2,100,575 (684,492) $ 18,412,986 $ 18,848,863 $ 17,172,474 $ 14,300,734 $ 12,642,408 $ 1,387,655 1,581,212 188,354 $ 1,186,177 1,575,991 295,377 $ 1,146,618 1,400,455 179,524 $ 1,172,613 1,232,016 84,248 $ 1,169,198 1,190,250 115,986 $ 3,157,221 $ 3,057,545 $ 2,726,597 $ 2,488,877 $ 2,475,434 $ 15,918,522 $ 6,568,577 (916,892) 14,686,395 6,310,030 909,983 $ 14,024,769 4,961,323 912,979 $ 12,998,574 $ 4,170,304 (379,267) 12,395,523 3,290,825 (568,506) $ 21,570,207 21,906,408 $ 19,899,071 $ 16,789,611 15,117,842 $ $ - 225 - STATE OF ARIZONA SCHEDULE 2 CHANGES IN NET POSITION (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) Fiscal Year 2012, as 2013 EXPENSES Governmental Activities: General government Health and welfare Inspection and regulation Education Protection and safety Transportation (2) Natural resources Intergovernmental revenue sharing Interest on long-term debt Total Governmental Activities Expenses $ Business-type Activities: Universities Unemployment Compensation (7) Industrial Commission Special Fund (3) Lottery (7) Other Total Business-type Activities Expenses Total Primary Government Expenses PROGRAM REVENUES Governmental Activities: Charges for services: General government Inspection and regulation Transportation (4) Other activities Operating grants and contributions Capital grants and contributions Total Governmental Activities Program Revenues Business-type Activities: Charges for services: Universities Lottery (7) Other activities (5) Operating grants and contributions Capital grants and contributions Total Business-type Activities Program Revenues Total Primary Government Program Revenues 836,431 12,168,426 161,480 5,372,267 1,400,413 754,510 204,179 2,685,378 355,975 23,939,059 restated $ 3,866,866 38,614 1,329,816 5,235,296 840,189 11,992,408 151,937 5,331,848 1,380,999 808,967 213,339 2,473,881 350,483 23,544,051 2011 $ 3,629,568 1,069,531 83,290 496,830 113,347 5,392,566 929,107 12,558,119 149,649 5,467,543 1,299,205 857,194 196,210 2,462,178 341,801 24,261,006 2010 $ 3,533,977 1,655,364 27,196 439,069 115,442 5,771,048 941,813 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 3,290,033 1,086,330 30,055 395,950 142,229 4,944,597 $ 29,174,355 $ 28,936,617 $ 30,032,054 $ 30,962,661 $ 29,605,560 $ 188,462 156,164 119,862 386,381 11,588,834 651,999 $ 189,175 150,557 108,877 398,893 11,357,470 778,572 $ 191,738 149,890 114,453 381,633 12,580,013 745,559 $ 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 $ 13,091,702 12,983,544 14,163,286 15,188,803 11,980,673 1,892,356 1,289,456 1,570,854 15,210 1,752,509 646,675 584,240 1,705,773 53,571 1,601,077 583,537 560,502 2,212,673 14,799 1,432,055 551,492 509,254 2,260,071 12,563 1,272,694 484,486 439,010 1,243,697 14,710 4,767,876 4,742,768 4,972,588 4,765,435 3,454,597 17,859,578 $ 17,726,312 $ 19,135,874 $ 19,954,238 $ 15,435,270 NET (EXPENSE) REVENUE Governmental activities Business-type activities $ (10,847,357) $ (467,420) (10,560,507) $ (649,798) (10,097,720) $ (798,460) (9,701,524) $ (1,306,899) (12,680,290) (1,490,000) Total Primary Government Net (Expense) $ (11,314,777) $ (11,210,305) $ (10,896,180) $ (11,008,423) $ (14,170,290) - 226 - Fiscal Year 2008 $ 982,382 10,884,297 185,996 6,242,173 1,510,615 670,173 250,258 3,023,836 179,795 23,929,525 $ 3,227,481 356,333 14,824 372,740 162,300 4,133,678 2007, as 2006, as restated restated 802,659 9,789,699 175,609 5,984,196 1,401,513 583,304 193,862 2,864,543 191,674 21,987,059 $ 2,960,790 248,111 23,669 363,508 176,486 3,772,564 781,542 9,057,733 159,766 5,304,555 1,279,129 386,777 187,947 2,658,636 172,439 19,988,524 2004, as 2005 $ 2,762,557 226,171 (18,300) 377,104 136,894 3,484,426 646,452 8,494,206 149,238 4,853,458 1,171,340 589,966 184,538 2,335,828 182,852 18,607,878 restated $ 2,540,193 292,127 106,295 317,226 120,629 3,376,470 726,525 7,717,148 138,281 4,703,685 1,059,047 731,522 162,366 2,144,438 176,035 17,559,047 2,355,418 397,657 167,331 303,996 109,944 3,334,346 $ 28,063,203 $ 25,759,623 $ 23,472,950 $ 21,984,348 $ 20,893,393 $ 190,374 159,857 149,560 318,776 9,190,910 523,898 $ 200,495 158,022 158,019 281,796 8,536,030 354,255 $ 161,664 146,191 134,068 279,836 7,941,223 388,646 $ 139,486 133,073 88,296 256,804 7,544,370 497,140 $ 140,791 133,510 114,097 248,446 6,981,748 421,251 $ 10,533,375 9,688,617 9,051,628 8,659,169 8,039,843 1,167,696 472,937 485,242 898,441 38,029 1,069,339 462,200 518,922 883,373 27,981 962,967 468,697 474,801 852,788 30,056 863,042 397,561 440,646 834,421 19,774 778,047 366,582 305,221 836,076 18,513 3,062,345 2,961,815 2,789,309 2,555,444 2,304,439 13,595,720 $ 12,650,432 $ 11,840,937 $ 11,214,613 $ 10,344,282 $ (13,396,150) $ (1,071,333) (12,298,442) (810,749) $ (10,936,896) (695,117) $ (9,948,709) (821,026) $ (9,519,204) (1,029,907) $ (14,467,483) $ (13,109,191) $ (11,632,013) $ (10,769,735) $ (10,549,111) (Continued) - 227 - STATE OF ARIZONA SCHEDULE 2 CHANGES IN NET POSITION (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) Fiscal Year 2012, as 2013 GENERAL REVENUES AND OTHER CHANGES IN NET POSITION Governmental Activities: Taxes: Sales Income Tobacco Property Motor vehicle and fuel (4) Other Unrestricted investment earnings (6) Unrestricted grants and contributions Miscellaneous general revenues (8) Gain (loss) on sale of trust land Transfers Total Governmental Activities $ Business-type Activities: Sales taxes Unrestricted investment earnings Unrestricted grants and contributions Miscellaneous general revenues (5) Contributions to permanent endowments Special items Extraordinary items Transfers Total Business-type Activities restated 2011 2010 6,518,480 $ 3,974,998 316,050 27,429 1,592,911 531,186 18,705 45,746 144,403 174,095 (534,722) 12,809,281 6,296,151 $ 3,706,698 317,369 30,656 1,581,909 522,510 79,190 40,678 265,214 125,479 (576,846) 12,389,008 5,942,250 $ 3,366,783 320,657 32,038 1,565,525 550,430 29,183 16,468 140,854 (154,359) (734,892) 11,074,937 57,490 62,017 5 148,743 3,192 534,722 806,169 55,309 49,501 3,468 155,757 3,270 576,846 844,151 52,913 68,401 50,510 3,656 3,884 734,892 914,256 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 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 $ 13,615,450 $ 13,233,159 $ 11,989,193 $ CHANGE IN NET POSITION Governmental activities Business-type activities $ 1,961,924 338,749 $ 1,828,501 194,353 $ 977,217 115,796 $ 130,370 $ (311,779) (2,312,301) (366,256) Total Primary Government $ 2,300,673 $ 2,022,854 $ 1,093,013 $ (181,409) $ (2,678,557) (1) This schedule reports using the accrual basis of accounting. (2) For fiscal year 2006, net position for governmental activities were increased by the capitalization of $302,375 of capital assets that were previously recorded as transportation expenses. (3) 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. (4) $31,804 of transportation's charges for services for fiscal year 2005 were classified as motor vehicle and fuel tax revenues. (5) 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. (6) 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. (7) For fiscal year 2013, Unemployment Compensation and Lottery changed from major to non-major funds. (8) Fiscal year 2012 miscellaneous general revenues was restated as a result of an agency fund being reclassified to a special revenue fund. - 228 - $ 11,491,733 Fiscal Year 2008 $ 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 2007, as 2006, as restated restated 6,537,584 4,636,447 358,205 43,736 1,826,893 529,629 243,328 11,711 212,253 451,501 (876,456) 13,974,831 $ 79,223 103,362 77,841 4,815 876,456 1,141,697 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 2004, as 2005 $ 54,550 49,050 58,816 3,803 (7,874) 774,492 932,837 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 restated $ 57,584 40,311 5 26,017 2,955 707,597 834,469 5,016,585 2,800,461 223,804 50,455 1,613,952 539,218 24,227 8,502 281,109 319,517 (678,726) 10,199,104 50,050 38,753 46,615 2,231 (6,880) 678,726 809,495 $ 15,116,528 $ 14,741,473 $ 12,441,504 $ $ (435,877) $ 99,676 1,676,389 330,948 $ 2,871,740 237,720 $ 1,658,326 13,443 $ 679,900 (220,412) $ (336,201) $ 2,007,337 $ 3,109,460 $ 1,671,769 $ 459,488 - 229 - 11,008,599 STATE OF ARIZONA SCHEDULE 3 FUND BALANCES, GOVERNMENTAL FUNDS (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) Fiscal Year 2012, as 2013 GENERAL FUND: Reserved for: Budget stabilization fund School facilities improvements Continuing appropriations Other fund balance reservations Unreserved Nonspendable (2) Restricted (2) Committed (2) Unassigned (2) 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 Nonspendable (2) Restricted (2,3) Committed (2) Unassigned (2) Total All Other Governmental Funds 2010, as restated 2011 restated (2) 2009 $ 844 192,187 73,237 156,935 $ - $ 891 246,977 109,469 (437,035) - $ 716 317,471 141,183 (1,162,531) - $ 14,764 55,354 232 (817,348) - 2,767 376,993 43,091 252 (1,401,381) - $ 423,203 $ (79,698) $ (703,161) $ (746,998) $ (978,278) $ - $ 4,160,485 1,860,872 661,110 (26,266) $ 6,656,201 - $ 3,472,005 1,762,356 514,085 (33,861) $ 5,714,585 - $ 3,244,080 1,531,992 452,447 (39,009) $ 5,189,510 809,497 45,403 2,674,953 116,350 26,389 40,327 821,491 - $ 4,534,410 (1) This schedule reports using the modified accrual basis of accounting. (2) Beginning in fiscal year 2011, the fund balance categories were reclassified as a result of implementing GASB Statement 54. Additionally, as a result of the reclassification, fund balance for fiscal year 2010 was restated. (3) Fiscal year 2012 restricted fund balance was restated as a result of an agency fund being reclassified to a special revenue fund. - 230 - $ 1,304,781 108,129 2,196,040 212,553 27,115 7,447 767,258 - $ 4,623,323 Fiscal Year 2007, as 2008 restated 2006 2005 2004 $ 147,212 1,914 103,320 262 108,914 - $ 673,531 4,931 162,657 272 1,081,708 - $ 651,020 110,149 69,861 302 1,434,806 - $ 160,873 107,260 55,727 374 986,168 - $ 13,545 96,714 74,973 377 561,029 - $ 361,622 $ 1,923,099 $ 2,266,138 $ 1,310,402 $ 746,638 $ 1,253,202 238,985 2,544,365 143,785 35,236 27,132 $ 976,488 5,288 2,454,564 94,602 34,421 17,702 $ 426,015 6,256 2,043,591 118,671 37,792 5,145 $ 419,072 7,307 5,386 1,716,404 120,752 21,992 25,375 $ 321,401 41,165 17,808 1,361,366 114,948 27,693 25,138 919,679 $ 5,162,384 793,890 $ 4,376,955 657,371 $ 3,294,841 574,938 $ 2,891,226 463,738 $ - 231 - 2,373,257 STATE OF ARIZONA SCHEDULE 4 CHANGES IN FUND BALANCES, GOVERNMENTAL FUNDS (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) Fiscal Year 2012, as 2013 REVENUES Taxes: Sales Income Tobacco (2) Property Motor vehicle and fuel Other Intergovernmental Licenses, fees, and permits Earnings (loss) on investments (3,5) Sales and charges for services (7) Fines, forfeitures, and penalties Gaming Tobacco settlement Proceeds from sale of trust land (6) Other (8) Total Revenues EXPENDITURES Current: General government (7) Health and welfare Inspection and regulation Education Protection and safety Transportation (4) Natural resources Intergovernmental revenue sharing Debt service: Principal Interest and other fiscal charges Capital outlay (4) Total Expenditures Excess (Deficiency) of Revenues Over Expenditures $ 6,530,609 4,034,631 316,050 27,429 1,592,911 531,186 11,592,676 476,972 499,919 182,075 181,216 86,507 149,125 225,659 169,119 26,596,084 2010, as restated $ 6,312,870 3,715,082 317,369 30,656 1,581,909 522,510 11,843,908 477,344 190,055 188,806 168,240 85,535 101,067 137,405 297,065 25,969,821 2011 $ 5,971,141 3,398,972 320,657 32,038 1,565,525 550,430 13,019,744 452,629 438,068 186,325 184,950 80,455 99,130 95,500 164,658 26,560,222 restated $ 5,017,977 2,805,426 332,893 31,417 1,585,919 535,435 13,562,547 425,526 422,564 203,725 224,000 77,554 105,394 78,564 230,223 25,639,164 2009 $ 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 23,589,030 812,770 12,216,622 160,636 5,369,538 1,349,146 683,607 194,714 2,685,168 838,776 12,029,530 153,947 5,332,141 1,351,251 745,306 202,677 2,473,535 933,313 12,818,468 153,718 5,467,695 1,288,577 820,417 191,429 2,459,934 923,977 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 2,764,776 412,617 329,773 765,339 24,979,930 386,027 344,903 769,716 24,627,809 383,591 357,754 824,417 25,699,313 288,172 286,027 1,291,341 26,456,311 235,971 238,430 1,295,530 25,903,204 1,616,154 1,342,012 860,909 - 232 - (817,147) (2,314,174) Fiscal Year 2007, as 2008 $ 6,278,181 4,174,966 413,333 36,732 1,802,572 559,440 9,499,419 447,090 135,879 167,329 167,309 94,004 115,587 263,443 24,155,284 restated $ 6,527,968 4,629,220 358,205 43,736 1,828,701 529,629 8,313,720 442,236 510,253 158,318 183,923 94,771 90,258 264,440 23,975,378 2006 $ 6,313,090 4,535,492 248,122 43,035 1,857,293 575,946 8,019,509 410,069 247,250 162,048 138,354 84,794 86,231 269,411 22,990,644 2005 $ 2004 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 $ 4,985,424 2,818,778 223,804 50,455 1,613,952 539,218 7,159,976 349,938 131,715 161,170 120,032 57,517 92,550 313,220 18,617,749 966,512 10,874,581 184,451 6,240,862 1,447,372 630,283 242,893 3,026,563 879,519 9,679,226 173,897 5,983,513 1,358,439 524,318 185,592 2,863,218 861,373 8,995,430 157,401 5,302,942 1,247,508 373,603 178,832 2,661,894 758,149 8,419,913 146,523 4,852,099 1,132,473 564,574 175,593 2,335,828 718,229 7,733,516 136,189 4,702,609 1,028,134 717,463 153,533 2,144,438 261,228 210,856 1,106,951 25,192,552 220,473 195,317 992,000 23,055,512 261,277 176,933 1,066,815 21,284,008 381,512 200,731 710,688 19,678,083 327,595 188,247 695,289 18,545,242 919,866 1,706,636 904,227 72,507 (1,037,268) (Continued) - 233 - STATE OF ARIZONA SCHEDULE 4 CHANGES IN FUND BALANCES, GOVERNMENTAL FUNDS (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) Fiscal Year 2012, as OTHER FINANCING SOURCES (USES) Transfers in Transfers out Proceeds from sale of trust land (6) Proceeds from sale of capital assets Capital lease and installment purchase contracts Proceeds from notes and loans Refunding bonds issued Payment to refunded bond escrow agent Bonds issued Refunding grant anticipation notes issued Grant anticipation notes issued Refunding certificates of participation issued Payment to refunded certificates of participation escrow agent Certificates of participation issued Premium on debt issued Total Other Financing Sources (Uses) NET CHANGE IN FUND BALANCES DEBT SERVICE AS A PERCENTAGE OF NONCAPITAL EXPENDITURES restated 2011 restated 2009 782,420 (1,256,408) 1,636 821,072 (1,323,778) 1,815 862,040 (1,574,406) 3,712 1,106,250 (1,872,212) 3,088 1,248,267 (2,168,964) 2,127 15,158 51,550 837,340 (954,372) 194,295 - 8,166 9,541 455,900 (560,228) 259,460 43,825 - 62,630 - (42,096) 136,210 (171,637) $ 2010, as 2013 1,444,517 90,753 (193,474) $ 1,148,538 3.1% 3.1% 4,583 11,113 180,000 158,585 187,836 32,628 425,420 - 4,056 23,139 621,050 55,420 - - - 998,795 77,709 959,514 580,035 70,083 435,213 150,110 42,291 (161,972) $ 698,937 $ 142,367 3.0% (1) This schedule reports using the modified accrual basis of accounting. (2) Increase in tobacco tax revenue from fiscal year 2006 to fiscal year 2007 primarily due to Proposition 203, implemented December 2006. (3) 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. (4) 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. (5) 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. (6) In fiscal year 2009, "Proceeds from sale of trust land" was moved from "Other financing sources (uses)" to "Revenues." (7) In fiscal year 2010, amounts were restated as a result of implementing GASB Statement 54. (8) Fiscal year 2012 other revenues was restated as a result of an agency fund being reclassified to a special revenue fund. - 234 - 2.3% $ (1,878,961) 1.9% Fiscal Year 2007, as 2008 restated 2006 2005 2004 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 1,011,456 (1,714,562) 274,127 - 940,050 (1,616,105) 149,001 - 3,543 596,160 (646,689) 118,250 - 5,350 224,283 (247,417) 210,577 104,385 24,349 107,940 (145,965) 389,746 22,633 177,322 334,225 16,725 (363,052) 237,625 100,509 177,506 (17,273) 273,735 48,834 370,992 23,556 19,529 82,880 (86,547) 563,950 68,000 238,990 48,972 261,220 $ (776,048) $ 2.0% 132,985 325,000 - - 26,201 (180,791) 739,075 1.9% 59,711 (347,285) $ 1,359,351 2.2% $ 1,081,733 $ 3.1% - 235 - 443,499 2.9% STATE OF ARIZONA SCHEDULE 5 NET TAXABLE SALES BY CLASSIFICATION (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) Fiscal Year 2013 CLASSIFICATION (6) Transporting (2) Mining, oil and gas Mining severance Utilities Communications Private car and pipelines Publishing Job printing Restaurants and bars Amusements Commercial lease (3) Personal property rentals Contracting Feed wholesale (4) Retail Hotel/motel Rental occupancy tax (8) Use tax Use tax-utilities (7) Membership camping (8) Other Total Direct sales tax rate (5) 2012 2011 2010 2009 2008 $ 41,324 115,775 1,193,176 9,900,238 3,061,730 6,250 84,673 235,349 10,544,419 1,051,581 2 3,254,822 10,092,876 51,276,108 2,221,059 5,186,464 10,283 - $ 52,137 105,614 1,623,111 9,474,521 3,190,962 1,186 92,505 252,603 9,996,825 1,037,059 1 3,257,588 9,543,335 48,178,714 2,156,864 (3) 5,302,844 10,022 - $ 41,555 96,514 1,609,451 9,394,361 2,853,538 1,908 98,343 266,564 9,311,826 994,092 2 3,056,386 8,983,261 45,898,838 2,039,283 43 4,610,921 10,040 1 - $ 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 - $ $ 98,276,129 $ 94,275,888 $ 89,266,927 $ 87,428,683 $ 96,321,552 $ 6.60% 6.60% 6.60% 5.60% 5.60% 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% (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) Commercial lease rate dropped to 0% effective July 1, 1997. (4) Feed wholesale dropped to 0% effective July 17, 1994 and was repealed effective October 1, 1994. (5) A significant portion of the revenue base was subject to a sales tax rate of 5.6% for fiscal years 2004 through 2010 and 6.6% for fiscal years 2011 thru 2013. For fiscal years 2004 thru 2013, the tax rate for non-metal mining, oil and gas was 3.125%, the mining severance was 2.5%, and the jet fuel and jet fuel use tax was $.0305 per gallon. The hotel/motel tax rate was 5.5% for fiscal years 2004 through 2010 and 6.5% for fiscal years 2011 thru 2013. 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 tax rate by one percentage point beginning June 1, 2010 and ending May 31, 2013, which is reflected in this table. (6) 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. (7) The use tax-utilities classification was reported separately beginning in the fiscal year 2008 annual report for all fiscal years (2004-2008) presented in that report. (8) Effective November 1, 2006, membership camping and rental occupancy were repealed. Source: Arizona Department of Revenue Annual Reports for fiscal years 2013 and prior. - 236 - Fiscal Year 2007 $ $ 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 5.60% 2004 $ 53,371 317,202 656,631 6,828,179 2,934,858 14,832 134,925 367,010 7,939,964 872,520 919 3,242,363 16,044,847 46,378,344 2,063,973 2,414 5,218,535 234 2,897 - $ 67,486 287,787 261,623 6,430,306 2,809,508 15,920 128,911 348,924 7,202,034 813,489 (6,518) 3,174,945 13,156,490 (8) 42,409,055 1,831,153 4,202 4,644,319 127 2,998 119 $ 93,074,018 $ 83,582,870 5.60% 5.60% - 237 - (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 2013 CLASSIFICATION Transporting (1) Non-metal mining, oil and gas Mining severance Timbering severance - ponderosa (2) Utilities Communications Private car and pipelines Publishing Job 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 Mandatory EFT fees Other Amnesty Education tax (4) Education Amnesty tax (4) Total $ Percentage Tax Percentage Collections of Total Collections of Total 2,066 3,618 29,829 495,012 153,087 313 4,234 11,767 527,221 52,579 162,741 504,644 2,563,806 122,158 514 257,899 648 3,763 562 72 286 567,824 - $ Fiscal Year 2004 Tax 5,464,643 0.04 % 0.07 0.55 9.06 2.80 0.01 0.08 0.22 9.65 0.96 2.98 9.23 46.89 2.24 0.01 4.72 0.01 0.07 0.01 - $ 3,374 8,993 6,541 11 321,515 140,475 796 6,446 17,446 360,102 40,674 (89) 158,747 657,824 2,120,453 100,713 126 232,216 657 150 5,195 725 66 0.01 10.39 100.00 % (363) 6 13,553 487,215 714 $ 4,684,281 0.07 % 0.19 0.14 6.86 3.00 0.02 0.14 0.37 7.69 0.87 3.39 14.04 45.27 2.15 4.96 0.01 0.11 0.02 (0.01) 0.29 10.40 0.02 100.00 % (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 1, 1997. (4) The education tax is .6% of net taxable sales for most classifications. The ones that do not collect the education tax are non-metal 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. Source: Arizona Department of Revenue Annual Reports for fiscal years 2013 and 2004. - 239 - STATE OF ARIZONA SCHEDULE 7 PERSONAL INCOME BY INDUSTRY (3) FOR THE LAST TEN CALENDAR YEARS (Expressed in Thousands) Calendar Year Ended December 31 2012 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) $ $ 2011 707,375 449,874 1,377,721 1,572,179 9,065,716 13,618,021 8,748,657 12,434,975 5,197,585 3,257,253 11,162,882 4,502,417 13,061,898 2,579,439 9,304,701 2,872,647 20,219,255 1,820,234 6,208,494 $ 2010 1,130,156 444,705 1,227,134 1,598,886 8,322,653 13,030,076 8,210,795 12,357,429 4,952,947 2,932,156 10,481,262 4,190,070 12,557,192 2,317,517 8,895,684 2,710,080 19,554,533 1,706,828 5,859,664 $ 2009 677,283 440,179 1,005,246 1,561,457 8,358,817 12,374,021 7,871,973 11,650,873 4,572,374 2,806,816 9,916,996 3,232,429 11,776,522 2,255,132 8,525,126 2,585,128 18,860,822 1,672,530 5,567,135 $ 2008 486,248 416,947 967,693 1,552,655 9,500,547 12,341,304 7,951,600 11,540,079 4,567,671 3,046,893 9,508,877 3,095,204 12,067,127 2,461,998 8,705,553 2,332,051 18,134,982 1,619,566 5,568,857 $ 2007 645,381 412,223 1,326,937 1,565,556 13,109,129 13,697,734 8,565,371 12,325,171 4,836,264 3,120,154 9,851,814 3,917,794 13,126,971 2,469,973 9,566,374 2,073,685 17,580,265 1,693,720 5,927,491 $ 837,363 462,006 991,255 1,455,726 15,563,009 13,674,577 8,623,865 13,128,251 5,055,203 3,067,867 10,462,890 3,854,614 12,480,179 2,426,427 9,616,782 1,843,418 15,998,994 1,659,881 6,015,098 5,856,143 5,640,924 5,408,156 5,379,543 5,500,766 5,781,527 29,333,445 74,161,726 29,006,950 72,110,287 28,800,079 67,839,611 28,542,137 65,699,013 28,482,606 64,864,377 26,956,226 61,239,336 237,512,637 1.43% $ 229,237,928 $ 217,758,705 1.35% 1.32% $ 215,486,545 $ 224,659,756 1.12% (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 2003 through 2011 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. - 240 - 1.15% $ 221,194,494 1.54% Calendar Year Ended December 31 2006 $ $ 2005 709,433 464,947 854,748 1,325,478 16,395,855 13,431,685 7,718,435 12,816,497 4,797,643 3,063,143 10,329,558 4,681,006 11,466,109 2,019,996 9,208,432 1,705,149 14,665,243 1,608,224 5,624,115 $ 2004 994,694 401,670 677,470 1,150,758 13,912,571 12,365,272 6,989,798 11,678,193 4,290,821 2,900,779 9,518,158 4,385,683 9,880,858 1,650,682 8,142,008 1,564,315 13,064,233 1,409,453 5,141,186 $ 2003 1,023,936 408,740 602,623 1,042,512 11,757,560 12,020,970 6,436,165 10,564,804 4,013,654 2,975,800 8,302,331 3,752,572 8,667,303 1,863,508 7,057,954 1,435,879 12,036,916 1,382,347 4,735,898 $ 727,376 371,768 539,949 1,012,472 10,470,047 11,356,029 5,837,052 9,835,470 3,655,297 2,974,882 7,844,288 3,223,524 7,905,812 1,588,485 6,430,602 1,185,853 10,912,797 1,324,627 4,300,538 5,596,631 4,899,635 4,391,624 4,109,896 25,034,517 56,400,868 23,293,334 50,985,478 21,711,046 44,660,796 20,499,961 40,682,482 209,917,712 1.75% $ 189,297,049 1.93% $ 170,844,938 1.67% $ 156,789,207 1.48% - 241 - STATE OF ARIZONA SCHEDULE 8 PERSONAL INCOME TAX RATES FOR THE LAST TEN CALENDAR YEARS (Expressed in Thousands) Calendar Year Ended December 31 2012 AVERAGE EFFECTIVE RATE (3) Personal Income Tax Revenue (1) Personal Income (2) Average Effective Rate (3) $ $ 2011 3,398,902 237,512,637 1.43% 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% $ $ 2010 3,099,177 229,237,928 1.35% $ $ 2.59% 2.88% 3.36% 4.24% 4.54% 2009 2,870,765 217,758,705 1.32% $ $ 2.59% 2.88% 3.36% 4.24% 4.54% 2008 2,423,215 215,486,545 1.12% $ $ 2,575,453 224,659,756 1.15% 2.59% 2.88% 3.36% 4.24% 4.54% 2.59% 2.88% 3.36% 4.24% 4.54% (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 2003 through 2011 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 personal income tax revenue for the fiscal year, ending the following June 30, divided by personal income. (4) Amounts shown are for single and married filing separate returns. For all other filing status returns, double the amounts for the income tax ranges. Per the Arizona Constitution, Article 9, Section 22, the Legislature can raise tax rates with a vote of two-thirds of the members of each house. Source: Arizona Department of Revenue Annual Reports/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 2010 AND 2003 (1) (Expressed in Thousands, Except Number of Filers) Taxable Year Ended December 31, 2010 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 1,788,020 533,078 278,846 10,957 68.48% 20.42% 10.68% 0.42% $ 415,673 666,956 1,091,740 594,208 15.02% 24.09% 39.43% 21.46% Total 2,610,901 100.00% $ 2,768,577 100.00% (1) The taxable year 2010 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 2010, filed from January 2011 forward (or 2003, filed from January 2004 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. - 242 - Calendar Year Ended December 31 2007 $ $ 2006 3,414,304 221,194,494 1.54% 2.59% 2.88% 3.36% 4.24% 4.54% $ $ 2005 3,666,923 209,917,712 1.75% $ $ 2.73% 3.04% 3.55% 4.48% 4.79% 2004 3,651,576 189,297,049 1.93% 2.87% 3.20% 3.74% 4.72% 5.04% $ $ 2003 2,854,009 170,844,938 1.67% $ $ 2.87% 3.20% 3.74% 4.72% 5.04% Taxable Year Ended December 31, 2003 Number of Percentage Filers of Total Percentage Liability (2) of Total 1,595,056 446,351 170,562 8,038 71.85% 20.11% 7.68% 0.36% $ 440,820 628,032 771,088 470,329 19.08% 27.18% 33.38% 20.36% 2,220,007 100.00% $ 2,310,269 100.00% - 243 - 2,316,040 156,789,207 1.48% 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, 2013 (Expressed in Thousands, Except Amount of Debt per Capita) Fiscal Year 2013 GOVERNMENTAL ACTIVITIES: Revenue bonds Grant anticipation notes Certificates of participation Capital leases Installment purchase contracts Notes payable Premiums and discounts on debt Deferred amount on refundings Total Governmental Activities $ BUSINESS-TYPE ACTIVITIES: Revenue bonds Certificates of participation Capital leases Installment purchase contracts Notes payable Premiums and discounts on debt Deferred amount on refundings Total Business-type Activities Total Primary Government $ Debt as a Percentage of Personal Income (1) Amount of Debt per Capita (1) 2012 2010 2009 2008 3,606,720 $ 296,240 2,360,595 360,316 105,817 474,747 (19,945) 7,184,490 3,593,420 $ 335,230 2,495,825 391,184 177 55,666 396,465 (813) 7,267,154 3,529,115 $ 392,495 2,611,255 400,540 245 59,891 342,602 (1,221) 7,334,922 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 2,237,710 714,735 135,519 5,758 123,051 (46,096) 3,170,677 1,942,755 756,980 163,637 8,397 12,643 87,993 (33,391) 2,939,014 1,742,125 812,706 167,841 10,511 292 41,393 (20,875) 2,753,993 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 10,355,167 $ 4.4% $ 2011 1,580 10,206,168 $ 10,088,915 4.5% $ 1,578 $ 4.6% $ 1,574 9,937,266 $ 4.6% $ 1,567 8,115,545 $ 3.6% $ 1,292 3.0% $ Note: Details regarding the State's outstanding debt can be found in the notes to the financial statements. (1) See Schedule 23 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 2013 contains data for the calendar year ending December 31, 2012. - 244 - 6,713,979 1,089 Fiscal Year $ $ 2007 2006 2005 2,328,840 $ 282,860 959,865 242,209 10,644 3,309 225,071 (14,266) 4,038,532 2,106,700 $ 325,430 1,020,810 129,808 6,815 219,958 (17,832) 3,791,689 2,170,845 363,970 1,054,677 126,676 6,926 197,479 3,920,573 868,565 935,127 166,780 9,544 1,354 39,582 (29,211) 1,991,741 802,600 946,766 113,388 10,279 38,331 (21,606) 1,889,758 768,000 860,759 120,361 7,276 30 36,133 (20,821) 1,771,738 6,030,273 $ 2.9% $ 1,000 5,681,447 $ 3.0% $ 973 2004 5,692,311 $ 756,781 641,315 80,338 5,038 80 28,184 (10,970) 1,500,766 $ 3.3% $ 1,007 2,278,225 308,585 845,804 125,974 4,602 562 144,759 3,708,511 5,209,277 3.3% $ 945 - 245 - 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, 2013 (Expressed in Thousands) Total Principal Outstanding Debt Limit (1) Total Principal Total Applicable to Principal Fiscal Year 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 Debt Limit $ - $ 1,300,000 1,300,000 1,300,000 the Limit as Applicable Legal Debt a Percentage to Limit Margin of Debt Limit - % 94.11 89.34 78.26 - $ 1,223,425 1,161,355 1,017,360 76,575 138,645 282,640 (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. 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. STATE OF ARIZONA SCHEDULE 12 LEGAL DEBT MARGIN INFORMATION ARIZONA STATE UNIVERSITY FOR THE LAST EIGHT FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2013 (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 2013 42,773 5.50 % 2012 $ 1,710,909 1,612,000 $ 136,873 128,960 $ 94,100 80,600 $ 48,360 5.00 % 2011 1,606,250 128,500 77,100 51,400 4.80 % 2010 1,894,737 151,579 108,000 43,579 5.70 % 2009 1,865,385 149,231 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, 2010, 2011, 2012, and 2013, projections are based upon the University's fiscal years 2008-2010, 2009-2011, 2010-2012, 2011-2013, 2012-2014, 2013-2015, 2014-2016, and 2015-2017 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. - 246 - STATE OF ARIZONA SCHEDULE 13 LEGAL DEBT MARGIN INFORMATION UNIVERSITY OF ARIZONA FOR THE LAST SEVEN FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2013 (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 2013 $ 1,683,019 $ 134,642 $ 89,200 $ 45,442 5.30 % 2012 1,611,765 128,941 82,200 46,741 5.10 2011 1,556,364 124,509 85,600 38,909 5.50 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, 2010, 2011, 2012, and 2013, projections are based upon the University's fiscal years 2009-2011, 2010-2012, 2011-2013, 2012-2014, 2013-2015, 2014-2016, and 2015-2017 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 SEVEN FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) Fiscal Year (2) 2013 Projected Amount of Total Projected Projected Debt Service Projected Debt Debt Service as Total Limit (8% of Service Applicable Expenditures $ 453,039 Expenditures) (3) $ 36,243 to Limit $ 24,600 $ Legal a Percentage of Debt Margin Debt Service Limit 11,643 5.43 % 2012 427,586 34,207 24,800 9,407 5.80 2011 405,109 32,409 22,200 10,209 5.48 2010 423,601 33,888 28,000 5,888 6.61 2009 419,448 33,556 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, 2010, 2011, 2012, and 2013, projections are based upon the University's fiscal years 2009-2011, 2010-2012, 2011-2013, 2012-2014, 2013-2015, 2014-2016, and 2015-2017 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. - 247 - 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, 2013 (Expressed in Thousands) (1), (2) Fiscal Pledged Year 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 Revenue 512,971 392,648 504,175 502,874 509,183 658,616 635,140 624,408 461,763 557,854 $ Debt Service Principal $ 60,540 67,885 71,770 68,140 64,190 60,645 57,825 54,830 44,265 51,155 $ Interest 78,198 71,113 83,960 87,661 89,825 75,538 73,785 62,222 60,459 53,149 $ Total 138,738 138,998 155,730 155,801 154,015 136,183 131,610 117,052 104,724 104,304 Coverage 3.7 2.8 3.2 3.2 3.3 4.8 4.8 5.3 4.4 5.3 (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, 2010 is net of $44 million, and 2011 is net of $45 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, 2013 (Expressed in Thousands) (1) Fiscal Pledged Year 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 Revenue $ 227,800 216,281 206,545 199,672 219,165 253,742 262,264 316,491 316,806 288,600 Debt Service Principal $ 55,870 55,460 45,970 33,315 13,825 19,045 80,375 208,625 199,400 $ Interest 47,721 48,129 42,496 38,225 17,193 10,673 1,566 14,318 23,553 $ Total 103,591 103,589 88,466 71,540 31,018 29,718 81,941 222,943 222,953 Coverage 2.2 2.1 2.3 2.8 7.1 8.5 N/A 3.9 1.4 1.3 (1) The Bonds are secured by transportation excise taxes collected by the Arizona Department of Revenue on behalf of Maricopa County. - 248 - STATE OF ARIZONA SCHEDULE 17 PLEDGED-REVENUE COVERAGE SCHOOL FACILITIES BOARD STATE SCHOOL IMPROVEMENT REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) (1) Fiscal Year 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 (2) Pledged $ Revenue 567,824 542,395 514,346 504,391 558,900 645,828 666,184 628,471 538,346 487,215 Debt Service $ Principal 43,680 41,405 39,215 37,230 35,420 33,810 31,055 34,480 28,485 27,215 Interest 13,487 22,804 25,088 27,074 28,885 30,498 31,893 30,052 36,060 37,568 $ $ Total 57,167 64,209 64,303 64,304 64,305 64,308 62,948 64,532 64,545 64,783 Coverage 9.93 8.45 8.00 7.84 8.69 10.04 10.58 9.74 8.34 7.52 (1) 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. (2) 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. Additionally, 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. STATE OF ARIZONA SCHEDULE 18 PLEDGED-REVENUE COVERAGE SCHOOL FACILITIES BOARD STATE SCHOOL TRUST REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) (1) Fiscal Pledged Year 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 Revenue $ 49,645 39,155 42,191 38,147 72,263 72,263 72,263 72,263 72,263 64,903 Debt Service Principal $ 18,315 17,400 16,535 15,710 15,105 14,470 13,980 13,440 13,740 - $ Interest 5,933 6,846 7,714 8,539 9,143 8,400 11,524 12,061 11,960 8,634 $ Total 24,248 24,246 24,249 24,249 24,248 22,870 25,504 25,501 25,700 8,634 Coverage 2.05 1.61 1.74 1.57 2.98 3.16 2.83 2.83 2.81 7.52 (1) 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. - 249 - STATE OF ARIZONA SCHEDULE 19 PLEDGED-REVENUE COVERAGE LOTTERY REVENUE BONDS FOR THE LAST THREE FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) Debt Service (2) Fiscal Pledged Year 2013 2012 Revenue 174,373 96,200 $ 2011 $ 96,200 Principal 16,790 - $ - Interest 20,710 20,709 Total 37,500 20,709 $ 21,630 Coverage 4.65 4.65 21,630 4.45 (1) No debt service payments were due prior to fiscal year 2011. (2) Pledged revenues consist of lottery revenue deposited to the Lottery Fund net of operating expenses of the lottery. STATE OF ARIZONA SCHEDULE 20 PLEDGED-REVENUE COVERAGE ARIZONA STATE UNIVERSITY REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) Debt Service (1) Fiscal Pledged Year 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 Revenue 1,047,661 977,828 876,770 782,727 702,797 638,707 580,102 505,890 458,177 383,756 $ Net Payments (Receipts) On $ Principal 33,965 31,215 28,595 26,975 21,555 19,135 17,125 14,625 11,205 1,340 $ Interest 41,477 39,560 35,051 33,003 21,896 16,682 21,339 17,313 16,307 16,260 Swap Agreements $ 3,631 3,612 3,791 3,716 3,692 2,448 186 - (1) Pledged revenues include student tuition and fees, auxiliary enterprises revenue, investment income, and indirect cost recovery revenue. - 250 - $ Total 79,073 74,387 67,437 63,694 47,143 38,265 38,650 31,938 27,512 17,600 Coverage 13.25 13.15 13.00 12.29 14.91 16.69 15.01 15.84 16.65 21.80 STATE OF ARIZONA SCHEDULE 21 PLEDGED-REVENUE COVERAGE UNIVERSITY OF ARIZONA REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) (1) Fiscal Year 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 $ (1), (2) Direct Net Revenue Gross Operating Available for Revenues 1,356,478 1,226,227 1,215,062 1,128,091 1,044,354 1,113,954 982,559 897,706 830,077 778,939 $ Expenses 1,199,559 1,126,649 1,056,408 962,469 911,440 1,005,572 899,084 836,657 774,014 727,161 Debt Service $ 156,919 99,578 158,654 165,622 132,914 108,382 83,475 61,049 56,063 51,778 Debt Service $ Principal 21,895 17,375 24,720 23,860 22,725 21,235 17,440 12,355 11,815 10,970 $ Interest 34,556 31,480 28,571 24,593 15,437 14,978 14,166 13,433 11,817 11,706 $ (1) Gross Revenues and Direct Operating Expenses include current operating unrestricted funds only since these are the funds that are pledged for debt service payments under the System Revenue Bond Indentures. Also excluded from expenses is interest, depreciation, and amortization. (2) 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 22 PLEDGED-REVENUE COVERAGE NORTHERN ARIZONA UNIVERSITY REVENUE BONDS FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2013 (Expressed in Thousands) (1), (2) Fiscal Year 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 Gross $ Revenues 263,241 246,098 220,538 198,197 164,877 143,733 136,100 129,608 110,981 103,192 Debt Service $ Principal 6,610 5,835 24,310 6,545 6,570 10,455 9,610 10,310 10,065 10,294 $ Interest 15,474 15,028 14,712 10,912 7,383 6,628 5,943 6,603 6,060 5,778 $ Total 22,084 20,863 39,022 17,457 13,953 17,083 15,553 16,913 16,125 16,072 Coverage 11.92 11.80 5.65 11.35 11.82 8.41 8.75 7.66 6.88 6.42 (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. (2) Fiscal year 2011 includes debt defeasance of $18.7 million. - 251 - Total 56,451 48,855 53,291 48,453 38,162 36,213 31,606 25,788 23,632 22,676 Coverage 2.78 2.04 2.98 3.42 3.48 2.99 2.64 2.37 2.37 2.28 (This page intentionally left blank) STATE OF ARIZONA SCHEDULE 23 DEMOGRAPHIC AND ECONOMIC STATISTICS FOR THE LAST TEN CALENDAR YEARS Calendar Year Ended December 31 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 Population (1,3) 6,553,255 6,467,315 6,410,810 6,343,154 6,280,362 6,167,681 6,029,141 5,839,077 5,652,404 5,510,364 Personal Income (3) (in thousands) $ 237,512,637 229,237,928 217,758,705 215,486,545 224,659,756 221,194,494 209,917,712 189,297,049 170,844,938 156,789,207 Per Capita Personal (2) Income $ 36,243 35,446 33,967 33,972 35,772 35,863 34,817 32,419 30,225 28,454 Unemployment Rate (4) 7.9 8.6 9.7 10.4 7.8 4.1 3.6 4.2 4.2 5.0 (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 Office of Employment and Population Statistics. 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). Office of Employment and Population Statistics, formerly known as the Research Administration at the Arizona Department of Commerce (for unemployment rate). STATE OF ARIZONA SCHEDULE 24 PRINCIPAL EMPLOYERS CURRENT YEAR AND NINE YEARS AGO Employer State of Arizona Wal-Mart Stores Inc. Banner Health City of Phoenix Wells Fargo Maricopa County Bank of America Arizona State University Raytheon Co. JP Morgan Chase & Co. Honeywell International U.S. Postal Service Albertson's - Osco Intel Corp. Total Source: Calendar Year Ended December 31, 2012 Full-Time Percentage Equivalent of Total State Employees Rank Employment 52,076 1 1.72 % 31,837 2 1.05 25,126 3 0.83 14,983 4 0.50 13,679 5 0.45 13,308 6 0.44 12,500 7 0.41 12,222 8 0.40 11,500 9 0.38 11,407 10 0.38 198,638 6.56 Arizona State University CAFR 2013. - 253 - % Calendar Year Ended December 31, 2003 Full-Time Percentage Equivalent of Total State Employees Rank Employment 50,363 1 1.88 % 18,677 2 0.69 13,576 3 0.51 13,095 5 0.49 13,482 4 0.50 10,005 9 0.37 10,200 8 0.38 12,000 6 0.45 11,406 7 0.43 9,500 10 0.36 9,500 10 0.36 171,804 6.42 % STATE OF ARIZONA SCHEDULE 25 STATE EMPLOYEES BY FUNCTION (1) FOR THE LAST TEN FISCAL YEARS FISCAL YEAR ENDED JUNE 30, 2013 FULL-TIME EQUIVALENT EMPLOYEES General government: Lottery Arizona State Retirement System Department of Revenue All other Health and welfare: Department of Economic Security Arizona Health Care Cost Containment System Department of Health Services All other Inspection and regulation Education: Universities All other Protection and safety: Department of Corrections Department of Juvenile Corrections Department of Public Safety All other Department of Transportation Natural resources Total Fiscal Year 2013 2012 2011 2010 2009 2008 97.8 233.9 860.3 2,214.4 104.0 236.0 935.0 2,427.6 104.0 236.0 935.0 2,646.5 104.0 236.0 863.0 2,746.5 110.0 236.0 1,164.0 2,989.2 110.0 235.0 1,164.0 2,999.2 5,453.5 2,217.3 1,176.7 946.6 1,649.8 3,726.0 1,407.3 1,513.3 1,098.5 1,801.2 3,726.0 1,423.0 1,513.3 954.5 1,807.7 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 15,478.7 834.4 16,964.2 886.5 15,754.2 896.0 15,664.5 972.4 17,353.5 1,003.4 17,138.8 1,001.4 10,118.2 738.5 1,903.7 90.1 4,548.0 716.5 10,015.2 1,001.7 2,139.8 112.6 4,548.0 930.2 10,015.2 1,001.7 2,081.8 117.9 4,548.0 937.2 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 49,278.4 49,847.1 48,698.0 49,126.7 52,420.2 51,904.3 (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. Source: The Executive Budget (Detail). Includes only those positions funded by appropriated funds approved in the Executive Budget. - 254 - Fiscal Year 2007 2006 2005 2004 110.0 231.0 1,148.0 2,957.5 110.0 221.0 1,146.0 2,898.6 110.0 199.0 1,024.0 2,944.3 110.0 197.0 1,134.0 3,003.0 3,874.4 1,617.3 1,680.4 859.9 1,853.7 3,953.7 1,583.5 1,735.5 858.5 1,827.3 3,902.7 1,574.5 1,734.5 924.2 1,818.5 3,592.9 1,530.1 1,701.5 933.2 1,815.3 16,975.0 969.0 16,419.5 913.8 16,027.5 949.5 15,467.4 948.1 9,726.9 1,195.7 2,065.8 125.4 4,703.5 967.3 9,726.9 1,160.5 1,901.8 127.4 4,649.0 926.9 10,322.4 1,151.5 1,872.0 120.6 4,626.0 903.2 10,295.4 1,214.4 1,853.0 149.6 4,605.0 856.9 51,060.8 50,159.9 50,204.4 49,406.8 - 255 - STATE OF ARIZONA SCHEDULE 26 OPERATING INDICATORS BY FUNCTION FOR THE LAST TEN FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2013 2013 FUNCTIONS/PROGRAMS General government: Number of tax returns received (in millions) Health and welfare: Arizona Health Care Cost Containment System membership (2) Average monthly number of recipients of temporary assistance for needy families Average monthly number of persons receiving food stamp benefits Inspection and regulation: Nonfatal occupational injuries and illnesses: Total recordable cases (in thousands) (3) Incident rate per 100 full-time workers (3) Education: Public school enrollment, grades K-12 (4) Protection and safety: Number of miles patrolled by the Highway Patrol State prison adult inmate population (5) Transportation: Number of registered vehicles (6) Number of driver licenses issued (7) Natural resources: Game and Fish Department's license and tag sales (8) Universities: University full-time equivalent students (9) Unemployment compensation: Number of initial unemployment claims filed Industrial Commission special fund: No-insurance awards issued Number of vocational rehabilitation awards issued Lottery: Total lottery sales (in millions) Other business-type activities: Arizona Health Care Cost Containment System's Healthcare Group membership (10) 2012 2009 2008 2007 5.5 5.4 5.4 5.2 5.7 5.6 5.5 1,318,650 1,314,210 1,392,810 1,392,420 1,282,910 1,136,585 1,075,125 N/A 39,194 44,842 82,127 83,969 80,221 82,408 N/A 1,123,068 1,049,522 986,413 752,772 600,549 537,072 N/A N/A 67.9 3.5 66.4 3.5 75.2 3.7 84.0 3.9 101.8 4.6 99.4 4.6 1,077,703 1,066,740 1,062,200 1,068,987 1,062,618 1,132,963 1,106,207 18,914,572 40,273 19,465,944 39,877 19,953,766 40,181 21,275,292 40,477 21,987,920 39,628 21,881,034 38,897 20,282,212 37,088 7,180,797 1,159,695 6,823,906 1,184,630 6,839,659 1,196,675 6,740,536 1,241,977 6,692,834 1,246,358 6,733,610 1,200,227 6,608,726 1,266,973 815,488 826,385 874,442 874,363 896,143 940,223 136,884 134,051 129,653 122,734 118,743 113,092 110,580 261,418 288,097 311,472 363,189 396,755 226,772 185,397 1,618 136 1,365 125 882 132 1,781 128 2,244 103 2,748 118 3,265 133 N/A $ Fiscal Year 2010 2011 692.9 6,370 $ 646.7 7,080 $ 583.5 8,260 $ 551.5 10,760 $ 484.5 $ 14,560 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. (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 2013 contains data for the calendar year ending December 31, 2012. 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 2013 contains data from the October 1, 2012 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. Fiscal year 2013 total is as of April 30. (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 2013 contains data for the calendar year ending December 31, 2012. (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 2013 contains data for the fall 2012 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 (excludes medical students). (10) Approximate number of members enrolled as of June 1. Sources: The State Departments of Transportation, Public Safety, Corrections, Education, Game and Fish, Economic Security, Revenue, the Industrial Commission of Arizona, Arizona Lottery, Arizona Health Care Cost Containment System, Arizona Board of Regents, and the U.S. Department of Labor. - 256 - 472.9 21,646 $ 462.2 26,914 Fiscal Year 2005 2006 $ 2004 5.5 6.0 6.0 1,065,444 1,075,873 971,292 93,553 105,517 122,577 546,424 546,369 521,992 97.0 4.9 87.1 4.7 85.7 4.8 1,084,247 1,043,704 1,002,630 19,703,282 34,864 19,922,704 32,710 19,229,079 31,937 6,318,402 1,205,068 5,945,131 1,158,223 5,638,799 1,122,893 897,159 808,055 835,669 107,765 104,685 102,461 161,869 200,282 227,585 2,744 124 3,281 102 3,300 139 468.7 21,600 $ 397.6 14,626 $ 366.6 11,218 - 257 - STATE OF ARIZONA SCHEDULE 27 CAPITAL ASSET STATISTICS BY FUNCTION FOR THE LAST TEN FISCAL YEARS (1) FISCAL YEAR ENDED JUNE 30, 2013 Fiscal Year 2013 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) 2012 2011 2010 2009 2008 2007 10 10 10 10 10 10 10 6,751 4,754 6,751 4,754 6,722 4,741 6,789 4,700 6,753 4,648 6,785 4,637 6,817 4,648 9,223,873 9,302,256 9,252,495 9,258,071 9,259,296 9,260,253 9,262,781 1,705 41,141 1,711 39,933 1,740 37,967 1,737 37,589 1,670 37,186 1,669 36,000 1,663 34,946 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. - 258 - Fiscal Year 2006 2005 2004 10 10 10 6,922 4,676 6,816 4,608 6,912 4,488 9,267,377 9,269,723 9,271,580 1,002 20,154 N/A N/A N/A N/A - 259 - 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, CPA Neil Broadstock, MBA, CPA, CMA, CGFM Marjorie Wakefield, MBA Christopher Lesure 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.